Session on Ranking Business Models by Ashish Kila

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Contributed by : Vaibhav Jain, CFA

CFA Society India, Mumbai Chapter hosted Ashish Kila on Thursday, 10th October. Ashish shared his thoughts on “Ranking of Business Model framework to select and allocate to great businesses”. Key takeaways of the session are as follows:

He presented the 4 C’s of investing – Cloning, Checklist, Capital Allocation and Checkout and elaborated on each one of them

  • Cloning – creating a universe of business to then further study. He suggested reading and following the domestic and global legendary investors and see the current themes going around globally, like QSR, food delivery, staffing
  • Checklist – selection of a stock based on 5 essential qualities (in the order of preference). All criteria need to be satisfied
    • Management
    • Longevity
    • No structural headwind / long term tailwind
    • Scalability
    • Favorable industry structure
  • Capital Allocation – Select on the basis of upside (using checklist) and then size them on the potential downside. Position sizing is the primary driver of portfolio returns. For this, he focused on 6 desirables
    • Valuation
    • Annuity
    • Switching cost
    • Optionality
    • Side Car Investing
    • Ability to capture dominant market share
  • Checkout

Ashish made the session extremely interesting by giving various examples in Indian context with each of the above points. He made a framework of ranking businesses on X-Y chart where X-axis showed Annuity and Y-axis for Switching cost.

The session ended with few questions from the participants and followed by the networking dinner.


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Financial Talent Summit, Mumbai

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CFA Society India organised 3rd Financial Talent Summit in Mumbai on September 28, 2019. Full day event covered the topics on emerging career areas for CFA candidates and charter holders also the skill sets required to get into those. Key takeaways from various sessions are as follows:

Session on “Moving Minds : The Power of Conversational Influence”

Presented by : Joshua Davies, Principal Consultant at Knowmium

Moderated by: Jayesh Gandhi, CFA

Contributed by : Vaibhav Jain, CFA

Joshua Davies, Principal Consultant at Knowmium, was the keynote speaker, kicking off the speaker series at the FTS, with the subject “Moving Minds: The Power of Conversational Influence”. Key take always from the session:

  • The session started with the theme of role of positive influence, how soft skills about communication and empathy are far more important than technical skills when one moves up the career ladder
  • Joshua involved the audience in practical games where 2-member teams were formed and were given an exercise to demonstrate the relevance of influencing abilities, listening and building trust
    • How did one frame the request, position one’s view, who spoke more, was one able to build trust and how did the partner view your request – was it a compromise? He suggested that to establish trust in first meetings, do the through research on the person or company you are meeting and open up genuinely.
  • Knowing vs doing– it’s very easy to know and understand the problem but difficult to actually implement that. This was again demonstrated by a practical thumb finger exercise
  • Discussion on triangle of Context-Character-Culture
    • Context is the situation – family, co-workers varies
    • Character is the individual variation even when they are from same demographics
    • Culture is the different cultures depending upon the geographical regions
  • Compared different cultures based on countries and the conversational overlaps that might create confusion or misunderstanding if one is conversing with a person of different cultures without having knowledge about it. Hence, it is important to understand the cultural aspects while communicating across geographies. Like some culture can be high context and others might be low context.
  • When do we go with a push or a pull in conversation – this depends on the situation
  • Building trust – Move from transactional to relationship orientation. Study up, show up, open up, follow up
    • We need to move a person from point A to point B, which isn’t a straight path but involves a lot of Stops. An efficient communicator is to build the trust and move the person from point A to point B efficiently
  • Audience Analysis– always prepare well before going to face an audience. Before going into a conversation, write 5-10 questions what other might ask you
    • Whoever controls the questions controls the conversation
    • Ask more open questions, dig deeper when asking questions
    • Move the conversation back and forth

This was followed up with a brief Q&A round


Session on “Emerging Opportunities for CFA Careers in AIF Industry”

Presented by: Manish Makharia, Business Head – Alternative Investment Fund, SBI Funds Management

Moderated by: Litesh Gada, CFA

Contributed by: Vaibhav Jain, CFA

  • He started off with asking the audience if anyone was working in the AIF industry and following up with who wants to get into this field and why
  • After getting a sense of the collective wisdom of the audience, he defined Alternative Investment Fund as a capital raising instrument when capital available from traditional sources gets exhausted or is unavailable
  • Discussed the regulations around AIF, with the SEBI as regulator came up with AIF as an asset class in 2012, after PMS regulations came up as early as 1993
  • Defined the characteristics – type of capital, investors, management, liquidity, customization, etc
  • Listed out major players in various segments
  • The industry has been growing massively with total private market fund raising expected to reach $7.5 trillion by 2023 (CAGR of 8%)
  • Government has been very supportive for AIF Industry with launch of GIFT City, opening up FDI investments and HNIs / FPIs are encouraged
  • Wrapped up the session describing various facets and departments in an AIF and what sort of skills are needed to get into those divisions.
  • He clearly emphasized that AIF is high risk high reward industry. One has to be clear as to which part of AIF industry one wants to work PE/VC or hedge fund as both require different skill sets and it is difficult to move from one to another. To consider AIF as a career option, one must keep in mind that profession is quite demanding and requires patience and dedication to establish oneself in the industry.

Followed up with a Q&A round


Session on “Emerging opportunities for CFA careers in Distressed Asset investing”

Presented by: Sourav Mishra, CFA, Head of structured credit, HSBC

Moderated by: Jayen Shah, CFA

Contributed by: Rajni Dhameja, CFA

Session started with Jayen briefly explaining the various segments in credit markets and how top rated segments differ from high yield segments. He introduced Saurav Mishra and the session started. Key takeaways:

  • Credit markets is an opportunity for CFA candidates and charter holders as the work involves analysis of the companies
  • The emerging areas in credit markets apart from traditional credit is in distressed credit
  • Introduction of IBC has created opportunities across the value chain
  • One must understand the nuances thoroughly hence it is important to be detailed oriented as identifying a distress company where funds can be deployed can be quite challenging
  • Patience and perseverance is a key to succeed in this space as closure of one deal can be long drawn process. Sometimes the deal gets dropped after some amount of time and effort is invested in it
  • After a lot of effort, when distressed asset gets revived and brings livelihood to the people who were affected by it, that is the point of ultimate satisfaction which brings purpose to the job


Session on “Are you data science ready? Skills for investment professionals”

Presented by: Dr. Jatin Thukral, CFA

Moderated by: Shreenivas Kunte, CFA, Flipkart

Contributed by : Priyank Singhvi, CFA

Science is the science of extracting actionable insights from data. This data can be both structured and unstructured. It employs techniques used from Statistics, Mathematics and Computer Programming. Deriving insights from data has been going on for a while but what has changed over the past few years is that the sheer scale of this has changed on back of advances in technology, telecommunications, social media and machine learning. There has been explosive growth in generation of data and ability to store and analyse that by businesses. This has in turn lead to exponential growth in jobs in this field. Harvard Business Review has called the jobs in the field as the sexiest jobs of the century.

Data science is used in finance in multiple ways like customer experience enhancement, risk management, assent management, FinTech and data monetization. The customer experience is enhanced through applications like personalized customer service, chatbots and voice recognition, etc. Use of data for through activities like better fraud and money laundering detection, insurance automation, etc. is used for risk management. Asset management sector used data science in managing quant funds, algo trading, etc. App based loan approvals and disbursals are examples of use of data science in FinTech.

Data Science is disrupting the financial sector by increase in productivity and emergence of new business models. These are manifested through the following techniques:  automation of the processes, scalability through analysing vast data, big data engineering, ability to use alternate and unstructured data, deriving consolidated insights by combining various week data sets. To illustrate application of these techniques, the speaker elaborated on use in the rapidly grown sub-sector of Quant Funds.

Quant Funds are the funds that extensively use quantitative techniques for security selection. Till about early 2000s most quant funds mainly used simple economic indicators and ratios like PER, div yield, etc. But in mid 2000s quant funds started using more complex data sets and by late 2000’s they started significantly outperforming fundamental based funds. Use of data science started becoming a differentiator for the more successful ones. Data science allowed these funds to achieve unprecedented scalability of insightsfor example machines to read millions of sell side reports, or, messages on investor forums, in a manner that is humanly impossible. Similarly through techniques of big data engineeringit is possible to find patterns across billions of orders, or, to identify biases like herding in millions of order flows. The more imaginative ones have started using alternate data sets, like ship booking to assess sales outlook of the management, or, analysis of employee boards to assess staff sentiment, etc. Advancement in technology and data science have also allowed to process unstructured data sets like biases hidden in texts of analyst conference calls, or detect signals hidden in central bank interviews, traffic and parking data to assess a malls sales, infra demand etc. as was done by some to correctly value REIT’s of sparingly occupied Chinese townships.

After success of data science in Quant Funds, some fundamental and value investors started applying it in their analysis and their success has led to wide understanding that it is not a technology fad and has applications across various segments of finance.

Today financial institutions are the biggest employers of data scientists. Data science is a vast field and requires two groups of skills: Math and Computer/Programming Skills. Statistics, machine learning, deep learning, artificial intelligence are the key math skills required in data science. Within programming, Python, is the best starting point. Learning is a journey and most popular skills is a good way to start. Afterall there is a reason why they are the most popular skills!

This was followed up by Q&A round with Shreenivas Kunte


Session on “Careers in Wealth Management and Private Banking Industry”

Presented by: Anshu Kapoor, Head of Private Wealth Management at Edelweiss Financial Services.

Moderated by: Gajendra Kothari, CFA

Contributed by: Vaibhav Jain, CFA

  • Anshu commenced the narrative by highlighting his career trajectory, that he never intended to get into Wealth industry but eventually moved towards it. In fact, back in 1990s when he started, this industry didn’t exist fully
  • Anshu showed how big the Wealth industry today in India is with growing number of HNIs and promoter families at a large pace
  • Compared to global market, India is still small in terms of coverage of individuals by professional wealth managers, so there is a lot of scope. Demand isn’t a constraint
  • Currently, billion dollar individuals in India are around 140, more than that of Japan
  • So what exactly is wealth management? As Anshu defines it – “helping clients spot opportunities and trends and protect them from risks”, hence it’s not only investment management but way beyond it
  • What competency is needed for a career in wealth management? – knowledge about various asset classes, financial markets, knowledge of global economy, products and services and technology
  • Empathy is one of the most important soft skill a wealth manager should possess
  • Other soft skills required are constant curiosity, imagination, global perspective, dealing with volatility and having patience

This was followed up by Q&A round with Gajendra Kothari


Session on: ” Getting Hired ! Landing your dream Job”

Presented by : Nalin Moniz, CFA, CIO, Alternative Equity, Edelweiss Global Asset Management

Moderated by: Jayna Gandhi, CFA

Contrbuted by: Rajni Dhameja, CFA

This was the last session in the conference. The earlier sessions focused on what are the emerging areas where one can look for the jobs and what are the skill sets required for those jobs. This session was about the next step, about how to get the job!

Nalin started with discussing the 5 real life examples who have taken unconventional path to land their dream jobs. 4 examples were of his mentees and the fifth was his about his career journey as he transitioned from overseas to India. He guided about the commonality across 5 examples. Following are the key takeaways on how to land your dream job:

  • Always be up skilling : Keep on learning the skills which are important for the role you aspire for
  • Network in focused and thoughtful manner: Connect with people who are part of industry in which you aspire to go
  • Have a goal in mind and then work backwards
  • Don’t be afraid to take risks in lateral shift. Sometimes you get internal opportunities in the roles you aspire for, don’t be afraid to take risk on those
  • Entrepreneurship can be fast track. Sometimes being entrepreneur brings you the opportunities which you have not imagined for

He emphasized that celebrate your diversity. Celebrate what makes you unique. This will help you to bring the value addition which is unique to you.

This was followed up by Q&A round with Jayna Gandhi


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Market Outlook-October 2019

Contributed By : Navneet Munot, CFA , CIO, SBI Funds Management Pvt Ltd and Chairman, CFA Society IndiaNavneet-Munot

The sharp economic slowdown of the past several months had necessitated policy action at a war scale. The Government responded with big bang reform on corporate taxes. The sharp cut essentially represents a huge transfer from the government to the corporate sector. In our view, this move underlines the government’s belief that it is the innovation, efficiency and enterprise of the private sector that will drive growth while the government plays the role of a facilitator in business.

While this move doesn’t directly address the near-term demand weakness beyond providing a sentiment boost, this is an important step towards reviving the investment cycle. Followed with appropriate regulatory realignment, this would also help in bringing in foreign manufacturing as global supply chains readjust. This in turn should create employment leading to sustained consumption and growth. In fact, the consumption driven growth of the past few years while investments struggled was unsustainable as incrementally this consumption was being financed through dipping savings and increasing leverage, as income growth severely lagged.

There are concerns around the implication on fiscal deficit. While the fiscal pressures are for real, the government has levers to address those. For one, the move should strengthen the government’s resolve to shore up its finances through asset monetization and strategic divestments. Similarly, there is room for significant increase in GST compliance as collections have run way below expectations so far. The time is also ripe to relook at subsidies. The experience with fuel subsidy was very encouraging. With better adaption of Direct Benefit Transfer (DBT), food and fertilizer subsidies can also be rationalized.

Given the global backdrop, the tax reform assumes greater significance. There is enormous uncertainty globally, from frail economies to rising geopolitical tensions: trade tensions between US-China and Japan-Korea, Brexit, Hong Kong, the middle east to name a few. India being integrated with the rest of the globe is bound to be impacted, yet this can be our opportunity to stand out and stand tall. Amidst all the chaos, India can carve out a position of strength for itself owing to several factors.

India for one is a large and stable democracy with a strong political leadership. At a time when the world continues to experiment with unconventional monetary policy, India has been relatively prudent on monetary and fiscal fronts. While the world is grappling with excess leverage, we have modest debt to GDP. When currency is increasingly being used by countries as a tool against economic challenges, India has largely left its currency to market forces. Globally while policy uncertainty has been on the rise, India has been cracking down on corruption and black economy and improving the ease of doing business. When climate change is emerging as the biggest risk, India is already taking a lead on environment (non-fossil fuel adoption, ban on single use plastic, water conservation to name a few) despite the stage of our economic development.

The common theme across all these, be it strong democracy, prudent fiscal and monetary policy, market determined currency, modest leverage, crackdown on black economy or environment and social security initiatives, is that we have ingrained sustainability in our development model. And in that context the fact that the government has sought to revive investments through corporate tax cuts rather than wasteful consumption emphasizes its focus on the structural rather than here and now. At a time when investment opportunities are scarce globally and money is abundant, India can be an oasis of hope for foreign capital. Yet, in spite of the inherent strengths of our model, we shouldn’t be counting our chickens before they hatch. There is a tremendous lot to be done before we hope to be a truly viable investment destination for the world.

Starting with sustainability, one remarkable achievement has been the empowering of masses as a way to sustainable development. The integration of the rural masses with the mainstream through road, electricity, financially, digitally and through improved social security should go a long way in rural India catching up with urban India. The resultant rise in their aspirations has to be positively channelized to move the large population employed in relatively unproductive agricultural activities away into more productive sectors by reskilling them. Within agriculture, reforms such as farmer education, land record digitization, investment in logistics and food parks and contract manufacturing to name a few have the potential to significantly improve productivity.

Being a country deficient in risk capital, we need to do more to channelize both domestic and foreign savings. A sovereign bond offering in local currency can do a lot of good to building credibility around Rupee as well as India. Effort should be made to get these local currency bonds included in international bond indexes. An associated outcome will be a better bargaining position with rating agencies. These are vital as we have humongous investment needs for infrastructure build up. Given the challenges faced by private sector in the previous cycle, asset recycling, by inviting long term investors in infrastructure assets to free up capital for further asset creation, has to be the dominant funding model.

While raising investment rate is a prerequisite to raising domestic savings, these savings have to be better incentivised to move to financial assets rather than physical. Especially flow into equity markets remains abysmal denying corporates the much-needed risk capital. Corporate tax cut is an important step; the government should evaluate following it up with removal of long-term capital gains tax to encourage equity flows. Jan Dhan has been a great success story on financial inclusion. How about Jan Nivesh to encourage more financial savings?

A direct tax code with a significant simplification and lowering of personal taxes will go a long way in channelizing savings. A radical simplification of tax filings, through measures such as Aadhar linkage, app-based interface or faceless pre-assessment, can be a significant boost to tax compliance and collections. And not to forget the behavioural aspects of it all, we wonder what changing the name of income tax to something like Swabhimaan Yogdaan and GST to Rashtra Nirmaan Yogdaan will do to willingness of Indians to pay their share of taxes!

Finally, investment cycle won’t revive without a revival in business sentiment. After a period of what many commentators believe to be regulatory and judicial overreach, the PM in his Independence Day speech acknowledged the need to respect wealth creators. The current tax reform is an important step in that direction. Regulatory environment needs to align with taxation now and soothe more nerves to unleash private sector’s enterprise. While these tax cuts help private sector deleveraging, focussed approach on NPA resolution and bank recapitalisation is needed to kickstart credit growth.

Financial sector is the life-blood of the economy and addressing challenges in that space is of utmost importance, especially given the role reflexivity plays in shaping the real economy. NCLT like framework to deal with stressed entities in the financial sector, refinance window for illiquid assets with appropriate haircut, steps to revive real estate and MSME sector, a scheme to provide priority debt to stalled but viable projects that are NPA are some of the steps needed. While ensuring abundant liquidity, a strong message that “we will do whatever it takes” along with swift and coordinated policy response are needed to alleviate the current stress and set in motion a virtuous cycle.

Bond yields have spiked on fears of fiscal slippage post tax cut announcement. Given the local growth-inflation dynamics, weak global growth and commodity prices, and given these tax cuts don’t do much to inflation expectations, we expect the RBI to remain accommodative. Given the already elevated term premium, expect yields to cool off as a result.

Equity markets aren’t discounting a new investment cycle yet given the concerns around financial sector stress. The recent up-move therefore has barely mimicked the upgrades to FY20 earnings owing to tax cuts. However, with corporate profits to GDP at multi-decade lows, mean reversion may be in order. Investors should take comfort that Government is intent on decisive structural reforms to fortify India’s position in the global arena.

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Session on “A Practitioner’s Insight on Manager Selection” by Ms. Geeta Kapadia, CFA

Contributed By : Tarun Gopal


The term “Manager Selection” is always a buzzword in the universe of institutions like Pensions, Insurance, Foundations, and Endowments etc., as this decision pretty much defines the fate of their Investment goals. To share some insights and best practices, the Delhi chapter of CFA Society India organized a session on Manager Selection on 9th Aug 2019, which was conducted by Ms. Geeta Kapadia, CFA. She’s a senior Investment strategist at Yale New Haven Health System, where she is responsible for assets under management (AUM) of approx. $3 billion.

In this session, Ms. Kapadia shared some valuable insights of how she and her team select the manager for their Investment portfolio at Yale New Haven and most importantly what they look for in these managers which form the basis for their judgment.

The session started with Ms. Kapadia’s three golden mantras that they look for in the managers at Yale New Haven and the associated questions, which one needs to address before selecting/ rejecting a manager. These were as follows:

  1. Experience:
    • How long have they managed or been managing assets?
    • Over what cycles have they managed these assets?
    • What sort of firms do these portfolio managers have worked in the past?
    • Do they have experience in owning and managing a firm?
    • What are their personal management/ mentoring styles?
  2. Alignment:
    • What’s the client base of this manager? How long have their longest clients been on board?
    • Does the firm have an advisory board and who’s on it?
    • How do their investment professionals get compensated?
    • How are fees determined and shared?
    • What is their strategy’s stated capacity and has it changed?
  3. Edge:
    • What does the manager say which makes them different? And what are the factors which actually makes them different?
    • Which other manager(s) have a similar process/ philosophy?
    • What differentiates this manager from its peers in terms of performance and strategy?
    • What do their clients and competitors do?

Ms. Kapadia emphasized that these were the general considerations which everybody should look for.” But even these considerations don’t define the success and desired goals of the portfolio”, she added. She then went on and shared some examples from her personal experience where this selection process didn’t work and defeated the purpose. She also shared the lessons she has learned from these instances which has guided in her career.

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Manager A: PM Failure


  • This manager was one of the top 50 hedge fund which was founded in 1991 and was operating as Fund-of-fund in U.S.
  • Firm was handling around $3 billion of AUM through a single office.
  • This was a focused small team, managing assets for many years together.
  • In 2013, founder and CIO were charged with solicitation.
  • Afterwards, the firm continued business as usual.
  • Firm then experienced immediate redemption and shut down in 2014.

Lesson Learned:

All the due-diligence in the world cannot guard against one-off events.

Since these events doesn’t form part of the due-diligence process it’s hard to predict events like these which could affect the manager’s reputation and triggers redemption.

Manager B: Headline Risk


  • This manager was also with a hedge fund which operated as Fund-of-fund in U.S., with $98 billion AUM and growing.
  • Firm was frequently in news due to a Managing Partner’s interest in politics.
  • In 2017, Trump White House announced that this Managing Partner would join the administration.
  • A sale of this Manager B firm to two Chinese financial firms was announced in 2017.
  • Managing Partner stepped down from his role at Manager B firm to join the administration.
  • The announced sale was then cancelled and Managing Partner returned to the firm.
  • These news triggered redemptions resulting in liquidation at unfavorable terms.

Lesson Learned:

Uncertainty breeds more uncertainty.

With this example, Ms. Kapadia stressed on the uncertain events which could spoil the investment goal that you have been framing with a particular manager, with just a headline in the news or bad mouthing. She also stressed upon some additional due-diligence related to key personnel of a manager and their associated outside interests, such as politics, which could deviate that manager’s focus entirely and could further hurt the investment goals.

Manager C: Headline Risk


  • This manager was with a hedge fund focused on credit long/short investing.
  • Firm was little known to the retail investors with $4 billion in AUM.
  • In 2019, a Bloomberg article came out raising concerns about the founder and Portfolio Manager.
  • Firm denied allegations made in that article.
  • Bloomberg then made few small corrections.
  • By this time, most of the damage was already done.

Lesson Learned:

It’s better to give up some upside rather than be the last one out of the door.

With this example, Ms. Kapadia shared her learning of not just focusing on upside potential of returns with the manager, but rather taking a timely judgment call to get out of the relationship.

Manager D: PM Departure


  • Portfolio Manager(PM) and supporting analyst team had recently joined a large, global investment management firm with a parent company in U.S.
  • This PM was highly regarded and was considered as a star PM in the investment world.
  • Kapadia and her team personally went to congratulate him and his team.
  • PM acted as a boutique team within the large firm, but this wasn’t a sustainable arrangement from parent company’s perspective.
  • PM attempted to negotiate with the firm.
  • None of the analysts were senior enough to lead the team in absence of PM who had decided to depart by that time.
  • Redemption then quickly followed the news and the firm had to close its strategy.

Lesson Learned:

Consider who the ultimate owner of the firm is and what their incentives are.

With this example, Ms. Kapadia stressed upon the importance of not following a particular person for the investments objectives, in this case the star PM of the firm. Always consider the scenario and the impact it might lead to the investment performance in the event of departure of these key personnel.

With these examples, Ms. Kapadia reflected again their own factors which they consider at Yale whenever they have to select a manager for their portfolio. These are Experience, Alignment and Edge. In addition to this she also shared that they usually look for the managers who are comparatively smaller in size and are operating under the umbrella of around $2 billion of AUM.

Overall, this was a great and informative session where participants had an amazing interaction with Ms. Kapadia. Many of them asked their real life issues they face in their own professional arena and asked for her opinion and how she would have handled those scenarios.


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Article on “Importance of Sustainable Investing” by Mr. Navneet Munot, CFA


Contributed By : Navneet Munot, CFA , CIO, SBI Funds Management Pvt Ltd and Chairman, CFA Society India

  •  There is a need for large fund houses to take the lead on sustainable investing
  •  Long-term growth of the economy will happen when firms will focus on sustainability

Mutual funds are trustees of people’s money and owe a fiduciary duty—first to their investors and then to the community at large. It can be best served, not by trying to maximize short-term profitability, but by ensuring optimization of long-term return and risks.

As part of our fiduciary responsibility, value system and risk management strategy, it is our core belief that a business run in the best interests of all stakeholders seldom fails to create lasting value for its investors. Investing is an approach where apart from financial considerations, one looks at environmental footprint, social impact and governance factors of the investee companies. Companies focussing on triple bottom line (people, planet and profits) deliver sustained returns over a long period.

Environmental risks are bound to gain prominence in India. As per the World Health Organization (WHO), India inhabits 14 of the 20 most polluted cities of the world. It ranks among the top three nations to see the highest number of deaths from air pollution. The country is fast pacing towards becoming a water-stressed zone. As per a NITI Aayog study, 40 cities are likely to face drinking water shortage over the next decade. There are serious concerns about soil degradation in India and increased oceanic acidity world over. Rising inequality, with poor literacy and human development index in a democratic society, has the potential to creates risks for businesses as well.

Even as India is growing faster than most other economies, it is still a $2,000 per capita country and is yet to catch up meaningfully in the income ladder. In the process, the resource intensity of consumption is bound to rise. If history is any guide, ignoring the sustainability aspect can be damaging. China serves as a classic example. While high growth facilitated dramatic increase in consumption levels, it led to rapid degradation of the ecosystem, choking pollution and rising social tensions. Eventually, their policymakers had to shut thousands of manufacturing plants.

Some of the policy developments in India too, such as Delhi’s experiment with odd-even cars, move towards BS-VI compliance and now electric vehicles, plastic ban in Maharashtra, plant closures in Karnataka around Bellandur lake were in response to rising pollution. We witnessed social backlash, leading to a copper plant closure in Tamil Nadu, Supreme Court’s ban on liquor sales on highway and cancellation of coal blocks allocation (with adverse impact on mining and power companies). On the governance front, multiple instances of auditor resignations, excessive leverage, questionable “related party transactions” and accounting issues have recently come to the fore. Such issues may remain unattended for years. But once brought to the surface, it erodes the economic value of the businesses at one go. To sum up, investors can ignore ESG issues at their own peril.

Look at it another way: returns from equity funds are largely a function of the beta (market return) and the alpha that the fund manager generates above the market. Market return, in the long term, is dependent on the economy. Long-term sustainable growth of the economy comes only when businesses focus on sustainability. So, when large fund houses start focusing on ESG, it signals the companies to integrate sustainability in their business practices which, in turn, creates long-term win-win for all. Globally, large pension funds started putting pressure on fund managers to adopt ESG in their fund strategy.

Further, there is growing global evidence of better risk-adjusted performance of ESG strategies, which is also contributing to rapid growth in their assets under management. Even in India, the Nifty 100 ESG index has outperformed Nifty 100 index across time periods.

It has been challenging for us to implement the framework due to inadequate data availability. However, regulatory requirement of sustainability reporting now applicable to top 500 companies has helped. Over time, the policy nudge combined with better data and analytics will facilitate a more systematic approach towards it.

As part of the ESG framework, we look at around 50 parameters across the governance, environmental and social aspects, with the emphasis being in that sequence. These include energy and water consumption, carbon emissions, use of renewable energy, waste management, long-term impact of companies, products and business on environment and society, supply chain, relationship with workers, government and local community, among others. The relative importance of these parameters differs across sectors.

Advocacy is a critical part of responsible investing strategy and we work with several institutions to sensitize Indian companies as well as investors about the importance of ESG compliance for its long-term success. Over and above exercising voting rights, we actively engage with our investee companies on ESG-related matters.

The best preparation for tomorrow is doing your best today. Asset managers should pull up their values-based socks as the need to invest with an eye on environmental, social and governance issues will only get stronger.

(The article was originally published on Live Mint at – )


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Session on “Know your country” by Mr.G. Maran

Contributed By: Parvez Abbas, CFA


On July 13, 2019, the Delhi Chapter of the CFA Society India organized a session with Mr. G. Maran, Executive Director of Unifi Capital. The topic was ‘Know Your Country’. Mr Maran had a unique way of presenting. He along with his team had collated some interesting facts about India in a Q&A format. The audience were given 25 questions and three options to choose the correct answer. The questions were picked from various subjects about India. The idea was not to test knowledge but to help understand our country by knowing the past and current trends and how to interpret them to identify future winners. Mr. Maran, in his unique style, added data points and insights to every question. Some of the questions discussed are mentioned below:

Q: Which of the following has one of the Top 20 busiest airports in the world?

(a) Delhi (b) New York (c) Singapore

The answer is Delhi. Delhi airport handled ~69 million passengers last year. Delhi was not even in the list 10 years ago.

Q: Which is the 2nd largest Indian state in GDP?

(a) Gujarat b) Tamil Nadu c) Karnataka

The answer is Tamil Nadu though it does not have great industry like Gujarat and great services sector like Karnataka. However, Tamil Nadu invested in education. During 1960s and 70s, Tamil Nadu had 7% of the country’s population and ~23% of the colleges opened in the country. In 1993, the state had many districts with 100% literacy rate. Mr. Maran explained that with high literacy rate, life expectancy is high (~83 years in Tamil Nadu) and productive population age group (between 15 to 65 years) is high, which is a driver of GDP.

Q: India’s GDP derives 15:25:60 proportionately from agriculture, manufacturing and services. What proportion of our population is dependent on agriculture, manufacturing and services?

(a) 45:25:30 b) 60:20:20 c) 25:40:35

The answer is 45:25:30. At the time of independence the proportion was 60:15:25. At the time of independence, ~76% of the population was dependent on agriculture which was 60% of GDP.  Mr. Maran pointed out that the problem is 60% share in GDP has come down to 15% but still 45% of the population is dependent on agriculture. This translates to per capita income of just ~$700 in agriculture in stark contrast to ~$4000 per capita income in the services sector.

Q: India’s life expectancy rate is 68 years now. What was it when we got independence in 1947?

(a) 30 b) 50 c) 75

The answer is 31. Mr. Maran made the audience to think about the productivity of the country when on an average a person dies at the age of 31. Mr. Maran further explained the denominator bias. Of the people who survived at the age of 30-31, they lived longer and we conclude that life expectancy was higher during 40s and 50s which is not true.

Q: According to World Economic Forum, how many of the top 10 cities (GDP growth wise) in the world are from India?

(a) 3 b) 7 c) 10

The answer is, all 10 are from India. Mr. Maran told that the problem is only 1 out of 10 is from North India and none from East India. Most of these are from South India and they are growing at a higher rate compared to other cities of India.

Q: There are 6 countries in the world that has more land mass than India. India’s agricultural yield per land is less than world average. What is India’s rank in global agricultural output?

(a) 7 b) 17 c) 2

The answer is 2. Mr. Maran put a question to the audience how can we have 7th largest capacity and under-utilization of capacity but still the 2nd largest producer of product in the world. This is because of climate. The other 6 countries though larger in size but have less arable land.

Q: Oil is the largest net import item of India. Which is the second largest?

(a) Coal b) Gold c) Electronics

The answer is Electronics. Gold was the second largest item 3 years ago. Mr. Maran explained that electronics is the second largest because 2/3rd of India is aged below 34 and half of that is woman. Women are not buying as much gold compared to the prior generation and hence gold volume is declining. Mr. Maran said that we are living in the world of big data but many of the multibaggers come from small data. He advised if one understands that small piece of information one can know where to look for future returns.

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Through these questions, Mr. Maran touched upon various trends in the Indian economy. Mr. Maran talked about the middle-class population which forms 78th to 96th percentile of the population. Overall, there are 270 million households at an average of 4.9 persons per household. So middle class population is roughly 18% of households, which is close to 50 million. Even though this is just 18% of households, yet this is a huge consumer market in the world. He also talked about that only 14%-15% of India’s GDP is from exports and rest is from domestic. Yet, we get concerned about the health of the Indian economy thinking 56% of revenue of companies in the Sensex is from international markets. He advised that we should be concerned as an investor if the portfolio companies’ earnings are dependent on global events. A company which generates its revenue from the domestic economy would not be affected by global events. We give disproportionate importance to things that are less direct.

In 1991, direct tax revenue of India was less than Rs. 12,000 crs. ($260 billion GDP) but now it is ~11.5 lakh crs ($170 billion; $2.6 trillion GDP). Direct tax collection has improved dramatically through better compliance and increase in income levels.

He explained why many things that work in the global markets do not work in the Indian market because promoters are the dominant shareholding class. Only 2 out of Dow Jones 30 companies have promoter stake above 10% whereas more than 20 Sensex companies have promoter stake of more than 40%.

Mr. Maran concluded the presentation with an exercise for the audience. Each person has to choose a number between 1 to 100. The winner would be the one who has chosen 2/3rd of the number which majority chose. In 1997, this exercise was conducted by Nobel Prize winner Richard Thaler by publishing a letter in Financial Times newspaper. Mr. Maran told that he had conducted this exercise many a times and every time the answer comes close to a range. If majority chooses 67 then a person thinking one step ahead would choose around 44 (2/3rd of 67). A person thinking that majority would choose 44 by this logic would choose around 30 (2/3rd of 44). If majority chooses 50 then 2/3rd of that would be 33. So a person thinking one step ahead would choose 22. So, if one has to be a successful investor then one should think ahead of the rest. He explained with an example that if the average age of a home buyer is falling then a level one thinker would buy housing finance companies. A level two thinker would buy real estate companies and a level three thinker would buy ancillary companies.

Mr. Maran explained that in P/E ratio, earnings drive the price and not the other way round. Performance of a company drives perception. A good stock picker should have the skills to evaluate the earnings of a company. For earnings growth, one should know the drivers of earnings growth which means one has to think ahead of the majority.

Mr. Maran emphasized that trends keep on changing. In 1991 when India was less than half a trillion-dollar economy, steel, cement, power and textiles sector constituted more than 50% of the Sensex and financial services was just 3%. In 2004, when India was a $1 trillion economy the weightage of the above four sectors shrunk to ~20% of the Sensex. IT, pharma and engineering constituted 50% and financial services sector was less than 10%.  As of now, these three sectors constitute less than 20% of the Sensex and financial services sector is 40%. Mr. Maran said that we always see the leaders of the economy in the index. There are various elements of consumption that are extremely fragmented where leaders are emerging one by one.

In his closing remark, Mr. Maran advised the audience that if one is informed and familiar of the surroundings, an agile consumer and an average person with not a high intellect but a good temperament then one can become a good investor.

Link to the session video –

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Session by Mr. Neelkanth Mishra at Masters at Work (MAW) event, Kolkata-2019

Contributed by Soham Das, CFA

On 29th June 2019, Neelkanth Mishra took the stage to speak and shed light on the nature of the current economic slowdown. His topic, “A cyclical and not a structural slowdown” was written boldly on the top of an otherwise bland slide, with a blue patch running across it. Mr. Mishra, the Managing Director of Equity Research at Credit Suisse, brought a robust economic perspective to uncover the nascent trends in the Indian economy.


He started with a clear acknowledgement of the slowdown Indian economy is in. Investing community is reeling from a “sense of crisis”, he alluded to the crisis in Indian non-banking financial companies (NBFC). Yet he predicted that the slowdown is a cyclical one and not a structural one. However, he added ominously- that pain is not over yet. He pointed, that Chinese will not expect an 8% growth anymore. He added, that there is a structural slowdown and their size of the economy is a much tougher anchor to get rid of. “All “they” (read: China) are aiming for right now is 6%”, Mr. Mishra elaborated and added, “there is acknowledgement in the government circles, that 4% is where they will glide to”. Drawing a sharp contrast to our neighbor, he assured that India should be back expecting 8-8.5% in the next fifteen to eighteen months, albeit not without significant pain in the short term.

Surprisingly, Mr. Mishra observed a very astute and often ignored factor – that of state capacity.

His logic was ironclad. Earlier when India was 15th or 20th largest nation in the world in terms of GDP, there was a lot of lee-way in not building deep reforms. He reminded that India plucked low hanging reform fruits and triggered growth. But as India grows with a $3Tn economy keeping and sustaining an 8% growth will take a lot more effort from government, Mr. Mishra reminded the audience. Achievable? Yes, but will need work, he added cautiously. Indian government needs to expand its state capacity to deliver the next stage of reforms.

He further added, that while India’s tax to GDP is among the lowest in the world, the tax rate of the formal economy was at the highest levels, almost at par with OECD countries. This constrains the government to improve its “presence” in areas where it needs to. As a result the capacity of government to deliver the public goods is constrained.

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Broadly, Mr. Mishra structured his talk around three “pillars”- an acknowledgement of the slowdown, reasons why the slowdown is a “phase”, which too shall pass and the risks which can seriously jeopardize the unfolding growth story of India.

Pillar 1: India has slowed down

  1. Simmering Slowdown: Growth has clearly slowed and continued to weaken in Q1’19. The slowdown touched high value discretionary first, moving to low-value discretionary items and is firmly into the staples as well. However, the nature of the slowdown is not that of a “raging” forest fire, but more that of a slow-burning kind. The broad based indicators like fast moving consumer goods demand, oil and power demand etc. have tapered off.
  2. Fading Effects: An under-appreciated phenomenon in Indian macro-economic analyses is    the effect of Pay Commissions and its linkage to consumption. Each Pay Commission kickstarts a fresh cycle of consumption, as arrears are paid. Furthermore, instead of a one-time spike in consumption, such a revision creates a new normal for an extended period of time. Mr. Mishra observed that the effects of the 7th Pay Commission boosted consumption is fading,as increasing number of Indian states implement the recommendations of the commission. The last state to implement the recommendations was Maharashtra, which completed in Jan 2019As a result, we are right now at the fag end of the cycle and the consumption boost afforded by the Pay Commission is now waning.
  3. Credit Plumbing not functional: Credit creation has stopped with public sector banks (PSB) relinquishing their mandate to lend with government trying to reduce the dependence of economy on them, just like it successfully did in telecom with BSNL and MTNL. The vacuum left by PSBs were filled with NBFCs and Private Sector Banks. But with Private Sector Banks not wishing to grow beyond 2x GDP and NBFCs faltering in their stressed situation, credit supply has come to a halt. As a result, the growth in money supply(M3) has lagged GDP growth for the last 2 years.
  4. High Costs, Low Inflation: The only way, to boost credit growth is to cut the cost of credit, which Mr. Mishra eloquently pointed out is still 200-250bps higher than it should be. The key thrust of his logic was simple – even with inflation falling drastically, the rate of interest has barely budged.

Pillar 2: Cyclical and Not Structural

  1. Supply Chain Bullwhip: A slight fall in consumer demand creates huge fluctuations down the supply chain, which is what we are feeling right now. He posited that when consumption demand picks up, the “whip” will move the other way.
  2. Good omens in under-reported data: Financial savings is at a 9-year high and this is highly under-reported. Mr. Mishra, makes the point by drawing a contrast between two charts, one that is reported by private players and the other is government reported. What do the charts show? One chart, clearly showed a bar graph rising higher and higher with every successive period since 2014, with the last and the latest bar shooting up significantly. The metric? Mutual Fund Flows. Mutual Fund flows have consistently risen in the last few years and significantly accelerated in the last 5-6 quarters. The government reported numbers on financial savings are highly skewed and under-report the statistics with barely any ‘movement’ since 2014.
  3. Encouraging Private Capex Activity: Private capex is holding up and is expected to continue. While the growth mix of Indian economy is shifting towards investments, but the rate of capital formation in proportion to GDP has fallen.

Pillar 2.5: What government has to keep doing, to keep the growth on track

  1. Invest in roads: Roads have huge positive externalities, building and spurring growth in a region. Drawing comparisons between two villages, one which benefited from road linkages and one which didn’t, Mr. Mishra made it amply clear the reason why roads are catalysts of growth. Road linkages spurred an increase in land prices, access to urban markets and increase in gainful employment. As a result, he articulated that investing in road network has the ability to spur growth in a region.
  2. Invest in energy production: While China has a rural penetration of 95% in white goods, India has to reach that level and good quality electricity generation is prime need of the hour. Mr. Mishra later on added another dimension of the current energy paucity that India faces. With two thirds of Indian household dependent upon firewood, crop residue etc. to cook food, the loss to public health, environment and productivity is substantial.
  3. Invest in mobile connectivity: While our mobile penetration has skyrocketed, we are still 6-7 years behind Indonesia. With increasing primacy of data, any investment in connectivity will play out along Metcalfe’s Law of networks. Mr. Mishra highlighted that as India’s usage of phone screen time and social media explodes, so will growth opportunity by forming informal job networks. He posited, by 2020 about 96% of Indian population will be connected.

Pillar 3: Addressing risks to prevent the cyclical slowdown from becoming structural

  1. Government needs to invest significantly in energy production. India needs more energy and more dense forms of energy to facilitate growth. He articulated that, energy consumption and growth are highly interlinked, as productivity can be improved only if energy consumption and thus production increases. Mr. Mishra articulated that even though many would disagree, India still needs more coal fired thermal power plants as he quoted statistics on Indian per capita energy usage being roughly 31% of world average.
  2. Mr. Mishra rounded off, his talk by pithily summarizing the current credit crisis as that of the case of only one and half out of 5 credit guns firing- that of the private banks and “half” of NBFCs. The Public Sector Banks are growing significantly below industry needs and NBFCs/HFCs contributing to only 30% of credit demand in Indian markets.
  3. Growing Energy Bills: The energy import bill must be paid through by exports or capital inflows. But if prices are to keep growing at their historical pace of 2-4%, by 2021, the energy bill will be $165B. As exports are faltering and Indian capital inflows close to structural limits, energy costs pose a significant challenge.

Mr. Mishra, in summary, had a highly interesting story to tell. A story where Indian economy has faltered but not yet “out”, slowed down but not ground to a screeching halt, has lost momentum, but has not crashed. Credit and demand have slowed down; macro-economic policies that were poorly coordinated has added fuel to the fire.

Yet, he painted a picture of silent optimism, where he brought out statistics, made perceptive arguments and drew a vivid picture about the silent transformation that is currently underway in India. Be it from growing road networks to mobile networks, to energy networks. Be it increasing usage of cleaner fuels for household use or the agricultural surplus India is enjoying today. Yet, he cautioned, India also faces significant risks in the intermediate term. Exports are faltering, energy production has stagnated and financial system capacity is significantly constrained today.

For India, to break away from the current “orbit” of growth and push itself into a new normal, the government has to take care of energy production and energy costs. No more, can India rely only on imported energy. If it must, then it has to find ways to tackle the rising energy import bill. It was not difficult for the audience to understand what was at stake, if it doesn’t take care of the current energy drought. The conclusion was stark. A paucity in energy will keep India trapped in a paradigm of lower productivity than what can be achievable.

Like a fantastic story teller, Mr. Mishra weaved a narrative through dry economic facts, and painted a picture that spoke of his cautious optimism about the future of India.

Link to the session presentation –

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