Time for bottom up, value stock picking

KNOW YOUR FUND MANAGER

Anand Shah, VP-Equity Funds, Kotak AMC, invests in business ideas "� and not in trends.

A Warren Buffet fan, 31-year old fund manager at Kotak Asset Management, Anand Shah, says he believes only in simple investment ideas in true Buffet style: "I don't believe in complicated ideas. Investment ideas should be plain and easy to understand because that is when they are best."

An electronics engineer from Regional Engineering College Surat, Shah worked at Kirloskar Oil Engines for about two years.

He started his innings at Kotak immediately on completion of his MBA from IIM Lucknow in May 2000. "Earlier, I had planned to specialise in marketing, but it was during my days at IIM that I developed keen interest in Warren Buffet's investment ideas. Realising that finance was my forte, I started taking interest in equity research."

Shah's investment strategy is pretty much based on Buffetology. His approach to stock selection is clearly bottom-up, with emphasis on companies with good long-term prospects. As against investing in trends in the stock markets, Shah says, he invests in business ideas.

"When we invest in companies, we hold a business-like approach and not a trading approach. And yes, we only pick those business themes which are at attractive valuations," says this mathematician who selects stocks only if he is 100 per cent sure that he would like to own these businesses.

Shah has a fairly good grounding in assessing businessess. During his initial years at Kotak from June 2000 to March 2002, he assisted the then fund manager in sector and company research. It was during these years that he gained detailed knowledge across sectors like IT, pharma, media, cement, FMCG and banking.

Shah later started handling preliminary fund management responsibilities for a few equity schemes. "I am really enjoying my job. There is amazing freedom to learn, explore and implement one's ideas," he says.

In April 2005, Shah formally became a fund manager. Today, Shah manages assets of about Rs 1,504 crore spread across six funds "� Kotak 30 Fund, Kotak Opportunities Fund, Kotak Contra Fund, Kotak Balance Fund, Kotak Income Plus Fund and Kotak Midcap Fund.

Like most fund managers would say, Shah also picks a company based on three basic parameters. First, comes the business, followed by the management and then the valuations. 
 

SHAH'S SCORECARD
	1 month	3 months	1 year
Scheme Performance (%) as on June 16, 2006
Kotak 30	-19.76	-10.35	53.59
Sensex	-197.25	-36.26	43.25
Kotak Midcap	-28.43	-23.36	-
CNX Nifty Junior	-285.96	-79.07	-
Kotak Opportunities	-23.79	-14.37	44.23
S&P CNX 500	-244.57	-57.33	28.10
Kotak Contra	-26.28	-16.12	-
S&P CNX Nifty	-211.52	-41.34	-
Kotak Balance	-16.00	-8.76	39.05
Crisil Balanced Fund Index	-143.56	-26.18	20.30
Scheme Performance(%) as on May 31, 2006
Kotak Income Plus	-	-	14.10
Crisil MIP Blended Index	-	-	9.70

"No doubt, macro-economic factors like competition, opportunities and demand are important, but it is vision and execution capability of the management that makes a company better than the rest," he adds.

Kotak 30 Fund has posted returns of 53.59 per cent against the benchmark gains of 43.25 per cent in the past year. Kotak Balance Fund has yielded returns of 39.05 per cent "� almost double the returns of the benchmark.

"Cement, steel and sugar stocks formed a significant portion of our fund portfolios much before the other market players started picking them. We bought these stocks at significantly lower valuations and got much higher returns," says Shah, explaining what helped his funds beat the respective benchmarks.

Shah opines it is not only what you invest in but when you invest in it that holds the key to success of any investment. Shah is positive on capital goods, metals, media, FMCG and realty stocks.

"With the India growth story intact, capital goods manufacturers will see better times. With favourable demographics and consumption theme picking up in a large way, media, entertainment and FMCG companies will benefit."

The recent market correction has been a big blow for many investors, but Shah affirms that they need not worry.

He says, "The current market correction is like a tug of war between the India growth story and individual company fundamentals, on one hand, and global interest rates, on the other. Rising interest rates led to a liquidity crunch and, now, the excess leveraged positions have moved out of the markets. I think it is again the time for bottom-up and value stock picking."

An avid sportsman since his school days, Shah was awarded the best sportsman trophy at IIM. He loves to play badminton, volleyball, cricket and squash. During weekends one could find him at Andheri Sports Complex doing what he likes the most, playing squash to unwind himself from the routine stuff.

"I love sports. That's one reason I have developed a passion for hard work and perseverance. I love to win and don't give up."

When Shah is not playing, he is either watching movies or listening to music. Occasionally, he tries to squeeze out some time to go to the theatres, though his hectic work schedules do not permit him to do so often. He also loves reading spiritual books. One of the latest books that he enjoyed reading is The Monk Who Sold His Ferrari.

Shah feels that in the next few years it will be difficult for a normal middle-class person to maintain his current lifestyle.

He thinks SIP (systematic investment plans) is the way to wealth creation, as it attempts to eliminate the risk of timing the markets.

He opines that SIP is the best investment route for retail investors.