When did you start your stock market journey? How were your first years in the market?
My career in the stock market began as a teenager. It started with my father who in the 80s was actively involved in the IPOs of multinational companies which were listed on the Indian stock exchange as a result of the FERA-induced dilutions. The main decision-making parameter for me then was to see if the company had a good product and a good customer base. At that time, I was unaware of metrics such as price to earnings ratio or earnings per share, etc.
It was during my two years at IIM Kolkata that I was exposed to the finer aspects of the world of finance – from reading the annual report to analyzing stock ratios and prices. Therefore, I encouraged my father to switch from the primary market to the secondary market.
Did you start your journey in a bull or bear market? When and how did you start your journey with value investing?
I began my journey in the bull market of the early 90s which I had ironically misinterpreted. Since the beginning of my investment journey, the orientation has always been value-based. One reason for this might be that the only investing book available in my early days (1980s) was either by Warren Buffer or Benjamin Graham – both exponents of value investing.
What was the first bad phase in the market that you remember clearly? What mistakes were made at the time and how did you navigate the market? What did you learn from this phase?
The market correction of 1997-1998 was a period of great learning. But from an investment management perspective, 2007 was the most significant year. All the funds I managed that year (2007) underperformed the benchmark because I thought the market was overvalued. Because of this position, I was overweight quality names – a call that failed miserably. However, those same calls were a game-changer in 2009, as they generated huge returns. Based on this experience, I realized that top down and bottom up are equally important.
What investment decision are you proud of?
Based on the lessons of 2008, we at ICICI Prudential Mutual Fund have done some soul-searching and thought about what can be done differently in the future. We realized that the optimal approach would be to popularize asset allocation and therefore we launched ICICI Prudential Balanced Advantage Fund. Later, we realized that in addition to stocks, debt and arbitrage, investors also wanted gold as part of asset allocation. So we launched ICICI Prudential Asset Allocator in the fund of funds structure. Both of 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 do you think led to being a Contrarian?
Managing other people’s money has taught us that money will come at a time when investors want to invest and more often than not this happens in a rising market. When you go against the grain and invest countercyclically, you are investing in asset classes that are cheaper regardless of when you get the money. The advantage is that equity, debt, gold all hit highs and lows at different times. As a result, we popularized multi-asset investing. Here, an investor benefits from a counter-cyclical investment which, in the long run, works well for investors. So in 2007 and 2017, when infrastructure and small caps were overvalued and capital inflows increased, being countercyclical would have helped and having a multi-asset approach helped provide a better risk-adjusted investment experience.
Looking back, what is your overall assessment of your own journey? How do you see the current market in this context?
My career in finance was due to my passion for equity investing. At ICICI Prudential, we have been steady learners, learning more from our mistakes. With experience, we have learned that sometimes we never realize what the mistake in stock investing is at the time of investing. In retrospect, some decisions turned out to be outstanding successes while some decisions turned out to be mistakes.
Looking back, there was a time in the early part of my career when I had too much faith in the market. But over time, you realize that the market is bigger than you, and when you work for a mutual fund, you’re managing other people’s money. So this combination of markets bigger than you and being responsible for other people’s money makes you realize that you have to be very careful most of the time. So never be overconfident because you will never always be right. This led us to look at checklists because checklists help reduce errors.
If there is one thing you would want young investors to learn from your experience, what would it be?
Over the past year, investors have invested in IPOs, including aggressively priced IPOs, which is worrying from a sentiment perspective. We would like retail investors to be cautious and more cautious when it comes to investing in IPOs. Look for factors such as the price-to-earnings ratio, price-to-book ratio, dividend yield, and ROE of the companies they invest in.
(This article is part of a series on how mutual fund managers deal with the many ups and downs, volatile and often confusing or nerve-wracking phases of the market. We believe that regular investors can learn a lot from the journey of these wealth creators when discussing their journey in the market.)