Samir, how would you describe your style of investing at Alliance Capital AMC?

We are extremely focused, having reduced our investing universe to around just 150 companies. In the long run, there are, probably, around 300 companies worth considering, but we do not really care about the other 6,000-odd companies that are listed on the Bombay Stock Exchange.

Actually, we don't look at valuation any more, but at survival: whether a company will be there in business five years from now. We don't mind paying extra for such a scrip. For instance, we are absolutely comfortable with Indian Shaving Products, which has a Price-to- Earnings ratio (P-E) of 96 times. For me, the P-E stands for the number of years the company will stay in business.

What are your big bets of the day?

Infosys Technologies, ITC, Hindustan Lever, hdfc Bank, Hindustan Petroleum, to name a few. If I were to divide our stocks, 25 per cent would be public sector companies, 50 per cent would be transnationals, and the rest would be Indian corporates in software, Reliance Industries, and HDFC Bank. My goal is to look for consistent performance rather than multi-brackets, which could grow five times in a year -- or go bust.

You have the highest allocation in your portfolio for infotech stocks...

We don't buy a sector that is hot. Our strategy is not to buy a sector simply because it is growing. Nobody knows, beyond a point, where the cracks will suddenly appear -- as happened in diamonds, aquaculture, and financial services. So, in the software business, we have invested in only three specific companies. We don't own stocks in any new, small software start-ups. One big bet is Infosys; the other two are Digital Equipment and Mastek. In the case of Infosys, it is not so much a bet on software as it is on the company itself.

Why are you so gung-ho on media stocks? You recently added more of Zee Telefilms to your portfolio...

Yes, we purchased more Zee Telefilms recently. It is a focused company, has invested in the cable business which is a high-growth sector, its market capitalisation is low at around 5 to 6 times its P-E ratio; it has a 4 per cent dividend yield; and around 30 per cent growth. The only minus point is that the group may want to raise funds for its other ventures, which it has not done so far. There have been goof-ups in picking up stakes in unlisted media companies during the Initial Public Offerings boom of 1994-95.

Are there any other investment themes that you are looking at? Especially against the background of the financial results of corporate India in the first half of 1997-98?

We are waiting for an economic revival before we move into cyclical stocks, like automobiles and cement. We don't mind losing 5 per cent on the upside before picking up such stocks. At present, we don't want economically-sensitive stocks. In fact, we have reduced our exposure to the capital goods sector. We feel that the recovery has not taken place yet. So, we are looking at defensive sectors like oil and gas, consumer and food products, media, and pharmaceuticals.

Does the bottoms-up approach you follow bias your portfolio in favour of sectors like infotech, food, consumer durables, and personal care products?

We buy companies we like. It doesn't matter how it all adds up in the end. So, we don't know if that tilts our portfolio in favour of a particular sector. True, we have 28 per cent invested in infotech stocks, but that is a business that is growing. Even if a sector is not growing but a particular company is good, we would buy the company. On the other hand, if a company is large but is not growing, we are not going to buy it. For instance, we do not hold TISCO, L&T, or SBI in a big way. We don't like to buy large companies which, we feel, are not really growing.

Will you pay 50 times its earnings for a company that is growing at the rate of 25 per cent a year? I'm saying this since you earlier mentioned HLL...

We would. HLL is priced at 50 times this year's, but 40 times next year's earnings. What can happen is that HLL may not perform for three months because it is overvalued. Later, it may fall in line because it has registered a compounded growth rate of 25 per cent per annum. Even Indian Shaving Products now quotes at 96 times its 1997 earnings. But we would not buy a company that is growing at 50 per cent if it is quoting at 10 times its earnings.

The idea is that we want to own companies where growth comes completely from the internal generation of funds. We don't like a company's dependence on the equity markets to sustain its growth, and we want companies with very high efficiency measures, such as its return on capital employed and its return on net worth. Those are the best indicators of business efficiency. In a country like India where, until recently, interest rates were around 16 per cent, it is easy for a company to sustain earnings growth by raising equity, and putting that money in debt. Besides growth and high returns, we also look for stocks that are defensive.

How dangerous do you think the stockmarket is in these times?

As of now, the biggest danger is that the stockmarket may not do anything for the next three or five months. From here, I think it will fall by 7 to 8 per cent. For foreigners, it is worse as devaluation will add to the risk. For a local investor, there will be some downsides, but nothing major. I would say a 9 or 10 per cent risk for local investors, but for foreign investors, it will be as high as 15 per cent.

To what extent is political risk still with us?

Political risk is the only risk. The economy does not move although we keep claiming that politics is separate from business. But the government is still involved in all the major decisions: foreign direct investment, infrastructure projects...

What kind of returns would you expect the stockmarket to yield in 1997-98?

Fifteen to 16 per cent. Our portfolio, which has a higher percentage of consumer goods and software stocks, should, I hope, do better.

What has been your best bet in the last four years as Alliance Capital's fund manager?

In terms of the absolute amount of money made, it has been Infosys and Satyam Computers. We owned 5 to 6 per cent of Satyam Computers, and the price went up by 4.5 times this year alone. Now, we have booked profits in that scrip.

What about your biggest blunder, HCL-HP?

We picked up the scrip in February-March, 1995, because of the good promoters, the good sector, foreign ownership etc.. But the promoters, instead of concentrating on HCL-HP, started five or six new companies, which took away every opportunity that would have naturally come to HCL-HP. That blunder was also our biggest learning exercise.

Are you now wiser about corporate India?

Definitely. I do not give anybody the benefit of the doubt, and have become more cynical after seeing the ability of promoters to take everybody for a ride. We now start on the assumption that the management of a company is telling a lie and then, proceed accordingly. But I'm always willing to pay more for quality.

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