Look at growth, free cash & valuations

Chandraprakash Padiyar is a market veteran with close to 19 years of experience in equity investments and fund management. Around two months back he joined Tata Asset Management Company as a senior fund manager in the equity investments team and is managing Tata Hybrid Equity Fund, Tata Large and Mid Cap Fund. Previously, he worked with Alchemy Capital Management as portfolio manager for the onshore long-only strategies from 2007 to 2018. He started his career with UTI Mutual Fund in 2000 and stayed with the fund house for seven years.

Investment strategy

Padiyar follows a bottom-up approach and looks at three factors. One, growth at reasonable price, where he looks for companies that can generate 15 per cent-plus profit growth per annum. Two, in addition to profit growth he considers companies where the return on capital employed is more than the cost of capital. Three, reasonable valuation of the stock. All these three factors have equal weightage and the strategy is a combination these. It is not either or, but high growth, free cash and reasonable valuations.

“Any company we buy in a portfolio needs to meet these three criteria over a two-to-three year horizon, the longer the better,” says Padiyar, who also looks at hygiene factors such as quality of promoters, quality of the management team and protection of minority shareholders.

“We ask three questions, can this company grow its profits over a period of time? How will the company be impacted if the economy does well or is in a crisis? Can the company generate free cash on a sustainable basis?” says Padiyar.

The same strategy was followed throughout his career and that has helped him make good gains and protect his funds during crises.

For instance, when Padiyar joined Tata AMC on September 3 this year, the market was correcting sharply, crude had touched $85 a barrel, bond yields had peaked and liquidity was tight. He was able to sense the liquidity crisis that was to follow and sold his exposure in housing finance companies, oil marketing companies and airlines stocks just before the market crashed. Therefore, his portfolios did not fall much and were able to weather the ensuing storm post-the IL&FS crisis.