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Applicable Lessons In Investing

Monday, May 23, 2011

This man who is responsible for the investments of the overall corpus of IDBI Federal Life Insurance needs no introduction. Aneesh Srivastava, Chief Investment officer of the company is well known and considered a market wizard by his contemporaries. With 15 long years of experience in fund management his performance shows. Earlier at Bajaj Allianz, he during his tenure, outperformed the markets and managed to grow a corpus of Rs 400 crore to a mind boggling Rs 3000 crore in just two years. This man has an uncanny ability of spotting the trend shockingly early and much ahead of most of his peers. This MBA from Lucknow University is a rank holder CFA from ICFAI, Hyderabad and believes that there is ‘no short cuts to success’. Mayura Shanbaug prods him for lessons that can help an investor succeed. The advice from this soft spoken but hard talking fund manager is:  ‘stay away from the markets, if you don’t have the ‘risk appetite’.

A little background about your company and yourself?
IDBI Federal Life Insurance Co. Ltd. is a joint-venture of IDBI Bank, Federal Bank, and Ageas, a multinational insurance company of Europe. Having started in March 2008, in just five months of inception we became one of the fastest growing insurance company to garner Rs. 100 Cr. in premiums. The company offers its services through a vast nationwide network across the branches of IDBI Bank and Federal Bank in addition to a sizeable network of advisors and partners. As on March 31st 2011, the company has issued over 2.92 lakh policies with over Rs. 16, 384 Cr in Sum Assured.

I have 15 years of fund management experience. Prior to joining IDBI Fortis, I was heading a London Stock Exchange listed, India-dedicated European Fund.  I was heading Equity Investments of Bajaj Allianz Life Insurance Company prior to this.

At what point had you given a thought to making a career in the stock / financial markets?

When I was doing my Masters in Business Administration (MBA), finance was something that had me interested and made me choose finance as my career option.

How do you pick your investments? Do you use technical analysis, or do you employ fundamental data?
It is largely based on fundamental data. I look at global as well as local macro economic fundamentals, financial performance of the companies and the projections.

How would you describe your methodology?
In the current scenario, Foreign Institutional Investors (FII’s) are the dominant players in the markets, that is why it is imperative that we take into consideration the global macro economic factors, while deciding the direction of the market for taking any decision on asset allocation calls.

Once the perspective is in place, the sectors are marked and from the sectors the companies with favourable rewards are selected and then you are ready to place your bets.

What appeals to you about investing? Playing the short side or the long side?

Of course the long side.

What differentiates you from other investors? What gives you that edge?
I do not know how better or worse I am with respect to other investors. As far as I am concerned, what gives me the edge is the ability to mix micro economic environment data with the market behaviour which helps me in advancing my investments.

Is there any applicable lesson to investing?

The most important thing as an investor is that, we have to understand our risk appetite and investment horizon. We should know whether we are investing for the long or short term and what is one’s risk appetite. If you don’t have the risk appetite and do not have medium to long term perspective then you should stay away from the markets. Short term investment can be termed equivalent to gambling which should be avoided. If a person does not have decision making abilities then he is better off taking the help of professionals.

How much of what you do is gut-feeling?
There is nothing called as gut feeling. You have to build the thesis and based on that thesis, you would create portfolios on assumptions that those thesis would turn out to be true. If those thesis turns in your favour then you get the rewards otherwise you have to look at other scenarios and revise your hypothesis.

When you put money on a trade and it goes against you, how do you decide when you're wrong?  What do you do next? Reverse the position, average or just take your losses and stay out?
I certainly reverse my call. Everything has to be based on certain thesis and there has to be a time frame for your decision to pan out. If in a given time frame your decisions do not yield any positive results, then you need to cut out those decisions and take a fresh look.  

Any positions you ever lost sleep over? What happened...?
Yes, In 2008 I was sitting on the 50% cash and was wondering, when the markets were correcting. 50% cash is a huge call. Ultimately, I succeeded, proving that my call was correct. We continued with that call for some time.    

Of the tens of thousands of trades that you have done, which was your best trade? What was the story there?
When we identified the potential of a concept turning into a revolution. We identified Bharti Telecom in the beginning itself… it was a time when the mobile revolution was in the making. We picked up a large percentage of the company, and as we predicted, we made more money than we expected.

What would make you wary about an investment?

There can be multiple reasons why I would be wary of an investment. Firstly, if the company or sector has too much of interference of policy makers or government, that does not allow you to build any thesis or build a model,  because too many factors of those models would be variables or would be subject to policy makers decisions. Over the period of time I have started avoiding companies with lots of uncertainties.  One look at the fertilizers sector and Oil &Gas sector will prove my judgement. Better safe than sorry.

Do you have a scenario about how the current market trend will unfold?
There are two factors that drive the markets: one is the macro-economical environment and the second is earnings. The macroeconomic environment currently is not so conducive owing to the factors such as high crude and commodity prices. This is the first concern we have today.
The second concern is what is happening in Europe presently. Thirdly, there is surplus liquidity in the system globally. Once it is withdrawn what will be the behaviour of the asset classes.

These are the three global macro-economic concerns we have and part of it is also impacting India because liquidity also has an impact on Indian markets.
From the Indian perspective, if India maintains its growth rate at 8%, it will be attractive enough.

My assumption is crude and commodity prices will correct to an extent of 10%, making me reasonably optimistic that at higher level, there would be lesser demand for crude and commodity.  Huge speculative positions have been built up, but these may not sustain and will lead to a correction and would be a positive development for India and China.

Secondly, as far as the valuation in the markets are concerned, the markets are trading 15 times the earnings, which is not expensive and leave scope for further upside. We can expect the market at 21,000 level one year down the line.     
   Your success mantra?

A: There are three basic parameters to be checked: firstly the quality of the promoter, second, the quality of the business model, and the policy environment. One should look at these factors carefully before investing. 

Any final words?
Trading is very detrimental to an investor’s financial and physical health; it’s a zero sum game. Nobody makes money in trading. So you should invest in the stock markets with a medium or long term perspective only. If you do not have a ‘risk appetite’ stay away from the markets.

“The most important thing as an investor is that, we have to understand our risk appetite and investment horizon. We should know whether we are investing for the long or short term and what is one’s risk appetite. If you don’t have the risk appetite and do not have medium to long term perspective then you should stay away from the markets”

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