PPFAS Mutual Fund : We need to see evidence of profitability in companies we invest in
At its annual unitholders’ meet, the management team of the Warren Buffet-inspired PPFAS Mutual Fund answered questions on valuations, its stock picks, high cash holding, and its IPO plans.
PPFAS annual unitholders’ meet
for more information about PPFAS Mutual Fund
Hyderabad-based Dhananjaya Ponukumati, 41, was one of the nearly 900 unitholders of PPFAS Mutual Fund who attended its annual unitholders’ meet at Birla Matushree Sabhaghar in south Mumbai on December 2. PPFAS is India’s 19th largest mutual fund (MF) firm with assets worth Rs 49,344 crore.
At this annual affair, PPFAS invites its unitholders to meet the fund managers and ask practically anything about the company’s schemes — why the fund house bought a stock, sold it, why it typically avoids investing in Initial Public Offerings (IPOs), its cash calls, and so on. Although this was Dhananjaya’s first in-person visit to the annual event, he has watched all the earlier events live on YouTube.
Kumar Appaiah, 38, an IIT-Bombay Professor, had also come to hear PPFAS’s fund managers talk. Appaiah invests his savings in just four equity funds, three of which are passively managed. The Parag Parikh Flexi Cap Fund (PPFCF), the company’s flagship scheme, is the only actively managed scheme he holds. Appaiah has been an investor at PPFAS for the last six years. He says that all his money is in equities because he’s a central government employee, and a portion of his salary automatically gets invested in the National Pension Scheme. Since the NPS comes with a lock-in, Appaiah invests in equity funds to meet his liquidity needs.
PPFAS MF is perhaps the only India-based fund house that calls its unitholders and opens itself up for questioning. It’s a rare opportunity for unitholders to meet their fund managers, and many investors didn’t miss the opportunity to click selfies with the management, particularly Rajeev Thakkar, the fund house’s Chief Investment Officer, Neil Parag Parikh, the Chief Executive Officer, and Raunak Onkar, Fund Manager, and Head-Research. The trio were joined on stage by Raj Mehta, Fund Manager, and Rukun Tarachandani, Fund Manager-Equity.
The year 2023 has been good for the fund house, after a tough 2022. PPFCF has given a return of 30 percent so far this year, as against the category average of 20 percent, and its benchmark Nifty 500 index’s 17.5 percent returns. With assets of Rs 44,038 crore, PPFCF is now the second largest actively managed equity scheme in India. But does a large corpus make the fund sluggish?
Thakkar started his presentation by addressing the matter of its large corpus, the topic that got the greatest number of questions this year, according to him. “Our AUM is 1 percent of the total AUM of mutual funds in India (Rs 46 trillion). The amount of equity that PPFAS MF manages is merely 1.75 percent of the total equity actively managed by MFs,” said Thakkar.
Unitholders, especially those who are keen trackers of the stock markets, used the occasion to get to know the management team’s views on companies. One investor wondered if the fund house would continue to hold on to ITC given that the stock did well in the last couple of years, “and so, is unlikely to repeat the same in future.”
Mehta said that the company’s FMCG (Fast Moving Consumer Goods) business continues to perform well, and the demerger of its hotel business would free up cash flows. Mehta added that the company’s valuations look reasonable — neither cheap nor expensive.
Another investor asked why PPFCF invests in Power Grid Corporation Of India instead of POWERGRID Infrastructure Investment Trust (PGInvIT). Thakkar explained that an InvIT’s returns are more or less capped as it can only invest in ‘mature’ projects. “Whereas Power Grid (the company) can bid for new projects, operationalise them, and earn surplus returns for shareholders,” he added while stressing that a company is a better business to buy than just investing in an InvIT.
Some investors asked why the fund house has consistently avoided sectors like defence, electric vehicles (EVs), capital goods, and so on. Thakkar said that most of these are emerging sectors where companies have little or no track record of profitability.
“Investing in companies or sectors which are seen to have attractive growth prospects due to policy change or other sources of volume growth is not a formula for investing success,” said Thakkar, who insists on evidence of profit before investing in any company.
PPFCF doesn’t hesitate to take cash calls, a trait that can backfire badly if the fund manager gets it wrong. So far though, the strategy has worked for the fund house. Before Covid struck in February 2020, PPFCF had 6 percent of its corpus in cash. When equity markets collapsed in March 2020, the fund deployed its cash. So far in 2023, the scheme’s average month-end cash holding has been 12 percent.
Thakkar says that having cash in the portfolios allows fund managers to buy stocks whenever there is an opportunity. Thakkar adds that a scheme’s cash position means that the fund has invested in money market instruments, which currently give 6.5–7 percent returns. Since equities don’t deliver steady returns, a healthy combination of both these instruments, given the current economic situation, keeps the fund steady and the risks in check, he explained.
Will the fund house ever come out with an IPO? At present, four mutual fund houses are listed on the stock exchanges: Nippon India Asset Management Company (AMC) Ltd, HDFC AMC, UTI AMC, and Aditya Birla SunLife AMC. “Not now; not anytime soon,” said Parikh. He said that PPFAS AMC is closely held by family, friends, and employees, and the company doesn’t need to float an IPO as it doesn’t need any money at the moment. But Parikh added that an IPO “is never off the table.”
“Of course, I will buy PPFAS shares whenever its IPO comes out”, said Dhananjaya on his way out after the event was over.
for more information about PPFAS Mutual Fund
LIC amends norms for inclusion of shareholders’ directors on its board , The government raised Rs 20,557 crore
