Sivasubramanian was part of the original equity team at Pioneer ITI of India in 1994, which was subsequently acquired by Franklin Templeton in 2002. He has been in the investment industry since 1988. Prior to joining Pioneer ITI, Sivasubramanian was Industrial Finance Officer at Industrial Development Bank of India.
He earned his Post Graduate Diploma in Management from the Indian Institute of Management, Calcutta in 1988, specialising in finance and marketing. He obtained his bachelor of engineering degree, specialising in mechanical engineering in 1985 from REC, Jaipur.
How did you get started in the investment business?
It was more of an accident, as I didn’t have plans to get into the investment management business. After working in Bombay for more than five years I was looking to go back to Chennai and heard that there was an opening in a mutual fund that was being set up. I applied for the job and got it.
In a day and age where people change jobs at the drop of a hat, you have been at the same job since 1993. What is the secret of your longevity in the same job?
Yeah, people do say that I am more or less like the old furniture in our office. As I mentioned, in my case, getting into investment management was an accident. But the job was extremely interesting and the work atmosphere was also very conducive, right from the time we were a start-up. The challenges were huge and the opportunities to learn were also immense. After the takeover by Templeton, the challenge was to scale up. I think I have had lots of opportunities to learn and grow in the organisation, hence I have never thought of looking for another job. In that sense, enjoying your work and constantly learning are essential for any job.
What is your typical day like as a fund manager?
We aim to get in early before the markets start. Once the markets start, we have our own internal meetings to begin with, where our colleagues in research make presentations on key events, ideas and themes. Then it boils down to talking to various intermediaries — analysts call you up to brief you on companies and stock ideas. During the day you also get to meet companies.
The first half is better planned with the morning meetings, company meetings, etc. The second half is more chaotic and unplanned. We try and leave enough time open so that we can talk about something interesting. Typically our day ends at around 7 o’ clock, once the other markets open and we have got feedback at the end of the day about what transpired, the trades for the day, etc.
Could you tell us about your basic investment approach?
At Franklin Templeton, the focus is always on the company and we follow a bottom-up process. Our first criterion is to buy companies for the right reasons, not just to fill up the portfolio.
The second is to approach an investment more like an owner rather than as an investor. If you were to look at a business, you should ask yourself: would you be in this business or would you prefer to be in some other business? The focus is on thinking long-term, and thinking whether the business has the potential to deliver over the long run, rather than taking a short-term view based on current valuations.
The third thing is to focus on sustainability. Obviously if you are thinking long-term, the competitive advantage of the business should be such that it should be there not just today or tomorrow but for atleast 10 years.
How do you identify a company’s potential?
If it is a totally new area of business where adequate information is not available, then we try to build up the knowledge base to do scenario analysis and learn about the potential of the business by talking to experts in the field. Take the instance of what happened to the software business in the early 90s. It was a totally nascent business and the potential as assessed by market analysts at that point of time turned out to be quite different from the actual reality. Though people were positive at that time, only after many years was the full potential of the business realised. So you have to talk to a lot of people, especially business leaders, and try to understand industry trends to get an idea of the future potential and the key traits that will separate the leaders from the “me too” companies. This is absolutely essential for constructing a portfolio that can deliver over market cycles.
In an existing business, we look at the quality of management andemployees, how the management has used capital in the past, etc. This along with their growth plans is a good indicator of how they will use capital in the future. We also look at their track record over business cycles, especially how they have withstood shocks in the past. In an existing business, these criteria help us distinguish a better-quality business from an also-ran kind of business.
You have managed quite a number of small-cap funds. How do you ensure quality of the company in the small-cap space?
For mid- and small-caps, it is more difficult to make that assessment —these are under researched with niche market dominance and experiencing fast growth. The chances of making mistakes are higher in a small-cap portfolio than in a normal diversified portfolio. Therefore, the key is to have frequent meetings with the management and other companies in the same business to understand the dynamics, and to see if the pieces are playing out.
Because of the risks involved, we tend to focus on fewer companies: businesses that we understand well, those that we have been tracking for a long period of time, and more importantly, how they stack-up on issues like corporate governance.
If you spread yourself too thin, there is the risk that you may make mistakes. Also, it is better to avoid companies that have been in the listed space for a short period of time. While they may be good companies, one should take some time to make that assessment as typically these companies would be of relatively recent vintage.
Where do your meetings with company management happen?
We go out and meet a lot of companies on our own and some of them also come and meet us at our office. We also get to meet them at various forums like annual conferences organised by broking houses as well as industry forums. We speak to them on con-calls and use video conferencing as a medium. So a combination of things helps keep us better informed and understand a company well.