Knowing Parag Parikh
The Man
A rare money manager who believes in doing the right things; business automatically follows
His Claim to Fame
Managing a PMS since 1996 with a low ticket size of Rs 5 lakh. It has given 18 percent returns ever since. Used behavioural finance to understand the boom and bust cycles of financial markets. Always been sceptical, conservative.
His Big Bet
To convert his PMS into an MF that will invest long term in Indian and foreign markets. It is expected to attract retail investors, not HNIs.
His Belief System
Buying businesses rather than stocks. Doesn’t want to play the game of assets under management. Has always been honest and committed to his clients.
Last week, Parag Parikh turned 59. In the normal course of things, it would have been just another birthday for the money manager-cum-broker, who has been active in the Indian stock markets for the past three decades. Parikh, of course, may have had a special reason to celebrate. After a three-year wait, he got permission from the markets regulator Securities and Exchange Board of India (Sebi) to launch his own mutual fund last October. Within the next two months, Parikh also received an in-principle approval for his scheme.
When we met him a few days later, he clearly had other ideas on his mind. On his desk was a DVD of Forest Gump, a thick tome by Ramchandra Guha and a guitar by the side of the table. “You know, I’m thinking of giving up on my cholesterol drugs. I don’t know what kind of side effects they might be having on my system. Don’t you think I should be more sceptical and conservative about the medicines I take?” The question may have been directed at the other person in the room: Rajeev Thakkar, his CEO and fund manager at the eponymous brokerage and financial advisory firm, Parag Parikh Financial Advisory Services (PPFAS), but it seemed almost rhetorical in nature.
Parikh is in the pink of health. Years of daily meditation have helped him look a lot younger than most people his age. And it might also help him deal with his next big challenge as he approaches an important crossroad in life.
Over the years, several hundreds of wealthy individuals have sought him out for customised advice on where to park their money in the equity markets. His trademark scepticism and conservatism have positioned him as a responsible and a relatively safe haven for investors. And the portfolio management scheme (PMS) he ran, where each individual investor has his own separate account, has had an established track record of delivering consistent and above-average returns. Over the past decade, it has generated a compounded average growth rate (CAGR) of 21.16 percent, beating the 16 percent growth in the Sensex during the same period.
He could have continued this winning streak, if it weren’t for the new law that allows only investors with a sizeable corpus—a minimum of Rs 25 lakh—to be part of a PMS. All other retail investors now need to invest in equity markets through the supposedly safer route of a mutual fund scheme.
For Parikh, that would mean a life-defining change. Parikh has had a simple motto since starting PPFAS: He preferred targeting regular retail investors who aspired to break into the bulge bracket. But that wasn’t the norm. Most other PMSes, such as ASK run by another marquee money manager Bharat Shah, ask for a minimum threshold of Rs 1 crore from every investor. Parikh, instead, asks for Rs 5 lakh.
Since Parikh’s is the first example of a PMS morphing into a mutual fund, it is being watched closely across India’s equity markets. Those who’ve known him say he should be able to retain most of his investors, who make up the Rs 330 crore corpus that his firm manages. “I know Parag Parikh for a long time. He is a value investor and a long-term investor and very focussed in investing. He is a person with strong convictions and is completely research oriented. He doesn’t get carried away by market moves,” says Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services, a leading brokerage.
Yet Parikh will now have to move out of the relatively obscure world of alternative funds (as PMSes are sometimes called) into the hyper-competitive mutual fund industry. The dynamics are somewhat different. We’ll get into that in a bit. The moot point is whether his current base of investors—and potential ones—will eventually settle for a one-size-fit-all solution to their investment needs. Or will they continue to insist on individualised solutions?
On his part, Parikh has developed a differentiated strategy that he believes might help him carve out a niche in the company of the big boys of the mutual fund industry like HDFC, ICICI and Reliance. “The mutual fund will allow all kinds of investors to invest in our scheme. The idea is to make normal investors into high net worth individuals (HNIs). I don’t want HNI clients and grow their money,” says Parikh.
“One quality which is etched in my mind is his courage to stick to his convictions. He has, over a period of time, made trade-offs in terms of what he thinks is best for his organisation, in line with his beliefs—which is admirable,” says Vikaas Sachdev, CEO of Edelweiss Mutual fund, who worked with PPFAS way back in 1994.
Notwithstanding his razor-sharp acumen, Parikh has had his share of nightmares. Like many value investors in the Indian markets, the technology or software boom of the late 1990s turned out to be a particularly difficult period for the firm. Parikh chose to stay out of the massive tech rally, where stocks like Infosys were being quoted at a P/E multiple of 100 times. His basic philosophy of not investing in sectors that he did not understand wasn’t well-received by his clients. While the rest of the market was besotted with software, Parikh was advising clients to stock up on FMCG. Many of his clients actually started leaving him because they thought they were missing out on the rally.
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(This story appears in the 08 March, 2013 issue of Forbes India. To visit our Archives, click here.)
Parikh Sir, am going thru ur lectures at GIM fr the last one month. Not only financially, but mentally it was a feast. Im 21 nd starting my career as an Engineer at an MNC. Im gonna follow certain disciplines , just because you have told. hearty thanks.
on Aug 12, 2013Read about his entry into MF in the newspaper today only, and now this endorsement from Forbes India, I am surely excited to read the complete article. Though not sure with only one scheme how he will manage different individual needs but after burning my hands being invested in other players\' schemes he sure deserves a chance. So waiting eagerly to join hands with his company...
on May 13, 2013It makes a wonderful to sense a new wiff of the wind blowing in an industry, which ought to have made huge difference to the investments and the way the investments are made,by and of the 'retail investors'. The task seems so idealistic that one should wish a load of best luck to the team of Shri Parag Parikh to survive in this 'jungle' of (what has become) of the investing in the equities on the market platforms.
on Mar 14, 2013I first heard Mr. Parag when he visited MindTree (5-6 years ago?) and interacted with senior leadership team. I remember he did mention about his love for Vipassana, behavioural finance, and fundamental research based investing. He also ranted against MFs and was not sure they are right solutions for retail investors always. He is temperamental and blunt as article says and many people thought he was too snobbish and rude when he answered few questions. But it was clear to me that he was different from other MF investing managers with his own convictions and opinions. I wish him and his MF all the best. As a value investor myself I believe we do need value investing opportunities for common investors (called passive investors by Ben Graham) even in India. It will be interesting to see if he stands steadfast against the force of, described by Buffet as, "institutional imperative" aka peer pressure.
on Mar 7, 2013Hi Girish I appreciate your feedback. Yes I was in to mutual fund ranting, but that was not against the asset class but the way they are run. Money management is a profession which has turned in to a business. When it is a profession you do what is good for the client but when it turns in to a business you do what makes business sense. Hence the mad rush of Assets Under management game. We will stay in the professional category and avoid the race for AUM. We will stop accepting money in bull markets and when investment opportunities are not available. We will not have any entry or exit loads. We will go for absolute returns rather than relative returns as has been done. Our performance over time will give us our AUM rather than sales and marketing teams. We will concentrate on buying businesses available at attractive valuations rather than chase stocks and sectors which are the current fancies and fads of the market. Since we are not going to be in the momentum play our analysts and fund managers will not be judged on quarterly performance nor will they work with targets. We have never done so in the past with our PMS scheme also. We will have our skin in the game. Our senior management team, fund managers, analysts and myself will be investing in the fund. All additions and redemptions will be made public on our website. We will be very different from the existing crowd.The question of we changing course because of peer pressure does not arise. We will walk the talk. Parag Parikh
on Mar 10, 2013I'm a kid of 22. I got exposed to value investing. I had been investing since I was 20. But then I suffered quite a number of losses speculating on my father's money. But now I guess it's high time to adopt a more conservative approach. Then I started reading intelligent investor, one up on Wall Street and then about lot of famous value investors Buffett, lynch,Browne,brandes, jhunjhunwala, greenbalt,etc etc.. India is filled up with hypocrite clowns and deceptive analysts. After a lot of scepticism I watched a couple of interviews of parag parikh sir and then I found that his conviction fascinates me. I hope many more such dedicated people will emerge who will be committed and honest to their clients. Honesty cannot be expected of cheap people of course. I also hope such an honest service should come up in Kolkata where hundreds of investors fear the markets. Thank you, sir, really for all the wisdom you imparted.
on Oct 18, 2013Wish good luck to Mr. Parikh and Mr. Thakkar. Btw, nice article.
on Mar 6, 2013Mr. Parag Parikh has always been ahead of the curve, I have been following his growth since 1992 when he was member of my exchange. I am sure he will bring the same success to the Mutual Fund has he has done to his other innovative business launches. He is one of the few Indian brokers who has invested in himself in education irrespective of his success. Wish him all the best in the launch of the Mutual Fund.
on Mar 5, 2013