A 3-5-year outlook partially justifies mid-cap valuation: Kotak fund manager of over Rs 50,000 crore

Devender Singhal may have spent more than two decades in financial markets but his fire burns bright. This comes to the fore when he talks about the "excitement" of unearthing stocks "that others may be missing", especially during testing times. Having been associated with Kotak since 2007, Singhal currently presides over 28 schemes with assets worth Rs 50,678 crore, including the five-star-rated Kotak Equity Savings Fund and Kotak Debt Hybrid Fund. In this interview, Singhal shares his insights on market valuations. He believes that while large-caps remain reasonably valued, mid and small-caps' higher valuations are justified by their superior earnings growth if one has a three to five-year investment perspective. Singhal also discusses his current interest in consumer companies and offers his views on new-age firms. Below is the edited transcript of the interview. How would you describe your investment philosophy? Are there any stocks or situations that excite you when evaluating potential buys? I consider myself a bottom-up stock picker. I always look for the asymmetric risk-reward in the stocks I invest in. The idea is that for every rupee of risk that I put to work, I am looking at asymmetric returns. Therefore, for every rupee of downside, I need to generate more than a rupee of upside. In a steady state, I continue to search for stocks that can yield higher returns than the overall market. Regarding market conditions which excite me more, I can honestly say that there have been numerous such opportunities over the past two decades, especially in the market conditions when investors struggle to find investable ideas. I believe this is a scenario when fund managers are tested. Those are the times when your actual research skills come into the picture. The most exciting part is what you can look at in a stock and find that others may be missing at that particular time frame. However, regardless of mark