Edited excerpts from a chat:
At a time when the broader equity market has struggled to deliver positive returns, how do you explain the Bandhan Innovation Fund’s ability to deliver double-digit returns?While it is true the broader market has struggled to deliver positive returns, I believe that fund returns are an outcome of my investment process which is to have a long term investing mindset (mostly think like a business owner), focus on deep research and having a diversified set of stocks across sectors (to manage risks).
What are the key factors that allowed the fund to outperform the Nifty 500 TRI by such a wide margin in just 1.5 years since inception?While it is true that the fund has been off to an exceptional start, I would caution investors that this is a thematic fund hence performance should be judged over a longer cycle (possibly 3-5 years) & in all honesty, market has been very kind to us; on the factors leading to outperformance, security selection has been the key driver of out-performance uptill now.
Given that innovation can be a buzzword in investing, how do you ensure that your stock picks are backed by fundamentals rather than just thematic narratives?While innovation can mean different things in different sectors and funds, at Bandhan Mutual Fund, we think of innovation in terms of profit pool shifts or companies which are creating new products/services leading to high opex and/or capex. These are two big filters for deciding the companies to be added to the portfolio.
How does the multi-cap approach help in capturing opportunities across sectors without exposing the portfolio to undue concentration risks?The multi cap approach is more of an outcome of sectors/securities where we see innovation, having said that today innovation is just not restricted to 1-2 sectors (while this is the general perception), to my mind there are at least 4-5 sectors where innovation quotient is quite high as of today. When you look at the market today, are you finding more innovation-led opportunities in traditional sectors adopting new technologies, or in newer, disruptive businesses?Innovation is a constant – in our view, while degrees of innovation matter depending on an industry in which a company operates, but this is something which every company needs to do to protect its terminal value and create value for all stakeholders, we see opportunities of innovation in both traditional sectors & new age companies.In an environment where global uncertainties and domestic policy shifts continue to influence markets, how do you balance between value and growth while staying true to the innovation theme?We have stayed away from the value and growth narrative while investing. My only focus is to look at potential IRRs which a security can generate over the medium term while making an investment decision. As long as the hurdle is met, we are happy to invest.
Which sectors do you believe will lead the next leg of market growth, and what’s driving your conviction in them?We have been quite vocal since the last couple of months that consumption will be one of the torch bearers for the markets. The conviction is backed by monetary policy (interest rate reduction) monsoons (leading to rural recovery) and fiscal policy (income tax cuts) coupled with the recent announcement of GST cuts.
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