Why Bank of India MF CIO sees excesses in mid caps but not in small caps

Over the two decades of working in finance, Alok Singh has donned many hats—from beginning his career as a proprietary trader at UTI Bank (now Axis Bank) to managing fixed income and equity assets at prestigious AMCs. Singh joined Bank of India Investment Managers 12 years ago and stepped into the role of Chief Investment Officer in 2015-16. Under his leadership, the Bank of India Flexi Cap Fund, Small Cap Fund, and the ELSS Tax Saver Fund have, in particular, thrived. The fund manager highlights risk management as a critical factor behind the success. In this interview, he shares his investment framework and takes us through the fund house's journey of managing assets worth Rs 100 crore to over Rs 10,000 crore over his tenure. Below is the edited transcript. What's your core approach in managing equity portfolios? How do you navigate different market conditions and sectors? With a background in fixed income, I understand the significance of concepts such as internal rate of return (IRR) and cash flows. Using the same principles in equities, return on equity (ROE) replaces the IRR, while cash flows remain crucial in both. These are the core of my investment thesis for any financial asset-debt or equity. The second aspect involves allocations, exposures, and pool of capital required for market investment. For me, it's not just about the perspective but also about the pool of capital, the considerations it carries, the risk it exposes, and how to navigate by combining these factors. How do you select stocks for your portfolios? We track around 1,000 stocks based on market capitalisation, and about 250 stocks form part of our active universe. We select these stocks using a top-down and bottom-up approach, analysing each business individually. The top-down approach is based on the various data that is received and its potential impact on a large number of companies. Later, the focus shifts to a bottom-up approach, starting with business management and cash flows. Every business ha