Soumendra Nath Lahiri recently joined L&T MF to handle the portfolios of the erstwhile Fidelity MF. Here he tells us about the integration process and his message to ex-Fidelity MF investors
Fidelity Mutual Fund was known for its thrust on processes and fundamentals. Do you see a disconnect from your earlier style to what is expected of you going ahead?
I do not think there is disconnect here. Focus on fundamentals is not at the cost of ignoring growth. Let’s assume that I am looking at a value stock. I would look at the intrinsic value of the company and also growth opportunities available. Secondly, I would look at what the company is worth and what the price of the stock is today. If the price is Rs 70 and the value is pegged at Rs 100, this gap will be an incentive to buy that stock because I am looking at value today.
For a growth investor, it is value tomorrow. So he will buy the stock today at Rs 70 because he knows in future it will rise to Rs 100 due to the growth potential of that stock.
Though the value cult is increasing in India, most asset managers in this country are growth oriented. India is a growth market. What most asset managers look for is growth at a reasonable price, commonly referred to as GARP.
So what you are implying is that valuation will be the key determinant in making a value or growth pick.
Yes. Whether I pick a growth or value stock, I follow the same approach. I strongly believe when buying a business, know the business and would evaluate the company on many parameters.
So what the company is today, its sustainability and growth rates in the industry, margins, the potential for future growth v/s peers. More importantly, whether the company is rational and efficient on capital allocation and if it has generated returns in excess of cost of capital.
Management track record is another critical area which includes people running this business, their past performance, corporate governance, dividend policy, treatment of all stakeholders including minority shareholders, their succession plans etc.
Then valuations, both absolute and relative, come into play when I compare the company in question with its peer set and see how it stacks up.
You say India is a growth market. So for a regular diversified equity fund in this country, a natural outcome would be a growth-oriented portfolio?
Yes, but not necessarily. It would be mostly growth. But since each asset manager has his own style of investing, there could be more of a value tilt in some portfolios or a blend in others. It is difficult to make an across-the-board generalization. It also depends on the objective of the scheme in question.
What is your style?
I am growth biased though I will not say that I ignore value stocks.
Tell me about the process of integration between Fidelity Mutual Fund and L&T Mutual Fund.
L&T Mutual Fund acquired the assets of Fidelity Mutual Fund but not the equity investments team. Hence the focus was to build a strong investments team and a seamless integration that would eventually benefit the investor.
On the research front, we now have six analysts and a head of research. We also have three experienced portfolio managers including myself with a cumulative experience of four decades between us.
During the entire integration process, apart from regular interactions with the investments team, Fidelity investments and research teams conducted a training programme wherein we learned about their process of investing and fundamental research.
How much of churning did you do?
The all new L&T Mutual Fund started operations on November 24, 2012. So it’s only now that we can run erstwhile or the integrated portfolios. During the interim period as we went through process of regulatory approvals, the focus was entirely on liquidity of the portfolios. As a result, by the time we took over, the number of stocks stood reduced and adjustments done in terms of weightages. A much cleaner portfolio has been handed over to us.
The earlier fund managers at Fidelity Mutual Fund have done a good job and I do not see the need to churn for the sake of doing so.
However, I may happen to re-align a small percentage of portfolios depending on how the market and the macroeconomic environment look currently.
L&T Mutual Fund never had a great equity offering, in terms of performance, before the merger. That is what worries most investors who parked their cash at Fidelity Mutual Fund.
L&T Mutual Fund has been in the process of building the business since we acquired DBS Chola. Initial thrust was on the fixed income segment. With the acquisition of Fidelity and with a robust investment team in place, we now have the capabilities on equity investments and best practices to build a high quality, scalable business.
What has been your learning from Fidelity Mutual Fund?
Fidelity is a global asset management company with the best market knowledge and a strong emphasis on investment process and fundamental research. As such it has been a good learning for all of us. Their focus on fundamental research and the way they approach stock picking while not being benchmark driven.
You have a large number of funds to manage…
During the process of integrating the two entities, we have consolidated quite a few of the funds.
The current L&T India Large Cap Fund is a combination of four funds (L&T Growth Fund, L&T Hedged Equity Fund, L&T Opportunities Fund, Fidelity India Growth Fund).
The current L&T India Value Fund is a combination of two funds (L&T Contra Fund, Fidelity India Value Fund). L&T Equity Fund, which was erstwhile Fidelity Equity Fund is now our flagship fund. The ones that are not duplicated stay.
What about the tax saving funds?
Fidelity Tax Advantage Fund is now L&T Tax Advantage Fund and it stays operational. However, we are not accepting fresh subscriptions in L&T Tax Saver Fund.
Fidelity Mutual Fund had two global funds. How do you plan to manage that?
L&T Global Real Assets Fund stays as feeder fund into Fidelity Funds - Global Real Assets. The L&T Indo Asia Fund has a maximum of 30% invested in Fidelity Funds - Asian Aggressive while the rest is in Indian equities.
If an ex-Fidelity Mutual Fund investor came and voiced his concern to you on the new ownership of his assets, what would you tell him?
During the integration, key focus has been investor interest and their money with us. I believe the integration was absolutely seamless and over period both the entities have had interactions on protection of investors’ interests. In terms of continuity of Fidelity’s funds into L&T, I do not see any concerns as the investment approach and process remains the same.
There will be no shock for investors in the sense of something dramatically different is going to be pursued in investment strategies and handling of the portfolios.
