Learnings from my Investing Career What is investing? Consists of - PowerPoint PPT Presentation

Learnings from my Investing Career

What is investing? Consists of three steps: Buying, Sizing and Selling Buying Selling Sizing Too much literature Dependent on Is effectively switching available conviction, upside risk between various asset and detailing classes. It cannot be within the same asset class.

Things I Believe In Contrarian approach to investing Know the Careful on Be Works best in Have a grip on counter leverage cognizant cyclical intrinsic value view on the of risk sectors stock Have a grip on intrinsic value

Things I Believe In Cycles: It is an art; primarily based on how others are behaving in that asset class Charts: Price is set by a marginal seller/ buyer; incorporates fundamentals most of the time - Anthony Bolton Common Sense

Things I Believe In CASH: A residual asset class but a very important one S&P BSE Sensex Levels vis-a-vis ICICI Prudential BAF Net Equity Exposure (%) Net Equity Net Equity 38,667 77.7 40,000 80 ICICI Prudential Balanced Advantage 77.4 75 Fund Net Equity Exposure (%) 35,000 70 Sensex Levels 65 Net Equity 30,000 60 57.5 55 25,000 50 45 23,002 20,000 40 35 18,620 15,000 30 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Sensex Level Net Equity Exposure % Source: BSE India & MFIE, Data as of September 30 2019. The in-house valuation model starts from March 2010 onwards.

Stock Picking Trailing Trailing price to price to earnings Trailing price to book Leverage cash earnings of per share company All big mistakes can be avoided by looking at... Dividend Market yield cap PO/QIP Balance activity sheet in sector quality

Market Cap Cement + Metal Sectors Rs. 31,623 Infosys + Wipro Name Mcap (In Crs.) Rs 1,07,604 Dec-99 Mcap(In Crs.) Metals Natl. Aluminium 8,151 Name Mcap Hindalco Inds. 5,995 Name Mcap (In Crs.) Tata Steel 5,208 (In Crs.) Cement Dec-99 S A I L 4,647 IT Dec-99 Ambuja 4,797 JSW Steel 781 Infosys 48,005 IndiA Cements 1,004 Hind.Zinc 697 Wipro 59,599 Heidleberg 132 Vedanta 212 Total 1,07,604 Total 5,933 Total 25,690 Data as in December 1999

Market Cap Mcap (In Crs.) Dec-07 Pharma Sun Pharma.Inds. 24,071 Cipla 16,529 Glenmark Pharma. 14,656 Dr Reddy's Labs 12,306 Mcap (In Crs.) Divi's Lab. 12,112 Glaxosmi. Pharma 8,701 Piramal Enterp. 7,493 Biocon 5,772 Pharma DLF Lupin 5,168 Jubilant Life 4,963 Rs 1,83,082 Rs. 1,31,249 Opto Circuits 4,796 Wockhardt 4,576 Cadila Health. 3,952 SPARC 3,236 Aurobindo Pharma 2,919 Total 1,31,249 Data as in December 2007

Market Cap Mcap (In Crs.) Jun-15 Name Pharma Sun Pharma.Inds. 2,10,461 Lupin 84,841 Mcap(In Crs.) Total 2,95,302 Metals Hind.Zinc 70,605 Vedanta 51,630 Metals Pharma NMDC 47,061 Tata Steel 29,583 Rs 2,95,302 Rs. 2,86,600 S A I L 25,379 Hindalco Inds. 23,107 JSW Steel 21,084 Natl. Aluminium 10,309 Jindal Steel 7,841 Total 2,86,600 Data as in June 2015

Market Cap Mcap(In Crs.) Top 10 Pharma Companies Mcap Top 10 INR CR (In Crs.) pharma Rs. 3,95,178 Sep-19 Name companies Sun Pharma.Inds. 93,440 Dr Reddy's Labs 44,874 Divi's Lab. 44,214 Aurobindo Pharma 34,512 Cipla 34,293 HUL Rs. 4,29,055 Piramal Enterp. 32,599 Lupin 32,393 Torrent Pharma. 28,216 Biocon 26,754 Cadila Health. 23,884 Total 3,95,178 Data as in September 2019

Market Cap Mcap(In Crs.) Top 5 stocks Mcap sorted By Mcap (In Crs.) PSU Rs. 16,81,081 Universe Sep-19 Name Reliance 8,44,530 TCS 7,87,738 HDFC Bank 6,71,509 Top 5 Hindustan stocks Rs. 30,84,528 Uniliver 4,29,055 sorted By Mcap Infosys 3,51,696 Total 30,84,528 Data as in September 2019

How to create wealth across asset classes Real Estate Equity Credit Gold/Cash

Our Philosophy based on my Learnings VCTS Investment Framework Valuations Cycle Trigger Sentiment (What changes (Flows) (How others a cycle ) are behaving) .

Valuations - Equity Parameters Used: Price-to-Earnings, Price – to-Book, Market cap to GDP, Earning Yield 170 Book Partial Profits 150 130 Incremental Money to Debt 110 Neutral 108.19 90 Invest in Equities 70 Aggressively invest in Equities 50 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Equity Valuation index is calculated by assigning equal weights to Price-to-Earnings (PE), Price-to-Book (PB), G-Sec*PE and Market Cap to GDP ratio. G-Sec – Government Securities. GDP – Gross Domestic Product; Asset Allocation – Schemes that invest both in equity and fixed income

Market Cap Analysis Share in the Overall Market Cap (%) Index 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Mar-19 Jun-19 Sep 100 79 79 75 74 71 79 77 78 79 78 81 75 74 72 65 70 73 73 74.0 250 9 11 12 12 13 11 12 13 13 14 13 14 15 15 16 16 16 16 15.1 Above 12 11 13 14 16 10 11 9 8 8 6 10 11 14 18 14 12 11.7 10.9 Top 100 indicates top 100 companies by market capitalization,101-250 indicates next 150 companies by market cap and above 250 indicates 251 st onwards by marketcap. Source : Kotak Research , Data as of September 30, 2019

Valuations - Credit Parameter: Gap between yield –to-maturity and repo rate Data as on September 30, 2019, YTM values taken since scheme inception. Past Performance may or may not be sustained in future.

Valuations – Gold/Cash Gold/Cash is a residual asset class based on the valuations on the other asset classes When all other asset classes are costly gold and cash are cheap and vice versa .

Valuations – Real Estate Valuations – Real Estate Mortgage rate premium movement over Rental Yields 8% 7.30% 7% 6% 5.70% 5.70% 5% 3.95% 4% 3% 1QFY… 2QFY… FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Market Cycle Burst Best • Equity Institutional • Real Estate in 2013 Time to invest Markets in Selling • e-Commerce in 2006 & 2017 Boring 2014 aggressively Institutions not • Bitcoin in 2017 and valuations buying, • Equity in 1999 attractive Boom valuations Institutions both • 2007 attractive buying and selling, valuations Bubble Institutional not cheap buying, Valuations off charts, valuations new valuation models costly Lehman emerge, investors Crisis 2008 forget the existence of the World Risk • Equity Markets in Dot com . 2011-2013 burst – 2001 • Equity Markets in 2015- 2016 (China Equity Markets slowdown) currently • Debt Accrual Schemes currently

My philosophy will not allow me to ... Miss growth Buy high Buy consensus sectors due to market cap Buy high stocks among above stocks. trailing p/e fund managers. stocks.

Asset Class performance – Cyclical & Unpredictable CRISIL Short Term Bond S&P BSE Sensex Returns Time Period Gold Returns (%) Fund Index Returns (%) (%) CYTD – till Sep’19 6.7 9.9 18.9 2018 5.1 6.7 7.9 2017 28.0 6.1 13.1 2016 2.0 9.8 8.6 2015 -5.0 8.7 -10.4 2014 29.9 10.5 -1.7 2013 9.0 8.3 -28.0 2012 25.6 9.1 7.1 2011 -24.7 7.9 10.1 2010 17.4 4.7 29.5 2009 81.0 6.6 24.4 2008 -52.4 9.5 5.8 2007 46.9 8.0 31.0 2006 46.8 5.5 23.2 2005 42.5 4.5 17.9 2004 13.0 2.7 5.5 Source: MFI Explorer and Kotak Securities; Calendar year returns. Past performance may or may not be sustained in future. Returns mentioned are in terms of CAGR

Four Ways of Investing for Decent Returns: Sufficient for 99% investors Systematic Investment Plan (SIP) 1 “SIP is deliberately doing something slightly inferior, to prevent the likelihood of something very inferior. It’s such a fine line between stupid and clear. SIP seems clever, but we should recognise that it’s true value lies in not being stupid.” - Tim Harford, Financial Times, October 19, 2018. Hybrid Mutual Funds 2 Asset Allocation 3 4 Even Index Funds/ETFs

Key Traits of an Investing Person Time Management : Very critical element. Most successful individuals know how to manage time. Thinking : Often people tend to forget that one needs a separate ‘thinking time’ Temperament : Important aspect. It takes courage to give a buy call at the bottom and a sell call at market top. Reading : A must-have habit when investing

Truisms Forced selling No Hubris or buying are decision is good a decision Money comes to a investment/dis fund manager till he fails There will be -investment  Anthony Bolton Nothing called mistakes; cant opportunities  Woodford consistency in get all calls  Bill Miller performance,  Bill Gross right only process

Solutions Hybrid Credit Closed-end No funds Funds Funds Leverage

Advantages of being an Investment Professional There is no age limitation. Can continue as long as one is mentally There are fit Over short duration, there multiple ways to is no connection between make money in competence, capability and long run alpha generated Sharing of theory is easy but implementation of what you know is Keeps you alive a challenge and interested in the world