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Can you describe your investment approach and how it has evolved over time?
My investment approach is to focus on a blend of growth and value stocks with a bias towards value oriented stocks and sectors. I essentially look for companies with good track record, strong corporate governance, stable and improving return ratios, strong cash flows, stable growth and reasonable valuations. Initially, I was a lot more focused on value oriented stocks, however given the strong bias towards growth stocks by the markets, I reoriented myself to have a blend of both growth oriented and value oriented stocks in my portfolio. I maintain a diversified portfolio and have 45 to 50 stocks in my portfolio.
What were your notable mistakes and what did you learn from them?
My biggest mistakes have been to sell very good long term stocks quite early after I made money from these stocks by looking at valuations. Inspite of having high conviction in the management and the industry, I exited just looking at valuations. The biggest learning is that identifying good long term stocks and staying through the course is equally important for a fund manager and I have been very careful in my exit strategies in my stocks.
How do you generate ideas and what is your selection process before an idea gets added to the portfolio?
I look at various screens across the population of 400 to 500 stocks based on market cap and I try to filter out stocks with strong growth, sharp improvement in return ratios or cash flows, sharp turnaround in earnings, valuations and strong corporate governance. After this, we do a detailed analysis of the sector, positioning of the company, triggers for earnings growth and future risks for the stock. We also map the valuation on a five to ten year basis to see how the valuations stack up with respect to the markets and its own history. An idea gets added only after a thorough due diligence and analysis and after interacting with the management.
MIPs generally offer good returns when markets are performing well. How do you ensure that its performance is not impacted when equity markets are not doing well?
We have the flexibility to reduce the exposure of equities in case of any bearish view on equities. However our experience shows that equities perform very well in the long run and we avoid taking drastic equity calls in MIP funds. However we do change the beta of the portfolio in case our short term outlook is weak. For our MIP funds, our debt positioning is conservative and we generally buy accrual instruments in the portfolio.
Capital protection funds are perceived by investors as safe products due to its nomenclature. However, the returns can be impacted if equity markets don’t do well. In such a scenario, how do you ensure that you are able to provide better than fixed deposit kind of returns to investors?
The debt part of the capital protection funds is invested in high quality instruments thereby lending a margin of safety to the fund. In case of equity, our exposure is limited to 15% of the fund which is quite safe given the huge safety net provided by the debt.
How are MIPs different from capital protection funds? Don’t both these categories follow a very similar investment approach?
MIPs don’t offer any implicit guarantee for the capital invested by investors. On the other hand, capital protection funds aim to protect the principal. The portfolio of MIP is slightly more risky than capital protection plans. MIPs might take duration calls in the debt portfolio which a capital protection fund will avoid.
What kind of sectors/companies do you prefer to invest in UTI Retirement Benefit Pension Fund?
UTI RBP has exposure to the top sectors in the benchmark such as financials, automobiles and IT where we choose good quality large caps from these sectors. Amongst the mid cap sectors, we are positive on textiles, chemicals, logistics and auto ancillaries.
How are foreign investors looking at India at this juncture?
India is one of the very few emerging markets where growth is looking up, India is a big beneficiary of the low commodity prices, has a robust financial markets and strong corporate governance which fits into the check box of any large global Investor. We believe that India will continue to be a favored destination for most global investors who are in search of growth markets. Given the huge volatility of the Chinese markets and commodity driven markets in other emerging markets such as Brazil and Russia, India seems to be poised to capture a lion share of the flows towards emerging markets.
What do you think are the qualities of a good fund manager?
A good fund manager must have a very strong discipline, remain committed to a strong thought process of investing, have a strong temperament in terms of not getting swayed by market momentum and have the conviction and patience in his thought process and investment philosophy.
What is your advice to budding fund managers?
My main advice would be to evolve a thought process for investing and stay committed to the thought process and not get swayed by the market momentum while investing and focus on medium to long term while investing in stocks.
Your favorite book and why you would recommend it to others?
My favorite book is ‘Fault Lines: How Hidden Fractures Still Threaten The World Economy’ which is authored by Raghuram Rajan. The book gives an excellent perspective of the global financial crisis and is a must read for anyone who wants to understand the global financial crisis of 2008.
