[04:32:06 PM] => Welcome to the LIVE chat with Mr Chandresh Nigam, Fund Manager, Zurich India AMC Pvt Ltd. Mr Nigam will be joining us shortly.
[04:41:58 PM] => Disclaimer:
[04:42:08 PM] => Mr. Chandresh Nigam is the Fund Manager of Zurich India AMC Pvt. Ltd. These are his personal views and not necessarily those of Zurich India AMC Pvt. Ltd. At the time of this conversation/chat, the Fund House may or may not have positions in the stocks mentioned below , although holdings may change at any time.
[04:42:29 PM] => The views expressed by Mr. Chandresh Nigam is based upon information that he considers reliable, but does not represent that it is accurate or complete, and it should not be relied upon as such. Zurich India AMC Pvt. Ltd. from time to time, may buy or sell in the securities, or derivatives thereof, of companies mentioned herein and may take positions inconsistent with the views expressed. None of the information contained herein constitutes, or is intended to constitute a recommendation of any particular security or trading strategy or a determination that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. You should consult with and rely upon your own advisors whether and how to use such information in making any investment decision.
[04:42:43 PM] => Lastly the views expressed by Mr. Nigam have no bearing whatsoever with that of IRIS Ltd. IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website www.myiris.com.
[04:45:12 PM] => Ritesh: Why is that fund houses do not give importance to investor education? What kind of a role does AMFI play?
[04:46:01 PM] => Mr Chandresh Nigam:This is not true. In fact most of the serious fund houses are laying a lot of importance to investor education. Ultimately in this business of providing asset management/wealth building services, the quality of the service depends not only on the discipline/research expertise of AMC’s but also discipline on part of the investor. For long term success of the AMC business, investor satisfaction is paramount which can come only from proper understanding
[04:46:26 PM] => apathak: Your funds have consistently outperformed the index. What do you believe are the reasons for the same?
[04:46:53 PM] => CN: Disciplined approach, focus on fundamentals, investment restricted to companies which we understand well, superior stock-picking.
[04:47:16 PM] => Gpatel: You manage two schemes at Zurich. Is your investment philosophy different for each scheme? Don't you think that Fund Managers who manage more than one scheme typically tend to invest in the same basket of stocks?
[04:47:56 PM] => CN: There are 2 kinds of sustainable investment strategies available: One – is to get into excellent companies i.e companies which are compounding business value (read top-line and bottom line growth) on a sustainable basis and as it is corporate profits which drive stock prices, one should have reasonable appreciation.
[04:48:12 PM] => CN: Two – to invest in excellent stocks – stocks of sustainable and strong companies which for some reason are available very cheaply in the market as compared to their intrinsic worth.
[04:48:51 PM] => CN: For the growth fund, the strategy is to invest in growth companies as characterized by strategy one.
[04:49:11 PM] => CN: The taxsaver fund uses a mix of both the strategies.
[04:49:30 PM] => Vicks: Does it make sense for an investor to invest in ELSS schemes? What are the benefits vs other tax saving instruments?
[04:50:09 PM] => CN: As compared to other available tax saving instruments, ELSS provides higher return though with increased risk. However, past data show that if an investor invests regularly each year for a 3 yr term, he would have made an annual return of over 21 percent cpd. For small investor’s ELSS provides an incentive to participate in a disciplined manner in the equity markets which do provide superior returns over the long term.
[04:50:26 PM] => Ramesh: I was going through your scheme`s portfolio. You are holding a lot of cash. What is the reason?
[04:50:56 PM] => CN: The fund basically tries to keep equity exposures between 5-15%. The average over the last 2 years would be about 10%. Cash positions are currently at around 17% because of sales. The fund at most times, targets new investments at a particular price and would wait till that price level is attained. The fund is not investing just for the sake of keeping cash exposures low.
[04:51:17 PM] => Samsan: Do you think that pension and real estate funds will happen in India? By when?
[04:51:41 PM] => CN: Pension funds will certainly happen soon in India. I cannot comment much on real estate funds except that there are some legal hurdles to be cleared before the same can happen.
[04:52:37 PM] => Viveks: Isn't it true that MFs are as safe as the companies they hold? Seeing the dismal performance of fund managers, is it safe to invest in MFs at all?
[04:53:05 PM] => CN: You are absolutely right. That is why we have a disciplined process, which allows investment only in quality companies. If one looks at the longer-term track record of funds, which have stuck to this philosophy, they have provided above market returns. In short stay away from funds which focus only on stock performance/ momentum rather than stock fundamentals
[04:53:31 PM] => Shailesh: Do you think that brokers should be made to state their position in particular scrip before giving their recommendation on the internet.
[04:54:00 PM] => CN: Certainly, transparency is desirable. However, for lay investors, who are listening to this advice should do some homework before jumping on to these trades
[04:54:14 PM] => sdwevedi: Should one invest in sector specific mutual fund schemes?
[04:54:55 PM] => CN: I am not a fan of sector funds. I believe that an investor’s interest are best served by having a diversified portfolio of great companies. It is easy to pick out 15-20 great companies from the broad market and very difficult to do so from a single sector. In my view, sector funds have some investments, which do not make the grade of good companies. Lack of such names leads to managers investing in companies which have at best a tenuous relationship with the sector.
[04:55:31 PM] => Anant: What are the prospects of animation and multimedia industry in India and abroad? Which among the Indian firms do you see which is capable in this front?
[04:55:53 PM] => CN: Great prospects, however, not well-known players yet who have been able to build up a track record. I would rather wait and see commercial results before commenting on the capabilities and long term sustainability of the players
[04:56:11 PM] => Sharoon: When will the new economy recover from last year's shock?
[04:57:00 PM] => CN: The new economy is here to stay. The companies which, do not have sustainable business models (read - not enough customer motivation to buy their products/ services), would fade away (if they have not already). I see big growth in many new economy companies after the current slowdown gets over. When exactly would this happen is the question. Maybe within 6-12 months.
[04:57:18 PM] => Rishi: You hold almost 15% in cement? What is the reason?
[04:57:49 PM] => CN: Cement unlike any other commodity is a local business. What this means is that there is little chance for imports into the country. The sector has not seen good profits due to subdued prices which, are a result of large additions to supply. All this should get corrected over the next 2 -3 years. The prices are already higher than before. Valuations are reasonable even for the frontline stocks.
[04:58:04 PM] => Anusha: Do you believe that the new economy stocks will rebound? Where do you think the Sensex will go?
[04:59:00 PM] => CN: As I mentioned earlier, sustainable companies which perform well will certainly see prices going up. However, many companies will not make the grade. Stick to a portfolio of frontline stocks which are now available at reasonable valuations.I have target of 5000 on the index in 12 months time. My logic is as follows:
[04:59:34 PM] => CN: Market is currently trading at approx. 11 times FY 2002 earnings which is very low in light of the fall in interest rates. Even with a 15 percent growth in corporate profits for FY 2003 and a composite p/e of 14 we should be much above 5000.
[04:59:52 PM] => Chinni: What do you think are the strengths of Zurich MF?
[05:00:24 PM] => CN: Disciplined approach to investment with a strong risk control methodology. Our aim is to provide superior risk adjusted long term returns. As we do not focus on maximizing short term returns we do not take undue risks in the portfolio. We also have a strong and experienced in-house portfolio management team which tracks all investments continuously.
[05:00:42 PM] => Pranav: HOW TO ESTIMATE THE INTRINSIC VALUE OF NEW ECONOMY SHARES? WHICH MODEL IS MORE APPROPRIATE FOR SUCH CALCULATION? LIKE DCF, DAMODARAN`s MODEL, OR MACKINSEY 'S MODEL. ACCORDING TO U WHICH IS MORE APPROPRIATE?
[05:01:10 PM] => CN: Basically, all investments have ultimately to be valued at discounted free cash flow basis. However as such cash flows are difficult to predict accurately, we rely more on long term sustainable growth rate in profits and the PE ratio.
[05:01:50 PM] => CN: My thinking is that a stock should make sense as an investment (valuation w.r.t to cash generated) without having to go through a rigorous DCF calc. Most of the time good ideas don’t need more than a back of the envelope calculation for decision making.
[05:02:03 PM] => Dharmesh: what are the chances of investing in software stocks now?
[05:02:20 PM] => CN: Good. Stick to front-line companies. These are available at reasonable valuations now. Control overall exposure.
[05:03:11 PM] => Umesh : Can Indian markets become as `deep` as the markets in developed countries?
[05:03:35 PM] => CN: Will depend on the kind of companies we throw up. Obviously, if we have 30-40 great, globally competitive companies of large size, the market will develop fast, though it is unlikely in the next 3-5 years. Over a longer time frame, who knows maybe yes.
[05:04:21 PM] => Haresh: Is the repurchase price of UTI US 64 its true value. If Yes would you recommend it as the best investment in this falling market.
[05:04:37 PM] => CN: I would not like to comment on other MF schemes
[05:05:10 PM] => Umesh: What kind of returns do mutual funds look at from stock market - primary and secondary
[05:05:37 PM] => CN: I think if I can generate a return of over 20 percent whether from IPO or secondary markets.
[05:06:56 PM] => Jayesh: Is a Trader at the end of the day a loser?
[05:07:35 PM] => CN: CN: Our philosophy is to invest only in fundamentally strong scrips from a long term perspective. At best one can try to time investments in strong companies. However, if one trades in companies with scant attention to underlying fundamentals, there is huge downside risk as has been seen in the past year where the stocks of dubious quality attracted the maximum trading/speculative interest and lead to large losses with not much recovery in sight.
[05:07:48 PM] => Ajith: Why do fund managers believe it is wrong to be a trader? I think it is good to be a trader because you then capitalize on the price movements rather than holding onto a stock and watch it crash.
[05:08:29 PM] => CN: There is nothing wrong in trading provided one can do it sustainable. What typically happens is that there is no sure technical parameter which allows one to consistently make the right decisions. And if you make a wrong decision after making a couple of good ones it negates all the returns you would have made earlier.
[05:08:46 PM] => CN: Basically the trader is interested in short-term performance where as wealth building requires a long-term disciplined approach which is sustainable.
[05:09:15 PM] => The approach I use is to restrict investments to strong sustainable companies. Only exploit in your favour, the inevitable pricing extremes in the market to improve the economic performance of the portfolio over the performance of the constituents of the portfolio.
[05:09:51 PM] => Bobby: I was reading an earlier chat with Mr Nilesh Shah of Templeton here. When asked about FM protecting investors money, he says quote `asset allocation will be done by the distributor and our job is to outperform benchmark indices which effectively forces us to go for relative performance`. What are your views?
[05:10:54 PM] => CN: In all developed markets, what Mr. Shah says is valid. In these markets the customer is aware of the product and understands the risk – return relationship. However, in India this does not hold true. Most investors do not understand this relationship and need to be educated about this. In most cases investors still expect a minimum return which is in line with the risk free rate of return.
[05:11:21 PM] => Harish: Should fund manager/fund houses charge management fees only if they perform relative to benchmark indices. Only if you beat or are equal to the Sensex on a bull market or have fallen less than any indice in a bear market should a fund house be paid its fees - your comments
[05:12:47 PM] => CN: Fund managers would be able to charge fees only if moneys stay with the fund. Should the FM not perform, funds will flow out as all are open-ended funds. This concept of performance based fee is more used by hedge funds. There is a logic to following these, but then in case of outperformance. FMs should be allowed to charge higher fees as well.
[05:13:12 PM] => Umesh: what time frame does a mutual fund usually have when investing in a stock in secondary market? What time frame do u think a retail investor should have when investing in the stock market.
[05:13:36 PM] => CN: I have a 18-24 month time frame while making equity investment decisions.
[05:14:16 PM] => A retail investor should be clear what he is coming into the market for. I believe that equities are great financial avenues for building long term wealth. Most investors do not require funds immediately and need for funds can take as long as 10-15 years. For such investors, a time frame should match this period. The investor can then not worry about individual stock purchases and invest in a quality mutual fund and invest on a regular basis.
[05:14:38 PM] => Ramki: Why is that no fund manager was able to foresee a crash coming? Everybody including the fund managers were taken for a ride.
[05:15:50 PM] => CN: I think we were able to call it better than most others. We had always thought that the runaway boom in tech stocks was unsustainable and we started reducing tech exposures from Jan 2000 itself, which lead to under-performance of the fund in the Feb march of 2000.
[05:17:03 PM] => Ganesh: Do you think the Sensex has reached the bottom? Where do you think the markets are headed now? Is it a good time to enter the markets? Are you planning to launch any new schemes now?
[05:17:50 PM] => CN: I have already answered this. Markets offer significant opportunities to long term investors mainly due to attractive valuations in all sectors. With the negative sentiment in the markets due to exchange problems, uncertainty on trading restrictions etc, activity is limited and valuations attractive. With improvements in the global economy, the valuations will definitely improve. Local investors will also come back into the markets. As to when exactly it will happen is difficult to say, but I would expect it to happen within a 6-9 months max a year.
[05:18:11 PM] => Karthik: What do you believe are the sectors to invest in at the moment.
[05:19:16 PM] => CN: All sustainable growth sectors like technology, pharma consumers are great long term plays with a potential of over 18-20 percent compounded returns over the next 3-5 years. Other special stocks which are available at prices much lower than their inherent values are BPCL, BHEL, Grasim, TISCO, Ashok Leyland etc. PSU story can become big over the next 2 quarters.
[05:19:35 PM] => Jaikishan: Your views on Fund Houses investing in unlisted stock - how do you value such stocks for NAV purposes?
[05:20:24 PM] => CN: Today there is no rationale to invest in unlisted companies as listed ones are available at attractive valuations. These are valued as per SEBI formula which takes into account book value, valuation of similar stocks in the market and adjusted for illiquidity.
[05:20:45 PM] => Kanchan: Is it worth investing in an ELSS scheme just to save tax and loose capital!!!
[05:21:58 PM] => CN: On an average if an investor invests each year for a three year term (lock-in period for such schemes) he would make over 21 % cpd on average. Yes there are down periods but on the whole an ELSS investor is better of. In fact if you look at just the Sensex 3 year returns, there are only 3 periods out of 18 in the 21 year history where there are negative returns. And as I said on average the returns are > 21 %. Also many ELSS funds especially Zurich Taxsaver have outperformed the Sensex in recent times.
[05:23:02 PM] => Key to investing is not to get bogged down by poor short-term performance but build a disciplined long-term investment plan which helps to capitalise on weak market conditions.
[05:23:28 PM] => Rajkishore: Smaller the fund corpus higher the volatility -your comments. Secondly this has not really affected you - how have you managed to perform - (Parde Ke Peeche kya hai)
[05:24:23 PM] => CN: Parde ke peeche kuch bhi nahin hai! As I said earlier stick to first principles. Invest in companies (and not just stocks) which make money for the shareholders, understand the drivers of businesses you invest in, diversify and control downside and stick to leaders who have long term competitive advantages vis-a-vis competition.
[05:27:28 PM] => Piramal: Are Indian Markets linked to Nasdaq? What is the reason?
[05:28:05 PM] => CN: As our economy opens up, our markets will get linked to world markets. In fact already some of the large stocks esp. in tech and commodities are compared with peers the world over. So if globally a sector like petro does well, investors would look to also buy into reliance as well.
[05:28:59 PM] => Amol: Who do you believe is the best fund manager in the world today and why?
[05:29:24 PM] => CN: Buffet undoubtedly - because he is disciplined and looks at business first and last. Valuations are easy to arrive if you have a grasp of the business.
[05:29:44 PM] => Arshad : What about JP industries?
[05:30:20 PM] => CN: I do not have much idea of the company. I am sure their cement business has value. But that has to be seen along with their balance sheet. I am also not too hot on the management. If you want to play the cement restructuring story I would be more comfortable with a century or Kesoram where there is value and one is more comfortable with the management. Kesoram has incidentally announced a buy-back.
[05:31:14 PM] => Anonymous: I have invested a lot of money in A scheme & that fund`s NAV is now at one-third the value. When I want to talk to someone in that fund nobody is willing. What kind of accountability do funds have to investors? Dont I as an investor have a right to ask questions? Why isnt fund managers salary linked to funds performance?
[05:31:30 PM] => CN: I am surprised that the fund manager does not entertain its own customers. Without doubt that would never happen at Zurich.
[05:32:01 PM] => HardeepS: Would you put in money into scrips which are at discounts to book value ? If Yes why ?? Could you also name a few good scrips which are at discount to book value.
[05:32:26 PM] => CN: Yes I would if it meets my criteria-
[05:32:36 PM] => Good management
[05:32:42 PM] => Sustainable and growing business
[05:32:50 PM] => Competitive advantage
[05:32:58 PM] => Strong player in its segment
[05:33:15 PM] => Good cash flows which justify a much higher valuation than current price
[05:33:26 PM] => Decent liquidity
[05:33:59 PM] => Some of the stocks like a Grasim, TISCO Leyland have BV higher than price.
[05:35:04 PM] => Raj Rana: Can you tell us what is the terminal PE multiple for tech companies regards ?
[05:35:17 PM] => CN: Terminal PE concept assumes you are doing dividend or a cash flow discount model. I do not think it needs to be different from what we use for other businesses. I would look at a 10-12 multiple after a period of 8-10 years
[05:35:30 PM] => Gagan Mehrotra : What do you read of the strong FII flows and what do you feel would be impact on the markets over the longer term on the markets. Also what is your view on the group A securities being put under rolling?
[05:36:08 PM] => CN: The only people showing confidence in the Indian markets are the FIIs. As I mentioned earlier, I find a lot of value in the markets today. In my view, India provides a great investment opportunity from a diversification perspective for global investors. We are unlikely to be much affected by the slowdown in the global economy. At the same time we have a number of large companies available at significant discount to their intrinsic worth. As such I expect these FII flows to continue. The markets would improve once the local investors also come back to the market.
[05:36:19 PM] => On the rolling issue.- I expect a 2-3 month adjustment period during which, liquidity may be hit. But after that we would back in business as people become accustomed to the new trading paradigm.
[05:37:07 PM] => Kaushal Patani: I want to clear my doubt about PE multiple. If a company has EPS of 10 and currently quoting at 50 it is said that it has PE of 5. Assuming growth rate of 0 % company would continue EPS of 10. In that case, PE of 5 indicates that payback period of your purchase price of Rs 50 is 5 years. I want to know is my above understanding of PE Correct.
[05:37:27 PM] => CN: From an investor's perspective the payback would indeed be 5 years if the entire Rs 10 in earnings is paid out as dividend.(Assuming zero dividend tax) in most cases the cash payback would be much lower.
[05:44:10 PM] => CN: Kindly hold on i'm taking a small breather
[05:47:45 PM] => Atul: Is SEBI's thinking to ban carry forward system justifiable in the light of the fact that future markets are not at all developed in our country nor do we have proper banking system which facilitates margin trading?
[05:48:14 PM] => CN: I think the markets need some kind of deferral products on the line of badla/ albm /bless to ensure sufficient participation and liquidity in the markets. A true futures market infact relies heavily on a liquid cash market. At the current juncture futures would not be possible in more than 15 or 20 stocks. Hence a deferral product is essential.
[05:50:33 PM] => Due to time constrains Mr. Nigam shall be answering only the last five questions
[05:53:36 PM] => Ravi: It seems that Bio-informatics sector is shortly booming. your recommendations
[05:53:59 PM] => CN: I do not know much about the sector. The little that I know off is that we do indeed have a significant competitive advantage in terms of manpower skills. We have a number of pharmacy graduates coming out of universities who can do justice to this business. So as such the story is similar to software. Will need to wait and see what companies do come up. Not many of the listed ones for sure
[05:59:39 PM] => Rajiv: Will the banning of the carry forward system (badla) adversely affect liquidity and hence the short term outlook of markets?
[05:59:56 PM] => CN:If there is complete ban on deferral products liquidity will certainly be affected. In such a situation there may be some investors who would think of withdrawing from the markets. However, looking the current valuations I do not see significant downside from current levels.
[06:02:26 PM] => Annu: how is Zurich Tax Saver scheme's investment philosophy different from other fund houses
[06:03:18 PM] => CN : We are looking at a mix of companies which:
[06:03:47 PM] => compound business value at steady rate on a long term basis,
[06:04:08 PM] => I) provide excellent value due to current low prices as compared to intrinsic worth,
[06:04:33 PM] => there is no attempt to time the market or be a momentum player
[06:05:35 PM] => Sangya: Should one trade on infotech stocks? If Yes, on which stocks? How about Infotech
[06:06:00 PM] => CN:Invest only in strong companies. Trade only if you must ( for excitement ) however do use mis-pricing to your advantage in long term investment
[06:06:42 PM] => RKGupta: I AM HOLDING 1000 SHARES OF RELIANCE PETROLEUM , CAN YOU ADVISE ME WHAT SHOLUDI DO AND WHAT IS THE FUTURE .
[06:07:21 PM] => CN:I think there are better stocks in the petroleum sector like BPCL and HPCL. Switch to those
[06:10:08 PM] => Ayush: I have 100 DSQ Software at 2300levels. Should I buy at these levels to equalize costs
[06:10:29 PM] => CN: Old cost is history. Do not put good money after bad
[06:10:55 PM] => Ashish: which side the market is going to move
[06:11:14 PM] => CN:Positive over next 12-18 months and in a big way
[06:11:47 PM] => Arshad: Will retail public always lose in the stock market?
[06:12:14 PM] => CN:Yes if they enter only at the peak. A disciplined investor who invests regularly in strong companies will make money.
[06:13:29 PM] => Balla: is Dr. Reddy good to buy at these levels
[06:15:34 PM] => CN: Looks to be decent bet after the fall from 1400 levels. Could also look at Cipla
[06:16:00 PM] => Mjag: Is it true that Indian Fund Managers do not have sufficient expertise?
[06:16:43 PM] => CN: Fund Managers add value if the fund out-performs the benchmark indices over the long run. Make your decision if they have been able to that over the long term
[06:17:05 PM] => Kishore: is Himachal good to buy at these levels ?
[06:17:27 PM] => CN:I do not understand this company. Cannot advise you. For myself I do not touch companies which I don o not understand. There are enough opportunities in this market which do not move only on circuits - up or down - everyday and have long term value
[06:18:38 PM] => Terai: why introduction of rolling settlement will create bad sentiment in the market which already so low?
[06:18:53 PM] => CN: Very true - I am not one who forecast doom if there is rolling. Probably you would have long term investors coming to invest at these attractive levels
[06:19:38 PM] => Bdhokalia: Should I purchase DSQ software right now?
[06:20:00 PM] => CN : No way
[06:22:52 PM] => Chandresh Nigam: I thank all the participants for their participation in the chat. I am sorry that I was unable to answer all the questions.
[06:23:43 PM] => myiris.com : Thank you for your participation.
[06:25:34 PM] => myiris.com: Dont forget to send in your questions to Mr Vignesh Eashwar of ShareKhan who will join us LIVE on 11th May at 4:30 pm.