We have talked before when you said you are also sitting on a lot of cash – 10-15%. Are you still sitting on cash or is liquidity tempting you to jump in again?
Dipan Mehta: No, we are sitting on cash. And the amazing thing is that even with cash, when you look at the aggregate return of your portfolio, it still beats the benchmark. This may be due to good stock selection or rotation of this sector, and it provides comfort. If you hold cash and the overall return includes cash that lags any index that is tracked, then there is concern and panic that you have to fully invest, you need to find new ideas, you will make the mistake of buying overvalued stocks. .
But while your overall portfolio is also growing, because your existing holdings are doing better or better, you can continue to hold cash for a long time. I always keep this cash strategically. If and when a correction came in the past bull market, I never had the money to invest. This time, I wanted to play it a little differently. Having 10-15% in cash isn’t as negative as I manage my money here. I feel comfortable still investing in good blue chip stocks and then have some amount of cash for strategic investments whenever they come up.
Do you have three top fours, if you can please share them with me?
Dipan Mehta: Regular disclosure. We have discussed Bajaj Finance which is big and it has underperformed but the portfolio has done well as other stocks have done well. Tata Elxsi, another big underperformer, doesn’t have a portfolio that looks pretty good. We have had some good hits, like Inox Wind has done very well for us.
Also stocks like Zomato have done very well. There is an Action Construction, PolyMed. So, a good mix of midcap stocks has excelled. Dixon Technologies has produced an unbelievable. When I bought it, it was expensive, but it only got more expensive and so did Amber Industries. So, there are some good multibaggers, which have been caught in the last three or four years and this is what drives the returns.
Because there are now reports that the company’s journey will take place in the next few years. Spiritual travel or religious tourism drives many domestic and international trips as well. What is your view on the whole theme of railway stocks, airline stocks, and hospitality stocks?
Dipan Mehta: We are very positive in all travel and tourism places. Disclosure, IndiGo remains the top choice. I still feel like I’ve got some way to go. And with the price of oil falling, it will certainly reduce the pressure on margins. Strategically it is going in the right direction in terms of overseas expansion and moving up the value chain, which will also increase revenue and it is a very well-managed company with a clear focus on costs. So, if you want to play the aviation business, IndiGo is your best bet. We also like the hotel company. Indian Hotels is another interesting company. They are trying to find another asset exposure model that will increase their return ratio and expand greatly. So, look for good quality stories on the travel and tourism board. This trend of higher tourists, and higher travel will continue for several more years. Gen Z is looking for experiences more than assets and that certainly benefits travel and tourism companies. There is an interesting IPO also coming from the Leela hotel, looking at it also quite closely.How did you approach the EMS space? You have Dixon, but then there’s Kaynes, Syrma SGS. Growth is great, but margins are not great.
Dipan Mehta: It’s true and there’s a client concentration problem here and there and if one or two contracts don’t pan out or there’s a problem there, it’s likely to affect short-term income. It’s a great place, but I feel like it’s too much at this point. I was not particularly impressed with the quarter number for many EMS players. I mean, Dixon was out looking. Kaynes also did well. But many tend to reveal numbers or report numbers that are quite disappointing. So, I don’t invest fresh money in this particular sector.
If there is a sharper correction and the earnings also go up and reach that sweet spot when it is available at PE multiples like 40-50 times or more, maybe 30 to 50 times, then depending on the business, product , client concentration, diversification, one can view the stock positively.
