Fund managers over next 10-20 years will outperform the index in India: Rajesh Sehgal

At the ETMarkets Global Summit 2018, Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company and Rajesh Sehgal, Managing Partner, Equanimity Investments, discuss how fund managers in the foreseeable future will completely outperform the index here.

Edited excerpts:


Every time, Buffett writes an annual letter or he is speaking at a public forum he says I can guarantee that fund managers will underperform S&P. But what is happening in America may not necessarily happen in India. Do you think we need to be fair to fund managers because they have generated better returns and one should pay premium or one should pay fees for better management and advice?

Rajesh Sehgal: There is a big difference between what is happening in India and the construct of the Indian market like we were discussing and the construct of the US market. I for one do not see India following the footsteps of what has happened in the US and therefore everybody going index in India.

The reason is not because of active, passive etc, etc. As investors, we all get too caught up with markets and valuations and the all market lingo. What we need to understand is that essentially you are buying a business. The nature of business here, what is happening on the ground is so very different, the lay of the land is so very different from the US.

We have less than 50 companies which are more than $10 billion in market cap despite all the valuation discussion that we are having. We have smaller companies for such a large country with such a large population.

With such a large consumer-oriented population, businesses will outperform tremendously and like Nilesh Bhai said, you can compare apple to apple. Take an Indian company across any sector and compare it with a basket of best companies globally and you look at the risk return on an adjusted basis. I think Indian by definition has to outperform because you are sitting in the middle of a large market. The businesses here are run by people who are very westernised in their thoughts and they are bringing in the best levelling field and that is what I am doing. It is great that technology is now spreading at the speed of light so it is no longer that China or the US or some other geography that has an undue advantage over technology. Indians are smart, we are driving lots of global businesses out of here and that has created a lot of wealth in India. In my opinion, we are not going to follow the US in terms of indexation etc. We will have fund managers over the next 10-20 years and in the foreseeable future, completely outperforming the index here.

Nilesh Shah: The fund managers will have to transit from being Sunil Gavaskar to Virat Kolhi. Sunil Gavaskar could face Michael Holding, Joel Garner and ND Roberts, Malcom Marshall without helmet and he had a great technique so he could do it. But if Virat Kohli has to face Morkel and others without helmet, probably he would not be able to achieve as much as he has achieved.

There is no shame in wearing in a helmet and facing the guy who is hurling the ball at 150 kms. So, as a fund manager, we will have to make that transition. This was the market of long only for variety of reasons which Rajesh Bhai mentioned but going forward I will have to learn new techniques, techniques of leverage like hedge fund, technique of long-short like hedge funds, technique of concentration like portfolio managers, technique of offshore investment because every year India would not be the best performing market.

Those fund managers who transit from Sunil Gavaskar to Virat Kohli by learning new techniques, by adopting to new tools which are available, will be able to outperform market. Do not take alpha generation as your birth right, it will come because you have skill, because you have discipline and it would not come just because you are a fund manager.