The CA whose focus is on mastering the art of generating alpha on Dalal Street
The market veteran asks investors not to sell as long as a company continues to grow and add value.
Singhania floated his portfolio management service firm, Abakkus Asset Management, in August 2018. And the first midcap-focused fund he launched delivered around 7-8 per cent return to investors till October 2019. That stood out because midcaps were down in the dumps through this period, with the BSE Midcap Index declining 7 per cent.
Singhania’s firm manages close to Rs 2,000 crore now.
Before floating Abakkus, Singhania also proved his mettle earlier as CIO of Reliance Mutual Fund. Under Singhania, Reliance Growth Fund delivered a 21 per cent return CAGR from 2004 through 2017, outperforming the S&P BSE100’s 14 per cent CAGR returns. Ambit Capital named him in its report on ‘Mastery in Indian Equities’.
A humble Singhania says he has no fixed formula to discover a stock. “It is not mathematics. It is the combination of a lot of things,” says he.
But Singhania does follow a framework, he calls MEETS, an acronym for management, earnings, events, timing and structure. “That’s our core philosophy in stock selection,” he said.
The Mumbai-based investor said his team does also go through past history of a company and runs various models for stock selection. “We continuously meet companies. And then also, we do secondary research. So it is a combination of a lot of these things put together,” he said.
That approach helped Singhania spot big opportunities Bajaj Finance and Eicher Motors early.
When to sell a stock?
The market veteran asks investors not to sell a stock as long as the company continues to grow and add value. “You should not sell a stock just because the stock price has moved up. I do not think that is the right way of managing a portfolio,” he said.
At the same time, he says when one goes wrong with an investment decision, one should not make any delay in selling a stock. “Investors should also offload a stock if it have moved up too much beyond fair value. Lastly, one can also exit a stock if there is better opportunity elsewhere,” he said.
The right stock price, Singhania says, is a reflection of a lot of different things. “Remember, buying a stock is like becoming a partner in a company,” he insists.
“One should buy a stock if the value of the business is justified at that point of time. It is a must to check management track record and growth prospects before taking any position,” he said.
Tips to investors
According to him an equity investor should invest in stocks only when she is positive on the economy. “In the near term, she might end up making a lot of mistakes and find that the market is rewarding her sufficiently. But ultimately, investing in equity is like investing in a growing asset. In a growing economy, a growing asset class will always give you more returns than any other,” he said.
Why equity market as career?
Singhania says he has always been a voracious reader and did not hide his love for reading balance sheets in his early days. A chartered accountant by profession, he later did CFA.
“I used to practice, but my heart was always in the balance sheet. So, the interest grew and from there on in the mid-90s when the economy started to open up, I got the opportunity to move full time into the equity market,” he said.
Views on the current market
The market veteran finds the current market very challenging, considering the bleak picture of the economy. “Too much money is flowing into so-called quality names and they are trading at 70-75 price-to-earnings and whereas others are trading at significantly lower valuations,” he pointed out.
“With the Sebi reclassification of stock categories for mutual funds and a general apathy towards midcaps and smallcaps, no one wants to buy smaller companies and, therefore, their valuations are now at significant discount to their largecap peers,” said Singhania.
The value investor said he is currently looking for opportunities in companies that are below Rs 7,000 crore in market capitalisation. “Valuations are in our favour from a longer-term perspective. We are not looking at a particular sector, but the aim is more towards trying to see if we can invest in companies where valuations are in our favour just because technically no one is looking at them,” he said.