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Too much literature available
Dependent on conviction, upside risk and detailing
Is effectively switching between various asset classes. It cannot be within the same asset class.
Buying Sizing Selling
What is investing?
Consists of three steps: Buying, Sizing and Selling
2
Have a grip on intrinsic value
Careful on leverage
Works best in cyclical sectors
Know the counter view on the stock
Contrarian approach to investing
Things I Believe In
3
Have a grip on intrinsic value
Be cognizant of risk
Common Sense
Cycles: It is an art; primarily based on how others are behaving in that asset class
Charts: Price is set by a marginal seller/ buyer; incorporates fundamentals most of the time -Anthony Bolton
2Things I Believe In
4
CASH: A residual asset class but a very important one
18,620
23,002
38,667 Net Equity
77.4
Net Equity77.7
Net Equity57.5
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40,000M
ar-1
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ICIC
I P
rud
en
tial
Bal
ance
d A
dva
nta
ge F
un
d N
et
Equ
ity
Exp
osu
re (
%)
Sen
sex
Leve
ls
S&P BSE Sensex Levels vis-a-vis ICICI Prudential BAF Net Equity Exposure (%)
Sensex Level Net Equity Exposure %
Source: BSE India & MFIE, Data as of September 30 2019. The in-house valuation model starts from March 2010 onwards.
Things I Believe In
5
All big mistakes can
be avoided by looking at...
Trailing price to earnings
Trailing price to
book Trailing price to cash earnings
per share
Balance sheet
quality
PO/QIP activity
in sector
Dividend yield
Leverage of
company
Market cap
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Stock Picking
7
Cement + Metal Sectors
Rs. 31,623Infosys + Wipro
Rs 1,07,604
Market Cap
Name Mcap(In Crs.)
IT Dec-99
Infosys 48,005 Wipro 59,599
Total 1,07,604
Name Mcap(In Crs.)
Cement Dec-99
Ambuja 4,797 IndiA Cements 1,004
Heidleberg 132 Total 5,933
Name Mcap(In Crs.)
MetalsDec-99
Natl. Aluminium 8,151
Hindalco Inds. 5,995 Tata Steel 5,208
S A I L 4,647 JSW Steel 781 Hind.Zinc 697 Vedanta 212
Total 25,690
Mcap(In Crs.)
Data as in December 1999
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Pharma
Rs. 1,31,249DLF
Rs 1,83,082
Market Cap
Mcap (In Crs.)
Mcap (In Crs.)
Pharma Dec-07
Sun Pharma.Inds. 24,071
Cipla 16,529
Glenmark Pharma. 14,656
Dr Reddy's Labs 12,306
Divi's Lab. 12,112
Glaxosmi. Pharma 8,701
Piramal Enterp. 7,493
Biocon 5,772
Lupin 5,168
Jubilant Life 4,963
Opto Circuits 4,796
Wockhardt 4,576
Cadila Health. 3,952
SPARC 3,236
Aurobindo Pharma 2,919
Total 1,31,249
Data as in December 2007
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Metals
Rs. 2,86,600Pharma
Rs 2,95,302
Market Cap
Mcap(In Crs.)
Data as in June 2015
Mcap (In Crs.)
Name Jun-15
Pharma
Sun Pharma.Inds. 2,10,461
Lupin 84,841
Total 2,95,302
Metals
Hind.Zinc 70,605
Vedanta 51,630
NMDC 47,061
Tata Steel 29,583
S A I L 25,379
Hindalco Inds. 23,107
JSW Steel 21,084
Natl. Aluminium 10,309
Jindal Steel 7,841
Total 2,86,600
Market Cap
10
Top 10 pharma
companies
HUL
Rs. 3,95,178
Mcap(In Crs.)
Rs. 4,29,055
INR CRMcap
(In Crs.)
Name Sep-19
Sun Pharma.Inds. 93,440 Dr Reddy's Labs 44,874 Divi's Lab. 44,214 Aurobindo Pharma 34,512 Cipla 34,293 Piramal Enterp. 32,599 Lupin 32,393 Torrent Pharma. 28,216 Biocon 26,754 Cadila Health. 23,884 Total 3,95,178
Data as in September 2019
Top 10 Pharma Companies
Market Cap
11
PSU Universe
Top 5 stocks
sorted By Mcap
Rs. 16,81,081
Mcap(In Crs.)
Rs. 30,84,528
Data as in September 2019
Top 5 stocks sorted By Mcap
Mcap(In Crs.)
Name Sep-19
Reliance 8,44,530 TCS 7,87,738 HDFC Bank 6,71,509 Hindustan Uniliver 4,29,055 Infosys 3,51,696 Total 30,84,528
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Valuations
(How others are behaving)
.
Cycle (What changes
a cycle)
Trigger
(Flows)
Sentiment
Our Philosophy based on my Learnings
VCTS Investment Framework
Valuations - Equity
Parameters Used: Price-to-Earnings, Price – to-Book, Market cap to GDP, Earning Yield
Equity Valuation index is calculated by assigning equal weights to Price-to-Earnings (PE), Price-to-Book (PB), G-Sec*PE and Market Cap to GDP ratio. G-Sec – Government Securities. GDP – Gross Domestic Product; Asset Allocation – Schemes that invest both in equity and fixed income
108.19
50
70
90
110
130
150
170Se
p-0
6
Sep
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Sep
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Sep
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Sep
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Sep
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Sep
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Sep
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Invest in Equities
Aggressively invest in Equities
Neutral
Incremental Money to Debt
Book Partial Profits
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Market Cap Analysis
Share in the Overall Market Cap (%)
Index 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Mar-19 Jun-19 Sep-19
Top-100 79 79 75 74 71 79 77 78 79 78 81 75 74 72 65 70 73 73 74.0
101-250 9 11 12 12 13 11 12 13 13 14 13 14 15 15 16 16 16 16 15.1
Above 250
12 11 13 14 16 10 11 9 8 8 6 10 11 14 18 14 12 11.7 10.9
Top 100 indicates top 100 companies by market capitalization,101-250 indicates next 150 companies by market cap and above 250 indicates 251st onwards by marketcap. Source : Kotak Research , Data as of September 30, 2019
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Valuations - Credit
Parameter: Gap between yield –to-maturity and repo rate
Data as on September 30, 2019, YTM values taken since scheme inception. Past Performance may or may not be sustained in future.16
Gold/Cash is a residual asset class based on the valuations on the other asset classes
When all other asset classes are costly gold
and cash are cheap and vice versa.
17
Valuations – Gold/Cash
Valuations – Real Estate
3.95%
5.70%
7.30%
5.70%
3%
4%
5%
6%
7%
8%
FY0
4
FY0
5
FY0
6
FY0
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FY0
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FY0
9
FY1
0
FY1
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FY1
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FY1
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FY1
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FY1
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FY1
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FY1
9
1Q
FY2
0
2Q
FY2
0
Mortgage rate premium movement over Rental Yields
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Valuations – Real Estate
Institutional Selling aggressively and valuations attractive
Burst
Valuations off charts, new valuation models emerge, investors forget the existence of the World Risk.
BubbleInstitutional buying, valuations costly
BoomInstitutions both buying and selling, valuations not cheap
BoringInstitutions not buying, valuations attractive
Best Time to invest
2Market Cycle
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• Lehman Crisis 2008
• Dot com burst –2001
• Equity Markets in 2011-2013
• Equity Markets in 2015-2016 (China slowdown)
• Debt Accrual Schemes currently
Equity Markets currently
• Equity Markets in 2006 & 2017
• Real Estate in 2013• e-Commerce in 2014• Bitcoin in 2017• Equity in 1999• 2007
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Buy high market cap
stocks.
Miss growth sectors due to
above Buy high
trailing p/e stocks.
Buy consensus stocks among
fund managers.
My philosophy will not allow me to ...
Asset Class performance – Cyclical & Unpredictable
Time Period S&P BSE Sensex Returns (%)CRISIL Short Term Bond Fund
Index Returns (%) Gold Returns (%)
CYTD – till Sep’19 6.7 9.9 18.9
2018 5.1 6.7 7.9
2017 28.0 6.1 13.1
2016 2.0 9.8 8.6
2015 -5.0 8.7 -10.4
2014 29.9 10.5 -1.7
2013 9.0 8.3 -28.0
2012 25.6 9.1 7.1
2011 -24.7 7.9 10.1
2010 17.4 4.7 29.5
2009 81.0 6.6 24.4
2008 -52.4 9.5 5.8
2007 46.9 8.0 31.0
2006 46.8 5.5 23.2
2005 42.5 4.5 17.9
2004 13.0 2.7 5.5
Source: MFI Explorer and Kotak Securities; Calendar year returns. Past performance may or may not be sustained in future. Returns mentioned are in terms of CAGR22
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“SIP is deliberately doing something slightly inferior, to prevent the likelihood of something very inferior. It’s such a fine line between stupid and clear. SIP seems clever, but we should recognise that it’s true value lies in not being stupid.” - Tim Harford, Financial Times, October 19, 2018.
Systematic Investment Plan (SIP)1
2
3
Hybrid Mutual Funds
Asset Allocation
4 Even Index Funds/ETFs
Four Ways of Investing for Decent Returns: Sufficient for 99% investors
Time Management: Very critical element. Most successful individuals know how to manage time.
Thinking: Often people tend to forget that one needs a separate ‘thinking time’
Temperament: Important aspect. It takes courage to give a buy call at the bottom and a sell call at market top.
Reading: A must-have habit when investing
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Key Traits of an Investing Person
Nothing called consistency in performance, only process
No decision is a decision
2Truisms
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Money comes to a fund manager till he fails
▪ Anthony Bolton▪ Woodford▪ Bill Miller▪ Bill Gross
Hubris Forced selling or buying are
good investment/dis
-investment opportunities
There will be mistakes; cant
get all calls right
Sharing of theory is easy but implementation of what you know is a challenge
There is no age limitation. Can continue as long as one is mentally fit
Keeps you alive and interested in the world
Over short duration, there is no connection between
competence, capability and alpha generated
There are multiple ways to make money in long run
1Advantages of being an Investment Professional
26
2
Managing public money has its own challenges
Can you keep on learning as you age
Can one’s weakness go away? (Mark Sellers Speech)
Handling irrationality in the market
Short term performance is never driven by process
Disadvantages of being an Investment Professional
27
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Investment Professionals I Follow:
• James Montier• Howard Marks• Michael Mauboussin• Atul Gawande
Why not Indian Gurus?
Every guru is likely to have some biases; a problem likely to be compounded with one's
own biases.
My Market Gurus
S
O
W
T
James Montier
Howard Marks
Atul Gawande
Michael Mauboussin
CONTRARIAN CHECKLIST
PRE-MORTEM
29
CYCLES
My Market Gurus