"We believe in the ‘buy and hold’ technique" - Aashish P Somaiyaa, Chief Executive Officer at Motilal Oswal Asset Management Company

• “In the Indian context, as far as money management is concerned, one of the prime responsibilities is to let people know what you do. What I mean to say is that you must say what you do and then do what you say.”

With a gripping experience in the fund management industry, Aashish P Somaiyaa, Chief Executive Officer at Motilal Oswal Asset Management Company shares his investment philosophy with retail investors. In an interview with Shailendra Lotlikar, he speaks at length about the evolution of the mutual fund industry in India.

How did you begin your journey in the Fund Management Industry?

I joined ICICI Prudential Mutual Fund in the year 2000. For seven years, from 2000 to 2007, I was engaged there. For the next 12 to 15 months I was worked with the project team of a company called Axa. In 2008, I rejoined ICICI Prudential. Till December 2012, I was working with them. When I moved out, I was heading their product development and retail business. I joined Motilal Oswal Mutual Funds on January 2, 2013.

How do you think the Mutual Fund industry in India has matured over the last decade?

There have been major changes on three fronts. Firstly, the entire approach to the business and management has changed, secondly, the products that we have been creating and offering have evolved and finally, there have been modifications in terms of distribution of mutual funds. 

Companies usually have portfolio managers and an investment team. They have been there for the last 10 years but over a period of time, these people have evolved their investment processes and philosophies. What happens eventually is that you are offering certain products in the markets. But people have learned that returns for one year or six months do not matter, what matters is the consistency. It comes from an unswerving approach and philosophy. 

The one major change that I have seen in the last five years is money flowing to those fund houses which have been able to demonstrate this kind of leadership and approach. In terms of products, I have noted that earlier, we had been launching FMCG products. The products coming out now are, however, more contemporary in nature, thus meeting the need of the hour. 

Do you think that the Indian investors are aware of the complexities in the products that the fund houses launch?

My view here is somewhat unique. You may find it dramatic at some point of time, but I think that in the case of investment management or managing money, one must not blame the investors. People say that investors need to understand the products and the money management part. I do not expect them to understand these things. What I would like is a transparent communication. That is of utmost important. I feel that the money management business is similar to the management of pharmaceutical business. Even in the pharma sector, there is a doctor who does the diagnosis and there is a chemist who gives a prescription. You do not expect the patient to do these tasks. You expect the patient to know the medication and its side-effects, but I do not think that the patient will ever be capable of his/her treatment.

In bringing the transparency to the business, our regulator has done a splendid job. 

Don’t you think that this is detrimental to the overall business? 

Personally I do not think that the steps taken were detrimental and I feel that we are just made to focus in the right place. I think it is a good sign for the investors. A strong distribution stroke advisory practice is necessary. This is because it is indeed a complicated business and you cannot expect the investors to know everything they are buying. So from that perspective, whatever the regulator is doing is to ensure that we have a healthier distribution. It is better that we have a strong distribution intermediary who also does the matching as per the investors’ need.

So according to you, whose job is it? The regulator’s, fund management industry’s or the government’s?

In the past, I have faced this question a couple of times. I think that there is a role for everyone to play. It is a congregation of character artistes. The fund house, the distributors and the advisors have a strong role to play. The regulator has to ensure that everyone is playing the appropriate role. 

It is like a mix of everything?

Yes, certainly. 

What is your take on the retail money coming into the Mutual Fund industry?

I do not want to sound fatalistic. But unfortunately, the maximum inflow of money has come into the mutual funds only from 2006 to the first half of 2008, instead of flowing in uniformly. You will see that many discussions take place regarding the regulations in the mutual fund industry. But one must understand that during this period, the capital markets were also going through a difficult phase. If somebody has invested Rs 100 in 2007, by the end of 2008 it has become Rs 50. On the other hand, the money that was invested in 2010, has appreciated. 

For a long time now, the investments have remained under water and this is a natural instinct that one will get out whenever he/she sees some profits. People need to go back and look at their asset allocation. In today’s scenario, you will find that they are typically underweight on equities and this picture needs to be changed.

You have also been involved in the fund management. What has been your investment philosophy?

In the Indian context, as far as money management is concerned, one of the prime responsibilities is to let people know what you do. What I mean to say is that you must say what you do and then do what you say. One has to understand that this is a business of the unknown and unknowable. So nobody is saying that all your predictions will be right, that is not correct. The point is that your advisor and your industry as a whole must know your style and what you believe in. To give you an example here, we have three to four business theories. What we look for is high quality business, and growth-oriented business which show earnings’ growth and longevity of the business. 

Is churning of portfolio necessary to create an alpha for investors?

Creating an alpha does not mean that you have to do a lot of hard work. It depends on the three factors that I have mentioned earlier. Once you are convinced, you have to think of a valid reason for sale. We believe in the ‘buy and hold’ technique. Holistically, we are value-biased.

How many funds do we have at this point of time?

At this point, we have only one open-ended fund. Apart from that, we have gold ETF, India’s only NASDAQ-related ETF and an actively managed Nifty ETF. We also have India’s only Mid-Cap ETF. 

Are we going to see some more product launches in the near future?

Yes, basically we are at various levels of regulatory approval for open-ended funds. We can expect some launches in the first quarter of the next fiscal. We will not have a plethora of equity funds, we will have two to three of them at the most and we will try to scale that higher.

How big is your fund management team?

Like I said, while we are a small AMC, our strength lies on the investments and product-line. We have almost 40 to 45 people and around 10 in investments. 

As a fund manager, how do you cope up with an investment idea that has gone wrong either for the market conditions or for the decision that you have taken?

Let me put it in this way: There are two things, one is the process and one is the outcome. If I am convinced that the process is correct and the outcome is wrong, then I will revisit my homework and convince myself that the process is right and wait for the outcome rather than look very disturbed. What you have to do is to relook at your process. There are times when the outcome is right and the process is wrong, that is what people call as fluke, we need to study that too. As a manager, I have to be clear about the processes that we are following and we need to take a stock of the situation at regular intervals.

Are you bullish on the India economy at present?

Yes, certainly.

Having said that, which are the sectors that you are currently betting upon?

In any economic upturn in the near future, what tend to outperform are the Small-Cap and Mid-Cap companies. We invest in growth-oriented companies. That is our principal philosophy, but within that, there are a group of Mid-Cap companies which look encouraging. 

I will give you some examples. In CNX Midcap, my estimate of the PE is barely around 11x. If I take it two years forward, it comes to 8x. As a group they are undervalued compared to the bigger indices. With the economy bottoming out and the interest rate turning, this group will perform better. Secondly, I do not know whether this is one or two years hence, but I can say in a good amount of confidence that we are moving from a consumption cycle to an investment cycle. If we give some money in the hands of the people, they will not build bridges, they will only consume. I think the government is doing the right thing by turning the consumption cycle to investment cycle. So I can’t time it and will not try to time it, but slowly the tide is turning. 

Can we say that sectors like infra and real estate will remain in the lime light?

Basically, you need to look at the rate-sensitive stocks, before you start looking aggressively at the policy-sensitive stocks.

What is your advice to retail investors at this juncture?

If I have to advise the retail investors, then I will say that never drive your car looking at the rear view mirror. I think people who have followed an asset allocation model and people who have invested when the markets have fallen, have made money. The last thing is that people will tell you to invest through SIPs, all I can say is that enough of SIP-ing, it is now time you start counting.