Remain biased towards private sector banks: Mahesh Patil, Birla Sun Life MF

In a chat with ET Now, Mahesh Patil, Co-CIO, Birla Sun Life MF, shares his views on Birla Sun Life 95, a hybrid equity-oriented fund from the house of Birla Sun Life Mutual Funds. Excerpts:



ET Now: How are you managing this fund? How are you looking at the debt equity mix at any given point in time, especially in a volatile market? Also, where are you finding opportunity for return in the corporate bond market?



Mahesh Patil: In this fund our typical debt exposure varies from 25 to 35% and depending on our view on the equity market and on the debt market in terms of interest rates, we manage that exposure.

At this point in time, our total debt exposure in the fund is around 30% of the overall corpus and with the recent repo rate hike, we have increased our exposure on the debt side marginally to take advantage of the higher yield. On the debt side our typical maturity is between three and five years.

So we are building a portfolio on accrual basis on high interest rates that we see in the corporate debt side and slowly as interest rates come down, which is our view from the medium-term perspective, we will move out, take the gains on the debt side and move or increase our exposure on equities where we are bullish from a medium-term perspective.

That is typically how we manage our debt side to take advantage of the current interest rate cycle.

ET Now: The fund has done well year to date. Are hybrid funds a good option in this kind of a market environment?

Mahesh Patil: Yes, historically the hybrid funds over a longer term have tended to give returns. Better-managed hybrid funds have given returns somewhere in line with the equity funds and since the fund has got a debt component, which is typically around 70-30, we have seen the volatility in the funds to be much lower.

So typically when the markets are down, the debt side on the portfolio contributes positively. On a risk adjusted basis, the balance category as a whole tends to give better risk adjusted returns than some of the other diversified equity fund.

That is what investors should look at when they are investing in this category and on the debt side typically it is kind of an accrual strategy which we deploy and that part also gives us returns.

If you are investing directly into a debt fund, then there is a taxation component which one would have to look into. So a hybrid fund is typically classified as an equity fund. So you get that benefit also on the debt side. The tax benefit also helps to increase the returns for the investors.

ET Now: Just finance and IT are about 27% of the fund. You also have a lot of focus on debt paper like that of DLF. Explain the kind of allocations you have made as part of this fund.

Mahesh Patil: Well, finance and IT on the equity side would account for typically around 25% in the benchmark financial services and in case of IT, it is around another 15% or so.

These are large sector weightages. So our exposure in the fund is also in line with that. We are not significantly overweight or underweight these sectors.

We are positively inclined towards the IT space. So there we have had some good picks in the large cap names and those have aided the fund. On the financial side we are more biased towards the private sector banks and that is what has been our stance for the last one year and they have played out much better than the PSU banking space.

Broadly on the financials we are neutral. We expect that there are still some concern on asset quality and we are slightly more cautious and are focusing on banking stocks, more on the banks with the retail focus where we see that the stress on the asset quality is much less than banks which have got a large amount of corporate book.