Where to bet for solid alpha in the next round of rally? Raunak Onkar of PPFAS Mutual Fund shares his picks 

The ongoing selloff in the equity market since October last year has created an opportunity for investors to lap up quality stocks. Now, the question is by when the market will find its bottom and which set of stocks or sectors will lead the next bull run. In an interaction with Business Today, Raunak Onkar, co-fund manager equity and head of research, PPFAS Mutual Fund shared his view on top themes and his investment strategy amid the ongoing uncertainty on Dalal Street. Edited excerpts: 

Business Today (BT): Which factors do you think may help the market make a ‘U’-turn? When will the market bottom out? 

Raunak Onkar: It's hard to predict the exact factors that will help in the reversal of valuations but if one has to guess these might be an end to the war situation which is weighing in on many commodities or a reduction in overall inflation of commodity and energy prices. I also think that demand is expected to be consistent across various goods and services and supply chain issues getting resolved slowly and steadily reducing global supply delays and shipping costs. However, we must note that valuations can be cyclical and we are coming from an era of high valuations so one should not hold their breath for a quick reversal. Timing is always difficult to predict. 

Picking the market bottom and top is easy only in hindsight. It's hard to predict when the market will bottom out. There are a lot of factors including those I mentioned that will eventually provide some stability in the earnings and cash flows of global businesses. Also, volatility in the market is a feature and not a bug. After a phase of very high valuation, we are currently seeing a slightly lower valuation. If one observes over multiple decades, growing economies usually do see these periods of peak and suppressed valuations from the time to time.

BT: What kind of returns do you think the market may deliver in the next 5 years? 

Raunak Onkar: This is very hard to predict. Factors like interest rate hikes, inflation, overall global investment outlook, and ability to scale businesses need to be favourable or stable to generate a good return over the long term. 

BT: Which themes may deliver solid alpha in the next round of rally? Why? 

Raunak Onkar: Alpha is hard to predict in advance. However, some sectors do look attractive from a valuation and opportunity perspective. Private sector banking, global technology services, automotive and transportation, and healthcare are some good areas where many good businesses operate at scale and have a diversified profits base. 

BT: Can you throw some light on your investment strategy? 

Raunak Onkar: We invest with a long-term outlook. Our portfolio turnover for our equity schemes (Parag Parikh Flexicap Fund and Parag Parikh Tax Saver Fund) demonstrates that. We also encourage our investors to have a long-term outlook of at least five years. We look for businesses with a good operating history, businesses where there is a good chance of making good profits over a long period and businesses which are run by honest and competent managers who also look after the interests of their smaller (minority) investors. 

We also try to find businesses outside India which share the same characteristics as mentioned to provide some diversification from country-specific risk. If we are successful in finding such businesses with such characteristics, then we wait for them to be available at a reasonable price and not chase them if they are very expensive. 

BT: What should be the right asset allocation strategy for the next five years? 

Raunak Onkar: Asset allocation is a very individual choice. Investors must study their own life goals, risk-taking ability and also the pattern of expenses to determine how much debt, equity or any other asset class needs to be in their portfolio. If investors are unable to do this exercise themselves, they can also avail the services of a financial advisor to help them think through the details. This process helps in automatically aligning asset allocation to life goals and can be periodically rebalanced based on market valuations.

BT: By when do you think foreign institutional investors will come back to India? 

Raunak Onkar: Foreign Institutional Investors have been a big part of Indian stock markets and they continue to remain invested. Inflows and outflows from these institutions will be a routine part of how markets operate just like our domestic institutional investors. 

BT: How much cash PPFAS equity schemes are holding right now? 

Raunak Onkar: As per our June 2022 factsheet we hold around 6.5 per cent in cash in the Parag Parikh Flexicap Fund and around 13.7 per cent cash in our Parag Parikh Tax Saver Fund. 

BT: Which are the top sectors in which PPFAS has maximum exposure? Why? 

Raunak Onkar: We have exposure in themes like global technology and services because there is a long runway for technology services, cloud adoption and digital advertising. Valuations are also reasonable in this space. We also have exposure in private sector banks and fee-based market intermediaries. We also like cash generating businesses with good growth opportunities in the consumer and healthcare segments.