Sanjay Sinha — The Accidental Fund Manager

Sanjay Sinha is an accidental if not a reluctant fund manager. He learnt the ropes at UTI, where he got into with the design of finding time to prepare for Civil Services exam. However, the all-round skills he developed in mobilising funds, investing them and handling clients and skills he developed in UTI was too valuable to throw away and he could never leave the trade. But the man, now the founder of Citrus Advisors, does not hesitate to say that his biggest investment isn’t in stocks but his children’s education.

Money9 spoke to Sinha to understand how he ended being an investment manager and what were his lessons.

Edited excerpts:

Q: What made you embark upon your journey as an investment manager?

Sinha: That’s a long story. My first love was the civil services. I joined the erstwhile Unit Trust of India in 1989 with the intention that I will happily use my training period to prepare for the tough UPSC exams. While I cleared the exam in my first attempt, I was not able to secure the IAS and the IPS, the two All India Services. I managed to secure one of the Group A services. So, I decided to take the exam again.

UTI then was a growing organisation under the aggressive leadership of MJ Pherwani and later on Dr SA Dave (who was the founding Chairman of SEBI). It was in those days the single largest Indian Institutional participant in the markets. It was an exciting place to work. I decided to stay on and joined IIM Calcutta to improve my competitive skills. UTI being a public sector rotated me on different assignments, but rose through the ranks in UTI fairly quickly. Learnt all the three processes of an MF industry – mobilisation of funds, investment of funds and after-sales service to clients through hands-on experience. I also learnt how to handle large volumes. Both these experiences came in very useful in my career later.

Damodaran who later on went on to become SEBI Chairman selected me to be a Fund Manager assigning me 4 Funds with a corpus of around 250-300 crore. I did a good job and brought the first award to UTI. I was then given more funds to manage and by 2005 when I left UTI after 16 years I was managing Rs 3000 crore of equity assets. In SBI MF started with a corpus of Rs 6,500 crore and as Head of Equity in 2005. I picked up 34 awards in a span of 3 years and by 2008 I was managing Rs 36,000 crores and was leading the Domestic and Offshore Team as Chief Investment Officer.

Q: How does your typical day look like and what are your hobbies?

Sinha: I get up early and finish my left-over reading. I spend the rest of the day attending to three main areas —initiating, analysing and responding. I currently work with a very small team, and I normally set out our Agenda for the week in advance. There may be a few items that I add on a day-to-day basis. Spend a substantial part of the day analysing companies that we have shortlisted in advance or in some rare cases a new company that has drawn our attention for any compelling reason. Intermittently we also look at sectoral trends and the technical analysis of the markets. The remaining part of the day is devoted to responding to emails, queries, phone calls and Zoom interactions.

I enjoy reading a wide variety of subjects. Earlier I used to manage to read a bit of fiction but that of late it has been a casualty of limited time. My reading favourites are biographies followed by books on the future. Yuval Noah Harare and Peter Diamandis are my favourites. I also enjoy leafing through a wide variety of magazines – right from travel, lifestyle, architecture, films to current affairs and business.

Movies are a major recreation for me. I am indiscriminate in my taste and my friends often pull my leg on my ratings for a poor movie.

Q: Can you put some light on your investment philosophy when it comes to picking up a stock?

Sinha: My approach to stock also gets coloured by the market capitalisation to which it belongs. When I take a macro view on the markets, I try to break it down to its sectoral ramifications, I normally choose large-cap stocks. In this top-down approach, I am more comfortable taking a call on sector leaders and in most cases, these are large caps. However, in the case of mid-caps, the approach is purely bottom-up. The stimulus to look at a stock may come from various sources. The most prominent source is the weekly quantitative screening that we do for almost 2,500 stocks. It can also come from an article that I or any of my Team member has read. Sometimes the idea emerges in a discussion.

Whether the approach is top-down or bottom-up the due diligence on the stock undergoes more or less the same process. We look at the financial history, relative valuation, size of the opportunity, quality of management and governance standards before making a decision.

Q: What gives you the confidence to hold on to stocks that have turned multibaggers?

Sinha: The easiest factor is your familiarity with the stock. As an astute manager, you will understand that the pace of growth of a company is not evenly spread across the life cycle of its underlying business. There will be a phase where the earnings of the company will expand exponentially, and the stock price will chase that momentum. There will also come a time when its price to earnings multiples start expanding as more investors develop confidence in the ability of a company to deliver. There will eventually come a time when the company may not be able to sustain the pace of growth. In which case an expanded price to earnings will have to be supported by qualitative factors such as management bandwidth, the efficiency of capital allocation, intelligent diversification for future growth etc.

Given that each of these factors — business cycle, growth, PE multiples, relative valuation and qualitative factors interplay with each other to determine a stock price, it is difficult to give a simple answer as to when to let go of a multi-bagger.

Q: Do you believe in the philosophy that certain blue chips are to be held for a lifetime?

Sinha: My previous answer gives some hint to this reply. I don’t think the definition of blue chip is an eternal tag for any company anymore. It never was. To get an idea about this just pick up check the Index constituents and their weights 30 years back and now. I believe that earlier the business cycles used to be longer and hence the leading companies of the economy were important longer. Now the cycles are getting shorter. Maybe technological advances or our drive towards higher productivity is making it happen. As a result, very few companies will manage to re-invent themselves effectively.

Q: Where did you fail and what were the lessons you learnt?

Sinha: One has made mistakes along the line. Thankfully, these were not howlers that crippled your portfolio. The good part is that each instance has been a learning experience that has helped in avoiding similar pitfalls in future. In the initial years of investment, there was a tendency to carry these mistakes in your portfolio in the hope that in time you would regain your investment value. Now one is a little wiser and accepts that rather than leave recovery to chance, it may be a better idea to recognise the time value of money and move your portfolio to a potential winner rather than hold on to hope.

Q: How do you plan to capitalise on unlocking trend?

Sinha: The 2nd wave has unsettled a lot of sectors especially as the rural areas have got affected very severely in this wave. This has implications for consumption sustaining the economy. Some consumption-oriented sectors, discretionary in particular, may suffer in the short term. I feel this will not be a lasting phenomenon. Hence, if stocks correct it will be a good opportunity to buy.

Some of the earlier suffering sectors such as Airlines, Hotels and Recreation are seeing their stock prices moving in anticipation of an easing of Lockdown and accelerated vaccination. In the event that we don’t have the much dreaded 3rd wave, there is room for a more sustained rally purely born out a relief. The revenge travel, tourism and recreation wave can be huge.

Q: What would be your advice to an individual investor?

Sinha: Start investing early. There is nothing more powerful than compounding that can create wealth. Time in the market is more important than timing. Don’t put all your eggs in one basket and learn to do prudent asset allocation.

Money is not everything. But it is a means to many things. Define your relationship with money as clearly as you can. This will help you manage the risk and reward of your investment goals better.

Q: What is your biggest investment in life?

Sinha: A healthy balance between direct stocks and mutual funds. Allocate a substantial part of my investments to mutual funds as its easier to manage my asset allocation through this route. Most of my allocation to stocks are to bottom-up ideas. The returns from these may not be in line with the broader markets. Therefore, I prefer to play asset class allocation through MFs and invest a portion of equity allocation in direct equities. By the way I am also an Angel investor in my personal capacity and I am quite excited about the entities I have invested in.

My children’s education is my biggest investment in life. Nothing will give me a higher return or satisfaction than seeing them settle down comfortably in life.