"We have seen very strong FII inflows in the Indian markets, whether it is going to sustain or not is what we have to look forward" - David Pezarkar

How has the scenario changed with the passage of time since you joined UTI in 1994 and now and what are the factors according to you have played a role in this change?

Well, our markets have become more linked to the global markets and effects of global events have increased with the involvement of more foreign institutions. Secondly, now-a-days information moves across faster than it used to previously. We see management’s of companies sharing their views in media and this information gets priced in faster. Previously, we did not have quarterly results. Pricing has become more efficient. The investors or traders have started taking more short term calls with the availability of more information. Trading volumes have gone up with involvement of more institutional participation and also with the development of the derivatives markets.

 What has been your investment philosophy over these years?

Throughout all these years, I have always looked at stocks that offer growth and value. I refrain from looking at stocks that look cheap in valuations unless there is a clear growth story, where the management has shared future plans in detail and the reasons why that company will be growing better than the industry average. The valuation should be reasonable. This is the combination that I look forward for. I lay more emphasis on a bottom up approach of building a portfolio rather than building a portfolio with a top down approach.

Why the bottoms up approach?

See it depends more on individuals, some people are more interested in macro levels and some like to analyse individual stocks. So it is more of a personal approach rather than doing a long term study.

Do you follow some pre-defined investment rules in selecting stocks?

See, generally investment happens with the pre-defined rules or regulations that are mentioned in the offer document of the fund. So for each fund there are separate investment rules. There are talks that fund managers sometimes deviate from the investment philosophy.

Do you think that this is true and if true why do they do so?

It could have been a case earlier when there were no clear cut investment philosophies defined. But over the years the fund houses have segregated their funds in different slots. Now, before launching any fund we have to clearly mention the investment philosophy to get a clearance from SEBI. That is why the investment philosophy has to be mentioned clearly.

Basically where do you get your stock ideas from?

We have a strong in-house research team, where we have four analysts who track all the sectors and about 250 companies across sectors. Basically the ideas are generated from within the organization. We run lot of screens where we rank companies in a particular sector and measure them on different parameters like valuation, liquidity or price performance parameters and earnings expectations. Basing on these four broad parameters we split companies in sectors like large cap, mid cap and small cap. Then those screeners give us some basic ideas. Then we also look at reports that come from the sell side and then discuss and freeze the stocks to invest in.

How much do you really depend on the buzz that we hear in the media to select a stock?

Essentially we form a long term view on the stock. We like to use the buzz in the media as far as possible to our advantage.

What are the crucial signals that can define your entry and exit in a stock?

As mentioned earlier we have these screeners and if we find that the particular stock is in the mid cap space then we would certainly like to go and meet the management and take firsthand information from them. We then do our intrinsic value calculations. If we find that there is difference between the value that we have arrived at and the quoted market price then we would not try and time it. On the other hand if it is a stock that is well researched and well tracked, and if we feel that there is something that the market is missing then we see the kind of return that we can expect out of it.

How important is it to meet company managements while taking an investment decision?

For the gamut of stocks that wehave in our portfolio we make reports on them every six months. We try and meet the management once in six months. If it is not possible to meet them personally then we try and attend concalls and analyst meets organized by these companies.

How do you segregate the information that you get from company management’s into usable and unusable?

For that one needs to meet the management on a regular basis and record the conversation and track what the person has said initially and what he is saying now. It is only after meeting them three to four times that one can understand what kind of a premium one should give to a particular management.

What has been your first investment idea that has been a big success?

As far as fund management in actual sense is concerned, I started that only in the year 2003. As I said in UTI I was managing hybrid funds and we had taken specific stance on particular companies that have yielded better results. For example we are overweight on a diversified company from an established business house as also on a government owned equipment manufacturer. Also, there was this multinational auto ancillary company which had done a buy back. So, all these investments have paid off well.

If one has been wrong then it has tobe essentially with the timing. In some cases where I have expected that A, B or C will happen, it has actually not happened. So it is more of a timing issue rather than going wrong fundamentally. It may be a delay of one to two years but as far as possible I have tried to maintain the position. There are one or two instances where there has been error of judgment and we have exited those positions.

Do you work on pre determined stop losses?

Not really. But for larger companies where you can see some sort of a trading range, what I try to do is that if that company has moved away from its trading range then I try to gauge what the market has been trying to tell me about that stock.

Is Buy and Hold a good strategy for investors in the long term?

It can work if people have specific stocks. It will not work for the vast universe of stocks. With 500 investible stocks or more there will be not more than 50 stocks that can actually work on that philosophy. Some sectors are cyclical in nature and there you cannot apply the buy and hold concept. Therefore, this concept works for some specific stocks and not for all the stocks. There are sectors which are geared to the economy, and if the economy is not doing well then this concept is surely a no-no for this strategy, like the interest sensitive sector. The strategy can be bottom up or top down but one has to understand that this strategy will not work for all stocks.

Is it really possible to predict a bear market?

Forecasting market movements iswhat we try to do here but it is not that easy. One needs to understand where we stand in terms of valuations as against long term averages and what is the level of deviation that we are facing. All the bear markets that we had in India have preceded by strong bull runs. What I can say is that it is not really possible to predict a bear market.

What is the current status of  the Indian markets and where do you see it going forward?

In the immediate near term or medium term the market is likely to remain range bound. As there is some sort of nervousness on policy actions. Earlier assumptions of rate cuts have now been curbed. Oil prices too have remained high. The government itself is constrained in terms of taking steps to push forward reforms. We have seen very strong FII inflows in the Indian markets, whether it is going to sustain or not is what we have to look forward too. But there are too many uncertainties that may play a spoilsport for the market going forward. None of the sectors per se are trading at higher levels as far as valuations are concerned. Even defensive sectors are showing growth and they are also adding capacity. India might be slightly expensive as compared to other emerging markets. Indian market is dependent on foreign inflows and the government will surely take a stance and clear the clouds on the tax reforms that are projected.