Market Movement Tracks Corporate Profitability Trend Over The Long Term

Do you agree that ELSS is the best tax saving instrument under Section 80C of IT Act?

The investment in the ELSS not only provides deduction from the gross taxable income (upto the 1.5 lakh), but it also has the potential of ` extent of competitive returns through investment in equities. The investment under ELSS is locked-in for a period of three years. Other than that, nearly all the features and the facilities for an ELSS investor are similar to that available in the diversified equity scheme. Thus, an investor can avail the SIP facility to spread out the period of investment over a long period of time and may also utilize this to average the cost, reduce the tax incidence, beat volatility and garner competitive returns. 



Nilesh Shah 
Managing Director, Kotak AMC

ELSS have a lock-in period of 3 years. Do you think this is the right tenure to generate good returns?

The ELSS at the very least binds an investor to look three years ahead. Although my suggestion is to look at the fund performance atleast after 5 years. Let the invested amount get enough time to procure optimum returns.

We are saying that the elections are no more a risk than any other event risk. If the market is - surprised negatively, it expresses its displeasure, but busi ness as usual resumes after some reality check. So, while we do realise the risk associated with the event, we do not structure a portfolio alone around such a dateline.




Why have you given more weightage to mid-cap stocks compared to your peers?

Indian economy looks well poised for 2019 and beyond due to low inflation, fairly valued rupee, fiscal and current account deficit under controland the improving banking system. Obviously, oil price movement will continue to play a crucial role in impacting the Indian economy. Market movement tracks corporate profitability trend over the long term. Better liquidity, lower real interest rates, fairly valued currency, smoother credit flow and improving capacity utilization will support higher corporate profitability growth in 2019. The Indian economy, which was running on consumption engine, can get a boost from the investment side in 2019 and beyond. With the correction in 2018, valuations have become fair. Small-caps and mid-caps look relatively little better valued than large-caps. It is the right time to take opportunity of the valuation correction in a staggered manner.

What investment strategy do you follow?

Kotak Tax Saver Fund provides great emphasis on bottomup stock selection with a top-down thematic overlay that helps identify stock opportunities. The fund follows a flexible investment approach, wherein the investment is not biased by market capitalisation. Importantly, the risk is managed through adequate diversification by spreading investments over a range of sectors and companies.

How do you make entry and exit decisions on any scrip?

The fund operates within the over-arching investment guidelines provided by SEBI. Over and above that, we have stricter operational guidelines internally to balance the risk exposure, while also providing the fund manager the flexibility to avail market opportunities. These guidelines/ rules provide a comprehensive framework within which the buy-sell decisions are made.

Within that investment framework, the fund manager has the scheme’s investment objective and strategy as his guiding principle in investing the fund monies. The fund manager’s choice to invest in a particular stock is dependent on multiple factors. The selection of a stock must satisfy the fund manager’s comfort with the integrity of the management, attractiveness of the business, company’s position in the competitive landscape, growth outlook and valuation levels of the stock. Likewise, the sell decision is made usually when the fund manager feels that the investment targets for the stock have been met; or the valuation levels have far exceeded the fundamentals. Adverse change in business outlook or availability of a relatively more attractive investment opportunity too can be reasons for exit decision.

This being an election year, how have you positioned your fund to tackle volatility?

The fund has been in inception since more than 12 years now. We have seen elections, we have seen the gloom and doom predictions, and we have seen those sentiments play out in the market. And after that long memory, we are saying that the elections are no more a risk than any other event risk. If the market is surprised negatively, it expresses its displeasure, but business as usual resumes after some reality check. So, while we do realise the risk associated with the event, we do not structure a portfolio alone around such a dateline. What we usually do is mitigate risks by diversifying our portfolio and not taking event bets.

If investors were to look at Kotak Tax Saver, how is it positioned in the current market?

We run the portfolio as a multi-cap fund with majority investments in large-cap stocks. The fund is presently running an overweight position in the industrials, cement, construction and chemicals. As is evident from this, our allocation is based on the conviction that the Infrastructureled investments will stimulate demand in the capital goods segment that will then create outperformance potential. Likewise, the fund is presently underweight in the financials, consumer goods, telecom and automobiles. We believe that the stock performance in these sectors may be affected due to either stretched valuation levels, unavailability of opportunities, and/or business risks.