Kothari Prima Plus, is a diversified equity fund launched in September 94, when the IPO market was at its peak. After having weight down by the volatility of its IPO picks, the fund reinvented itself in 1997. This restructuring saw the fund focus on large and mid-cap offerings across industries. With a bottom up stock picking strategy –of buying in to strong companies in preferred industries, the fund has outperformed the markets since 1999.
With a engineering and management background, R.Sukumar, the fund manager has been managing the fund since inception. In an interview with Value Research, Sukumar spells out his strategy for Prima Plus.
Q. What is the investment strategy for Prima Plus?
RS: Prima Plus invests in wealth creating companies whose competitive advantage will translate into superior return on capital. We invest in such companies across sectors by following a bottom up approach.
Q. Prima Plus has actively pared exposures to stocks, which have breached the 10 % mark. Satyam is a case in point. Do you also have sector-specific limits?
RS: We do not have any strict limits on stocks or sectors. The fundamentals rather than any particular limits determine the exposure levels to a particular stock or sector. Given that Prima Plus is a diversified equity fund, we ensure that the fund is not over-exposed to any particular stock or sector.
Q. Prima Plus is a rather actively managed fund - a turnover of 100%. Besides the change in fundamentals, do you keep a target price to exit a counter? If yes, there was no major churning of the portfolio (barring Satyam and HCL Tech in your IT holdings) in March this year, when the IT stocks were at their peak. Did you expect prices to go up further?
RS: We do not have any pre-defined target price for exiting from a stock. For us, target price will be the intrinsic value of the stock which reflects the discounted cash flows as well as the relative valuation of the stock compared to similar stocks.
Q. You built a huge position in Satyam in the months of August and September but the stock was completely liquidated in your October holdings. Any comments.
RS: Satyam was liquidated due to change in its fundamentals and the availability of more attractive stocks.
Q. What is your outlook on economy stocks and dis-investment process?
RS: We feel that the Government will eventually have to ensure a smooth divestment process of bluechip PSUs. But considering the political situation, we feel that there will be delays in the process given the resistance from the Opposition and bureaucracy. We will feel more bullish about the divestment process once the Government actually finishes divesting atleast in a single company, like Air India. While we are confident about India's GDP being 6% over the coming years, we do not think all the economy stock will do well given the non-competitiveness and oversupply of certain commodities. Nevertheless individual companies in this sector will do well and we have bought into select economy stocks in the recent past given their attractive valuations.