Kotak Asset Management

About

  • Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly-owned subsidiary of Kotak Mahindra Bank Limited (KMBL), is the Asset Manager for Kotak Mahindra Mutual Fund (KMMF). 
  • KMAMC started operations in December 1998 and has approximately 21 Lac investors in various schemes. 

Key staff

Nilesh Shah, MD & CEO – 25+ yrs experience

Lakshmi Iyer, Chief Investment Officer& Head of products –Debt Team – 20+ yrs of industry experience 

Harsha Upadhyaya, Chief Investment Officer- Equity – 22+ yrs of industry experience

Investment Philosophy (for firm)

  1. Strong BOTTOM-UP with a TOP-DOWN thematic overlay
  2. Endeavor to derive value from MACRO trends and identify STOCK SPECIFIC opportunities
  3. BOTTOM-UP approach adopts the BMV approach to stock pricing

EQUITY: 

  • The portfolio should be a mix of Bottom-up approach and Top Down awareness.
  • Follow the BMV Model: Sustainable Business with Prudent Management at Reasonable Valuation

Business: 

Scalability: Low Competitive industry with potential to gain market share

Predictability: Low regulatory intervention

Sustainability: High return on capital (ROCE & ROE) and cash flow

Management:

Corporate Governance: fairness towards minority shareholders

Capital Allocation: Efficient deployment of surplus funds

Growth Orientation: Focus on profitable growth

Valuation:

Intrinsic Valuation: Growth at reasonable price

DEBT:

Safety: 

Principal and Interest

Credit Risk Analysis by the credit committee

Analysis of the different rating category universe

Quarterly analysis of the results

Liquidity:

Managed as per the interest rate view and the investment objective. 

Returns:

Beating benchmarks & being in top quartile against comparable peer group

Investment process –

  1. INVESTMENT UNIVERSE – Indian Listed Equities
  1. RESEARCH –  Buy-Side (Stock coverage, Individual stock analysis, sector analysis)

                               Sell-Side (expands Research Universe, Reuters tool)

  1. Idea Generation –  Research team, Fund Managers, Discussions, Sell-side brokers)
  1. Portfolio Action – 
  1. On-Going Review –  Monthly checks, Portfolio Analytics system, Performance attribution system

Risk management –

  1. Sector and Stock Selection – an outcome of the Research Process, However:
  • Sector caps may be different for Diversified and thematic funds
  • Specific approval for the sector over/underweight, higher limits
  • Limit exposure to each market cap in each fund
  • Liquidity – pre-defined limits
  1. All funds cap exposure to equity-related instruments of a company to 10% of assets
  1. Regulatory limits, restrictions – strictly adhered to
  1. Monthly review of funds performance and positioning by Investment Committee, Portfolio optimization meetings to adjust risk-return.

Media

Nilesh Shah on Corona Virus and Investing, Economic Time, May 11, 2020

https://economictimes.indiatimes.com/markets/stocks/news/go-overweight-on-equities-invest-extra-cash-in-a-staggered-way/articleshow/75672847.cms

Nilesh shah talks about market reactions and investment strategies that investors should focus on to gain maximum returns on their investment. As Nifty price to book value currently stands at 20% lower than its long-term average. Nearly 360 companies (out of the top 1,000 NSE-listed companies) are trading at less than P/b of 1. He suggests that this will allow long-term investors to buy good companies at attractive prices also there is an anticipation of buying coming back soon.

Further, he talks about how the market has reacted to past pandemics suggesting that “We believe it is time to be cautiously overweight on equities. Economic activity may pick-up pace in days ahead. Market history with SARs, Bird flu, etc suggests that the market has bounced back sharply after epidemics have receded. Hopefully, this time too we shall see the same.”

He views Gold ETF’s as strong investments stating that “Gold as an investment opportunity too looks attractive in the current market. Very recently, in February 2002, we had given a call to invest in gold. That call has gone right in the current scenario. We continue to believe with low-interest rates and high liquidity, gold is likely to perform well. Gold ETFs/gold FoFs may be an avenue through which gold can be invested in.”

Mr Nilesh also talks about KAMC’s philosophy of believing that ‘return of capital’ is more important than ‘return on capital’. He describes KAMC’s performance in line with its investment philosophy even during market falls. In his words – ” Despite high-risk mandates in various categories, we have been running good quality portfolios within the ambit of that regulation. Strong promoters, cash flow-backed businesses, liquidity and asset security have been key to our investment ideas. Our conduct in 2008, 2013 and 2018 clearly displayed that we keep investors first. Our conservative DNA and our transparent and constant communication is aimed at gaining and maintaining that confidence”

His views on current KAMC’S portfolio investments are as follows “The current market is offering attractive risk-return ratio in high-quality companies. Our incremental investment is happening in these high-quality companies. Thus, our portfolio quality may only further improve going ahead.”

Markets right now are swinging from optimism to pessimism, from hope to fear, ET NOW, May 06, 2020

https://www.timesnownews.com/business-economy/ma rkets/article/india-revival-mission-markets-worried-about-cost-of-restarting-businesses-says-nilesh-shah-of-kotak-amc/587692

Nilesh Shah talks about how markets are right now worried about the cost of restarting companies. He suggests He advised investors to stay away from leveraged companies as safety will be in non-leveraged companies. “Investors need to focus on the balance sheet of companies than P&L in the next three months.”

Franklin Templeton Impact, Moneycontrol, April 27, 2020

https://www.moneycontrol.com/news/business/markets/franklin-templeton-impact-flight-to-quality-would-be-the-theme-for-2020-lakshmi-iyer-5190311.html

Q) If investors have debt funds in their portfolio what should they do now? Is my money stuck is the most common question which is asked by investors?

A) I would reiterate that investors should not get be tempted to act under recency bias.

MF industry in fixed income has seen a significant shift towards high-quality assets which is reflected in the underlying scheme holdings.

Investors in debt funds should live their investment horizons intended at the time of making an investment. Open-ended fixed income funds offer daily liquidity at market-related NAVs and hence panic reactions may not be warranted.

Q) What are the steps you are taking to safeguard investors’ interest?

A) At Kotak MF, post-IL&FS, and Dewan industry episode, the focus shifted significantly towards high-quality assets. This can be seen across our FI portfolios. Return of capital has been prioritised over return on Capital.

Cash and cash equivalents across our fixed income schemes have notched up materially in line with this philosophy.

Thus, we feel confident to manage the current phase as the portfolios can be comfortably liquidated.

Kotak MF leads Responsible investing Narrative in India, April 23 2018

https://assetmanagement.kotak.com/documents/19/6fc82b28-89fe-4712-baea-5fa1ac2eb4b0#:~:text=Kotak%20Mutual%20Fund’s%20investment%20philosophy,sustainable%20basis%20for%20its%20investors.&text=%E2%80%9CGlobally%2C%20companies%20adhering%20to%20ESG,governance%20practices%2C%20deliver%20sustainable%20returns.

Kotak Asset Management Company (Kotak Mutual Fund) announced that it has signed the United Nations-supported Principles for Responsible Investment, becoming the first asset management company to lead the responsible investing narrative in India. The PRI is the leading global network for investors, committed to integrating environmental, social governance (ESG) practices into investment policies and practices.

Nilesh Shah, MD & CEO, Kotak Mahindra Asset Management Co. Ltd. said, “Investor interest is at the core of our investment philosophy and all our investment decisions have always been driven by sustainable returns. By signing the PRI, we are formally committing to responsible investing.”

“Globally, companies adhering to ESG protocols, in addition to having good risk management and corporate governance practices, deliver sustainable returns. With an evolving investor attitude towards responsible investing, we need to adapt and adopt international trends and best practices in this area. The processes outlined by PRI will help us develop a more sustainable financial ecosystem’, added Nilesh.

ESG (Environmental, Social and Governance) investing refers to a class of investing that is also known as “sustainable investing.” This is an umbrella term for investments that seek positive returns and long-term impacts on society, the environment and the performance of the business.

Why Kotak AMC is adding Insurance Stocks to its portfolio?, Bloomberg Quint, December 16, 2019

https://www.bloombergquint.com/business/kotak-amc-is-betting-on-insurance-to-enter-under-penetrated-sector-cio-says

Kotak Asset Management Company Ltd. is including insurance names in its portfolio as it believes the sector is under-penetrated and less vulnerable to cyclical volatility, according to Harsha Upadhyaya, its chief investment officer for equity.

“We do have some exposure to insurance names. There we believe that the penetration levels are very low for our country,” Upadhyaya told BloombergQuint in an interview. “Also, it’s more of long-term business and less prone to cycles as compared to asset management.” “We expect the top three private life [insurance] companies to double annual new business value in four years, extending to a 21-26 percent CAGR over the next decade,” a research note by JP Morgan said. The life insurance industry is still in the early stages of a multi-year growth story, it said, adding that major Indian life insurers reported 20-56 percent net business value growth in the first half of FY20”

Interview with Nilesh Shah – extract from book ‘Brightest Investment Minds by Anuj Shah

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Analyst questions

  • In a recent interview, you suggested investors focus on BL of companies than P&L in the next few months- How has KAMC implementing this technique in their investment process?
  • With the recent focus shifted significantly towards High-quality assets, how has prioritizing ‘Return of Capital’ over “Return on Capital” affected profitability?
  • Kotak Asset Management Company (Kotak Mutual Fund) announced that it has signed the United Nations-supported Principles for Responsible Investment, becoming the first asset management company to lead the responsible investing narrative in India. What steps have you taken to incorporate PRI in your investment process? How has it benefitted your customers? 
  • Last year in December 2019, KAMC included insurance names to its portfolio believing that the sector is less penetrated. Now after the COVID 19 situation we believe that Life insurance companies are going to sell a large no of life insurance contracts and thus increasing profitability. How has KAMC managed to stay ahead in time of trends?

KAMC announced that it has signed the UN- supported Principles for Responsible Investment (PRI). PRI incorporates ESG practices into investment policies but how does adhering to ESG protocols ensure development of a sustainable “financial” ecosystem?  

How has incorporating life insurance ahead of the pandemic affected the risk-return profile of the mutual funds? Does it give KAMC an edge when compared to other mutual funds?

Why will money put in through ETFs and passive investing lead to growth in mid cap firms now when this space has been underperforming for 3-4 years? 

Prepared by – Vidhi Agarwal

Date: 18.05.2021

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