What is the basis of selection of companies in your portfolio?

While selecting a company for our portfolio, we look at the management, past track record and the financial strength of the company. For K30, we try to buy into stocks that are less prone to recession or are cyclical in nature. We would prefer companies which give priority to building strong brands and franchisees.

Your strategy appears oriented towards the defensive. Almost all the companies are of the type which are extensively researched and regularly tracked....

Well, being the first equity scheme from the Kotak Mahindra stable, we have to create a reputation for ourselves. Hence, many of our stocks may look defensive in nature. The first impression is very vital. The market does have stories of many good funds, whose reputation till date suffers from a poor initial period performance.

Regarding companies, it is a fact that they are well-known. In fact, of our 30 picks, one can lend to at least 27, without having to ask for the company's balance sheet.

But besides this, you have some companies in your portfolio like Punjab Anand Lamps, Hindustan Inks and LGB Bros, which other funds do not generally have in their portfolio. What about them?

These are the dark horses. Punjab Anand Lamps, a lamp manufacturer was a sick company where Philips took a 40 per cent stake and is now running the company. The company has turned around and is now debt-free. Besides, Philips has gone on record that, in the long run, it will transfer its lightening business to Punjab Anand Lamps.

LGB Bros makes chains for two wheelers, which are supplied to TVS Suzuki and TI Cycles. The business is low-value, but you realise the value when you see that there are only two players from whom two-wheeler majors would buy this product. Factor in the growth of the two-wheeler segment among automobiles, and the excitement is clear. This is the first company which has achieved the QS9000 mark. It has also implemented a business process reengineering in the company. At the current levels, it is a value buy.

The plant size of Hindustan Inks, the largest manufacturer of printing inks in the country, is comparable to those of its Asian peers. It has successfully taken market share from multinationals like Coates.

How many people know that it is the first company to have implemented SAP in the country?

Regarding the promoters' business savvy, they sold 51 per cent of their stake in a private concern called Mitsu to Agrevo for Rs 400 crore. The buyer and the value of the transaction both say a lot. As far as growth goes, if Nestle's turnover has to grow from Rs 1500 crore now to Rs 10,000 crore by 2005, there will be a huge demand for printing ink. On an equity capital of Rs 4.60 crore, the company made a net profit of Rs 23.40 crore for the year ended March 1999. This translates into an EPS of Rs 51. Quoting at Rs 570, the stock available at a PE of 11, definitely looks attractive. Not to mention the fact that it is the main supplier of ink to the RBI and it gets the orders whenever elections take place. The valuation certainly seems attractive at these levels.

What according to you is the best buy in today's market ?

One dark horse today is Mahindra & Mahindra. It's ironical that in today's market, Wipro's oil business profits are getting valuations of software levels, while L&T's software and engineering business earnings are getting cement valuations. Similarly, M&M is rated as an auto stock. All this while, it has a 60 per cent stake in Mahindra British Telecom. This subsidiary registered a turnover of Rs 175 core and a net profit of Rs 54 crore for 1998-99.

The management has given indications that it may go in for GDR listing in future. Looking at the future business of the company and its association with British Telecom, the stock definitely seems to be going cheap within the overall Mahindra valuation. In fact, going by valuations given to Hughes Software, I would say that the automobile business of M&M is available free at the current price of Rs 340.