Place your bet on Honest companies

Ajay Bagga, executive chairman of OPC Asset Solutions and ex-Citibanker has around three decades of experience in banking, asset management and wealth management behind him. He started off with Citibank in 1990. After 10 years moved on to Kothari Pioneer AMC after as its national sales and distribution head, before joining GE Consumer Finance as its vice president. Between 2004 and 2009 he held the position of CEO at Kotak AMC and Lotus India AMC. Prior to OPC, he was also managing director and head of private wealth management of Deutsche Bank.

Having seen the evolution of the liberalised economy and the ups and downs of the markets for three decades, Bagga finds that companies have succeeded when the promoters are honest to the company. Companies which have been honest to minority shareholders and have upheld corporate governance principles have also done well in the market. “The realisation has come that 20 times valuation is much better than taking money out of the business once,” he said.

Bagga also has seen the success of professionally run organisations. “I was one of the supporters of Infosys during its IPO and I find the 25th year of the company as one of my personal milestones,” he said. According to him, the IT industry has given Indians a lot of respectability in the global space.

He bets on the new start-up culture and technology-driven businesses coming up, especially in the financial services space. “The combination Jan Dhan, Aadhar and mobile has given us a different growth model.”

While new businesses and start-ups are an opportunity, he cautions investors searching for multi-baggers among small- and mid-cap firms. “We hear about one Facebook or one Google that has succeeded, but there were several which failed. We see the successful ones and not the failed ones and get carried away,” he said.

Bagga cautions against the information asymmetry regarding small- and mid-cap firms. “Most of the analysts and brokerage firms analyse only the top 40 to 50 companies. There is very little research data available about small- and mid-size companies. Further, the published data may not give a complete picture of the company,” he said.

In such scenario, it is always advisable to go first through the mutual fund route. Invest in large-caps first and then look at small and mid-caps after understanding the space well. Start by allocating 5 per cent of the portfolio for small- and mid-caps. Slowly the allocation can be raised, but still 25 to 30 per cent should be more than enough.

Before investing , investors should first look at a company’s business model, the competitive advantage and the degree of margins, he said.