R Srinivasan, Head of Equity at SBI Mutual Fund, swears by Warren Buffett and his approach to portfolio management. "It's a good idea for a novice investor to read his 'Letters to Shareholders' chronologically from 1977 onwards," he says.
No wonder, then, he believes that "buying for trading and holding an investment because there's a loss" on the stock market, is akin to committing a sin. His investment philosophy is simple and succint - put your money in a few quality stocks and stay invested for the medium to long term.
It is a strategy that has paid rich dividends. Despite the endemic stock market volatility over the past couple of years, his funds have consistently given superior returns. Not surprisingly, Srinivasan has emerged the best equity fund manager in Business Today's rankings for the second year in a row.
When asked which personality traits of his are reflected in his fund management style, he says, deadpan: "Volatility." On a more serious note, he maintains pronounced personality traits often distort decisions. "Personality traits create biases, which are not necessarily positive for the portfolio," he says.
Srinivasan manages five funds ( four equity funds and one hybrid fund) one of which is SBI Emerging Businesses. This mutual fund has given the best annual return across equity fund categories for two years in a row. He also manages SBI Magnum Equity (a five-star fund) and SBI Magnum Global (a four-star fund). Five-star funds are among the top 10 per cent in terms of performance while four-star ones are the next 22 per cent in a category.
Indeed, SBI Emerging Business shows how Srinivasan has smartly rewarded investors. Despite being a mid- and small-cap fund, it has been less volatile than the broader market. This is largely a result of Srinivasan investing in a few high quality stocks - the fund only has 25 to 30 stocks in its portfolio, which is less than its peers. "At any point in time, there are typically just a handful of stocks you have a high degree of conviction about," he says.
The fund made handsome gains on some stocks in its portfolio in 2012 including SpiceJet, Muthoot Finance and United Spirits. "I guess we got lucky with United Spirits," says Srinivasan. But he also rues not having index stocks such as ICICI Bank and L&T in his portfolio, and holding on to Cox & Kings - the losses in this stock neutralised the fortuitous gains from United Spirits to an extent.
SBI Emerging Businesses gave a return of 21 per cent in 2012/13, during which the BSE Sensex returned 8.23 per cent and the Nifty 7.31 per cent. The BSE 500, the index to which its performance is benchmarked, gained 4.81 per cent during the fiscal year.
In the previous fiscal year, while the broader market eroded investors' portfolios - the Sensex declined 1.58 per cent and the Nifty 1.31 per cent - this fund gave 16.5 per cent returns. It has also beaten its peers comprehensively. The second best performing fund in the category, Reliance Equity Opportunities, returned 13 per cent and 7.39 per cent in the one-year and two-year periods ending March 2013, respectively. This fund has consistently managed to stay in the top quartile since 2010.
The stellar and consistent performance of SBI Emerging Businesses has not gone unnoticed - its asset under management (AUM) quadrupled from Rs 300 crore in March 2011 to over Rs 1,200 crore at the end of March 2013. In 2012/13 alone, the AUM doubled.
The funds Srinivasan manages are now over-weight on financials, health-care and consumer discretionary sectors, and underweight on consumer staples and metals. He says he is betting on stocks that are comparatively less volatile, have earnings visibility and are likely to reward investors in the mid-to-long term. Srinivasan is seen as the man who turned around the fortunes of SBI Mutual Fund. His future strategies and moves are likely to be closely followed by the investor community.