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Fund Manager, Bharat Shah, on his Strategy for Birla Balanced Fund.

"Our Investment Philosophy emphasis on capital appreciation in a risk adjusted manner"

Backed up by an impressive performance by the flagship Birla Advantage, Birla Balanced Fund mobilised Rs 335 crore during its initial offer in September 99. The fund took off at the peak of the rally with a 70 allocation to equities.

Bharat Shah speaks about his strategy for Birla Balanced Fund.

Q. For a balanced fund Birla Balanced has been rather aggressive. Your comments.
BS: Our investment philosophy emphasis on capital appreciation in a risk adjusted manner. Investments in Birla Balance Fund have been made keeping in mind long-term appreciation prospects. In the recent past, so-called 'old technology' stocks have risen in price. We like to follow changes in intrinsic economics of the business, rather than focusing on short-term share price movement. We believe that our holdings would perform over the medium term, once the concern over prospects of high-growth stocks gets moderated. We would not like to let volatility in share prices affect our judgement about fundamental business strengths of our portfolio holdings. In our opinion this approach is prudent.

Q. What has been the average maturity of the debt portfolio since inception.
BS: Our portfolio turnover has been moderate. It has been below 40%

Q. In recent times with the fall in the equity markets the equity exposure has been in the 50-60% range. However, at the peak of the exposure was as high as 80% in March, which has been pruned with the market correction. What is the ideal debt-equity exposure BB seeks going forward?
BS: Due to sharp appreciation in share prices of some of our holdings, the equity exposure had risen, for a brief period of time, to close to 80% of total assets. We had taken quick corrective action at that stage, and the equity exposure of 50-60% has been in place for a long time. We believe that this equity-fixed income ration will hold for the future as well.

Q. The equity component of Birla is similar to that of the flagship fund Birla Advantage, which works out to be an aggressive strategy for a balanced fund? Your comments.
BS: Our exposure to the so-called 'ICE' stocks reflects our faith in the ability of some companies of that sector to deliver superior free cash flows in the future. Our investments style is bottom-up, and categories like 'ICE', or otherwise, are incidental. We will invest, at a reasonable price, in any company that shows promise of sustained performance, without worrying about which sector it falls under. We hope to show attractive portfolio returns as the relative superiority of their cash flows gets reflected in share prices.

It is our belief, that India's competitive advantage lies in services. This can be readily observed in the rising share of services in exports, and the worsening terms of trade in product exports. In fact, Indian industry has already started feeling the effect of falling import tariffs in the form of imports from China. Commodities stocks have done well of recent, but we remain concerned about the steady fall in international prices of most commodities. Going onward, a lot of sectors in India are going to face the onslaught of cheap and higher quality imports.

Services, on the other hand, play to India's strength in human capital. We wish to capitalise on this trend, and to avoid the deterioration in earning prospects in some of the other companies