Category
📺
TVTranscript
00:00 Thank you so much for inviting me.
00:04 The investment philosophy is slightly different from typically what the street does.
00:09 So typically what happens is people generally, fund managers try to take a three to five
00:15 year view of a particular stock or a particular sector.
00:20 So what we do is slightly different.
00:23 So we essentially, typically the core thesis for buying a stock is driven by valuations
00:34 or if a stock is undervalued or overvalued and so on.
00:38 But what we do is we look at identifying some sort of asymmetry starting to appear in the
00:49 stock or the sector.
00:50 So whenever we see that something that was neglected for a long time and suddenly a new
00:56 catalyst has emerged in the picture, which we believe can change the trajectory of the
01:00 company.
01:01 We try to identify such stocks and build a basket of such bets.
01:08 And instead of taking a three to five year view, typically our holding periods are relatively
01:14 lesser.
01:15 So we look at a transition period of six to eight quarters, which is anywhere between
01:20 one and a half to two and a half years.
01:22 Because based on our research, we've realized that most of the re-rating of a stock typically
01:28 happens over a six to eight quarter period.
01:32 And that is what our average holding period is.
01:35 But essentially the key difference in philosophy is instead of taking a valuation based approach
01:41 or trying to find undervalued stock, what we look for is a neglected stock where a new
01:47 catalyst has entered, which can materially change the earnings trajectory of the company.
01:53 And that is what we have been doing and so far we've been quite successful.
01:57 That sounds very interesting.
01:59 I'm sure at this stage when the markets are anyway looking so stretched and looking for
02:03 themes, viewers would love to know how you actually go about identifying these stocks
02:08 or sectors.
02:09 So, let's start.
02:10 So, is it fair to assume it's a bottom-up approach as opposed to a top-down approach
02:13 when you're looking at stocks?
02:16 It is very much a bottom-up approach.
02:19 And you did say you identify a catalyst or you identify a company on finding a catalyst
02:24 that could be the key driver or be responsible for a re-rating.
02:28 Now how do you identify this trend or this catalyst?
02:33 What is that specific trigger that you watch out for and how many quarters ahead of the
02:37 curve would you jump into a stock?
02:42 Typically in 70 to 80% of the cases, the catalyst is earnings.
02:47 So we very closely watch every quarterly earning.
02:51 We go through all the two to one and a half thousand companies which are listed, which
02:57 qualify our liquidity criteria.
03:00 And we look for large changes in the earnings profile.
03:08 And then we go back and figure out why this big delta has happened.
03:11 So the first step is to look for the big delta change in the quarterly earning and then go
03:16 and figure out why this delta has happened, why this big change has happened.
03:21 Is it something that is sustainable over the next three to six quarters?
03:26 And the way we do it is, of course, we have a lot of experience watching businesses across
03:33 many cycles.
03:35 So knowledge of the business certainly helps to identify if it's a one-off quarter or this
03:41 is something that is likely to continue to do well.
03:44 But there are other triggers and other hints also.
03:47 Typically it will not be just one company that will be doing very well.
03:51 It will be the entire sector that will start to do well.
03:55 And the second type of trigger is basically where we anticipate an earnings improvement.
04:02 So the first one, like I said, is we do it post the quarterly earnings.
04:07 And in some cases, in some rare cases, we do anticipate an improvement in the earnings
04:15 and a change in the earnings perception and kind of go and bet on those companies.
04:20 Prakash, this is interesting.
04:22 And we are in the thick of the earnings season.
04:24 So timing-wise is where I think I've caught you at a good time.
04:26 But just before I go into that, I looked at your current portfolio and there's a very
04:30 clear bias to broader market stocks.
04:32 Is that an internal sort of decision taken by the fund manager that you want to focus
04:39 only on small and mid-cap names or market cap agnostic at this stage?
04:44 No, the Active Alpha PMS that we manage is a multi-cap scheme.
04:50 So it allows us to participate pretty much anywhere in the universe that qualifies our
04:56 liquidity criteria, like I say.
04:57 But yeah, very clearly, like I said earlier, since we follow a bottom-up approach, the
05:03 way the portfolio has evolved has been completely evolutionary, so to speak.
05:09 So there were no discussions made that we will get into these sectors or we will not
05:13 get into those sectors.
05:15 But looking at the earnings, if you go back and study the earnings of these stocks, six
05:22 to eight quarters back or five to six quarters back, you will start seeing those delta changes
05:27 in the earnings.
05:28 And the entire portfolio, the sectors, it may look like we've been able to pick the
05:35 sectors because of some foresight, but it is the outcome of the approach that we follow.
05:42 So all of these names have come about very organically.
05:48 There was no sectoral call taken.
05:50 It is just that at times when you're constructing a portfolio, you might want to not go extremely
05:56 overweight a particular sector.
05:58 So to that extent, you might limit having more than X number of stocks in a certain
06:04 sector.
06:05 But all the stocks have emerged in a very organic fashion and not at all due to any
06:10 sector specific call.
06:12 Prabhakar, in the multi-cap strategy, you have two strategies.
06:17 One is the active alpha multi-cap and the investors, invest savvy portfolio management.
06:24 Is there an overlap in both these portfolios?
06:27 I mean, can you draw the difference between both the portfolios that you run?
06:31 Yeah.
06:32 So I think you've got the name maybe wrong.
06:36 The other one is called as the long term growth scheme.
06:40 So typically the difference, the approach remains the same.
06:43 The approach remains to look for large changes in the earnings profile.
06:48 But like I said, the active alpha is a multi-cap approach, whereas the long term growth is
06:54 slightly biased towards larger mid-caps and large caps.
06:58 Because we have different types of investors, different risk profiles.
07:03 So some people are not very comfortable going into a majority mid-cap or small-cap portfolio.
07:11 So we have another scheme whereby the universe is slightly smaller and it comprises of, let's
07:18 say, companies with a market cap of more than 15,000-20,000 crores.
07:22 And ideally we don't do anything below that market cap.
07:25 Right.
07:26 And in terms of a strategy at this stage, I mean, there are pockets of investors who
07:30 believe that the markets are looking very stretched, a correction could be around the
07:34 corner.
07:35 You've got a couple of key events as well.
07:38 What is the allocation strategy at this stage?
07:41 Are you sitting on any cash?
07:42 Are you investing in a staggered manner?
07:45 Are you still doing lump sum?
07:46 And I'm talking about fresh capital that your fund is attracting.
07:50 Right.
07:52 So I don't so much believe in cash funds because we've done this study also.
07:58 If you go back and look at situations where, let's say, you have taken a 20-25% or 30%
08:05 cash fund, typically the difference, even if let's say you were able to sell at the
08:09 top and buy back 15-20% lower, after accounting for the transaction costs, the taxation, as
08:17 well as the impact costs, the net improvement at the portfolio level is not more than three
08:23 or four percentage points.
08:25 So I strongly believe that to be able to maximize returns, one has to be able to sit through
08:33 the drawdowns, which is why when we are very media shy, we do not have any big sales or
08:43 distribution team and all of that.
08:45 The reason for that is we work with a very closed set of customers, people who understand
08:52 the markets, people who understand that this is a multi-year game, this is a three to five
08:57 year game and volatility and drawdowns are a feature, they're not a bug, so to speak.
09:04 So drawdown management typically happens by the stock selection itself.
09:10 Like I said, typically I've seen that when you are having a portfolio of stocks, which
09:15 are all enjoying earnings tailwinds, then two things happen.
09:19 One is you fall relatively less than the market.
09:25 So let's say now I'm having a bunch of middle and small caps, the initial fall will be similar,
09:31 we'll fall more or less as much as the index was slightly more, but at some point buying
09:38 emerges because these stocks have an earnings tailwind.
09:42 So I'll give you an example.
09:43 I think it was FY22, which was a very tough year for the markets, but this approach of
09:54 buying earnings winners, we ended up again being in the top two, top three in FY22 also
10:02 because we ended up doing 10-12% return, which in absolute terms is not great, but most of
10:07 the market was negative in that year.
10:09 So when you construct a portfolio with earnings tailwinds, you have a little bit of a cushion
10:14 whenever a garden variety correction arrives.
10:18 Having said that, if a correction like a COVID crisis or a big macro crisis happens, then
10:23 I think all bets are off.
10:25 And those corrections, by definition, are not predictable.
10:28 So to that extent, we don't really take any large cash calls.
10:31 We are always invested and we like to take the corrections and drawdown in our stride.
10:39 So, Akar, quick one.
10:41 What is, are you still accepting fresh money?
10:44 A. B. What is the size of your assets that you're currently investing?
10:49 The reason I ask you that is because that would help us determine how nimble-footed
10:53 you can be in this market and especially the stocks that you have, you would probably need
10:57 to be nimble-footed.
10:59 And also your largest sectoral exposure remains to be capital goods.
11:03 So if you can just throw some light on those three questions quickly into one.
11:06 So yes, we are accepting your capital.
11:12 We very much are.
11:13 And the AUM that we're managing, so we have two main products, PMS and AIF.
11:18 So we also run a category three alternative investment fund.
11:21 Put together, both these products, we are managing about 1,500 crores of assets.
11:27 And to answer your third question about capital goods, capital goods, so these are the stocks
11:34 that were picked up at least four to six quarters ago.
11:40 And like I said, it was again driven by how these companies started performing very well
11:48 after a long period of lull.
11:51 And I think this is primarily has been driven by the CapEx that the government has been
11:55 doing.
11:56 And now there are early signs of the private CapEx coming back.
12:01 So I think we were able to kind of get onto the bandwagon quite early.
12:07 And these companies continue to give good results.
12:11 Because if you see that the last CapEx cycle possibly ended in 2010, for the last 10 years,
12:18 we've not had any serious CapEx cycle.
12:21 The new cycle was kickstarted by the government post-COVID, I think to support the overall
12:26 economy.
12:27 And the government has done a great job of really sustaining the economy till such time
12:34 that the private CapEx enters the market.
12:36 I think going forward, while the government CapEx will continue in whatever way they have
12:41 been doing, the private CapEx also is starting to come in, which would continue to provide
12:47 tailwinds to these stocks.
12:48 - Prabhakar, we'll take a quick break.
12:49 We'll come back and we'll talk about your top stocks and the rationale behind why you
12:55 hold these names.
12:56 Stay tuned.
12:57 (upbeat music)
12:58 (upbeat music)
12:58 (upbeat music)
13:03 (upbeat music)
13:08 (upbeat music)
13:13 (upbeat music)
13:18 (upbeat music)
13:23 (upbeat music)
13:28 (upbeat music)
13:33 (upbeat music)
13:38 (upbeat music)
13:43 (upbeat music)
13:48 (upbeat music)
13:53 (upbeat music)
13:58 (upbeat music)
14:03 (upbeat music)
14:08 (upbeat music)
14:13 (upbeat music)
14:18 (upbeat music)
14:23 (upbeat music)
14:28 (upbeat music)
14:33 (upbeat music)
14:38 (upbeat music)
14:43 (upbeat music)
14:48 (upbeat music)
14:53 (upbeat music)
14:58 (upbeat music)
15:03 (upbeat music)
15:08 (upbeat music)
15:13 (upbeat music)
15:18 (upbeat music)
15:23 (upbeat music)
15:28 (upbeat music)
15:33 (upbeat music)
15:38 (upbeat music)
15:43 (upbeat music)
15:48 - Welcome back, we're in conversation with Prabhakar Kuruva,
15:51 co-founder of Samviti Capital.
15:53 Prabhakar, your top holding from your model portfolios
15:57 is HPL Power.
15:59 Now this stock has done phenomenal returns
16:02 over the last four years.
16:03 Let's not forget that before that it was
16:05 a gross underperformer for the last decade or so.
16:08 But put this in perspective for me,
16:10 with policy continue to expected,
16:13 the push and the trust towards railways in that sense
16:16 has been the big reason for this one being an outperformer.
16:20 But the run up is phenomenal.
16:22 Do you still continue to hold HPL?
16:26 Would you look to increase allocation to the stock?
16:29 You already have about six odd percent in the stock.
16:32 Give me a sense of what's happening here.
16:36 - Sure, sure.
16:37 See, it is just so that because of the game,
16:41 HPL has ended up at the top of the charts
16:44 in terms of the portfolio allocation.
16:46 But to set the record straight,
16:50 we start off with the same value,
16:53 the same allocation for all stocks.
16:55 And the reason for that is, like I said,
16:58 at the end of the day,
16:59 it is very, to be very honest and frank with you,
17:02 it's very difficult even for us to predict
17:06 which stock will end up performing the best.
17:08 Because all we are doing is,
17:10 we're looking for two main qualities
17:11 in every stock that we buy.
17:13 One is that it has to be a relatively neglected stock.
17:16 When I say neglect, it means it has to be neglected
17:19 in terms of price, it has to be neglected
17:21 in terms of the sector, it has to be neglected
17:24 in terms of media coverage.
17:26 So we look for a combination of neglect
17:29 and like I said, an entry of a catalyst.
17:32 And HPL Power was exactly that.
17:35 Like you very correctly said,
17:36 it was a stock which was going nowhere.
17:38 And suddenly, multiple engines for HPL Power
17:43 started to fire.
17:45 Of course, they had their battery division.
17:48 But what really added the kicker,
17:50 like you correctly said,
17:51 was the implementation of coverage,
17:54 which these people are involved in,
17:57 the railway signaling system.
17:59 And that is what led to that massive re-rating of the stock.
18:02 So yes, it was neglected and the entry of this catalyst,
18:07 the numbers started coming.
18:08 If you look at the last two, three quarters,
18:10 there has been significant improvement in the numbers.
18:12 And the company is likely to continue to do well
18:16 for the next several quarters.
18:18 So yes, we continue to hold it
18:20 and at least as long as the numbers keep coming
18:25 on a quarter-on-quarter basis,
18:27 as long as we keep delivering,
18:28 it will remain in the portfolio.
18:31 The selling decision,
18:32 it typically happens in two situations.
18:35 One, where I feel that this company has peaked out
18:40 in terms of its ability to show acceleration in earnings.
18:44 Or the company, after a few good quarters,
18:49 starts to peter out in terms of its earnings delivery.
18:52 So unless either of those two scenarios happen,
18:55 the stock should continue to remain in the portfolio.
18:58 - Prabhakar, I'm looking at your top four, five holdings
19:01 and they all seem to be big winners.
19:03 So clearly you were well ahead of the curve.
19:05 Time for two quick more questions.
19:07 Newland Pharma, now again, this is phenomenal growth.
19:11 It's been called a multi-bagger.
19:13 Margins look compelling.
19:15 Returns of the stock have also been pretty good.
19:18 Now at this price and this stake that you hold in Newland,
19:21 what is going to be a trigger to sell or add more?
19:25 - Yeah, like you said, typically we don't add more.
19:31 Like I would have bought Newland several quarters back.
19:36 So in terms of increasing the allocation,
19:39 we would definitely not do that
19:41 because a significant part of the re-rating
19:45 has already happened.
19:47 Like I said, in my response to HBA,
19:50 we'll continue to hold it as long as it continues
19:53 to deliver on the earnings front.
19:55 And it has several things in its pipeline
19:59 in terms of its new drug delivery and all of that.
20:04 So as long as those triggers play out
20:07 and I see them in the earnings,
20:09 I will continue to hold them.
20:10 But there will come a point
20:12 whereby the market will get ahead
20:15 of what the company can eventually deliver.
20:18 So I am very, very critically trying to watch for that point.
20:21 And sometimes that can be in terms of margins.
20:25 Some sort of a peak margin trend can come in,
20:28 which can give you extremely explosive earnings
20:31 for the quarter.
20:32 And that becomes kind of the top
20:34 in terms of the earnings for the next many quarters.
20:37 Something like that, or if the valuations
20:41 and start discounting the next three, four,
20:46 or five quarters ahead.
20:48 So those are the situations where I feel
20:51 I will look for exiting this stock.
20:53 Typically, the market in a normal scenario
20:55 tries to discount the next two to three quarters ahead.
21:00 But there are certain situations
21:02 where the market really goes overboard
21:04 and starts discounting the next two years.
21:06 And when such scenarios happen,
21:07 we either look at significantly trimming our position
21:11 or harvesting that profit
21:13 and getting into a new neglected opportunity.
21:17 We're almost towards the end of the earnings season.
21:22 Of course, you've got still two weeks to go.
21:24 Have you identified anything exciting?
21:26 I know I don't think you would want to talk to me
21:28 about new bets you're making,
21:29 but any specific sectors that are now staring at you,
21:32 especially with the budget also being interim
21:35 and every nature behind us
21:36 and elections around the corner,
21:38 where policy continuities are given?
21:41 No, this earnings season has been quite boring, actually.
21:45 Nothing new has really come on the horizon.
21:47 It has been all the companies that we own,
21:51 at least most of them have come out with good numbers.
21:54 I would say 80 to 90% of them.
21:56 I mean, we still have several earnings yet to come,
21:58 but whatever has come through,
22:00 most of them have come out with decent numbers,
22:03 which makes me want to continue to hold them for the next,
22:06 at least for the next one or two quarters.
22:10 But in terms of new sectors or new categories,
22:16 I do not see anything emerging in this earnings season.
22:19 This earnings season has very much been a story of
22:23 not much of a top line growth and a lot of margin expansion.
22:27 So nothing new except a couple of companies,
22:34 if I can name it with a disclaimer.
22:38 So we added this company called Shakti Pumps,
22:42 which came out with very good numbers.
22:44 Again, a very small position,
22:46 a start-up position because the numbers were very good
22:49 and that sector has a tailwind from the government
22:53 in terms of installations and a push from the government
22:59 for improving the investments in that sector.
23:03 It has done phenomenal in the last one month.
23:06 Almost 50% of the stock is up, 4% right now.
23:10 I am clearly out of time,
23:12 but I have a couple of more quick questions I want to get in with you.
23:15 Prabhakar, we talked about HPL and I want to bring up Tita Gharnav.
23:19 We saw those numbers on the face of it, they weren't bad.
23:22 The margins were clearly under pressure,
23:24 but everything else seems to be working for real stocks.
23:27 Tita Ghar, are you still constructive and would you look to add more?
23:31 Also with this stock, what you bought is where you are staying at
23:34 and you are not going to be looking to adding any more?
23:37 How much longer do you anticipate holding on to Tita Ghar for?
23:40 I first got into Tita Ghar,
23:44 it was a very innocuous corporate announcement that I saw,
23:48 where Tita Ghar said that their order book was 10 times the revenue
23:54 that they were doing in the previous year.
23:56 That is what got me interested in that stock.
23:59 Like you rightly said, the market has recognized the stock
24:04 and maybe from a one-year forward point of view,
24:07 it's already priced in to some extent.
24:11 I'm watching it, but I still feel that when you look at that large order book,
24:16 there is still a long way to go,
24:20 but the stock definitely may go into consolidation because like I said earlier,
24:25 the markets are always wanting to be ahead of the curve.
24:28 The markets will price in the next two, three, four quarters,
24:31 wherever they have a certainty.
24:34 That may have been the case with Tita Ghar and several other railway stocks also.
24:39 I would think that the story is not yet over,
24:42 but I think we have to brace ourselves for a bit of consolidation
24:47 or a sideways movement where for a period of time,
24:50 we make no returns before the next leg starts.
24:53 Yeah, Prabhakar, that was great talking to you.
24:55 I'd love to know what you're doing in terms of allocation with fresh capital,
24:59 but I guess that would be for another time.
25:02 Thank you very much and good luck.
25:03 We'll hopefully speak to you soon again. Thank you.
25:06 Thank you so much.
25:07 With that, it's a wrap on Portfolio Manager.
25:09 Thanks for watching.
25:10 [MUSIC]
25:20 [MUSIC]
25:30 [MUSIC]
25:40 [MUSIC]
25:50 [MUSIC]
26:00 [MUSIC]
26:10 [MUSIC]
26:20 [MUSIC]
26:30 [MUSIC]
26:40 [MUSIC]
26:50 [MUSIC]
27:00 [MUSIC]
27:10 [MUSIC]
27:20 [MUSIC]
27:30 [MUSIC]
27:40 [MUSIC]
27:50 [MUSIC]