 
Prashant
Jain ANOOP
BHASKER RITESH
JAIN |
Business Manager Sukumar Rajah puts himself in the shoes of a businessman before investingOur favourite holding period is forever, so said Warren Buffett about long term investing. Sukumar Rajah, chief investment officer, Franklin Templeton, is one fund manager who will stand by the maxim. After all, as he puts it, you are going to own a part of the business as a shareholder. “One has to take a holistic view of the business and the management and accordingly place a value on the company,” says Rajah. Sukumar has a different reason though why long term investing can yield better returns. He feels the markets are not as efficient in recognising the potential of a company to generate superior returns over long periods because most investors are looking at stocks from a short-term perspective, disregarding the big picture. Quoting Thomas Carlyle, Sukumar says conviction is worthless unless it is converted into conduct. “When it comes to investing, a level head and the ability to step back from the market to be able to take rational decisions is the key to successful investing,” says the engineer from Roorkie University and a post graduate diploma in management from the Indian Institute of Management, Bangalore. Opportunity size, the management’s execution capability and the value a company would be able to create are the key factors that Rajah looks at while sizing up a company. In particular, he looks for excess returns that a company can generate over its cost of capital -- the key to superior returns in stock markets. “It is important to focus on economic value addition. We like to see how the management deploys excess capital, “ he says adding that often times the revenue growth may be robust but that may not be good enough if it comes at cost of profitability. “The ability of a company to manage its profitability and return on capital is critical,” says Sukumar, who loves to play golf. Sukumar and team saw the growth opportunity in the technology space for companies such as Infosys back in 1994. “The organic growth opportunity was immense but the only question at that time was whether the model would be acceptable,” Sukumar explains. Apart from competitive advantage a business enjoys, Sukumar likes to be sure of a company’s ability to innovate and address new markets. He cites the examples of Sun Pharma and HDFC (some of his other successful calls) wherein the management was able to address newer segments rather than continue with the traditional business to accelerate growth. While Sun was prompt in looking outwards when the domestic pharma sector was showing single-digit growth, HDFC was quick to identify commercial banking and other growth segments in financial services such as insurance and mutual funds and build a strong franchise there. And then, Sukumar likes to invest only in companies which are open and transparent. The merit of transparency and high ethical standards, apart from the comfort and peace of mind that it naturally brings, is that the company also benefits in the long run. Since investors are willing to attribute a premium for such stocks, the company can raise capital at a lower cost. If
there is one thing that makes Sukumar and his colleague K N Siva
Subramanian stand out, “It’s not just intelligence or
education but a whole range of attributes which in one term can
be called the culture of the organisation that explains our performance,”
says Rajah, who insists that the investment performance is a function
of processes and philosophy of an organisation than individual instincts.
• HOME Business Standard • FUND MANAGER • October 2006 |
