'The SEBI has been encouraging us' - Apoorva Shah Executive, Vice President & Fund Manager, DSP BlackRock Investment Managers

Inflation has been coming down year on year and even the interest rates should soften from here, says Apoorva Shah, Executive Vice President and Fund Manager, DSP BlackRock Investment Managers, in an interview with Saikat Mitra, speaking at length about his journey in the capital market and sharing his investment philosophy.

• We have had a series of earnings downgrades, in the last couple of years and that process is coming to an end. That the outlook on the margins should improve going forward. The government is looking to kick-start the investment demand that has plummeted to a low and that should bear fruit in a year or two.
• The SEBI has been encouraging us to take a call on decisions by the management and voting on them. New institutions have come up to advise fund investors on issues pertaining to corporate governance. So I find that institutional investors have become more active on this front.
• Retail investors have been very scared of entering the equity markets. If we see our own mutual fund inflow and outflow account over the last one and half years, we find that investors are pulling out money. That is a wrong thing to do.

Apoorva Shah

Executive Vice President & Fund Manager
DSP BlackRock Investment Managers

How did you begin your journey in the capital market?

I have been associated with the DSP group where I joined in the year 1991. I started my career in equity sales and used to service foreign institutional investors as well as local institutional investors. In the second role, I was engaged with the private client group as a strategist for the overall portfolio. This included a research role, which included overall asset allocation advice and picking the right funds and right stocks. This was a non-discretionary portfolio advisory service. For the past six to seven years, I have been engaged in fund management, managing different equity schemes.

Can you describe your investment philosophy for us?

I like to combine an insight into top down (macro) with the insight into bottom up (company). Here I generally pick good management, good quality balance sheet and business potential. Whether it is a growth stock or a value stock or growth at reasonable price, I am flexible. While picking stocks I also place importance on the environment surrounding the portfolio.

What was your first big investment idea, and how did you develop it?

There were so many ideas. The real portfolio ideas came in the private client group where I was in the strategist role. 
[PAGE BREAK]

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

Sometimes stocks over-discount their near term future because investors become very optimistic and take the stock to levels where the stock may find it difficult to perform. Also, you get signals from time to time such as the industry not performing, margin pressures, demand issues or the company not being sure of its strategy. Sometimes there are leadership issues. Also, government regulations may cause a sector to underperform. These may prompt us to exit our position.

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

We think that it is very important to remain in touch with the management to gauge its business issues and strategies better. It is not a science, but an art that comes with experience.

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

We do look at charts. They give you a picture about how the stocks have been performing in the immediate past and in the longer term. It is an enabling tool and there are technical research advisors like we have fundamental research advisors. We are open to listening to both kinds of advisors.

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

It depends on the kind of market that you are in to. Sometimes the sector calls make most of the difference. The sector gets re-rated with the type of change in the scenario, like what we saw in the media sector. It has benefited from the digitisation pushed by the government. The government here becomes the enabler and the entire sector has to do well. Sometimes the company takes its own call and decides to do things, which is unique in its own way. At that juncture the company tends to outperform. In stable markets, stock picking gets rewarded.

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

It depends on individual style. Buy and hold or an active style may work equally well.

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

I am flexible and therefore tend to accept my mistakes and change my positioning if I realise that my assumptions are not holding true. It does hurt in the short run.

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?

The SEBI has been encouraging us to take a call on decisions by the management and voting on them. New institutions have come up to advice fund investors on issues pertaining to corporate governance. So I find that institutional investors have become more active on this front.
[PAGE BREAK]

What is your take on the overall current macro-economic scenario of India?

We have had very significant challenges as an economy in the past three years. That is now getting addressed. We find that the government has remained inactive in addressing these challenges since the past couple of years but in the last one and half years it has started taking steps to bring the economy back on track. I find that the process is gathering momentum and the worst for our economy is over and we are going to improve from here.

What is your take on the inflationary scenario as well as the interest rate scenario?

I think that inflation year on year is coming down and even the interest rates should soften from here.

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

I expect earnings growth to be better than what the street has expected. So, we have had a series of earnings downgrades, in the last couple of years and that process is coming to an end. I feel that the outlook on the margins should improve going forward. The government is looking to kick-start the investment demand that has plummeted to a low and that should bear fruit in a year or two. From here on I find that not only would margins improve but also that volumes will come back so that can be a double positive going forward.

What is your take on the overall liquidity situation?

We have had challenges in terms of gold and oil. A lot of money has gone into buying gold and oil. The higher oil prices have made the liquidity position tighter. But now the RBI has started in a way releasing liquidity through CRR cuts. At the same time the appetite for gold may be slowing down. The government is taking special steps to see that the gold imports reduce. On the other hand, oil prices too have not been on an upward spiral. So, genuinely, the liquidity situation is improving for our nation.

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

We are anticipating more reforms which will enable faster growth. More reforms also translate into more business confidence.

What are the sectors that you are currently betting on?

We are betting upon rate-sensitive sectors because we expect interest rates to soften. We are also betting on discretionary consumption whether it is auto, media or retail. We are positive on the financial sector. The concern of non-performing assets is behind us and the bond portfolio of the banks will see gains. We are positive on real estate and industrials. The oil & gas space and global cyclicals also look good.

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

I find that the retail investors have been very scared in entering the equity markets. If we see our own mutual fund inflow and outflow account over the last one and half years, we find that investors are pulling out money. That is a wrong thing to do as you have many years of low growth in equity markets and our experience says that should not continue. The coming years will make up for low growth so that the average goes up. It should be higher than normal growth in the coming years.
[PAGE BREAK]

Apoorva Shah joined DSP BlackRock Investment Managers (previously called DSP Merrill Lynch Fund Managers) in April 2006. He previously held senior positions in the Global Private Client and Institutional Equity Sales divisions of DSP Merrill Lynch. He has a Post Graduate Diploma in Management (PGDM) from the Indian Institute of Management (IIM), Ahmedabad, and has over 25 years of experience in banking and investment.

Apoorva is currently the fund manager for the following schemes of DSP BlackRock Mutual Fund: