Soumendra Nath Lahiri is a seasoned player in the mutual fund industry. Over a decade ago he joined DSP BlackRock Asset Management (then DSP Merrill Lynch Fund Managers) and managed T.I.G.E.R, Small and Mid Cap Fund, and Micro Cap. He also worked with Canara Robeco Mutual Fund and is now the chief investment officer (CIO) at L&T AMC.
Lahiri keeps an eye on bottom-up stock picking. His investment philosophy is to invest for the long term in robust, growth-oriented businesses run by quality management teams available at reasonable valuations. He has been known to say that it is such companies and not stock markets that create wealth in the long term.
Senior fund analyst Kavitha Krishnan met Lahiri recently when analyzing L&T Equity and L&T Tax Advantage. She notes that while that Lahiri has a bent towards good businesses at reasonable valuations or companies with improving fundamentals, a top-down overlay is exhibited in both funds going by the overweight position in industrials on expectations of reforms that may lead to an improvement in economic growth.
Lahiri has a positive view on the cement sector based on a favourable supply/demand scenario and has taken positions in Shree Cement, Ambuja, Ramco, and Ultra Tech. “The sector supports better capacity utilisation, and has high entry barriers and a strong moat that drive Lahiri’s conviction,” says Kavitha.
Kavitha notes 3 points with regards to his investing style in these funds:
- A bottom-up, benchmark-agnostic investment approach focused on investing in companies that are efficient allocators of capital. Thus, return on capital employed (ROCE) is one of the critical parameters used for evaluation.
- A focus on the profitability and attractiveness of a business, competitive position within its industry and stage in the business cycle.
- Key parameters are discount cash flow valuations along with price/earnings, enterprise value/EBITDA, and price/book value.
Performance
Over 8 consecutive calendar years (2008-2015), L&T Equity has outperformed the category average (L&T took over Fidelity in 2012). Under Lahiri’s stewardship (from November 2012), the fund has done well though it slipped below the average last year.
On the other hand, L&T Tax Advantage has not been that consistent though it put up some good numbers last year (when L&T Equity slumped). The fund’s overweight stance in the materials and financials sector worked in the fund’s favour, with a lot of their off-benchmark holdings yielding positive returns. Over Lahiri’s tenure the performance of this fund has been average.
Concluding Observations
L&T AMC has grown through acquisitions: DBS Cholamandalam AMC in 2009, and Fidelity Asset Management India in 2012. Nevertheless, the AMC still does not appear in the top 10 by way of assets. While processes within the AMC have been structured over time, the AMC has a long way to go before they emerge as a market leader.
Though the research team that supports the investment team is smaller than some of its peers, we do not doubt the team’s credibility and experience. Having said that, we would like to see them work together over a long term before building more conviction.
In the case of both the funds, we would like to see a consistency in performance over a longer time and across market cycles to gain further confidence.
Hence a Neutral rating has been assigned to both funds. Such a rating represents funds in which our analysts don’t have a strong positive or negative conviction. In our judgment, these funds are not likely to deliver standout returns, but they aren’t likely to seriously underperform their relevant performance benchmark and/or peer group either.
You can read a brief analysis here: L&T Tax Advantage and L&T Equity.
