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Our Investment Philosophy is a Mix of Styles

Vivek Reddy, CEO, Kothari Pioneer AMC believes that thinking independently rather than following the herd is what generates long-term superior returns

Kothari Pioneer, the first privately managed mutual fund in the industry took off in 1993. With an asset base of Rs 2615 crore as on May 31, 2001, the AMC manages 21 schemes and unlike its peers, the bulk of the investments are in equity funds. The AMC was the first with an infotech fund while its maiden launch; KP Bluechip has given an impressive return of 23% since launch in 1993. Add to it, it's the only AMC in the industry with in-house registrar and transfer operations.

Kothari Pioneer's chief executive officer, Vivek Reddy spoke to Value Research on his outlook for the markets and the AMC's investment strategy.

On Equity Markets
The Indian market has been in a bear phase for nearly 15 months now. Valuations and key economic indicators are approaching historic lows, although no clear signs of a turnaround are visible yet. We see four possible events that could trigger the markets positively over the next few months: 1) the effect of the high liquidity in the system taking hold 2) progress on divestment 3) a good monsoon and 4) a revival in the US economy. Meanwhile, the near term triggers – the move to rolling settlements and quarterly results – will do little to lift the market. We expect the markets to start moving in a northward direction in the medium term

On outlook for Technology stocks
We believe that the top tier Indian technology companies will indeed reap the benefits of the cost cutting in the US industries. Our discussions with various players in the US have confirmed the trends of offshore projects and outsourcing their entire EDP operations. Many of the Fortune 500 companies should either set up offshore centers in India or award most of the projects to Indian companies, the benefits of which will occur in another quarter or so.

While the medium to long-term outlook is very bright for tech majors in India, the key to short-term outlook is a turnaround in the US economy. Once this becomes clear, corporate decision makers in US will revive the technical projects that were postponed and this increase in tech spending will only aid the Indian technology firms.

On strategy for Equity Funds
We see our investment philosophy as a mix of styles or approaches rather than typecasting ourselves as following one style. The bottom line is to provide our investors superior risk-adjusted returns and we will take the best of all approaches/styles to achieve this objective. Our experience is that thinking independently and having the conviction to go with what we believe in, rather than following the herd is what generates long-term superior investment results. However given the current lower liquidity levels in the market, we would be leaning more towards larger cap liquid stocks, given that we are one of the largest equity oriented financial institutions.

On high turnover in KP's equity funds
The turnover of the schemes has increased due to the uncertainty in the markets which is resulting in quite a few number of good stocks being available at good valuations. As the market stabilizes, our portfolio turnover should come down and we should be back to our usual "below-industry-average" levels

On any regrets of raising huge corpus in Internet Opportunities fund andTechnology fund at the end of tech boom and what investors should expect from these investments
No, we see our role as providing our investors attractive investment opportunities at all stages of the market cycle. And we repeatedly advise our investors to invest with a long-term perspective, and to remain diversified. We believed in the potential of these schemes and we continue to be confident that in times to come investors in these schemes will see their investments appreciate over the long term and meet their expectations.

On high returns and large ticket investors in the Income Builder Account
IBA has a wide investor base of 27,000 investors, making it one of the most widely held income schemes in the country. The fact that we have only 7 investors with investments over 25 crores (amounting to around 18% of the corpus) is an indication of the diverse nature.

On returns expectation in Income Builder Account
We expect the returns to stabilize in the band of 8% to 12% in future. As you know returns from market securities be it equity or debt depend on the market conditions and as fund managers we strive to deliver competitive market-related returns without taking any undue risks.

On incentive based marketing strategy
Increase in inflows is due to good performance and guaranteed liquidity and not on account of incentives. If incentives were the reason, any fund house, which offers higher incentives could have garnered more market share.

On nil equity exposure in MIP
The objective of MIP is to consistently provide income to investors and given the market conditions it makes sense to take steps to ensure stability. We had invested in equities and have got out as we could book profits. The idea is to build enough reserves so that the scheme can withstand the volatility associated with equities. Going forward, we will be investing in equity selectively and in a phased manner.

On KP Balanced Fund
We would say that have we prevented substantial erosion in our Balanced Fund and it has done quite well on a relative basis. Going by most rankings including yours, our balanced fund is among the better performing schemes in its category. Given our successful investment philosophy for both equity and debt markets, we are confident that in the medium to long term, the scheme should perform well and investors can look forward to superior risk-adjusted returns.