Kashyap Puajara, Executive Director, Fund Manager, PMS, Enam Direct, spoke to Priya Kansara Pandya on the markets.
 
What is the strategy that you have been adopting as a fund manager in the last six months?
 
We have a bottom-up approach while investing in companies. Our endeavor is to generate capital gains over medium-to-long term through diversified portfolio of companies. 
 
The strategy would be to identify superior businesses with healthy cash flows with greater operating margins, and then allow the power of compounding to work in our favor. Hence, the broad strategy would be guided by investing in growth-oriented companies, backed by sound management and available at a reasonable valuation.
 
Our focus is on research based investment approach and stock selection based on high margin of safety.
 
What is your portfolio construction approach?
 
We adopt appropriate equity diversification to diversify away the unsystematic risk. We are more large-cap tilted (market capitalization of Rs 5,000 crore or more), meaning which, approx 60% of our portfolio constitutes large-caps.
 
The mid and small cap comprises approx 40% of the portfolio. Of this, the exposure of small cap companies (less than Rs 1,000 crore market capitalisation) is less than 20%.
 
In our portfolios, we are not exposed to any sector or industry group for more than 25% and not exposed to any stock more than 12.5%.
 
Where do you see the markets going ahead?
 
The markets generally mirror corporate earnings and interest rate expectations govern PE multiples. If Sensex earnings are in the range of approx Rs 1,300 in FY13, and if we assume the average PE multiple of 18x on the equity markets, we could possibly look at the Sensex upwards of 23,000 in a couple of years.
 
There could be some volatility in the short-term, however if the earnings actually come through, then we could expect the Sensex mirroring the same.
 
Which sectors do you prefer to invest or avoid?
 
We are pursuing three themes that are the growth pillars of the India story namely consumption, infrastructure and financial services.
 
Within this framework, we participate across different sectors depending on their valuations, management quality.
 
We like print media, auto space, select auto components within consumption space. In the infrastructure vertical, we like private power generation companies, cement looks very promising from a long-term perspective and select mid-cap engineering companies.
 
Under the financial services umbrella, we like public sector banks, select NBFC’s and entities having exposure to insurance. We are underweight on metal companies as of now due to global uncertainties.
 
What expectations do you have from the Q2FY11? How will FY11 pan out overall?
 
Indian companies’ growth has been generally back ended. Hence, the second half of the fiscal has always been better than first one. Overall, we expect FY11 to be better than FY10 and companies will pick up growth in the second half. We expect Sensex EPS of over Rs 1,000 for FY11.
 
Foreign Institutional Investors (FIIs) are investing heavily but market has been range bound? Why do you think this is happening?
 
The developed world is still mired in structural problems whereas India is structurally attractive backed by favorable demographics and growth dynamics.
 
Thus, it is a compelling case for foreign investors sitting on liquidity. Though Sensex may have remained range bound in the near-term, broader markets have done well due to broad based foreign investors’ participation.