Fund manager insights: SBI Flexicap MF Anup Upadhyay on why flexi-cap funds suit most investors

In an interaction with Upstox, Anup Upadhyay, who manages the SBI Flexicap Fund, spoke about why flexi-cap funds are suitable for most retail investors, the sectors he believes offer long-term opportunities, and whether this is the right time to invest a lump sum.

The listing will not have any impact on our investment decisions or philosophy. Every scheme will continue to be managed according to its current investment strategy and internal risk template.

The majority of retail investors have the risk appetite for diversified exposure to stocks across size buckets, but they lack the resources to take informed calls on allocation among different buckets and among different industries. Flexi-cap funds solve this problem and are suited for most investors. They don't suit investors who either have very low risk appetite or whose financial situation doesn't allow them to take equity risk.

Investors who feel confused should also take the help of a certified financial advisor to methodically identify their risk appetite and choose categories and schemes.

Private Banks and Healthcare are the largest active weights in the Flexicap fund. There is a strong growth outlook in Ecommerce, Garmenting, Data Centres, Power Equipment, Defence and Electronics Manufacturing.

Private Banks have seen steep correction in valuation after sustained selling over the last few quarters. Their balance sheets continue to be healthy with comfortable asset quality and good capital adequacy. Ecommerce players are rapidly gaining market share from traditional retailers in urban India.

The healthcare sector is seeing bright spots from companies investing in speciality drugs, contract development and manufacturing and novel research. Garment manufacturers will benefit from market share gains in the UK and Europe after implementation of FTAs.

The decision should be taken based on the current asset allocation, return expectations and financial capacity of the investor. Investors who would be satisfied with low double-digit returns over the next 3-5 years should invest in a lump sum today. Those who don't have adequate exposure to equity markets, say less than 50% of net worth, should also invest in a lump sum today to bridge the gap.

The decisions are an outcome of changes in view on sectors and companies. If a stock that we like fundamentally has seen a price correction and has become attractive, we switch out of less attractive investments and buy the stock. We also sell stocks or sectors when there is either a negative change in business or when the stock becomes expensive.

In June, we cut exposure to Energy and increased exposure to private banks, healthcare and ecommerce sectors. Signs of reduction in hostilities in the Iran war and end of summer season drove reduction in exposure to the energy sector. We also increased exposure to companies with relatively higher growth prospects.

Investors should come in with a horizon of at least 5-7 years. The horizon should ideally cover the majority of a market/economic cycle. A shorter horizon may see one exit at the wrong part of a cycle. Investors should expect flexicap funds to give higher returns than a broad benchmark like BSE500.

Financials is likely to be a leader in the next leg of the rally. Many manufacturing stocks would also be among the leaders. However, manufacturing covers a wide gamut of industries like auto ancillaries, defence, electronics, pipes, metals, cables, etc. All of these industries will not be leaders. It's necessary to analyse each stock opportunity individually because there is a lot of dispersion in businesses. While defence has a strong growth outlook, stock prices have been going up, and valuation multiples are demanding. I won't expect all of those stocks to deliver high returns in the next cycle because of high starting valuations.