‘My equity is my life insurance’

Hiren Ved, CEO, CIO and Director of Alchemy Capital Management, a Portfolio Management Services (PMS) provider, was exposed to equity investing at a young age. This was thanks to his father, who started off as a businessman and later turned to investing full-time. “When we were growing up, the atmosphere at home was all about equity. We always feel comfortable despite the fact that there is a lot of volatility in the markets,” says Ved. It’s no surprise that Ved is an “outside equity person”, and has 95% of his asset allocation to equities Is. .

Ved co-founded Alchemy in 1999 with Rakesh Jhunjhunwala and others. Today, it manages assets of Rs. 6,751 crores. Ved shares his portfolio details and investment beliefs for Mint’s special Guru Portfolio series. Edited excerpts.

What is your vision for 2023?

I would say 2023 should be a good year. It is quite possible that the first quarter is a bit volatile and then things settle down. If you look at the top 500 companies (which are 420 after excluding financials) in 2022, while topline growth was very good, margins were hit. So, broadly, all non-financial companies saw some impact of higher raw material costs, higher energy prices, higher logistics costs and supply chain issues. Their EBITDA (earnings before interest, tax, depreciation and amortization) margin took a hit of 500-600 basis points. We have seen that commodity prices have declined slightly from their highs; Even crude oil prices have improved. We believe some of this EBITDA margin will come back in the fourth quarter and next year as companies ramp up pricing. Also, your balance sheet may contain high-cost inventory of raw materials that you must eliminate. The good thing is this quarter is going to be great especially for consumer-oriented businesses because you got a lot of weddings, the economy opened up, people are traveling, and spending; So, we should see reasonably good topline growth. I do not expect all 500 basis points of margin to come back as some of the benefits of cost cutting during Covid would have been lost. This means that this year the Nifty is likely to gain 8-10 per cent and next year we should return to double digit growth. So, the next 2 years are looking very, very promising and hence, I believe the market should be able to deliver double digit returns next year.

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Also, by the end of the first and second quarter of the calendar year, interest rates should have peaked. If the US economy really does go into recession, central banks should be talking about cutting rates. And so, I think the market and returns should be stable. Then, we head to 2024, an election year; Therefore, the government will keep public expenditure reasonably robust and that should keep demand at a reasonable level.

How is your personal portfolio split between equity, debt, gold, real estate and options?

I’m an out-and-out equity person. So, apart from the house I live in, 95-96% of my asset allocation is in equities. I have little cash at the moment. But generally speaking, I am fully invested in equities. I neither invest in debt nor in real estate, nor in gold, nor in commodities.

Is it solely through your PMS (Portfolio Management Service) strategies, or directly through stocks or mutual funds?

A major portion of my personal equity investments are in my PMS strategies. I have some private equity investments. It’s not a regular allocation, but if I see something interesting, I allocate to private equity. We do not do private equity for clients. I assume my private equity allocation will be 10%, direct stocks 20% and PMS 70%.

Have you changed between market cap (large, mid and small cap) segments in the last one year?

Not really, I am a very long term investor. We don’t usually make these strategic changes. I am a very niche stock investor; So, wherever I find best opportunities, I invest whether it is large, mid or small cap stocks. But I believe recently, we have seen a substantial correction in small caps and we have made some investments in this space.

Do you have a cash emergency fund kept or to invest it in the market when the opportunity arises?

I usually keep some cash with me as it comes in very handy when you find some good opportunities, when there is selloff or even when you find a good opportunity in the market. I don’t always calculate it but it could be 2-5%, it really depends from time to time. But overall I am fully invested in equities.

Do you have life insurance?

I don’t have life insurance. I have health insurance through my company. And I think my dad would have taken a smaller policy over and above what the company has given. I don’t do life insurance because everything to me is my portfolio. If I need anything, I can always just draw on my portfolio.

So, you think your portfolio is enough to provide for your family if something happens to you?

I have always felt that even life insurance premiums, I will be investing (in equities) for a very long term, and that whatever portfolio I have should be sufficient for any emergency. Not only me, but my father or family has always had a major portion of our investments in equity. As a family, we have been investing for the last 50-60 years and have seen what compounding can do. We believe that our portfolio is our life insurance.

Was your father in the financial markets too?

My dad started in the industry. My father and his brother ran a small packaging and printing business. He completed his graduation and went straight into business. Then after a few years in the business, he started paying less attention to the business that was mainly run by his brothers and started becoming a full-time investor. This was in the late 60’s and early 70’s.

We as a family have a long history of investing in the equity markets. When we were kids growing up, the home environment was all about equity. Despite the fact that the markets are highly volatile, we always feel comfortable. Dad used to teach us that there have been many crises in his life and this (money invested in equity) is the money he didn’t need and it was for growth. He never thought that he should keep some money in fixed income or gold or any other asset class. I grew up in this environment and when I started my career in the equity market, I had the privilege of interacting with some of the best investors in the country. And I realized that the greatest wealth creation machine through compounding is investing in great companies for the very long term. So, I became very comfortable with investing all my wealth in equity.

What was your first stock when you got into the markets?

I think the first stock I bought was when I was in college which must have been the late 80’s. It was in a company named Ponds which later merged with Hindustan Unilever. During my break in college, I worked in a market research firm and earned some money. After that, whatever savings I had got invested in equity.

If you had to think of one period in the markets where you were really skeptical, what would it be? and how did you remove them?

The global financial crisis of 2008 was certainly a major event. There has never been a situation in the past where your equity portfolio declined by 50-55% and that was the case in 2008. I think then we were having discussions among friends and colleagues, and a lot of people were saying that you should always diversify and put some money in fixed income or real estate because you don’t know what might happen. But I think it was just a thought process. I did not act on it at that time or at any time in the future. I realized that something like this could happen in the market. We always read about it. But it is a very different thing when you experience it yourself. My dad told us that the oil crisis in the early ’70s was tough, but he never shied away from long-term investing. I also saw Tech Bust of 2000. But at the time, I didn’t think my portfolio was big enough for it, and we did reasonably well because I personally had many investments in tech or IT services companies. While we didn’t sell at the top, we got out at the right time and we were sitting on a lot of cash and trying to look for opportunities.

Finally, after going through 2008 and experiencing a decline like that, I’ve internally assumed that this can happen in the market as well and that things always come back. Your real insurance policy during deep risk events is actually the quality of your underlying assets. So, if you have good companies with good cash flow and good management, they will always come back. If you go back in history, no correction has lasted more than 2 to 3 quarters. So, in the end, the money comes back. The only lesson of 2008 was that if you have some financial commitment, one should always keep that part, let’s say your next two years requirement is in loan funds or cash for that financial commitment so you must No need to sell Wrong prices. Those are the prices where you should be buying the stock rather than selling it.

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