Why Rajeev Thakkar’s current method favours large-cap shares

“We have an indicator which tracks larger cap indices versus small cap or mid cap indices. While we aren’t at peak ranges and there was relative correction in mid and small cap space, they’re nonetheless not below-the-average relating to valuations. So, correct now, the realm is barely above frequent even after the correction nonetheless they are not at participating ranges,” Thakkar said during an interaction with Mint for the Guru Portfolio series. In this series, leaders in the financial services industry share how they are handling their finances and investments.

Asset allocation

Thakkar’s asset allocation has largely remained the same over the last one year, except for his debt exposure. This has come down to about 2% from 4% earlier.

Thakkar says he used up some of his contingency fund to buy shares of his fund house that were put on offer by other employees. This contingency fund, he says, had a corpus that could sustain two years worth of expenses. Now though, after the share purchase, it still can account for more than one year worth of expenses.

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Graphic: Mint

Apart from liquid funds, Thakkar’s investments in employees’ provident fund and bank fixed deposits (FDs) make for the rest of his debt allocation.

Post the share purchase, his allocation to equity has gone up from 82% to 84%. That for real estate continues to remain at 13%, while gold—which is held in the physical form—is at 1%. The gold, he says, has been passed down generations. Thakkar doesn’t consider real estate as an investment, particularly his self-occupied property.

A large chunk of Thakkar’s allocation is concentrated in PPFAS MF in one form or the other. He says about 66% of his equity portfolio is in unlisted shares of PPFAS MF and 33% in its flagship scheme – Parag Parikh Flexi Cap Fund. About 1% is in other schemes. This includes Parag Parikh Liquid Fund, Parag Parikh Tax Saver Fund and Parag Parikh Conservative Hybrid Fund. He also has some exposure to liquid funds of other fund houses.

Thakkar admits to the mega exposure of his portfolio to PPFAS MF but claims this was not a part of any equity investment strategy. “Wherever people have this kind of entrepreneurial approach to their own business or where they are part of the key managerial group, the company itself becomes a significant portion of one’s net worth because of Esops (employee stock options),” he says.

Parag Parikh Flexi Cap holds the vast majority of Thakkar’s listed equity investments. About 10% of the fund’s investments are in residence mid and small caps and 58% in large caps. About 17% is in worldwide equity. The rest is invested in cash and debt gadgets.

Thakkar says his portfolio garnered an normal return of 2-3% over the earlier 12 months.

Reits on the radar

Thakkar doesn’t preserve any completely different investments immediately. He says the fund residence tracks residence companies inside the unlisted space nonetheless that’s achieved primarily to ascertain and take a look at companies that is likely to be opponents to those inside the listed space or individuals who have the potential to file inside the markets.

While Thakkar doesn’t have plans to take a look at precise property as an funding, he says Reits (precise property funding trusts) look like an attention-grabbing section. “We have a small publicity to Reits by our conservative hybrid fund, whereby I’ve a small publicity. If we had been to consider investing in precise property, Reits perhaps may very well be the way in which through which we’d check out that space,” he says.

Parag Parikh Conservative Hybrid Fund has about 7% exposure to Reits.

Investment approach

Thakkar’s approach to equity investments is to maintain a long-term investment horizon and wait for good investment opportunities.

As a fund manager, he looks for investments at attractive valuations, particularly in companies that are backed by quality management and businesses.

“One way to approach this is the statistical value, where the assets of a company are worth ₹100 but the firm itself is valued at only ₹50. So, it is cheap. The traditional way of doing things has been to look at factors such as low price-to-book or high dividend yield or low price-to-earnings, etc., which is what Benjamin Graham (the father of value investing) taught many years back. The downside to that is if the company is mismanaged or has some problems pertaining to its business or has some other issue. Then, the valuation of the company which is quoting at ₹50 would go down further. Ideally, you would want a combination of the two; a good management and a significant discount,” he says.

As for the long-term funding method, he says that “The ups and downs inside the markets due to quite a few parts, charge of curiosity actions, geopolitics, and so forth. can all affect equity prices. So, one ought to try a five-year plus horizon to truly revenue from equities.”

Advice to investors

Thakkar has a piece of advice for investors, especially in the current market environment: keep modest expectations about returns and do not unnecessarily tinker with investments that can lead to tax leakages.

He says there was zero long term capital gains (LTCG) on equity and indexation benefit on debt funds for LTCG earlier. “Now, that everything is taxable and at slightly higher rates, tinkering with your investments far too often will result in tax leakages. Just keep putting your money in either hybrid funds and do not redeem them. Or, don’t change your asset allocation too frequently. Even if you get those shifts right, most of the gains will go away in taxes. So, maintain a stable asset allocation and let things compound over time,” he says.

Thakkar, nonetheless, says, “Given the essential to control inflation, to gradual points down and a rising curiosity rate-kind of environment, merchants mustn’t depend on very extreme returns in equity.”

“If India grows at somewhere around 6% or thereabout and we have 5% kind of inflation, nominal GDP (gross domestic product) growth would come to about 11%. Corporate profits can be around 11%. So, somewhere around double-digit returns would be possible but equity returns are not guaranteed and can vary significantly,” he says.

“Just because of monetary establishment FDs are offering 7-7.5% charge of curiosity, you possibly can’t have unreasonable expectations of 20-25% from equity. Lower the expectations, the upper it is for merchants. If future returns are higher, you’d anyway be snug. If expectations are lower, there are a lot much less possibilities of disappointment,” he offers.

Family and lifestyle

Thakkar’s partner, Hemangini Thakkar, will also be a finance expert working inside the mutual fund enterprise nonetheless on the risk-management side. My family could also be very correctly acutely aware of what is occurring in our funding portfolio, nonetheless the alternatives on investments are largely left to me.

Thakkar says it is vitally vital deal with your nicely being as one grows older. He says he has been doing intermittent fasting as a result of the ultimate 2-3 years and has decreased the consumption of carbs. He visits the gymnasium solely typically as he finds it a bit boring, nonetheless goes for regular walks. He is exploring dance sorts like Zumba as a method to coach and maintain match.

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