The networked fund manager

KNOW YOUR FUND MANAGER

Sandeep Neema relies on personal interaction as the basis for seeking information about a company and its management.

His affable nature and a desire to travel and meet people are more suited to a role of a globe-trotting salesman than a fund manager. Nevertheless, Sandeep Neema of JM Financial Mutual Fund puts his soft skills to good use.

He meets the managements and decision makers of different companies and financial institutions to seek information and keep himself updated on the trends affecting companies, sectors and economies.

According to Neema, meeting a company's management is extremely important. As he says, "While picking any stock I lay emphasis on factors like management quality and corporate governance."

He also considers other parameters like growth, valuations and cash flows. He says, "I would avoid a stock if it is not free cash flow generating or if its growth is below average as compared to the industry/peers."

In any stock Neema looks for value and tries to relate it to its growth. He says, "I always try to find stocks with a low price and high growth potential. But for high growth stocks like Infosys you don't mind paying more."

"To find the value of a stock I use DCF (discounted cash flow) valuation along with other relative valuation parameters like P/E multiple, PE/Growth and returns ratios like ROE (return on equity) and ROC (return on capital). The ROC ratio shows how efficiently the capital is being used," explains Neema. 
 

NEEMA'S PERFORMANCE Scheme Performance (%) as on June 29, 2006
	1 month	3 months	1year
JM Auto Sector Fund	-13.07	-19.75	16.68
BSE Auto	-8.61	-13.46	56.97
JM Balanced	-7.94	-8.03	37.74
Crisil Balanced	-4.10	-5.49	23.35
JM Emerging Leaders Fund	-12.84	-16.28	NA
BSE 200	-9.09	-12.55	32.90
JM Equity	-8.60	-10.64	39.81
Sensex	-6.37	-9.13	42.73
JM Healthcare Sector Fund	-12.77	-21.52	10.15
BSE HC	-12.04	-18.48	10.39
JM Hi Fi Fund - Growth	-11.54	NA	NA
S&P CNX Nifty	-6.75	-10.62	36.79

Portfolio boosters
Neema's stock strategy has helped him to pick top performers for his portfolio. For instance, he bought Bharat Earth Movers (BEML) in November 2004 at about Rs 260 and it is currently trading at about Rs 1,000.

"I bought this stock as the company was expected to get many orders on the equipment side. The company also adopted cost cutting measures," says Neema.

Another star performer was Siemens. He bought it in November 2004 at about Rs 1,200 pre-split and now it is trading at about Rs 4,000. He says, "I bought this stock as there was good visibility in the power equipment and power transmission business."

The loss makers
Neema had his share of fallacies too. He bought Ranbaxy in January 2005 at about Rs 1,200 pre-split. He says, "I bought this stock as I thought it is the only company which will be able to withstand pressure in the generics market.

Also, many new things were happening in the company. For instance, it was filing for new molecules. But the company results were not up to scratch in 2005 and the generics market didn't do well that year, so the stock underperformed."

Another purchase that Neema regrets is Indian Oil Corporation (IOC) in December 2004 at about Rs 470. "I bought it as the valuations appeared quite attractive. But, due to the high subsidy burden and crude prices, IOC remained an underperformer," says Neema.

Growth bets
Neema is currently positive on retail, real estate, IT and infrastructure-related sectors like cement, construction, capital goods and power equipment.

Explaining the reason for being bullish on infrastructure he says, "There is significant investment taking place in this sector and there is also visibility in earnings. In case of capital goods, the order book is quite strong and there is certainty in earnings."

On retail and real estate markets he says, "Currently the industry is unorganised. But, due to the opening up of the sector there will be local as well as foreign players entering the market. So, the organised segment will have a higher share. Also, gradually many companies from these sectors will get listed."

In case of the IT sector he says, "Valuations are reasonable vis-à-vis growth prospects, business visibility continues to be high, stocks in this sector have underperformed and the rupee depreciation too is a positive sign."

No entry
Neema is bearish on oil & gas and textile sectors. "I am pessimistic on oil and gas because of high subsidy burden and rising crude oil prices," he says.

The reasons for his less than enthusiastic views on the textiles sector are different. He says, "The textile industry is in the investment phase and hence it requires a lot of capital expenditure. So, it will take time to generate returns."

Neema holds a neutral stand on sectors like banking, pharma and commodities. In case of the banking sector, Neema says, "Valuations are attractive but rising interest rates could pose difficulties in terms of profitability and there will be some losses in the investment portfolio."

He adds, "For commodities, the volatility in international prices increases risk for earnings growth. In case of pharma, the pressure on generic prices continues in the export market."

Learning curve
Neema started his financial career in 1993 when he joined Insight Asset Management as a trainee immediately after completing his MBA. He cut his teeth in equity research on the institutional side for ten years in various broking houses like Kotak Securities, BNP Paribas, UTI Securities and Refco.

Along with his work Neema also managed to complete CFA from ICFAI in 1998 and CFA from AIMR, US in 2001. In September 2004, he joined JM Financial Mutual Fund as fund manager-Equity.

Currently he manages seven funds""JM Equity Fund, JM Emerging Leaders Fund, JM Balanced Fund, JM Hi Fi Fund, JM Basic Fund, JM Auto Fund and JM Healthcare Fund.

Betting on growth
This 38-year old fund manager is bullish on Indi. He says, "India's growth story is intact due to domestic consumption and infrastructure growth and outsourcing spreading to other sectors like pharma and manufacturing. All this should lead to exciting times for Indian investors."