Taher Badshah, Chief Investment Officer of Equities at Invesco Asset Management (India) Private Limited has several years of experience in the Indian equity markets. Earlier he served as Senior Vice President, Co-Head of Equities, and Senior Fund Manager at Motilal Oswal Asset Management Company Limited and also was an Interim Chief Executive Officer. He has also served with firms such as Kotak Mahindra and ICICI Prudential among others. “We have got adequate time to think through our positions,”

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said Badshah while speaking to CNBC-TV18 about the timing of starting both smallcap and midcap funds. “This is the right configuration of the market in which mid and smallcap as an opportunity makes sense,” he further added. Edited excerpts:

Q: You have started your midcap and smallcap fund at a right time. The market giving you some kind of indication that the worse of the price damage in broader market is out of the way?

A: At least from the point of view that we have got adequate time to think through our positions, think through our stocks and buy them relatively comfortably during this whole phase of the last six months, so even since the time we launched I wouldn’t say that the midcap and the smallcap market has kind of done much. It did show up for a couple of months and then we have once again caved in, so net-net there is not really much on the table from the point of view of absolute returns.

However, clearly that from a perspective of building out a nice and neat portfolio over the next 2-3 years, has given us enough time opportunity to think through and even buy given the liquidity constraints.So, that has been the advantage of having launched it a few months ago. It reflects our conviction that this is a right time notwithstanding some of the things which are immediately lined up in terms of events etc. Over the next 2-3 years, I think this is the right configuration of the market in which mid and smallcap as an opportunity makes sense. That is basically the faith that we are going ahead with.

Q: Auto is something that is top of mind for everyone. Weknow that February numbers might not be very strong, but is this pretty much the tough? What are you doing with auto stocks, are you looking to buy more?

A: Incrementally, we are getting a little more positive, we, of course, owe positions, so it is not said that we were absent from this space. The relative attractiveness of the space is now getting a little higher and we know that we will still pass through a few months or maybe a couple of quarters which may not look really very exciting from the point of view of headline numbers. But this is a space which generally has not seen such a sharp correction in the market for a fairly long period of time in at least my memories. So, we have been getting that opportunity in a long time to buy something which is - a couple of things have even turned reasonable cheap. Few other things are significantly off the highs in terms of valuations. This as a sector still has a fairly decent amount of promise from a consumer discretionary point of view as a sector. So clearly our preference is there, we own a lot of different names in many of our strategies and both the ancillary as well as the OEMs space is incrementally is look attractive so there we are as far as the auto sector goes.

Q: You also have a smallcap Index and that was the one that actually took your breath away if you remember the Index in 2017. It was the best performing Index in the world, 60 percent up in 2017. How would you compare that? Do you think that has a better chance to outperform now, your own smallcap fund?

A: I would think so, so that is exactly the notion with which we went into this and new fund offer (NFO) and at that time in October 2018 we had seen valuations which were - they had started to correct but even they had gone up to as high as 40 percent premium to the Nifty valuations at that stage. They were coming off, they had come off to more like a 10 percent premium by October and now as we see it we are actually seeing this smallcap Index to be a discount to the Nifty or the large-cap indices. So by a modest amount but still it is now at discount.

So that is by and large the situation than what we saw even in early 2014 or late of 2013. So similar kind of conditions, similar kind of anxiety, similar kind of market thought process, push back on small and midcaps and so on and so forth so I think I see a lot of similarities from that year itself.

Then we know what happened post-2014 up until at least 2017. I am quite confident that we are seeing a number of individual stocks turn cheap. Many of the lot more attractive now and in this kind of decline, everything from the good quality as well as not so good quality has got kind of received the same treatment. So we have a lot more choice than we probably had in the early part of. So it is a big change in a very small period of time. I think that is an opportunity.

Q: Looking at your portfolio you have a lot of NBFCs exposure, correct me if I am wrong but it looks like you don’t want housing finance. Everything else is there in your portfolio?

A: We have basically looked at more of a non- monoline kind of a NBFCs at one level and so that is a reason probably we have kind of and we are amongst them, in the mortgage space, in particular, we probably preferred more of the large-cap positioning simply because there will be a lot better place from the point of view of the liability profile.

Whether we like it or not many of this mortgage, the smaller or mid-sized mortgage entities do have a fair bit of LAP or real estate developer related exposure as well which may or may not be very comfortable at this stage of the market.

So, to that extent, I think we have kind of avoided that space because the implication from that part of the book could be quite significant one way or the other so that is actually how our thought process has been as far as selection of companies for the NBFCs go.

Q: Would you worry that the NBFC problem can still destabilise, one-off accident bringing more trouble to that space?

A: We are kind of behind that. If I just look at it in contrast with let us say the banking sector related problem that we have had or we have been having for the last 3-4 years which was lot bigger and larger part of the banking space was a lot more stressed on the other side the NBFC is a relatively, it is important.

Q: That is an unfair comparison, they have safe liabilities and they have the sovereign’s hand so I would think that banks would never go under, they have the sovereign’s hand. Here again, there is another downgrade by CRISIL of DFHL so I am just wondering, anyway your thesis is no accident?

A: I am not saying there will be no accidents, from an overall market perspective it should be relatively little more manageable, we are probably looking like being out of the crisis may be the problem still remains and we have seen some aftershocks of it as well post the first crisis that we saw. I am not undermining that the same time, but it looks like probably we will manage this little better than what we had to go as through the pain with regard to the banking sector as such over the last 2-3 years. I don’t know whether the pain will be as long drawn as we had in the last three years.

Q: It is a 10 percent uptick in Bajaj Autos February numbers, your thoughts on this?

A: As far as Bajaj Auto goes they have been kind of reporting fairly steady numbers even in the last few months. We will have to look at the split. I am sure exports would have probably played a role as it has been playing a role for some time now.

Q: 15 percent higher.

A: That is good, given the expectations around this sector it is a fairly decent number I would think. We will have to observe some of the other players also in the market so we will see more of it today when we look at the rest of the pack.

Q: February itself was a pretty decent month for a lot of steel stocks. Do you have a favourable view on ferrous metals or in general metals?

A: We wouldn’t say that we have a significant strong top-down view on this sector, but we have noticed a couple of pockets where value seems to emerge. In all the commodities the call on the cycle is a lot more important here.

When we look at a couple of this bottom-up opportunity they look like turning value. They seem to be significantly beaten down. Some of them have got even good cash on their balance sheets and so on so they are trading at pretty ridiculously low multiples even assuming that the cycle could probably worsen from here.

That is something which attracts our attention but is we taking a call that we see a significant up move in commodity prices as of now or going forward over the next one year I don’t think we are in that situation at all.