IIFL’s Multicap PMS consistent out-performance backed by their cautiously-optimistic approach

It is quite inspiring to hear out the convictions of the out performers during the current uncertainties. Mr. Mitul Patel’s cautiously optimistic approach is evidenced by consistent out performance of IIFL PMS strategies. Read on to get inspired by the optimism of Mr. Mitul Patel.

29 Jun 2020

The recently conducted webinar "Impact of Covid on Economy, Markets & IIFL Multicap PMS" by Mr. Mitul Patel, Senior Vice President, IIFL PMS was another initiative by PMS Bazaar, as part of its ongoing endeavor to imbibe right knowledge from the expert professionals of Portfolio Management Services.

The Webinar was moderated by Mr. R. Pallvarajan, Founder – Director PMS Bazaar. He introduced the speaker, Mr. Mitul Patel, Senior Vice President & Fund Manager, IIFL Portfolio Management Service. Mr. Pallavarajan also briefly elucidated the performance of IIFL’s Multi Cap and Multi Cap Advantage Strategies and salient features of IIFL PMS.

The Right Understanding of the Covid-19 & the Lock-down Effects of Economy

Mr. Mitul Patel’s narration and understanding of the Covid-19 related economic efforts exposed the realistic effects without any exaggeration. He has acknowledged the fact that the country’s GDP is likely to contract to the tune of -3% to -5% approximately for the financial year 2020-21, due to the Pandemic related lock-down effects. Mr. Mitul Patel’s diligent way of assessing the impact of Governments moratorium is quite sensibly extrapolated on both sides viz., the debtors who will get temporary relief from the EMI postponement as well as the Banks and financial institutions that may have to bear the loss. The depth of his assessment has been quite convincing, when he stated that the Banks and financial institutions cost of funding has increased from about 25% to 40%. Mr. Mitul Patel’s convictions made us to remember the popular quote “Those who can reckon the risk precisely, are quite capable to find ways to mitigate”.

Government’s stimulus & its effects on Economy

While, there have been critical comments in the media on the stimulus announced by the Indian government as insufficient, Mr. Mitul Patel rightly understands the India’s overall debt situation as compared to the advanced economies. He is convinced that the current stimulus does provide a significant amount of money in hands of the consumers due to which the recovery would be much swifter when it happens. The expert professional’s approach to assess the stimulus and its effects has not been as a whole but with deeper dive approach of Rural and Urban divide of India.

Rural Economy & the Green Shoots

Mr. Mitul Patel observed that, rural recovery would be much faster than its urban counterpart. He quoted the recent statistics on tractor sale, which increased month-on-month as well as Y-o-Y basis and the fertilizer sale which doubled in May-2020. He further observed that the unemployment rate has become almost similar to the pre-covid-19 levels. Government’s infusion of 1.5 lakh Cr through many schemes, such as the MGNREGA etc., is rebalancing the earning power loss of migrant workers, and making the migrants to find work at their home villages, as per Mr. Mitul Patel.

The deep dive approach of Mr. Mitul Patel, further extrapolates the cash in the hands of farmers due to bumper Rabi crop and the government procurement, which is finding its way back to economy through tractors, fertilizers and even to the sectors like cement etc., which are posting better sale numbers in the recent times. He further explained his convictions, based on IMD’s normal monsoon forecast, that the Kharif crop is also likely to yield bumper harvest and more money in the hands of the farmers. Mr. Mitul Patel is quite convinced that there will be growth in the rural economy, but very cautious to observe that the key is to sustain this growth.

Urban Economy & the lock-down effects

Mr. Mitul Patel observed that roughly about 50% of the Covid-19 cases are in the TOP-6 Cities of India. He further assessed that about 20% of India’s GDP is contributed through the cities and suburbs, which are currently in Red-Zone and hampering the faster recovery. These are the areas where manufacturing, service and other key sectors are concentrated. Mr. Mitul Patel is wise enough to understand, the recovery of these areas are not possible till the “flattening of the curve” of Covid-19 cases. Overall he points out rightly that the urban recovery is slower than the rural and will remain so for some time.

Other Effects of Economy

Mr. Mitul Patel also expressed his optimism on the advantages due to low crude oil price hovering between $32 and $45 and increased remittance of forex, which ensures stability of forex reserves. He also observed that Banks and financial institutes will be brain-storming to re-establish themselves post-moratorium; hence though the near future appears bad for the banks and financial institutions the medium to long term growth will re-emerge to boost the economy. He further declared that Equity will remain the best asset class to invest for a period of at least 3 years.

IIFL Portfolio Strategies and the current construct

Before the discussions on the Portfolio holdings, Mr. Mitul Patel has observed that majority of the companies listed in BSE-200 are running on their 52 weeks low & the benchmark has also gone below 2 times price to book. Hence, the opportunity to pick good companies is plenty.

Financials

IIFL Multi Cap strategy has a weightage of 28.96% on financials, as on 31st May 2020. Mr. Mitul Patel revealed their top holdings, namely, HDFC Bank, ICICI Bank, Bajaj Finance and Muthoot Finance. He further explained the Bajaj finance’s capability of increased potential to improve business, pointing to their recently raised capital of 10,000 Crore. His view on the growth of banking and financial sector is very optimistic based on in depth analysis of the sector and in case of a scenario of non-emerging 2nd wave, he expects the sector to grow robustly and steadily.

Pharmaceuticals

The second heavy weight in the IIFL’s portfolio is healthcare sector with 16.22% weightage, as on 31st May 2020. Mr. Mitul Patel expressed his convictions on the good management and top strategy play of MNC Pharma companies, Procter & Gamble and Abbott. His picks in Indian Pharma, Dr. Reddy’s and Cipla, have high ROE and focus in the chronic illness related drugs; they also have good dividend distribution policies and have been trading near their life-time highs recently.

Speciality Chemicals: The Sunrise Sector of India

According to, Mr. Mitul Patel, the specialty chemical sector can be the new sunrise sector in India. Currently, India has only 3% market share of the global chemical industry. The world is diversifying away from China’s base due to various geo-political, trade related and importantly the bitter experience of the Pandemic Covid-19. Being the largest market share holder to the tune of about 50% in chemical manufacturing, china’s share is likely to get diverted towards other developing nations. As per the calculations of Mr. Mitul Patel, even if the chemical industry in India witnesses an additional growth of 1-2%, the impact created will be quite visible & will lead to growth of the whole economy & industry. Within chemicals, agrochemicals are likely to yield better return on capital as per the opinion of Mr. Mitul Patel.

The Performance of IIFL – Multicap & Multicap Advantage PMS

Both, strategies have been consistently outperforming the Benchmark (BSE-200 – Total Return Index) . IIFL Multicap PMS strategy has delivered 12.49% CAGR returns since inception (Dec 14) while benchmark BSE 200 has delivered just 4.43% returns during this period (as on 31st May 2020) . IIFL Multicap Advantage PMS strategy has delivered 5.80% CAGR returns since inception (Dec 17) while benchmark BSE 200 has delivered negative 2.86% returns during this period (as on 31st May 2020) . IIFL Multicap PMS Strategy has been one of the award winners of PMS Bazaar’s “Top-3 PMS Performers of 2019”. The Rolling return performance of IIFL Multicap PMS strategy is tabulated: 



The Multi Cap approach of IIFL Strategies

IIFL follows secular & defensive approach as it helps to fight the challenging market cycles; hence currently the strategies are 57.57% in Large Cap, 18.45% in Mid Cap, 16.46% in Small Cap and 7.52% in Cash. The cash will be deployed in secular market at right opportune time. As per Mr. Mitul Patel, this approach of secular & defensive had cushioned the fall of the Portfolio.

The Hedge opportunity in IIFL Multicap Advantage

In order to provide smother ride over temporary volatility to the investors during their investment cycle of long-term, the IIFL Multi Cap – Advantage was launched with the option of investing about 6% to 8% of the Capital to hedging.

Mr. Mitul Patel has further elaborated on the success of the hedging options, which yielded good results during the recent down-cycle. IIFL Multi Cap – Advantage had long-dated put option to the tune of 6% of the portfolio, which had multiplied to 4 times the value during the down-cycle. 2/3rd of the options were monetized and the 1/3rd options are still held in the portfolio. The profit made out of this is held as cash in the portfolio as on 31-May-2020.The Rolling return performance of IIFL Multicap Advantage PMS strategy is tabulated: 


As a final investment education to the delegates of the webinar, answering a question, Mr. Mitul Patel observed that the Covid has led to unpredictable markets. He advised the investors to choose SIP and STP route to smoothen the temporary uncertainties, thus investors can avoid second-guessing the market moves.



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