J Venkatesan manages five funds at Canbank Mutual Fund. 

In this extract of the interview which he gave to Value Research, he speaks of his stock picking strategy, his view on the current bull run and advises stock market investors on what to expect in the coming year. 

His message to investors in such uncertain times

I do not believe the times are uncertain. Only the era of easy money making is behind us. Current market conditions call for more skills and the stock selectivity would play a key role now onwards.

1. My message would be firstly that equities are the riskier class of assets. That does not mean one should avoid it. It only means that one should allocate only that portion of one's savings with which he can afford to take such risks.

2. Secondly, one cannot expect superlative returns of the recent past from equities. But equities will deliver superior returns over a longer period. Hence, one should always keep the long term perspective in mind while investing in the capital market and should not invest money for short-term requirements in the capital market (stock market).

3. Instead of trying to time the market for entry, one can invest in equities through the Systematic Investment Plan. I am not too sure investors would be able to track the many variables influencing the market. Hence, I believe investing through mutual funds could be a safer option to the investors as they get diversification and quality fund management backed by research.

• Is it time to sell your shares? 

On the Sensex at 9000 levels

The Indian market has been in a bull trend since the middle of 2003 and I believe that this trend will continue for a fairly longer period. Of course, the market will have sharp volatilities as it scales newer peaks. The valuation concerns would keep coming every now and then.

I believe the players would be surprised by the companies beating the growth expectations.

Market at 9000 is definitely a challenge for any fund manager. One needs to take a call on the future growth potential of the companies as stock prices build in the future expectations.

While we could see plenty of opportunities and no-brainer stocks two years back, market at current levels is a real challenge.

Nevertheless, opportunities exist in this market for a patient and discerning investor. I believe the rally is far from over.  

One cannot expect superlative returns of the recent past but can reasonably expect returns, which are superior to any other alternative form of investment available to the investors. The market would remain volatile though.

• Where to invest for a regular income

On how he picks his stocks

Stock picking is both an art and a science and in my opinion, more of the former.

As basically the stock prices reflect the future expectations, one tends to differ with another in the perceived or intrinsic value of a stock.

Stock picking is the core of fund management.

We take full advantage of the bottom-up and the top-down approaches. And also consider both value picks and growth picks.

Essentially, we focus more on the future growth prospects of the company along with the valuation.

We believe in combination of different approaches like what Charlie Munger calls 'Latticework of Mental Models' involving application of various sciences to the art of investing.

If there are huge growth opportunities for a company and they have the managerial abilities to tap those opportunities, then they merit a closer look.

Continuous data analysis is carried out by our research department to select the companies in terms of attractiveness of valuation and the growth potential. This is followed by due diligence by meeting the management and undertaking the plant visits.

We look at variables like quality of management, the size of the market, ability of the company to scale up operations, the competition and a host of other factors.

On when he sells his stocks

Decision to sell is one of the critical decisions for any fund manager.

Normally I exit a stock when I find a better opportunity. When I believe the stock price is running ahead of fundamentals.

We have a system of review of our holdings when the price moves up by 20% from our cost price or the last review price to decide on booking the profits.

We exit partly if we decide to increase the cash position as a defensive strategy to reduce the market risk.