Mr. Vihang Naik


Vihang Naik is fund manager at L&T Investment Management. He manages L&T TaxSaver Fund and L&T Long Term Advantage Fund, and co-manages L&T Midcap Fund. Vihang has an overall experience of 10 years in equity research. Prior to this, he was a Research Analyst with MF Global Sify Securities. His previous assignments include research analyst in Motilal Oswal Securities and SBI Cap Limited. Vihang is a Certified Financial Analyst and a Bachelor of Management Studies from Mumbai University.

Q. How do you identify investment opportunities for your funds? What are the key factors/elements you look for in any opportunity?

Answer: Most of our new ideas come up from primary research into the sector. We have picked many companies based on our interaction with their customers, distributors and employees. We have a checklist with quantitative and qualitative points to verify our thesis. A few hygiene factors we look at are positive operating cash flows, management drive and integrity, prudent capital allocation and above cost of capital return ratios. Moats, large opportunity size, growth prospects, investor discomfort and adverse news flows provide icing on the cake.

Q. When markets perform well, many investors often book profits. Is the current investment behaviour in markets similar to this view or is it contradictory?

Answer: Generally investors are quick to book profits and delay booking losses. This comes from a behavioral bias called pain avoiding psychological denial. When we book profit, it provides an immediate satisfaction of being right, while remaining invested could mean that we stand a chance of being wrong tomorrow. And investors like to avoid the possibility of that pain. This is a basic human behavior shaped by evolution and it requires a lot of psychological fortitude to correct. Throughout this bull run investors have waited for an opportunity to get in. Now that we have an opportunity, investors are concerned about further downside. However, I think investor behavior in this correction has been quite rational and many investors have used this correction as an opportunity to increase their allocation to equities.

Q. How do compare the rising clout of domestic funds vis-a-vis the FIIs? How has been their market participation in recent years? 

Answer: FII ownership in BSE500 has been stable over the last 4 years at around 20-21%. In the same time DIIs have increased their stake from under 9% to about 11% today. In this, domestic mutual fund holdings are at an all time high of 6.4% while insurance cos have pared down their ownership.

Q. What is the right returns expectation investors should hold in equities henceforth for say a minimum holding period of 5 years? 

Answer: Over the last 30 years, Sensex has delivered returns of close to 16% CAGR. On a rolling 5 year basis, the maximum return has been 46% CAGR and minimum has been -6% CAGR. Average 5 year CAGR during this period are 14%. We can see how volatile even 5 year returns have been. This makes it extremely difficult to hazard a guess on the next five year returns. To put things in context, Sensex has given returns of 12% in last 5 years, from 2013-2018, which is less than the average Sensex returns in last 30 years. This is despite the current optimism in equities and so called euphoria in valuations. I won’t like to state a number for next five years however I believe that equities will continue to outperform other asset classes over the long term.

Q. What would be your advice to new investors wishing to invest in equity markets with medium to long term investment horizon? 

Answer: New investors have to accept the volatility in this asset class. Unlike fixed income, real estate or gold, equity markets are subject to high volatility even in the medium term. As the above data show, equity markets can generate negative returns even over 5 years. However this is an asset class which has beaten almost every other asset class over the long term. New investors will have to learn to keep faith in equities especially during times of low returns.

Q. What is your fund house strategy for investment in the current market levels? 
Answer: We do not have horses for courses strategy. We like to remain faithful to just one horse, which is our bottom up stock picking philosophy. We do not try to predict the macro, because we think that 1) It is impossible to do it consistently, 2) Even if we predict the macro, we do not know how much is already priced in. Hence we try to do what we think we are good at – bottom up stock picking. We believe that is a strategy which should work across markets and market levels.

Disclaimer: This document is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. This document provides general information on performance; financial planning and/or comparisons made are only for illustration purposes. The data/information used/disclosed in this document is only for information purposes and not guaranteeing / indicating any returns. This material provides general information and comparisons made (if any) are only for illustration purposes. Investments in mutual funds and secondary markets inherently involve risks and recipient should consult their legal, tax and financial advisors before investing. Recipient of this document should understand that statements made herein regarding future prospects may not be realized. Recipient should also understand that any reference to the indices/ sectors/ securities/ schemes etc. in the document is only for illustration purpose and should not be considered as recommendation(s) from the author or L&T Investment Management Limited, the asset management company of L&T Mutual Fund or any of its associates. Recipient of this information should understand that statements made herein regarding future prospects may or may not be realized or achieved. Neither this document nor the units of L&T Mutual Fund have been registered in any jurisdiction except India. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions.

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