Current market is extremely difficult to grapple with: Bandhan fund manager

Daylynn Pinto had already taken an unconventional path for a Goan with limited exposure to stocks to be in finance, when, one day, the head of equity at UTI Mutual Fund stumbled upon Pinto's breakeven analysis on whether to buy a petrol or diesel car. "That was a pivotal moment," says Pinto, as it led to an offer for him to join the auto sector as an analyst shortly thereafter.

Cut to the present day, Pinto is the Senior Fund Manager of Equity at Bandhan AMC. He manages 5 funds at the fund house, with a collective AUM (assets under management) of about Rs 21,000 crore. Of these, the Bandhan ELSS Tax Saver and Bandhan Sterling Value Fund are currently rated four stars by Value Research.

In an exclusive conversation, Pinto reflects on his early days in the financial sector, the factors impacting the ELSS fund's performance and why he's not too keen on adding PSU stocks to his funds' portfolios.

Here's the edited transcript of our conversation.

What drew you to the world of equity investing?

I was out of college when the UTI Mutual Fund recruited me from the campus. At that time, I only had a vague idea of the markets, as I was from Goa. The stock market is typically not the first thing that resonates with someone who didn't grow up in Mumbai. When I joined UTI Mutual Fund in 2004, the industry just grew on me over time. So, my entry into the equity market was more by accident than design.

Did you try elsewhere before joining UTI Mutual Fund?

I was very young, having just completed an MBA (Master of Business Administration), and had no work experience before the course, unlike my classmates or colleagues. So, I had to keep an open mind about the opportunities I could look at. 2003-04 was a fairly testing time for getting jobs, especially for fresh graduates of college. It was not as vibrant in terms of opportunities as we see today. I had applied to several companies, but UTI Mutual Fund knocked on my door, and I ended up joining them as part of their management training program.

I take pride in saying that I've only ever worked in one industry, and that's the mutual fund industry. Many people have moved from insurance to banking to mutual funds and vice versa. We have also observed individuals transitioning to broking and private equity, but I am content that I have remained in a single industry throughout my career.

You started your career at UTI Mutual Fund as a research analyst before moving up to become a fund manager. Could you walk us through that transition and share pivotal insights you gained as an analyst?

The overall journey has been great, and I will say it has exceeded expectations in many ways. Right from the start, the learning curve has been very high. UTI Mutual Fund is the country's oldest and first fund house, so the exposure, knowledge, depth and experience I gained from the people around me were excellent. It was a stepping stone in my career, as many stalwarts of the mutual fund industry have come out of UTI.

So, in terms of pivotal moments, I can share one anecdote that was the turning point in my career around 2005 when I was a part of the offshore fund's team; I was doing a breakeven analysis on whether to buy a petrol or diesel car. At that time, there was a significant price difference between petrol and diesel cars, and I was attempting to calculate the breakeven point and other relevant parameters for petrol and diesel cars.

During that time, the then head of equity walked past my computer and noticed my interest in autos and cars. It so happened that there was an opening for an auto sector analyst in his team (on the domestic fund management side), and he asked me whether I would like to join. I said yes, and I have never looked back. I've had the good fortune to transition from my role as an auto sector analyst into other sectors, such as infrastructure, shipping and logistics. Later, I became the fund manager for the UTI Transportation and Logistics Fund and am now at Bandhan Mutual Fund.

How would you describe your investment philosophy? Are there specific types of stocks or market conditions that you find particularly compelling?

The current market conditions are extremely difficult to grapple with. However, based on my experience in the market and my approach to investing, I have developed a preference for focusing primarily on business cycles and valuations. I prefer to be contrarian, which basically means buying businesses that are typically going through a rough patch or a down cycle. I'm willing to take on some of those bets because that's typically when valuations become attractive. I like to buy at the right price (BARP). So, I don't try to stereotype and bucket myself into buying only quality businesses or very poorly managed businesses.

I firmly believe that each business possesses a unique value, and determining its worth and valuation is crucial, as there is always a cost involved. If you buy that business at a price that is worth it, you will hopefully generate reasonable alpha over time.

Regarding the opportunities, I look at a host of companies and do not keep a closed mind to any particular sector, stock or industry. I think what matters is - can you get into a host of investment opportunities at the right price? I believe that's where the ability to produce alpha is at its peak, and that's what I've learned.

The Bandhan ELSS Tax Saver Fund has shown consistent performance over the years, but 2024 has brought some challenges. What are the main factors affecting the fund's recent performance?

We are firm believers of long-term performance and in that regard, I believe the fund has outperformed its benchmark over the last three years. I think the broader construct of the market has been relatively challenging for people like us, especially over the last six months. What we've seen in the previous year is a fairly robust bull market, where typically mid and small caps (including PSUs) have given disproportionate returns compared to their larger peers.

In the context of Bandhan ELSS, we currently allocate approximately 30 per cent of our fund to a mid- and small-cap portfolio, which is in line with the benchmark's approximately 28 per cent weightage. Therefore, we are closely aligned with the benchmark. Our core belief is that when the market is giving you such handsome returns, like 30 to 40 per cent in a one-year period, I think staying in line with the market is a better way to play than taking excessive risk. At the end of the day, we always talk about the targeted return that our investors got when they invested in the ELSS fund over a 3-4-year period. The typical answers you get from everyone around you are 12-15 per cent, which is a great compound return.

Therefore, when you achieve a return of 35 per cent in a single year, it's crucial to consider how we can safeguard this 35 per cent rather than focusing solely on generating higher returns. This is the foundation upon which we are currently positioning our portfolio, as we aim to avoid taking on additional risk gradually. I believe we are considering a longer-term perspective rather than focusing solely on a three- or six-month timeframe. This aligns with our investors' perspective, given that ELSS entails a three-year lock-in period.

You've been cautious about adding new-age businesses to your portfolios. Can you share your reasons and your general perspective on such companies?

To my mind, the narrative around new-age businesses has been extremely strong. Since they got listed around 2021, valuations were fairly overwhelming for me, which was one of the first reasons I stayed away from these companies. If we look at the new-age basket today, I think only one company has broken out of the shackles. Most of the companies, in my opinion, are below the 2021 high, with some even trading below their IPO (initial public offering) price. Therefore, it is crucial to exercise extreme caution when engaging in thematic investing.

If expectations are extremely high and the valuations are overwhelming, I think that it would be better to sit this one out. Rather than attempting to identify the single stock that would outperform the pack of 10 stocks, I viewed the likelihood of success as extremely low. The market is an ocean of investment opportunities. If you're diligent enough, I'm sure you'll find an equal number of opportunities that will give you the same, if not better, returns over time.

Public sector undertakings (PSUs) haven't seen much action from your end. What's kept you on the sidelines here?

I would say that we have not stayed away from the PSU sector; we did participate. In fact, we were one of the first few participants to invest in PSU banks. We have invested in areas that offer comfort in valuations and earnings and are better managed based on past performance. So, we have looked at some of the oil companies and the energy companies. I believe we will continue to hold some positions there.

We have avoided areas where valuations have risen due to compelling narratives, but earnings have not yet caught up and have experienced significant rerating. As I mentioned, we never close our minds to any particular sector or set of stocks. We try to form a holistic view of the narrative, where the earnings can potentially be, and the price you're paying for them. Accordingly, we try to balance our portfolios in the best possible way.

Also read: Interview with Rajeev Thakkar, CIO and Director of PPFAS AMC