Interview With Ankur Arora, Associate Director – Fund Management, IDFC Mutual Fund

Ankur Arora
Associate Director – Fund Management
IDFC Mutual Fund

How did you begin your journey in the capital market?

My journey in the capital market began in 2004 when I joined UTI Mutual Fund. After UTI, I worked with a couple of organisations before joining ING Investment Management. At ING, I was a part of the research team before I got the responsibility of managing ING Dividend Yield fund which I managed for around two and a half years. I joined IDFC Mutual Fund in March 2012 and am currently managing four portfolios here.

Can you describe your investment philosophy for our readers?

I believe in long-term investing and do not like taking too many risks in portfolios. A large part of the portfolio will always be allocated to cash flow generating companies. I believe that high cash flows are risk mitigants which lend stability and resilience to portfolios. While valuations are important, they do not take precedence over long-term business prospects.

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

While it is a difficult question to answer, my decision to orient portfolios towards companies which generate high cash flow and have a less exaggerated impact of the slowdown in the economy has held me in good stead.

Back in 2009, the environment was quite enabling for consumers with the regulators and governments adopting an easy liquidity policy to spur growth. Higher government spending through NREGA, subsidies, pay commissions, higher minimum support prices (MSPs) and a job creation impact of the last round of the capex cycle, all augured very well for the consumer part of the economy which thus found higher allocation in the portfolios. Within this space, the focus was on companies which have a distinct product/service, a leadership position and pricing power leading to superior ROEs and cash flows.

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

Absolutely. Any investment takes time to mature and one needs to be ready to stay invested for that period to realise the gains from that investment.

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

Well, success and failure travels hand in hand. There are many ideas that have gone wrong in my experience as a fund manager. It is important to recognise the mistake and take corrective measures. However, I must add that the price movement in the short term does not tell you whether your investment idea is right or wrong. It depends on your investment rationale and how the underlying business matrix is evolving vis-à-vis the same. Sell decisions are based on the underlying performance of the company versus our hypothesis and any change in the overall business/ industry environment. If the hypothesis does not pan out in the envisaged manner, then we are not shy of taking corrective measures.

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

No, I do not buy this argument. Portfolio churn should be a function of flows and to reflect the change in trends. Portfolio churning to create alpha is surely not my cup of tea.

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

While we do not have a crystal ball to recognise a bear/ bull market, we do believe that it is possible to get some semblance of a buildup of excesses in the economy. A case in point could be that of 2008 when excessive capital was chasing the infra economy in expectation of perpetual growth in the order books and profitability.

What is your view on the current macroeconomic scenario of India?

At this juncture we are surely passing through challenging times. The GDP rate has fallen quite rapidly to below five per cent levels. I do not feel that we will see any drastic recovery in the near future. A high fiscal deficit and Current Account Deficit (CAD) continue to pose challenges to the Indian economy. With the elections round the corner, we will see more social spending which may put further pressure.

What is your take on the financial performance of India Inc. for FY13 and how do you expect it to pan out in FY14?

We have to understand that Corporate India is a part of the broader Indian economy. A slowdown in the overall economy is bound to have an impact on the corporate sector’s performance. So far its profitability has found support from the consumption (government support, income and wealth effect) and services sectors. Incrementally, a sustained slowdown in the economy can impact the performance of corporate India.

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

Policy logjam has by far been the biggest deterrent to the growth of the Indian economy in the recent past. We will be keenly observing the government’s stance and the regulator to create an enabling environment for growth by removing the existing bottlenecks.

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

We continue to remain bullish on consumption. While, we are cognizant of high valuations in the sector; earnings and cash flows visibility remain fairly high. We are also positive on the export story of India and remain optimistic on the IT and pharma space.

What would be your advice to retail investors?

One has to understand that investments and speculations are two different things totally. Whenever you are investing please be sure that you invest with a long-term horizon in your mind and that is the only way to create wealth for oneself.