Mahendra Jajoo, head of fixed income, ABN AMRO believes that ad-hocism and subjectivities should be left out of investment decisions. For a 23-year old CA and company secretary, who was itching to take a plunge into the world of finance, the timing couldn't have been better. The year was 1991 and Dr Manmohan Singh had put into motion a process that unshackled the Indian economy and opened up a world of opportunities.
Institutions across the country were expanding their operations to cater to the requirements of a booming Indian market and economy. One such was ICICI which was was expanding from project finance to take an active role in merchant banking.
To the market
Mahendra Jajoo's first assignment, at ICICI, Kolkata was to assess the feasibility of projects and structure loans to city-based corporates such as CESC and ITC.
Though understanding of balance sheets and predicting future cash flow scenarios were not the toughest of tasks for a finance professional, it was a good starting point.
To utilise the opportunity unfolding in the merchant banking segment, ICICI launched ICICI Securities (I-Sec) in a joint venture with J P Morgan. Jajoo was shifted to I-Sec where he was responsible for capital structuring, underwriting and retailing of issues and drew heavily from J P Morgan's expertise in equity valuation and pricing.
"With a spate of issues hitting the market, there was never a dull moment and there was more work than you could handle. It was a good time to be with a bluechip and in the city you love," says Jajoo.
It was also the right time to become a Certified Financial Analyst which Jajoo says gave him a holistic perspective of what the markets were all about.
After stints in Kolkata-based Lodha Capital Markets which was a joint venture with Banque Paribas and Peregrine Capital India in Mumbai, Jajoo went back to his first employer when its treasury department was taking shape.
"The opportunity to work with top consultants on offer was an enriching experience," he says. To get a taste of MNC culture, Jajoo shifted to ABN AMRO Bank NV as the head of their primary dealership profit centre in India.
The Dutch experience
RBI was cutting interest rates and in the next few years a primary dealership was the place to be for any bond dealer. While it was a comfortable ride, Jajoo terms this four-year stint as an "island" job.
"All the primary dealer has to do is to buy and sell and having crossed 35, I was wondering whether I should keep selling only government bonds?" he says. There was no incremental value addition and he was feeling "directionless".
The change in 1995 came in the way of a shift to a group company, the ABN AMRO Mutual Fund. The move however was not without its challenges. Interest rates were inching up and he was advised by friends against taking up this difficult assignment.
But Jajoo had made up his mind. "I was keen on a shift to portfolio management instead of just trading. The challenge was to work in a scenario where the risk profiles, tenures, corpus and liquidity requirements were different," he says.
While a majority of ABN's debt funds are in the top quartile, and funds such as Flexi Debt Regular and monthly income plans (MIP) have given 5.75 and 7.62 per cent returns respectively, its cash fund has not performed too well.
"Tight liquidity conditions and redemptions were responsible for this," says Jajoo. His analysis on the markets tells him that the risk-reward ratio is more balanced and an investor can expect stable returns. "Interest rates have increased recently and a correction is in the offing.
The 10-year yields will flatten and rates will settle between 8-8.25 per cent," he says. But, there is a word of caution.
"Risk is not disappearing with oil volatility, geopolitical tensions and the window the Fed has left open on rates," he says. His preference now is FMPs, followed by MIPs and finally liquid funds pending gradual deployment in longer duration funds.
JAJOO'S PERFORMANCE
Scheme performance (%) |
| As on August 23, 2006 | 9 months | Average returns |
| Scheme Name |
| ABN AMRO Flexi Debt - Regular | 6.55 | 5.17 |
| ABN AMRO LT Floater - IP | 6.29 | 5.69 |
| ABN AMRO MIP | 6.96 | 7.77 |
Future of Indian debt
"There is a need for a more permissive market structure and value-added products," says Jajoo. He believes that products such as credit derivatives, structured, leveraged and capital protected notes could be launched in the market.
Giving an example of flexibility, he says that fund managers in Singapore can take positions in any overseas market while in India exposure is restricted to local bonds.
ABN ran a pilot for its Absolute Return Bond Fund where contribution from India showed that a more active and global interest rate management strategy can offer customers a choice of funds that can offer superior returns than one that is limited to a basket of local bonds.
This also has potential to make fixed income an all season business against the current situation where returns are determined by the direction of domestic interest rates.
ABN's approach
Investment decisions at ABN follow the Macro Valuation Sentiment (MVS) philosophy. There is a fundamental analysis which generates inputs on investment strategy. This tells them whether there is an opportunity to buy and is followed by valuation analysis that identifies likely candidates.
Finally, sentiment is gauged to arrive at a suitable time of purchase. The decisions taken are reviewed weekly based on investment objectives and strategies for each fund.
He believes that decisions need to be taken in an organised manner instead of resorting to ad-hocism. "I am process-driven person and don't allow subjectivities to disturb the structure," says the 38-year old Jajoo.
Goals
Five years down the line, Jajoo wants to operate a global fixed income portfolio instead of being tied down to Indian securities. And once he is through with the markets and has enough money to survive without a job, he wants retire to Jaipur.
His post-retirement schedule would probably be a mixture of catching the Formula One action on television, playing squash and wondering why the vision enunciated in the elaborate five-year plans never see the light of day.
