Sunil Singhania, CIO of Reliance Mutual Fund
Sunil is a numbers person. He often uses numbers to get a true sense of the business.
If the company has been diluting too much equity or if there is a lack of cash flow, then it is a warning bell.
Reliance MF always focus on where they went right. They never focused on where they went wrong.
A Zebra in Lion Country:
The concept is very simple. Zebras always move in herds and most of them want to be in the centre to protect from the lion attacks. But there is a little grass at the centre for the zebras to eat.
Zebras at the side are the ones which eat the best grass. When the time comes, they are the fastest to run.
There is very little return in companies which are very obvious choices.
– Business model is established
– Opportunity size is established
– Management is very focussed, clear and stable
– It is exactly the opposite to large companies
– You need to identify the passion and the honesty of the management
– You need to identify the scale of the opportunity
– Scale of the opportunity is very important as most of these companies are sort of niche
– You need to identify that the passion is matching with the scale of opportunity to grow
– The second/third generation of the management are foreign educated or well educated. They have taken the companies to next level
– Sunil is a believer of balance sheet which can give 80-90% indication of honesty of the management
– If the company has been raising capital very frequently, then it is a warning bell
– Companies can show as much profit as they want, but if there is no cash flow there is no use of profit. Cash flow is the key indicator
There is an opportunity in smaller companies with good balance sheets and good promoters – not all of them. Smaller companies have the passion to grow.
Large caps in India have great opportunity but they are all well researched. In a larger company, there is stability, but there is a limitation of how much risk they can undertake.
Jindal Steel – Investment Thesis:
– The valuations were so low
– The second generation of the management come into business. Each were managing their own parts of the business
– The management planned massive investment and they had raw materials or backward integration
– It worked out well
Divi’s Labs – Investment Thesis:
– After the IPO, Divi’s has never raised equity at all
– They have paid almost Rs 1000 crore dividend since the IPO
– Continuously growing at 20-25%
– Very high ROE
– Very high quality management
– Very high quality company
United Spirits – Investment Thesis:
Reliance MF invested in United Spirits and it turned out very well. It was a simple analysis.
Reliance MF tracks 2600 companies across 20 countries. Globally the market cap of cigarette companies was significantly lower than the spirit companies.
In India, ITC was trading at a market cap of $40 billion whereas United Spirits was trading at $1.5 billion.
– India has 15% of the world population
– USL had 50% of market share in India
– 7.5% of world’s market share
– India is the fastest growing alcohol market
– This thought worked well
Reliance MF own MCX India which is a commodity exchange company. The market may be discounting the current opportunity. India is a huge commodity market. The opportunity can really play out.
Infosys started as a USD 20 million company, now the market cap is USD 30 billion.
The IT sector was zero. Now it is almost 10% of our market cap. Same is the case with telecom.
Sunil is very sure, same is the case with digitalisation or e-commerce.
Sunil is very bullish on Media. Most of the media companies have a market cap of USD 50 – 100 million. Some of them are going to be multi-billion dollar companies. But you have to research and invest in them now.
His Investing Strategy:
– Don’t lose money – is the biggest thing, otherwise you won’t have money to invest
– Avoid making mistakes
– Buying is one part of it, holding it and not selling early is another part it
– India is expected to reach USD 4 trillion in the next eight years from USD 2 trillion economy
– Follow buy and hold strategy for midcaps
– Do not restrict your upside – This is one of the biggest mistakes
– Make use of market inefficiencies
– Low risk high return is the better strategy for midcaps – it is not always possible
Rapid Fire Round:
Most admired investor in India – Madhu Kela
Most admired investor globally – Jeremy Granthum
Best MD or CEO – Jai Shroff, CEO, UPL
Favourite financial ratio – Cash flow
Best stock pick – Bajaj Finance
Worst stock pick – Sugar companies