Stay with set criteria even in bargain hunting

Saurabh Mukherjea, CEO of Ambit Capital, has spent 15 years in the equity market. After completing studies from the Lond-on School of Economics, he co-founded an equity research firm named Clear Capital in 2003 in the United Kingdom. As luck would have it, just before the global financial meltdown, he sold Clear Capital to Execution Noble and moved to India.

   His mandate was to set up Execution Noble’s institutional equities business in India. Execution Noble was ranked the best new entrant for research in the Asiamoney polls in 2009. In late 2010, he moved to Ambit Capital as head of equities and MD.

As part of Ambit Capital, he was voted as the No.1 Strategist in India in 2014, 2015 and 2016 by Asiamoney. Ambit too was ranked by Asiamoney as the ‘Most Improved Brokerage House in India’ for five consecutive years. Under his stewardship, Ambit was rated as the ‘Most Independent Brokerage’ in India.

In his book ‘Coffee Can Investing: The Low Risk Road to Stupendous Wealth’, Saurabh Mukh-erjea talks about the strategy to make wealth from equity markets.

 According to him, investors should buy companies which have recorded a decent revenue growth, given sensible return on capital and sit tight. This would provide them 10 times return in 10 years.

Investment strategy

As per his definition, a good company is one which has given consistent revenue growth of at least 10 per cent for the last 10 years with a return on capital employed of 15 per cent. Financial firms should have delivered a return on equity of 15 per cent and loan growth of 15 per cent every year. He finds that very few companies fit into these criteria.

  Investors looking for multi-bagger stocks in mid-cap and small-cap should look at these criteria. When it comes to small-caps, they should have given sensible growth for at least five to six years and should have clean accounts. However, their valuation should not be very high.

Mukherjea finds that equity markets are over-valued at this point of time and he expects some correction. While dips are opportunities to accumulate, he cautions investors against rushing to buy stocks which have fallen the most.

The criteria for buying—good companies which have given consistent growth rate in the past, quality management and good balance sheet—should be followed even during such bargain hunting.Once investors have good companies in the portfolio, they should stay put for at least three years to see their investments grow.