You were managing treasury at Indian Bank. How is treasury management different from managing mutual funds and what did you learn there?
All the treasury managers used to sit together. Some of my colleagues were dealing in G-securities, bonds, currencies, CDs, call market, etc. Even if you passively listen to the conversations on the trade floor, you learn a lot. All markets are interconnected in some way so you get an understanding of how the macro developments affect your area of operation. So I used to exchange ideas with my colleagues which helped a lot.
In managing treasury, you can wait, analyze and take a call but in mutual funds you have to act swiftly. Managing mutual funds is like running a marathon where our performance is monitored every 100 meters.
Does it create pressure on you to perform for the short term as well?
If you lag behind your benchmark for more than six months then you are questioned by all stakeholders. Every fund manager overcomes it in his/her own way.
We are conscious of not deviating from the benchmark and we hold stocks for a long term. We don’t try to beat the market on an everyday basis. If you chase short term returns, you will lose in a big way.
We place a lot of importance in constructing our portfolio. You may come across some stocks which are common in every scheme in the industry. But the weight you assign to each stock, the tactical calls you take, the exposure you have to ‘safe haven’ stocks which protect your portfolio during the downturn determine how your fund performs. This is where the strength of the fund manager reflects.
The IDBI Equity Advantage Fund has done reasonably well in its short time of launch. What is the investment strategy of this fund? What has worked in your favor?
We launched our tax saver fund in September 2013. Initially we had largely invested in the CNX Top 100 companies and then we moved away from such companies later. We invested in companies which were strong financially, had a long history and were debt free. We found 60 such companies. Since it was difficult to monitor 60 stocks, we narrowed our holding to 25 companies because the three year lock in gave us confidence to take a long term bet.
We didn’t buy stocks hoping that they would go up the next day. We selected stocks which would perform in six months to one year. Also, we selected stocks which would not fall sharply when the market falls and had the ability to outperform markets in six months to one year. The low churn ratio also helped the fund.
This is the only fund in the industry which openly states that it will invest in 25 stocks with 4% weightage to each stock. This strategy has worked well for the fund.
Not many fund houses would like to restrict inflows when the fund is doing well. Why did you restrict the inflows in this fund?
We have restricted the inflows in this fund to Rs. 1.50 lakh per folio per day after the fund size reached Rs. 200 crore. This theme cannot be managed if the fund size grows too big. I’m sure if we open the fund completely, the size will grow to Rs. 600 crore in two months because there is a lot of interest among investors, especially big ticket investors. If there are large redemptions from corporate investors, the fund’s performance could hamper. Thus, we have restricted the inflows to do justice to our original investors who invested at the time of NFO. Also, it is the least volatile fund in the industry.
We can manage up to Rs. 1,500 crore in this fund with the current theme.
How is IDBI India Top 100 Equity Fund different from similar funds in the market?
The fund has generated consistent returns since its launch in 2013 and it is true to its label. Some of the top 100 funds launched by our peers also invest in mid cap stocks when they are supposed to invest only in top 100 stocks by market capitalization. They do this to prop up returns.
Generating alpha in a large cap fund like this is extremely tough. Our fund has generated alpha which a mid-cap fund would generate.
When we launched the fund we had 22 stocks in the portfolio which we have increased to 40 now. In contrast, most of the large cap funds in this category hold 50 to 60 stocks.
The market was volatile before the BJP government came to power. We realized that having a focused portfolio was generating volatile returns. So we broad-based the portfolio as there was an uncertainty in the market regarding the outcome of elections, though people knew that Modi government would win but nobody knew that they would win with a huge majority. I will further prune (from the current 40 stocks) my portfolio once the market settles down.
How do you plan to sustain the performance of your funds?
We have consistently topped the performance charts and we have not slipped from our ranking. It is a tough job as my peers are also good fund managers.
We are extremely disciplined and we don’t take any cash calls. My funds are invested 98-99% in market most of the time - even when are expecting some large redemptions.
I have a slightly contrarian approach. When most funds assigned 30% weightage to banking sector, my exposure to this sector is only 21%. I played the cyclical turnaround through auto which has worked well for our funds. So, our sector calls have worked.
I go through my portfolio very frequently to see if my stocks fit the portfolio. I give more importance to portfolio than a stock. I look for consistency. We never set out to be number one. It just happened by virtue of our consistent approach.
What is the next trigger for the market?
The biggest trigger is the turnaround story which has to reflect in corporate earnings. The macro factors like inflation, crude oil, fiscal deficit, etc. are under control. But they have not translated into improvement in corporate earnings. The RBI and the government have to facilitate this transmission.
If not a fund manager, you would have been…
I’m extremely fascinated by what I do. I wanted to do only two things in my life – sports and stocks. I wanted to pursue either of my two passions. I was a good athlete. I used to run a lot without getting tired. I used to run with much experienced railway athletes who used to run marathons. I have played cricket and hockey at school level. I was a good swimmer as well. I used to swim in Versova beach here in Mumbai.
I believe I’m successful as a fund manager because this is what I wanted to do in life. I’m not here to compete with anyone.
Do you still run?
No, I have some health issues now.
