'I try to keep the portfolio construct earnings-based rather than thematic'

Mahindra Manulife is among the younger AMCs in the industry. We speak with Krishna Sanghavi, CIO - Equity, Mahindra Manulife Investment Management Private Limited, to get his views on the markets, portfolio construction, the active-passive debate, among other things. Sanghavi also shares with us his key lessons in fund management and how his investment philosophy was shaped.

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With an experience of more than a decade and a half in equity research and fund management, what have been your key learnings from the markets? Do you recollect any particular experience or incident that has influenced your investment philosophy?

Well, I think the time spent in the market teaches you one basic thing: it always surprises us, both on the upside and downside. One should stick to the basic rules of investing, a high-quality management, a sound business model, and reasonable valuations.

The business model is a combination of growth opportunity and the cash-flow generating capability. Cash-flow generation is perhaps the ultimate proof of any business model. Valuation is the key factor in terms of entry/exit point for investing.

The stock market is a collective response from investors' perspective evaluating the same company. Thus, companies generate earnings through their business models, while investors decide to value them differently at distinct points in time with a divergent lens. That's where the last part of our equity investment framework, called valuation, comes in. We evaluate every company for the growth cash-flow characteristics, characteristics, management quality, and valuation comfort. So, as to the learning, 'markets do tend to overreact at times on both sides. And at that cornerstone, one has to rely on a guiding spirit called valuation'. We need to evaluate if we are already paying the right price for this or is it excessively priced? And that decides the thought process on investing.