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"We are bottom-up stock pickers"

Venugopal Manghat, Fund manager, L&T India Value Fund, says, the fundamental requirement is a discount in valuation, either on absolute or relative basis

We are bottom-up stock pickers

What is your investment universe?
For L&T India Value Fund, the entire listed space is available for investment as there is no market-cap or sector restriction. However, there needs to be value in the stock for it to be included in the portfolio. In this regard we focus on unearthing valuation anomalies vis-a- vis the future potential of the stock. Hence the focus of the fund is on buying good quality companies which offer value, available at a discount, to fair valuations.

What attributes should a stock have for it to become a part of your portfolio?
For a stock to be part of the portfolio two conditions need to be satisfied. One fundamental requirement is a discount in valuation, either on absolute or relative basis. The valuation model / metric used varies across businesses. More importantly, the stock should be offering or be able to deliver much more over time than what it is priced at currently, which is our assessment of value.

Hence, while assessing the value of a stock, one has to estimate the growth potential in the business, future cash flows, dividend pay outs, subsidiary valuations, sum of the parts valuation etc. We try to get a higher margin of safety which is the difference between the assessed value of a stock and its current market valuation.

What kind of stocks never enter your portfolio?
Stocks that are already pricing future growth, dividends etc. will not be a part of our portfolio. In this fund, the focus is to look for mispriced stocks which offer value. We are also mindful of avoiding value traps or businesses where low valuations may be justified for a reason. Also, poor quality or distressed businesses are avoided.

What will you attribute the relatively superior performance of your fund to in recent years?
We are bottom-up stock pickers with a medium to long-term investment horizon and every stock in the portfolio is bought on its individual merit considering the value it offers. In this regard, being active investors, not tied down by benchmark weights etc. also has helped. I believe the consistency in performance of the fund is largely on account of our superior stock selection, which is a result of our experienced investment team and our strong focus on investment process and risk management. Also, we have a very flexible approach in terms of the fund's exposure to sectors and market-cap segments which help us explore value investment opportunities across the market spectrum.

Is there any tactical miss you regret (for instance, not owning a stock or not owning enough of it)?
In any fund and under any market conditions, there will always be some stocks that one would have missed. But given our focus on stock selection, processes and risk management efforts, all available stocks cannot be bought and hence there are no regrets.