Fund Manager's Wisdom - Equity

Concept Wealth Plus is going to complete 4 years of managing funds on July 28, 2013. So we have decided to come out with Fund Manager’s Wisdom on his experience of managing funds during this period.

SIDDHARTH MANDALAYWALA         

                   

Age: 30 years

Qualification: MBA in Finance from Manipal University, and a BBA from 
                      South Gujarat University

Current Position: Vice President – Value Addition (Fundamental)

Funds Managed

• Concept Legend (Large-Cap Equity)
• Concept Marvel (Mid-Cap Equity)
• Concept Shariah (Shariah Complaint Equity)

Concept Legend (Large-Cap Equity)

Top 5 stocks    
               

Stock	Weightage (%)
HDFC Ltd	8.17
Lupin Ltd	7.48
State Bank of India	7.00
Infosys Technology	6.46
Axis Bank	5.89

Asset Allocation

Fund Performance

WHAT IS CONCEPT’S INVESTMENT PHILOSOPHY

We follow the following steps for identyfing the stock:

1)  External Opportunity: - By external opportunity we mean the demand & potential demand for the product / services of the company.

For example: -

1)    Bharti Airtel - Under penitration of the telecom market.

2)    Infosys - Explosion of demand for application of IT because of Internet.

3)  L & T – L & T has become India’s no.1 infrastructure co. because of investment by government as well as private players in infrastructure.

2)  Competitive Ability: - After looking at external opportunity we look at competitive ability for a particular stock. Here, we look at geographical advantage, pricing power, capital availability and economies of scale.

3)  Scallability: - Challange for scalling include capital, vision, risk appetite, hunger for successs, ability to change, market size & internal infrastructure. We were successful in judging scallability for Titan Industries wherein it sales went up from Rs 4700 crores in 2009-10 to Rs 10,100 crores in 2012-13. Profits went up from 250 crores to 725 crores.

4)  Valuations: - Even if a business possessies all the above characteristics but is not available at favourable valuations then we may not invest. Predicting P/E is the most difficult and most crucial and we always try to have margin of saftey.

5)  Exit Horizon: - 

• For us exiting a stock is not driven by profit or loss on the investment.
• We sell the stock when the EPS or expectation about the EPS of a company peak, coupled with P/E ratios that are unsustainable going forward.
• We also use Technical Analysis in order to have better understanding of the levels to buy & sell stocks along with Fundamental analysis.

6)  Consistant Review:-

• The uncertain & dynamic world we live requires us to constantly review our investments in order to adopt changes in circumstances.
• Constant review is also important because we may not make entire investment in one go & want to invest in a stock in a staggered manner over a period of time.
• “Don’t fall in love with stock, keep it for your wife or girlfriend” is motto we swear by.

WHAT WE HAVE LEARNT DURING THE PAST THREE YEARS

• The key lesson has been that one should focus on good business & management.
• Patience has been tested but conviction has been rewarded.
• One should try to filter out the noise and stay focused.
• When economy is bad then corporate governance is one big deciding factor.     Example:- Tata  Stocks & HDFC group get high P/E even during bad period.
• There can be good stock in a struggling sector.                                       Example:- In last three years, real estate sector is down 39% but Ashiana Housing is up over 100%.
• In crisis, there can be opportunity. Management of United Spirit went in crisis due to over hang of Kingfisher Airlines. Once they sold management control to Diageo, United Spirit stock went up from 500 to 2500.
• Don’t sell purely on high valuations because great stocks can remain over valued if they continue to deliver.                                                         Example:- We sold Sun Pharma feeling that valuations have become expensive after which it got doubled.

OUR BEST & WORST DECISIONS IN MANAGING PLANS

Best: - Best decision so far has been staying with the winners like Titan Industries, Lupin
           Limited, Rallis India, Tata Motors, HDFC and Ashiana Housing.
           Exiting Punj Lloyd, Crompton at early stages helped.

Worst: - Sticking to some stocks like Bilcare, Raymond and IOC which underperformed.

 Exiting in stocks like Colgate, Grasim, TCS, Sun Pharma & ITC early was a bad
 decision.

OUR OUTLOOK FOR EQUITY MARKET

• We are optimistic by nature and feel that long term outlook for the country remains positive. Currently our per capita income is around 1800$ to 1900$ which can go up to 4000$ to 5000$ in coming 5 to 6 years.
• Sensex valuations are closed to long term average of about 14-15 times one year forward P/E. Broader market valuations appears undervalued as compared to Sensex.
• Next year we have an election year and so political parties are going to spend around 15 billion $ which will take care of our economy.
• Liquidity across the world will continue to be robust till quantitative easing continues.
• Correction in Crude Oil will benefit Indian immensely as we import 70% of our requirement. This will take care of our fiscal deficit.
• Gold prices have come down and so if demand slows down then it will take care of our current account deficit.

THE SECTORS WE ARE BULLISH ON

We are bullish on

• Consumer as a theme. Though valuations are expensive but still there is room to go up and valuations are still not unjustifiable.
• In India, we have witnessed bull run in some sector across market cycle like in 1994 we had cements stocks going through the roof and being traded at 4 to 5 times replacement cost during Harshad Mehta’s time.
• Same way we had a boom in IT sector during 1999-2000 when IT stocks traded at valuation P/E of above 100.
• The next bull cycle came in 2007-08 with infrastructure & real estate sector trading at unjustifiable valuations.
• This time around we feel that consumer and Pharma sector which are currently at life time high can still continue its bull run for next few years.

OUR STRATEGY FOR THE COMING MONTHS

• Our portfolio is biased towards consumption theme like FMCG, Retail, Pharma, Agriculture, Media and Banking & Finance. We feel that good companies with dynamic management at reasonable valuation will continue to out perform the market.

INVESTMENT ADVISORY COMMITTEE MEETING

• We have Investment Advisory Committee comprising of key Conceptians and External Experts who meet every fortnight and make comprehensive review of strategy and stocks. Here we discuss both Macro & Micro outlook.
• Consistent review also gives us the signal to exit stocks for example our call to exit   Punj Lloyd and Crompton were proved right. The constant review also gives us the confidence to hold on to stocks that have turned out to winners such as Titan, Lupin, Rallis and HDFC.

OUR ADVICE TO INVESTORS

Currently we have a sense that retail investors are under weight on Equity as a percentage of their overall portfolio. In last 5 years investors have tilted their portfolio towards real estate & precious metals. Although this two asset classes gave phenomenal returns in last 5 years but we feel that at current valuations they may under perform equities. On the contrary Sensex on absolute basis has not given any return since 2008. Although Sensex EPS has gone up from 800 to 1350, so valuations have come down. 

So, one should start looking at equities in a serious manner in order to create wealth in next 5 years from now. Remain Invested during volatile times and don’t let emotions dictate your investment decisions. While market always fluctuates, possibility of loosing money diminishes as the investment horizon increase.