We cover publicly listed companies in India. Methodology is long only and investment horizon is long term. We have strong absolute return orientation, cover companies across all market cap spectrum and all industries. The approach is bottom up with the objective to identify attractive businesses at conservative valuations and buy them before other market participants.
Our primary aim is to preserve capital. Valuation methods used by commercial lenders are considered the most conservative among all valuation methods. Our proprietary valuation model integrates commercial lending approach with equity investing. It results in arriving at the most conservative entry price and selling discipline.
Indian growth story is built upon economic reforms, favorable demographics and potential for outsourcing. Presence of multiple triggers create potential to apply various investment themes. Categorizing investment themes assists in anticipating risk return profile, holding period, and exit strategy for the security. Following are some India centric investment themes those proved successful over the last few decades.
Economic reforms, deregulation and liberalization
Indian democracy has its unique way to implement government policies. Our experience enables us to identify beneficiaries of government actions such as privatization, deregulation and allowing foreign direct investment in different industries.
Outsourcing
India has inherent competitive advantage to emerge as global leader in selected industries. We spot such long term opportunities at reasonable valuations.
Growth at reasonable price
Favorable demographics and rising income levels in India present opportunities for new industries to emerge and small companies to become big. We identify capable and resourceful managements who can leverage emerging trends and can deliver sustainable growth.
Strong and scalable intellectual property rights (IPR’s)
The culture of entrepreneurship and technological innovation in India assists in emergence of such companies. We capitalize on our market intelligence and industry research to identify companies having such IPR’s.
Protected franchise
In India, some companies due to their market leadership, strong tangible and intangible assets have created significant entry barriers for new players. Our deep understanding of local markets assists in identifying such companies at right valuations. These companies often act as steady compounder and provide stability to portfolio returns.
Out-of-favor blue chips
Indian equity markets are more sentiment driven than developed markets. During bear phases, great companies sometimes fall out of favor for temporary rather than permanent reasons. We identify such blue chips trading at significant discounts to their conservatively capitalized normalized earnings power and hold them till they reach their intrinsic value.
Out-of-favor cyclicals
We anticipate trend in different cyclical industries from our macro economic research. New long positions near bottom of the industry cycle results in decent risk adjusted returns.
Distressed, turnaround and post-bankruptcy plays
We leverage our deep understanding of restructuring process in India to identify such companies. Our market intelligence enables quick knowledge of management buyouts, operational restructuring and injection of adequate funding in distressed companies. Once identified, such companies are held till the turnaround is complete to realize higher risk adjusted returns.
Companies trading at bankruptcy value
Our proprietary valuation model identifies traditional Ben Graham stock picks such as “Cigar-butt”, “Debt pay down”, “Debt capacity bargains” and “cash bargains”. Such investments are made when these companies have positive operational cash flow.
Special situation
Indian financial market, regulatory environment and corporate governance framework are currently evolving. Such evolution creates opportunity to earn better risk adjusted returns during M & A, spin offs, recapitalization, leveraged buyouts, management change and shareholder activism. We anticipate and leverage such trends from our experience and market intelligence in Indian equity market.
As a conservative investor we believe that emerging companies operating in attractive industries are susceptible to growth. Our research suggests that in India, companies with high excess returns are likely to attract rigorous competition in the market place, requiring provision for relatively shorter competitive advantage period in company’s valuation model. The presence of large middle class supports emergence of viable low cost business models due to economics of scale thereby further increasing the competition. Since regulatory processes and intellectual property protection laws are currently evolving, unorganized sector and smaller players often pose competition by quickly introducing similar products at low cost. Our valuation model builds such intricacies while arriving at the intrinsic value of securities.