DSIJ Mindshare

"I am positive about the macroeconomic scenario in India" - Nobutaka Kitajima, CIO–Equity, LIC Nomura MF

Nobutaka Kitajima, CIO-Equity, LIC Nomura MF, has extensive fund management experience in the Asian markets. In an interview with Shailendra Lotlikar, he explains the reasons for his optimism on the Indian markets and throws some light on his investment philosophy.

  • I am positive about the macroeconomic scenario in India because of the economic reforms that have been announced in the recent past…I think the government is clever enough to implement reforms and keep the momentum of an enhanced sentiment.
  • The FII investments are likely to continue for India. The direction of monetary policy favours India.
  • The government is taking steps to rationalise regulation, coal allocation, environmental clearances and much more. Going forward, there will be an improvement in the infrastructure sector. But, it is a slow burning story.

Nobutaka Kitajima

CIO–Equity
LIC Nomura MF

How did you begin your journey in the fund management industry?

It was in the late 1980s when I joined the Nomura Securities Investment Trust Management, which later became Nomura Asset Management, in Tokyo. The main thing for me was that there was a clear career path to build an expertise in a narrow field. Due to the lifetime employment practices in Japan, if you work for a regular company, you do not know where you end up at. Because the industry was booming, I was lucky to be in the middle of fund management from almost day one.

The fund management in Japan is different from that in India. What made you shift your base from Japan to India?

During the 1990s, the Asian stock markets started developing. Because I was the youngest member of the team, I was assigned with the Asian markets, which were very small at that time. I was handling the investment in Hong Kong, Singapore, Indonesia, etc. from a very early stage of their development. I have been a fund manager for Asia (excluding Japan) for more than 10 years.

At that time, India was closed to international investors except through depository receipts. Obviously, India is a big country and I wanted to get involved with it at some point of time.

Has the transition from Japan to India been smooth or have you faced problems in understanding the psychology of the Indian investors?

The investor psychology is the same everywhere and there is not much difference in that across the globe.
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Can you describe your investment philosophy for our readers?

I like stocks that garner minimum interest from the investment fraternity. I do not like my stocks making headlines. They can be Small-Cap or Mid-Cap stocks or they can be forgotten Large-Cap stocks which may have some sort of a negative history related to them.

Why is that? As in, if the stocks do not have larger participation in them, then they will not move fast, right?

Yes, that is the kind of investment I try to find. When the stocks come into the spotlight and the management becomes the star, it is a warning signal for me.

Do you believe that the stocks really come down after the management becomes a star? Can you share some similar instances with us?

Yes, I think so. I think Microsoft is a good example of this. The stock has been flat for more than 10 years now.

Won’t this kind of portfolio take a long time to generate returns for your portfolio and investors?

If you want to gain in the long term, you would want to stay in companies with steady growth for the long term.

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

I have invested in a stock where there was almost no ‘buy’ recommendation from the sell side. The sell side focussed on its bigger rival with better track records in recent memory.

What is your sense of the Indian company managements? On a scale of one to ten, how do you rate them?

I like them in general and give them a seven or eight on ten. The management is very return-conscious. There is a clear focus on returns on capital. That makes me positive on the Indian management. However, many of them diversify into so many unrelated businesses. That is why they do not score a perfect ten.

Do you meet managements often?

Yes, whenever there is a possibility.

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

You have to meet not only the company that you are interested in, but also their competitors, suppliers and customers. They can tell you completely different stories with different perspectives.
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Have you found similar trends in India too?

Generally, companies do not make negative comments on their competitors, and this is similar to my international experience. Having said so, meeting with companies around the target is a very important part of my investment process.

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

First of all, you need to take a deep breath. At the end of the day, when the investment rationale for a particular stock is achieved or broken, one has to take a call to exit the stock. The good thing about the equity markets is that you have liquidity.

FIIs have been the main drivers for the Indian markets. How do you see their activity going forward?

They came back in a big way in 2012. For me, the Chinese Growth Miracle is maturing, as seen in the slowdown in the growth of her labour force. Investors have shifted their focus to Indonesia and Philippines. Those countries are booming, but at the same time are facing inflationary pressures. The direction of monetary policy is against them. Going forward, the FII investment is likely to continue for India. The direction of monetary policy favours India.

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

Once you realise that it is a bear market, it probably is not too late to act. Because it is a paradigm shift, it takes time for the general perception to change and the market to fully react.

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

You have to keep a close watch on the valuation. If it is unjustifiable, you have to get out. Otherwise, it is a recommended strategy.

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

I am positive about it because of the economic reforms that have been announced in the recent past. Moving ahead, the difficulty is that the government cannot control where the inflation is headed, and how the current account deficit will behave. I think the government is clever enough to implement reforms and keep the momentum of an enhanced sentiment. But the monetary easing by the RBI depends on inflation, which is also improving, but is still slightly tricky.
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What are the triggers that you are looking forward to, with regard to the markets?

The rate cut by the RBI will drive the Indian markets.

What is your opinion about the financial performance of India Inc. for the third quarter, and how do you expect it to pan out in FY13?

The first half of this quarterly results season has been pretty good. The second half may be tougher. Although the market is up, many companies are facing cyclical pressure.

What do you think about the maturity level of the Indian fund management industry?

As an investor, you need to experience at least three or four different investment cycles to be mature. These cycles are not yet seen by the majority of the Indian fund managers. In that sense, many may still be considered young.

What are the sectors that you are currently betting on?

I like telecom and PSU Banks. I believe that the cash flow from the telecom business and the potential from their data are both under-appreciated amid concerns of immediate regulation, uncertainty and intense competition. The PSU banks will be major beneficiaries of lower rates and an improving economy.

Infrastructure is one of the major sectors that is required for the economic development of the country, and it has been substantially down in India. What do you think the government should do to improve the sector view?

The government is taking steps to rationalise regulation, coal allocation, environmental clearances and much more. Going forward, there will be an improvement in the sector. But, it is a slow burning story.

How do you rate the Indian markets?

I am very bullish on the Indian market, and rate it at 10 considering the prospects of the Indian economy.

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