"When I buy a stock, I mentally write off the first year"

There are hundreds of mutual funds, but only a select few embrace the bold and contrarian path. And SBI Contra Fund stands out as a shining example of contrarian investing done right. The fund recently made to our 'Buy' list and has posted stunning performance numbers under the reign of Dinesh Balachandran, Fund Manager - Equity at SBI Mutual Fund. Here is an excerpt from our conversation where we delve into the intricacies of the investment philosophy that fuels the SBI Contra Fund, his stock selection framework and key insights into when and why he decides to exit a stock. You took over the SBI Contra Fund in mid-2018, bringing a remarkable turnaround in its performance. How did you achieve this? Frankly speaking, some of this goes back to the kind of opportunities that were available three years ago. The only thing you had to do back then was bet that the world was not going to end. It was a scary time, but you had to bet that one way or the other, we were going to figure it out. History has been replete with such cases, and these things have not lasted for more than a year or two at most. So, some of the excess alpha we see in the contra fund can be attributed to me hunting for ideas rather than staying in a shell. Another aspect that really helped the fund was that even before COVID, in many of the cyclical sectors, we were already, sort of, beginning to see a reversal in trend in 2019. Capacity utilisation in many cyclical sectors was reaching a level where it felt like you have to wait, at max, for two years and then you are going to see a very nice resurgence from a capex cycle or from a revival in economic activity perspective. It was also the time when people were throwing in the towel after a decade-long underperformance in a lot of the cyclical stocks. So, it was the perfect combination, with attractive valuations and improving outlook. These kinds of inflection points don't happen that frequently, but when they happen and if you're able to take advantage of that, you're all set for the next several ye

This article was originally published on October 18, 2023.