Mr. Pradeep Gokhale

In an interview with Anjali Raulgaonkar from Capital Market Publishers, Pradeep Gokhale, Senior Fund Manager, Tata Asset Management said, There is a saying 'Never say never' and this is true in the investment business also where there are examples of companies staging smart turnarounds from the brink of bankruptcy.

Excerpts:

1. Market is at all-time highs and we have seen domestic liquidity driving this market. How are you approaching market right now?

 

Markets have had a good run since the beginning of this year and both domestic investors through MFs and FII have been buying equities. Valuations,for both Sensex as also the broader market are higher than long term averages but are by no means excessive.Valuations have gone up factoring in the improvement in India's macro-economic factors such as inflation, fiscal and current account deficit and declining interest rates. Now, earnings need to pick up for the markets to progress from here.

Over the last few years, earnings growth has been weak due to issues such as high NPA levels in the banking sector, weak commodity prices, sector specific issues in IT and Pharma and recently the disruptions caused by demonetisation and introduction of GST. We feel the effect on earnings from many of these factors will start receding in the next six months and with good monsoons earnings growth should start to pick up. In the interim, we may see higher volatility in the markets.

2. What is your investment space?Any stock specific traits which makes it part of your portfolio? What?

 

We have an investment universe of about 450 companies. We prefer companies that compound their earnings over a longer time frame and which maintain a decent return on capital employed in the business. Management quality is another important aspect we consider before investing in companies. We believe buying a stock at a reasonable price is critical for longer term investment returns. Hence the valuation at which a stock is trading is a very important consideration. We also look at liquidity of the stocks and portfolio. Thus earning growth potential, return on capital employed, management quality, valuation and liquidity are the key parameters on which we base our investment decisions.

3. What kind of stocks you avoid, why?

 

There is a saying 'Never say never' and this is true in the investment business also where there are examples of companies staging smart turnarounds from the brink of bankruptcy.  That apart, generally I try to avoid businesses with low entry barriers or where the level of value addition by managements is low, companies with high debt levels and history of capital misallocation.

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

 

We did not have enough weight in the metals sector during 2016. We did pick some metal stocks at low valuations during February - March 2016 but booked profits early.

5. What will be your advice to investors?

We believe that Indian equity is a very promising asset class to invest in, over the medium term, despite the recent smart run up in the market. This is because Indian economy has several structural advantages such as favourable demographics (high share of working age population), low levels of household debt, a large domestic economy with low dependence on exports or global commodities, increasing urbanisation and continued focus on economic reforms. Thus investors should systematically invest in the markets and use market volatilities to their advantage.

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