We’re not fans of the re-open trade: Rajeev Thakkar, PPFAS Mutual Fund

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In a note released on Friday, Rajeev Thakkar, Chief Investment Officer (CIO) of PPFAS Mutual Fund, emphasised that the fund house was not in favour of sector rotation or reopen trade. According to Thakkar, there is ‘unbounded optimism’ in sectors that the asset management company (AMC) was not invested in. These include metals, PSUs, airlines, speciality chemicals, PSU and corporate banks and ‘obscure small and midcap companies.’

“To the extent that we are not in the hottest sectors of the moment and that we may see some build up of cash in the portfolio, the fund could see some underperformance in the near term,” Thakkar wrote.

“Indeed some of the narratives do not make any sense to us, a popular airline stock is trading close to all time high prices last seen in 2019. It is almost as if COVID never happened and that the financials of the company are in the best of health. Reality of course is different,” he added.

Interglobe Aviation, which operates Indigo Airlines, currently trades at Rs1,785 close to the 1,850 levels it traded at in September 2019. PPFAS Flexicap Fund the flagship scheme of the fund house has 65% of its assets in domestic stocks, 29% in foreign stocks and around 6% in cash. The scheme’s international holdings are concentrated in tech stocks such as Microsoft and Facebook. In the past month, the fund has underperformed the BSE 500 TRI delivering 3.52% compared to 6.93% on the index. However it remains an outperformer over a 3, 5 and 7 year basis with a CAGR of 20.23% over the past 5 years.

Thakkar also dismissed arguments the investors should switch out of tech stocks which benefited from the lockdown.

“The flip side to the Re-open Trade is that sectors and companies which did well in the lockdowns are assumed to do poorly in the future. We have been owning companies like Amazon, Alphabet and Facebook before the lockdowns, during the lockdowns and continue to hold them today. The trends favouring e-commerce, digital advertising, cloud computing, streaming services and so on are multi year / decade trends and withdrawals of lockdowns will not cause us to discard such companies,” he said.

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