started his career as an investment manager thirty years ago. Some of us remember him as the go-to debt fund manager. The debt market was very different. Bala, as he is affectionately called, would sit calmly amid all the cacophony and decipher it for lesser mortals like us. He progressed to become the MD & CEO of Aditya Birla Sun Life Mutual Fund. He still retains his calm demeanor despite a punishing schedule.
reached out to A Balasubramanian for some lessons in dealing with volatility in the market, and to stay focused on one’s goals. “Young people should avoid getting carried away by short-term volatility. Have the ability to invest with discipline and plan for your retirement. You may not retire before the age of 30, but our retirement planning indicates that you have many years ahead of you as a working professional, so why be concerned in the short term,” asks Bala. Edited interview.
Can you tell us about your initial years in the market?
I started my journey in the stock market in the 1990’s, just before the Harshad Mehta scandal in the securities market. I began my career with Canbank Financial Services, a subsidiary of
where I worked in the PMS and odd lot divisions. My office was located on Dalal Street. Being close to the capital market, I used to watch people who used to walk into the trading ring (earlier it was an outcry system-based trading floor) and try to get a sense of the market since you cannot see and feel the market sentiments on on those days.
People coming out of the trading ring and the way they converse or communicate will give a sense of what happened in the trading ring were the only method to detect the mood of the market in those days
As the days went more interest got generated in the equity market, while few people were interested in fixed Income. I was fortunate to be a part of Mutual Fund, one of aggressive dynamic mutual fund competing against other highly capable mutual funds such as UTI, Canbank Mutual Funds or Mutual Funds, among others.
In addition to equity, I had the opportunity to work in the fixed income market. Those were the days when public sector companies issued corporate bonds. These bonds used to get lapped up as the yields on such bonds were very attractive on two counts: one is the daily carry and second is the potential appreciation on the bond. In fact, I would say it was the beginning of the ADRs and GDRs period in the market. Some of the big companies began to issue securities in the overseas market and it was getting remitted back to India. No one knew how to deploy that money in the market, so the money was in the bond market, and my bond market experience grew at the same time.
How was the market back then? What was the strategy you picked up in your initial years?
The market was primarily about gathering intelligence and information. Individuals’ performance depends on their ability to understand annual reports on one hand and balance sheets on the other, if they were into hardcore fundamental analysis. If you are a trader, discussing with different types of people to acquire market intelligence and collating those data points into information, which is then filtered and delivered to portfolio managers. The portfolio manager will then decide based on the filtered information in his/her decision-making process.
So, in the initial period, gathering intelligence, being agile, alert, and shrewd in terms of negotiation in the outcry-based trading market. You must gauge what other people are saying, analyze which side he is on, such as buy side or sell side, and understand what he wants to do without knowing what quantum he wants to sell, and so on. As a result, there are many unknowns that we must deal with, and therefore it is essential to use your intelligence while dealing with people.
Many factors influence stock price or valuation and obtaining knowledge was crucial at that time because quarterly results were not available. It was more of a ground level understanding of customer behavior and determining which companies would benefit the most from that behavior that was based on projections, and then making a buy or sell decision. As a result, intelligence gathering of all types, including market movers, basis buying and selling, FIIs flows, which were very confidential in those days, but you still look for that confidential information to build a perspective on the market’s direction.
Do you recall the first crash or a prolonged bad phase in your initial years? How did you navigate it?
The first crash happened immediately after the big bull scam. The fact that the markets crashed had an effect on portfolios. Though I was not responsible for portfolio management, I used to have some personal portfolios where I had made decent money in those days for the small investments, and suddenly the value disappeared.
So, when the market becomes irrational there is a high probability that you continue to accept the irrational and then ride on the momentum. As the market momentum is lost, the irrational behavior becomes rational behavior and visa versa in the form of punishment in the stock prices is quite severe. So how do you manage this situation which has a huge impact on the value of the price of the company than the valuation, and how do you navigate this painful moment and keep a very high focus on investing for a long term goal.
As a result, keep moving ahead in life is key. Keep looking for opportunities in life and at the same time develop confidence on your strength and conviction to forget the loss you would have made on the irrational behavior to the rational behavior price moment – that is my biggest learning.
What is the one mistake you still remember? What did you learn from that mistake?
Continuing from my earlier point on irrational to rational, there is an element of greed when it is irrational. When you recognise irrational price behaviour, you can either pay attention to greed or satisfaction. If you’re happy with what you have, I believe you should learn to sell. However, if you continue to be greedy despite understanding that it is irrational behaviour, you will lose all your gains when you have already gained enough money based on irrational behaviour.
Therefore, once you’ve satisfied yourself with what you have, regardless of irrational markets, you must also learn to make money. This is more of a lesson learned during both the bull and bear markets, with no regrets. Irrational behavior also occurs in the bond market, and even in the bond market, you estimate interest rates on both sides aggressively.
And the basis on which you take a position in the bond market, which may be going long with long-term paper or going long with short tenor paper. Such kind of positions can get challenged by policy action. There were instances when policy activities, such as monetary policy moves, had a substantial impact on the bond market, and there were moments when we lost a lot of money after making a lot of money in the book.
How much has the market changed since you started? Can you tell us what has and what hasn’t changed in all these years?
The market index would have been approximately 3000 when I first started, and it is now over 58,000. The market has continued to expand. What has changed over time is that no single industry or stock has remained at the top; new things emerge, and the companies that adapt to the change win, while those that do not adapt to the change lose. There has been ongoing learning and constant change. Therefore, as an individual and as a money manager, how agile to these kinds of changing market scenarios and how you look at your portfolio determines you.
The second is from an individual point of view. Having a high level of conviction optimism, that things will work out in the long run, and if you can establish that type of confidence, then pursue the future with no expectations will yield better results.
Given the fact that India is a growth-oriented country, things are being driven with tremendous optimism. My learning is that when there is fear, you buy, and when there is greed, you sell; it’s difficult to put it into practice but simple to state. Even if you can follow this
to a significant extent, I believe you will be a winner; you don’t have to be at the top or bottom; you can choose an upper middle path as an individual.
If there is one thing that you would want young investors to learn from your experience, what would it be?
Discipline is crucial, whether you are young or old. Listen to the market and study it; over analysis leads to paralysis; and one should attempt to follow basic investment ideas and have the discipline to invest for the long term. Rational people are successful in all markets.
In India, I believe that individuals have achieved success because of their rational behavior and the level of satisfaction they have developed over time. So, the disciplined approach to investing and showing conviction in his belief that, yes, I’m investing for a decade and shouldn’t worry about short-term fluctuations.
As a result, young people should avoid getting carried away by short-term volatility. Have the ability to invest with discipline and plan for your retirement. You may not retire before the age of 30, but our retirement planning indicates that you have many years ahead of you as a working professional, so why be concerned in the short term?