Interview

Meet Cheenu Gupta, the coder who became a Rs 37,000 crore fund manager

Gupta also shares her investment style and outlook on the current market

dhanak हिंदी में भी पढ़ें read-in-hindi

From having little interest in finance to joining the workforce as a coder to currently managing assets worth Rs 37,000 crore as a fund manager, if there was an elevator pitch to describe Cheenu Gupta's professional career, this would be it.

Gupta, now the Senior Vice President Fund Management Equities at HSBC Mutual Fund, frankly admits that "coding was my passion" but soon realised that once she was promoted to a team manager position, her role as a coder would "no longer exist" and that she'd be swamped with managing people instead.

Not content with that career trajectory, she pursued her MBA. It was here that her passion for investing began. Shortly thereafter, she entered a competition hosted by a mutual fund house, which proved to be a turning point in her career.

Below is the edited script of the interview that charts Gupta's rather offbeat career path. Besides the coder-to-fund manager transformation, she also discusses her investment philosophy and the sectors the HSBC fund house is focusing on.

What drew you to equity investing after completing your bachelor of engineering (BE) in information technology?

Honestly, I didn't have any particular interest in finance, given my background. I come from a family that invested only in fixed deposits (FDs) and maybe some unit-linked insurance plans (Ulips). My introduction to the world of finance began during my master of business administration (MBA) program when a group of college friends and I became interested in equities and stock markets. In fact, I took out a bank loan for my second-year fees and started investing the money my mother had set aside for my MBA into the market.

What led you to pursue an MBA after completing engineering in IT?

After completing my BE degree, I entered the IT industry and worked as a software engineer. Coding was my passion, and the analytical aspect of it, such as the design and operation of the code, drew me in. However, I observed that after a few years in your career, you will be promoted to team manager, and your role as a coder will no longer exist. As a result, your analytical work significantly decreases and you become more focused on people management. At that point, I realised this was not what I wanted to do and began considering alternative career paths. I believed that an MBA would give me that added skill set, which is how I shifted from IT to finance.

There's a great story about how you began your journey in the mutual fund industry. Could you share that with us?

It is a story which made me believe in luck. After completing my MBA, I successfully secured a position with one of the country's top private banks in my preferred role. I was very happy. After the graduation ceremony, we were preparing to return home when we heard about a competition organised by a mutual fund house. Honestly, the contest's prize money of Rs 1 lakh drew us in, as it was a substantial amount for students. My other friend and I decided to stay back and participate in the contest, and we won it. Mr UK Sinha, then Chairman of UTI, was on stage to give us money. However, the audience asked him, "What more are you giving to the students?" Graciously, he announced that the winners would get job offers at UTI. We were completely awe-struck. I discussed my placement opportunity with one of the professors, who advised that mutual funds would be an excellent field to begin my journey. This is how I ended up in the mutual fund industry.

Looking back at your early days as a research analyst at UTI Mutual Fund and later experiences at Tata AIA Life Insurance and Canara Robeco Mutual Fund, what key lessons do you still carry today?
I started my career as an analyst, a role that required me to cover multiple sectors and analyse all the stocks within them. During this process, I realised that, given the same industry dynamics, the demand-supply situation was nearly identical for all companies. Although the market variables were similar, the companies' performance differed greatly. It taught me a very important lesson: execution is critical and, at the same time, not easy. It's quite simple to formulate strategies on paper, seek advice from others, and create them, but the practical implementation of these strategies can significantly differ.

In India, almost all the markets are very competitive, and if you actually manage to deliver despite all the constraints, it can be a critical asset.

Another lesson I learned is the importance of valuation in stock picking. Following the initial inquiry about the company's operations, the next question typically focuses on the valuation. As an analyst, I learned that it's far more important to err on the side of valuation than to miss a good company. We also look at the P/E ratios and compare companies. Valuation is just one parameter. Several other things go into making a great company or picking a great stock. Those are some of the key lessons learned over time.

How would you describe your investing style?

My investment strategy has been a bit more growth-biassed. The value of growth is far higher in a growing economy like India.

What also interests me is understanding how a company or an industry is suddenly changing its trajectory. The change could be anything from industry dynamics to regulatory shifts. For instance, 15 years ago in India, there was a demand for specific categories of goods, but today, you'll notice a shift towards premiumisation. So, noticing these changing patterns within the industry or in a company excites me. Most of us follow the principle of investing in companies that have healthy return ratios and good cash flows. However, there are often specific sectors or industries where the return ratios have been subpar and are now beginning to improve. I enjoy such scenarios.

How has your life changed after the merger of L&T and HSBC Mutual Fund? What do you do differently now?

The process of picking up stocks and selecting companies remains the same. However, HSBC adheres to specific practices as a multinational company that manages global assets. For example, they ask us to reflect on our performance every month. We have to write a short paragraph on why there is outperformance or underperformance in the portfolios. This helps us reflect on what changes we should make to the portfolio or the strategy. In addition, the resources they have at their disposal are significantly superior, and the merger of L&T and HSBC has resulted in the integration of these resources.

Earlier, L&T had five analysts, and HSBC had three, so today, we have a team of eight analysts. We also have global analysts available for any queries. If an Indian is involved in a project in China and we wish to delve deeper into the details, we can reach out to our HSBC analysts in China. So, be it China or any other geography, I think that information is much more accessible to us now.

What criteria make a stock a 'must-buy' for you?

We often have a thesis that a particular company has to perform in line with the broad industry dynamics. However, some companies tend to do better than the industry or their peers. It's not that they perform better only in one or two quarters, but there is something different in the underlying business that gives them an edge in terms of returns and consistency. This could be due to their exceptional distribution capabilities, agile management that excels in responding to critical situations, or simply the higher demand for their products. These factors lead these companies to outperform their industry peers, and they present a compelling case, in my opinion.

The HSBC Midcap and Small Cap funds have significant investments in the industrial sector. What's the strategic reasoning behind this concentration?
The industrial sector has been experiencing a period of low growth over the past seven to eight years. We have observed a significant decline in investment in the industry. Even now, the capex only comes from central or state governments. However, I believe this sector is undergoing a significant transformation, with gradual changes occurring. We believe that in addition to government spending, companies and industries will begin to invest and increase their capital in infrastructure, railways, or the power sector. Therefore, all these factors make industrials a compelling investment at this particular point in time.

Given the recent strong performance of mid and small-cap stocks, is this momentum sustainable?

We've seen a strong rally in mid and small-cap stocks, and what's changed over time is comfort and valuation. A year and a half ago, we could find good ideas, particularly in small caps, at roughly 14-15 times earnings. Today, we are looking at around 20-22 times. Midcaps have remained expensive due to their role as growth drivers. After the top 100 companies in India, the remaining 150 companies are mid-caps, so they ought to be doing better. So we are still finding a lot of good ideas in categories like discretionary consumption. We all know that India is experiencing an increase in per capita consumption, which makes discretionary consumption a particularly intriguing category. This sector encompasses a variety of sub-markets. It is home to a significant number of mid and small-cap companies.

The second category is manufacturing, and I anticipate a significant number of mid and small-cap companies to emerge in this space. With all this understanding, I believe that mid and small-caps have emerged as promising sectors. There are numerous options available, but investors must be cautious with valuations, and execution will become crucial for them to fulfil their promises.

Finding value in the mid and small-cap markets can be challenging now. Are there particular sectors or industries where you currently see potential for value?

It's difficult to find value in today's market. Specifically challenging if I look at the P/E ratio. Perhaps this is why we are examining another metric, such as the PEG ratio, which compares P/E ratios with growth. As mentioned, we are currently interested in sectors such as industrials, infrastructure, manufacturing, and discretionary consumption. The industrial sector, with its various sub-sectors such as auto ancillaries, railway component suppliers, and the power sector, offers several ideas. The government is placing significant emphasis on infrastructure development, which is intriguing as it will lead to the development of numerous airports, ports, and other infrastructure throughout the country.

Also read: Here's why Kotak fund manager Atul Bhole doesn't mind paying a premium for businesses


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