Prudent manager

Sankaran Naren, fund manager, Prudential ICICI, says avoiding consensus stocks is one of the keys to investment success.

Sankaran Naren may not come across a quintessential contrarian, but the co-head of equities at Prudential ICICI Mutual Fund does love to do the right things, albeit differently.

Buying into stocks such as ONGC, MTNL and Cadila Healthcare at a time when there were few takers is a case in point for Naren, who today manages Rs 2605.63 crore of assets spread across three schemes.

So, how does he pick winners? "I follow a value approach to investing. Buying out-of-favour sectors and buying on declines is our strength. I buy stocks on negative news and sell on positive news. Also, I don't buy stocks on consensus," says the 39-year-old IIM Kolkata graduate.

But there are certain basic tenets of investing that Naren sticks to "� checking out a company's balance sheet and its profitability record.

"I try to stay away from companies that have too much of current assets such as debtors," says Naren. Consistency is the other key parameter he looks into. "I look for companies with good cash earnings, consistent in paying dividends, and that do not have too much of hidden debts," he adds.

Despite the fool-proof approach, Naren had his share of fallacies as well. Navin Flourine International is one stock that will be forever etched in his memory "� for all the wrong reasons.

A part of PruICICI tax portfolio, Naren bought into the pharma-grade speciality chemicals stock and admits that he bought into a company without understanding it well and lost money on it.

If some erroneous investments were made, there were some real gems that Naren gave the miss in the early stages of his career.

He started his career in 1989 as a project officer with ICICI Ltd. Later, he was into investment banking with HSBC during 1990-94. Naren says, "At that time, the quality of issues was extremely bad and this had caused a bearish phase in the market."

"During my stint at a broking firm Yoha Securities," Naren said, "we followed a value strategy of investing and missed out on some good growth-oriented stocks such as Himachal Futuristic Communications, Infosys and Wipro during 1995-2000. Also in 2000, we missed Bharti Tele and Pantaloons."

But what was clear in Naren's mind very early in his career was that he had the strappings to become a fund manager. In 1989, LMW was trading at two times its cash earnings, and the stock moved up 35 times from 1989 to 1994, Naren recounts one of his early investment experiences.

At that time, markets were very cheap and he raked in hefty returns. This not only proved to be a masterstroke but also kindled a deep interest in Naren for the stock market.

In 2000, he moved to HDFC Securities as head of research. About three years later, he joined Refco Sify. But deep inside, Naren was craving to be a fund manager. Finally, in October 2004, opportunity knocked on his door "� he joined Prudential ICICI Mutual Fund as a fund manager. Since then, there has been no looking back.

Today, Naren manages PruICICI Discovery Fund, PruICICI Infrastructure Fund and PruICICI Tax Plan. All these funds have given good returns in the past few months. 
 

NAREN'S PERFORMANCE Scheme Performance (%) as on Mar 24 , 2006
	14 days	1 month	3 months	1 year
Prudential ICICI Discovery Fund "� Growth	1.30	8.32	16.38	84.17
Prudential ICICI Infrastructure Fund "� Growth	1.55	10.78	25.79	NA
Prudential ICICI Taxplan "� Growth	0.11	6.27	13.90	79.12
Sensex	1.72	7.35	18.29	69.90

Over these 16 years, Naren has mastered the art of investing. He is currently bullish on mid-cap cement stocks because they are trading at a huge discount to their larger peers. Specific sugar and auto ancillary stocks are the other sectors that Naren is clued on to.

"South sugar companies have high operating leverage, while auto ancillary stocks have good long-term potential," says Naren. Rajshree Sugars & Chemicals, Andhra Sugars, Balrampur Chini Mills and EID Parry (India), MRF, Mico, Exide and Jay Bharat Maruti are part of his portfolios.

On the flip side, though Naren is not bearish on any sectors, he does not see technology, capital goods and construction as sectors that offer value anymore.

As he follows a value approach to investing, the proportion of these sectors in his funds, such as the Discovery Fund and the Tax Plan, is far less. But pharmaceutical is one sector that Naren is betting big on.

Pharma stocks account for 11.76 per cent of the Tax Plan portfolio and 5.89 per cent of the Discovery Fund portfolio. "As the country grows, healthcare will emerge as one of the biggest sectors, domestically and also in terms of exports." says Naren.

And if he is not talking stocks, Naren unwinds playing bridge or reading. "One book that is worth reading is Benjamin Graham's Intelligent Investor, which teaches investors how to avoid big mistakes in the market," he says.

A piece of advice for investors that this fund manager has: avoid leveraging through any route for investing in equity markets. Do the right things and rewards will surely follow.