Identifying themes

What is your investment universe?
BSL Equity fund is a diversified equity fund that typically invests in stocks across market capitalizations, sectors and styles of investment. As per the mandate of the fund, the fund invests in the large, mid and small-cap companies. In fact, this freedom to invest across market segment is one of the advantages of these funds.

What attributes should a stock have for it to become a part of your portfolio?
Fund uses 3 hypothesis while deploying bottoms-up stock picking approach: First hypothesis being to consistently focus on looking for companies that are at an inflection point (investment/capex is made), second hypothesis is to look for companies whose managements are committed to pare debt with better free cash flows from core operations and willingness to sell noncore assets that would release a lot of capital and improve return ratios for shareholders and the third hypothesis is always look out for mispricing i.e. when the market believes that current prevailing scenario will last forever.

What kind of stocks never enter your portfolio?
While selecting stocks, various variables such as operating margins, sales growth and debt levels are analyzed and evaluated on a continuous basis. While investing we try to avoid sectors which have uncertain regulatory concerns.

What will you attribute the relatively superior performance of your fund to in recent years?
A combination of top-down and bottom-up approach is used in selecting stocks depending upon the macro view of the sector. Some of the structural secular calls taken in the recent past have been: consistently overweight private retail banks, early entry with decent positions built in high growth NBFC's and MFI's such as Bajaj Finance, Cholamandalam Investments, Equitas Holdings, etc. Pharma too as as a sector, we have consistently remained overweight, though selective on stocks. Early identification of these themes has helped in generating higher risk-adjusted returns for the investors.

Is there any tactical miss you regret (for instance, not owning a stock or not owning enough of it)?
We are reasonably satisfied with the investments done and the same is reflected in the performance of the fund. Though few sectors have lagged due to a slowdown in the economy, however with gradual recovery in the domestic economy our portfolio is well positioned to benefit from the same.

This article was originally published on October 30, 2017.