“Our process for stock selection is primarily bottom up”
TRUST Mutual Fund likes to invest in industries which have strong tailwinds, in companies which have dynamic management and businesses which are constantly creating brand value through increasing value creation, says its CEO Sandeep Bagla.
The concept of terminal value investing focuses on the long-term intrinsic value of a stock. How does this strategy align with TRUST Mutual Fund’s investment philosophy?
At TRUST Mutual Fund, we believe that focusing on terminal value investing allows us to capture the full potential upside in the stock of a company. We are growth investors and are constantly evaluating companies based on the near-term growth trajectory as well.
Given the current economic environment, what is your outlook on the Indian equity and debt markets over the next 12 to 18 months?
Equity market valuations are currently driven by excess global liquidity, created by central banks, and local liquidity, supported by fresh retail investor inflow. There are talks that the U.S. Federal Reserve will cut rates and keep the monetary conditions easy. In India too, the retail juggernaut of equity investments is unlikely to slow down. Given that the pillars that support market valuations are likely to be strong, the equity markets should remain buoyant.
Any rate cuts in advanced markets should lead to improvement in domestic debt market sentiment as well. The inclusion of Indian government securities in global bond indices will bolster demand. We expect both Indian debt and equity markets to perform well, ceteris paribus. The geopolitical risks are concerning and we would advocate a prudent asset allocation for investors.
Can you provide insights into your process for selecting stocks within a flexi-cap fund portfolio, particularly in volatile markets?
Our process for stock selection is primarily bottom-up. We like to pick companies and sectors which have high growth potential in the foreseeable future. We like to invest in industries which have strong tailwinds, in companies which have dynamic management and in businesses which are constantly creating brand value through increasing value creation. We have used the market volatility to book profits at times when we believe that there is an excessive run-up in stocks.
What criteria do you use to identify potential gorilla stocks, and how do you ensure they align with the long-term goals of your investors?
Investors are looking to participate in the growth trajectory of the Indian economy by investing in quality high-growth stocks. Terminal value investing provides a framework which cuts out short-term noise and allows us to concentrate on longer-term sustainable growth opportunities of exceptional businesses. We aim to invest in companies which are potential leaders in their area.
These companies play a dominating role in the markets and have exceptional growth runaway. We call them gorillas as they display similar qualities of strength, size and resilience. We use a model that focuses on a) megatrends that support the company’s growth opportunities, b) leadership which is hungry and dynamic, and c) intangibles which drive valuations like brand equity, customer centricity, technology etc. The process allows us to identify companies which are potential outperformers.
How do you view the recent regulatory changes in the mutual fund industry? Are there specific regulations that you believe will have a significant impact on fund management and investor protection?
The rise of the capital markets can largely be credited to a proactive and market-friendly regulatory framework and oversight over the last couple of decades. The markets have become safer and less prone to human error or system failures due to increasing regulatory sophistication. The measures in the mutual fund regulations have largely been forward-looking and investor-friendly which have enabled greater and easier retail participation.
Investor education is crucial for informed decision-making. What initiatives is TRUST Mutual Fund undertaking to educate retail investors about the nuances of mutual fund investing?
TRUST Mutual Fund is a recent entrant in the MF space. We have undertaken measures like the creation of alternate indices in fixed income which are broad-based or weighted by outstanding issuances rather than immediate past liquidity trends. We hold frequent investor and distributor events which disseminate our views on disciplined investing and balanced asset allocation.
How are you adapting to the digital transformation in the financial services industry? What role do you see for technology in mutual fund distribution?
The MF industry is fast transforming on the back of digital improvements which make investing easier for retail investors. We have created digital assets which allow distributors to seamlessly empanel with us, offer co-branded material to our investors and transact easily for enabling or tracing of their investments.
Looking ahead, what innovative products or services can we expect from TRUST Mutual Fund? Are there any plans to introduce new fund categories or investment strategies
Besides the standard equity products, we are examining various smart beta options which allow long-term sustainable value to our investors. We aim to provide a set of differentiated and meaningful set of investment options to investors in the future.
Disclaimer: The opinions expressed above are personal and may not reflect the views of Dalal Street Investment Journal.