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Identify Your Risk Profile Before You Invest

Monday, March 09, 2015

With over 20 years of experience as an Investment Professional and having seen multiple cycles in the market and managed money across different formats including Mutual Funds, Offshore Funds and PMS, Kunj Bansal, Executive Director and CIO at Centrum Wealth Management, is an often quoted expert on various news and business channels, magazines and newspapers. In conversation with Dominic Rebello, this market wizard believes that ‘India is a growing economy and that means in general the market will keep going up as long as the economy keeps growing...’

A little background about your company and yourself?
About Company: The Centrum Group is a leading financial services conglomerate that has been built over 2 decades. The Group has a significant presence across the verticals of investment banking, private wealth management, stock broking, corporate finance, debt, realty and infrastructure and forex services. It has a collective team experience of deals worth ~INR 10 trillion and ~INR 1.6 trillion aggregate transactions closed till date. Centrum has been a pioneer in product structuring across equities and debt and ranks amongst the top 2 retail Forex service providers and the largest seller of prepaid travel cards in India. I am looking after the equity asset management area in Centrum Private Wealth.

How do you pick your trades/ investments? Do you use technical analysis, or employ fundamental data?
We select our investments based on fundamental analysis and the growth potential of a company. It involves detailed analysis as well as interaction with the company management and an effort to look into the future of any business. Of course, valuation has to be kept in mind. Technical helps more for short term trading and timing in the market and not necessarily in stock selection.

How would you describe your methodology?
As mentioned earlier, our methodology is fundamental analysis, detailed look into the financials of each and every investment opportunity along with an eye on valuations. Of course, looking at industry growth, scalability of business models and management capabilities and track record are essential ingredients of this analysis.

What appeals to you about Investing? The short side or long side?
We are in a growing economy. That means that in general the market will keep going up as long as the economy keeps growing. Only when the economy reaches a mature stage or a stage where its growth stops, will we have a scenario of negative returns in the market and opportunities on the short side. Having said that, there are intermediate phases in Indian market when it goes down. If not the market as a whole, some of the sectors do give negative returns thus offering a shorting opportunity. However, I am by nature an optimistic person and as a result generally look for long side investments.

What gives you that edge?
I don’t know if I have an edge. Still, if I were to answer this question, I would probably say: more than 2 decades of investing experience, an ability to patiently analyse opportunities and an attitude of letting go of risky opportunities even if that means sacrificing some returns.

Is there any applicable lesson to investing?
There are many lessons and even then I don’t think there can be an exhaustive list of lessons. The Market is a dynamic phenomenon and teaches new things every day. The day one feels that he has mastered the science and art of investing – market immediately teaches by giving a jolt. Probably, none of the investors globally have 100% success rates though many have had good hit ratios.

How much of what you do is gut felt?
Gut doesn’t come of any use, especially in the ininitial stages. You have to necessarily go through the rigour of financial analysis and valuation. Only if some opportunities are coming at par on these parameters, then you go by the gut although even in that there is an element of experience built in. If one were to go by gut, one could have invested in Hotels and Airlines which are very glamorous businesses, but sharp underperformers when it comes to returns to shareholders.

Do you try to anticipate or follow market trends?
We do try to anticipate economic numbers and their effect on the likely direction of the market and resultant trends, if any. However, it is not easy and it is done on a best effort basis. What is more important is your ability to be agile and be quick in reviewing a set of market conditions.

When you put money on a trade and it goes against you, how do you decide you're wrong?  What do you do next?
If the performance of a company is not in line with your expectation, that means either the assumptions and analysis were wrong or the investment thesis that was assumed has undergone some changes. In such cases, you revisit your investment and decide if it is worth holding on or averaging or should one book loss. It is a difficult and courageous decision, but one has to be very clear that one is investing in a stock to get financial returns and not to get emotionally associated with it.

Any positions you ever lost sleep over?  
Not necessarily losing sleep, but obviously there have been a lot of decisions which have not worked as expected; the most prominent of these are investments in PSUs. There has never been a secular trend of performance and returns from PSUs. Every time you invest based on certain assumptions, the government comes out and takes an action which is contrary to your expectations.
What would make you wary about an Investment?
Obviously its under-performance and the company numbers not being in line with expectations. Especially, if a company/management is not able to deliver when there are tailwinds and other players in the similar business space are doing well.

Do you have a scenario about how the current bull market will end?
Difficult to answer exactly in the way that you have asked, but historically, the market has given a benefit of doubt to any new government formation for about two and a half years. Post that period the actual economic and corporate performance starts to have a significantly higher impact than the expectations from the establishment.

What makes a investor successful? Your success mantra?
Your ability to let go of the greed even at the expense of making lower returns is very important. Of course, a serious due diligence is a must.

Any final words?
It is very important to identify one’s risk profile and then accordingly make investments. One should not go by what others are doing and try to copy them. Also, Health and Wealth are the two most important assets in one’s life. So, it is better that one goes by professional advice when it comes to both these assets instead of trying to treat yourself. On the contrary, what has been observed is that we are too happy to take professional advice when it comes to lower valued assets such as the repair of our car or television or laptop or mobile but when it comes to health and wealth – we think that we know everything.

What is your take on the current market scenario, Indian as well as global?
Globally, there is lot of uncertainty and the world has got divided into different zones which will have different performances. The Eurozone is witnessing a slowdown. Indian economy is likely to be in an uptrend and as a result, we should see and upward movement in the market though it can be filled with corrections.

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