Rising stars in mutual funds: Shridatta Bhandwaldar on why promoter integrity is crucial in stock picking

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Note to readers: Although most fund houses are process-driven and mutual fund schemes are driven by many guidelines, a money manager’s role cannot be undermined. At the heart of fund management is a core team of analysts and fund managers who track multiple sectors and companies on a day-to-day basis. And every scheme has a designated fund manager who is responsible for its long-term performance.

In this five-part series, we have identified the next generation of fund managers who hold the potential to become top performers. All of them are under 45 years of age. Yesterday, we met Ajay Tyagi, EVP and Fund Manager, Equity, UTI Mutual Fund. Today, we meet Shridatta Bhandwaldar, Head Equities, Canara Robeco Mutual Fund.

The 9/11 terror attacks in the US had a ripple affect all over the world. Equity markets the world over, including India, fell sharply. In just 15 days, the Sensex fell by 15 percent. Shridatta Bhandwaldar, who currently heads equities fund management at Canara Robeco Mutual Fund, was about to join an Information Technology company when the company, perhaps in anticipation of a global crisis, withdrew its job offer at the last minute. The IT sector, at the time, was already reeling under stress following the technology sector bubble burst of the year 2000.

After a brief stint at a Pune based manufacturing firm as a production and quality engineer on its shop-floor where he realised he wasn’t quite cut out for the job, he left his job and completed his management degree from Sydenham Institute of Management in Mumbai. His journey in the world of finance started with a job at a brokerage firm as an analyst. Today, he manages eight schemes worth Rs 20,945 at Canara Robeco Mutual Fund, as on February 26, 2021.

Funds of all hues and colours

Being at a mid-sized fund house (Canara Robeco Mutual Fund is India’s 18th largest fund house with assets under management of around Rs 28,597 crore) and also heading its equity funds, Bhandwaldar manages different types of funds. From a multi-cap fund (Canara Robeco Flexi Cap Fund) and an infrastructure-themed fund (Canara Robeco Infrastructure Fund) to co-managing a mid-cap scheme (Canara Robeco Emerging Equities Fund), Bhandwaldar wears many hats.

His specialization is to build a portfolio of stocks of good quality companies spread across sectors. Canara Robeco Bluechip Equity Fund managed by him has done well over 5-year (16.48 percent return) and 10-year (12.96 percent return) periods. Aside from judging how competitive a business is and a clean balance sheet, Bhandwaldar also pays attention on the company’s management. “A good management is one whose interests are aligned with that of minority shareholders,” says Bhandwaldar. He estimates that the number of quality businesses that satisfies the norms stand around 100-150 in Indian listed equities space, though it keeps changing a bit over a period of time.

While building a portfolio, he looks at two things. First – how well a quality business, which has consistently done well in the past, is expected to do over the next 2-3 years. He calls them, compounders. Here, he likes companies in private sector lenders, information technology, retail, pharmaceuticals and fast-moving consumer goods.

The second component of his portfolios – alpha generators is about those companies that are expected to do well because of changes in the business environment or business or financial structuring, or the way the business is done. Bhandwaldar insists that these are quality businesses as well, but may not be long term compounders. Here, cyclical sectors such as corporate lenders, capital goods, infrastructure fit the bill. When these businesses get into upcycle they can give disproportionate earnings growth. “Generally we allocate around 70 per cent to compounders and rest to alpha generators,” he says.

Understanding the business

Bhandwaldar prefers to avoid sectors where businesses tend to deliver low return on equities over long period of time. They either get very low allocation or they are absent in his portfolios. Commodities, energy, real estate, construction are some such examples.

“Shridatta has a good understanding of how a business operates at ground level and he is quick to learn about and adapt to the changes in the business environment,” says a fund manager with a rival fund house requesting anonymity.

Bhandwaldar expected automobile companies to severely underperform in 2017-2019. He cut his exposure to these stocks. In their place, he increased exposure to stocks in fast-moving consumer goods space at the time, as he expected that the margin expansion will take care of slow volume growth of these companies. But after Covid19 pandemic struck last year, he was quick to adjust to new normal. Expecting pressure on margins of FMCG companies in near future as input costs went up, he cut his positions gradually. He was also one of the first to load up on automobiles stocks expecting the demand to come back.

His stints as a research analyst with brokerages tracking capital intensive businesses such as power, infrastructure, telecom, real estate made him realise the importance of quality of the business and integrity of the promoter. “Big money cannot be made with average promoters and average quality businesses. There is always a risk of permanent loss of capital. The best way to overcome it, is to invest in quality businesses managed by good promoters and avoid short term noise in the market,” Bhandwaldar adds.

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