Learnings from my

Investing Career
 What is investing?
Consists of three steps: Buying, Sizing and Selling

Buying Sizing Selling

Too much literature Dependent on Is effectively switching
available conviction, upside risk between various asset
and detailing classes. It cannot be
within the same asset
class.
2
Things I Believe In

Contrarian approach to investing

2

Know the
Careful on Works best in Be
counter view Have a grip on
leverage cyclical sectors cognizant
on the stock intrinsic value
of risk

Have a grip on
intrinsic value

3
Things I Believe In
2

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

Common Sense

4
Things I Believe In

CASH: A residual asset class but a very important one

S&P BSE Sensex Levels vis-a-vis ICICI Prudential BAF Net Equity Exposure (%)
Net Equity Net Equity
38,667
40,000 77.4 77.7 80

ICICI Prudential Balanced Advantage Fund Net

75
35,000 70
Sensex Levels

65
Net Equity

Equity Exposure (%)

30,000 60
57.5
55
25,000 50
45
23,002
20,000 40
18,620 35
15,000 30
Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19
Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19
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. 5
Stock Picking

Trailing
price to Trailing
earnings price to
book Trailing price to
Leverage cash earnings
of per share
company
All big
mistakes can
be avoided by
looking at...
Dividend Market
yield cap
PO/QIP
activity Balance
in sector sheet
quality

6
 Market Cap
Cement + Metal Sectors

Infosys + Wipro
Rs. 31,623
Name Mcap
(In Crs.)
Rs 1,07,604 Mcap(In Crs.) Metals
Dec-99

Natl.
Aluminium 8,151
Name Mcap Hindalco Inds. 5,995
Name Mcap (In Crs.) Tata Steel 5,208
(In Crs.) Cement Dec-99 SAIL 4,647
IT Dec-99 Ambuja 4,797 JSW Steel 781
Infosys 48,005 IndiA Cements 1,004 Hind.Zinc 697
Wipro 59,599 Heidleberg 132 Vedanta 212
Total 1,07,604 Total 5,933 Total 25,690 7
Data as in December 1999
Market Cap

Mcap (In Crs.)

Pharma Dec-07
Sun Pharma.Inds. 24,071
Cipla 16,529
Glenmark Pharma. 14,656
Dr Reddy's Labs 12,306
Mcap (In Crs.) Divi's Lab. 12,112
Glaxosmi. Pharma 8,701
Piramal Enterp. 7,493
Biocon 5,772

DLF Pharma Lupin

Jubilant Life
5,168
4,963

Rs 1,83,082 Rs. 1,31,249 Opto Circuits

Wockhardt
4,796
4,576
Cadila Health. 3,952
SPARC 3,236
Aurobindo Pharma 2,919
Total 1,31,249
8
Data as in December 2007
Market Cap

Mcap (In Crs.)

Name Jun-15
Pharma
Sun Pharma.Inds. 2,10,461
Lupin 84,841
Total 2,95,302
Mcap(In Crs.) Metals
Hind.Zinc 70,605
Vedanta 51,630

Pharma Metals NMDC 47,061

Tata Steel 29,583

Rs 2,95,302 Rs. 2,86,600 SAIL

Hindalco Inds.
JSW Steel
25,379
23,107
21,084
Natl. Aluminium 10,309
Jindal Steel 7,841
Total 2,86,600
9
Data as in June 2015
Market Cap

Mcap(In Crs.) Top 10 Pharma Companies

Mcap
Top 10 INR CR
(In Crs.)
pharma
companies Rs. 3,95,178 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
HUL Rs. 4,29,055 Piramal Enterp.
Lupin
32,599
32,393
Torrent Pharma. 28,216
Biocon 26,754
Cadila Health. 23,884
Total 3,95,178
Data as in September 2019 10
Market Cap

Mcap(In Crs.)
Top 5 stocks Mcap
sorted By Mcap (In Crs.)
PSU
Universe Rs. 16,81,081
Name Sep-19
Reliance 8,44,530
TCS 7,87,738
Top 5 HDFC Bank 6,71,509
stocks Hindustan
sorted By Rs. 30,84,528 Uniliver 4,29,055
Mcap Infosys 3,51,696
Total 30,84,528

Data as in September 2019 11

How to create wealth across asset classes

Equity Credit Gold/Cash Real Estate

12
Our Philosophy based on my Learnings
VCTS Investment Framework

Valuations Cycle Trigger Sentiment

(How others (What changes (Flows)
are behaving) a cycle)
.
14
Valuations - Equity
Parameters Used: Price-to-Earnings, Price – to-Book, Market cap to GDP, Earning Yield

170

150 Book Partial Profits

130
Incremental Money to Debt
110 Neutral
108.19
90
Invest in Equities
70
Aggressively invest in Equities
50
Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19
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 15
 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
12 11 13 14 16 10 11 9 8 8 6 10 11 14 18 14 12 11.7 10.9
250

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
19
Valuations - Credit
Parameter: Gap between yield –to-maturity and repo rate

16
Data as on September 30, 2019, YTM values taken since scheme inception. Past Performance may or may not be sustained in future.
Valuations – Gold/Cash

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
Valuations ––Real
Real Estate
Estate

Mortgage rate premium movement over Rental Yields

8%
7.30%
7%

6% 5.70%

5% 5.70%
3.95%
4%

3%
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13

FY15
FY16
FY17
FY18
FY19
FY14

1QFY20
2QFY20
18
Market Cycle 2

Burst
Best
•
Institutional
Selling
Time to invest Equity Markets
in 2006 & 2017
• Real Estate in 2013

aggressively and Institutions not Boring •

•
e-Commerce in 2014
Bitcoin in 2017
valuations buying, valuations • Equity in 1999
attractive attractive Institutions both Boom • 2007
buying and
selling, valuations Institutional Bubble
not cheap buying, valuations
costly Valuations off charts, new
• Lehman Crisis valuation models emerge,
2008 investors forget the
existence of the World
• Dot com burst – • Risk
Equity Markets in 2011- .
2001 2013
• Equity Markets in 2015-
2016 (China slowdown) Equity Markets
• Debt Accrual Schemes currently
20
currently
My philosophy will not allow me to ...

Buy high Miss growth

market cap sectors due to Buy consensus
Buy high stocks among
stocks. above
trailing p/e fund managers.
stocks.

21
Asset Class performance – Cyclical & Unpredictable

CRISIL Short Term Bond Fund

Time Period S&P BSE Sensex Returns (%) 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 CAGR
22
Four Ways of Investing for Decent Returns:
Sufficient for 99% investors

Systematic Investment Plan (SIP)

1 “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.

2 Hybrid Mutual Funds

3 Asset Allocation

4 Even Index Funds/ETFs

13
Key Traits of an Investing Person

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

23
 2
Truisms

No Hubris Forced selling

decision is or buying are
a decision good
Money comes to a
fund manager till he fails investment/dis
There will be ▪ Anthony Bolton -investment
mistakes; cant Nothing called
▪ Woodford opportunities
get all calls consistency in
▪ Bill Miller
right ▪ Bill Gross performance,
only process

24
Solutions

Hybrid Credit Closed-end No

funds Funds Funds Leverage

25
 1
Advantages of being an Investment Professional
There is no age
limitation. Can
continue as long as
one is mentally fit
There are
Over short duration, there is
no connection between multiple ways to
competence, capability and make money in
alpha generated long run

Sharing of theory is
easy but
implementation of
what you know is a
Keeps you alive and
challenge
interested in the
world

26
Disadvantages of being an Investment Professional 2

Can one’s weakness go away? (Mark Sellers

Speech)

Can you keep on learning as you age

Managing public money has its own

challenges

Handling irrationality in the market

Short term performance is never

driven by process
27
My Market Gurus
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.

28
My Market Gurus

James Montier Atul Gawande

CONTRARIAN

S W CHECKLIST

CYCLES
Howard Marks
O T PRE-MORTEM
Michael Mauboussin

29
THANK YOU

30