Summary of "Rajeev Thakkar PPFAS: Why You Won’t Get 19% Returns Again l Power Talks Ep 11"

Rajeev Thakkar PPFAS: Why You Won’t Get 19% Returns Again | Power Talks Ep 11

Market Context & Macroeconomic Environment

Historical equity returns of around 19% annualized (as seen in the PPFAS fund) are unlikely to be repeated due to:
- Lower nominal GDP growth and inflation compared to previous decades.
- Past high equity returns were partly driven by elevated interest rates and inflation.
Current expected equity returns in India are around low double digits (10-12%), roughly aligned with nominal GDP growth (~6.5% real growth + 3.5-4.5% inflation).
Equities remain volatile with no guaranteed returns, making them unsuitable for short- to medium-term financial goals.
Bond yields have fallen significantly since the 1990s peak:
- Government bonds once yielded ~14% per annum.
- AAA corporate bonds yielded ~18%.
- NBFC debt yielded ~21%.
In the mid-90s, debt funds delivered returns of ~20%, making bonds more attractive than equities at that time.

Investment Philosophy & Strategy

Rajeev Thakkar follows a value-oriented investment style focusing on:
- Companies with strong cash flows.
- Initially targeting low PE and high dividend yield stocks.
- Later influenced by Warren Buffett and Philip Fisher principles emphasizing quality at a fair price.
Behavioral edge is emphasized to avoid common investor biases:
- Hiding cost price during portfolio reviews to reduce loss aversion.
- Avoiding high-frequency data; preferring annual reports over quarterly or daily news to minimize noise.
Promoter quality is a critical filter, focusing on:
- Competence, integrity, and energy.
- Integrity is paramount to prevent misuse of shareholder capital.
Avoids envy as an investment sin; focuses on understanding and conviction rather than chasing multibaggers.

Fund Size & Portfolio Construction

PPFAS fund manages over ₹1.2-1.5 lakh crore in assets under management (AUM).
Fund size limits investing in very small companies but ample opportunities remain in large and midcaps.
The fund ranks approximately 15th in India by equity AUM; smaller than some large AMC peers (e.g., HDFC AMC with ~₹5.5 lakh crore equity AUM).
Portfolio concentration:
- Typically holds 40-50 stocks.
- Prefers a reasonably concentrated portfolio in large and midcaps (25-30 stocks).
- Holds a slightly larger number of small-cap stocks.
Sector allocation caps include:
- Banking sector ~20%
- Overseas exposure ~11%
- Cash and debt combined ~35% (cash ~24%)
Cash holding is opportunistic, not a fixed target; leftover funds after buying preferred stocks are parked in money market instruments.
No fixed market valuation triggers for deployment; focus remains on individual company valuations.
The fund actively buys and sells; for example, last year it increased stakes in companies like AEL and Mahindra due to sector consolidation and return of pricing power (telecom and auto sectors).
The fund exited Motilal Oswal (capital markets space) due to cyclical challenges and rising competition impacting margins and volumes.

Sector & Thematic Views

Current focus is on large caps due to valuation attractiveness; small and midcaps are expensive relative to fundamentals.
Rejects the notion that small caps always outperform; returns are cyclical and driven by business quality and valuations.
Overseas investments primarily target large US tech companies and sectors benefiting from secular trends such as:
- Streaming over linear TV
- Digital advertising over traditional advertising
- Cloud computing over on-premise solutions
- E-commerce over physical stores
- AI and generative AI exposure via US tech stocks
Overseas allocation is constrained by RBI’s $7 billion limit on remittances by mutual funds (set since 2008/09), causing a decline in foreign allocation from ~28-30% in 2021 to ~11% currently.
Overseas exposure is intended for diversification and risk reduction, not necessarily for higher returns.

Views on AI and India’s Growth

India is not leading in AI model development but is a large user and beneficiary of AI tools.
AI adoption is expected to improve productivity and workflows, representing a significant growth opportunity.
India’s growth drivers include:
- Consumption and retailing
- Select sectors like defense
- New-age sectors (e.g., quick commerce) are growth opportunities but currently not profitable; the fund invests only when companies generate positive cash flows and valuations are reasonable.
Emphasizes investing in mature, cash-generating businesses rather than early-stage startups.

Personal Investment & Advice

Rajeev Thakkar’s personal portfolio is largely invested in the funds he manages, with a higher equity allocation than typical.
Minimal exposure to gold or other alternate assets.
Prefers assets that provide a blend of cash flow and capital appreciation.
Advice to investors (especially young, 30-35 years old):
- Stay the course; avoid frequent asset allocation changes.
- Maintain an emergency corpus to avoid forced selling during downturns.
- Avoid extremes of too conservative (all fixed deposits) or too aggressive (all equity).
- Spend money on things that bring happiness, not to impress others.

Methodology / Framework Highlights

Investment Selection Checklist:
- Promoter/management quality: competence, integrity, energy.
- Business characteristics: pricing power, growth potential, competitive positioning.
- Financial health: balance sheet strength, return on capital.
- Entry valuation: reasonable price relative to business quality.
Behavioral Bias Mitigation:
- Hide cost price during portfolio review.
- Reduce frequency of data consumption.
- Prepare decisions in advance to avoid emotional reactions.
Portfolio Construction:
- Sector weight limits (e.g., banking capped at ~20%).
- Concentrated portfolio in large/midcaps; more holdings in small caps.
- Opportunistic cash deployment based on individual stock valuations, not overall market level.
Overseas Exposure:
- Used for risk diversification, limited by regulatory caps.
- Individuals can invest abroad via RBI’s Liberalized Remittance Scheme.

Tickers / Assets / Sectors Mentioned

Companies: AEL, Mahindra, Motilal Oswal (exited), HDFC Bank, Tata Steel, L&T, Reliance Capital.
Sectors: Banking, Telecom, Auto, Capital Markets (broking, asset management, exchanges), IT services, Pharma (generic pharma), Consumer goods, Defense.
Instruments: Indian equities, US tech stocks, government bonds, AAA corporate bonds, NBFC debt, money market instruments, cash.
Funds: PPFAS Mutual Fund (Parag Parikh Long Term Equity Fund), tax saver fund (PPFAS).
Regulations: RBI’s $7 billion foreign remittance cap for mutual funds, Liberalized Remittance Scheme for individuals.

Key Numbers & Timelines

Fund AUM: ₹1.2-1.5 lakh crore.
Fund returns since inception: ~19% CAGR.
Equity return expectation going forward: 10-12% nominal.
Cash holding: ~24%.
Overseas allocation: ~11% (down from ~28-30% in 2021).
Historical bond yields (1990s): Government bonds ~14%, AAA corporates ~18%, NBFCs ~21%.
Market cycles:
- 1992-2003: Negative returns for 11 years.
- 2003-2007: 7x market returns.
Sector allocation caps: Banking ~20%, Pharma ~5%.

Disclaimers & Cautions

Equity returns are market-determined and not guaranteed.

Past high returns are unlikely to repeat due to macroeconomic changes.

Investing in equities is not suitable for short- or medium-term goals.

Behavioral biases affect all investors; mitigation strategies are critical.

Investing in early-stage or loss-making companies carries high mortality risk.

The fund invests in mature, cash-flow positive companies rather than startups.

Presenters / Sources

Rajeev Thakkar – CIO and Director, PPFAS Mutual Fund.
Interviewer/Host – Not named in subtitles.
Reference to Parag Parikh (Founder of PPFAS, deceased).

This summary captures the finance-specific insights, investment philosophy, portfolio construction, macroeconomic context, and risk management discussed by Rajeev Thakkar in the video.