Philosophy of Top 20 Successful Indian Investors
Courtesy : Forbes India Magazine
We picked fund managers, individual investors and academicians who are all trailblazers in their own right. Take Chandrakant Sampat: The man who made money by investing in FMCG way back in the ’50s. Bharat Shah and Samir Arora garnered huge fan followings amongst investors during the dotcom boom of the ’90s. The infrastructure wave belonged to Sunil Singhania who refused new money for Reliance Growth Fund in 2006 because he thought the market had heated up. Then there is Motilal Oswal’s Raamdeo Agrawal who picked Hero Honda very early. Professor Aswath Damodaran, who teaches corporate finance and valuation at the Stern School of Business in New York University, has worked in the US markets since he moved out of India in 1979. However, his teachings are a byword for fund managers across the world.
Our Wealth Wizards are not infallible either. They admit to failures even as they take pride in their successes. They are also optimists who have a long-term faith in equity investing. Many have followed the Buffett style of value investing but, at the same time, have created rules of their own —and these are as significant a checklist on investing approaches as you can get.
Like any other skill, investing should be learnt from the best. However, it is also a personal thing, they say. Carve out your own rules and follow them strictly. And that, perhaps, is the biggest lesson from this exercise.
Chandresh Nigam, 46 Managing Director-CEO, Axis Mutual Fund, Axis Asset Management Company
The investor community first noticed Chandresh Nigam when he, along with two other fund managers, took the spectacular call of selling the IT stocks in their portfolios in the late 1990s, much before the market crash of 2000. He was with Zurich Mutual Fund at the time. This wisdom of selling, recalls Nigam, stemmed from the fact that the fund had fared poorly in the mid-90s when the market was going through a rough phase. Their bibles included One up on Wall Street by Peter Lynch.
“Stock prices may fluctuate but underlying businesses should be very solid. Companies which can sustain their business performance over the medium to long term are what one has to focus on,” says Nigam, now managing director, Axis Mutual Fund. His mantra for building wealth is simple: Superior cash flows, high ROEs that are growing over a period of time.
He speaks from experience. In 1995, Nigam was with 20th Century Mutual Fund and came across an IPO from Sun Pharma. His team saw significant potential in promoter Dilip Shanghvi. But the stock did not move for almost four years. But when it did, the returns were manifold. Therein lies the key to smart investment: Patience in equity markets to create long-term wealth. And, often, it is the most difficult part. His how-to guide is crisp: “At an individual stock level, look for long-term, sustainable and solid performances while at a portfolio level, control the risk. Create a portfolio in such a manner that you can control the downturn risk in bad market.”
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—Pravin Palande & Debojyoti Ghosh
Chaitanya Dalmia, 40
CIO, Renaissance Group
A conversation with Chaitanya Dalmia is likely to be peppered with quotes from Benjamin Graham’s book The Intelligent Investor. Graham is considered the father of “value investing”, an approach Dalmia has followed for the last 15 years.
Value investing is the strategy of investing in stocks that the market has undervalued. Given this philosophy, Chaitanya, chief investment officer of his family-owned proprietary investment firm Renaissance Group, has learnt to look beyond the fundamentals of a stock. “In a bull market, the fair value of a stock makes little sense. Let us say a stock is worth Rs 100 and I buy it at Rs 70 and sell when it hits Rs 100. But, in a bull market, this stock can go up to Rs 150 or more. We lose out on the gains if we stick to fundamentals alone,” he says. Dalmia looks at the technical factors of a stock as well before deciding on exiting it.
His investment story is one of consistent success. Chaitanya had made outsized returns in PSU banks in 2002-2006. More recently, he enjoyed supernormal returns from the engineering/EPC space through companies such as Engineers India and KNR Constructions. Both were stock market investments; the family members together were the largest non-institutional shareholders in the former, and had a significant stake in the latter.
His advice for the retail investor: “Keep SIP-ing in funds managed by credible and competent managers, and there is a decent chance of earning the best return adjusted for taxes, liquidity, risks, hassles and inflation over any 5-year period,” he says.
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Raamdeo Agrawal, 58
Joint MD & co-founder, Motilal Oswal Financial Services Limited
Raamdeo Agrawal’s decision to buy the Hero Honda stock in 1997, when the company was valued at Rs 1,000 crore, is the stuff of legends. Hero MotoCorp, as it is now known, is at a market cap of Rs 50,862 crore (as on June 19). This call, he says, stemmed from his strategy that hinges on QGLB: Quality, growth, longevity and bargain value of a company. He began cultivating this skill early in his 35-year career.
His reading includes One Up on Wall Street by Peter Lynch, The Intelligent Investor by Benjamin Graham, and works by Philip Fischer and Warren Buffett. But he is most excited by Michael Porter’s ideas on competitive structure. “In a vada pav business, you can make a lot of money, but in a sophisticated airline business, you can lose money. Why? Because of competition,” says Agrawal. “When you go to buy vada pav, you don’t even ask the price, you don’t check the change. But there are 10 guys offering you an airline ticket, and you look for the cheapest option.”
However, he is worried about a trend in Indian equities over the past 15 years: A buying culture driven by speculation, not the underlying quality of a business for the long term. “The government, Sebi, everybody, is out to make this market speculative. Nobody will listen because it’s easy money.”
Agrawal urges investors not to be driven solely by market trends: “If you’re sure the company is making Rs 100 crore and will make Rs 1,000 crore in the next seven to eight years, just buy it. Don’t bother about the market at all.”
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Chandrakant Sampat, 87
In the 1950s, Chandrakant Sampat began investing in the capital markets. Back then, the Bombay Stock Exchange, though still an association of brokers, was a functional bourse. “I got into the markets because it was relatively simple. All you needed was a cheque book and a pen. I identified opportunities out of listed issues,” says Sampat, recounting a time when the Controller of Capital Issues fixed the price at which the public should get shares of listed companies.
Sampat is an autodidact who has spent decades honing the art of evaluating the actions, not the intent, of corporate houses. It’s little wonder, then, that Sampat, now 86, is one of the country’s oldest and most respected investors.
In the ’70s, he began betting on companies such as Hindustan Unilever (then Hindustan Lever) and Indian Shaving Products (now Gillette India) before they became investor favourites. He still swears by consumer goods firms. His advice is grounded in a heavy dose of reality and common sense: Investors should look for companies with the least capital expenditure, where the return on capital employed should not be less than 25 percent. “It is also important to look for companies that distribute high dividends,” he says. He suggests that investors keep their expenses down, invest in just six to eight companies and have faith in the power of compounding.
Sampat fears the impact of economic expansion on the earth’s depleting natural resources. “We have become clever, but the wisdom is missing.”
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Parag Parikh, 61
Chairman & CEO, PPFAS
Everything about Parag Parikh is old school, from his trademark suspenders to his investing approach. He’s a money manager who sticks to his principles even when the market whispers otherwise. And his mantras are simple: Buy good businesses that you understand, bet long-term and, most importantly, buy cheap. “Today you get so many tips from the market. Many people will be able to talk about value investing. The challenge is walking the talk,” he says.
He set up Parag Parikh Financial Advisory Services (PPFAS) in 1983, and runs it on strict value investing principles where the biggest condition is to not invest in businesses it doesn’t understand. For instance, during the dotcom bubble of the ’90s, some of Parikh’s clients left him because he didn’t snap up dazzling, often confusing, tech companies. This even led to some self-doubt. But then, a course in behavioural finance at Harvard University offered him clarity. Also, the ensuing crash gave him conviction. “What is required is control over your own emotions. You have to develop discipline and think long-term. We believe in the law of the farm: You cannot sow something today and reap tomorrow.”
Inevitably, he laments the change in the financial markets. “The only ethos is ‘How do I get money from this guy’s pocket?’ Every innovation in the financial market is always against the interest of the user,” he says. And everyone is in a race for more assets under management. “If you really like infra or real estate, there are so many schemes available—why don’t you invest in them?” he asks. ‘Slow and steady’ may be old school but it still works for Parikh.
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Ashish Dhawan, 46
Director, ChrysCapital Investment Advisors
Having cut his teeth in the US investment sector, Ashish Dhawan returned to India in 1999 to start ChrysCapital. It manages $2.5 billion across six funds and has made over 60 investments—it is among the few PE firms to make 100-times-plus returns.
It is all about getting the sector call right and being prepared to stay invested for the long term, he says. Consider how, in 2002-03, he invested 40 percent of his fund’s capital in financial services. “We believed in the long-term dynamics [5 to 15 years] of financial services and knew that the market was becoming conducive,” says Dhawan. “For the next five years, I am bullish on financial services again. The sector got affected in the last few years due to bad loans, slowing growth, etc.”
Dhawan’s strategy: Investing in businesses he understands, taking a contrarian approach, having a disciplined risk aversion and diversification theme, and focusing on long-term fundamentals. “When we invest, we have a context on the sector—its growth rate, market share, losses and gains, regulatory changes. Historical perspective is equally important.” Dhawan took such a call in 2008 when ChrysCapital invested $180 million for 5 percent in HCL Technologies. “In 2007 to mid-2008, everyone loved domestic companies. We invested in HCL Technologies betting on the fact that one of its largest verticals was infrastructure management services. No one saw that. HCL was the best in that business.” In end-2013, ChrysCapital offloaded nearly 2 percent of its HCL stake for $500 million.
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Sanjay Bakshi, 49
Managing Partner, ValueQuest Capital LLP
As a student at the London School of Economics, Sanjay Bakshi read an article about Warren Buffet. He learnt that Buffett believed markets were inefficient. This was contrary to what he was being taught. “I read that Buffett wrote wonderful letters to his shareholders, that were available on request,” says Bakshi. “I sent him a request and he sent me the letters.”
It was a life-changing experience for Bakshi who decided to return to India and practise value investing. Over the years, he identified and invested in high-quality businesses run by solid management teams.
He invests in companies that take on minimal debt, and cites the example of Relaxo Footwears Limited, which began by selling slippers, grew in market volume, and expanded its range to include high-end footwear. Bakshi invested in Relaxo in 2011, when its stock was trading at Rs 100. In three years, it went up to Rs 400.
“I invest in businesses that have enduring competitive advantages and scalable business models run by owners who are both honest and competent.”
This strategy has seen him through a sometimes fickle market. “You are investing in businesses that generate so much cash they usually don’t need much debt, and there is little financial risk.” But Bakshi too has fallen prey to ‘value traps’—stocks that are cheap for a reason. “It could be because the promoters are crooked, or there is no cash, or the books are cooked.”
Bakshi’s advice is to identify high-quality businesses run by promoters who do not gamble on a speculative bet. And “do not listen to brokers.”
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Samir Arora, 53
Founder, Helios Capital
Samir Arora rose to prominence during the dotcom boom in the ’90s when he was a fund manager with Alliance Capital. Over the years, he’s eschewed financial jargon and judged a company’s worth by its fundamental investment philosophy. Arora says it’s common for investors to get self-righteous and blame others when they lose money. His advice is as pared down as his investment strategy: “Stop blaming others. Learn from your mistakes.”
He anticipated that India’s economy would change significantly after the liberalisation of 1991; he set up the India Liberalization Fund in 1993. Its focus was to buy stocks of public sector companies that were up for privatisation. It was, however, an idea whose time had not yet come. Instead, Arora focussed on sectors such as banking and insurance which were being opened up to private companies. He made handsome returns on HDFC and benefited from timely calls on banking stocks.
Apart from PSUs, he stayed ahead of the curve by focusing on a second investment category—industries that are “new” for India and under-penetrated even in urban markets. These included retail, media, liquor and multiplex chains. “The intention is to anticipate and recognise change early,” he says. He calls his third investment category “new, new”—this currently includes technology and pharma.
Arora is a canny investor with a knack for sniffing out potential gems, but he is also cautious. “We learnt that looking at low P/E stocks without considering the level of debt is risky. Many a time the stock looks cheap on P/E, but the balance sheet must be considered closely.”
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—Prince Mathews Thomas
Saurabh Mukherjea, 39
CEO (Institutional Equities), Ambit Capital
In January 2011, when Infosys was trading at Rs 3,200, Ambit Capital went against popular sentiment and recommended that investors sell their cache of Infosys shares. Saurabh Mukherjea argued that despite a strong management, the IT behemoth was not adapting to, and keeping pace with, evolving technological developments. His call saved clients huge losses.
In 2000, Mukherjea founded equity research firm Clear Capital in London. In 2004, he sold it and relocated to India. While at London School of Economics, Mukherjea learnt to look beyond financial numbers and take calculated risks. This gave him the confidence of making decisions that go against the grain. He turned bullish on TVS Motor in April 2013 when rivals such as Bajaj Auto and Hero MotoCorp were attracting more attention. But Mukherjea’s analysis showed TVS was primed to take off. A healthy balance sheet, a potential tie up with BMW Motorrad and a slew of product launches were positive indicators, he says.
Mukherjea urges investors to identify companies with a proven management track record and clean accounting standards. He cautions against investing in a company just because of a successful run in the past, or firms with extensive political connectivity. “Money is not the end-all but just a by-product of what we do,” he says. “It cannot be the goal.”
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Anoop Bhaskar, 48
Head – Equity, UTI Mutual Fund
When Anoop Bhaskar took a call on Unitech, it was a little-known entity. Those who had heard of it believed that a Delhi-based real estate company was best avoided. Bhaskar, who was heading equities at Sundaram Select Midcap Fund at the time, had a different view. In 2005, he bought Unitech stock and held it for a year before it moved north. But the advances received by the company were two times its market cap—it was a bargain. The result: Bhaskar was one of the few investors who made 100 times the money he had put in Unitech.
He has since moved on to UTI Mutual Fund—a distance from his days as an FMCG analyst in Chennai. He got his break in 2003, just 15 days before he was to shift to a Mumbai brokerage firm. N Prasad, then CIO at Sundaram, offered him this: He could become a fund manager but he would not be called one; worse, he would have to take a 50 percent pay cut. He accepted. “I had this overwhelming desire to be a fund manager and to test whether one’s potential was the same as one thought,” Bhaskar says. Then UTI came through. And so did Bhaskar. His approach has ensured that the UTI Opportunities Fund was ranked among the best mutual funds by Crisil in 2013.
Bhaskar insists that Indians “get bogged down by time periods”. “Nobody looks at provident funds till they are 58 or 60 or when they retire. Why not look at equity from that point of view? Even if you were to give 10 percent of your salary for the next 30 years and split it across three or four funds, the returns should exceed all investor expectation.”
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Kenneth Andrade, 48
Chief investment officer, IDFC Mutual Fund
Kenneth Andrade has made a name for himself by picking small stocks that have gone on to become household names. Take hosiery company Page Industries, for instance. He found Page’s scale of manufacturing impressive, and invested early in the company in 2008. Its stock has risen 15 times in the last five years. Add Jockey (Page holds India rights for the brand) to that, and Andrade knew he had a real winner.
Simply put, the man, who is responsible for mutual fund investments at IDFC MF, loves mid-caps. “They must (ideally) be single product companies, in simple businesses that have plenty of headroom to grow,” he says. To that end, Andrade would earlier choose companies in isolation. Today, he has an eye on the industry. “A good company in a consolidating business (a prime example is microfinance) is almost certainly a buy,” he points out.
But aren’t there times when the market runs up and mid-caps get expensive? Andrade disagrees. “I have never seen a company at a value I wanted to buy that I couldn’t buy,” he says. From someone who has been buying stocks for over two decades, that is a sweeping generalisation. Surely there must have been companies that were too expensive. “No,” he says with a cheeky smile but then hastens to add that “stock prices always swing and always correct. If you wait long enough you will invariably get them at the value you want”. That, and discipline in one’s holdings, is the key to a sound investment strategy, he says. And it has worked well for him.
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R Srinivasan, 46
Head (EquitIES), SBI Mutual Fund
In 2012, when R Srinivasan invested in SpiceJet, he attracted attention. It was a small investment, but he’d bet on an airline when the aviation sector was bleeding. Srinivasan believed that SpiceJet would be taken over by a big airline. That didn’t happen. “The investment thesis was risky, but it wasn’t illogical. I’m more worried about losing money in stocks when we were logically wrong,” he says. Despite this, he has delivered some of the best returns for SBI MF’s equity funds.
One of his biggest successes has been SBI’s mid-cap fund Magnum Global, which underperforms in fast-rising markets, but outperforms falling markets. He found that the extent of outperformance outweighs that of underperformance.
A football fan, ‘Wasan’ (to his colleagues) was surprised when Spain lost to The Netherlands in the ongoing World Cup. It’s a lesson that can be applied to volatile markets too, he says: Funds that are on top of their game now may not be successful in future.
“On a five-year basis, our perfor-mance for the Emerging Business Fund is amongst the top 20. But on a one-year basis, we are at a low of 98. Why? We are doing the same thing that we were doing five years ago.” He goes on to elucidate: “You cannot outperform every movement. If you outperform a falling market, you cannot outperform a rising market.”
Srinivasan also stresses upon the role of luck in investing. “There was a time when some of our equity funds were on top of the charts. Then they suddenly fell. It means that either we were taking some higher risk or we were lucky during those times.”
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Bharat Shah, 54
Executive Director, ASK Group
Investing in great businesses but at reasonable valuations has been the hallmark of Bharat Shah’s philosophy at ASK, where he heads the investment management business for high net worth individuals, family offices and institutions. This approach has mostly borne fruit but, in the late 1990s, his inability to disentangle himself from great businesses worked against him. As was par for the course at the time, he bought into IT majors such as Infosys and Wipro, and happily watched the price rise an astounding 130 times. But then, the tech bubble burst. “There were times when I didn’t realise that a good business had gotten so expensive that I needed to part ways with it,” says Shah. He went on to lose as much as a fourth of the investments he was managing.
The veteran investor has also found that fundamentals remain the same: Avoid bad businesses; stick to good businesses and never pay an outrageously high price for them; consider certainty of earnings, quality of growth and valuations as the key. In addition, Shah says, one must look at the size of the opportunity and the quality of management. What he cautions against is trying to fit a cheap business to your investment criteria.
In 2008, he had bought Kaveri Seeds, a great stock that was reasonably valued then. However, when the market fell, the company was decimated. (The stock has since risen 30-fold.) It’s something investors will do well to remember. “You as the investor have a duty towards your own self: A duty to choose well, to be disciplined, to be patient and to be foreseeing. Markets don’t have the duty to make you rich just because you have put some money in it.”
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S Naren, 49
CIO, ICICI Prudential Mutual Fund
S Naren isn’t a fan of the real estate sector. For the last two years, he had been asking investors to choose equities over real estate but nobody listened. He can now afford a touch of smugness. The real estate market has gone flat and the stock market is giving handsome returns. “The 2.5 percent rental yields were very low compared to the 11 percent interest that the mortgaging companies were charging,” he explains.
This wasn’t the first time his approach contradicted popular opinion. In October 2012, when Naren had taken a call on Bharti Telecom, its stock was down by 40 percent over the previous year while the Sensex was up 15 percent. Bharti’s Africa investments were proving to be a challenge and domestic competition was increasing. However, the worm turned within a few months of his investment and he made handsome returns.
Naren’s investment philosophy is influenced by US investor Howard Marks’s theory that when capital flows are high, it is time to think contrarian. “When you are contrarian and valuations are in your favour—they are the best times to invest in,” he says. “When you are contrarian, you need to do more research to succeed.”
Stay clear of impulse, he insists. “Force yourself to write five lines before you take a decision on why you are buying or selling something,” he says. “The main reason why people lose money is because they don’t follow a process before taking decisions.”
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Ramesh Damani, 58
Founder, Ramesh s Damani Finance Pvt Ltd
In 1989, armed with a Master’s degree from California State University at Northridge, Ramesh Damani became a member of the Bombay Stock Exchange. He had planned to make a living through broking. But what really excited him was identifying potentially successful businesses, and investing in them for the long term. Damani’s father had been successful in the market, but he always sold the moment a stock’s price went up. “He always created income for the family, but never wealth,” says Damani.
His first big move in 1993 was when Infosys went public. Having briefly worked as a coder in the US, he knew Infosys would benefit from a huge labour arbitrage. He invested Rs 10 lakh in both Infosys and CMC. By 1999, his investment had grown hundred fold. In classic Warren Buffett and Charlie Munger style, he’d experienced the advantage of hanging on to a good business. “I learned that just because a stock doubles, it is not a reason to sell it.”
In 2002-03, before the last ‘bull run’ started, Damani was bullish on the liquor industry. “It was incredible; the entire liquour business in India was available for Rs 500-odd crore.” His investment paid off handsomely. He also identified two public sector companies, Bharat Electronic Ltd and Bharat Earth Movers Ltd, and got in early. And he regrets not buying enough.
Another regret: Not buying aggressively when the markets crashed in 2008. “I had anticipated the fall and was 30 percent in cash. By the time I started buying, though, the market had already run up,” he says. He hasn’t allowed too many regrets since.
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Rakesh Jhunjhunwala, 54
Founder, Rare Enterprises
Trends make the best friends, believes Rakesh Jhunjhunwala. And like a good friend, the master investor never questions or pre-empts a trend. The 53-year-old markets maven and India’s most influential wealth creator has identified the present trend as the “biggest bull run” and as always, he’s put his money where his mouth is: He’s “fully invested”, reported The Economic Times in May. After Narendra Modi came to power at the Centre, Jhunjhunwala sold most of his stake in Praj Industries and bought into Edelweiss Financial Services (its share price jumped by 8 percent on the day).
Throughout his 29-year-long career, he’s backed his trendspotting with a huge appetite for risk-taking. It started with him buying shares in Titan Industries in 1986 when others were underestimating the potential of the company. He continues to be invested in Titan and holds close to 9 percent of its stock, currently worth over Rs 2,500 crore. Similarly, he bet on iron ore-miner Sesa Goa, now Sesa Sterlite, when its share price was Rs 60 and sold them at Rs 2,200 a share in the late 1980s. While Jhunjhunwala doesn’t get into an “analysis paralysis” before taking an investment call, the trained chartered accountant does assess the company’s fundamentals. The price-earnings ratio to him is the most “difficult” but also the most “critical” part of investing.
The man is often called ‘India’s Warren Buffet’. And like the American investor, the Indian bull is also known for his long-term bets. At the same time, he doesn’t undermine the importance of “trading” as it has given him the capital to place long-term bets and become a master predator.
—Prince Mathews Thomas
Sunil Singhania, 47
Chief Investment Officer (Equity), Reliance Capital Asset Management
Numbers fascinate Sunil Singhania. So do balance sheets. In 1991, when India opened its economy to the world, Singhania channelled his love for numbers and balance sheets to take up a new hobby—stock spotting.
He worked as an institutional broker in the mid-1990s and moved to Reliance Mutual Fund in 2003. He was one of the key strategists behind the success of Reliance Growth Fund, which, in May 2014, became the first mutual fund scheme in India to hit a net asset value of Rs 600.
One of the biggest bets Singhania, along with colleague Madhusudan Kela, took was on Jindal Steel & Power. In 2003, the group’s founder chairman, the late OP Jindal, had not yet got the market recognition his companies now enjoy. Singhania and Kela realised this gap between reality and market perception. They picked the company when its market capitalisation was Rs 300 crore, with a view that profits will grow four to five times in future. The company’s market cap ballooned to about Rs 28,000 crore in 10 years.
An advocate for bottom-up investing, Singhania has started focusing on global macro-economic factors that have impacted Indian markets and corporate fund-raising capacities recently. At the same time, he takes a leaf out of Ralph Wanger’s book, Zebra in Lion Country, which talks about investing in small, rapidly growing companies. “Zebras try and stay in the centre of the herd to safeguard against attacks, but the zebras at the outside of the herd get the freshest grass,” Singhania says.
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—Salil Panchal and Pravin Palande
Managing Director, Morgan Stanley India
ock from his personal portfolio in 20 years. At Morgan Stanley India he focuses on researching market trends rather than fund management.
A Formula One fan, Desai believes the Indian economy has the components of a winning car. And now, it has a driver—the government. “What happened with India’s elections is unprecedented; the mandate is for the political class to use development as its prime plank. I think the market will give time and the benefit of doubt to the government,” he says.
Desai is soft-spoken, but he minces no words. “India needs to lift productivity and ensure its workforce is going to be educated and healthy.” The good news, he says, is foreign investors have been bigger believers of the India story than local investors. “In the last five years, India got $100.7 billion in FII inflows. That is more than double of what we got during the so called boom of 2003-2007.”
He believes investors should look at financial services. Buys such as Crisil and ITC have worked well for him.
Desai has two copies of Edwin Lefèvre’s Reminiscences of a Stock Operator, at home and at work. These days, he’s fascinated by thinkers like Naseem Taleb because he believes human behaviour will challenge traditional economic models. “The traditional view is that if a variable deviates from a path, market forces will bring it back. But the new learning says the variable may continue to stay off path,” he says.
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S Naganath, 50
President and CIO, DSP BlackRock Mutual Fund
S Naganath sees the market as an aggregation of people. And that explains his interest in investor psychology. “The thought process of each individual’s mind and its coming together is what causes market movements. I’m hoping to get some perspective by reading books on psychology dealing with this subject,” says Naganath, who is reading Thinking, Fast and Slow by Daniel Kahneman.
People recall a presentation he gave more than a decade ago, where he expounded on liquidity flows and how markets would double in two years. At the time DSP BlackRock was a predominantly debt fund management house but, after 2002, it launched new equity schemes that were a success in India. DSP BlackRock’s Top 100 Equity scheme has returned a 22 percent annual growth against the BSE 100’s 17 percent.
In January 2008, Naganath was one of the first investors in India to realise the markets have run up; it was time to move out of cyclical stocks like banking and into defensive stocks. This strategy helped the company’s funds sustain long-term returns.
“Investors should have a fair idea of return expectation, and the risk they are willing to take to achieve the return,” he says. Every business student learns about risk-return trade-off, but Naganath says he doesn’t know any investor who puts it into practice. “You have to define what returns make you happy, what risks you are ready to take to achieve the returns.”
For Naganath, investing is a process that needs to be enjoyed.
Aswath Damodaran, 57
Professor of finance, Stern School of Business, New York University
“Most actively managed funds charge you money for losing your money,” says Aswath Damodaran. He teaches corporate finance and equity valuation at NYU, and his fan following among students would make even Hollywood A-listers envious.
Though he’s taught valuations all his life, he advises people to invest in index funds. “For most investors, small or large, the index fund route is the better choice. Most active mutual funds and supposedly professional investors bring nothing new to the table,” he says.
When Damodaran started working on his book, The Dark Side of Valuation, markets were riding high on the dotcom boom. Amazon was trading at $48 and Cisco Systems at $64.88. He found these companies overvalued. According to his discounted cash flow model, Amazon and Cisco were worth only $34 and $44.92 respectively. And by the time he completed his book in 2000, the value of these companies had fallen.
He is of the opinion that the value of a firm depends on its capacity to generate cash flows and the uncertainty associated with these cash flows. He respects investors who are humble and recognise that much of their success is due to luck. “I don’t care much for those who try to browbeat you with data, models or their technical training,” he says.
His mantra is simple: Be yourself. “If you are an investor, you have to make your own judgement. The key to success is not whether you can invest like Warren Buffett, but whether you have an investment philosophy that you are comfortable with.”