Shreyash Devalkar, fund manager, BNP Paribas Long Term Equity, talks about the BMV - Business, Management, Valuations, framework followed by the fund company to build their equity fund portfolios.
What is the investment strategy for the fund?
We believe that, 'it is companies that create wealth, not markets'. The companies are thoroughly researched internally by our experienced research team with an aim of ensuring that only the most suitable companies make it to our portfolio. Our investment philosophy of focusing on BMV (Business - Management - Valuations) framework for selection of companies in portfolio, has helped in consistent performance. Various investment ideas are filtered through our BMV (Business - Management - Valuations) framework of company selection before adding it to investment universe. The Business fundamentals are analyzed based on different parameters like secular trends, uniqueness of business model, moat of business etc. Management's execution capability is key in delivering sustained returns within the realm of industry dynamics and corporate governance are important parameters. Growth At Reasonable Price (GARP) is the philosophy that is followed while assessing valuations.
What is included in the portfolio and what is avoided?
As of now we are positive on Private sector banks, Telecom, Cement and Companies benefiting from low crude oil prices. Private sector banks having superior asset quality, CASA and adequate capital are best placed to benefit from revival in growth. Telecom sector is expected to benefit from multifold growth in data usage, industry returning to rational pricing behavior. Expect that acceleration in Infra spend will lead to cement demand growth. Capacity utilization in the sector is low currently, which will provides operating leverage resulting in better earnings growth. Falling commodity prices, especially crude oil is expected to benefit some companies in Oil and Gas sector as well as consumer of crude derivatives. We are underweight on metal/mining, FMCG sectors.
Tax planning funds have a different redemption pattern given the three year lock-in compared to the diversified equity schemes. How much does this factor play a role in fund management and investment? Does it have any bearing on cash allocation?
Since we invest in companies having strong moat for long term, the nature of investment remains similar across the funds. We do not take cash calls, if business fundamentals in a company are worsening we sell it and created cash is invested as and when we identify next best idea.
What will you attribute the relative consistent performance of your fund in recent years?
Our investment team is highly experienced with expertise in various sectors, which helps in consistently identifying best Investment Ideas across sectors. Our investment philosophy of consistently focusing on BMV (Business, Management, Valuation) framework for company selection has helped. In addition, focus on identifying growth companies, resulted in building strong growth portfolio which has outperformed in last few years. These are the key contributors to consistent performance.
Any tactical miss you regret (not having, or not having enough or holding something) in your portfolio?
We always strive to follow our investment process as highlighted earlier, in its true spirit. Hence, we do not regret not owning stocks which have gone up, which do not fit in our investment philosophy. While in case of any stock which we are holding is not performing, we continuously focus on the continuity of moat and growth of the company and would continue to own as long as it fits in our philosophy.
Please click here to read the analysis of this fund.
This article was originally published on June 03, 2016.
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