“Not withstanding rising inflation, consumer confidence remains reasonably strong.” - Vinit Sambre, DSP Black Rock Investment Managers

“Buy-and-hold is a good concept. But nowadays, the dynamics of the business change very quickly. Also, the cycle time has become short. Hence, one can follow the buy-and-hold strategy, but one has to be very actively involved in indentifying material risks to the business and react quickly.”

Vinit Sambre
Vice President & Fund Manager
DSP BlackRock Investment Managers

With experience of more than 10 years in the capital markets, Vinit Sambre, Vice President & Fund Manager, DSP Blackrock Investment Managers, started working in the sell side and rose in ranks to join the buy side. In an interview with Saikat Mitra, he shares the investment philosophy of his organisation and his take on the Indian markets.

How did you begin your journey in the Indian equity markets?

I began my career in the Indian equity market in the year 1999 after completing my Chartered Accountancy. I started off with a domestic brokerage house, and then moved on to Unit Trust of India in 2000. I joined the DSP Group in the year 2005.

Can you describe your investment philosophy for us?

We follow a fundamental approach to investment. The stock selection is largely bottom-up and is a mix of growth and value. Any investment is generally undertaken with a minimum one-year time horizon in mind. The management’s credibility and capability also play a very crucial role in deciding whether to invest in a company or not.

What are the most crucial signals, according to you, which would determine your entry and exit points in stocks?

The entry strategy is generally linked to the nature of the investment. If one is looking at good quality companies in a high growth phase, they typically trade at premium valuations. Any unfavourable external event leading to a correction in the price provides a good entry point for such companies.

In case of companies which are in turnaround mode, which have undertaken some restructuring or where the cycles are turning favourable or there is some positive change in regulation, the timing of investment plays a very critical role. The ability to identify the change early on determines the magnitude of success. However, the risk associated with these is also very high, as the purported change may not play through within the expected time frame. Hence, it calls for careful assessment of such investments.

Exit is generally linked to the valuation and can also take place in case of wrong assessment of the idea.

Do you meet company managements, and do you constantly remain in touch with them till the idea is a part of your portfolio?

Meeting company managements is very crucial, and we try to communicate with them every quarter. Communication with the management is an active process and takes place even for companies not part of the portfolio so as to identify any new investment opportunity.

Technical analysis is considered to be a very important and integral part of market success. What is your take on it?

We focus our investment decisions mainly on fundamental factors and use technicals only as a guide.

How do you cope with any investment idea that has gone wrong?

We try to reassess the thesis of the investment, and if an assertion has gone wrong, we take the decision to exit from it.

How important is the selection of a correct sector for a stock’s performance?

Correct sector selection is important for better performance, but we have seen significant divergence in performance between two companies within the same sector. This happens mainly due to differences between the strategies followed by each company. Hence, indentifying the sector may be the starting point, but selection of the right set of companies within a winning sector is more important.

Do you believe that portfolio churning is required to create an alpha?

Portfolio churning is not essential to create an alpha, and it can be achieved even without much churning.

Buy-and-hold, as a concept, is widely preached by fund houses. Is this concept completely foolproof, according to you?

Buy-and-hold is a good concept. But nowadays, the dynamics of the business change very quickly. Also, the cycle time has become short. Hence, one can follow the buy-and-hold strategy, but one has to be very actively involved in indentifying material risks to the business and react quickly.

Is it possible to recognise a bear market before it is too late?

On the basis of the macroeconomic indicators, it is possible to make a fair assessment about the expected trend. However, it is not necessary that the market may follow that trend. Besides the broad fundamentals, market movements are also linked to various other factors like foreign institutional fund flows, government policies, news flows, etc., which one cannot predict. Hence, the best strategy is to focus on good investments backed by adequate research and ignore short-term market movements.

What is your take on the overall current macroeconomic scenario of India?

The Indian market continues to be one of the better performing markets (calendar YTD) globally. Contrary to our expectations, the central bank (Reserve Bank of India) kept the key policy rates unchanged in its October 30 monetary policy review on account of inflation, which has moderated in the recent past but remains above the RBI’s comfort level. However, we continue to believe that the central bank will cut the interest rates in the next couple of months to fuel investments and to help growth (GDP), which has fallen sharply over the last few quarters.

Notwithstanding rising inflation, consumer confidence remains reasonably strong. Rising food prices and an increase in spending by the government on social development programmes has contributed to an increase in rural incomes, thereby buoying rural consumption.

What is your take on the financial performance of India Inc. for the past quarter, and how do you expect it to pan out in FY13?

The results have been better than expected in most cases, except for PSU banks, and it looks like the downgrade cycle is behind us.

What are the triggers that you are looking forward to with regard to the markets going forward?

The key trigger will be a fall in interest rates backed by moderating inflation, which is expected in Q1CY13. Further, the continuation of the reforms process by the government and any policy to fuel investment growth remains key for the market to sustain its positive momentum.

What are the sectors that you are currently betting on, and in which areas should investors remain cautious?

Pharmaceuticals, agriculture inputs, financial companies (private sector and NBFCs) are some sectors on which we hold a positive view. We think that the stress in PSU banks and the power sector is not yet over, and one must be cautious while taking investment decisions.

What would be the most important advice that you would like to give retail investors?

Investors should pay a good deal of attention to asset allocation and the investment horizon. A systematic approach to investments is the key to successful investing. Investors should also look to remove excess sentiment when it comes to the decision-making process.