Interview With Ashish Ranawade, CIO, Union KBC AMC

Ashish Ranawade
CIO 
Union KBC AMC

“We still are a long way from when investors would understand their risk-taking ability, the value of advice and the advisors put investors’ needs before everything else. The way the funds are distributed and the manner in which the investors transact etc., everything has the potential to move to a higher level.”

How did you begin your journey in the Indian capital market?

I did my post graduation in 1994 (Masters in Management Studies (Finance)) and got into UTI through a campus placement. I worked as a credit analyst with some of the best minds with similar academic qualifications. UTI, being a large institution with exposure to almost every industry, provided a solid foundation to understand the ecosystem within which companies operate. The company itself underwent a massive transformation, providing a huge learning opportunity and the ability to work with some of the best leaders to be able to appreciate what leadership is all about.

Can you describe your investment philosophy for our readers?

Union KBC AMC predominantly follows a growth-oriented approach backed by fundamental research. Further, each of our funds is guided by a different philosophy, which we try to document as a part of our investment process. We are a process-oriented organisation, and that helps a lot. So, our Tax Saver Fund has the ability to pick up more Mid-Caps compared to our Equity Fund, which would also be more diversified in terms of number of stocks than the Tax Saver Fund.

Our portfolios tend to have a much lower turnover as a result of our predominantly fundamental approach. We try to keep the liquidity of our portfolio stocks within our comfort zone, which is much higher than the average. We have internal portfolio concentration limits, which we adhere to in the context of diversification and also liquidity.

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

The markets today are globally integrated. While there are stock-specific factors which impact performance, we need to be aware of the macro factors when investing. Specific to stocks, Union KBC AMC predominantly has a growth-based approach, which means we like companies which have good growth possibilities. However, we also attach importance to value, which is partly a derivative of growth and partly the perception of investors.

Exit from stocks is relatively more difficult than entry, and there are many things which would make us exit a stock. However, since we are a long-only fund house, it is the relative attractiveness of another stock, either from the same or a different industry, which becomes the main trigger for an exit.

Technical analysis is considered to be an integral part of market success. What is your take on this?

We do use technical analysis as a tool in managing our portfolios. However, it is more of a secondary tool over fundamental analysis, which forms the bedrock of our approach towards portfolio management. Being a long-only fund house with very low portfolio turnover, it has limited utility for us.

How do you cope with any investment idea that goes wrong?

It is bound to happen that some of the investments we make based on certain assumptions fail to perform as expected. We have to constantly review our positions on each and every stock in the portfolio, and also review our assumptions with regards to these stocks. If we feel they are valid, we continue to be patient, as sometimes we find that we are way too early in picking up a good stock. But if we feel that the assumptions are not valid or things have turned for the worse, we have to cut the position.

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

We have seen that selection of a sector and then a stock, i.e. a top-down approach, and the selection of stocks irrespective of the sector, i.e. the bottom-up approach, both work. In a sense it depends on the style and the approach, as also the risk we want to take in the portfolio. In our case, we have funds which follow predominantly the top-down approach and we have funds which follow predominantly the bottom-up approach as well. A Judicious mix of both is also possible.

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

There have been some stocks, which over the last many years have steadily rewarded investors with a ‘buy and hold’ approach. Buy and hold, the way we implement it, is a bit different. While continuing to hold on to a stock, we constantly review our positions and question our assumptions. We are also on the look-out for something better. The buy and hold concept cannot be completely foolproof. If you buy something and the environment has changed, it would be better to get out of that position.

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?

We have a policy on voting, and we follow the same. As an industry, we are evolving on this front. I think we would rather be followers than take the lead, as we are yet a small but growing fund house.

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

We believe that portfolio churning for the sake of churning doesn’t make sense. Churning for us is the outcome of a belief that a stock has achieved its peak valuation and we can do better in some other stock, or if we feel the need to rebalance our sector positions.

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

Yes and no. It is a very difficult task indeed.

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

Growth may have bottomed out largely on account of a good monsoon, the depreciation of the INR should provide a competitive boost to certain sectors, but there is a lot that needs to happen on the ground on the manufacturing side. The entire infrastructure sector is grinding slower, while the GOI is making efforts, we remain vulnerable on many fronts. It is going to take some time for the domestic economy to re-adjust as global macroeconomic signals are also conflicting.

How do you see the financial performance of the Corporate India panning out for FY14?

The second half of FY14 should be a good period for Corporate India to perform, but a lacklustre first half would make FY14 as a whole look not so great. Having said that, we do have hopes of a major return to growth in FY15.

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

The General Elections next year and tapering by the Fed will be important trigger points for the markets.

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

We are currently overweight on pharma, media, software and FMCG, and still a bit cautious on capital goods, metals and mining, and banking and financial services.

How do you rate the maturity level of the Indian fund management industry as it stands today?

I think we are at different levels of maturity. A mature industry also means mature stakeholders, by which I mean shareholders, investors, distributors and service providers. We still are a long way from when investors would understand their risk-taking ability, the value of advice and the advisors themselves put the investors’ needs before everything else. The way the funds are distributed and the manner in which the investors transact, etc., everything has the potential to move to a higher level.

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

When investing, patience is a virtue and good advice doesn't come free.