"Just like a cricketer builds on his innings, I would not mind going slow initially as long as one retains the wicket. One has to understand that equity investment is a longer-term play." - V Balasubramanian
With a long experience of 31 years in the capital markets, including 13 years in the mutual funds industry and eight years in the treasury of a nationalised bank, V Balasubramanian, Vice President & Fund Manager at IDBI Mutual Fund, has witnessed many times of cheer and gloom in the Indian markets. In an interview with Saikat Mitra, he shares his thought process and investment philosophy.
How did you begin your journey in the capital market?
I do not exactly remember the year, it might be 1984 or 1986. I started earning, and more out of curiosity, two or three of us started investing in the capital markets. It fascinated me. I made a loss on the first scrip that I bought, but I understood what had gone wrong. After that, I gained Rs 1000 by buying stocks in a tea company, and that was a morale booster for me. Later, for my father, I bought some blue chip shares. This is how my journey started.
In 1990, I joined Indian Bank Mutual Fund, where I worked up to 2002 and where I had exposure to Fund Management and Dealing. Then, I moved to Indian Bank treasuries, where I was involved in handling both equities and mutual funds. After that, I joined IDBI Mutual Fund.
Can you describe your investment philosophy for us?
Talking about investment philosophy, what comes to my mind first is that I want to play safe. There are three aspects to your investments - first is liquidity, then safety and finally, you look at profitability.
For me, if I am building a portfolio, I would rather be safe than sorry. Just like a cricketer builds on his innings, I would not mind going slow initially as long as one retains the wicket. One has to understand that equity investment and fund management is a longer-term play. Thus, I pay more importance to the safety of the money that I invest.
What was your first big investment idea, and how did you develop it?
As I mentioned earlier, my big investment idea was when I bought 50 blue chip shares for my father. It was my first investment idea that gained us good money, and that set the momentum. Afterwards, I gained and lost money, but that was the beginning. Had that not worked, I would have walked away from the market.
What are the most crucial signals, according to you, which would determine the entry and exit points for stocks?
Before understanding the entry and exit, you need to understand the stock price movements. There are a few factors that determine the entry and exit points on a particular day. If you look at the F&O positions and also the corporate actions, you will come to know what is cooking in the counter. Also, look at the announcements made by the company and the developments in the sector globally as well as on the domestic front. Similarly, take into account the happenings in the world economy and those on the domestic front. These are the parameters that primarily determine the movement of prices in a particular stock.
To answer your question, it is always better to play with stoploss. You need to understand the factors that are contributing to the price movement. The top-down approach plays a major role in determining the entry into and exit from a stock. These are the parameters that guide a fund manager in deciding on the entry and exit points with respect to a particular stock.
Do you meet company managements, and do you constantly remain in touch with them till the idea is a part of your portfolio?
As an individual, I try not to miss any of the analyst meets and concalls. I prefer to be at the analyst meets, as you get to hear a lot of questions from various analysts across the industry. I do not miss the opportunity to meet the management.
Don’t you think that the management will share only a rosy picture? If yes, then how does meeting the management really help?
See, the fact is that you have to do your due diligence and your homework should be ready. Even if you are going to attend an analyst meet, you have to do your groundwork. The main theme is that you have a fair idea about the results of the company – if not the finer points, you should have an idea of the topline and bottomline at the very least. You should also have an idea of the factors that will contribute to the topline and bottomline. Unless you are prepared, you will not understand what they are trying to convey. I have seen that most of the good companies are transparent in their views and do not share only a rosy picture.
Technical analysis is considered to be a very important and integral part of market success. What is your take on it?
We accord importance to technical analysis. The first preference will be to look at the top-down as well as the bottom-up approach and see where the market is headed. Technical analysis gives us an opportunity to look at the likely movement of a stock. By using technical analysis, you can define a price point of a particular stock.
How do you cope with any investment idea that has gone wrong?
The most important point is that you have to admit that you have gone wrong. Nobody can be 100 per cent correct in all the calls that they have given. In my view, you have to understand that your decision is wrong, and that takes care of 50 per cent of the problem. Both success and failure have to be taken in the right spirit. The secret of success is how much you learn from your past mistakes.
How important is the selection of a correct sector for a stock’s performance?
Very important. It is not only about whether you follow the top-down or bottom-up approach – the point is that you if you are able to zero in on a sector, you can zero in on a stock.
Buy-and-hold, as a concept, is widely preached and followed by fund houses. Is this concept completely foolproof, according to you?
It depends largely on which side of the market you are in, i.e. whether the market is in a secular bull or whether it is going to be a range-bound market like it has been in the last three to four years. If the market is in a secular bull run, the buy-and-hold idea may work. But if it is in a range-bound mode, where it provides multiple entry and exit points, this strategy may not work and you have to churn your portfolio or come out with other avenues too. If you do not do this, your peers may end up outperforming you.
In developed markets, institutional investors are very active in protecting the interests of minority shareholders. What has the Indian experience been like, and how active are you on this front?
I will answer this in a different way. The situation has improved in the last seven to eight years, and the transparency has increased. This phenomenon is catching up, and in the span of next two to three years, it will be at par with the international standards.
Do you believe that portfolio churning is required to create an alpha?
As I said earlier, it depends a lot on which side of the market you are in.
Is it possible to recognise a bear market before it is too late?
The economy, both domestic and global, and also the sector that you are operating in can give you clues. The point is whether you identify these clues in time or retrospectively. It all depends on how quick you are to act on the feelers that the market gives out.
What is your take on the overall current macroeconomic scenario of India?
At this moment, the numbers may look a bit dismal. Looking at the past numbers, where we have seen a growth rate of eight to nine per cent, they may look bleak. The latest IIP data was also in the negative zone. Fortunately, the inflation numbers have seen some southbound journey.
All is not lost for the Indian economy. With the commencement of the reforms process, we may see some turnaround. I am not saying that the GDP numbers will become double digit overnight, but this certainly looks to be a time for change. It is only a matter of one policy initiative that will put India on the growth path again.
What is your take on the financial performance of the India Inc. for the first quarter, and how do you expect it to pan out in FY13?
The second half of FY13 is going to be better, because if you look at the results of the top companies you will see that they are not bad at all. The EBITDA and PAT have gone up. Despite the rupee being at 55.60 per USD, the performance of India Inc. is likely to go up. Interest rates are not likely to go up from this point, and will either go down or remain as is. It is only a question of time for the interest rates to come down. The Q1FY13 results went well, and there have been earnings upgrades.
What are the triggers that you are looking forward to with regard to the markets?
First is the roadmap towards fiscal consolidation. We are hearing that the Rs 30000 crore disinvestment proposals have been put on the fast track. These are the themes that will augur well for the markets, increases the market confidence and will be the biggest trigger for the markets. Foreign inflows in equities have been on the positive this year, and money is chasing the markets.
What are the sectors that you are currently betting on, and in which areas should investors take caution?
Banking, particularly the private banking space where the NPA levels are lower, and pharmaceuticals look good. The infrastructure sector also seems promising due to increased thrust by the government. We are bullish on the automobile sector too.
What is your take on the maturity level of the Indian fund management industry?
The maturity level is indeed very high, and the fund managers are well aware of what they are doing.
What would be the most important advice that you would like to give to retail investors?
The market is trading below 14x of the FY13 earnings. No one with a longer time horizon for investments has ever lost money in the markets, though this time it has tested the patience levels of investors.
The market has a tendency to reward investors in the longer run. Stay invested and do not look at the short-term movement to reap benefits of the equity markets.
V Balasubramanian
Vice President & Fund Manager
IDBI Asset Management