Interview with Abhishek Jaiswal & Aalap Shah, Dolat Capital, Dolat Absolute Return LLP

Radhakrishnan Chonat: Ladies and gentlemen, welcome to another exciting episode of our Fund Manager series. And today, we have a dynamic duo of investment experts who have carved their own niche in the ever-evolving world of finance. They are the driving forces behind Dolat Absolute Return LLP, a name synonymous with innovation and excellence in the field of fund management.

First, let’s meet Abhishek Jaiswal, a seasoned professional with more than a decade of experience in fund management and equity research. And he brings a wealth of expertise to the world of investments. He has managed long/short funds, long-only portfolios and sector portfolios, I believe, making him a very versatile force in the industry. His journey has seen him collaborating with marquee investment teams across hedge funds, PMS, AIF and mutual funds with a portfolio of experience that includes names like Nippon Life Asset and Marshall Funds. 

And joining Abhishek is Aalap Shah, the Co-Fund Manager of Dolat Absolute Return LLP. With a CFA from ICFAI and an MBA from IBS, Aalap boasts over 17 — close to 17 years of experience in the Indian capital markets. And he’s not just an expert, he’s a specialist in quantamental strategies, bridging the world of quant analysis and fundamental insights. Aalap’s journey spans both the sell side as well as the buy side of the industry. And as a quant analyst, he has over eight years of experience and close to nine years of experience managing funds on the buy side, with prominent institutions like HDFC Life and Birla SunLife. 

So, ladies and gentlemen, today I have the privilege of delving into their wealth of knowledge, experiences and unique investment perspectives. So, without further ado, let’s dive into this enriching conversation with Abhishek Jaiswal and Aalap Shah. Welcome, gentlemen. 

Abhishek Jaiswal: Thank you.

Aalap Shah: Thank you. Thank you so much. 

Radhakrishnan Chonat: To start off, can you walk us through your journey of becoming a fund manager? What pivotal moments or experiences shaped your path in the world of finance? 

Aalap Shah: Abhishek, you’d like to go in first? 

Abhishek Jaiswal: Sure. Okay. So, this is my undergrad days. So, I was really fascinated with reading about companies. So, I don’t know you guys remember, but there was two magazines which were very popularly covering the corporate India. One was Business World and one was Business India. 

Radhakrishnan Chonat: Yes.

Abhishek Jaiswal: So, traveling in Mumbai locals in the undergrad days, I used to read about companies. And that’s where I got fascinated, you know, how do companies make businesses? How do they scale up? That was one part of it.

Then during my CA final days, our finance professor was a Fund Manager of Sara Mutual Fund. So, our case studies — or when he used to teach finance, he used to teach from a fund manager’s perspective, and that’s where it really clicked, I want to be in this field. So, that’s where a keen interest because our breaks — during the breaks we used to go out for tea or something, and they used to discuss about stocks, how this company is doing that and all, and that really fascinated me and that’s where I really got attracted.

Then post-CA I had done this audit for this firm, so they wanted a Chartered Accountant to do the research stuff. So that’s how I landed into Marshall Funds, which is a – was a Singapore-based fund. And so, people normally join the sell side or a traditional buy side. I got to start my career as a long/short guy, and it was a great learning experience. I’ve been to Singapore with them, Mauritius with them for some part of my career and that’s where I really learned how do futures and options? How do you trade that? How do you get into stock selection? The base that was built at that point of time. So, a lot of interactions. 

So, I joined in 2007, markets were at its peak, nothing could go wrong. 2008, everything could go wrong, did go wrong. Then 2009, again the power IPOs were coming up, new government, new hope and then what happened was the power-up years. Then again 2011, everything came to a crashing down. So that’s where I got an opportunity into Reliance PMS. So, there a different mindset. 

So here I was with a long/short mindset. Go long on a stock, short on a stock. When I joined Reliance PMS, it’s about Stock Pickers. So, Reliance Mutual Fund and the whole Reliance Capital Asset Management was a stock pickers game. So, there you’ll meet 15 fund managers on the floor on a daily basis and that’s where you try to learn different styles of approaching to long-only investing. Somebody would be a top-down fund manager, somebody would be a bottom-up fund manager, a mid-cap specialist, a small-cap specialist, and then you learn different styles of management.

You’re a specialist in turnaround stories or how do you research into a stock going into the very depths, which you normally don’t go. So, I’ve been to companies where I’ve sat in a pharma company for two days or sat with a bank management looking at everything in terms of how do they credit appraisal and everything. So, that was a great what you say an enriching experience. Then slowly, slowly graduated up the chain from Research Analyst, Senior Research Analyst to a Fund Manager.

So gone that and working with Reliance had a culture for every fund they have a different fund manager. So that’s where I got to learn, work with Mr. Sunil Singhania and all the stalwarts Sailesh Bhan, Samir Rachh, you know, small-cap fund manager. So very enriching experience. And from there, again but long/short is where I started from. So that’s where again I got an opportunity into Dolat Absolute Return Fund, they were — we were coming up with a long/short fund. So, this is where I got an opportunity to merge both the skills and that’s how I came here at this place. And we believe long/short is the space to be in at this point of time, because it’s at a very initial stage. So, this is my journey. 

Radhakrishnan Chonat: Excellent, excellent. Aalaap, all ears to hear your journey. 

Aalap Shah: Yeah. So, I come from Ahmedabad. That’s where I was born and brought up. My career started as my father’s assistant. I used to stamp IPO forms when I was probably in 9th or 10th grade. My father used to work in a bank, and that bank branch was in an area which is similar to Fort in Mumbai. So, the stock exchange was over there. Most of the stockbrokers had their accounts over there, and that’s how he got introduced and that’s how I got introduced to the system. So, IPO form services started stamping that, and that’s where my journey started. 

Every Sunday morning, my father and I used to sit and we used to take the Saturday newspaper, take the prices from there, put it manually into the ledger book and get the portfolio value, see how it has changed over one week.  At the time, computers were not so prevalent, though I don’t look that old, but yeah, that was the time maybe. But eventually realized that it’s always going to be academics and strong footing, which can take you to the next level in stock market. So, post my graduation, I did my CFA, I did my MBA, and for my summer training, I came to Mumbai. So that’s where I stepped into Mumbai.

I joined a firm called MF Global. It was Refco Sify Securities then, and right now it’s PhillipCapital. So, I joined there as a summer trainee and that’s where the whole journey started. They gave me a pre-placement offer. I started as an Analyst over there, worked as an Analyst for almost eight years with PhillipCapital, Standard Chartered and even Dolat for a while. So, this is apparently my second stint at Dolat. I got an opportunity to work with Birla Insurance. Now there’s a swift change in life. So, you come from a very different structure, and now you are into a long-only sort of a structure. That’s where I got a chance to revisit my CFA studies, what I had done on the fundamental side. So again, revisited that. Nine years into buy side now, and exactly as you say, I’ve been able to well bridge the gap between the quantamental and the fundamental side.

So, when I looked at Dolat as an opportunity, when I looked at long/short fund as a structure, I realized that it was about time. That close to eight, nine years on the quant side, close to nine years on the fundamental side. It’s going to be a very good treat between the two that I can bring to the table. So that’s where the whole long/short journey started. But yeah, that’s me started from the streets of Ahmedabad, stamping those IPO forms, filling up those transfer forms. I think, probably quite a few of the audience would be listening to this. They wouldn’t even know about it. How probably this was there so many years back. But yeah, when the electronic structure was not there, this is how it was, and that’s where my journey started till-date. 

So, I love every day, every day morning there’s a new challenge. Every day morning you get to see so many newer and newer things which happen in the world, and that has an impact on the companies. If it’s an impact on the company, it has an impact on the markets and that keeps me going. So, it’s like every Sunday evening you sit back and think that okay, how things are going to shape up now, what’s been going through the whole week, what better I can do to make the next week even better, what better I can bring to my investors. So that’s how my life journey has been and I love it.

Radhakrishnan Chonat: Fascinating. Fascinating. Thank you, guys. So, both of you mentioned long/short funds, right? So long/short funds are kind of intriguing. Now, could you elaborate on why you are drawn to them in the first place and how do you believe they differ from traditional long-only funds, right, in terms of strategy or say, outcomes? 

Abhishek Jaiswal: So, I’ll start first and then Aalap can continue. 

Aalap Shah: Yeah. 

Abhishek Jaiswal: Okay. So long/short funds is globally a very successful industry. In terms of — we look at size, we are looking — talking about $4.5 trillion. That’s how the size of the global hedge fund industry is. And long/short is a big piece of that industry. So long/short in terms of here what happens is, if you look at the Indian markets today, so the SIP book is around 15,000 crores, people have their investment as long-only portfolio. 

Radhakrishnan Chonat: Right? 

Abhishek Jaiswal: But for a long/short fund, there are two things that are available to them. One is to get the beta, as you call it, or to take the leverage, the benefit of the leverage. So, in a mutual fund, if you’re managing a portfolio, you cannot take a leverage. So, you can use, if you’re giving Rs. 100, you can use that Rs. 100 only. But here we can go till Rs. 200, the leverage that we can take. So, that’s one way where it can give you much better returns if you try to do that. 

The second thing is you can even go short. So, say, if market corrects by 10%-15% in say next month, so what you will do? For a long-only manager, he just happy, he can either take cash positions or he can do his stock selection to the best of his ability and the stocks don’t fall. But for us, we can go net short on the market. We can short the market and thereby protecting to the best of our abilities. So, if you’re talking, say, a 10% or 15% correction, so your nav [Phonetic] from Rs. 100 will go to, say, Rs. 90 or Rs. 85.

Our job as long/short fund managers try to protect at Rs. 95 or Rs. 94, whatever, that depends on the job that we do. And then, from there we have good again a starting point where markets again start to rally. So, that’s where the long/short funds come into picture. And now what’s happened is everybody in India, or at least what do you say, financial literate population has their whole portfolio in long-only funds.

Radhakrishnan Chonat: True.

Abhishek Jaiswal: And that’s where we come into picture, we can actually hedge them, you can put 10% of their allocation to us and then we can actually give you protection on the downside. Otherwise, there is no way you can protect your downside. So that’s where the long/short funds come into picture. There also there are two three categories. One is your absolute return category, the fund at which you are running now. So, where we say irrespective of market conditions over a say 12-month period we’ll try to generate positive returns for you and there we don’t do through equities only, that’s what our fund is. 

Then the second part of the fund is whether it’s a benchmarked long/short. So, which is the second product that is coming, it’s under SEBI approval, so can’t say much about it but it is more similar to where I started my career with. It was a benchmark product for wealth creation, where the idea is I protect you on the downside and try to participate as much as on the upside and thereby capturing that and take the benefit of leverage. So that’s where I have more discretion at my space versus a traditional say a mutual fund manager in India, it’s been a very popular category. 

Then the third is the market-neutral piece where I don’t take any directional risk, I just try to play between alpha between stocks. So, this is a third long/short category. 

And then globally there are obviously global long/short strategies, which is not available to us to manage, so these are the broadly things that benefits a long/short. 

Anything I miss, Aalap? 

Aalap Shah: I think broadly all fairly covered. So, if I can just add a couple of pointers to it. From a portfolio perspective, if you see portfolio is combination of two things your selection and your allocation. Via a long/short strategy, I can do more justice to my selection and allocation, if I can broadly put it. So basically, as a Portfolio Manager from Birla to HDFC Life, I moved from a traditional portfolio of 600 crores to 6000 crores. But my problems stayed the same. There was always a challenge in holding on to my position. So, there were a lot of times that the market volatility, shorter term volatility would come and would bite my portfolio. This is something which I can protect via a long/short portfolio. So, that is a huge benefit which a long-only portfolio or a core portfolio can generate via these strategies. 

Secondly, if there are multiple assets available and multiple instruments available, why not utilize them efficiently? So, while there can be just one cash-only you’re bending on. There are still futures and options which you can utilize efficiently. So, from an overall portfolio allocation perspective, stock selection perspective, holding onto the stocks and protecting oneself from shorter term volatility, I think long/shorts really create a better picture as compared to a long-only story. We have been there, we have experienced that, and right now, over this last 15 months journey, we have seen that certain events, unfortunately, fortunately for us, last 15 months, we have seen too many events actually. 

Everything from rate hikes to the Ukraine issue to so many things. We have been able to hedge ourselves really well and protect our positions well, protect our portfolio well. So, this clearly isn’t one up. And again, it’s against long-only. 

Radhakrishnan Chonat: Very, very insightful. So, the natural next question is, now risk management. How do you approach risk management in such investment strategies? And if you can, any real-life examples where your risk management decisions made a significant impact on your fund’s performance? 

Aalap Shah: Abhishek, do you want to take this? I take this? 

Abhishek Jaiswal: You take this, I’ll just join. 

Aalap Shah: Okay, I’ll just start off on this, so when we look at risk, we look at risk on two parameters. First is the macro risk that we look at broadly, the events which can hurt us, may it be international, may it be local. So that’s one part of the risk that we manage. There typically we use indices to manage our risk depending upon how our portfolio composition is, right. 

The second is the stock specific risk that comes to the show. So, there are so many times that single stock or probably a couple of stocks which just come and hurt me very badly, and the overall portfolio takes a beating because of that, that we are able to take care pretty well. 

So, without probably taking too many names, there have been a couple of names wherein we have been positive. We have been holding into our core portfolio. But at times during results or certain events which can hurt that name, we would probably just go ahead and we would either hedge it via futures or via puts. So one such stock, we picked it up, we were doing very well into it, right? We upped into that name and suddenly that company did an acquisition which the market did not take well, and started taking a beating. We hedged our position, we closed our position, we waited for things to settle down. We allowed us to settle down well. 

We interact with people during that time. We keep our eyes on the news as to how the stock is panning out. We have our eyes on the valuations as well, that if it comes to a pretty decent number, then probably there is no need to sit on that hedge there. And exactly, that’s what happened with the stock after almost 8% to 9% correction, it eased off, and that’s when we took off the hedge from it. And over probably last two to three months, the stock is up close to now 16%-17%. So, that is the sort of things that help us to a ton. 

How would it differ from a normal situation? Probably in a normal situation we would have to have exited the stock. 

Radhakrishnan Chonat: Right.

Aalap Shah: When it would have probably bottomed out and had started moving. We would have either chased it or we would have forgotten altogether, right? So out of sight, out of mind, that’s a pretty much common thing that happens. So, holding on to our core positions, that helps us critically and that’s our risk management process also. So, the risk management actually helps us gain also in that sense. So clearly our two pieces into risk management are macro risk management via indices and single stock risk that we fathom into any stock. We hedge it using our single stock strategies. 

Abhishek, anything you’d like to add? 

Abhishek Jaiswal: Yeah, just to add to that, there is also a sector risk that is there, that sector piece, if I am holding some banking stocks in my stock. So, there might be a risk today at 5 O’clock, I think so, we are very near to the inflation number that are going to come in and if something happens, so there what you can do, you can hedge your sector stock, especially in the banking space or some of the other space. So, if you’re not very sure about it, you can go short on that stock. So, that’s how we try to do it. So, there are three pieces, the macro piece which Aalap said, then the sectors piece and the stock-specific selection risk. So, at these three levels we can actually hedge it. So, this is what we have done. 

And in fact, I don’t know. So, one more thing was we did a study, which Aalap was pioneer about it, what he said was — what we found was, when market corrects around 2% to 4%, the chance of bouncing back is 70% higher. 70% probability that market should bounce back and go even higher at the start of the month. So, the data is like this, from open how much market falls and it recovers. So, we fall till 3%, 2% to 4% fall, there is 70% probability that it will bounce back.

Radhakrishnan Chonat: Okay.

Abhishek Jaiswal: But if market falls from open of the month to more than 4%, then the probability goes haywire. Very low probability that market would recover back. So that’s where it helps us on the portfolio side, how much we have to hedge. So, these studies and we keep on doing adding new studies to it just to understand how we can hedge ourselves better. 

And then say you have an earnings risk that is there in the stock. So, earnings season is there, you are holding a position with huge amount of profits, so you don’t know what to do. So, you can actually hedge it by buying puts or taking a short on the — call on the stock depending upon the scenarios that is there. That’s what we try to do. 

Radhakrishnan Chonat: Excellent, excellent. So just sticking on to that, the natural next question is the quant versus qualitative analysis. So, I have a quantamental guy also over here. So, if you can discuss how do you balance between quantitative and qualitative analysis in your investment process and how is that incorporated into your strategies? 

Abhishek Jaiswal: Okay. So Aalap, you go ahead and then I’ll resume. 

Aalap Shah: Okay. So many a times when people say quantitative, it probably restricts their studies just to probably technicals or derivatives. But finally, it’s a number, right? Everything is a number. Even the return on equity is a number and the margins are also a number. So, for me, everything is a time series and we try to make the best out of that. So, when we approach our overall analysis, as far as our core portfolio is concerned, it’s a clear-cut top-down approach that we have. So, we have our top-down approach through which we include stocks into our core portfolio.

And then the second part of our portfolio, which is a technical portfolio, that is the bottom-up approach. So, depending upon where we look at a stock, if it’s a stock which belongs to a core portfolio, the weightage of the qualitative piece, the fundamental pieces is higher. And depending upon the fact that if it’s a part of a technical portfolio, automatically the quantitative piece takes precedence over it. So that’s how we balance it.

So, then the question comes that how much to core? How much to technical? Or how do you decide that? So, we have our four quadrants divided. So, we divide our portfolio universe into four quadrants A, B, C, D. We have our parameters which are based on fundamentals and which are based on quantitatives, and within that we divide all the stocks A, B, C and D. Any stock which falls in my A quadrant is typically my core portfolio. Anything that falls into my B quadrant is somewhere where I look at it from a technical-perspective. So, when I say technical, it’s not just a week or 10 days, it can be even 3 months, it can be even 6 months, but it is not something which I would like to put into my core portfolio. Still, we don’t have that sort of comfort into them. 

C are the stocks which are typical into cold storage, we are not looking at them too closely; and D are the stocks that are stocks which will look too short. So, this is a differentiating point. So, whereas for rest of the world D can be the universe which they avoid, we try to make something out of that D as well, which works either as a hedge for me or as an additional gain when markets dip down. So that’s how the whole piece gets segregated into the qualitative and quantitative aspect, and the four quadrants are formed. So, whenever we look at a stock, we are clear that which quadrant it falls into.

Radhakrishnan Chonat: Very interesting. 

Abhishek Jaiswal: I’ll just add something. There’s a quote of Warren Buffett. It’s a very popular quote, “Price is what you pay and value is what we get”. So, what we are trying to do with this is quantitatively we are looking at companies which are structural stories. So even in a bad year you will have five companies which will be outperforming the index and doing well because obviously their profits are growing. But you know, market in a short-term is a gambling. You don’t know how the prices will move. Any one event can trigger the haywire of prices and it’s beyond anybody’s control. So just today what you are talking about is mid-cap Nifty is down 2.5% and the Nifty is flat. Right? It’s just haywire and there’s nothing to explain fundamentally there’s something gone wrong in the system. 

So, what we try to do is hold on to qualitatively good companies and what we try to do is and then play around, build a portfolio and try to protect that. Because there if you hold that companies for longer periods of time, we know they’ll follow the profit-growth trajectory and plus the multiples expansion if that happens, that’s a bonus. So, that is what we are trying to identify here. And then we use derivatives to optimize our entry points or the quantitative factors to optimize our entry points. So, we are not in the school technicals will not check fundamentals, fundamentals will not take technicals. For us every data point is important, because the way market efficiency has increased.

Radhakrishnan Chonat: Yes.

Abhishek Jaiswal: So, since we joined the industry and today with the service providers like you giving data all sorts of data that is available, I mean, this was not there. In fact, correct me Aalap, when we started our career 17 years back, this data was not available, only Bloomberg. And people didn’t know how to use Bloomberg at that point of time. 

Radhakrishnan Chonat: Correct. 

Abhishek Jaiswal: Today we get all that data. So, the difference between a retail investor and an institutional investor is coming down and plus SEBI focus on that, the information arbitrage is not there. So that’s where you got to be holding on to stocks and doing extra or working even harder to find right opportunities. 

Aalap Shah: We used to buy one share of a company so that we can get the annual report. My father used to do that. Ek share kharid liya. Ki Annual report aayega, we will read through the annual report. 

Radhakrishnan Chonat: Or join the AGMs, right? One share you can join yeah, one share you can join the. 

Aalap Shah: Yeah, one share, you can join that AGM, exactly. 

Abhishek Jaiswal: I remember. So it’s my first year of just digressing a bit. But 2008 the rabdiwala [Phonetic] at Nariman Point, he was the most sought-after guy in say this period of the time because annual reports used to come and he used to get that whole piler, appko yeh chahiye? Aapko chahiye? And I was sitting in my fund and I was spending good amount of Rs. 2000, Rs. 3000 just to get that annual reports, or after say three months we’ll get that with the bhelpuri guy. The same annual report. 

Radhakrishnan Chonat: Same annual report. 

Aalap Shah: So these days we say that there are three “I”s which are right. A difficult thing for us. First is Information, there is information overload noise is what we put it through. We need to try to cut through that. Other is Information Technology. The speed at which executions happen is phenomenally fast, right? And the third “I” is the Artificial Intelligence. The “I” that comes from the artificial intelligence, so that’s reaching up to the next level, right? So, with Open AI coming up, I think there’s going to be a real good race between human mind and machines. So, 100% we are trying to get ourselves ready for it. So, we believe that now investing is not just an art or science, it’s even a craft. You need to be really good at what you are doing in that sense.

Radhakrishnan Chonat: True satyavachan, as they say. Shifting gears a little bit. Let’s talk about India, right, it’s a very dynamic landscape, as you guys mentioned. What are some of the key themes, if I may ask? I’m not asking any stock-specific, but what are some of the key themes that you currently find particularly interesting? Or let’s call it promising? And how do these themes shape your current investment approach? 

Aalap Shah: Okay, I’ll take it first. 

Abhishek Jaiswal: Yeah.

Aalap Shah: So, I’ll take it from my – our thesis of a core portfolio, clear cut, top-down thing. So, the way we talk about it between me and Abhishek is that money chases growth, right? And there is growth in India. So obviously money is going to come out over here. But growth is an uphill task. It’s not an easy thing to come by, right? I being a Mumbaikar, probably I’ll talk about you take your car and go to Mahabaleshwar Matheran and that uphill task, right? So, Kya chahiye? Humko char strong chees chahiye. First, we need proper fuel in the system, that’s your money.

Radhakrishnan Chonat: Right.

Aalap Shah: And money is coming in. Money is coming in through multiple way in which the way government is spending, the private sector is spending. So that’s there. So, money is flowing and we are happy about the way it is happening. Capex is there out there, so that’s not a problem.

Second is your engine. You need good engine. So, when you talk about good engine, you’re typically talking about good schemes. So, the scheme would be probably a PLI, your Atmanirbhar Bharat, your RERA, your GST, Make in India, there are so many schemes which are coming up which wants to take India to the next level. The ease of doing business. You need a good driver. And we all know we got a good driver right now. The leadership is fantastic. 

Leadership is phenomenal. And probably 2024 is good. If there’s a thumbs up out there, we are probably all set for next uptake out there, right? So that’s it. And finally, are your wheels. You need four good wheels, which pushes the whole vehicle up there. And that’s basically your demographic. Your people who work at the ground level. So, with a median age of 28 years, right now in India, we have got a lot of scope out there, lot of possibility of growth, lot of possibility of consumption moving up. So clearly, we are moving in that next trajectory. 

So looking at that, how does India look at us? How does the World look at us? The world looks at us from a China plus one strategy. From a Europe plus one strategy. So, I think we have our task all set. We have got proper petrol, we have got decent bit of engine strength, torque is there, leadership barabar hai, driver humko sahi jagape leke jasakthe hai, and the wheels out there are all set to push us to the next level, right? So, everybody wants to go to the next level. So then that’s your vehicle. Woh kaunsa vehicle hoga jo aapko next level thak leke jayega, whether it’s going to be the private sector, it’s going to be the public sector, so few themes that we look at it, again, we divide those themes. So from economy, if we go to the sector into two pieces. 

On the services side, there are two areas that we look at it IT and Pharma. So IT everybody knows and understands that India is a very strong player over there with artificial intelligence further coming up, and more research going around that side, I think we’re going to further structure up over there. Pharma is going to be probably one interesting black horse, because if you see in last 2, 2.5 years, the number of US FDA issues that we have been seeing have come down drastically. 

Radhakrishnan Chonat: Yes.

Aalap Shah: Which wasn’t the case, right? Three years back, we had significant issues over there. So probably we have curved up to the level where we have reached up to the international compliances. So in that sense, we have another son who’s going to make good money for us, getting more foreign exchange for us. So, we have got two kids out there in the family who are going to help us over there. So that’s our piece on the services side. 

On the manufacturing side, I think I’ll tell Abhishek to take it up. He has done extensive work around that. So, I think Abhishek, if you can help on that side. 

Abhishek Jaiswal: In the manufacturing side, if you look at it, the first thing I’m very bullish about is defense, honesty, the way the products are — and at what cost you provide the products. That’s where India has the advantage. And if you look at geopolitical tensions are going to increase for this decade at least, or next two decades, we’ll look at that, because everybody wants to have push there, because US is losing it. What do you say? Numero Uno status, and other countries are chipping in. So that’s where defense — and India, what happens is the cost of manufacturing is much more cheaper than what it would be for the players. And you can rely on it, so you can rely on the equipment that is there. So that is one theme that we are really bullish on. 

The second is EVs. So, we are slowly picking up. The opportunities can be huge and even EVs is more they think on the car side. But even if you look at it, the buses platform, we have one more new manufacturer. I have not named the stock but he has come to the forefront. He is actually supplying to the government and to different say. So this is what was not there say 15 years back. We are looking at India mein services was always good, this industry was always blooming. But now the manufacturing is coming in. 

Semiconductor again a very interesting opportunity. Who takes it up first in terms of scaling with some good margins. That’s what we are looking at. Even electronic manufacturing. So, now you can see if you go to the stores Chroma and all you can see some Indian manufacturers TVs also on display, then phones also are there. So that’s where we are gaining up. It was always about services for India say in 2000-2010 times, but now today we are talking about is we’re going to have our own manufacturing. That was our weak point. 

Radhakrishnan Chonat: Yeah.

Abhishek Jaiswal: Then infra side, again the opportunity is huge. Just add to this data. We are doing 10,000 kms of highway. Now people are talking, they’re more comfortable driving their own car, so while my friend coming down from Nagpur to Bombay, he does it in 14 hours. I did that journey in ’99, it took me almost two days because of the restrictions, the road conditions and all that. These things are changed so that you get better cars.

So, if you look at the best-selling car now is WagonR versus Alto. So, you’re going on to the premiumization themes and maybe next 10 years down the line we’ll have a good mid-size SUV that would be the best-selling car in India, so that’s where the opportunities are there. So that’s what we like in this space. 

And then the drone again the opportunities that there are some listed companies in the drone space that could be up because we would be looking at things would be transported from there, so drone manufacturing it’s estimated 30,000 crore the whole industries. So, that’s where the opportunities are. So, these are the few themes we are looking at. Anything else I missed, Aalap? Or semiconductor again, where everybody faced in Corona, the biggest challenge. And the things that I remember, I’m visiting Taiwan in 2019, I think so ‘18 we went and we were surprised by the development of that country. It was as good as US in terms of the infrastructure and all and their main manufacturing everybody knows, is it’s just — one company dominates there and one product semiconductors. 

If that comes to India, look at the opportunity. And this government has know we require power for all this manufacturing and they have been at the forefront at least pushing ki there are no major power shortages in the country which plagues things. So renewable energy, power, these are the themes to play, I think so, in my view. 

Radhakrishnan Chonat: Excellent. Just as an add on to my question. So, during the conversation you both mentioned about the inflation, I think Abhishek said I’m waiting for the inflation numbers to kick-in in the evening today. So just for my academic purposes, if I may, what economic indicators or factors that you closely monitor to assess the health of the Indian economy? Apart from the regular, I mean, I’m just trying to fish around and see any specific monitor thing that probably we are unaware of. 

Aalap Shah: I think nothing new, probably there, but I think the same ones, the GDP growth. We look at the pointers within the GDP growth. How did that come by? So whether it was the consumption part, whether it was the government expenditure. So what piece actually triggered it? Because that’s where you get your stock flavor and sector flavor from, which engine is actually pushing the growth part, whether it was the investment piece, whether it was the consumption piece. So that is one thing. 

Inflation, clearly, we have one eye which is constantly looking at inflation and we are very cognizant about that fact. So just to add to that hedging piece that we were discussing previously, that market falls by 2% to 4%, there is a larger possibility that market would recover back in a situation where your growth is fine, but your inflation is not under control, that possibility or that probability significantly comes down. So, in a high inflation scenario, if your broader market starts falling by more than 3%, 3.5%, believe me, there is more pain coming up. So, that is the sort of impact that inflation has. 

So, inflation internals, GDP internals, these are something that we have our eyes very closely glued onto. Other than that, on the sectoral piece, also, we keep our eyes and ears open in terms of what sort of auto sales were there or how the pharma overall piece has been there. So, a lot of monthly data which gets churned out and which reaches us, that’s what we look at very carefully. May it be locally made, be globally. So, we try to look at the intermarket piece as well, very closely. 

Right now, US tenure, at anything above 4% is something which we put on our amber signal that there can be trouble because of that, because the balanced funds out there gets slightly into trouble because of that. So clearly those are a few pieces that we have our eyes on. But yeah, broadly, that’s where we truly look at. Anything that I missed, Abhishek? 

Abhishek Jaiswal: Yeah. So, I’ll just quote Howard Marks. He said, “One thing which everybody say from a wealth manager, anybody in the industry is watching closely is inflation”. I mean, that is one thing, is a discounting factor for all of us and that’s why we have to watch it very closely. Then the dynamics of inflation, say unemployment. So India’s unemployment data is still not mature. But US, if we talk about, despite unprecedented rate hikes, we are talking serious rate hikes still you don’t see the unemployment increasing there. And even the Fed is confused, right? 

Radhakrishnan Chonat: It has baffled all the economists of the world. 

Abhishek Jaiswal: Yeah, because the world is so interlinked. In the export economy, US is majorly an export economy in that sense, especially on the technology side. So, there you don’t see in fact, there they want talent. That’s what is happening. So, these two, inflation and GDP, that’s where the whole focus is. And that’s all drives all, whether it would be a wealth manager, whether it would be RBI governor, everybody is glued onto this number inflation, CPI inflation, WPI inflation. But that’s where everything starts from. And that’s what Howard Marks quotes also. Inflation is one thing that has to be tracked very closely. And then there are other pieces to it, sectoral pieces that Aalap mentioned. So that is there. 

Radhakrishnan Chonat: Perfect, perfect. So, since I have two of you on my show for the very first time, let’s try something new that my team also recommended, right? Something like a rapid-fire question. I think, probably I’m trying to become the Karan Johar of Finance. So, let’s try that. I’m going to ask you to choose between two options. Choose, and then give me your reasoning of why you chose that. Right? 

So, first question, I’ll start with Abhishek. And the next one, I’ll start with Aalap. All right? So, ladies and gentlemen, here we have the very first rapid-fire question in the Fund Manager series. No gift hampers, unfortunately for both of them. So, Abhishek?

Abhishek Jaiswal: Yeah.

Radhakrishnan Chonat: Growth or value, which one resonates more with your investment style? 

Abhishek Jaiswal: It’s more of growth. So looking at growth. 

Radhakrishnan Chonat: And Aalap?

Aalap Shah: Growth, but at a reasonable price, right? So, I’m slightly conservative between the two of us. I come from insurance background, he comes from a long/short background, so.

Radhakrishnan Chonat: Excellent. Okay, next we’ll start with Aalap. Hedge or unhedged strategies? What’s your preference and why? 

Aalap Shah: Hedged again, that’s what we promise in our product. That’s what we promise to our investors, that we’re going to protect your gains as much as possible. So that’s what we think. And I think running a long/short, I get that added advantage. And I don’t want to lose it, I want to use it well. So hedge is something that I would be going ahead with.

Abhishek Jaiswal: Okay, I’ll chip in here, Radhakrishnan. So, there is this book When Genius Failed.

Radhakrishnan Chonat: Right.

Abhishek Jaiswal: So, there is some dark side to fund managers or there is some errors, judgmental errors could be there to any, you are the most smartest guy on the street and that’s where we always be hedged. Because you want to protect where you go wrong, right? And you don’t know. 

Radhakrishnan Chonat: True.

Abhishek Jaiswal: Because you think you’re the king of the world, and then it’s interesting [Phonetic], and that book talks about that. And that’s where our lessons also are there. Sorry, interrupting on the bit.

Aalap Shah: Abhishek’s favourite term over there is blind spots. Don’t miss out on the blind spots. He always tells me that Aalap, we will not miss out on the blind spots. 

Abhishek Jaiswal: I was through that 2007 to 2008 transition mein where you had Nifty giving 55% returns, and then next year you had a crazy meltdown, so it’s always blind spots, that’s right.

Radhakrishnan Chonat: Excellent, excellent. Okay, we’ll start with Abhishek. New age companies, do you tend to avoid them or invest in them? 

Abhishek Jaiswal: I avoid them till the time they make profits, that’s it, because here we are not in venture capital. We are fund managers of secondary markets, we have to be careful.

Radhakrishnan Chonat: Aalap? 

Aalap Shah: I think, largely see, a new age company has narratives. Old age company has numbers. So, till the narrative does not look like a situation that it will convert into cash flows, that doesn’t enter our portfolio. But yes, between the two of us, this is the place where probably I’m more adventurous because I love being hedged and all those things. So, benefit kaha pe hai? Toh phir, let’s try something different. Right. But then largely the scenario is this way, that if the narration is such that it can convert into cash flows, we are all for it. But if it’s a narration where it cannot get converted to decent cash flows, we are not there. 

Radhakrishnan Chonat: Excellent. Excellent. I’ll probably ask the last rapid-fire question, slightly controversial. Okay. We’ll start with Aalap. Shorting. Exciting or challenging? 

Aalap Shah: Exciting now. Challenging when we started, but very exciting now. 

Radhakrishnan Chonat: Great. Abhishek? 

Abhishek Jaiswal: I would say challenging because we learned the hard way how to short the stocks. But yeah, it’s been a tough journey to understand that. But yeah, I think so we figured that piece out.

Radhakrishnan Chonat: Excellent. 

Aalap Shah: Apparently for three to four months there have been times then that Saturdays and Sundays, both the days, all through the evenings, afternoons se evenings, we would probably sit in a coffee house and we’ll figure out, we’ll try to figure out what should be our rules to shorting. And then after all those mehnat mashakat we finally figured out and we came to this A, B, C, D thing. And D is our quadrant where we’ll short. So we call it stay with the weak. So we keep telling our bosses that we don’t get paid just to find good stocks. We need to be paid for finding bad stocks also, but they don’t pay. 

Radhakrishnan Chonat: All right, that was an excellent first ever rapid fire. 

Abhishek Jaiswal: I’ll just say. The final point on this, why this happen — this happened, shorting is difficult because the flow. The flow has changed in this system. So now mutual funds gets 15,000 crore annualized flows. Sorry, monthly flows. So what that means is that the fund manager has to deploy that. And now with the way it’s assessed in the market, you can’t keep too much cash. You can’t take a 30% cash call for a mutual fund manager. So even if you’re short, the stock and the best of worst of times, there would be somebody who’ll see value in it.

And that’s how the market participants are. There would somebody be trying to support that stock or he has more knowledge than we have so that’s why he’s buying the stock. So he is shorting, that’s why it becomes a challenging thing because the way the flows have changed from when we started. So 2007, there was nothing, no concept of an SIP book. It was just FII flows and it was very easy. FII are selling, you sell the stock. But now the game has changed.

Radhakrishnan Chonat: Sure, yeah, I mean, if a fund manager keeps anything above 5% as cash, he’s asked questions left, right and center why you are not deploying it. 

Aalap Shah: Exactly, exactly. 

Abhishek Jaiswal: Because 2007, how many wealth managers thereabout? I think so not many were there in the country. All the foreign names would be there and today we are talking I mean, you know how big the industry has become. We have two, three listed players also at this point of time. 

Radhakrishnan Chonat: Great, great. Thank you, gentlemen, for playing the first-ever rapid fire in AlphaStreet’s Fund Manager series. I’ll let the audience decide who played it better in the comments section. So with that — and most of now our listeners are also students and youngsters. So if both of you can share some lessons that you have learnt throughout your career, perhaps a past mistake or a success that continues to shape your approach and what kind of an advice would you give an aspiring fund manager? 

Abhishek Jaiswal: Oh, I’ll take this first.

Aalap Shah: I’ll go in first for this.

Abhishek Jaiswal: Okay. 

Aalap Shah: Or you take it first.

Abhishek Jaiswal: No, no. You take it, you take it.

Aalap Shah: Okay. So, I think my one liner reply to all students, coincidentally I love to teach. So been a visiting faculty at a couple of business schools as well. And still if I get an opportunity I love to go and deliver lectures. So, I always tell them that stock market is the only profession which pays you for reading. So read, read, read as much as you can. Now in fact world has become easier, you can even listen, listen, listen so through podcasts and through the sort of things that even, Radhakrishnan, you are coming up with. There are so many things that you can just listen to, see through, read through and that’s the best way that you can capture the best of the gains in the market. 

Market is not so confusing as it looks. It’s about common sense. And the more common sense and the more reading that you do you’re going to get the best at it. That’s going to be my single point thing. Read a lot, listen a lot. 

Radhakrishnan Chonat: Perfect. 

Abhishek Jaiswal: So, on the reading thing, only as you understand if you want to become fund manager you got to cross question what you are reading also, in terms of you have to use lateral thinking. You have to use different ways of understanding a company. It’s just not about numbers, it’s about understanding the product. It is about understanding the whole ecosystem that is there, the strategy. So that lateral piece also has to be developed for anybody who’s aspiring to become a fund manager. 

You have to look a stock or a sector from different viewpoints. It should not be just one single point you stick into. That’s a real challenge for you how much information to process at what time and how you can be fresh in terms of looking from different points of view. If you hold a stock in your portfolio and something happens, you have to discount that news very fast and that’s where the real challenge comes. So build your lateral thinking and work around that line. So that’s very important. 

Radhakrishnan Chonat: Excellently put. So before I ask my last question, which of course is a set of book recommendations beyond the world of finance guys. So what are your favourite ways to unwind or manage your stress? Are there any hobbies or any activities that you do? So would love to know how you unwind, both of you. 

Abhishek Jaiswal: So Aalap, you take this first.

Aalap Shah: No, I think, you take it first. You are the more interesting one among us. Mein…

Radhakrishnan Chonat: Samaj gaya 

Abhishek Jaiswal: Okay, so I’m an avid spiritual, I love to study a lot of philosophies. I mean I was avid spiritual guy so even I’ve studied the Bhagavad Gita extensively and in Bombay I have a program where every Saturday-Sunday I give lectures on it, on Bhagavad Gita. So that’s a good de-stressor in terms of because spirituality gives you the base to be sane when the world is going mad. 

Radhakrishnan Chonat: True.

Abhishek Jaiswal: That is where the basic part of spirituality is know who you are and how do you manage yourself. Because what happens is your mind can create a ruckus in yourself if the market stocks are falling and everything is going haywire, everybody is talking negative. You have to be really true to your principles because what happens is we take it too seriously and that’s where the most of the lifestyle diseases come into being. So that’s what spirituality helps me to what do you say, stay grounded in that sense.

And I remember the first stock I shorted just and everybody told me you shorted the wrong stock. I had for sure the numbers were bad and this was the leading bank in the country still and the numbers were very bad. I remember just 2-3 hours just facing the screen. I did wrong or right, but I knew if numbers are supporting you, you have to take a call and you have studied this but when you have to finally take a shot in terms of buying anything you have to be very sure about yourself because self-doubts is going to be there. People are going to talk about a lot of things and you have to cut the noise. And that’s where spirituality comes into picture because you know who you are and what philosophy you’re doing.

So that helps. Philosophy, spirituality. Bhagavad gita. That’s what I try to destress. And Aalap?

Aalap Shah: So for me, as I said, I love teaching so anytime when I get an opportunity to deliver a lecture around markets my ambit of activities around markets so if it’s around market is something that I love to do. Music, movies, I’m a bollywood buff. So with a newfound love towards the OTTs as well. So I find Netflix and those things pretty interesting. So, yeah, that’s my stressbuster. 

And finally, the more recently found distinct is around podcasts. So a lot of podcasts which are there on probably Spotify or probably Amazon, they interest me a lot of information which comes through there. So I can make use of my travel time very efficiently. So that makes me going. But yeah, otherwise, pretty plain, simple stuff. Whenever you want to unwind, pull up a movie and just relax a bit. So that’s how I unwind it.

Radhakrishnan Chonat: Excellent, excellent. I’m sure these are all going to be very insightful for the youngsters who are listening to this. So before I end this very, very fun conversation, I would request both of you to share three books that have significantly, let’s say, influenced your perspective, not just on investments, but life in general. Chalo, aise…

Okay, Life in General, or three books that you would highly recommend at any point in life? Who wants to go first? 

Abhishek Jaiswal: So Aalap you go first, then…

Aalap Shah: I’ll go first. Okay. So again, money people, money man. So I will talk about books around that of course was Psychology of Money. I think the recent one by Morgan Housel, I think a very base case or a very important thing for anyone to read through. So that helps a ton. 

Stepping into stock markets. I think the first book to read is One Up on Wall Street. I think that’s Peter Lynch’s bible. I think one needs to understand that very clearly. That makes things pretty clear. In fact, he makes it very clear to the extent that first buy a house and then probably go into the stock market. So make your priorities very clear. Beautifully written.

And finally, there’s a book called Zebra in Lion Country. A Zebra in Lion Country. That tells a lot around how portfolio management works. So I’ll just take an SF profit. I’ll take two minutes out of it. There’s a paragraph, I vaguely recollect it.

It says that if you should look at multiple zebras, the zebras who are grazing in the center of the group are slightly weak in their physical this thing, because they don’t get the best of the grass. It’s a grass which is taken away by most of the other zebras. But when you look at the zebras who are in the exterior territory, they get the best of the grass and they are most out, but they run the risk of getting eaten away by the lion pride.

That’s exactly what fund management is about. If you stay closer to the benchmark, you will not get the best of the returns, but you will stay safe. But if you want to generate that additional alpha, do something different. You’ll have to go outside that benchmark parameter, but then there is a risk of going wrong over there. It’s very beautifully explained. So anybody who gets into mutual fund investing and those things very aggressively needs to go through this book, needs to understand it from the fund manager’s viewpoint, right? So not just look at it outside in, even look at it inside out So that’s the perspective to give. 

And finally, one more book, if I can add, You Can Win by Shiv Khera. It helped me a lot when I was going through my trouble times doing my CFA. So I think anyone who has trouble times around that is a beautiful book. It helps, those one liners over there help you lot during your tough times. So I think, this are a couple of books which I love. 

Radhakrishnan Chonat: Perfect. 

Aalap Shah: Yeah. 

Abhishek Jaiswal: So I guess for me Common Stocks and Uncommon Profits by Philip Fisher. So, you know, sticking to your basic principle of how do you select stocks, there are too much noise and ear, but the thing remains, the basic thing. So that’s one book for anybody who wants to know how investing has to be done. That’s one book I would recommend.

The second book is by Ray Dalio, Principles. So if you’re running a company, if you are a normal person who are looking to improve your effectiveness, that’s one of the fantastic books that is there. So that book, I’m really influenced by it. So that’s one thing. And Ray Dalio has meditates also. He said meditation keeps you sane for making so much decisions because you appreciate for a long/short fund manager, the decisions are every minute in that sense, you have to go long on the short book profit or go short. That’s where the challenge comes in and that’s where these books. 

And the third book which I said is Bhagavad Gita, which Aalap’s favourite word, he keeps reminding me is a word called sthitapragnya, which comes in the second chapter of the Bhagavad Gita. So there it says you shouldn’t be worried about good times, bad times, you should be just doing what is to be done. So it talks about that if you translate into English language a profile of a perfect person, how should a person behave in the world in challenging times, in normal times? So that is the pragnya. Can I just be rooted to and do what is right and keep on doing that? So that’s how the third book I would recommend is Bhagavad Gita because I preach. 

And obviously the fourth book, I’m just adding it One Up on Wall Street, Aalap alluded to. So that’s must for anybody who wants to get into investment management, you get a good run through what a fund manager does. That’s the best book. 

Radhakrishnan Chonat: Wonderful insights. Gentlemen, it was an absolute pleasure and I had a lot of fun doing the rapid fire with both of you. It’s been an absolute pleasure talking to you both and I look forward to more such interactions in the future. Thanks a lot for taking the time out of your busy schedule and speaking with us. 

Abhishek Jaiswal: Sure, thank you so much, Radhakrishnan.

Aalap Shah: Thank you. Thank you. It was really good fun. Thank you again.

Radhakrishnan Chonat: Thank you, Abhishek. Thank you, Aalap. Have a good evening.