PPFAS Mutual Fund has reduced its cash holdings to 9.7% from around 24% a year ago, as corrections in stock valuations have created opportunities to deploy capital, Raunak Onkar, Co-Fund Manager (Equity) and Head of Research at PPFAS Mutual Fund, told CNBC-TV18 in an interview.
“We have found valuations correcting and moving in our favour. We have been deploying meaningfully,” Onkar said, referring to the fund’s lower cash position.
The fund has been looking at cash-generating businesses that have received less market attention amid the focus on artificial intelligence (AI), data centers and semiconductors. Onkar said some of these companies were available at lower multiples of their cash flows and earnings, offering opportunities to invest in businesses with established market positions.
“We got a good chance to enter some of these ideas at lower multiples to their cash as well as their earnings,” he said.
Why PPFAS is investing in DLF
DLF is among the stocks that PPFAS has added to its portfolio. Onkar said the real estate company’s substantial land bank, execution capabilities and deleveraged balance sheet had strengthened its business.
He noted that DLF’s earlier growth cycle was driven by expectations that it would develop its land bank, but much of its future growth had been priced into the stock before the financial crisis.
The current opportunity, according to Onkar, lies in the company’s ability to execute on that land bank while generating cash from its commercial rental assets. He added that its stronger balance sheet could support expansion into other markets, beyond its traditional base in northern India.
Why CMS Info Systems remains on the fund’s radar
PPFAS’s investment in CMS Info Systems is based partly on the continuing role of cash in the economy and the infrastructure needed to manage cash transactions.
Onkar said currency in circulation was higher than during demonetisation and that cash continued to account for a portion of economic transactions. He highlighted the need for a reliable operator to maintain the infrastructure required by banks and other cash access points.
He acknowledged that CMS Info Systems’ core business does not have strong organic growth, which has kept its valuation at a reasonable multiple. However, the company generates strong cash flows and has been exploring diversification into other businesses linked to its operating ecosystem.
“Stock movements are par for the course in any business. But as long as the business fundamentals continue to hold, it seems like a good bet to participate in,” Onkar said.
PPFAS comfortable with 20% exposure to private sector banks
PPFAS has around 20% of its portfolio allocated to HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank. Onkar said the fund was comfortable with this exposure and did not see a need to keep increasing its allocation to the sector.
“I don’t think it makes sense to keep adding beyond that. It’s not a banking fund, after all. It’s a sectoral allocation that we have made,” he said.
Onkar identified HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank, in that order, as the fund’s current pecking order. He added that the relative allocations could change depending on how the market, the stocks and the underlying businesses perform over time.
Watch accompanying video for full conversation.
PPFAS Mutual Fund’s cash falls below 10%: What is it buying as valuations correct?