Slow but steady

The year was 1993. India had just opened up its economy. A nation was cutting ties with its old ways and looking to break free from the shackles of the Hindu rate of growth. Krishna Sanghavi, a fresh commerce graduate from Sydenham College, had just begun pursuing his master’s degree in management studies at the Narsee Monjee Institute of Management Studies, when his love affair with equities blossomed. “I was young and excited. I started investing in the market, including IPOs,” he recalls. “I also had friends who invested in the market and we discussed trends with each other.” But Sanghavi had never imagined that idle chatter among friends would one day turn into serious business. This serious business finally took shape in January 2007, when Sanghavi moved to Kotak Mutual Fund from Kotak Life Insurance, and from there to Canara Robeco in September 2012. 

Of course, Sanghavi took his own sweet time to move to the fund management industry. After finishing his MBA, he worked at the development financial institution IDBI for a couple of years. Working on the credit side, Sanghavi’s job was to check the financial statements of companies before loans were disbursed for their existing projects. After that, Sanghavi moved to the Kotak Group and worked there for the next 15 years. Initially, he was deployed in the company’s retail finance business and also did a bit of financing for automobile dealers. But Sanghavi’s interest in the stock market persisted and in 2000, he tried to move to the mutual fund industry. However, life had other plans and he got a shot at the insurance industry instead, joining Kotak Life Insurance in August 2000. It is here that Sanghavi had his first brush with fund management. His initial investments were largely restricted to risk-free instruments such as T-Bill and Government Securities, as premium money was yet to trickle in.

“But as money started coming in, we started out with fixed-income investments. At that time, we had not yet launched any unit-linked plans. In 2003, we launched a unit-linked plan and that is the first time in my career that I got a chance to manage equity assets,” Sanghavi recalls. In January 2007, he moved to Kotak Mutual Fund and was there all the way till August 2012. Right away, he was given the responsibility of managing six schemes. As Kotak AMC continued to expand and hire, Sanghavi was able to focus all his energies on Kotak Opportunities and a new fund called Kotak Select Focus from 2009 onwards. He narrowed down on Yes Bank which was trading at Rs.134. When he bought it, the bank was still a new player in the banking industry and in 2008, the bank’s stock had corrected by as much as 80%, as the subprime crisis had sparked a selling frenzy among banking stocks. However, as a relatively new entrant in the industry, Yes Bank was in expansion mode and was recruiting new people. Its growth story had also not shown any signs that suggested ugly twists in its tale. The company’s assets had grown at a CAGR of 76% over FY06-FY09. By the time Sanghavi was ready to move on from Kotak, the fund held 6.4 lakh shares at an average price of Rs.334, which was 2.3x higher than the original cost of acquisition. Since then, private bank stocks have always been on Sanghavi’s radar. He says that his best calls in the last five years have been among private banks, which have a preference towards retail lending. “These banks have demonstrated a healthy growth momentum on both asset and liability franchises, and without diluting qualitative parameters.”

Strategic move
IndusInd Bank is another investment that has worked out well for Sanghavi. In October 2013, when Canara Robeco Emerging Equities bought shares of IndusInd Bank, the stock was trading at an average price of Rs.416. Today, the stock is trading at Rs.812 or close to 2x higher. A positive management change and a strategic call to focus on the retail business drove Sanghavi to buy the stock. The bank continues to grow its topline as well as bottomline. “The weak capital base of certain state-owned banks has given other players an opportunity to eat into their market share,” Sanghavi says.  

He does admit that luck has been a key factor in his success. And this luck came in handy when regulations made it mandatory for trucks to have anti-lock braking systems (ABS). An ABS helps control the vehicle during emergency braking at high speeds by unlocking the wheels and allowing traction control by electronic distribution of pressure to them. Sanghavi’s Canara Robeco Equities Fund had the largest supplier of these systems — Wabco India — sitting in its portfolio. And this stock had already been bought by the fund in September 2011, a year before Sanghavi joined Canara Robeco. The stock began rallying from June 2013, amid reports that the government was mulling making ABS systems mandatory. In fact, in the run-up to the official announcement in June 2014, the stock rallied more than 80%.

After the decision was made public, the fund started to increase its stake and ride the next leg of rally. The stock was trading at an average price of Rs.2,896 in the month of June, 2014 and today, the stock is trading at Rs.5,671. One sector that Sanghavi is keeping close tabs on is logistics. Currently, his company’s Emerging Equities Fund holds Gateway Distriparks, the Transport Corporation of India and crane supplier Sanghvi Movers. “Logistics is a highly unorganised sector. The largest players don’t have more than a 2-3% market share. That leaves a lot of turf for the organised players to move in and capture,” Sanghavi says. “The government’s thrust on the infrastructure space would also create opportunities for the logistics sector. For instance, a crane company’s services would be required to transfer equipment needed for the construction of a power plant or windmill. The e-commerce boom is also good news for logistics companies.”

As things stand, the fiscal situation in oil-rich countries amid plunging oil prices, the slowdown in China and the delay in private sector capex are all weighing down on the market, Sanghavi says. “Today, most Indian corporates are suffering from leveraged books, while some are facing trouble due to exposure to international markets not playing out well. However, over the long term, we see an economic revival triggered by infrastructure capex. In the past 18 months, the government’s focus has shifted back to infrastructure.” The Emerging Equities Fund has thus already invested in power and railways sectors. For instance, Texmaco Rail & Engineering and power transmission companies Techno Electric & Engineering and Kalpataru Power Transmission are all part of the Emerging Equities Fund.

“So far, the government’s focus has largely been on building generation capacity in the power sector. However, in the past 12-18 months, the focus has been on the transmission and distribution space. Equipment supply companies can benefit as a result of the incremental capex,” he explains. So far, this strategy has stood Sanghavi in good stead, as the Emerging Equities Fund has delivered a return of 21% over the past five years. But Sanghavi admits that in the future, if a fund were to cash in on the government’s focus, the challenge would be to find companies with good balance sheets, a low interest burden and relatively low capital requirement. That can’t possibly be an easy find, but Sanghavi will surely find a way.