The strategy has always been the same–remain true to the Coffee Can investment philosophy, irrespective of the macroeconomic situation and business cycle, Manish Jain, Fund Manager, Ambit Coffee Can PMS, said in an interview to Moneycontrol’s Kshitij Anand.
Edited excerpts:
Q: Coffee Can has the best returns under the portfolio management scheme (PMS) for August. What was your strategy at a time when the Nifty was down 0.8%, domestic cues were muted and globally there were concerns over the escalating trade war between the US and China?
A: The strategy has always been the same–to remain true to the Coffee Can investment philosophy, irrespective of the macroeconomic situation and business cycle. The three simple, but key things we try and stick to are:
a) Invest in quality names. Corporate governance and quality of management are of paramount importance and no substitute exists for these
b) Invest in growth stories. Rather than looking for a value play, investors would do well to look for steady structural growth stories
c) Invest for the long-term; to try timing the markets perfectly is like aspiring to touch a rainbow
At Coffee Can, we have always strived hard to construct a portfolio, which can deliver steady returns with minimum risk to create wealth for our investors.
Also, when the aim is to invest for the long-term and invest in quality stocks then bad times can actually be the best times to invest.
This is simply because India will remain a growth economy from a long-term perspective, and consumption as a theme will remain relevant in the years to come.
Hence, when the economy is going through a cyclical downturn, it can be a great time to pick up some stocks at a bargain price.
Our analysis shows that had an investor bought at the lowest points of nominal GDP growth rate in the last few years, the median return would have been 21 percent, as compared to 5 percent when the economy was at its highest points. This quite simply increases our confidence that the Coffee Can investment philosophy works.
Q: Your assets under management and what is the overview of growth in AUM?
A: At Ambit Asset Management, we manage a little over Rs 500 crore of funds between the three PMS schemes that we run. Particularly in Coffee Can, we manage Rs 330 crore plus of AUM.
While AUMs are important for any asset-management business, what remains paramount for Ambit is staying true to the philosophy of the product. The returns are also a byproduct of the philosophy.
We do believe that as long as we maintain the consistency of our product and continue to deliver returns, AUM will automatically grow, much the same way as they have in the last two years.
Q: A BofA-ML survey says that fear of recession among global fund managers is at its highest level in a decade. The cash ratio is also above the 10-year average. What is your strategy on holding cash, say for the next six months?
A: Given that we are a growth-oriented fund house and that we tend to invest for the long term, we typically don’t like sitting on too much cash. At any given point of time, we are 98 percent invested.
It is in only very rare cases when a particular stock we believe is running ahead of the business fundamentals, and that valuations are now not getting justified by a reverse DCF (discounted cash flow) that we temporarily cut the weight, only to come back when valuations have cooled off. Right now, we are sitting on 7 percent cash.
Q: The Coffee Can portfolio has completed a 10-year run and handsomely outperformed the Nifty as well as the BSE200 by 8% per annum on a medium-term basis. How has the journey been and any key learnings you would like to share?
A: One of the most fundamental learnings has been that the past is a mirror to the future. Companies that have a proven track record of performance are more likely to do well going forward too.
The second learning is that the best approach to stock selection is fundamental analysis. There is no substitute for hard work and the more deep the analysis, the better are the chances of success.
Q: How are the markets looking to you from a medium-term perspective? Do you see some recovery till the next budget?
A: We continue to remain constructive on the markets from a medium-term perspective. Earnings, particularly in the consumer sector (ex-autos), have not been as bad as it was expected to be.
Moreover, the government is now quite cognisant of the problem and has announced several measures to address the slowdown. This, coupled with normal monsoons and the upcoming festive season, makes us believe that the Indian equity markets have bottomed out from a one-year perspective.
Q: What is your strategy of picking stocks – anything you would like to share?
A: As mentioned earlier, the thing we do very well is to maintain the simplicity of our portfolio. We believe that there is no substitute to fundamental analysis and we go to great depths of each and every portfolio stock before forming a view.
This exercise is conducted on an ongoing basis to stay ahead of the curve. Quite simply, this is the mantra that we follow for our stock-picking.
Q: What are your criteria for including and excluding stocks in the portfolio?
A: Normally, we try and invest in companies that have a consistent structural growth outlook, and try to avoid businesses that are cyclical in nature.
Also, any business where the catalyst of growth stands out of the business environment is unlikely to be a part of our portfolio.
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