“My stocks are my life insurance”

Hiren Ved, CEO, CIO and director at Alchemy Capital Management, a provider of portfolio management services (PMS), was exposed to equity investing at a young age. This is thanks to his father, who started as a businessman and later moved into full-time investing. “When we were growing up, the atmosphere in the house was stock-oriented. We always felt comfortable despite the fact that there was a lot of volatility in the markets,” says Ved. No wonder Ved is an “equity guy” and invests 95% of his assets in equities.

Ved co-founded Alchemy with Rakesh Jhunjhunwala and others in 1999. Today, he manages assets worth Rs. 6,751 crores. Ved shares his portfolio details and investment beliefs for Mint’s Guru Portfolio special series. Edited excerpts.

What are your prospects for 2023?

I would say 2023 should be a good year. It’s entirely possible that the first quarter will be a bit volatile and then things will calm down. If you look at the top 500 companies (that’s 420 after removing financial companies) in 2022, when revenue growth was very good, there was an impact on margins. So, overall, all non-financial companies felt some impact from rising raw material costs, rising energy prices, rising logistics costs and supply chain issues. . There was a 500 to 600 basis point impact on their Ebitda (earnings before interest, tax, depreciation and amortization) margins. We’ve seen commodity prices pull back a bit from their highs; even crude prices have corrected. Our feeling is that some of those Ebitda margins will come back in the fourth quarter and into next year as companies raise prices. Also, you may have high-cost commodity inventory on your balance sheet that you need to clear. The good thing is that this quarter will be very good, especially for consumer-oriented companies, because you had so many weddings, the economy opened up, people were traveling and spending; therefore, we should see reasonably good topline growth. I don’t expect the full 500bps of margins to come back because some of the cost cutting benefits during covid will be gone. This means Nifty’s earnings will likely be 8-10% this year, and next year we should be back to double-digit growth. So the next 2 years are looking very, very promising and therefore I think next year the market should be able to deliver a double digit return.

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In addition, at the end of the first and second quarters of the calendar year, interest rates are expected to peak. Central banks should start talking, if the US economy does go into recession, about cutting rates. And so, I think markets and yields should stabilize. Then we head into 2024, an election year; thus, the government will keep public spending reasonably high and this should keep demand at a reasonable level.

How is your personal portfolio split between stocks, debt, gold, real estate and alternatives?

I am a follower of stocks. So other than the house I live in, 95-96% of my asset allocation is in stocks. I currently have some money. But generally speaking, I am fully invested in stocks. I don’t invest in debt, real estate, gold, or commodities.

Is it entirely through your PMS (portfolio management service) strategies, or directly through stocks or mutual funds?

Much of my personal equity investing is in my PMS strategies. I have private equity investments. It’s not a regular allocation, but if I find something really interesting, I allocate it to private equity. We do not do private equity for our clients. I think my private equity allocation would be 10%, direct equity would be 20%, and PMS would be 70%.

Have you changed market cap segments (large, mid and small cap) in the past year?

Not really, I’m a very long term investor. We don’t usually make these tactical changes. I’m a very bottom-up equity investor; So wherever I see the best opportunities, I invest, whether it’s large, mid or small cap stocks. But I think very recently we had a pretty decent correction in small caps and we made some investments in that space.

Is the money you keep an emergency fund or is it meant to be deployed in the markets when you see the opportunity?

I usually keep some money around because it comes in handy when you have a great opportunity, when there’s a big sell-off, or even if you find a great opportunity in the market. I don’t always calculate it but it could be 2-5%, it really depends on when. But overall, I’m fully invested in equity.

Do you have life insurance?

I don’t have life insurance. I have health insurance through my company. And I think my dad must have taken a little policy on top of what the company gave. I don’t do life insurance because for me, everything is my wallet. If I need anything, I can always tap into my portfolio.

So you think your wallet is more than enough for your family in case something happens to you?

I have always thought that even the life insurance premium I would prefer to invest (in stocks) for the very long term, and whatever my portfolio should be enough for any emergency. Not just me, but even my dad or my family, have always had a substantial portion of our equity investments. As a family, we’ve been investing for 50-60 years and we’ve seen what compounding can do. We believe our portfolio is our life insurance.

Was your father also in the financial markets?

My father started out in the industry. My father and his brothers ran a small packaging and printing business. He finished his studies and immediately went into business. Then a few years into the business he started paying less attention to the business which was largely run by his brothers and started becoming a full time investor. It was in the late 60s and early 70s.

We have been investing in stock markets for a long time as a family. When we were children, the atmosphere in the house was one of actions. We have always felt comfortable despite the fact that there is a lot of volatility in the markets. Dad used to teach us that he had many crises in his life and that money (the money invested in stocks) was the money he didn’t need and was for the growth. He never thought he should keep money in fixed income, gold or any other asset class. I grew up in this environment and when I started my career in the stock markets, I had the chance to interact with some of the best investors in the country. And I realized that the ultimate wealth building machine through capitalization is investing in big companies for a very long time. As a result, I became very comfortable investing all my wealth in stocks.

What was your first action when you arrived on the markets?

I think the first stock I bought was when I was in college, which must have been in the late 80s. It was in a company called Pond’s which later merged with Hindustan Unilever. During my break from college, I worked at a market research company and made some money. After that, all the savings I had, it was all invested in stocks.

If you had to think of a period in the markets when you really had doubts, what would it be? And how did you overcome them?

The global financial crisis of 2008 was definitely a big event. Never in the past have we had a situation where your stock portfolio dropped 50-55% and that’s what happened in 2008. I think briefly, we were talking among friends and peers, and a lot of people said you should always diversify and keep some money in fixed income or real estate because you never know what happens. But I think it was just a thought process. I did not act on it either then or at any time in the future. I realized that something like this could happen in the market. We had always read about it. But it’s a very different thing when you experience it yourself. My father had told us that the oil crisis of the early 70s had been very hard, but he never budged from investing for the long term. I had also seen the tech bust of 2000. But at that time I don’t think my wallet was that big for it to matter, and we did reasonably well because I personally had numerous investments in technology or IT services companies. Although we didn’t sell at the top, we exited at the right time and were sitting on a lot of money and trying to look for opportunities.

Finally, after going through 2008 and experiencing this kind of decline, I internalized that this can also happen in the market and things always come back. Your real insurance policy during high-risk events is actually the quality of your underlying asset. So if you own good businesses with good cash flow and good management, they will always come back. If you go back in history, no correction lasted more than 2 to 3 quarters. So eventually the money comes back. The only lesson from 2008 is that if you have financial commitments always keep this part, let’s say your requirement for the next two years for that financial commitment in a debt fund or in cash so that you don’t have not necessarily for sale at the wrong prices. These are prices at which you should buy stocks rather than sell stocks.

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