DSIJ Mindshare

"A favourable policy climate should go a long way in bringing in sustained foreign capital flows."- S Krishnakumar, Sundaram Mutual Fund

S Krishnakumar, Fund Manager – Equity at Sundaram Mutual Fund, shares with Saikat Mitra his views on the capital market, the overall macroeconomic situation of the country and on the sectors we can look to for growth.

“The performance of any stock would be broadly linked to its sector. However, within the sector, stocks tend to relatively outperform or underperform based on their growth, managements, return ratios and free cash flow (FCF).”
Says - 
S Krishnakumar
Fund Manager – Equity,
Sundaram Mutual Fund

How did you begin your journey in the capital market?

It was in 1994 when I had the opportunity to do an equity research project for Kothari Pioneer MF as a part of my final semester project work. Guidance and mentoring by Mr Sivasubramaniam and Mr Anoop Bhaskar was really helpful at that point.

Can you describe your investment philosophy for our readers?

I believe in buying growth at reasonable valuations. I am generally willing to put up with capital guzzlers as long as it is accompanied by profitable growth and positive operating cash flows. My approach is biased towards picking stocks whose underlying business has scale-up potential and is backed by honest and disciplined managements.

What was your first big investment idea, and how did you develop it?

TVS Motors in 2002, Elgi Equipment in 2004, Shasun Pharma in 2011, V-Guard in 2011, KVB in 2009 and Madras Cements in 2011 are some investment ideas which have been satisfying.

Understanding the business, its drivers, financial metrics and continuous monitoring of the expected metrics for reinforcement of the thought process have been the common thread.
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What are the most crucial signals, according to you, which would determine the entry and exit points for stocks?

It all finally boils down to valuations – both absolute and relative. Other metrics like slowing volume growth, falling order book momentum, deteriorating cash flows and falling Incremental Capital-Output Ratio (ICOR) do give out signals of trouble.

Do you meet company managements, and do you constantly remain in touch with them till the idea is a part of your portfolio?

We meet company managements on a regular basis in our effort to keep track of the developments both within and external to the companies. The effort continues on our active universe of stocks.

Don’t you think that the management will share only a rosy picture with you? How, then, does meeting the management really help?

A few managements may be sending biased signals. That is why it is important for the analyst or FM to prepare well for meetings in terms of background work, environment, macro trends, vendor and customer checks etc. Countering the managements with facts will bring out the real picture/issues.

Technical analysis is considered to be a very important and integral part of market success. What is your take on it?

Of course, every tool is useful to an extent and can be used to corroborate our fundamental views once in a while.

How do you cope with any investment idea that has gone wrong?

Everything in life has learning for us, and so does a sour investment. I believe in Kaizen – continuous improvement.
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How important is the selection of a correct sector for a stock's performance?

The performance of any stock would be broadly linked to its sector. However, within the sector, stocks tend to relatively outperform or underperform based on their growth, managements, return ratios and free cash flow (FCF).

Buy-and-hold, as a concept, is widely preached and followed by fund houses. Is this concept completely foolproof, according to you?

Though on a general basis, it holds good for good businesses, one must also keep in mind that different phases in the markets may require changes in investment duration and tactical positioning.

In developed markets, institutional investors are very active in protecting the interests of minority shareholders. What has the Indian experience been like, and how active are you on this front?

Over the last few years, institutional investors have shown more activism. So has been our experience too.

Do you believe that portfolio churning is required to create an alpha?

No. Stock selection is the most important differentiator.

Is it possible to recognise a bear market before it is too late?

Yes, and this is what differentiates the players.

What is your take on the overall current macroeconomic scenario of India?

We remain cautiously optimistic.
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What is your take on the financial performance of India Inc. for the second quarter, and how do you expect it to pan out in FY13?

It has been mostly along the expected lines, and hopefully the earnings growth has bottomed out.

What are the triggers that you are looking forward to with regard to the markets?

Monetary easing, structural reforms on subsidies, accelerated PSU divestment, government push to infra in terms of project execution/removal of bottlenecks and clearances are some of the triggers we are looking forward to. A favourable policy climate should go a long way in bringing in sustained foreign capital flows.

What are the sectors that you are currently betting on, and in which areas should investors take caution?

Consumer discretionary, select financials and media & entertainment are the sectors we are betting on. Commodities are something we are cautious on, while we are incrementally getting positive on infra & industrials.

What is your take on the maturity level of the Indian fund management industry?

That's for you to judge.

What would be the most important advice that you would like to give to retail investors?

Retail investors would do well to build long-term savings through regular investments in diversified portfolios.

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