How do you find out if a mutual fund scheme can deal with heightened volatility and tough market conditions? The answer lies in the investment process of a fund house, said Ravi Gopalakrishnan.
Ravi Gopalakrishnan, Head- Equity, Principal MF shared his thoughts on analyzing and constructing investment portfolio at Cafemutual Confluence 2020 Investment Marathon.
Ravi said that over the last 10 years, there were times when the Nifty 50 gave negative returns; however, a few stocks delivered superior returns during the corresponding period. Investment process is all about identifying companies that can perform well even during tough times.
For instance, in 2011, benchmark Nifty 50 gave negative 24% returns while the top 5 performing companies - HUL, Eicher, ITC, Britannia and UltraTech gave excellent returns in the range of 8%-30%. He said, “These companies focused on their strengths, invested in their own businesses and put in place a robust business model to grow business irrespective of market conditions.”
Ravi shared a few tips on how to become a better investor:
- When you invest your money in equity funds, you buy businesses and not stocks
- Look at investment process of the fund house i.e. how a fund manager selects stocks and manages risks before investing your money
- Stock prices are dependent on quality and visibility of earnings growth
- P/E multiples tend to expand only in companies with higher growth and better return ratios
Talking about investment research, Ravi said that instead of focusing on returns, investors should understand business dynamics, sustainable profitability, high quality growth, efficient capital allocation and valuations of a company before investing their money.
A robust investment process is key to consistent performance in the long term, he said.
