Balasubramanian is chief investment officer, Birla Sun Life Mutual Fund.
He started in his career in Canbank Financial Services and he later moved to GIC Mutual Fund prior to joining Birla Sun Life Mutual Fund in 1995. In an interview to Value Research, he shares his views on fund management and stock selection.
Here are some excerpts:
The stock selection process
We depend largely on in-house research and have a team of six analysts. We also use external research in a limited way to look at certain stocks and sectors.
We focus largely on research-driven processes. A research report is made internally on a company before it comes in the investment universe (of around 200 to 300 stocks). The latter is the Bible as far as the fund managers go. They have to invest in the 200 to 300 stocks selected. These stocks are regularly monitored.
These companies are further divided into two groups.
The first (group) is companies that are adequately covered in the stock market. There is no point wasting time doing thorough research on them and we only look at the broad numbers and the macro outlook.
The other group consists of companies not extensively researched by leading broking houses. We maintain a detailed financial module for such companies and focus on extensive research.
Research analysts, fund managers and myself get involved at different levels when the initial report is made. After that, it's more of maintenance, which comes in the form of tracking that company on a quarterly basis.
The challenge to scout for more and more promising stocks when the market is so high
The opportunities are large. Some years ago the investment universe was limited to 30-odd stocks. All of us used to say we cannot invest in more than 30 stocks. Today, we have a vibrant market and a number of companies that used to be held privately are now realising the importance of going public.
So opportunities are coming and the space is widening.
Sectors he is bullish onTelecom, FMCG, auto, engineering and construction. We have also invested in cement and steel.
If you look at our overall investments, 50% to 60% of it remains constant. Around 20% to 30% is limited to stocks that we buy for short-term trading purposes driven purely by valuation gaps.
The idea behind a primary and a secondary fund manager
Till 1997-98, the industry as a whole did not have the concept of portfolio manager. It was the Chief Investment Officer who used to manage all the funds and all of us used to perform support functions in the form of research, trading and other activities.
In (the year) 2000, we introduced backup fund managers. It works like this: When I was managing the Birla Balanced Fund, Nishid Shah was the backup fund manager. When Paras was managing the Birla Advantage Fund, I was the backup fund manager.
I used to be the head of Fixed Income but I was the backup fund manager for some of the income schemes.
The concept got discontinued in between as the team became small, but has now been reintroduced.
The idea is that when a fund manager goes on leave, the backup fund manager knows what the portfolio comprises of. This brings in continuity. In the system of a single fund manager, if that person leaves, there is the risk of discontinuity.
As far responsibilities are concerned, the primary fund manager is the one who is completely responsible for the performance of the fund and the secondary manager brings in inputs.
Birla equity fundsWe have identified around eight schemes which are among the best performing schemes.
Birla Advantage Fund, Birla Top 100 and Birla Sun Life Equity Fund are the diversified equity funds. Among them, Birla Advantage is one of the oldest. There is the perception that the fund's performance is poor. If you go by the facts, Birla Advantage Fund's return over the past 10 years has been as good as Franklin India Bluechip. I am comparing these two because both these funds have been in existence for many years now.
Then we have the midcap fund which is more risky than diversified equity funds. The performance of Birla Midcap has been as good as Franklin India Prima, which is top of the mind recall.
The Birla Dividend Yield is one of the best performing funds in its own category and is known for consistently distributing dividends.
The direction of the stock market
Fundamentals are very strong, nominal GDP growth of over 11%. Overseas companies are looking at investing in India. Valuation wise, stock market may look stretched (more expensive) in relation to other markets. However, the space for companies to grow has increased due to visible spending in the next 10 years thus leaving untapped opportunities in today's market.
Earlier interviews of fund managers
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