Confessions of a curious mind

KNOW YOUR FUND MANAGER

Tushar Pradhan

Tushar Pradhan of HDFC Mutual Fund invests in businesses that he will be happy to run himself.

"The most important thing that a good fund manager needs is to have an inquisitive mind. You should always be curious to know more," says this 38-year old fund manager who manages assets of about Rs 3159 crore spread across eight funds "" Capital Builder Fund, Balanced Fund, Long Term Advantage Fund, Long Term Equity Fund, Children's Gift Fund Savings Plan and three index funds.

Some of his funds have delivered really good returns. The HDFC Long Term Advantage Fund delivered about 81 per cent returns in FY06. 
 

PRADHAN'S PERFORMANCE Scheme Performance (%) as on March 31, 2006
	Last 1 year
HDFC Capital Builder Fund
Fund's Returns	68.33
S&P CNX 500	64.16
HDFC Long Term Advantage Fund
Fund's Returns	80.87
Sensex	73.73
HDFC Balanced Fund
Fund's Returns	44.59
CRISIL Balanced Fund Index	38.34

So how has he managed to deliver excellent performance? The key lies in picking the right stocks. "The first thing that comes to my mind when picking any stock is: 'Do I like to own this business and will I be happy running it?' If yes, then this stock is an attractive target," says Pradhan.

He also looks for companies that are undiscovered and ignored by the market but have potential to grow. "One stock that was neglected by the market is Hindustan Zinc, which is one of my best picks," adds Pradhan.

"I look for stocks where the true potential is not yet identified by the market and is hence trading at lower P/E mutiples," says Pradhan.

"This is the secret behind the brilliant performance of the HDFC Capital Builder Fund which was one of the top five performing funds of 2004," he adds.

This fund has delivered returns of around 82 per cent in the last three years. His basic theme while investing for this fund was to identify stocks which are unidentified by the market and this theme worked very well for the fund.

Pradhan says that theme is very important: "Identify a theme and stay true to that theme. The fund's performance keeps fluctuating but your theme should not fluctuate."

Pradhan believes in identifying the long-term prospects of a company and invests only if he is convinced on its long-term story. "We don't believe in beating the market on a daily basis but we focus on the long term," says Pradhan.

He also believes that it is extremely important to meet the company management to understand the business well. But more important is to meet the vendors and customers to get a better idea about the company.

Before investing in any company he thoroughly analyses the balance sheet. He looks at the ROCE (Return on Capital Employed) and the earnings yield. "High ROCE and high earnings yield translate into high returns on capital invested," believes Pradhan.

Despite following a foolproof approach to investing he missed some good opportunities. "Organised retailing is a sector which has great potential but I missed this opportunity as I never thought people would like to buy bottled water or buy vegetables in air-conditioned markets," confesses Pradhan. Pradhan focuses more on individual companies rather than sectors.

A bottom-up approach to investing is more rewarding, says Pradhan. Pradhan states that in case of sectors, it is more important to find out what is fuelling the growth of the sector rather than identifying the sector per se.

"Paints is one such sector which I love because of its growth potential. Earlier, people used to paint their houses once in ten to fifteen years but now this is not the case," says Pradhan.

Pradhan joined MetLife Insurance immediately after completing MBA from the Hartford University, USA, in 1992. After working there for two years, he shifted to First Investors Asset Management Company where he was working as an account representative helping high net worth clients to manage their mutual fund portfolios.

In 1995 he came to India, as he thought India was the next big thing, and joined HDFC's treasury where he was a member of the team, which advised offshore funds to invest in India. In 2003 when HDFC bought Zurich AMC, Pradhan shifted to HDFC Mutual Fund side.

"Spirituality is my passion," he says. He likes reading books on spirituality, physics and popular sciences. "Reading off-the-track books helps me in my profession as a fund manager. Books that are different help me think in a different manner when investing," says Pradhan. One book he really enjoyed reading is Don Quixote by Cervantes. It's about a person who thinks he is a knight and the windmills are demons. The book talks about his imaginary battles with the windmill in a very hilarious and curious manner. Try to find out what you really are and stop fighting windmills""that is what this book teaches us," says Pradhan.

One thing Pradhan strongly believes in is: "The equity markets have great potential to create wealth for investors. It is for the investor to invest wisely."

One piece of advice he has for the investors is, "The stock market is not a casino. People should understand and invest, as acting on free tips can cost them a lot. Financial products are complex, so it is better to invest by taking help from experts. Investors should also understand that they will earn good returns only if they stay invested for the long term."