`Learning a good exit strategy is invaluable'

Rasheeda Bhagat

FOR the 25-year-old Mr Manish Bhandari, interest in the stock market began when he was 14, as he watched his father, a general surgeon, invest in equity. He recalls that about 40 per cent of the family's savings was invested in equity, about 45 per cent in real-estate, and the rest in bank deposits and government bonds.

A trained financial analyst, he started off by assisting his father in managing his portfolio and soon "investing became a passion, so I chose it as a full-time career." He now works as a senior equity analyst with Tower Capital and Securities, Mumbai, a firm that handles institutional investors. (The views expressed are the author's own, and do not reflect the company's.)

The young man recalls that over a period of time, his father has designed his own set of rules for investing. "He derives his strength from asset allocation and diversification. Belonging to the conservative set of investors, he gives great importance to these two principles. But he is a passive investor, believing in the buy-and-hold policy, and selling a stock only when money is required for some important occasion, say, the marriage of a child." But now that Mr Bhandari is a full-time equity analyst, he manages his father's portfolio and invests his own surplus income in equity. Fortunately, the son too believes in having at least a couple of years' outlook while buying a share. With rare candour, the equity analyst says at the outset, "Though financial analysis is necessary to develop investment theories, I strongly feel that hands-on experience is an unmatched tool in equity investment."

His father is invested into more than 40 companies across various sectors. But since the son took over managing the portfolio, he is trying to prune it to 30 actively traded scrips "by weeding out the rot."

But for all his acumen, Mr Manish Bhandari too has made mistakes. Like buying DSQ software three months ago at Rs 350. "Now I am stuck with it." Asked if he was devastated by the southward journey of the scrip since then, he says, "Not really; because I had invested into this stock from my profits, so I have not really lost my shirt." His favourite sector is pharma and there he is betting on a single stock — Dr Reddy's Laboratories.

His father picked up this stock in 1989, right from the IPO. "He got it at Rs 10, and we have bought more shares at various levels over the years. At present, after the split, we have over 2000 shares in our portfolio."

Since Mr Manish Bhandari took over the portfolio management three years ago, he has added new stocks, particularly from the financial services industry, buying Kotak Mahindra at Rs 40 in 1999 and selling it at Rs 75. He bought Moser Baer at Rs 78 in 2000 and sold it at Rs 315. He bought Escorts at Rs 178 and is still holding it. A media stock of his preference was Padmalaya Telefilms which he bought in 2001 at an average cost of Rs 80, and has decided to hold for the next three-four years. Reliance Industries is another long-term bet of his. But the first stock he bought after taking over the portfolio was ICICI ; he picked it up at Rs 78 and sold it at Rs 75. "In fact, I took a trading call, but lost."

On how he zeroes down on the companies to invest in, Mr Bhandari says, "I usually follow the top-down approach; I look at the sector and how it is placed, particularly in the context of globalisation, because it will be difficult to generate high returns from a stock only on domestic consumption. So, I look at the export potential of the sector and the company and how and where its Indian competitive advantage comes into play."

But he avoids theme-based stock picking and high P/E stocks. "I try to catch a story at a very young stage, so as to avoid sleepless nights later on. Also, being a trained stock picker, I am good at drawing linkages among industries, and do take very long calls in order to get targeted annualised returns", he says.

Like many equity investors, Mr Bhandari too has learnt `humility' from the stock market. For instance, he picked up IT stocks such as Silverline, Pentamedia and Global Tele through original allotment. But he failed to cash in the profits during the technology boom of 2000. "Unfortunately, the greed factor hit me at that moment and I failed to exit. I am still holding those shares. Though the loss in only notional, as I had bought these shares at Rs 10, it has taught me how important exiting from a share is. That is why I am keeping my fingers crossed on Dr Reddy's. I need to put a cap on my greed", he admits candidly.

But he does not want to exit from that counter now because he believes that in the next phase, the equity market will see some theme-based investing... "I think there will be a theme-based bull market which will be led by pharma companies. But for this to happen, the global economic outlook will have to improve first", he adds.

Coming to returns from his investments, Mr Bhandari looks for at least 25 per cent returns with a three-to-five year investment horizon in a bull market. "But in a bear market, I will be satisfied if my capital does not erode," he says sensibly.

With his company dealing only with institutional investors, both domestic and FIIs, he says there "has been a positive shift in the mood, at least on the FII front. There is a general consensus around the world that India and China are two economies that will grow at 5 per cent plus; so, India is a relatively better market."

That is why, he says, buying is happening across sectors. "Software had been battered out of shape, and now the FIIs are looking at IT shares, and the whole sector has been re-rated."

On the potential for technology shares, he says: "The long-term outlook is definitely encouraging because valuations were very much depressed. With a revival in sentiment, we will move towards more realistic valuations."

He feels the outlook for the stock market since September 11 has changed. "The mood has changed dramatically; it had become an undervalued market. There was value floating around and people realised that and you have seen the result in the last few sessions."

Mr Bhandari believes that patience is essential for a stock market investor as his personal experience has been that over a time the market gives good rewards. Of course, he would like to play a more active role in the management of the joint portfolio but "then my father has his own logic. He has not been a very active investor. He is a passive investor with a very long-term outlook. And I have found that if you do not actively churn your portfolio, you can lose out, as it happened to us in some tech shares we continue to hold. You can make mistakes in the market, but you have to learn from them, and I am trying to learn about a good exit strategy", he adds.