Posted On Monday, Sep 29, 2014
One of the things I love about my job is I get to travel a lot. This gives me an opportunity to meet new people. In my recent trip to UAE I happened to meet Mr. Krishnan, almost same age, at an Indian restaurant sitting at the next table. Mr. Krishnan saw my Quantum Mutual Fund bag and thought I was an investor like him and said “Ohh, Quantum Mutual Fund bag!! They never gave me any, even I am their investor” to which I smiled and replied “I am an investor as well as a Director at Quantum AMC. Sorry, these bags were made for internal use.” Somewhat aghast by my reply, the gentleman quickly smiled and apologised. Very soon we were sharing table and talking. I never like to miss an opportunity to talk to my investors.
Connecting with Mr. Krishnan, a resident in Middle East turned out to be such a heart-warming experience. Mr. Krishnan was Investment and tech savvy. He had invested across the globe.
He questioned me about the various funds, taxation rules, operational issues and KYC norms. Mr. Krishnan also wanted my views on FII flows in India, corporate performance, current cash levels in Quantum Long term equity fund, and the Rs.50 crore net worth limit.
I believe the last two points are of utmost concern, as more and more people have asked similar questions in the past. Today in my article I would like to reiterate and explain further on:
1. Why our cash levels are so high in Quantum Long Term Equity Fund?
2. How do we plan to meet the Rs. 50 crore net worth target?
High Cash Level:
It is investor’s right to question us on why are we not investing their money in market when that was the whole purpose why they entrusted us with their hard earned money.
Firstly, I would like to mention that we do not make cash calls. We focus on businesses, the challenges the businesses face, the capability of the management to steer the business and finally on valuations. Each stock that we research has a predetermined buy and sell limit. If the sell limit gets hit, we sell out of these stocks after a quick review. If there is no alternative stock available and we are happy with the existing positions that we have in terms of weightage, then whatever cash is left over is the cash balance in the portfolio.
Currently given that we have not increased our assumption of long term GDP growth and other macro factors, we do not see the earnings power of companies increasing significantly. Given this assumption, stock prices in many sectors look expensive to us, and we have gone ahead and sold.
For more detailed analysis of our current cash levels and the reasons behind it, the following is a video by Nilesh Shetty, Associate Fund Manager, Equity that could be of use:
Why is the cash level high in Quantum Long Term Equity Fund portfolio?
Rs. 50 crore net worth target:
We are in a business…we are committed to that business..and if that means fulfilling some target…so it is!!
Ever since SEBI - the mutual fund regulator in India has asked all the AMCs to have a minimum net worth of Rs. 50 crore, some of our investors have raised their concern on how we plan to meet that requirement.
Our response - We don’t have a Godfather nor do we have a magic wand to help us raise 50 crore in just one shot. However looking at the growth of the funds current profitability the funding gap should narrow down quite significantly in 3 years. With this growth pace and abiding our vision to be the most respected fund house we expect our future profits to help us cross the Rs 50 crore net worth requirement.. At Quantum, we believe our role is to be asset managers and not asset gatherers, as an AMC it is more important to take care of our investor’s money prudently, offer investors user friendly investment platforms and maintain transparency in our processes.
You can also read note on the Rs. 50 crore net worth for investors by Mr. Jimmy Patel, CEO - Quantum AMC - Join the Quantum@50 movement
I hope that the explanation would have helped clear the air in the minds of many investors. This trip to UAE has been pleasant.
Being an analyst, I couldn’t help making some broad conclusions based on some observations from an investment standpoint.
✔ In the places I visited I noticed the average travel time from home to office could not be more than ten minutes for people there. This is different from the hour long back breaking journey most Indians have to undertake in order to reach offices
The flip side of this is that infrastructure in India has a long way to go – an opportunity to invest and generate returns
✔ There were huge, well laid out malls with all the brands one could possibly imagine.
The flip side of this is that there are very few good quality malls in India of this size and scale- another opportunity to invest in good retail companies. Moreover, shopping is dramatically changing in India- with the advent of e-commerce.. Some of my most conservative people have shifted to online shopping.Investing in e commerce companies and the support systems around e shopping such as logistics are a huge opportunity.
✔ Dubai and Abu Dhabi attract great number of tourists- probably the visible numbers would be higher in winters. Many of them seem to have visited Abu Dhabi for its beach.
The flip side is that India has a vast coastline and many tourist attractions. Assuming that in the long run India addresses the issues of infrastructure, tourism could pick up significantly. More opportunities to invest in hotels, tour operators and many others connected with tourism.
✔ Real estate appeared to be inexpensive compared to India.
The flip side is to avoid investing in real estate stocks in India or for a more active investor actually go short on real estate stocks.
Well I could continue sharing ideas for investing...but will end it here. ☺
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