Hyderabad Investment：Samvat 2081： Forward-thinking approach with long-term mindset key for superior returns

The Indian equity market has witnessed remarkable growth in 2024, generating significant wealth for investors.

To delve into the intricacies of investment strategies during this prosperous phase, CNBC-TV18 engaged with prominent investment experts: Vikas Khemani, Founder of Carnelian Asset Management & Advisors; Ravi Dharamshi, Founder & CIO of ValueQuest Investment Advisors; Amit Jeswani, Founder & CIO of Stallion Asset; Roshi Jain, Senior Fund Manager of Equities at HDFC Mutual Fund; and Rashi Talwar Bhatia, Partner & Portfolio Manager at Ashmore. Each expert shared valuable insights into their investment philosophies and outlook for the coming year.

According to Khemani, recognising shifts that diverge from the common narrative provides investors with a significant entry advantage.

He stated, "If you want to make superior returns, you have to always focus on rate of change." By identifying trends ahead of the market, Khemani believes investors can capitalise on opportunities as broader awareness grows.

Khemani believes a long-term investment mindset should complement this forward-thinking approach to harness the power of compounding.

Meanwhile, Jeswani said his mantra is simple: "growth, growth, and growth but with good quality." He pointed to Varun Beverages as a prime example of a high-quality company outperforming competitors in a challenging FMCG landscape. While other players in the sector struggled with minimal growth, Varun Beverages has successfully reinvested capital, yielding impressive returns on capital.

Jeswani insists that recognising the execution capabilities of companies is crucial, stating, "Bad execution gives you bigger risk than higher PE multiples."Hyderabad Investment

Q: You have been early on a lot of the themes, but you also believe in the long term. When you think of investments as a process, how would you define your investing process?

Khemani: Investing is a long-term game. You are buying businesses from a long-term perspective and thereby looking to create wealth. Hence, it❼very important to have that mindset, and I believe that my biggest winners, my biggest successes, have come where I have stayed invested for 5, 10, 15 years, and that is where the compounding kicks in.

Of course, the fact that since you are looking for the long term, you have to do your work really deeply because you are preparing yourself for a very long term, you can❽really do shallow work and then take that perspective, so the quality of the management and quality of the business is very important before you sort of invest into it.

However, one specific thing which has really worked for me over the years is if you want to make superior returns or super-normal returns, you have to always focus on the rate of change. Something is changing, but the common narrative is something else, and if you are able to figure out something ahead of time, ahead of the common narrative, then I think it gives you a superior advantage from the entry point of view and then staying through the very long time as and when more and more people figure it out. So I think those are the things which have really worked for me. So whether it was picking ICICI bank in 2019, which has become 5x in the last 5 years when nobody was looking at it, I remember when we bought, most people had 0 holdings or 1% holding and everybody❼top holdings were something else, but that really required a very deep perspective, different perspective, different work.

I remember when we launched our manufacturing fund in October 2020, we could see a lot from connecting to the ground, talking to the companies, and saying that something was changing on the ground, but the common narrative was that India could never beat China and Vietnam in manufacturing, Bangladesh is ahead of us, that was a common narrative. But what the market and most people were missing was the rate of change, what was changing. So if we are able to find that rate of change, which is positive and accelerated, then you can really make super-normal returns.

Q: We want to really understand what drives you, this whole hunger for growth because you buy growth businesses and a lot of them have been on the consumer discretionary side. I remember one conversation where you said PE is fine, but we don❽let PE hold us down, elaborate on that point, what do you mean by that?

Jeswani: We don❽start with PE, that❼the thing that I was trying to say. For us, the first and most important thing is what is the quality of the business, then we go to growth because what will I do with a great quality business which is growing at 1%?Jaipur Investment

For example, you said HUL. But in FMCG criteria, we have stocks like Varun Beverages, while HUL was growing at 1%, Nestle probably this quarter was weak at 2% but last three years been grown at 7-8%, all Godrej Consumer, other players have grown at single digit kind of growth, you had one player who was scaling, reinvesting capital at very high RoCs of 27% that is Varun Beverages and it was one of the top 4-5 stocks in our portfolio. When everyone was struggling, Varun Beverages, because of Sting initially, was growing at 40-50%, and they also acquired the entire Indian market. So what I❶saying is every industry there is one guy who❼scaling. In this quarter, if you see the entire QSR space, the numbers are horrible, they are a horror show, but you have on one side Zomato, who❼scaling at 68%.

So in every industry there are players who are executing and then players who are telling, this is the problem, that problem is there, who wants to listen to their problems, you want to bet till the time they are doing well. So we are always chasing good quality companies; in fact, our portfolio beta is 0.8 against Nifty50 since inception for 6 years, so it❼not like we are taking high risk. There❼a wrong notion that growth gives you risk; bad execution gives you bigger risk than higher PE multiples. So the mantra is, growth, growth and growth but with good quality.

Q: So many themes that you❿ identified, how do you identify these themes? What are the internal drivers that you put in place for you to be able to identify those themes, and what are you looking at right now?

Dharamshi: Besides just looking for companies to invest in, first, our starting point is looking for where to fish in the pond. Identifying a pond that is growing and then, of course, you want to catch the biggest fish, but where in the pond you go to fish is what we look for. So our starting point is usually which way the regulatory wind is blowing, which way the consumer behaviour is shifting, where the capital is flowing, where the technology is evolving, and where the cost curves are hitting the inflection points. Those are the leading indicators that we look for to understand which are the trends that are going to unfold over the next 10, 20, 30 years. However, it❼good to say that I want to invest in this theme for 20 years, but it doesn❽happen that way. You still have to break it down into bite-size 5-year investment horizon, because it❼in that 5-year investment horizon that you have to make money. For example, let❼say energy transition it❼a large theme, and it comprises 10 different sub-sectors within that. It❼not like every sector is going to do wellLucknow Stock. You still need to do your sector picking within that and then, of course, identify leaders within that.

So our process is a combination of top-down and bottom-up approach and we first start with the top-down in identifying the themes where the tailwinds are very strong and then come to picking stocks.

Q: You operate under the fund mechanism where every fund that there is has its own objective, has its own risk-return ratios, has its own criteria so to say. Within that, what would you say is your individual style?

Jain: Under the mutual fund umbrella, each fund has its own mandate and I think one thing that perhaps is critical under the mutual fund umbrella is to stick to that mandate and not be swayed by what happens to be flavours of the season.

Post the SEBI re-categorisation of funds under different categories. I think that❼perhaps one of the key learnings now imposed by the regulator that one needs to be true to label.

The other important reason why mutual funds have also scaled up so significantly is also following an investment framework consistently. I think that perhaps less credit is given to mutual funds for that but you will find that most mutual funds have an investment framework philosophy which is very well married with a risk management philosophy, which we perhaps tend to underestimate, and that❼ I think, the key reason why we❿ seen this kind of scalability in the mutual fund space.

Retail flows have come because of the trust and the trust has been built because of following an investment framework process and a risk management framework.

Q: What❼your personal investment philosophy and style? And does it exactly mirror and replicate Ashmore?

Bhatia: The underlying fundamental that I and my team work with is that markets are not efficient, and markets provide us opportunities where there❼price dislocation or mispricing at various points in time. Markets swing from exuberance to pessimism, and we see that at all points in time. And in both ways, the pendulum swings to extremes. So what we try to do at Ashmore India is to essentially find those opportunities in the marketBangalore Wealth Management. So we run a market cap agnostic, benchmark agnostic, high conviction, bottom-up stock portfolio, where we❻ really looking for good businesses that are possibly going through a difficult time, maybe because something❼happened in the company, something❼happened in the sector, and there❼a significant price dislocation. So, the stock price is well below what we believe is the intrinsic value of the stock, giving us the opportunity to buy the stock.

So, if you look at my portfolio, we will typically not fall into either growth or value, which is why I said we❻ kind of different. But our contribution to risk-return falls into what is squarely known as stock idiosyncratic or stock alpha. And that❼what we do.

Watch the accompanying video for the entire discussion.

Jaipur Investment