Mr. RITESH JAIN

In an interview with Anjali Raulgaonkar from Capital Market Publishers, Ritesh Jain, CIO, BNP Paribas Mutual Fundsaid, We have had preference for high growth companies as we believe higher earnings growth reflects in superior price performance eventually.

Excerpts:

Where do you see the Indian stock market heading in near term?

The markets have moved up sharply as Nifty has yielded ~18% returns and midcap index ~26% in CY2017 led by strong domestic macros, improving global outlook, global equities rally, lesser impact of demonetization than expected, strong flows from both Domestic and FII investors and hopes of a second consecutive year of normal monsoons. While corporate earnings growth has been lower in last few years, the stage is set for earnings growth to pick up in the ensuing years. while valuations are higher than Long term average, we believe higher earnings growth in next 2-3 years could provide investment opportunities for long term investors. However, going forward, we believe one has to be selective in identifying the companies /sectors with high growth potential.

We believe the government's long-term vision of game changing reforms supported by a slow but steady improvement in economic growth in this calendar year may help build sustainable growth for investors in Indian equities. While the organised sector has been gaining share from unorganised sector, the pace may accelerate post GST implementation which could be positive for the listed companies which largely operate in the organized sector.

What is your investment space?

We focus on companies across the market cap spectrum. Our investment styleis to buy companies with a long-term investment horizon, which is reflected in our bias towards B2C companies and structural themes like consumption / retail financials in India. we have preference for market leaders or companies gaining market share. If Business fundamentals of any company deteriorates we sell it and invest in other ideas that fit in our philosophy.

Any stock specific traits which makes it part of your portfolio? What?

We have always focused on companies with superior businesses that have higher and sustainable earnings growth. We have had preference for high growth companies as we believe higher earnings growth reflects in superior price performance eventually.

We follow BMV framework of investing. Various investment ideas are filtered through our BMV (Business - Management - Valuations) framework of company selection before adding it to investment universe. The Business fundamentals are analyzed based on different parameters like secular trends, uniqueness of business model, moat of business etc. Management's execution capabilityis key in delivering sustained returns within the realm of industry dynamicsand corporate governance are important parameters. Growth At ReasonablePrice (GARP) is the philosophy that is followed while assessing valuations.

What kind of stocks you avoid, why?

We avoid companies which don't fit in our investment philosophy of BMV framework. We avoid companies which are cheap but don't have strong business or management. Similarly, we give high importance to management track record and corporate governance. We have preference for companies which generate good cashflows from the business on a regular basis, hence we stay away from companies with inferior/negative cashflows.

-Is there any pre-emptive miss you regret (for instance, not investing in a stock or not possessing enough of it)?

We always strive to follow our investment process as highlighted earlier, in its true spirit. Hence, we do not regret not owning stocks which have gone up, which do not fit in our investment philosophy. While in case of any stock which we are holding is not performing, we continuously focus on the continuity of moat and growth of the company and would continue to own as long as it fits in our philosophy.

What will be your advice to investors?

Investors should invest in stocks/funds after assessing their future income and liabilities/cash flow requirements. Investing in equities is akin to participating in a marathon rather than a 100 metre sprint. One has to remain invested keeping the long term in mind as equities tend to be volatile over the short term. We believe India has higher growth opportunities in many bottom up companies/sectors from a longer term perspective as per capita income improves and the favourable demographics plays out . Equities being a long-term asset class with 3-5 years horizon,investors with long term approach could invest in Indian equities.

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