Karan Bhagat, Founder, Managing Director and Chief Executive Officer, IIFL Wealth & Asset Management is very conscious of the value-to-earnings and value-to-book multiples when it comes to the equities in its investment portfolio. “Whenever the price-earnings ratio (P/E) is over 20-21 and the price-to-book ratio (P/B) is above 3.6-3.7, I reduce my equity allocation by 30-25%. I’ll do it,” he said.
Because of this, when the markets boomed during Kovid, Bhagto Limited its equity exposure to 20-40%. “My equity allocation works out broadly into three buckets: 30-35% in the high-value segment; 70% in a fairly valuable area; and in the 100% undervalued zone. The only challenge is that doing so is easier said than done because markets can stay in overpriced areas for a long time. For example, the markets were overvalued in the last two years and it is important to be patient to stay out in such a situation,” Bhagat said during an interaction with Mint as part of the Guru Portfolio series.
In this series, leaders in the financial services industry share how they manage their money.
Equity is a very important area for Bhagat when the Nifty 50 is somewhere between the 14,000 and 16,000 mark. “This is when I will increase equity by another 20-25%, which is more or less just getting started.”
portfolio strategy
While being out of the markets consistently for the past two years has given Bhagat a chance to enter the markets at fair valuations, he concedes that the strategy also has downsides.
“If I look back over the last 24 months, I find that one strategy that did not work for me was reduction in equity allocation even though Nifty was rising at 15,000-16,000 and going above 18,500. Was. It could have worked if I had come in at 15,000 or so and sold for 18,000. But, that doesn’t happen often,” he said.
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His debt portfolio largely consists of liquid funds and ultra-short term funds as he does not see debt as a long term investment. He considers Real Estate Investment Trusts (REITs) to be a good loan product.
“REITs have two big benefits for me – one, they are not subject to tax so I effectively get a 5-5.75% after-tax return and second, they allow me to participate in commercial real estate without the challenges of leasing. allow.” Dividend from REIT is tax free in the hands of the investor if REIT has not opted for favorable rate of corporate tax for itself.
family finance
When asked how Bhagat involves his spouse in the family’s finances, he said his wife Shilpa is smart as far as it pertains to money management and they collectively spend an hour every month to monitor their finances. remove.
“She helps me make comprehensive investment decisions, but more importantly, she is actively involved in our succession discussions and makes sure all nominations and other holdings are in place.”
The couple has made it a point to actively educate their 12-year-old twins about the concept of money and the comforts that come with it. “It’s very important because they’re growing up in an environment that’s very different from the humble background we come from,” he said.