Ashish Chaturmohta: That’s why we said that in 40% of our allocation, we are very active. So there, we don’t hesitate to take an active call. Even if we have to take that call within a month’s time, we will not hesitate.
However, when we try to identify some larger themes, and we believe that these themes can do really well, over a long period of time, we try to play those themes even through ETFs. For example, this PSU bank ETF. I’ve been recommending it since 2019-20 when this ETF was quoting around Rs 20-21. Both, the PSU bank ETF as well as CPSE ETF, which used to quote at Rs 22-23 levels. And today, if you look at these ETFs, they have given almost four times return in the last 3-4 years journey.
The reason that sometimes playing an ETF makes a lot of sense is, in the PSU banking basket, initially, it was very difficult to take a call beyond stocks like State Bank of India or Bank of Baroda for that matter, because there were lot of concerns with regards to their asset quality and the kind of NPA numbers they were throwing.
But one thing was very clear—the way credit growth is going to emanate because of the manufacturing (sector), because of the government capex that the government is trying to put in, a lot of private players will eventually come and will need a lot of credit. And that’s how there’s going to be a lot of credit growth momentum. Typically, most of these PSU banks try to be more on the corporate credit side rather than on the personal loans or what you call as a retail loan. That’s why we believe that if this loan growth momentum is going to be 17-18% kind of credit growth, NPA numbers are going to come down because structurally, this NPA cycle, which we saw in 2011 is going to be behind us and the stress is coming out of the public sector banks.
But we were not sure whether it’s going to be tier-II or tier-III players who are going to be bigger leaders. So, rather than taking a bet on individual names, we thought that it’s better to play the theme through a public sector ETF and it really helped us. In these nine months also, I think, this ETF must have delivered more than 40% kind of return. Same is the case with the CPSE ETF where you have exposure to power, you have exposure to defence, you have exposure to oil refinery companies.
Typically you would want to avoid oil refinery companies, because you don’t know when the government will take some stringent measures, which will lead to margin erosion. That is exactly what happened to ONGC at one point of time, where you put in windfall tax gain.
But one thing was clear—because of the governance level, which is improving in the public sector space, you know, the price to governance, which we call as is a very standard metric to judge that if the governance levels increases, you will start doing a higher P/E multiples and that’s how we realised that rather than betting on individual names, it’s safe to bet on a public sector ETF to ride this entire trend, which is emanating in the space.