Investment Philosophy

1. Every investment idea should have a theoretical basis; i.e. we should be able to identify and disaggregate drivers of the stock price, and should be able to make reasonable judgments about these over the medium-term.
2. The theoretical understanding that we have should be reflected in the company’s earnings, over the long-term and short-term trends should be consistent with the expected earnings trajectory.
3. Every investment idea should have defined what it is that the market is currently factoring in, where the market could go wrong, and (as a result) what could be the profit generated. Once the market’s beliefs are in line with yours, there is no case to stay invested.
4. We do not believe that an investment should necessarily be short-term, or long-term. Given the drivers of a stock price, and their movement, out expected run-up can happen over a month, or a year, or longer. We look at all these opportunities with equal respect, and seek to exploit them to earn return on capital.

Investment Plan (Liquid Portfolio):

We will have the following three broad classifications under which most of our selected stocks will fall:
a. Companies with proven competitive advantages, with a Favourable business environment, well-above average sales growth, and having an advantage relative to peers in terms of opportunity size, or valuation, or expected earnings trajectory over the next one-two years. We would, under normal market conditions, expect to find eight-ten such ideas
b. Of the companies described in (a) above, there would be two-three companies where earnings in the near-term (2-3 quarters), are expected to be especially robust. We would be buying such stocks in a higher proportion.
c. Sectors/ companies that witness a turnaround in earnings/ big change in earnings trajectory, most often on macroeconomic factors. One should expect that there would be 2-3 such sectors (5-10 such companies) that one can point at and make reasonable estimates about, for a reasonably long period.

Investment Plan (Small-Mid Cap Portfolio)

We believe the small/ mid-cap segment of the Indian market suffers from an acute shortage of capital, due to lack of institutional participation, and due to the fact that the 25%/40% - odd decline in the mid-cap/ small-cap indices have rendered the typical SMID investor (HNIs, PMS funds) poor and unable to push any capital in the market. Thus, we believe that valuations of the stocks in the small/ mid-cap space shall remain depressed for extended periods. However, over a period of time, as fresh capital begins to accumulate in the SMID space, these stocks have a potential to significantly outperform large-cap stocks. We believe this could take about three years – our recommended holding period for the small/ mid-cap portfolio. We will have about 25-30 stocks in the portfolio, so that we minimize company risk most significantly. The stocks selected in the portfolio will broadly fall into at least two of the following three buckets: a. Quality at a reasonable price: a screener that includes parameters on return ratios, debt position, and valuation, b. Earnings momentum stocks: stocks whose quarterly revenue and earnings growth exceeds pre-defined criteria, c. Significant Megatrends: stocks whose industries fall into a “sweet spot”

Investment Plan (Short-Term Ideas)

a. Ideas provided are based on fundamentals, and do not use technical analysis or any other form of idea generation
b. Ideas are based on an impending “trigger” event, which can take a stock up or down
c. Rationale is provided on what the market is expecting, and what could be different, thus triggering a price move

Investment Plan (Booster)

a. Ideas that are expected to outperform the market by 10 percentage points or higher on an annual basis, and provide a booster to your portfolio
b. Would usually be potential multibaggers in 3-4 years’ time
c. 6-8 ideas on an annual basis
d. A 3-4 page investment summary detailing the investment case and why the stock is expected to outperform markets significantly, would be provided to the client
e. Each stock would be placed into a risk bucket (medium/ high/ very high) to enable the client to choose his stocks as per his risk appetite.