Understanding Equity Schemes of PPFAS Mutual Fund — Conference Call Discussion

[00:00:00] Speaker 1: Investors and distributors are requested to note that the objective of this meeting is to communicate with our distributors and to share with them our thought process. It should be noted that views expressed in the recorded call are based on the information available in the public domain. Views expressed in the call can change depending upon change in circumstances. Being discussed in the call shall constitute a buy, sell or hold recommendation. Hi, good afternoon everyone. Welcome to today's conference call organized by PPFAS Mutual Fund. Thank you for taking the time to join us. Today we will discuss our equity funds, Paragparek FlexiCap Fund, Paragparek Tax Saver Fund and Paragparek Large Cap Fund. We are joined by our investment team, represented by CIO, Mr. Rajiv Taker and fund managers, Mr. Raunak Onkar, Mr. Raj Mehta and Mr. Rukun Tara Chandani. to share valuable insights on how these funds are managed, the investment philosophy behind them and their approach to navigating the current market landscape. We have received a few questions from you in advance and we clubbed the questions together. But first over to Rajiv for opening remarks. [00:01:11] Rajiv Takerani: Rajiv Takerani: Hi, thank you for taking the time and participating in the conference call today. I will briefly discuss some of the things that would be top of the mind of most people. So hopefully it will answer a lot of the questions that have come in. And whatever is left, we will take that as part of the Q&A. About the market environment, valuations, past performance, geopolitics. All of that I will briefly cover where we are today. So at the index level, whether we look at Nifty 50 or whether we look at Nifty 500. Last 18 months have been tough for the market where we are still not at the all time highs that we saw earlier. It's disappointing from investors perspective that they don't see returns in their portfolio for the last two years. It's good from the future perspective that time correction has happened within this period. The underlying companies have grown their profits. So to that extent, it's moderated the equity valuations. So if you look at the commentary from PPFS across various forums, in 2024, we were extremely cautious. We were saying that things are overheated. One should tone down future return expectations. We said that we will be in cash if opportunities do not come our way. We explicitly mentioned that we are prepared to underperform but we will not invest in something that we are not convinced about. So, over the last 18-24 months cash levels were elevated. We at peak were at about 25% cash and money market investments. That has now come down to roughly 14%. The investments happened over the last 3-4 months around the geopolitical tensions. Again, this was not a macro call. This money was invested based on individual opportunities that came our way and were invested in things that looked attractive to our team. The future outlook, given the overall challenges in the last few months, the numbers for June quarter, maybe even the September quarter could be all over the place. There were supply chain bottlenecks. There were input cost pressures. Inflation was elevated. Currency was all over the place. So, we are not looking at quarterly results so much. We are looking at investing in places which look promising from a medium term perspective around 4-5 year investment horizon kind of approach. So, broadly that is the approach that we have taken. There have been questions around some of the investments that we made. There have been in the past questions around why are we not deploying money when Nifty P ratios are now close to 20 and Nifty 500 P ratio is around 23 or thereabouts. Ironically, when we have deployed, people have questioned the investments again. Now, these are stocks which are at P ratios less than 20 and nobody seems to be liking those kind of names. The favorite names are still in the hyper competitive stocks, sectors. currency is still in names with 80, 90 times earning kind of valuations, 100 times kind of earning valuations. So, our investment approach has been constant over last 13 plus years. We are investing in companies with credible promoters and management with robust balance sheets. We are investing based on proven profitability and positive cash flows rather than act like venture capitalists and arrive at some vision for the future. So, that same approach we are following the investments that have been made have been made in companies where valuations are reasonable, where free cash flow is strong and there will be periods when this approach will be popular. There will be periods where this approach may not be popular and over a cycle I think it has done well for us and we continue to abide by that approach. We have addressed the question of assets under management in the past but again I think a few questions are there. At the fund house level, our equity AUM is I think one-fourth or one-fifth that of the larger fund houses and that is what really matters because no fund house can own more than 10% paid up capital of any company. That is the true restriction rather than the scheme level AUM. So, from that perspective there is ample room. The other point to note is that we never have been a high-churn kind of fund house right from our early days where the assets under management were 300 crores. Even at that time we were not large buyers and sellers so what matters from a liquidity perspective is the AUM multiplied by the portfolio turnover ratio. A 10,000 crores AUM fund with a 100% portfolio turnover ratio has the same liquidity need as a 1 lakh crore fund with a 10% portfolio turnover ratio. So, any number in isolation does not make sense. You have to really look at the fund strategy as to what the fund is really trying to do. So, from that perspective I don't think there is a challenge. There have been questions around the fund being predominantly especially the flexicap being predominantly in large cap companies. A lot of recent purchases have been there in the mid cap space, in the small cap space. You will find those names. Largely when we decide whether a stock is attractive or not attractive, we start with the company fundamentals. We don't look at which category it belongs to, it may be large cap, it may be mid cap and small cap. If you look at the headline index valuation numbers, if Nifty is at 20 times earnings and Nifty 500 is 23 times earnings, it to some extent indicates that valuations are somewhat more expensive in the small and mid cap space. But again, we are not index investors, we are buying and selling stocks on individual name basis, wherever the opportunity looks attractive in the small cap space, in the mid cap space, we have been buying those. So, there have been questions around the difference in cash levels between the ELSS tax saver fund and the flexicap fund. Today, the AUM difference is meaningful between the two schemes and in some cases, the cash gets deployed faster in the tax saver fund. Because very tiny companies may not be meaningful in the large, in the flexicap fund. So, just for context, the segregation line between a small cap fund, between a small cap stock and a mid cap stock is already at roughly 34,000 crores. So, the flexicap fund can very well invest in a lot of small cap stocks, but stocks with market caps of, let's say 4000 crores, 5000 crores, some relatively smaller companies may not be that relevant in terms of finding a place in the flexicap fund. So, broadly, this covers the performance and the past 18-24 months. From here on, outlook is moderate. It remains moderate. One should not expect fanciful returns given that index has only returned to somewhat normal levels. And it's not at a down and out, undervalued range or at a bargain basement kind of range. Given that bonds are giving around 6-7% returns per year, equity as an asset class, one should benchmark to 10-12% kind of returns at the index level. Because valuations are not that cheap and growth also will be a bit subdued given all the challenges we have seen in the past and given the whole noise around the delayed monsoon and what will be the impact of that. The other thing to note is that the supply pipeline continues to be very strong in terms of equity issuance. 2,50,000 crore kind of fundraising could happen in the near term. So, some of the names are already in the media. So, SBI Fund Management, National Stock Exchange, Jio Platforms, Zepto and a whole host of other companies are in the queue to bring blockbuster IPOs, large size IPOs in the market. So, given this huge amount of supply, given the somewhat subdued sentiments foreigners have towards the Indian markets in terms of valuation and growth, one should not expect extremely outsized returns. Equity should continue to be part of people's asset allocation based on their risk appetite. Nothing changes on that front. And equities are not an asset class to deploy money in for 12 months, 18 months. These require a minimum of 5-year kind of investment horizon. The longer the better. I will stop here and I will hand it over to my colleague Prithvi so that we can start the Q&A. [00:13:01] Speaker 3: Thank you Rajiv for the detailed opening remarks. We will now proceed with the curated set of questions received through the registration form. Following this, we will take live questions. In the meantime, participants are requested to submit their live questions by clicking on the Q&A button in the Teams app. The first question is, the FlexiCap fund has maintained cash levels about 20% in the recent past, but this has declined to around 14% now. Does this reflect the availability of more attractive investment opportunities and improved market valuations? [00:13:40] Rajiv Takerani: Market valuations have moderated. They have come to more or less average levels. They are not at bargain levels, but obviously time correction has helped. Our reduction in cash levels has been driven by individual opportunities. So we have bought wherever we thought the prospects were looking good. [00:14:06] Speaker 3: The next question is on REITs to Raj Mehta. The REITs investment in FlexiCap fund is due to increase in the EUM size of FlexiCap. How liquid is the REIT in comparison with short term arbitrage or say other money market instruments? [00:14:23] Speaker 4: So exposure to REITs has nothing to do with the size of the fund as such. It's just a part of the portfolio allocation that we have done towards that. So REITs are attractive in the way that they give you around 5.5% to 6.5% kind of distribution yields. Plus you get capital appreciation on top of that. So from a portfolio point of view, it makes sense to have some allocation to REITs. And liquidity point of view, they might not be as liquid as money market instruments, but if you look at the daily traded volumes, they are sufficient enough whenever we require cash, we will be able to liquidate some of it. So also large blocks are available many times. So that also gives liquidity options. [00:15:19] Speaker 3: The next question is on ELSS, the tech saver scheme. Since the tech saver investors can't redeem for three years, does the locking period allow you to own fundamentally stronger but more volatile business that might be unsuitable in an otherwise open-ended scheme? [00:15:38] Rajiv Takerani: Our communication to investors since 2013 has been invest in equity funds only if your investment horizon is more than five years. As we have said even for the flexi cap fund to discourage people coming in going out, we have exit loads in place for the first two years. So the selection of stocks is identical for both schemes in terms of the parameters. So it's not that we think that because there's a three-year lock-in, we will buy more volatile stocks there or anything like that. Broadly, the principles are the same for both schemes. [00:16:23] Speaker 5: The next question is on large cap fund to Rukun. [00:16:30] Speaker 3: The large cap fund is heavily dominated by passive strategy with extremely low cost expense ratio. Is the expense ratio of this fund competitive enough to justify an actively managed setup that large cap fund has? [00:16:44] Speaker 6: If you look at the passive funds in this space, you know, our expense ratio is towards the lower end of that range. What we've done is that, you know, we've set up processes, we've set up, you know, through processes, we're ensuring that we're able to manage the fund, you know, within that expense ratio comfortably. [00:17:11] Speaker 5: There are a few questions on foreign investing. [00:17:18] Speaker 3: There is a question on geographical diversification. According to fund managers, what is the ideal allocation one should have today between India and global equities? [00:17:29] Rajiv Takerani: There is nothing like a ideal allocation, but I'll just give some data points for people to get the context. So let us say if someone was an alien looking at the earth and wanting to have a allocation to equities on earth. India broadly has a three to four percent kind of weightage in the global market gap. So a pure passive investor, global investor would have around four percent allocation to India, 96% globally. But obviously people living in India, saving in India, investing in India, and finally their consumption is in rupees, most of their goals are in rupees. They would not have 96% of their investments abroad. So that obviously does not make sense. But at least having 20, 25, 30% kind of allocation to overseas investments is desirable. Now to what extent can people implement this is up to individual investors. Some people may have challenges around remittances, around LRS processes. Some people may be more comfortable with the way things work in the domestic mutual fund space. So it's a personal choice, but my recommendation would be for a resident Indian taxpayer, Indian individual investor. One should aim for somewhere between 20 to 30% global allocation. [00:19:18] Speaker 3: Given that fresh overseas investments are restricted, how are you managing incremental investment into companies outside India? And given that this restriction is still on, does that reduce the original diversification advantage of this fund? [00:19:34] Rajiv Takerani: So answer is, we cannot invest incremental money overseas. We are able to reinvest the dividends that we get abroad. There is a possibility that we may be able to shuffle between the stocks that we own, but otherwise we cannot remit more money outside India. Incremental money that we get in the FlexiCap fund is only invested in domestic markets. So the foreign weightage which used to be in the vicinity of 30 odd percent in 2022, that has now come down to around 10-11%. So the answer is yes. FlexiCap fund over a period of time will be less relevant in terms of getting global diversification. Of course you get that 10% diversification, but not beyond that. So incrementally, most asset management companies in India have been setting up gift city operations. So there are fund structures available in gift city, or there are brokerages which are allowing foreign investments, or one can open accounts abroad. So there are additional steps to be taken by the investors who really want global diversification, but mutual funds in India have been constrained for four plus years now. [00:21:09] Speaker 3: So the next set of questions are attached to run upon IT sector investments. Within the FlexiCap fund, the fund appears to have a significant allocation to the IT sector. Given the uncertainty surrounding the long-term impact of AI, what is the investment thesis behind this allocation? Also, is IT sector a value player or a turnaround strategy for us? [00:21:34] Speaker 7: So IT sector traditionally, most people who have been studying in the Indian market, it is actually one of the highest cash generating businesses, which are export oriented in the country. At the same time, they have had multiple decades of growth and technology transformation by means of adopting technologies that are coming in for the clients. So if you look at this context, as new technology like AI is also being implemented, there will be some requirement of hand-holding for the clients who want to implement these technologies. There are two opinions for this, whether that thing can be done by AI itself, where you don't require any IT services or employees to implement it. The other side of the argument is that you will still need people with specialized skills, which anyway the IT industry already has. So that means there is some relevance for IT industry going ahead, it is probabilistic call, but it is not very clear yet whether the answer is that IT services are at advantage or disadvantage today. But if you look at the way the valuations of these businesses are today, they are very reasonably priced because of this uncertainty and that's why it makes sense to have some allocation to it and we will calibrate our views as more information and more data comes towards us. [00:22:57] Speaker 3: is having 9% allocation in IT sector in large cap names. Any reason not to add mid cap IT names like Copos or Persistent who have been more resilient so far? [00:23:10] Speaker 7: More than resiliency, I think the business models of both these companies or type of companies are different. So when you look at larger cap IT companies, they are very well diversified across different verticals that they offer services to. They are very well diversified across the kind of work they do. On the other hand, if you go down the ladder of market cap, you will find mid cap companies which are concentrated towards the kind of work that they do and even have a limited number of clients that they cater to. So based on this, I think the valuation also has to adjust. So in the past, for the longest field of time, mid cap companies, small cap IT companies would trade meaningfully lower in terms of valuations compared to large cap IT companies. And there was a wide variety of growth also. So of course, larger cap names grow in a very moderate fashion in a smaller band, whereas mid and small cap companies can violently grow and also violently degrow because of their volatility of clients and business that they have. On account of that, the valuations of mid cap companies in the IT sector have risen to their longer term threshold. And they have not corrected meaningfully as yet, when you look at the longer term comparison of large cap companies. So I think large cap companies still provide a more compelling and more diversified way to invest in IT companies than I think mid cap. But yeah, if the valuations change, we can always evaluate. And in the past, we used to own mid cap companies like persistent emphasis in the portfolio and because of valuation, we exited them. [00:24:45] Speaker 3: The next question is on exit load. Paragparic Plexicap is having an exit load for two years when other Plexicap funds don't have it. Isn't it a disadvantage for Paragparic Plexicap scheme among the peer group? [00:25:03] Rajiv Takerani: So it is a disadvantage in the sense we don't get short term investors, but it is an advantage that we get long term investors. We are actually trying to discourage people who have a view to exit within one year or two years. And it's precisely for that the exit load as is required as per regulation does not come to the fund house. Whatever money is collected by way of exit load from the outgoing investor is put back in the scheme. So the remaining investors benefit out of that. One thing to remember is when some investor comes in and goes out, they do not pay any brokerage, any STT for the underlying share purchase sale. So people who come in and go out very frequently create a disadvantage for investors who are staying for long. The exit load for this two year period actually discourages such behavior and keeps that portfolio churn in check. So it's by design and it is what we intend to do. [00:26:22] Speaker 5: The next question is on fund strategy. [00:26:25] Speaker 3: PPFS has predominantly followed value investing style and it has done well too since past five years. However, if growth style takes over the market, what steps will the AMC take to keep up with the performance? [00:26:40] Rajiv Takerani: Yes. So in the portfolio, there will be companies growing at a fast pace. There will be companies growing at a moderate pace and there will be companies growing at a slow pace. What matters to the end investors is the total return that the investment generates. Now return can come by way of earnings growth or degrowth. The returns can come by way of dividend yields which are either zero or positive. And the returns can come on account of price earning multiple going up or coming down. So rating or re-rating or de-rating as the case may be. Many a times what happens is that even when the company is growing very fast and it actually delivers a high profit growth, the share price moves nowhere, sometimes as long as three, four, five years, seven years. We saw this with IT services companies starting from late 99 to early 2000 and going up to 2007. In those six, seven years, companies like Enforces and Wipro gave close to zero returns or in some cases negative returns. In this period, the companies grew their profit significantly, but the starting valuation was so high that shareholders did not make any return. Coming to a more recent example, within the last three, four years, there's a company in the fast fashion space, which was growing very well, which is growing reasonably well. But the valuations became so high that everything was priced to perfection. And when there was even a small slip up in reported growth numbers, the stock price actually crashed. So you have to be mindful of what entry valuations you are paying. We have nothing against growing companies. We would love to own growing companies which have good quality balance sheet, which have leverage under control, which deliver value accretive growth or which deliver cash flow growth to us as shareholders. At the same time, we stay away from fast growing companies, which deliver that earnings growth or which deliver that revenue growth, not necessarily earnings growth, which deliver top line growth by continuously issuing more and more shares, by continuously borrowing money by way of debt and only chase market cap all the time. So one prominent space when we are absent right now is the food delivery, quick commerce or some of the retailing kind of needs. Here, either the companies are not reporting any profits, they are reporting large losses or they are having to every two, three years come to the market to raise fresh equity for delivering growth or the valuation multiples are 80, 90, 100 times earnings. So we are neither out and out growth investors nor are we investors who buy only cheap stocks of bad quality companies. We want good quality companies at a reasonable price. And if there is growth in the company, even better. [00:30:29] Speaker 3: In the next question, a distributor is asking for fund recommendation for an investor with a five-year horizon. Which product scheme would you recommend for current times? [00:30:40] Rajiv Takerani: For five-year and more investment horizon, FlexiCap would be the appropriate scheme. [00:30:49] Speaker 3: The next question is to Rukun on covered call. Is the fund house using covered call strategy in its large cap and FlexiCap fund? [00:30:58] Speaker 6: In FlexiCap, we've been using the covered call strategies. We've highlighted this earlier that we can write calls on any stock in the portfolio which is part of the Nifty 50. We can write it up to a maximum of 30% of the underlying share quantity that we own. And in aggregate, about 15% of the portfolio value. Typically, whenever we are writing calls, we are well within these limits. When it comes to large cap as a strategy, we do not write covered calls. [00:31:36] Speaker 3: A distributor wants to know, given the restriction on overseas investing, is there any plan to launch an international fund? [00:31:45] Rajiv Takerani: So our international funds are being launched from our Gift City company. Domestically, there is absolutely no limit available to launch international funds. [00:32:00] Speaker 3: Next question is to Ronak. Tech companies in the US are borrowing heavily from the open market with higher interest rates. Do you see any bubble formation, something like .com bubble in 2000? [00:32:13] Speaker 7: The technology is very compelling to always compare to .com bubble, but bubbles are only known in hindsight when it bursts. So right now, we are in a significantly large investment cycle where capacity is being created for data centers which are catering to the AI usage. So as long as there is usage, as long as people are coming up with newer and newer use cases for these AI models, the capacity is getting utilized. At the moment, it is a capacity constraint, which is why you are seeing a huge amount of build-out and people are exhausting their operating cash flows, they are borrowing money, they are raising equity in order to scale this capacity. Now, this is catering to the existing demand as well as the upcoming future demand that these companies are anticipating. But yeah, there is no way to tell whether it's a bubble, which is about to be popped, or whether we are in an extended investment cycle. So, I will reserve that judgment for now. [00:33:10] Rajiv Takerani: I will just add a bit here. So, the four companies that we own, we own Meta, we own Alphabet or Google, we own Amazon and we own Microsoft. So, all these four companies have been existing for a while now and they are not only AI companies. So, this needs to be distinguished from the startup kind of AI names, which have only one business area. So, if OpenAI were to list down the road or if Andropec lists down the road, these companies have their fortunes tied up with only one activity, whether AI will succeed or whether AI will not succeed. And again, these two companies largely are about creating these newer and newer models and are in the race to create the best models possible. The companies that we own are more in the space of providing compute services to their end customers. So, something like Amazon, for example, allows their corporate customers to use models like Claude, which have been developed by Anthropic. They are not the people who are creating these models. They are providing the underlying data servers for companies like Anthropic and their corporate customers. Apart from the AI piece of the four companies that we own, they are also continuing to run their pre-existing businesses. So, Google continues to entertain people, inform people via their YouTube free plans, free plans as well as subscription plans. They continue to generate revenue through digital advertising and their cloud computing business to their customers. Meta again continues to get digital advertising revenue. Amazon continues to do its e-commerce related activities and Microsoft continues to provide software services to its corporate customers and it continues to provide cloud computing services. So, our four companies are not necessarily just AI related players. If overall there is a contraction in their AI space, in the AI space, these companies might have a little bit of impact, but they are not over extended in that sense. [00:36:01] Speaker 3: The next question is on SIF. Are there any plans from PPFS to launch an SIF and what are the Rajiv's view [00:36:09] Rajiv Takerani: about risk and reward for SIF? So, this is a newer category of funds that have come in. As of now, we are just watching the space. We haven't finalized any plans to launch schemes here. The SEBI scheme circular provides the architecture to have all kinds of funds. So, you can have funds with a elevated risk return profile and you can have funds with a lower risk return profile as well. It would depend on every fund house and every scheme architecture as to which category the scheme falls into. So far, from whatever I have seen, most schemes are choosing to be in the lower risk kind of bucket, where they are trying to provide the relatively affluent clients, people who put in the minimum required amount, they are trying to provide them more stable returns and which would be potentially lower than pure equity returns. Recently, I have seen one particular SIF which is trying to replicate something like a credit risk fund which is at the slightly higher risk kind of spectrum of the SIF. But for speaking for ourselves, right now we are in the watch mode. We have no immediate plans for SIFs. [00:37:49] Speaker 3: Next question is to Raj. The quantitative indicators appearing in Plexicap spreadsheet like standard deviation, Sharpe ratio, Beta, etc. Are they based out of past [00:38:01] Speaker 4: one year or three year or five year? They are based on last three year returns. So AMFI has standard guidelines that are issued to all the mutual funds and all the mutual funds have to follow the same guidelines. So it says last three year returns. Next few set of questions are on personal finance. [00:38:22] Speaker 3: Which fund would you suggest for a 75 year old person getting a regular pension? If the tax lab is low tax [00:38:32] Rajiv Takerani: lab then conservative hybrid fund. If the person is in very high tax lab then either arbitrage fund or the [00:38:40] Speaker 3: dynamic asset allocation fund. For a senior citizen, what is the ideal SWP strategy? Please guide. [00:38:51] Rajiv Takerani: So rather than just commenting on SWP, if someone wants to be absolutely sure of not running out of money and of being able to meet inflation, a 3% per annum, 4% per annum withdrawal rate is a reasonably conservative way of doing it. So if your retirement corpus is 100 then your annual expenses and withdrawal should be between three and four percent overall. More aggressive withdrawal potentially can lead to running out of money if inflation is too high, if delivered returns are lower or if someone has a very long life late 90s or reaching 100 then there could be a challenge. But again there are no certainties in these things. I would recommend consulting a financial planner and working out a proper plan. [00:39:58] Speaker 3: Given the current market situation, how should a distributor manage the portfolio of an equity investment client to ensure they earn minimum 10 to 12% return in the future? [00:40:10] Rajiv Takerani: There is unfortunately no way to guarantee a 10 to 12% equity return year on year from equity. If that were possible then all the banks would run out of fixed deposits and the entire money would come to equity mutual funds. personally I joined the equity markets in 1994. 1994 to 2003 over the nine years of my lived experience equity markets gave negative return after nine years. So in the US market 2000 to 2010 there was zero return. If someone started investing in December of 2007 for three, four years the Indian equity markets gave negative returns. So equity end of the day is a risk asset class. to get that potential 10 to 12% return as compared to the 6-7% return one gets from fixed income securities. One has to live through cycles and one has to live through volatility. Unfortunately, I don't have a solution for people wanting 10-12% return. What one can do is if one is willing to sacrifice a bit on the returns, one can go for hybrid funds which will have lower volatility as compared to pure equity and which will also potentially lower the return and give somewhere in between fixed income and equity returns. [00:41:54] Speaker 3: Next question is on gift city. When can we expect the launch of active equity fund from gift city? [00:42:02] Rajiv Takerani: So gift city will have its own call for this but since it's a group company I'll just broadly outline. So overall it's early days for retail funds out of gift city. As of now across fund houses there are only three schemes I believe which have been launched outbound. We are working on smoothing smoothing the process for customers to remit money to be able to do digital transactions reporting in terms of the schedule FA. Will it be required, not required, there's no clarity. If it's required we are trying to work out how to smoothen the reporting for end customers. So various things are required to be done. As of now the entry level kept for most schemes out of gift cities relatively high. It's 5000 dollars for initial investment which translates to roughly just under 5 lakh of rupees. First objective would be to reduce that amount so that it becomes more accessible. This is for our outbound passive funds. Once it has run for some time and once everything settles. So even the registrars are new although CAMS are registrars in gift city as well it's a whole separate entity, whole separate jurisdiction. There is certain learning curve for all the people involved. I think it will take a bit of time but we want to do it right rather than rush into something. [00:43:51] Speaker 3: Next question is to Ronak. How do you find the valuations of the four overseas holdings that we have? If they appear over stretch would you be willing to exit them? [00:44:06] Speaker 7: There's always the possibility that if we find any of the overseas stocks to be expensive to sell them and buy something else. However, at this point I don't think they are extended to that extent. They are reasonably priced I would say. [00:44:24] Speaker 3: CB has recently come up with lifecycle funds. Any plans to launch them? [00:44:30] Rajiv Takerani: It's an interesting development. The category is good. So right now we have our fair share of new launches in our organization. So at the AMC level large cap is the most recent fund launch. Prior to that the two hybrid funds arbitrage funds, we are yet to scale them to their potential. From our own group company, the two outbound retail funds came from the gift city. So they are in their early stage. So we have quite a bit on our plate for now. Once these settle down and once these achieve reasonable scale, we will look at other offerings. So as of now, just like I said for SIF, as of now, no immediate plans for lifecycle funds as well. And again, just for context, our NPS license came through a little time back and we are in the process of fully staffing that company and launching our NPS products from there. So that also will be in the works. So it may take a while for us to really look at other scheme launches. [00:46:02] Speaker 3: The next question is on behavioral finance. So the question is on decision making framework followed by the fund management team. Despite frequent scrutiny over the cash allocation, especially when the peers are fully invested, PPFS have consistently stayed true to their investment philosophy. What mental models, processes or practices helps the team maintain that discipline and conviction despite market pressure and short-term performance comparison. As a long-term investor, I am more interested in understanding the philosophy and temperament that enables this consistency across market cycles. [00:46:42] Rajiv Takerani: So as an equity fund, obviously we get compared to the underlying benchmark index and also to the other peers in the category. But end of the day, people are investing with us in equities to get better than fixed income returns. Now, if overall the valuations at which individual companies are trading are such that they do not promise clear-cut path to better than fixed income returns and where everything is priced to perfection, then obviously when you put money in money market instruments, they will end up giving you six six and a half percent. So depending on what is attractive, we'll either buy commercial paper or certificate of deposits or deploy money in those kind of things. So we keep evaluating opportunities in the equity space, but if something is not looking attractive, we don't force ourselves to be fully deployed at all times. [00:48:02] Speaker 3: Next question is to Raj. [00:48:05] Speaker 6: I'll just add to what Nadi said that in addition to, you know, the fund management team, what really helps us is that, you know, right from CEO to the frontline RMs, everybody is aligned to this goal of long term, doing long term right for the investors. So there is no pressure as such on the equity fund management team to, you know, perform only on the short term. So having that entire organization be aligned for long term makes it much more easier. [00:48:43] Speaker 3: Next question is to Raj. The invits and REITs are looking very attractive today. Would you be open to increase the allocation or is there an internal cap on such investments? [00:48:53] Speaker 4: So there is no internal cap as such. It's a relative thing. Depending on the relative valuations, we decide whether to buy more REITs and invits versus equities in the portfolio. At the end of the day, the flexi cap fund will be benchmarked to Nifty 500 and we will have to outperform Nifty 500. So we will take a call based on relative valuations. [00:49:16] Rajiv Takerani: Just for context, the regulations have recently changed. Earlier, there was a cap of 10% of the scheme investment in REITs plus invits put together. After the change in regulation, REITs are now classified as equity. So whatever is permitted as equity investment, you can be put in REITs. That is outside of the 10% cap now. And the 10% cap has freed up completely for invits. So the regulation allows far greater investment in these kind of assets. We will buy where there is an attractive opportunity and where we think we would want to participate. Of course, the 10% cap per issuer remains. So no AMC can own more than 10% of outstanding shares or units of any company REIT or INVIT. [00:50:20] Speaker 3: The next question is on AM size. Will PPFS mutual fund would be open to second flexi cap scheme given that as SEBI has allowed AMCs to launch second scheme in the same category? [00:50:34] Rajiv Takerani: So what SEBI had put out was a discussion paper. Should funds be allowed to launch a second scheme? Feedback to my knowledge was overwhelming. No, that we should not complicate things. In any case, the proposal was voluntary for AMCs even if that were to be permitted. And we have no such plans. So I don't think this has been finally announced as a regulation. And in any case, I don't think that is a plan. [00:51:12] Speaker 3: Given that we have high sector holding in flexi cap fund, what makes us bullish on private sector banking stocks? [00:51:20] Rajiv Takerani: So every country in its listed universe has companies from various sectors and those companies report profits. And you can figure out where the profit pools are of the listed companies in that stock market. So if we were to look at a country like let's say Saudi Arabia, bulk of the profits of Saudi Arabian listed stocks would be coming from the oil sector. Saudi Aramco being the biggest company there. If we were to look at a Taiwan, you would find something like a TSMC being the biggest contributor. And that company is in the semiconductor manufacturing space. In India, in any case, banking and financial services companies are the big profit pool of the Indian listed universe. So you will anyway find a big allocation to banks and financial services companies in India. In fact, so recently a company like HDFC Bank has fallen in terms of stock price. But until some time back, it used to have index weightage of more than 10 percent. So these are large companies, large profitable companies and they have a fair share in most portfolios. So I don't think we are unduly overexposed to this space. Broadly, the banking sector is at around 20 percent in our overall portfolio. And this would be in line with what most funds would have. A lot of funds would have higher exposure than what we have. [00:53:11] Speaker 3: A distributor wants to know. He is saying some of my clients have all the money in different scheme of PPFS. What is the biggest risk in this like cyber security risk or any other tail risk? Can the client lose his money? [00:53:32] Rajiv Takerani: So I will explain how mutual funds work. I will explain. So the question lists out some of the kind of risks. I will explain how those risks could theoretically manifest. And ultimately what the client does is on the client. So I will give the background context to this. Firstly, the exposure to PPFS that the client has is in terms of the largely the exposure is in terms of the quality of investment decisions that we make. Whether we buy company A or company B. At what price do we buy? What portfolio allocation we give to these companies? Though that is the biggest risk that the client runs on PPFS. The stocks or any security whether it be stocks, bonds, REITs, INVITs, commercial paper, CD, overnight money. All this is handled by the custodian which in our case is Deutsche Bank. The records for individual investors are kept by our registrars which is CAMS. Apart from the custodian Deutsche Bank and registrars CAMS there are the bankers that we have for our collection accounts and for our redemption accounts. So ultimately these risks are run on all of these individual service providers. All fund houses deal with the same two stock exchanges NSE and VSE. All the fund houses deal with the same two underlying depositories which is NSDL and CDSL. So some of these risks are systemally. To diversify away from our fund management team's decisions you can invest in across two fund houses, three fund houses depending on the client's preference. But ultimately some of these risks may not be diversifiable because end of the day let us say you put money with PPFS and you put money in HDFC mutual fund and SBA mutual fund. All these fund houses the registrars are at the back end is only CAMS or all these fund houses necessarily deal with national stock exchange. So some of these risks in terms of cyber attacks or those things are not diversifiable. But sure if the desire is to have exposure to different styles of investing or different teams then one can look at other fund houses. [00:56:25] Speaker 3: The next question is on behavioral finance. How would clients or investors handle their behavior during such tough times and uncertain market cycles? What would you advise them? [00:56:37] Rajiv Takerani: The distribution community, the investment advisors, the financial media, Sebi, Amphi, AMCs all have been doing a lot of work in terms of investor education explaining that you should have proper asset allocation. If you have short term money put in liquid funds, money market funds, arbitrage, longer term money put in equity funds, medium term money put in hybrid funds. So all that effort has been made. Have we succeeded with all clients? Answer is clearly no. In the marketplace you have people at both ends of the spectrum. At one end you have speculators who as per semi data lose 1 lakh crores of rupees per financial year doing F&O transactions or doing intraday trading. At the other end you have these 30 000 crores per month kind of thing. The same inflows coming into mutual funds. Hopefully bulk of it will be longer term in nature. So you have both kinds of people. Largely our job as distributors, advisors or asset management companies is to communicate to the people saying that these cycles come up periodically. So there was a COVID period which was tough. There was a global financial crisis which was tough. The Middle East itself has gone through two or three large wars within the last few decades. So these things keep coming and going to really benefit from the growth of the Indian economy, to benefit from the extra returns that equity markets give over fixed income securities. You have to stay invested through the cycle. So we can do our bit in terms of communicating by giving past examples and hand-holding period, hand-holding people. But ultimately the individual's behavior will depend on them. Beyond the point you cannot force someone to remain invested [00:58:58] Speaker 3: or to take a long-term. There is a question on IDCW income distribution come with travel plan. What is the taxation of IDCW plans and what kind of IDCW payouts we can expect? So IDCW will be taxed at the slab rate of the individual [00:59:22] Rajiv Takerani: investor. This can be paid only out of the realized income which is interest dividend realized capital gains. You cannot distribute out of unrealized gains. And especially in equity schemes, this is dependent on how much the fund is able to realize during a 12-month period. So to that extent, there is some uncertainty. In the hybrid funds, there is relatively more stability in terms of the payouts. But again, as it's a market link product, I cannot guide on any indicative distribution payouts in these plans. [01:00:10] Speaker 3: As a reminder to all participants, you may submit your questions by clicking on the Q&A button in your Teams app. Now, moving forward, we will take some stock-specific questions. TaxiCap fund has made investments in gas distribution companies like IGL and MGL. If you can briefly explain the rationale behind it. [01:00:31] Rajiv Takerani: So, as most people are aware, last few months, there was this big shock in terms of the world not being able to get enough oil. Now, while oil is a hydrocarbon and even natural gas is a hydrocarbon, the geography of the world is such that oil is more concentrated than natural gas. So oil is available only with a few countries, whereas natural gas is relatively more available across the world. Lot of LNG projects are coming up across the world and down the road, there is an anticipation that natural gas will be abundant for countries like India. Apart from this, countries are also working on gasifying the coal reserves that they have. So converting coal into synthetic gas, which again is methane, methane, propane kind of molecules, which can be fed through pipelines. Given the recent geopolitical situation, the supply shortages around LPG, government has been very clear that they are encouraging vehicles to move to CNG, also electric, but CNG is part of the mix apart from ethanol blending. So government is trying various things. Ethanol blending in petrol, encouraging CNG vehicles and encouraging electric vehicles. This is for transportation. The other side, they are trying to convert households to pipe natural gas instead of consuming LPG at home. So volume growth should be coming in for the city gas distribution companies. And at the same time, the price shock that was there because of the war that should ease off in the coming years on two fronts. One is the war itself coming to an end. And secondly, a lot of LNG projects across the world coming online. And medium to longer term coal gasification will also be a tailwind. [01:03:01] Speaker 3: Next question is on IEX. Will the regulatory setbacks reduce the moat it had in the past? [01:03:08] Rajiv Takerani: So firstly, the regulation has come in. The implementation is not as easy as people assume to be. Again, flipping the question a bit, let us say on NRC, there would be maybe 200-300 brokers. I don't have the exact number. But still you find a few brokers dominating. So one of the brokers, discount brokers recently listed on the exchanges with a market cap of close to 1 lakh rows. Now obviously, all brokers do not get that kind of a volume. This exchange has built its customer base systems, has been collecting margins and ensuring the trade settlement and all of that for many years. This hypothesis that if market coupling happens, every exchange will have one third, one third, one third volume. I do not find that to be very logical, but we will see. In any investment, there is a risk element. We have been reasonably successful in buying the platform kind of companies. We bought things like CDSL, we bought things like MCX, we bought IEX, we bought a couple of capital market related businesses, Moti Lal, Oswal and UTI. Now, some of them have worked, maybe one of, there is a possibility may not work. But overall, it's a sub 1% exposure for us, and we are not losing sleep over it, just because a market coupling regulation has been announced. [01:04:57] Speaker 3: So, over a period of time, what has happened is there has been consolidation in terms of the number of [01:05:14] Rajiv Takerani: players. So, one of the biggest competitors for the company went into bankruptcy. The second thing is, is the, while digital transactions, especially UPI, have been gaining traction, the cash in circulation in the country is not going down. And, as in, when more and more people are coming into the banking system, especially the small self-employed people and the daily wage earners, etc., are coming into the system. The requirement for ATMs and cash logistics and all is continuing to be there. Last year, one or two quarters were tough for the company because they had increased the capacity in anticipation of a large PSU bank contract. That contract has actually come through recently. So, fully going forward, that will also add to the business and valuations are reasonable in that space. [01:06:22] Speaker 5: We'll pause briefly to check if there are any unanswered questions. [01:06:33] Speaker 3: Since there are no further questions, we will conclude the call at this time. Thank you to all our partners for taking the time to participate in this call. Thank you, Rajiv and the investment team. Please join the call to discuss our hybrid and cash management schemes on 24th June at 4 pm. The event link and questions form have already been shared in the email, same as the equity call. You may now disconnect the call. [01:06:57] Speaker 5: Thank you so much. Thank you. Mutual fund investments are subject to market risks. Read all scheme related documents carefully.