Lalit is a Chartered Accountant, Cost Accountant, Company Secretary & Certified Financial Manager.
Lalit has about 12 years of experience in Valuation of Business and Financial Due Diligence, Special Analytics related to Fraud Detection as well as Financial Investments for companies. He has worked on transactions across industries such as Manufacturing, ITeS, BFSI & Power.He has handled Mergers & Acquisitions, Joint Ventures and syndication of private equity & debt across various sectors. He has handled close to 300+ Valuation Reports as well as 50+ DD. He is an advisor to about 50+ Start-ups for their growth and acts as a Virtual CFO for them
He is the founder of LKR Advisors. Today, I got an opportunity to interact with him.
So, without further ado,
Tell us a little bit about yourself.
I am a Chartered Accountant, Cost Accountant, Company Secretary & Certified Financial Manager. I was part of MCA Management Consultants for 8 years heading their consulting wing. I have about 12 years of experience in Valuation of Business and Financial Due Diligence, Special Analytics related to Fraud Detection as well as Financial Investments for companies. I have worked on transactions across industries such as Manufacturing, ITeS, BFSI & Power and that helped me in getting in-depth fundamental analysis as well as assist companies turnaround. The company was awarded one among the Top 10 Management & Strategic Consultants in India by Consultant Review Magazine. I have presented more than 50 papers on topics from Capital markets, Financial analysis, Management strategies, Valuation etc. So basically a Management Consultant by Choice.
Tell us your advisory services.
I had Kickstarted my own venture in Diwali, 2019 – LKR Advisors which specializes in New age management Consulting as well as Wealth creation by bringing more awareness about Capital Markets and Mutual Funds. My Investment thesis is more of a Contra bet strategy – both on companies among its peers as well as Industry which is out of flavour but has potential for outperformance in future. The important criteria, of course, are the Margin of Safety (MOS). So there are 4 categories which clients opt for 1) India Secular Opportunity 2) Midcap Long Value Opportunity 3) Pace Fund Opportunity 4) Small Midcap Fund Opportunity. Based on the above, Research work carried on is shared with them.
Tell us about your blog.
Contrainvest.wordpress.com was started with the aim of bringing in awareness about Capital markets. I wish I could start writing articles back on the blog, been quite some time now.
How did you start your investing journey? What got you to the markets?
My dad has been in the market for 3 decades now. During my school days, we used to have only CNBC showing tickers. Each ticker used to take 4-5 minutes to complete around. So whenever my dad used to ask me about a company’s price, I would be waiting for a full 5 minutes.! That kept me glued to all the news about the company. We used to discuss the company’s products, the vision of management, suppliers and union issues. With the advance of technology, we now have second to second updates and the entire history of the company. Just like any beginner, I have tried futures & options, intraday trading, positional trading etc. Having paid the token fee to markets and understand that it’s not a way to grow your wealth for the long term, plunged into investing. Not alone did my background and experience helped me but the outright circle of investors and tools brought more insights in setting up my investing process. Having seen 2 cycles now, the temperament is set right.
Can you please tell us some of your favourite books
Quite a lot in fact. Since I am a Management consultant as well, a lot about startups is read about including blogs. Few thought-provoking books I have come across are.
a) Value Investing & Behavioral Finance from Parag Parikh
b) Behavioral Investing by James Montier
c) Common stocks and uncommon profits by Phil Fisher
d) The Selfish gene by Richard Dawkins
e) Bull, Bear and other beasts by Santosh Nair
What are your hobbies?
I usually spend a lot of time reading and meeting people. So, Travelling to new places has become part and parcel of life due to work. Every year I try to learn a new activity. Last year it was Boxing. This year plan is to learn the guitar. Stress buster anyway would be visiting a Theme park.
What are your favourite blogs? How do you increase your market knowledge and stay up to date?
For all of us, Valuepickr is always a base.! Fundoo professor from Prof Sanjay Bakshi is interesting as well. I have Magzter too. So I keep reading a lot of magazines on that. Of course, 3 business newspapers daily to stay updated on routine business news. The best way to increase your market knowledge is to INVEST than to read a lot of books. Markets as such are very good teachers.! Only if you go through a cycle of investing, you would have the gut to take a right bet with good allocation at the fairly right time.
Who are your role models in investing and in life?
It’s important that you take the right qualities and lessons from different people. Those who have failed would have a lot of experience to share always. That’s the hard reality of markets as well. Investors like Rajeev from PPFAS have a solid mentality and thought processes to shares. Same with Contra minds like S Naren of ICICI Pru. In life, my Mentor Murali has shaped up early stage of my career and continues to be my role model. Guru Mr T.N.Manoharan continues to inspire me. Have advisors like Satish Menon to guide as well. Likewise, during ones tough times in life, you get to know a lot of people who are ACTUALLY with you. You can count on your fingers.! 3 of my very good friends Dinesh, Arihant and Kumar have always stood along with any decision of mine.! Nothing short of a role model indeed. Last but not least, my Dad is someone I always look up to.
Your personal investment checklist
Being a contra pick investor, 2 important criteria play a very important role –
a) Can the Industry/Stock which is out of favour at this point of time, outperform once the sentiment/performance/policy change comes in the near future.
b) Does it provide a Margin of Safety (MoS) at the present value levels? That’s how my early bets on IT, Pharma (when both were out of favour, a few years back) worked well. Same with Auto stocks last year. I was an early better on this segment when things were really bad. Presently I am bullish on PSU Banks as there is turnaround expected. Apart from this, I follow a few other filters –
a) The market cap of above 500 CRS
b) Debt to Equity of less than 0.20x.
c) Promoter holding > 55% and pledge at 0%.
d) RoE >15% with growth >12%.
e) Z Score >2.5x
Note that P/E for stocks where earnings are bottoming out is high. Hence one needs to get comfortable with the above parameters. Operating Cash flows should be closely looked as well. Of course, Screener provides you with a lot of ready screens as well.
The first stock you bought, first loss and what did you learn from it
My early losses were in stocks like Suzlon, Subex and Unitech. Were most covered stocks by Media and magazines way back in 2007. Got into these at peak of the financial boom in 2006-07. It came down like Jack and Jill. Understood the lesson of herd mentality. In Markets, if one is above to avoid things not to do than things to do, I fairly believe he would be more successful in the long term. Even today I make a loss on my bets where I am way too early into the sector even before it bottoms out. Education was one which never turned around and had to book loss.
What are your thoughts on the financial advisories in India?
My personal experience suggests that a lot many KNOWLEDGABLE and GENUINE Financial advisories are required in India. More so in Tier 2 and Tier 3 cities where there is tremendous scope for financial awareness about Capital markets. Despite the fact that we get 8 to 10k crores on monthly basis in Mutual funds, I see a potential of at least 25 to 30k on a monthly basis if we are able to tap slightly deeper and create more awareness. There is a lot of conflict of interest which Advisors should avoid and work towards.
Do you see a growth in Small and Midcap space in 2020? What sectors are you betting on?
I am pretty convinced that next 2 years would be the year for Small and Midcaps. We would see one of the biggest rally and good amount of wealth created in this segment with the right set of industries to target on. Last 2 years have been pretty bad for investors and a lot of patience has got tested. Bad betters have been flushed out of the system. The risk-reward is clearly in favour of Small and Midcaps.
What are your expectations from the upcoming budget?
Apart from the fact that everyone is expecting a tax rate cut, I think it would be a budget where govt needs to do the heavy lifting and focus more on jobs. That can happen if the impetus is given to sector like Infra. So, I foresee a lot of proposals on this sector. Apart from that Agri would continue to be the focus. I would be glad if betting is legalised as well in India as the potential for revenue to Govt is very high in this sector. Expect a lot of stress on Startup and MSME’s to be given as well. Budget is just a day’s event. Real reforms on policies will continue to happen on ground level for the next few years.
What are your thoughts on Disruptions – What do you think of them and how do you evaluate if a business you are looking at as a prospective investment won’t get disrupted easily?
I see a huge potential industries/space like AI, QSR Chains, Robotics, E-sports which is yet to tapped and listed on the stock exchange platform. I follow porter’s 5 model analysis to see if the company can get disrupted in the foreseeable future. Of course, the game is changing as Moats don’t continue to be Moat’s like past due to rapid advancement of Technology and efficient supply chain. We have a lot to still work on Defence and logistics sector. The opportunity Hope to see a lot of privatisation happening as well just like how we saw Coal mining opened up to Pvt players a few weeks back. So a lot of govt contracts of the long tenure of 15-20 years in a lot of PSU space would get challenged. Investing is no more going to be the same game of traditional industries. It’s changing in real-time. A lot of industries will get DISRUPTED. Adapt it and be an early player to it.
The advice you would like to give to younger people who have just started investing in the stock markets.
Mutual funds, Mutual funds, Mutual funds.! If you are an early investor in your career just allocate 50-60% of your savings into it. Save aggressively so that you don’t regret. Keep the debt at minimal levels. Easy money would never stay for long. A lot of them have good stock ideas but the holding period is hardly a year. Just 1% of the investing population hold stocks for more than 5 years. To create the right temperament to hold stocks for the long term. The power of compounding would take care of the rest. To sum it up,
(1) Stick to fundamentals of the Company / Business
(2) Do your homework – research thoroughly
(3) Focus on Capital Protection first
(4) Do not break your own set of rules while Investing & Exiting usually triggered through excitement, greed
(5) Diversification across Businesses, Industries & Sectors and
(6) Have Patience.
The above is for educational and informational purposes only. It is not an endorsement or a stock recommendation. The author may be holding the securities mentioned above. Do your independent and thorough research before investing.