New Delhi : A promoter’s ability to allocate capital honestly and wisely are among the factors that Saurabh Mukherjee, Founder and Chief Investment Officer, Marcellus Investment Managers, looks for when deciding to invest in the equity market. Edited excerpt:
Which investment strategy should investors follow while venturing into the equity markets in the current environment?
What we continue to do is focus on three factors. The first thing to do is to look at the promoter. We are looking for an honest promoter who is not involved in any misappropriation of funds; Otherwise, we turn away from the company. The second factor, beyond integrity and cleanliness of the promoter, is whether the promoter has demonstrated over the past decade that it has been able to allocate capital wisely. The vast majority of Indian promoters do not know how to allocate capital wisely and hence this is an important criterion for a large number of Indian companies to avoid.
The third criterion, in addition to integrity and capital allocation, is that we look for monopoly franchisees and major franchisees. Franchisees who are charging 20-40% premium in terms of prices and yet not a single customer wants to leave them need to be identified. These are the three factors we continue to focus on and invest our customer inflows into these franchises. Six months ago, a year ago we were getting inflows and even now we are getting inflows. We continue to invest these flows into franchisees that are clean, efficient and monopolistic.
This criterion has worked in all environments – before covid, after covid, before the global financial crisis, after the global financial crisis, before the Federal Reserve started raising rates and then started hiking. . Macro conditions have no bearing on our investment strategy.
What time frame should investors consider while investing in equities?
Many people jump into the stock market without knowing whether their money is suitable for the stock market or not. Anyone who is investing in the stock market should ask themselves two questions. First, is this money that I can forget for the next three years? If you need that money anywhere before the end of the next three years, you should not go to the stock markets. This includes borrowing money or using margin funding. If you need money in the next three years, then you should invest in FD, bond market, government securities etc.
The second criterion is that if you have money set aside for the next three years, you should ask yourself, am I investing in stocks that will give me at least 20% compounding returns over the next three to five years? can provide. If you are not investing for a compound return of 20% over the next three to five years, you are not covering your cost of capital meaningfully. If there are significant corrections in the stock market and, therefore, they may not be a fit for the stock market, most people I know will not hold their nerves. A lot of people who are entering the stock market have the wrong kind of money (i.e. they can’t leave the money untouched for three years) and the wrong kind of risk appetite.
What has driven investing in the markets over the years?
If we look at the data from Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI) and Insurance Regulatory and Development Authority (IRDA) in the last 6-7 years, it is very clear. Indian households are increasingly financing their savings across all age groups and socio-economic levels.