Virus or Not, Top India Mid-Cap Fund Manager Bets on Consumers

(Bloomberg) -- The coronavirus scare that sent stocks plunging is doing nothing to waver the confidence Akash Singhania has in his stocks. His big bet lies on India's consumers.

“We are bullish on consumption,” said Singhania. He oversees Motilal Oswal AMC's Midcap 30 Fund, which has beaten 93% of peers in the past year, data compiled by Bloomberg show. “Most companies in our portfolio are gaining market share at the expense of smaller and unorganized players that face liquidity challenges.”

With India's economic expansion at an almost seven-year low, Mumbai-based Singhania looks for consumer-linked companies whose earnings stand to increase even in a gloomy growth environment or that have high return on capital and low levels of debt. Those include lenders who help finance consumption as well as consumer-discretionary and staples shares, such as fast-food chain operator Jubilant Foodworks Ltd. and shoemaker Bata India Ltd.

Consumer-related stocks accounted for about a third of the fund's $270 million in assets as of the end of January.

AU Small Finance Bank Ltd., the fund's biggest holding, has more than doubled in the past year. It moved quickly to fill the space left by non-bank finance companies hit by a credit squeeze, Singhania said. Astral Poly Technik Ltd., which makes plumbing systems, is another of his favorites. Sales volume could grow 25% in the coming quarter as it grabs market share from regional and unorganized rivals struggling to secure funds, its chief financial officer said in a call with analysts last month.

Stocks have suffered recently as the coronavirus spread outside of China, raising concerns over its impact on the global economy and profit growth. The S&P BSE MidCap Index tumbled 7% last week, matching the drop in the benchmark S&P BSE Sensex Index. The Motilal Oswal mid-cap fund fared a bit better, falling only 5%.

Singhania sees the virus hit as a short-term hiccup that won't affect earnings of the companies he owns. But if any of them fails to deliver strong profit growth, he'll sell.

“If growth in profit-after-tax goes haywire -- below our target of 10%-12% -- nine times out of 10 that's why we would sell a stock,” Singhania said.

To contact the reporter on this story: Ronojoy Mazumdar in Mumbai at rmazumdar7@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Cecile Vannucci, Margo Towie

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