Monday, December 3, 2007

Fund Managers Investment Strategy

Chirag Setalvad
Senior Fund Manager, HDFC MF

He is a bottom-up stock picker. Meeting the company management before he invests in a new company is a must for him. Further, Setalvad also insists on meeting junior-level people and people surrounding the business. "Typically, a junior-level employee will give you a more honest opinion of the company; leaders give visionary thoughts," he says. Well-maintained factories are a turn-on for this cleanliness freak. Best part of his job? Learning, he says, by getting to read and meeting various people. "In 99 out of 100 meetings, the fund manager is the dumbest guy in the room."

Sandip Sabharwal
CIO, JM Mutual Fund

His checklist includes the company's business, management and the management's ability to handle the business. "I don't focus too much on spreadsheets and am not driven by all numbers that the company reports; their long-term growth path is what interests me more," he says. He loves to see the cash flows that companies generate and typically avoids event-based companies—those that realise their value based on events like sale of real estate.

Madhusudan Kela,Head Equity,Reliance Capital
First is management. Second is, when you look at the opportunity, is it really scalable? If the management is able to capture the opportunity, can it be really scalable over a period of two-three-five or 10 years? Also, whether the opportunity is scalable enough in the stock market. So, you don’t bet on a small business.
Third is you look at the competitiveness of the business, as well as of the company in which you are investing. Can it be a cost leader? Can it be a price leader and can it be a profit leader? Fourth of course, you look at all the financial parameters, which everyone else looks at in the industry and finally you want to buy all this at a particular price.

Ajay Bodke, Fund Manager, Standard Chartered Mutual Fund
We follow two strategies - theme selection and sector rotation. If the theme identified is Indian capital expenditure, then you identify sub-sectors within that sector. Sector rotation is when you take a call that, say,interest rates are likely to move downward, and you reallocate your portfolio towards interest-rate sensitive stocks. Once the theme is identified, we look at competitive intensity in the industry and the pricing power players enjoy.
Quantitatively, we look at EBIDTA margins, financial leverage ratios,asset turnover ratios, working capital management and ROE. Then we look at valuations. Along with PE ratio, we also place emphasis on PEG ratios of the company in relation to its competitors. We also look at the fair value using DCF method and compare it with EV. If we feel the stock is undervalued, we see whether it is liquid. Lastly we see what kind of institutional coverage it has - the less the coverage, the more the potential to appreciate. Then we decide whether to buy.