“We have an indicator which tracks larger cap indices versus small cap or mid cap indices. While we are not at peak levels and there has been relative correction in mid and small cap space, they are still not below-the-average in terms of valuations. So, right now, the space is slightly above average even after the correction but they are not at attractive levels,” Thakkar said during an interaction with Mint for the Guru Portfolio series. In this series, leaders in the financial services industry share how they are handling their finances and investments.
Asset allocation
Thakkar’s asset allocation has largely remained the same over the last one year, except for his debt exposure. This has come down to about 2% from 4% earlier.
Thakkar says he used up some of his contingency fund to buy shares of his fund house that were put on offer by other employees. This contingency fund, he says, had a corpus that could sustain two years worth of expenses. Now though, after the share purchase, it still can account for more than one year worth of expenses.
Apart from liquid funds, Thakkar’s investments in employees’ provident fund and bank fixed deposits (FDs) make for the rest of his debt allocation.
Post the share purchase, his allocation to equity has gone up from 82% to 84%. That for real estate continues to remain at 13%, while gold—which is held in the physical form—is at 1%. The gold, he says, has been passed down generations. Thakkar doesn’t consider real estate as an investment, particularly his self-occupied property.
A large chunk of Thakkar’s allocation is concentrated in PPFAS MF in one form or the other. He says about 66% of his equity portfolio is in unlisted shares of PPFAS MF and 33% in its flagship scheme – Parag Parikh Flexi Cap Fund. About 1% is in other schemes. This includes Parag Parikh Liquid Fund, Parag Parikh Tax Saver Fund and Parag Parikh Conservative Hybrid Fund. He also has some exposure to liquid funds of other fund houses.
Thakkar admits to the mega exposure of his portfolio to PPFAS MF but claims this was not a part of any equity investment strategy. “Wherever people have this kind of entrepreneurial approach to their own business or where they are part of the key managerial group, the company itself becomes a significant portion of one’s net worth because of Esops (employee stock options),” he says.
Parag Parikh Flexi Cap holds the bulk of Thakkar’s listed equity investments. About 10% of the fund’s investments are in domestic mid and small caps and 58% in large caps. About 17% is in international equity. The rest is invested in cash and debt instruments.
Thakkar says his portfolio garnered an overall return of 2-3% over the past year.
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Reits on the radar
Thakkar doesn’t hold any alternative investments directly. He says the fund house tracks domestic companies in the unlisted space but this is done mainly to identify and examine companies that could be competitors to those in the listed space or those that have the potential to list in the markets.
While Thakkar doesn’t have plans to look at real estate as an investment, he says Reits (real estate investment trusts) seem to be an interesting segment. “We have a small exposure to Reits through our conservative hybrid fund, in which I have a small exposure. If we were to consider investing in real estate, Reits probably would be the way we would look at that space,” he says.
Parag Parikh Conservative Hybrid Fund has about 7% exposure to Reits.
Investment approach
Thakkar’s approach to equity investments is to maintain a long-term investment horizon and wait for good investment opportunities.
As a fund manager, he looks for investments at attractive valuations, particularly in companies that are backed by quality management and businesses.
“One way to approach this is the statistical value, where the assets of a company are worth ₹100 but the firm itself is valued at only ₹50. So, it is cheap. The traditional way of doing things has been to look at factors such as low price-to-book or high dividend yield or low price-to-earnings, etc., which is what Benjamin Graham (the father of value investing) taught many years back. The downside to that is if the company is mismanaged or has some problems pertaining to its business or has some other issue. Then, the valuation of the company which is quoting at ₹50 would go down further. Ideally, you would want a combination of the two; a good management and a significant discount,” he says.
As for the long-term investment strategy, he says that “The ups and downs in the markets due to various factors, interest rate movements, geopolitics, etc. can all affect equity prices. So, one should look at a five-year plus horizon to really benefit from equities.”
Advice to investors
Thakkar has a piece of advice for investors, especially in the current market environment: keep modest expectations about returns and do not unnecessarily tinker with investments that can lead to tax leakages.
He says there was zero long term capital gains (LTCG) on equity and indexation benefit on debt funds for LTCG earlier. “Now, that everything is taxable and at slightly higher rates, tinkering with your investments far too often will result in tax leakages. Just keep putting your money in either hybrid funds and do not redeem them. Or, don’t change your asset allocation too frequently. Even if you get those shifts right, most of the gains will go away in taxes. So, maintain a stable asset allocation and let things compound over time,” he says.
Thakkar, however, says, “Given the imperative to control inflation, to slow things down and a rising interest rate-kind of environment, investors should not expect very high returns in equity.”
“If India grows at somewhere around 6% or thereabout and we have 5% kind of inflation, nominal GDP (gross domestic product) growth would come to about 11%. Corporate profits can be around 11%. So, somewhere around double-digit returns would be possible but equity returns are not guaranteed and can vary significantly,” he says.
“Just because bank FDs are offering 7-7.5% interest rate, you cannot have unreasonable expectations of 20-25% from equity. Lower the expectations, the better it is for investors. If future returns are higher, you would anyway be happy. If expectations are lower, there are less chances of disappointment,” he adds.
Family and lifestyle
Thakkar’s wife, Hemangini Thakkar, is also a finance professional working in the mutual fund industry but on the risk-management side. My family is very well aware of what is happening in our investment portfolio, but the decisions on investments are largely left to me.
Thakkar says it is important to take care of your health as one grows older. He says he has been doing intermittent fasting since the last 2-3 years and has reduced the intake of carbs. He visits the gym only occasionally as he finds it a bit boring, but goes for regular walks. He is exploring dance forms like Zumba as a way to exercise and stay fit.