PMS Bazaar recently conducted a Quarterly Update Interview Series, where Fund Managers share their performance of the quarter and outlook on the market. This Blog covers excerpts of our Exclusive Interview with Mr. Anil Rego, MD & CIO of Right Horizons PMS, sharing his insights and performance for the first quarter of FY23-24.

Excerpts from the Interview 

According to Mr. Anil Rego, Right Horizons’ investment philosophy revolves around achieving a superior risk-adjusted return. They implement a robust risk management methodology and a structured investing process that involves in-depth fundamental and quantitative analysis based on a defined framework. This approach has consistently contributed to Right Horizons’ performance as they focus on identifying future leaders and potential multi-baggers in the market. Acquiring strong businesses at favorable prices ensures a consistent track record of delivering returns. Their growth multi-bagger framework plays a significant role in selecting promising leaders, leading to successful investment returns

Previous Quarter Overview, Market Spot Analysis & Earnings Elaboration

Mr. Ani Rego said, “India's listed corporate earnings for the last quarter of the previous fiscal were relatively positive, despite uncertainties in the global landscape. Notably, financial and auto sectors were the primary drivers of incremental earnings, while the metals sector experienced a decline.” The strong performance of banks was attributed to robust credit growth, particularly in the retail and SME segments, along with a recovery in the corporate loan segment. Stable margins and some improvement in asset quality were also observed.

In the automobile sector, overall volumes increased compared to the previous year across various segments, except for two-wheelers, which remained relatively unchanged. The performance of IT companies in the technology sector was mixed.

Regarding market performance, mid-cap companies outperformed large-cap companies, displaying stronger revenue growth. These positive earnings and market performance developments improved investor sentiment and an optimistic outlook. The market reached new highs, driven by healthier earnings and favorable macro indicators.

Market Sector Performance in Q1 FY22 and Q1 FY23

In Q1 FY22, the IT and metals sectors were the highlights, demonstrating strong growth and positive momentum. However, the financial services space, especially private banks, experienced some slippage in the retail segment, while NBFCs reported below-par earnings due to COVID-related challenges. The pandemic also impacted other segments like auto, capital goods, and telecom, resulting in some stress buildup.

Nevertheless, the tables turned in Q1 FY23, with corporate earnings growth primarily driven by the banking, financial services, and insurance (BFSI) sector. On the other hand, sectors such as IT, pharmaceuticals, and certain cement industries were impacted during this period.

Despite the fluctuating performance of various sectors, there was a structural improvement in the BFSI sector, with non-performing assets (NPAs) in a better state. Sustainable earnings growth was observed in different segments throughout the year. Overall, Q1 2023 was deemed positive, with potential for further growth in the future.

Investment Decisions and Portfolio Performance Amid Market Volatility

According to Mr. Anil, “In the recent quarter, strategic investment decisions were made considering a macro view and outlook on the market. One notable action was a shift in weightage from large-cap to small and mid-cap strategies based on comprehensive analysis and research. This move was contrarian, as the market experienced volatility related to global events and local concerns, such as issues with Silicon Valley Bank and Adani Group in India.”

Despite the prevailing uncertainty, the belief was that the markets would perform well throughout the financial year, especially in the small and mid-cap segments. Further, Mr. Anil said, “A thorough analysis of relevant data and market trends supported this decision. Consequently, several large-cap stocks, including Bharati Airtel, Maruti, and Sun Pharma, were reallocated to small and mid-cap holdings. Specific names of companies onboarded in the portfolio are not disclosed. Still, they included NBFCs, financial services companies, and specialty retail firms, along with exposure to emerging themes expected to drive the bull cycle and sustained performance in the future. These strategic moves aimed to enhance the portfolio's resilience and capitalize on potential opportunities amid market volatility.”

Positive Macroeconomic Outlook and Sectoral Growth Projections

The overall economic scenario has experienced significant stabilization, while the domestic macro environment exhibits strength, backed by positive indicators. Notably, key commodities have undergone a cooling-off period, leading to a moderation in inflation. This development holds the potential for a decline in interest rates. Despite a brief yield pause, it can create a favorable environment for companies seeking to borrow and foster growth.

Anticipated growth in earnings is expected to be driven by the banking, financial services, and insurance (BFSI) sector, as well as the automobile industry. Additionally, robust and healthy growth is projected for the consumer and information technology (IT) sectors. Although metals and cement industries may display relatively muted performance, they are expected to show improvement compared to previous quarters.

Based on domestic demand dynamics, sectors focused on the domestic market are anticipated to outperform those oriented toward exports. This positive outlook aligns with the expected performance of the domestic economy.

Mr. Anil Rego discussed several other questions in detail during the interview. Watch the Interview session with the link appended below -

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