Arvind Chari suggests that private banks and insurance companies present opportunities in the financial and ITsector due to AI . He also predicts a positive shift towards information technology, overcoming concerns of a slowdown. Chari outlines his portfolio allocation as of November 2023, with 35% in financials, 20% in consumer discretionary, 15% in information technology, 7% in utilities, and 5% in healthcare.
Private banks and insurers are among the pockets of opportunity, while information technology will soon shed the worries around slowdown, says Chari.
Regarding the IT sector, Chari acknowledges the market’s bearish sentiment but remains optimistic, drawing parallels to the sector’s resilience in the face of past concerns like digital disruption in 2014. He believes that IT could benefit significantly from artificial intelligence, and worries about AI and global slowdown should eventually normalize.
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Chari emphasizes the importance of value investing and distinguishes between value and cheap stocks, highlighting the significance of catalysts in identifying value. He mentions that about 90% of Quantum’s Assets Under Management (AUM) come from global institutional investors.
Additionally, Chari discusses three key risks—liquidity, governance, and valuations—that his fund uses as filters for portfolio selection. Liquidity risk is evaluated across various asset classes, with a focus on minimum average traded volume. Governance risk considers corporate governance standards, reputation, and headline risk. Valuation risk is addressed by seeking a margin of safety, defined as a 25-50% discount to 2-2.5 years forward intrinsic value.
Chari points out the mean-reverting nature of the Indian economy, market, and valuations, emphasizing the need for a margin of safety. He notes that the ‘Q India Value Equity Strategy,’ initiated in 2000, has achieved a 15.6% growth in rupee terms over the last 23 years.
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