Conversation with Mahesh Bendre, Fund Manager – Equity, LIC Mutual Fund AMC
Growing domestic investors’ participation and political stability have ensured a surge in stock prices despite bouts of volatility around election outcomes and geo-political tensions, professes Mahesh Bendre, Fund Manager – Equity, LIC Mutual Fund AMC.
Can you share insights into your core investment philosophy? How do you balance between growth and value investing, especially in a market that is often characterised by high volatility?
We strive to offer portfolios that stay true to the investment mandate of the scheme. We look for companies in a favourable business cycle, with a promoter track record of efficient capital allocation, ethical governance practices, strong balance sheet, high return on capital and higher growth rates compared to peers. Within these, we prefer to select stocks of businesses that are scalable in nature. Scalability is important to us when evaluating a business and we value stocks accordingly. A growing business tends to compound profits over a long period, creating wealth for investors.
We keep an eye on the valuations that we attribute to each stock. At the portfolio level, we monitor the PEG- (price-to-earnings growth ratio) threshold.
The Indian stock market has seen significant fluctuations in 2024. What are the key factors driving these movements, and how have you adjusted your portfolio strategy in response?
Sustained increases in corporate earnings, stable interest rates and an expectation of a decline in the near term, along with growing domestic investors’ participation and political stability have ensured a surge in stock prices despite bouts of volatility around election outcomes and geo-political tensions.
Our portfolios include companies that are expected to flourish in the ongoing pro-growth policy framework. Instead of reacting to temporary changes, our investment strategy focuses on long-term wealth creation. Investing in companies poised to benefit from structural trends can reward investors in the medium to long term. We have been carefully adding such stocks during volatile phases in the broad market.
How do you evaluate companies for long-term investment, particularly in emerging sectors like technology and green energy? What key metrics do you focus on?
The total market opportunity and market positioning of a company in terms of addressing the opportunity play an important role in evaluating companies for long-term investment. If the business is scalable and the management is focused on execution to garner market share, then the company can see multi-fold growth in earnings. Such investments can be rewarding in the long term.
In the case of technology and green energy, the ability of a company to deal with and adapt to evolving technology plays a crucial role. Due to changes in technology, some business models can become irrelevant. However, at the same time, an adaptive business can reinvent itself and continue on a growth path. Valuations ascribed to these business models also need to be watched out in the light of expected growth.
The infrastructure sector has been one of the top performers in 2024. What is your outlook on this sector going forward, and do you think this trend will be sustained?
The sustained increase in government expenditure on infrastructure creation and the emerging private capex cycle should ensure that infrastructure remains a structural growth opportunity for investors. We expect the government to continue investing in infrastructure assets such as roads, railways, defence, water, affordable housing, ports and airports.
We remain positive on the infrastructure sector from a medium to long-term viewpoint.
How does LIC Mutual Fund’s equity strategy differ from other major players in the industry? Can you highlight any unique approaches or recent innovations in your investment process?
Though we seek growth when investing in stocks, we employ a blended stock-picking strategy that gives due importance to the quality of the business and the price we pay for it. At the portfolio level, we keep track of valuations. We ensure that our portfolios are fairly liquid, diversified and true-to-label.
Can you provide insights into any new funds or strategies that LIC Mutual Fund plans to introduce in the near future to capitalise on emerging market trends?
From an equity perspective, we broadly offer products in each category in line with SEBI categorisation requirements. We may come up with new funds in the future depending upon the market conditions and Investors’ appetite.
Lastly, what advice would you give to retail investors looking to enter the equity mutual fund bandwagon in the current market environment?
Equity investors should adopt a long-term view when investing in equity mutual funds. Avoid extrapolating past year’s returns. First-time investors should focus on Large-Cap oriented diversified equity schemes, such as large-cap, large & Mid-Cap or flexi-cap schemes. Aggressive investors with long-term outlook may consider mid-small cap equity funds. Investors with moderate risk profiles can use balanced advantage funds to attain equity exposure. However, Investors should assess their risk profile and their extant asset allocation in the light of their financial goals before investing in equity schemes.
Although the broad market is fairly valued, there are pockets of over-valuations.
To invest in equity mutual funds, you may use a Systematic Investment Plan (SIP). If you have a lump sum amount, you might prefer a Systematic Transfer Plan (STP). Invest with a minimum time frame of five years.
Disclaimer: The opinions expressed above are personal and may not reflect the views of Dalal Street Investment Journal.