DBS Chola Mutual Fund chief investment officer Tridib Pathak decided the direction of his career after reading a book titled 'One up on Wall Street' by Peter Lynch. "After reading this book I decided to get into the equity markets. It gave me a good exposure to the industry," he says.
Pathak focuses on delivering risk-adjusted returns as he respects and understands the relation between risk and return. He says, "We believe that we are in the business of wealth management and not in return generation."
Providing excellent returns for a few months and then underperforming for the next few months is not acceptable to Pathak. "I focus on consistency and believe that wealth is generated gradually," he says.
The strategy
Pathak has a disciplined way of investing. "We don't believe in momentum investing. We just focus on our stock selection and valuations," he says.
So, how does Pathak select stocks? His way is quite different from others. Most of the fund managers follow the same stock-picking strategy, whether it is a mid-cap stock or a large-cap stock.
But Pathak says, "We have a designated process for large caps and mid caps." While selecting large-cap stocks, he follows a combination of top-down and bottom-up strategy. Pathak says, "We first identify sectors and give weightage to each sector, then within a sector, we identify stocks and rank them."
"In case of mid caps," says Pathak, "we invest only in those companies which have the potential to become large cap."
To be a part of Pathak's portfolio a mid-cap company has to pass through five filters. It should be a leader in its business, should be globally competitive, should have a niche positioning, should be proxy to large cap (it should have equal or better growth opportunities but should be available at high discount to large caps) and it should belong to the sunrise sectors.
After filtering stocks Pathak makes the final selection based on management quality, business franchise, stock valuations and the company's position vis-a-vis its peers. 'Change' is a key parameter to look for while investing, as he says, "Identifying change is extremely important. You should closely monitor every change that is to affect a company."
In case of mid caps, Pathak does not have any sectoral bifurcation. But in terms of large caps, he says, "We are overweight on banks, IT services and cement at present." Pathak adds, "Banking as a sector is undervalued. Also, strong economic growth will ensure strong credit growth. IT services is a stable growth sector, and it is not unreasonable to expect it to grow at 20-35 per cent. For cement, we continue to foresee strength in the pricing as the demand-supply situation (for cement prices) will continue to be favourable."
Pathak is underweight on the pharma, construction and auto sectors. He says, "For these sectors, we feel whatever is there on the table is already discounted and the future growth is also discounted." Pathak further says, "We are also underweight on all the international cyclical stocks such as metals and commodities."
Some of his best picks include Pantaloons, ACC and Voltas. Pathak says, "In early 2004, we bought Pantaloons (at Rs 250), as it was fitting in our overall filter of sunrise industry. We made good money from this stock."
He adds, "In September 2004, we bought Voltas at about Rs 110 and now it is trading at about Rs 1,000. A year back we bought ACC (at Rs 200) when the market was not buying. We held it as we were always bullish on cement." Pathak also had his share of misses.
He says, "Stocks in the textile and auto ancillary sectors did not perform up to our expectations. Textile stocks were into capacity expansion mode, so they were not able to deliver. Profit growth was taking place, but not EPS growth."
Being a CIO, Pathak has to, along with equities, focus on the aggregate investment function that includes the fixed income part. Speaking about DBS Chola's fixed income policy, he says, "We focus more on credit quality. 'Safety, liquidity and returns' is the order in which we want to serve our customers."
Career graph & hobby
Pathak, who is a rank-holder chartered accountant, always wanted exposure to business and industry. In 1989, when he completed his CA, only ICICI and IDBI were into project financing. So, he joined IDBI as a project financing officer.
"It was a great foundation in terms of knowing and understanding business," he says. After working at IDBI for about three and a half years, Pathak stepped into CARE and worked as a senior credit rating analyst for about a year. Then he joined UBS Securities as an equity research analyst and worked there for about four years. His job was to sell his ideas to FIIs to invest in India.
"This gave me an idea as to how fund managers think," Pathak says. In 1995, he joined IDBI Principal Mutual Fund as an equity fund manager. There he was managing Principal Growth Fund and Principal Tax Savings Fund for about five years.
In June 2004, he joined DBS Chola Mutual Fund as the CIO. Pathak says, "Even today I feel I am an analyst because you can't do well unless you are a good analyst."
At DBS Chola, he individually manages Chola Growth Fund, Chola Midcap Fund, Chola Multicap Fund, Chola Global Advantage Fund, Chola Tax Saver Fund and Chola Contra Fund.
In his spare time, Pathak likes to read non-fiction books. One book that he enjoyed very much reading is 'Against the God' by Peter Bernsteine. Pathak says, "This book talks about the evolution of the concept of risk and how human beings used finance to understand risk."
Advice to investors
Pathak advises investors to have a long-term time horizon for investing in the equity markets.
He says, "Investors should not change their strategy depending on the movements in the market. Equity markets are by nature and definition volatile. So, investors should not panic over short-term corrections and should focus on the long term because the attractiveness of India as a growth story continues unabated."