NEW DELHI: Bajaj Finserv AMC, a one-year-old mutual fund company, is trying to grow in what looks like an already crowded place – there are already 44 mutual funds in India with top 10 mutual funds in asset size accounting for 77% of the industry assets. CEO Ganesh Mohan in an interaction with TNIE explains the AMC’s strategies to grow assets under management (AuM).
What are the strategies to grow assets in the crowded AMC business?
The advantage we had was that we were setting the fund house from scratch, and our investment team started with a new investment philosophy. We put together all the three possible sources of alpha. And they are the information edge, which is better quality information than the crowd; a quantitative edge, which is better tools, models, analytical tools to assess the data; and behavioural edge, which is, how do you make the right decisions based on the same information and tools.
Can you explain the behavioural edge that you claim you have?
Everybody has access to the same information, so it’s a very thin edge. Even the quantitative edge, while today there is some room to differentiate, my own assessment is, in three to five years, this is going to become a pretty standard, the way technology is developing. AI, ML-way of new modelling will get commoditised very soon. Then the third edge becomes important to really generate alpha, which is your behavioural edge.
Explain the uniqueness of your existing funds?
Every single active equity fund that we launch, we will look to bring something that is differentiated from the underlying benchmark. And there are two big weaknesses that a benchmark has -- One, benchmarks cannot look into the future. Companies come into the index after they have performed, and companies that are in the index but are underperforming continue to stay in the index till they exit. If you can have a strategy which looks at what are the future growth prospects of individual companies, and have a systematic way of doing that, then you can outperform the index.
So, that was what our first fund – a flexicap fund -- was based on. The second fund – a large and mid-cap fund -- that we launched was on moat-based investing. Companies that have a strong defensive moat can protect their earnings very well and for a longer period of time, that justifies a higher valuation with higher multiples.
The third fund – a large-cap fund -- is one of the toughest ones to generate alpha, because you have only 100 companies. if you keep out, maybe 10-15 stocks for different reasons -- governance concerns, etc -- you’re left with maybe 80-85 companies. If you create a portfolio of 50-55, you’re more or less creating a closet index. If you’re doing indexing, how do you outperform the index? So, we came up with a concentrated (maximum 25-30 stocks), high conviction large-cap approach.
For our balanced advantage fund category, we launched for the first time in the country, a model which has two parts -- one is a fundamental indicator which gives you a Nifty fair value and a 30% weightage on the sentiment indicator, which gives you a sense of what is the market sentiment at this point of time. Both these, put together, give us a better sense of what should be the equity levels in our portfolio.
What is the sentiment indicator based on?
It’s based on many inputs from other markets, like currency commodity and bond markets, all of these give you early warning indicators on equity.
How do you see the current market condition in terms of valuation?
Right now, large caps are in fair value or even slightly better than fair value. There has been a slight earnings downgrade, and the Nifty is trading around 21 PE. We believe Nifty at 24,000-25,000 is fairly valued. Mid and small caps are above fair value, and there we also have a little bit of liquidity concern as well. So, both valuation and liquidity wise, we have a lot of comfort on the large cap side. What has also happened is that over the last three years many large caps have time corrected.
You are launching a new consumption-based thematic fund. Is it the right time to do so?
Consumption is a very important theme, because what happens is when a country goes past a very important milestone of around $2,500 GDP per capita, which is where India is currently, to around $5,000 which is where we will be in probably around 5-6 years, consumption actually shows a disproportionate shift.
But consumption has failed to pick up in the past 1 year...
What we are seeing is within India, there is Australia, the Philippines and Sub-Saharan Africa in terms of consumption. All of them exist within India. Now what is likely to happen is some people from Sub-Saharan Africa will move into the Philippines, and some from the Philippines will start moving into Australia. So that quality of consumption, and such stories will start playing out very well.