Widely read:
R Srinivasan joined SBI Mutual Fund in May 2009 as a Senior Fund Manager and climbed up the ranks to become their Chief Investment Officer (CIO) - Equity. He now manages an impressive Rs 1.6 lakh crore in assets across seven funds.
A seasoned hand at managing public money, Srinivasan has been at the helm of SBI's Smallcap, Focused Equity and Equity Hybrid Fund for more than a decade now.
While the past couple of years may have seen a dip in his funds' performance, the long-term narrative is nothing short of stellar, with these funds consistently outshining both the benchmark and their peers, often by a striking margin.
Hence, it was timely that we spoke with Srinivasan recently to understand the reasons behind the funds' underperformance and his thoughts on the markets.
Small and mid caps have delivered twice as much as the broader markets in 2023. In the current light, how do you view them in terms of growth prospects and valuations?
The data on consensus earnings for companies in the mid- and small-cap index is insufficient to gauge the respective indices' growth prospects and valuation. We prefer to be stock-specific in this space. When we run a simple mean reversion index to assess sentiment in this category, the index is very close to all-time highs. So, we have a clear preference for large caps now.
There are talks of Fed rate cuts in 2024. How do you interpret its implications on the Indian economy and financial markets?
Our house view is that rather than just focus on the rate cuts, it might be more important to assess the background behind it. If rate cuts happen due to a distressed economy, then they are not good for the markets.
On the other hand, as it seems now, if they happen because inflation has eased, then they should be positive. There's also the second-level derivative of the market having factored it in. Rate-cut beneficiaries like high-growth or the technology sectors in the US have already reverted to their peaks. It's tough to imagine too much upside from here.
Indian markets should directionally benefit from rate cuts to the extent that it provides a fillip to capital flows and increase the likelihood of the RBI cutting rates. However, we don't expect any rate cuts in India, at least until mid-2024.
And financial markets, the level at which they're trading, seem to be factoring in the near-term positives. From a longer-term perspective, given all-time high debt-to-GDPs across the world and with inflation and interest rates threatening growth, we are likely entering a long era of financial repression.
Can you provide insights into the composition of the investment management team and the allocation of responsibilities within the equity division?
There is research and fund management. Effectively, everyone is an analyst first and then a fund manager. Think of the analyst function in terms of 'depth' and the fund manager function in terms of 'breadth'; we are trying to optimise both.
All sectors are led by analysts with a decade or two of long-standing experience in researching them. They also manage the respective sector funds.
We also have a fairly large lateral team that does macroeconomic research, runs a quantitative model we call the Q-Score for large caps, a market-timing allocation framework that drives decision-making across debt and equity asset classes, a forensic model that throws up red flags based on various accounting parameters, a reverse-DCF that is aggregated for the market and across sectors, a dedicated ESG team and a best-ideas market-cap-wise model portfolio, among others. All of this folds into the Head of Equity and the Head of Research.
In addition, the dealing function ensures that transactions are seamless and efficient.
Steering nearly 40 per cent of SBI's active equity AUM with a range of mainstream funds is no small feat. How do you handle the responsibilities as a CIO?
We are an analyst-centric house with a lot of focus on fundamental research, both top-down and bottom-up. Think about the fund manager as a centre forward who takes the credit for the goal.
The real work, or in other words, a lot of equally if not more important work, is done by the analyst.
As mentioned earlier, we cover nearly 400 stocks as a house. There's an investment thesis, an earnings model and a recommendation. This universe runs through a fairly rigorous and diligent investment process framework.
The fund manager adds additional value, given their breadth of knowledge across sectors and their experience around allocation and portfolio sizing.
We run more than Rs 30,000 crore on analysts' best ideas, and two of those funds have my name on them from an administrative perspective.
In short, we have a smart and capable investment team, and everyone has their job cut out. Time allocation is not as challenging as it may seem.
You mentioned earlier that the past performance of SBI Small Cap Fund is not replicable at the current size. What are your return aspirations for the fund at this point?
We started managing this as a small-cap strategy in 2013 and completed 10 years with a CAGR of 28 per cent or 12.5x since. Our target today is more like a return of ...
To read the full conversation, subscribe to Value Research Premium
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
For grievances: [email protected]
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
