Investing in Uncertain Times - Transcript

So very good morning to all our viewers. Uh we at generational capital are here once again to guide you all in thisturbulent times. uh the markets have seen a great deal of correction in the last 3 to four months as we can say butnow things are looking quite positive and uh we have Satic here who's the founder of generational capital a multi-multi-country investor with great experience uh investing across various verticals so Satic is here to guide usand help us to understand more about how the markets uh are going to be you knowwhat is going to be the outlook for towards the markets in the next 3 to four months given the volatility that wehave seen in the in the last few months there has been a great talk about FIoutflows the dollar index kind of uh how it's been performing the Trump tariffsthat have been coming in so even geopolitically we are seeing that there have been lot of turbulences and uncertaintity that has been built up andeven the US markets are now correcting so so it's been it's been a I'd say aglobal globally we've seen markets have been in a route and I think uh this is where as generationalcapital because we are a leading multif family office having a long long-term mission to protect the uh funds thepurchasing power of our clients and increase its value over time. This is where we come in and we try to take upthe role of where how to guide them in these turbulent times because these are the times which historically we haveseen have led to great uh return and wealth flow in the next four to sixmonths. So I'd like to bring Satik on board here to kind of guide us and tell us more about how you know we shouldlook towards the markets and then as we go forward we'll also focus on our AIF how it's been performing in the last 6to 8 months where we have seen some volatility but of course how Satik goes about picking his stocks in the AIF howthe returns have been so so over to you Satik let's start with how the marketshave been over the last 3 to four months I mean for someone who started in 2021or 22 do I maybe it's one of the biggest corrections that they might have seen in this time. So how would you guide peopletowards this? Right. Right. So so I was going through some data points and approximately 30 uh to 35% of the newdemats which have been opened. So they have not seen a draw down essentially they have been opened up postco. So thishas been the first severe uh draw down post the covid has happened. So I hadcollected some data points and the uh normal questions we used to get is whether we should stop our uh systematicinvestment plan uh whether we should stop investing in the markets or how much should we invest or we should timethe markets. So uh this chart just shows that you know across uh cycles rightfrom 1996 when the markets had fallen 21% in a matter of around 3 months uh to uh the97 to 98 period in around 15 months the markets had fallen 37% fee to uh in 2000in 19 months markets had fallen around 54%. Uh so broadly the difference uh ofkind of like you know waiting to time the market versus consistently investingthroughout uh it does not make a serious difference uh to give you some datapoints. So in the 96 period the if someone had continued with the SIPthroughout uh the ups as well as downs or if someone would have invested at the bottom the uh returns would have broadlybeen around 14.5% uh IRRa right uh instead of what people think that ifthey like you know uh time the bottom so the IR would be a lot different becauseit kind of neutralizes with the ups and downs of the markets uh In same way in the 97 to 98 periodbecause the draw down were pretty severe around 37% the difference comes to around 30 basis point but that's aboutit. So the whole idea is like it is only marginally higher for SIP's the returnswhich have started at the bottom of the market cycle. Uh and the cost of delayof like you know SIP by SIP I mean regular investments in the market notnecessarily the SIPs can be huge over the long term. Uh so uh now coming to how uh souh again these have been various questions asked by various investors across the country as to there has beensevere FI outflow but again we try to uh get into the data that it has to belooked as a percentage of the market cap rather than uh in the absolute termsbecause the market capitalization the size of the GDP uh has also increasedover a period of time. So uh just to give you some perspective uh while absolute FI outflows have reached recordlevels for example around 34.9 billion during the geopolitical worries of 21to22 the impact on the market cap has been very very uh less and this it's notlike a very very severe correction. Uh so the broad conclusion here is while wesee FIS as a FI outflow as a negative indicator the true impact must beanalyzed in the context of the percentage of outflow as a market capand the various historical data right from the global financial crisis to theUS credit down uh downgrade uh to the Fed hikes it suggests that the FI exitsare typically followed by strong recoveries. Um and broadly these kind of like you knowmoney flows are kind of very very tough or I would say impossible to time. So itis best to be identifying good funds and uh good businesses and staying investedwith them over the long term. Uh now uh one more counterforce to theuh foreign institutional investment is the domestic institutional investorswhich would mostly be uh the mutual funds as well as portfolio management services as an AIS. So broadly activelymanaged mutual funds manage around 1.64 64 lakh cr and the current cash levelscome to approximately 5 odd% and the balance fund manage around 1 lakh crwhere equity is only around 50 54% which can go up to 80% in case of aggressivehybrid funds right so uh gradu and the monthly SIP book also is of broadly 25 or,000 crwhich is continuously increasing and the uh difference right now versus what was there in the previous uh kind of marketcycle was now people look at equities as a long-term asset allocation uh ratherthan like you know just making money over 3 6 months uh andexiting. Uh then we had collated some long-term charts of the Nifty Sensexand we were trying to have a method to the madness. uh so basically historyteaches us that uh patience rewards uh those who stay invested uh in the marketand broadly if we miss the best like you know 1% of the days so our returns kindof half uh in an XR basis and deep corrections are followed by very strongrecoveries uh and normally we the index makes kind of the index returns mirrorwhat the nominal GDP will be doing so in the 2000 to 200 3.com bust. Uh the turnof the millennium bought Euphoria as the technology stock surged where where multiple uh companies were being valuedon the basis of eyeballs uh in the USA. In India also multiple companies became100x,000x without supporting fundamentals. But by 2000 the bubble kind of uh burst. uh Nifty fell around53% from 1,800 odd levels to 850 and 19 months it took to hit bottom uh andaround 46 months it took to reclaim its peak. Uh but the investors who sold outin the panic missed that uh rally also and then the mother of all bull runswhich was 2003 to 2007 where the Nifty itself went between 6 to 7x.uh then very uh recent scenario of the covid uh crash where March 2020 was oneof the scariest months in the uh history of the markets where the nifty fell byaround 40% to 7500 odd levels but then the government's intervened businessesadopted and recovery was very very sharp and within 10 months the nifty index hit all-time highs now that is the futilityof timing the markets that on the day when the lockdown was uh announced which was March 23, 2020. It was at that exactdate that the nifty made the bottom whereas the general consensus would be that now the lockdowns have startedthings will get even worse. So the whole point is that we should be broadly invested in the markets and markets aresomewhat forwardlooking. Uh and uh then March uh2025 uh the month we are currently standing in. Uh so over the past fewmonths Nifty has again corrected around 16 odd% from its peak of around 26,000.uh history suggests based on the last 20 25 30 years of data that draw downs arekind of temporary and could be lasting around 6 to 12 months. Uh so it isanyone's guess when the markets will be hitting all-time highs but as fund managers and as asset allocators thebest we can do is to identify uh good companies which are showing earning momentum and stay invested inthem. Right. So how do you outlook on what is youroutlook on India over the next 3 to four months? I mean I understand 3 to four months is a very short period of time touh tell us as a time frame it's a shorter period but what do you think where where the market is going to hitin terms of the companies that you have taken up especially in your AI if let's talk about that now because we'vealready given a broader outlook where things have hit hitten a bottom and now things are looking up in the next uhwe've seen already seen in the last few weeks there have been some green shoots which we can say has been kind of arecovery in the markets The markets have been uh looks like they have bottomed out but obviously no onecan call call out the bottom. So how do how do you look at the Indian uh yeahIndia as a growth frontier? I mean the is the growth story still alive because there were talks of you know stocksgoing up valuations being too high P ratios of stocks hitting the roof. So so what are your thoughts on India as amarket right now to stay invested? Uh right. So first I'll kind of get to howour portfolio had performed in terms of the fundamentals over the last last quarter and then as to what themacroeconomic scenario looks like. uh so uh basically uh in the Q3 u fi25 whichwas kind of not one of the best economic scenarios where the uh GDP growth ratewas around 6% falling from 7 and a2%. And the BSC 500 in terms of sales andprofit grew by between uh n uh the sales grew by around 9% and the profit grew by13%. So our broad portfolio as a whole uh grew by around 33% in sales and 41%uh in profit uh at that rate uh the sales and profit kind of double every 15to 18 months and so broadly the idea is to stick to the 25 cube framework whichwe have. Uh so that basically means we would be looking at companies whichwhich have a proven track record of growing at more than 20 25% in terms of sales having zero debt or very less debton their balance sheet uh very high return on equity of 25% plus and ideallyavailable at 20 less than 25 time price to earning multiple. So if we get threeout of these four and then based on our research the management is clean theyare willing to share what the company makes with the minority shareholders. So we think serious wealth can be madebecause there we get both the triggers of earnings growth also basicallyearnings doubling every two and a half 3 years as well as the valuation rerating scope will be there where the companieswill be going from a 1520 price to earning multiple to a 4050 price to earningmultiple. So uh broadly now coming to the framework. So first we'll try toidentify sectors with consolidating profit pools. By sectors I mean subsectors within the consumer,healthcare and technology space because these three sectors are where we focus more on. Uh once we have identifiedthose uh companies to research on broadly 200 to 250, we'll be running anin-depth forensic analysis and a fraud search on those companies. uh and thenidentifying what will be the modes of the businesses. Uh generally we haveseen that in India execution is the biggest mode because the size of opportunity in most of the subsectors inthese three major sectors will be at least like you know 2,000 3,000 K bareminimum. So the whole point is to take a call on whether the promoter can executeand he has that hunger to grow also. So in that parlance we prefer to partnerwith or invest into first generation entrepreneurs where the company growing will have a significant impact on theiroverall net worth and then we finally identify 15 to20 25 uh companies which can be part of the portfolio. Uh so this is broadlywhat the uh current portfolio uh looks like f kind of into the uh the green uhone shows the consumer basket, yellow shows the healthcare and the uh blue shows the uh technology or IT servicesbasket which we are havingright so in terms of the sectors I believe we majorly focusing on the consumption se story. So Indianconsumption story is still alive and I think if you could also guide us on howvolatile the portfolio has been in the last 3 to four months. So how how do you think that is being managed in terms ofthe portfolio how are you looking at things when there is huge volatility or we've seen that in sometimes in smallcaps and micro caps liquidity can be a challenge. So how do you factor that in in terms of your portfolio building?Right. So uh so short answer to that is we have done nothing because we look at ourselves as part owners of businesseslike this is what ultimately equity investing should be about ideally. Uh so on the basis ofvolatility basically we had again collected some data that the nifty from its peak fell by around 15%. And fromthe 51 to 500 company they fell by around 30%. uh our portfolio from thepeak uh till last month was broadly down by around uh 20 odd percent and the betaof the portfolio has been around 65 compared to the BSC 500. So we have beenvery very less volatile compared to the uh you can say broad the broader benchmarks and significant alpha hasbeen generated like approximately this financial year from April till today we are up around 18 to 20%.uh right so with very less volatility we have been able to manage pretty decentreturns and significant alpha over the benchmarks so I would attribute that uhto how the businesses have been performing whereas the nominal GDP is growing at around 12 13% with 6 7% realGDP growth and 6 7% inflation our portfolio has been growing at 30% pluswith almost two to three uh times return on equity or capital efficiency of whatthe top 50 or top 100 companies would be doing. Are you still buying investing intoportfolio companies where you see that the valuation has come down? So how are you deploying funds in terms of the uhcash level at the portfolio level? So how are you looking at your existing stocks if I so basically how we allocatenew funds especially in the alternate investment fund is uh the companies which are executing exceptionally welland the valuations we think are very very reasonable. So there we will be adding to the stocks and the companieswhich are reporting okay numbers or kind of meeting expectations. So there we would be staying put. So we would beincreasing allocations to companies which would be uh doing outlier numbers and the valuations are reasonable andwith rest we'll be maintaining the weights. Right. Right. I heard you say about the AIF that we we have somewherearound 18% returns in the last one year whereas the benchmark has given I think singledigit returns. So what what hasbeen the key driver of these of this outperformance? So what in your view has been going right for the portfolio andwhat do you think will continue in the next for anyone looking to invest in the next 2 months or 3 months who's lookingto deploy what what would you guide them on how to go about it? Well, frankly say 9 months to 12 months is a very shorttime frame for the companies we are investing to the thesis to play out. But broadly in this short time frame whathad worked was basically we were trying to buy companies at 10 times operating cash flow, 12 times 15 times price toearnings and in say around two to four companies the discovery effect happens.So the idea is to buy into neglect where no one is looking into the companies andbe one of the first few investors. Now this does not necessarily mean a smallcap or a micro cap company like uh around four four and a half years back through the portfolio management servicealso we had invested in trend at around 15,000 cr market cap. So that time also very less coverage was there on thecompany and there were kind of no uh like you know uh investors at large fromthe mutual funds PMS AIS space because everyone was valuing it on a price toprice to earning basis whereas it had to be valued on a sum of the parts and zodia was scaling up well. So currentlyalso we see a lot of opportunities in companies which are say even a billiondollar market cap growing very fast and very less institutional ownership.Right. Right. And I think with the Q4 results also coming out we've seen that the India macro indicators have beengood. the industrial output has risen, service index is has increased as compared to the last two to three monthsthat the data that comes out and even the inflation has been has come out down. So we've seen some triggers thatRBI has also taken in terms of open market operations trying to bring liquidity into the market. So do youthink those factors are also going to help with the companies performing well? Do you think the macro factors in Indiathat the the economics is looking good which will help the portfolio to kind of grow more in the next uh in the time tocome? Well, broadly what had happened was around 6 to 8 months back the RBIhad tightened the whole liquidity. So the impact we were feeling from uhJanuary right with RBA as well as SEBI basically all the government bodies withthe what had happened in the future and option market the uh they had tightened the market the margin trading book hadgone down. Uh now gradually uh money is being pumped back into the system. Alongwith that there are some macroeconomic indicators also like the PMI index hasbeen doing very well. The tax collections have grown. If you look at right from corporate to personal taxthey have grown in double digits. So these are all healthy macroeconomic scenario but frankly Q4 I do not expectit to be a blockbuster uh quarter but I'm pretty confident on thecompanies we own that at a portfolio level we should be growing at more than 30%plus right and I think that's what's going to be more important going forward because if the if the there are fewthere's a small pool of companies that are growing at 30% then eventually there will be lot of funds lot of investorswho will looking who will be looking to buy into them and with the flows going in there is a high chance of themoutperforming the broader market. Right. Right. So, so normally uh the the ideais to be there where very less kind of institutional ownership or analysis willbe there and be into leading uh brands or kind of quasi monopolies in thosesectors and so then when the brokerage coverage starts or you can say theinstitutional ownership starts then we get uh the uh you can say the impact ofthe earning growth as well as the valuation rerating or the discovery effect. Right. Right. So what is youraverage turn rate in in the portfolio? Like I believe that there is always going to be a long long-term story behind micro cap and small cap uhinvesting. So overall what has been the holding period in terms of the AIF that we that that has been started uh so canyou guide that that question came out from the audience. Right. Right. So uh so broadly uh over the last four and ahalf years across our various strategies the churn rate has been broadly 20 odd%.Right. Which is which is quite low as compared to other small cap funds. We've seen a high turnover rate. I think mostfunds have a turnover rate of almost 60 65%. Right. Right. Right. So, so the average holding period of a company willbe around 5 years and the idea is to buy into businesses which are undervaluednot known by the street across small, mid and large caps and then hold them for a long time till the company keepson executing or the valuations go pretty bizarre basically. So I'll give you acouple of examples there also like there was this leading pharma company. So nowthat we we have sold we can openly discuss it by the name JB farmer. So wehad acquired uh basically started investing in the company when the private equity group came into uh thebusiness and they bought in the whole Cadilla management and the CEO of Cadilla had a super impressive trackrecord of scaling up Cadillas's domestic business. uh the company was available at hardly 10 times operating uh cashflow and historically it had been growing at around 17 18%. But with this aggressive management coming in thecompany became the fastest growing domestic branded formulations uh companyuh and they grew 24 25% consistently for 3 four years and the valuations also reated and the stock became 10x in thattime frame. So that is kind of the ideal uh journey we would like to basicallyhave with the companies we are associated with. Great. And I also see names like SafariIndustries, Verun Beverages, Trend Trend you already talked about. So what is your view on these companies which whichwere ideally you know viewed as small cap companies but now the market cap has gone up a huge time in the last one totwo years we've seen. So ideally these are not small cap by definition. So how do you talk about these companies inyour portfolio? Well, so uh now the definition of small cap. So right now a 30 35,000 cr company will also beconsidered a small cap. So we look at patterns which is basically solid trackrecord of execution uh the management's basically hunger to scaleup the business as well as uh their willingness to share the profits withthe minority shareholders. Uh so if you look at the luggage industry there are broadly three players only who are doingthings at scale which is VIP, Samsungite and Safari right. So Safari has clearlytaken away market share over the last 3 year, 5 year, 10 year from uh the other two players because they were focused onthe uh mid-tier segment only which is approximately 3 to 5,000 uh per SKU kindof luggage and they had other impressive offerings also like no question asked replacement and very decent warrantiesalso and they scaled up very fast. Today as we speak I think they are the number two player in the industry and they haveconsistently taken away market share from the other players and they're having more than 20 23% of the overallluggage industry market uh and still they happen to be a small cap companywhereas they are kind of one of the leaders of the industry. Same way interms of ethos when we had analyzed them after they got listed. So uh the otherplayers so they were kind of having succession planning issues or they were in severe debt. Whereas ethos was havingvery flawless execution. So from 20 stores they went to around 55 60 stores.Now the clearcut vision is that in the next 2 and a half to three years they plan to go to 150 uh stores. Uh and theybreak even also in a very very uh fast time. And uh basically they areassociated with around 120 luxury uh watch brands like Rolex, Patek, Philipuh Jacob and Co. And if a 121st brand has to start retailing in India, mostlikely they would be uh starting to work with ethos only. All right. And then theoptionalities have been built in like they have got into the luggage manufacturing, the luggage retailingwith Remova which is the most luxury brand in the whole world. In India, itwas not there. They started their first store in Mumbai. They will be coming up in Delhi. Also they have had exclusiveuh licenses for Messica which is again a luxury jewelry brand and Bulgari alsothey have started retailing. So the optionalities are immense in these kind ofcompanies right and also talking about debt. So how do you view debt in these portfolio companies? I understand thatuh I mean it it has been in the news that corporate debt is at an all-time low and in the previous crisis that wehave seen somewhere there have been some bank defaults or huge uh you know some some trigger has been there. So how hasthe portfolio been safeguarded in terms of debt in in in your portfolio companies? Uh right right. So uh ideallyat a portfolio level we uh avoid uh debt. Uh so we intend to invest onlyinto mostly net debt-free companies or at max there would be some sort of working capital debt. Uh but broadly ifyou talk about the macroeconomic scenario over the last 25 years currently we are at the lowest corporatedebt to GDP if you talk about the top 500 or the top 5,000 companies. So thecorporate balance sheet is very very strong uh right now overall and as faras our portfolio is concerned. So we try to find the holy grail where where is ifthings go wrong also the companies have such strong balance sheets that they can survive an economic downturn also uhinto basically very secular sectors like consumer healthcare andtechnology right that makes sense in fact because I I believe that the lack of debt in these companies is alsosignifying that there is a strong cash flow behind the business which has also been leading to growth in terms of theportfolio in terms of the profits. So it is it is not backed by debt fueled growth whereas it is backed byoperational cash flows. So so that also shows the strength of the portfolio in in volatile times.Right. Right. Absolutely correct. So we are also taking some questions from our followers. So uh one question that comesin is how do you look to exit from stocks like what is a valuation that you think is expensive when we've seen thatthe stock has delivered good returns in the last uh let's say what is the target in your mind do you do you look atstocks that way as well in your portfolio no I don't have any targets because the thing is if we are right wemake in multiples not in percentages and if we are wrong then we are wrong so thewhole idea is to manage the risk and uh so this is kind of an exercise what wedo every quarter. So basically how I analyze is in every company there willbe a certain growth expectation built in and the markets will basically either maintain the valuations at that level orthey will give them a higher valuation or a price to earning ratio if theymaintain that growth rate. So the third uh row column you see as an hit miss orexpected whereas whichever is in green that means the company have either been as per what my expectationshave been what they have been built into into the valuation or they have surpassed that. So as long as thecompanies keep on doing this, we tend to hold on to companies and uh once theystop growing as per expectations, then we plan to sell thecompanies. Couple of more factors are there. Suppose if the valuations go totally out of whack. Suppose they aretrading at obnoxious valuations based on their historical track record or thereis some competitive intensity coming in like what happened in the paint sector or the cable and wire sector. uh then wewill exit the companies and the third part is if there is any corporate serious corporate governance issues wewhich come into the p fray so that is even if the company we are holding isdoing well or we at worst we are at loss we do not see we will just exit the companycan you talk about some exits that have been taken in the portfolio in the last uh 6 to 8 months where you've seen orrealized and what would be the reason for exiting those stocks like cable sectors is one of the sectors I believewhich has seen a lot of competition now coming in and I believe we did it at the right time. So just right right so soactually that was you can say uh we thought there is some sort of corporate governance so we were invested in theleading cable and wire company uh from its IPO over the last four five years and then some sort of corporategovernance issue was coming in. So we thought it is wise to uh like you know exit from the company and invest into uhother opportunities. uh then we uh exited from this leading pharma company uh JB Pharma because uh they weretrading at a 40 45 time uh price to earning multiple and the growth uh waskind of tapering out because that base effect uh was coming in. So uh broadly these are the kind of exits we wouldhave done. Right. Right. In terms of investors looking to deploy over the next two tothree months, how would you position Aif or PMS as a product towards them? Is itthe good time to invest or should they look at a staggered approach to their in to their investments? Well uh ideally uhit it should be looked at as an long-term uh asset allocation and it should be done in a staggered way onlyirrespective of where the markets are because frankly we are not uh into that game of uh like you know managing 3month 6 month 9 month return because we want investors to have a long-term viewand build gradual allocations on a month-on-month basis through one-time investments as well as SIPs for when themarkets are down and they are very good opportunities then popping up more. Now, regarding what the the differencebetween the two products, so we frankly prefer the alternate investment fund uh approach over the uh portfoliomanagement service. A couple of reasons for that. Uh one is uh a lot ofcompanies will be coming up with their preferential uh allotments preo anchorinvestments as well as preipo private placement. So for uh and if we have donework on the company and we are planning to buy it post the IPO and we are sure of managing the risk and the liquidityso then it makes sense to participate in those companies uh before the IPO orthrough the preferential route. So uh with that KVR basically the Aif is abetter suited vehicle compared to the PMS. Right. So talking about preIPopportunities, how do you look at them in terms of risk management, liquidity management because there is always goingto be a gestation period for the company between the IPO which is preipo to an IPO which is also very crucial. So interms of in terms of evaluating those companies because uh they're they are not traded stocks as such. So how do youlook at entering those companies or investment opportunities in that sense and how do you manage that? There I would like to make the distinction thatwe are not participating in preipo. what is actively traded in the unlisted market like uh a lot of the say uhnational stock exchange HDB financial service startup financial so these kind of opportunities we are not taking partwe are mostly interested in opportunities where we would be leading the round by that I mean all the termsand conditions of that preipo would be kind of set uh by us so there like youknow we have more kind of control on what the entry valuation will be uh ifthings go south the kind of exits we will be getting those kind of uh thingsso there I think it makes more sense where we are leading the round suppose if it'sa 100 rupees round we are only putting in 50 rupees from our generationalcapital group right and I also believe fi have alsobeen bullish on the primary markets I think they have invested somewhere around 1 lakh 20,000 odd crores in inthe last one year although they have been net sellers in secondary markets But there is some value in the primarymarkets also. That is why they have been putting in money. So that is one of the good ways I think uh that can be uh usedto deliver alpha in the portfolio. Right. Right. And mostly these companies would again be undiscovered also. Sowhen the discovery effect kicks in, the companies would be growing from a 10 time P ratio to a 30 time P ratio withthe earning compounding going on. like recently we like right now also thetransaction is going on. So I would refrain from taking the name. So it's a leading uh dairy company. Uh they havethe highest margins and highest return on capital employ like they have 36% return on capital employed. The nextbest player has around 25. The highest EITA margins of 12 a half% uh in theoverall dairy industry. The next best player has 11%. And they are offering shares ataround 9 time price to earning ratio. So like you know those kind of opportunities look very very attractive.Right. And in terms of the risk metrics of the portfolio, can you can you show us about overall on a portfolio levelwhat is the risk in the AI if right now the the alpha and the beta? How is howis that looking at? Right. Great. I'll just uh take out that slide once.Uh yeah. So uh broadly uh if you see uh this is the chart we had kind ofcollated to see and analyze ourselves also like what has been the alpha overthe nifty what contributed to it the correlation with the market. So broadly the portfolio had been very very lesscorrelated to the market at around 0.4 the beta was around 0.58 significantalpha and the beta adjusted alpha also which is taking into consideration against uh like you know the volatilityand the risk we are taking. So all the ratios looked pretty good and again I would attribute it to uh the kind ofstock selection we are focusing on which is focused on the anti-fragile growth that irrespective of the macros the at aportfolio level we should be targeting a 25% plus growth and entering thecompanies at very reasonable valuationsright so going forward you expect to maintain the risk at this level or or with companies preip companies cominginto the frame. Do you think that somewhere this this metric will not be a good good indicator for the portfolio?Preipo will at maximum be kind of 10 12% of the portfolio. There also like we weare at least we we are sure that the uh liquidity event will happen over the next 9 to 12 months. Uh because thecompanies would have been filed filing their DRHP when we would be in investing in the companies. uh but broadly againlike uh these risk metrics would be kind of an outcome rather than an input I would be taking and even the stockselected would be an outcome on the so I would always try to focus on the process because that is what I think will berepeatable over a very long term uh rather than uh these metrics which are kind of an outcomeright right and overall in terms of liquidity coming into these stocks what is your outlook or what has been yourlearnings over the last correction like how do you look at uh the the current stocks in the portfolio. Has thiscorrection made you made you made you change some thoughts process about about the uh calls that you have taken?Uh no uh nothing has changed as such. It's just that we are adding to thecurrent set of stocks only because as long as the companies are doing well, we intend to add to the same set ofbusinesses only. Right. There is one question which says any calls that have gone wrong, what were the learnings? So,so in fact multiple calls have gone wrong like even if I get a 50 60% hitrate it is like very good. So broadly in my case where we go wrong is we havefactored in a certain uh set of growth expectations as though and those do notmaterialize like in this leading jewelry company based out of east also we hadentered the company at around 8 times EV2 AITA and we were factoring it an 18to 20% growth the company went to around uh kind of a 12 13 times EV AITA butthen the growth only stopped uh so the stock price fell so those kind of things happened and a visual effects companywhere we thought the industry was very very attractive. Uh it was where the Indian IT was in the early '90s uh andthe whole industry was growing at 20% plus but then the Hollywood writer strike happened and the whole industrywent through a downturn and the valuations fell through the cliff. Solike you know those kind of things will keep on happening and uh I think and like I was reading about uh like many uhgood large investors like even Mr. George Soros so he had a 37% hit ratewhen Warren Buffet would be having a 55 60% hit rate. So the idea is to cut thelosses where we are wrong and uh make very decent money in multiples where we are right.Right. So do you also look at alternative exposures in the portfolio like let's say gold ETF or internationalmarkets something like that to diversify therisks or no so we are like focused on the uh equity uh businesses only and Ithink there only we can diversify decent risk because we would be investing across subsectors like right from watchretail to footwware retail to electronic retail to clothing uh retail artificial jewelry, uh, normal high-endgold jewelry, uh, dental e-commerce, drone e-commerce. So like you know, we are diversifying the portfolio andmaking sure that broadly no two companies have the same set of risk exposures. So I would like to diversifyit that way. Right. and any sectors that you look to avoid or on which you are negative in terms of uh in terms ofputting investments or in terms of entering sectors where where you think that like do you avoid sectors as awhole. So broadly these three sectors which is consumer, healthcare, technology it is again an outcomebecause we have studied the last 140 years of Dow Jones data and had broadly seen that across down market greatrecession great depression also these three sectors kind of maintained the return on equity and did not go out ofbusiness. So we would generally avoid very capex heavy industries any realestate like large real estate plays land bank plays like a lot of investors wereinvested in couple of Mumbai based companies that they have these thousands of crores worth of land and once theyget acquired the value will be realized but the land also got acquired at like you know pennies to the pound. uhanything and everything to do with the government we will like to avoid like we kind of were happy to miss the whole PSUrally because um like I strongly believe that the jobof government is socialist in nature and a capitalist will make much more moneyuh if they are focused on like running their business.Another question coming from the audience is uh can you give us the process on picking a stock where you'veseen the growth like right from the analysis stage to the investment stage any any one of the few stocks where youhave analyzed it right from the beginning how has been the whole life cycle uh right so I'll just try to uhopen up my slideUh yeah. So basically uh this was a Bihar based electronic retailer by the name Aditya Vision which we had investeda few years back. So uh when we uh invested in the business so uh in 2021so then we analyzed that uh okay over the last 5 years 10 years 15 years the company had been consistently growing at25% plus yearon year uh and they had been zero store closure since inceptionwhich was very rare to find in uh retail industry and especially electronic retail and the margins were kind ofincreasing. So we kind of uh the gross margins were kind of on an increasing trajectory. So then we kind of deep diveinto them and found that uh uh basically the Hindi Hindi hinterland had very lessuh electricity penetration till 2018 1920 and now that was uh increasing. Sofor the first time people were wanting to buy their uh TVs, uh washing machinesuh AC so on and so forth. Um and AC's washing machines were kind of 20% grossmargin product versus what most of the other retails were selling which was phones and these other products whichwere four five 6% gross margin products. So uh the company was doing around 200cr sales at that time uh from around 25 stores 25 to 30 stores. Uh come to 2025the company has around 172 stores. They are doing more than 2,000 k of sales. Uhtriple digit profitability. The stock price has also multiplied around 30x inthat uh time frame. And this has been probably our largest winner till date.Right. That pattern was the same that we tried to enter at a single digit EV toEITA uh which we believed to was a solid consumer franchisee adopting a hub andspoke model uh in Bihar. Then it expanded from Bihar to Jharken now to UPtill Priag Right. And how do you look at largercompanies in the portfolio? Is the process still the same? Uh the process remains the same. See the companies willbe an outcome whether it is a large mid small we will be following the process.Now whichever company comes into the fray now that is kind of immaterial. Soagain trent I would like to take an example. So we had invested in the uhcompany at around 15,000 cr market cap in around 2019. So and like most of thepeople were focusing on the price to earning ratio we value trend at the sum of the parts play given and we hadfrankly uh we were very bullish on the west side part of the business but zodioscaled up from 200 cr turnover to 8,000 cr turnover in those 5 years trendssales grew by 5x profits grew by 14x with a return on invested capitalexceeding 20%. uh this drove around 20x increase in its stock price uh and making trend one oflargest winners till date. Now coming to the reverse part. So the growth whichwas factored in trend over the last year was around 4550%. But a couple of quarters backtrend started growing at 40% then 35%. So then to manage our risk we trimmeddown the position to half also. So in uh these high growth companies it is important to manage the risk also and bevery sure as to what growth is factored in and at the slight uh like you know miss in growth also. So kind of lookingto exit or trim the allocations also right that makes sense to trackcompanies on a regular basis because growth based investing has to be backed by strong fundamentals. So I believethat is one of the key points in the portfolio in the AI if that you have been managing very well and uh my onequestion that's coming in is if someone has let's say one one CR or a CR to invest right now should they deploy itcompletely or do they deploy it in a percentage and rest through the SIP route like what would you advise ideallylike around 50 60% should be deployed and rest through an uh SIP uh route likethis would be my suggestion Right. And in terms of the AI if likewe've already gone through the portfolio companies the investment approach what what are the current terms like how whatis the fund life and in terms of exit loads uh how how how is the AF structured in that way? So it is uh ofso it was started exactly one year back it was a 5 year plus 1 + 1 year fundmaking it a 7-year fund at the longest as such there is no exit load or lock inbecause most of the families who have invested in the fund would be throughour friends and family only or they would have become that way. So we do not intend to charge anyone exit load assuch and bas basically uh make them long-term uh investors through on thebasis of performance and communication. Right. Right. And uh another question iscoming out on the weightage of various stocks. So I believe uh because you have a portfolio of around 25 stockssomewhere around that stock. So how do you decide to give how much weightage to each stock especially when one of themajor stocks starts giving significant growth. So how do you look at that? Uh so basically we have this againframework of 3 five 7%. Whereas this 2 and a half to 3% allocation will be tothese smaller companies where we think that if we go right and the company executes they can be serious wealthcreation in multiples but we want to manage the risk also. 5% allocationwould be to companies like say Safari industries, ethos watches, uh red tapewhich would be kind of discovered but the earnings momentum is very very strong and they would be very liquidalso. Then 7% allocation would be to companies like Warun beverages where we are cognizant that the valuations arehigh we might not make the highest returns but they are for the safety part of the portfolio.Right. And how do you regularly track the performance of these companies? Some of these companies may not hold regularcon calls. So are you in touch with the promoters or or tracking the business? How do you go about that every quarter?Uh well uh like most of the companies would be reporting uh quarterly results. Apart from that then we do our ownchannel checks also from their peers also and then have one-on-one calls with the management also. As it is now everynowadays everything is uploaded on the exchanges. So whenever we are also meeting any company it gets uploaded onthe exchange also. So in fact if you see the last 14 days filing also we would have met at least five of our portfoliocompanies. Right. Right. And in terms of let's say the impact of uh geopolitical eventslike Trump tariffs there has been lot of talk about that. So are these companies because I believe that there is a Indianconsumer sector that you focused on or healthcare sector that is primarily domestic in terms of these companies. Sowhat is going to be do you think broadly geopolitical impacts will have a big impact right so so broadly 55 to 60% ofthe Indian GDP is being driven by the Indian domestic consumer so we stronglybelieve right in the consumer segment healthcare segment even the technology segment uh most of the our companieswould be having uh if not full but broadly 80 to 90% domestic exposure onlyuh because the export variables are very very tough have to uh kind of navigate including the currency depreciation andwhat not will be happening. The second thing is we have only one IT services company in the portfolio that also ismostly India based very less revenue it has from like uh USA and apart from thatuh like they have most of the revenues from Africa but broad thesis would be we like companies which are mostly domesticbased. So that is why all these tariffs and all I think as a business level they would be not affecting our companies.Right. Right. And there is also one more question coming out in ter in a comparison between Aif and a mutualfund. What would you prefer overall like in terms of the overall structure for an investor?Uh so uh I would put it this way. uh a mutual fund uh is a very regulated andit's a saving product right it's a savings based product uh where basicallyuh it is very heavily monitored by say the uh government regulatory bodies sothe fund manager will be having very less uh kind of uh how do I put itbasically if it's a flexi cap fund they have to select from the 500 stocks onlyif it's a large cap fund they have to select from the 100 stocks only. So the fund manager I I would think so will notbe able to utilize his best skills. Whereas in an alternate investment fund,it is an alpha generating uh product. So uh we can broadly do what a mutual fundis doing but we can also based on our uh skill set or where we have very highconviction go out of the way also. Right. Right.invest and get in before the mutual funds get in. Right. Right. I believethat is the way markets will out that is the way how outperformance can be done going forward because in terms of mutualfunds if we pick few mutual funds most of them have similar kind of stocks and there's not a major differentiationwhich is why the returns have been quite similar. One more question coming in is in again it's about returns like whatwould you uh guide your pro prospective investors in terms of the next few yearsin from returns from the AI if well broadly I guide on the fundamentals thatif the nominal GDP is growing at 12 to 14% we are very confident that we canidentify companies which can double in 3 years with the scope for valuation rerating so broadly by that logic uhlike we should be doing significant alpha uh over any benchmark we take. So on the business wise we are veryconfident that they will grow at 25% plus which is doubling in 3 years around 9.6 x in uh 10 years. Uh now whatwhether they get a valuation rerating or a d rating now that is anyone's guessright and there is one more question I believe we're running out of time but I'll still take few questions. One morecoming in is do you hedge the portfolio with short selling if required in the AIF? Uh no so I uh we are allowed and wehave taken the mandate also but I do not do that because the point is by shortselling you can only make 100%. Right? If you are wrong a stock uh will go tozero. Uh if you're right a stock will go to zero but uh in in the long sidebasically we are trying to find outliers which can like you know make significant returns. So there the upside can be500%,000% and all also and then on short selling there will be margin involvedderivative involved. So I try to avoid that. Right. And any any emerging sectors orunexplored sectors of that are now that can be of your interest or thoughts oncompanies like OEO or Zeppto which may be going going out for Frankly thisAyurveda SE Ayurveda sector has been very very interesting and the companieshave been showing very good results there. uh so uh frankly I had not done alot of deep dive on the sector say around 3 years back but over the last three years uh based on whatever I havebeen uh researching this sector is very very uh underexplored uh underinvestedalso by the investor community as a large and there are exceptional companies in these sectors which aredoing well and now uh the sector basically now the government is also recognizing it the sector is comingunder the insurance penetration also so I I think the this sector the Ayurvedasector the natural healing wellness sector should do very very well. Now it's important to back the rightcompanies there which are having exceptional track record of execution and the vision to make it big.Right. Right. So uh we are almost out of time now. Uh one more last question thatis coming in is uh like what are the beaten down stocks in the portfolio? So any contrarian betshere like well basically say our portfolio isright now also say 15 to 17% down from the peak it had achieved in October. Soa lot of companies are at uh kind of beaten down names but there also we are segregating that which company is doingexceptional growth. So we are allocating more towards those companies like these couple of ayurvea companies I told youabout there this music streaming company which I think is the best business modelin the overall unit economics parlance. So these kind of companies we are allocating more capital to right andwe've seen the broader market stocks are down by 50 60%. So going down by 18 20% obviously is is another kind ofoutperformance we can say right right yeah and otherwise also you know on a one-year basis we are up between 18 to20%. So I think on a like to like basis versus the peers also and the otherbenchmark there would be significant uh outperformance. Right. Right. So uh Ithink there are more questions coming in but given the time that we limited time that we have I think we'll have to uhlimit ourselves here. So uh thank you Satic. Thank you for shedding light on the portfolio on the AIF. Uh as aconclusion what would you like to say to potential and prospective investors who might be viewing the the the webinarright now? How would you advise them to look at the AI if as a as a diversifyingproduct when compared to other other modes of investment? Well, broadly theview should be that these companies would be exceptional companies whichwould be there in the alternate investment fund which say if we were talking about 7 8 years back they wouldhave not been broadly listed and would have been backed by say a SEOA or aleading VC fund. But with the uh kind of the liquidity coming in the market,these companies have got listed. So we are trying to do high growth investingin the public market without taking any liquidity risk. That would be the broadconclusion and right now there are very uh good opportunities available in the overall uh kind of business parlance andwhere we especially look at less than one PEG ratio which is if the company is growing at 30% uh plus um it should beavailable at less than 30 time p. So there are multiple companies in that parl. I think serious money should bemade in those companies. Right. So uh coming to the conclusion I thinkinvestors should not be hesitant to invest given the recent correction and if they maintain their investingdiscipline the long-term story is still intact and they might be uh they will begetting good returns going forward. Right. Right. Absolutely. All right. So so thank you everyone. Thank you forjoining in. It was great uh having you all here and thank you Satic. It was great hosting you and hopefully themarkets will be doing well and we'll have another session soon.Thank you. Thank you.