When did you start your journey in the stock market? How were your initial years in the market?
My journey in the stock market started as a teenager. It started along with my father who in the 80s actively participated in the IPOs of multinational companies which were getting listed in India as a consequence of FERA driven dilutions. The major decision making parameter for me then was to see whether the company had a good product and customer base. At that point, I was not aware of metrics like Price-to-Earning or Earnings per share etc.
It was during the two years at IIM Kolkata that I was exposed to the finer aspects of the world of finance – from reading annual report to analysing stock ratios and prices. Consequently, I encouraged my father to move from primary to secondary markets.
Did you start your journey in a bull or bear market? When and how did you start your tryst with value investing?
I began my journey in the bull market of the early 90s which I had ironically misread. Since the beginning of my investment journey, the orientation was always value based. One of the reasons for this could be that the only investing book available in my early days (1980s) were either by Warren Buffer or Benjamin Graham – both exponents of value investing.
Which was the first bad phase in the market that you remember clearly? What were the mistakes made then and how did you navigate the market? What were your learnings from this phase?
The market correction of 1997-1998 was a period of great learning. But from an investment management perspective, 2007 was the stand-out year. All the funds managed by me in that year (2007) underperformed the benchmark as my belief was that market was overvalued. Owing to this stance, I was overweight quality names – a call which failed miserably. However, these very calls became the game-changer during 2009 as they generated huge returns. Based on this experience, I realised that both top down and bottom up are equally important.
What is the one investment decision you are proud of?
Based on the learnings from 2008, we at ICICI Prudential Mutual Fund introspected and thought about what can be done differently in the future. We realised the optimal approach will be to popularise asset allocation and consequently we launched ICICI Prudential Balanced Advantage Fund. Later, we realised that in addition to equity, debt, and arbitrage, investors also wanted gold as a part of the asset allocation mix. So, we launched ICICI Prudential Asset Allocator in the Fund of Fund structure. Both these concept products stood the test of March 2020. So, unlike 2008 when investors lost money, in 2020 investors who invested in these products had a positive investment experience.
What, according to you, led to being a Contrarian?
Managing other people’s money taught us that money will come in at a time when investors want to invest and most often this happens in an up trending market. When you are a contrarian and invest in a counter cyclical manner, you invest in asset classes which are cheaper irrespective of the time you get the money. The advantage is equity, debt, gold all peak and bottom-out at different points of time. As a result, we popularised multi asset investing. Here, an investor gets the benefit of counter cyclical investing which over long term works well for the investors. So, in 2007 and 2017 when infrastructure and small caps were overvalued and inflows surged, being counter cyclical would have helped and having a multi asset approach aided in delivering a better risk adjusted investment experience.
Looking back, what is your overall assessment of your own journey? How do you see today’s market in that context?
My career in finance was due to my passion for stock investing. We at ICICI Prudential have been steady learners, learning more from our mistakes. With experience, we have learnt that at times we never realise what is the mistake in equity investing at the time of investing. In retrospect, certain decisions turned out to be outstanding successes while some decisions turned out to be mistakes.
Looking back, there was a time in the initial part of the career, when I was overconfident about the market. But over time you realise that the market is bigger than you and when you are working for a mutual fund, you are managing other people’s money. So this combination of markets being bigger than you and you being responsible for other people’s money makes you realise that you have to be very careful most of the time. So, never be overconfident as you will never be always right. This resulted in our looking at checklists, as checklists aids in reducing the number of mistakes.
If there is one thing that you would want young investors to learn from your experience, what would it be?
Over the last one year, investors have been investing in IPOs including aggressively priced IPOs, which is worrying from a sentiment angle. We would want retail investors to be circumspect and more cautious when it comes to investing in IPOs. Look for factors like trailing price-to-earnings, trailing price-to-book, dividend yield and ROE of the companies that they are investing into.
(This article is part of a series on how mutual fund managers deal with the many ups and downs, volatile and often confusing or unnerving phases in the market. We believe regular investors can learn a lot from the journey of these wealth makers as they discuss their journey in the market.)