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A fund manager with a difference

May 16, 2006 09:24 IST

HSBC AMC's fund manager Viresh Mehta's mantra is to first identify sectors that will benefit from the current business environment and then, focus on stock selection.

What distinguishes this 40-year-old fund manager of HSBC Asset Management Company from his peers is his investment approach. While many fund managers solely follow either a top-down or a bottom-up approach, Viresh Mehta uses a judicious combination of the two.

"We use a combination of both the strategies, wherein, at the macro level, we identify sectors and, thereafter, attempt to spot companies in those sectors that will benefit most from the current environment. We give equal weightage to both - sector selection and stock selection," Mehta says.

His investments are based on the business cycle and relative valuations. Mehta explains: "We neither adopt a pure growth or a value approach. Our approach depends on our judgement of the business cycle.

We seek to identify sectors, which would benefit from the current business environment. Having identified sectors, we focus on stock selection. We analyse a company based on factors like management, comparative advantage, strategies, corporate governance and financial strengths, and then compare its valuation with that of its peers and the overall

In charge

This engineer-cum-management graduate currently handles HSBC India Opportunity Fund alongwith HSBC Equity Fund and the equity side of MIP Regular and MIP Savings scheme, which he has just started managing.

Mehta has been handling HSBC India Opportunity Fund since April 2005 and, in this period, it has given returns of 105.45 per cent vis-à-vis its benchmark returns of 81.48 per cent.

"In the last two-three years, there has been a significant re-rating of the Indian markets as all sectors are contributing unlike earlier," he says.

Currently, Mehta is overweight mainly on sectors such as auto, information technology and materials. The auto sector seems attractive, as its valuations are relatively cheaper considering the expected growth rates in the sector.

Also, the fact that some manufacturers have increased their prices, combined with the recent reduction in excise duties announced in the Budget, will help push up margins.

But he says with caution: "One risk that prevails in the sector is that arising from the rising metal prices. If they continue to rise further, this could put pressure on margins."

"In IT companies, the visibility in terms of growth rates is strong. The robust results posted by IT majors like Infosys and Wipro have raised market expectations. Also, the stocks in this sector have posted high return on equity and return on capital employed. Another advantage for this sector is its non-cyclical nature," says Mehta.

"The attractiveness in cement stocks is due to expectations of double-digit growth rates for the sector along with various macro positives like a good GDP growth," he adds.

The sectors on which Mehta is underweight include fast-moving consumer goods, energy, utilities and telecom.

"The valuation in the FMCG sector continues to be at a premium. On one side, even though manufacturers have started increasing their prices, on the other side, the prices of raw materials are rising, diluting the impact of a price rise for companies," he says.

For the telecom sector, he feels there is too much competition and utilities are unattractive as they give fixed returns.

A strong believer in equities as an asset class, Mehta feels that currently the markets are fairly valued.

"At present, the markets are liquidity-driven. It is difficult to predict liquidity flows, but going by the GDP growth rate and consumption patterns, the outlook for the long term remains positive. We expect returns to be in line with corporate earnings at around 15-20 per cent," he says.

"Equity as an asset class needs patience and invest in it with a long-term horizon" is what his advice to investors.

The man and the journey

Mehta started his career in 1992 with DSP Financial Consultants, from where he moved on to Prabhudas Lilladhar in 1993, where he mainly handled FII business. Before joining HSBC in 2002, Mehta headed sales trading operations at UBS Warburg. He has been in HSBC AMC since its inception.

In fact, Mehta joined HSBC AMC as a trader on the back of his skills and expertise in that area. He has scaled several positions in a short span of only four years, to graduate to the postion of an analyst and, today, he is a fund manager. He considers his fast-track rise to the current position a big achievement.

Mehta firmly believes that "good things happen to good people". He practises "be cool" approach as one of sportmen's fundas in life, as he played cricket and volleyball in his school and college days. Even now, he hardly misses a chance to play these games whenever they are organised by brokers. Mehta loves reading books on astronomy, too.
Manasvi Mehta