- February 13, 2024
- Posted by: CFA Society India
Contributed by Vijayanand Venkataraman, CFA
The Chennai Chapter of the CFA Society India hosted Mr Chaitanya Dalmia, Renaissance Group in a Fire side chat with Mr Maran G, discussing his journey as an investor in the Indian capital markets.
The discussion touched upon various aspect of investing and investor from processing data, circle of competence, edge a private business manager has as an investor, handling market events, role of management meets to management quality.
Handling large amounts of data and building competency
The conversation started off with an interesting question on how investors can handle large amounts of data that is available today. Mr Dalmia had a simple response – develop a template for each industry and figure out the KPIs. Once you have this in place it becomes very easy to make sense of data and ignore what is not required.
As a private investor, to be truly industry agnostic, one needs to continuously expand the circle of competence, which is easier said than done. One way to do that is to meeting domain experts and successful investors regularly. In his opinion, it is also essential to understand areas that are difficult (and hence stay away), while continuously expanding the competencies. While he has stayed away from sectors like Pharma, he has expanded his c-o-c to invest in construction sector over time. Another sector where they have built competency in the recent past is Media, which is getting disrupted significantly.
From a business family into investing
Given his family background, Mr Dalmia has had the benefit of using the family members as a sounding board, where ideas are discussed and improvised with feedback and has helped their investment ideation process. In his perception, investors need to evolve to de-construct narratives and identify factors that are important from the ones that are not important. It is essential to understand that all businesses have an element of cyclicality and expecting a smooth trajectory is incorrect. Even a secular growth story will have obstacles along the way and a business owner understands this to build a long term view. And as an extension management talking the market language is a warning sign and a management that is not interested in stock price performance is good for long term investors!
On Value investing
Markets getting efficient there are not a lot of opportunities to implement Graham’s net-net, but we do notice at times, some cyclical businesses (even mega caps) are available cheap, that are not appreciated by markets.
In his view, he is more towards Graham than Fischer or more like Buffet in the 1960s/70s and his investment strategy/ philosophy changes with size.
His advice to budding investors – adapt any approach to Indian conditions, before following it.
Micro vs Macro
Anticipating a normalization of QE, maintained significant cash in portfolio for long period (8-9 years). But since cash generates 7-8%, was not a big drag. Last 10-15 years, the role of macro has been much higher than bottom up stock selection given the liquidity driven movement of markets. As bottom up investors prefer investing in companies witnessing EPS growth, but returns have been generated by PE expansion!
It’s a very difficult investment call and we have not been able to master this. But confronted with uncertainties, we move to reduce risk and stay away till clarity emerges. Our outcomes in such situations have been mixed. Although we had cash going into Covid, we did sell more and froze till around Oct 2020. We deployed into sectors that we thought are better placed (PSUs – defence/ railways etc). Over the last few months, we have slowly raised cash to pre-covid levels as cash gives us an optionality to invest in any crisis. One needs to be cognizant of the fact that as investors we do not have access to additional capital that an institution can get from flows.
Markets getting very institutional
The SIP flows have made the markets more institutional and has made competition for alpha a difficult one. But there are niche opportunities for private investors that institutions cannot participate in – micro caps is one such, as we do not have any edge in the Top 200 stocks that are well researched and/or owned by institutions. We accumulate over long periods, to the extent the regulations permit along with market disclosures.
There is no edge in meeting managements as there is a lot of information available from calls/ meets etc. Given that most managements are conflicted (with ESOPs etc), they are never going to be neutral in their discussions. But there are exceptions to this when a new sector / company is listed and there is not a lot of history.
While in the initial days of investing, we look for management that are pristine, we realise that management quality is not black & white – its more shades of gray, but look for an acceptable level of integrity.
Its is essential for investors to appreciate that model would get disrupted and there would be winners and losers and not really know that the exact effects. That ensures you do not go overboard due to greed.