Why PPFAS Mutual Fund continues to hold Alphabet, Microsoft, Amazon and Meta stocks

 

The ninth unitholders' meeting of the Parag Parikh mutual fund, held on November 12, 2022 in Mumbai, centred on the question of why foreign stocks. This is in light of the recent severe decline in US technology stock prices as well as SEBI's limits on mutual fund foreign investments.

Alphabet, Microsoft, Amazon.com, Meta Platforms (previously Facebook), and Suzuki Motor make up about 16% of the portfolio exposure of the Parag Parikh Flexi Cap Fund, the fund house's flagship investment vehicle.

American Depositary Receipts (ADRs) for Corp as of October 2022. Rajeev Thakkar, the chief investment officer at the fund company, claims that buying foreign equities is not always about maximising profits but rather about lowering country-specific volatility and discovering chances to invest in businesses that are otherwise unavailable in India.

Speaking about US tech stocks, particularly those in the fields of streaming, digital advertising, e-commerce, cloud computing, and artificial intelligence, Thakkar said that "trends in these sectors have existed even before Covid but intensified during the pandemic time and now took a rest."

The following decades will also see a continuation of these tendencies. In several of these markets, the businesses we own are dominant. The chief investment officer also admitted that the speed of change in the technology sector is accelerating quickly. He used the demise of MySpace, a platform for social media networks that was popular many years ago, and Yahoo, a former digital powerhouse. "We are frequently asked if the US IT firms we owned are also experiencing disruption.

The answer, in my opinion, is no, Thakkar replied. He explained the justification for investing in US technology equities and why he thinks it is okay to hold them at the current prices, even at the ostensibly inflated valuations seen in 2021.

Note that the fund house is currently unable to purchase more foreign stocks through the transfer of funds outside of India because the regulator, SEBI, advised asset management companies (AMCs) investing in foreign securities to halt subscriptions in order to avoid exceeding the $7 billion industry-wide limit on foreign investments.

According to Thakkar, the Alphabet (Google) corporation likely knows you better than your siblings, parents, spouse, or kids do. "Their competitive edge and moat are increasing stronger with each passing month and with each passing year," he continued."

Thakkar used Google Maps as an illustration of how the corporation works to remain current at all times. Google Maps has progressed from being only a map- and navigation-related tool to one that is now integrated with advertising.

"It was valued at 28 times earnings in 2021 (when tech stocks had a stock market boom) (price earnings ratio). This is for a business that has a monopolistic business model. It has a wide moat, and the stock price wasn't excessive, "Thakkar remarked.

Microsoft

Another foreign stock that the PPFAS Flexi Cap fund owned in its portfolio was Microsoft Corporation, which provides products including Microsoft 365 (Office), Windows, Azure Cloud, Devices (Surface, X Box, HoloLens), LinkedIn, Bing, Dynamics (CRM), and Power BI.

It utilises a powerful operating system. They offer software as a service, rank second in the provision of cloud services, and feature a subscription-based office productivity suite featuring programmes like Excel, Word, and PowerPoint. It's getting fairly big.

Well," Thakkar stated in regards to the business. Thakkar thinks the firm was not in a valuation bubble at a 33.7 price-to-earnings ratio in 2021, thus the fund is still holding it in its portfolio.

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Amazon

Amaon.com is another favourite firm of the fund house, with business areas including Cloud Computing (AWS), e-commerce, Fulfillment, Prime membership (Shipping, video, music, food delivery), gadgets such as Kindle, echo/alexa, ring), advertising, and logistics.

"The corporation attempts to turn each of the costs listed on the profit and loss statement into a profit centre, "Thakkar stated. He used the logistics cost, which was formerly a considerable expense for the organisation, as an example to illustrate this point. "At the moment, the business manages its own logistics and also offers its services to third parties, "Added he.

The corporation is currently valued at little around $1 trillion on the market. According to the price-earnings ratios from this year and last, it may appear that the valuation has been in a bubble, but in our opinion, it has not. One may argue that the company's whole valuation can be supported by the AWS business segment (cloud platform), which accounts for a sizable portion of the company's revenues and future possibilities.

Meta Platforms Inc

Applications like Instagram + Reels, Facebook, Whatsapp, Messenger, Oculus, and Metaverse are available via Meta Platforms. When discussing the company's expansion, Thakkar emphasised the $257 billion in revenue it expects to achieve in 2021. Compared to just $7 billion in reported sales in 2013, this is.

This company's valuation dropped from 23 times its projected earnings in 2021 to nine times as a result of the strong share price correction and the decline in reported profit this year.

"The corporation isn't, in my opinion, overpriced. Facebook and Whatsapp are expanding rapidly. Instagram is still alive despite some market share being grabbed by Tik Tok "thinks Thakkar.

"Whatever the firm spends on the Metaverse project, this is true. Success or failure at this point is virtually irrelevant. The majority of businesses last year overestimated their earnings. But they are all currently reducing expenses "Added he.

Other geographies

When asked about prior investments outside of the US, Thakkar mentioned Anheuser-Busch, a European alcoholic beverage firm, and Nestle, a worldwide FMCG corporation with its headquarters in Switzerland. A Japanese business that we now own is Suzuki Motor Corp. After conducting extensive due diligence, we came to the conclusion that, for a variety of reasons, including the political climate, we are not comfortable making investments in China.