Sundaram BNP Paribas Asset Management Investment Process A member of www.sundarambnpparibas.in 1 Sundaram BNP Paribas Asset Management
Vision, Mission & Philosophy • Respect others, their needs To take the least cost and most effective solution and sentiments Never ever take short cuts To be a significant To provide people • Develop and maintain trust Admit and share mistakes - internally player in the Indian the best experience Take necessary steps to avoid repetition of work • Communicate freely and Respect others, their needs, religion and asset management in accessing sentiments maintain confidentiality Be on time always space and be one of the financial markets • Be on time always Communicate freely and maintain confidentiality top ten asset managers Develop and maintain trust • Never ever take short cuts Work as a coherent team • Admit and share mistakes … Sundaram BNP Paribas Tax Saver 2 www.sundarambnpparibas.in Sundaram BNP Paribas Asset Management
Investment Philosophy We believe that… – A greater level of neglect in the Indian equity universe leaves fund managers with a wider array of opportunities to exploit through an active fundamental approach. – An extensive fundamental quantitative analysis, regular company visits with top management allow us to assess these markets, thus giving us access to attractive and relatively unknown companies with strong financial characteristics. – Long term outperformance is achieved by investing in large and medium/small sized companies with unique business strength in attractive sectors, sound and transparent management, visibility and durable growth at a reasonable price. The risk management is also crucial. – The local presence and expertise of the fund management team is key to exploiting market mispricings due to the lower level of research resulting in an inefficiency of information in Indian equities. Sundaram BNP Paribas Tax Saver 3 www.sundarambnpparibas.in Sundaram BNP Paribas Asset Management
Equity Investment process An active fundamental approach External Research Fund Mangers+ Idea Flow & RESEARCH TEAM Published Information Research Economist Company Visit Fundamentals & Idea Management Generation Recommended Assessment List Norms Approval of Stocks Internal Investment Executive Committee Committee APPROVED BUY LIST Sector and Stock Limits Fund Themes Construction STOCK Portfolio SELECTION Bottom-Up Top-Down Approach Stock Picking Best Trade Execution Diversification Final Fund Portfolio Risk Management Liquidity Sundaram BNP Paribas Tax Saver 4 www.sundarambnpparibas.in Sundaram BNP Paribas Asset Management
Fixed Income Investment process An active fundamental approach External Research Fund Mangers+ Idea Flow & RESEARCH TEAM Published Information Research Economist Company Visit Fundamentals & Idea Management Generation Recommended Assessment List of Securities Norms Executive Approval Internal Investment Committee of the Committee Board APPROVED BUY LIST Issuer & Security Allocation Fund Positioning Limits Construction SECURITY Portfolio SELECTION Asset Quality Top-Down Evaluation & External Approach Ratings Best Trade Execution Diversification Dynamic Fund Portfolio Risk Management Liquidity Sundaram BNP Paribas Tax Saver 5 www.sundarambnpparibas.in Sundaram BNP Paribas Asset Management
Process: Idea Generation Macro factors Company contact & interaction GDP, inflation, interest rates, money supply, Mandatory company contact at least credit growth, forex accretion once in six months Mapping sector patterns in GDP growth Third-party research Understanding the economic cycle Customized corporate and economic database Company specific Future growth drivers Broker research Management capability Access to reports of most reputed brokerage Capital intensity houses Balance sheet strength Extensively used for large-cap stocks Emphasis on long–term prospects than on History of research calls used to identify near-term triggers superior brokerage houses Peer study Brokerage models used for top 50 stocks by market-cap Comparison on quantitative as well as qualitative parameters Sundaram BNP Paribas Tax Saver 6 www.sundarambnpparibas.in Sundaram BNP Paribas Asset Management
Process: Financials Quantitative Estimates Profit margins Street estimates tracked extensively Finance charges Earnings revisions and price impact Cash flows Earnings & revenue guidance Revenue and earnings growth Trends in estimates and guidance Value add Risk Profile Return on equity and Du-Pont analysis Leverage Return on capital employed Ability to raise equity Working capital efficiency Cost of capital Trend analysis for key parameters Track record in debt repayment Peer and industry aggregate comparison Qualitative aspects Qualitative Transparency Management quality and capability Business / sector prospects Fairness in treatment of minority shareholders Product life-cycle / business cycle Sundaram BNP Paribas Tax Saver 7 www.sundarambnpparibas.in Sundaram BNP Paribas Asset Management
Process: Approval of Stocks Investment Committee Risk Controller Qualifications for investment Portfolio liquidity Investment restrictions Exceptional trading activity Norms for counterparts & intermediaries Significant investments in single stock Approval for certain investments Order and execution time Review compliance of internal rules & Trade allocations and trades done in the last performance half-hour Compliance Officer Internal Investment Committee Adherence to SEBI norms Clear names for investment Offer documents stipulation Approve names of intermediaries and counterparts Broker empanelment Review investment decisions Post facto clearance of trades Review fund performance - weekly Monitoring single stock exposure Tier I Tier II Sundaram BNP Paribas Tax Saver 8 www.sundarambnpparibas.in Sundaram BNP Paribas Asset Management
Process: Portfolio Construction Regulation & internal norms Liquidity Regular monitoring of broad market trends SEBI limits Trading volumes in portfolio stocks Internal risk control guidelines Risk team monitors adherence Trend analysis Impact cost Diversification Defined entry & exit Owning a large number of stocks Discipline in buying and selling Capping single stock exposure at 10%; Flagging of overweight exposures rarely holding more than a 5% in a Low turnover through judicious cash-equity balance single stock Buying and selling in a phased manner Valuation View on the market Active cash calls Price Earnings Multiple and Price to Cash Flow Cash waits for right stock in mid- and small- cap spaces Peer comparison Long-term approach Relative attractiveness of sector and stocks Sundaram BNP Paribas Tax Saver 9 www.sundarambnpparibas.in Sundaram BNP Paribas Asset Management
Portfolio construction: a core/satellite approach CORE PORTFOLIO SATELLITE PORTFOLIO 70% - LARGE CAPS 30% - MID/SMALL CAPS ● Identify the best sectors and industries ● Select the best Mid and Small Caps – Strong growth potential – Under-researched stocks offering ● Strong growth in earnings – Whatever the macro economic cycle ● Valuations cheaper than the whole DOMESTIC CONSUMPTION market INVESTMENT IN INFRASTRUCTURES – Important growth bias ● Select the “best in class” stocks within – Small Caps emerging into Mid Caps in the selected sectors the medium term – Primarily wealth creators NICHE PLAYERS ● RoCE (used to evaluate companies) – Emphasis on operating efficiency ● High RoE ● Earnings Yield > Cost of Capital COMPANIES LIKELY TO GENERATE CASH SURPLUSES Sundaram BNP Paribas Tax Saver 10 www.sundarambnpparibas.in Sundaram BNP Paribas Asset Management
Process at work A member of www.sundarambnpparibas.in 11 Sundaram BNP Paribas Asset Management
Investment Process: At Work Early entrant into engineering & Structural changes in textiles construction sector stocks • • Upturn in investment cycle Capital support for modernization • • Excess capacities created in mid-90s Consolidation in the industry exhausted • Removal of quotas • Government’s emphasis on infrastructure Earliest to spot the turn in sugar Real estate price cycle • Rising demand for residential and • Rise in domestic consumption commercial space • Tight supply trends • Liberal norms for FDI investment • Shift to ethanol • SEZ • Lack of appropriate value for land banks Sundaram BNP Paribas Tax Saver 12 www.sundarambnpparibas.in Sundaram BNP Paribas Asset Management
Prime picks when not fancied Vardhman IVRCL Spinning Construction Textiles Gammon Raymond Thermax Maharashtra Seamless Engineering Metals A B B Jindal Steel Balrampur Unitech Chini Sugar Real Estate Bajaj Ansal Hindustha Properties n This is an illustrative list Sundaram BNP Paribas Tax Saver 13 www.sundarambnpparibas.in Sundaram BNP Paribas Asset Management
Prime picks when not fancied Container Tata Corp Chemicals Logistics Chemicals India Blue Dart Glycols Sundaram Clayton UTI Bank Auto Small-Sized Components Banks Bharat Karur Vysya Forge Bank Godrej R C F Consumer Consumer Fertilisers Products Emami Indo Gulf This is an illustrative list Sundaram BNP Paribas Tax Saver 14 www.sundarambnpparibas.in Sundaram BNP Paribas Asset Management
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