The Outperformers 2013

“Markets are getting polarised towards large caps”

UTI Mutual Fund CIO Anoop Bhaskar believes a jittery market is relying too much on large caps

Photographs by Soumik Kar

While most fund managers would venerate the Sage of Omaha, Anoop Bhaskar is clearly not one of them. His reasoning: Warren Buffett’s job is not half as tough as his. While that view might be debatable, there is no denying the pressure one has to endure while managing public money in a volatile market. The head-equity of UTI Asset Management with assets over ₹74,000 crore, personally manages UTI Equity and UTI Opportunities Fund, which is the top performing scheme in the large- and mid-cap category space, according to Value Research. The fund has managed 13% CAGR over the past five years against 4% CAGR for the Sensex. Bhaskar tells V Keshavdev that in an increasingly volatile year ahead, investors will continue to pile into large cap names, thus pushing them into bubble territory. That achieved, interest and attention will then spill over to the next tier of big market cap stocks.

 

If you were to look back at the past five years, why have large caps scored over mid caps?

One key difference between FY04-08 and FY09-13 is that in the former there was too much optimism on infrastructure, a preference for more risk. Investors were happy to bet on small and mid caps on the sheer promise of future cash flows. FY09-13 is based on domestic consumption, and on companies with present cash flows, not future cash flows or promises. Investors have preferred to reduce risk during this period and focus on companies with stronger cash flows, instead of those who need to raise capital frequently. FY09-13, like in every cycle, corrected the excesses of the previous cycle. In FY03-08, there were excesses in infrastructure — capital goods companies were traded at 40 times their earnings.

Similarly, in the current cycle there were periods when consumer goods were trading at 40 times their earnings growth of 12-15%. Asian Paints never used to get rated above 15 times. Now it trades at 35 times. Marico, a single-product company, never used to trade more than 14-15 times, but today it trades at 27-28 times. Godrej Consumer trades in a similar range. Investors have shown a keen preference for safety, this time around. That is part of the rhythm of a cycle: you move from one extreme to the other. 

Besides slow business growth, what is the biggest r

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