Learnings from my Investing Career

2

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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20,000

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35,000

40,000M

ar-1

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ICIC

I P

rud

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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

6

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

8

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

9

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

Equity Credit Gold/Cash Real Estate

How to create wealth across asset classes

12

14

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

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130

150

170Se

p-0

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Sep

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Invest in Equities

Aggressively invest in Equities

Neutral

Incremental Money to Debt

Book Partial Profits

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 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

19

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

8

FY0

9

FY1

0

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1

FY1

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1Q

FY2

0

2Q

FY2

0

Mortgage rate premium movement over Rental Yields

18

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

20

• 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

21

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

13

“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

23

Key Traits of an Investing Person

Nothing called consistency in performance, only process

No decision is a decision

2Truisms

24

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

Solutions

Hybrid funds

Credit Funds

Closed-end Funds

No Leverage

25

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

THANK YOU

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