#ValentisAdvisors' Jyotivardhan Jaipuria, discusses two of their #PMS schemes, as well as the stocks in their portfolio and more.
Watch him in conversation with Muralidhar Swaminathan.
For the latest news and updates, visit: ndtvprofit.com
Watch him in conversation with Muralidhar Swaminathan.
For the latest news and updates, visit: ndtvprofit.com
Category
📺
TVTranscript
00:00 Welcome to NDTV Profit, I am Muralidhar Swaminathan.
00:11 Today we are looking at the portfolio manager show and today's portfolio manager is Jyothi
00:16 Vardhan Jayapuriya.
00:18 He is the founder and MD of Valentis Advisors.
00:21 Jyothi Vardhan has been a veteran in this industry.
00:26 He was with DSP before he launched his own advisory firm and portfolio management firm.
00:32 Jyothi, thanks for joining us.
00:34 Welcome to the show.
00:35 Thanks.
00:36 Okay, so Jyothi, I would request you to introduce your fund to our viewers, your strategies.
00:46 What is this PMS scheme all about?
00:49 It's just about five or six years since you launched, I suppose.
00:53 It's more than seven years now since we launched our first scheme.
00:55 So we have two schemes over there.
00:57 First is what we call the Rising Stars Opportunity Fund.
01:01 So that is primarily a small cap fund by today's SEBI market definition.
01:06 So 70 to 80% of our portfolio will be less than 10,000 crore market cap.
01:11 What that aims to do is buy the blue chips of tomorrows.
01:14 We buy stocks today which are generally not known.
01:17 And you know, like three years later, five years later, we will know about the scheme.
01:23 The other scheme is what we launched five years ago, which was our multi-cap.
01:26 So that's like a classic multi-cap with some exposure to large cap, some exposure to mid-cap
01:32 and some exposure to the small cap.
01:34 And you know, so probably a third of the portfolio here will be as stocks which are there in
01:39 a rising star already.
01:40 The idea of the multi-cap is what it does is the small cap scheme, the rising star scheme
01:47 generally gives a very high return.
01:49 At the same time, it comes with more volatility, which is inherent to the asset class of a
01:54 small cap portfolio.
01:55 So to that extent, this one is trying to reduce the volatility even at the cost of reducing
02:00 the returns.
02:01 Both the schemes are run in one very same way, which is research, research and more
02:06 research is our mantra.
02:08 So we focus on deep fundamental research in the company.
02:12 Our churn ratio is very, very low.
02:14 We have like a churn ratio of like less than 20% in both our schemes.
02:19 In fact, it's lower in the rising star than it is in the multi-cap.
02:24 One other philosophy which we have is what we call the fee use.
02:28 So we buy undervalued stocks, which obviously everybody does, whatever way they define undervaluation,
02:34 but we're really happy to do undervalued stocks, we're really happy to do undiscovered stocks
02:39 or underperforming stocks.
02:41 So that's one of our core philosophies, the research is our strength and very, very deep
02:47 fundamental research goes behind most of our stock picks.
02:50 Okay.
02:51 That's very interesting.
02:52 Undiscovered stocks, undervalued stock or whatever you may call it, hidden gems, if
02:59 I may call it so.
03:00 What is for beginners, what's the ticket size, minimum ticket size, if somebody wants to
03:05 get into your fund?
03:06 Our ticket size is one third only.
03:09 So we don't want to do less than one third, the semi minimum obviously is 50 lakhs and
03:14 we've tried to keep it a little higher.
03:17 And because we want people who understand the philosophy, we want them to come for three
03:22 years, five years.
03:23 So what we tell our investors is unless you're thinking of like a three or five year vision,
03:27 don't come to our scheme because that is not really meant for people who want to come in
03:31 and go out.
03:33 Right.
03:34 And if somebody wants to come in today and put money, what are the other terms that would
03:39 be required?
03:40 I'm just helping viewers understand so that before we go on to talk to strategy.
03:46 So obviously like we have fees which are very similar to what a lot of the other BMSs charge.
03:51 But one thing, you know, because we don't want short term money, we have an exit load
03:55 for three years.
03:57 And that is something which we are very clear on that we don't want people who like are
04:01 looking at very short term.
04:02 So the exit load is something which we typically insist on.
04:05 Right.
04:06 Okay.
04:07 So my next question to you is if somebody wants to come and put in, let's say, one crore,
04:13 what will you tell them?
04:14 You know, will you tell them that, look, at this stage of the market, I won't be able
04:19 to give you X, Y, Z return as opposed to what it was the last year?
04:23 Because I guess that's the beginning of the conversation.
04:25 Yes.
04:26 You know, see, we never really tried to give a return numbers per se.
04:33 And you know, that's something which even like if you go through all the regulations,
04:37 you're not supposed to give any return guidance when people come in.
04:42 What we obviously want to do is we want to create alpha and we have a track record where
04:46 we have sustainably created alpha and we've created large alpha for portfolio investors.
04:51 So that's something which people want to look at.
04:53 Typically, we tell people a lot of this, because especially like if you come in, Rising Star
04:59 is a volatile portfolio, it will go down when the markets go down.
05:04 The other thing is where we are today positioned in the market, it's not a cheap market.
05:08 It's a market which has done very, very well.
05:10 And it's, you know, relatively expensive compared to history.
05:14 We think returns over the next three or five years will still be made because, you know,
05:18 earnings will be good in India, the economy will do well.
05:21 But it's definitely not a market which is like a very easy market that, you know, the
05:25 chances are that you will see volatility over the next six months, one year, returns will
05:30 be quite mooted.
05:31 In fact, the other thing which we are doing now is we are telling all our investors that
05:35 we are not going to invest your money in one shot, but we probably stagger it over a couple
05:40 of months, depending on how the market goes.
05:43 So we want to invest slowly rather than invest in one shot and keep some money just in case
05:48 we get a correction in the market.
05:50 You want some money to be available to invest at that point of time.
05:54 So which leads me to the next question, how much cash are you sitting on in the old portfolio?
05:59 How much cash will you sit on if somebody comes in afresh?
06:04 So you know, in the new portfolios, what we are typically thinking today is we will invest
06:09 over 8 to 12 weeks.
06:12 So you know, if somebody's come in, let's say a month ago, it's possible that we are
06:16 sitting on 50% cash in this portfolio.
06:19 In the old portfolio, we were fully invested till some time ago.
06:23 We built cash of around 7 to 8% in the old portfolios by selling something.
06:28 And this is again, we are keeping, like I said, we are keeping it as insurance that
06:31 at some point the market will go down.
06:34 So if you look at overall as a firm, we are sitting on close to 17% cash.
06:39 But like I said, there's a difference between the new and the old portfolio, but overall
06:42 we are sitting on close to 17% cash.
06:45 That would be your overall portfolio, both together will be about 1500 crores, the size
06:50 of the fund?
06:51 Yeah, a little less than that, it's around 1250 crores.
06:54 1250 crores.
06:55 Okay, excellent.
06:56 So before I go to the next question, what I want to look at is, in terms of, you're
07:02 sitting on cash, you know, whether it's 17% today or 18% tomorrow, it doesn't matter.
07:07 Suddenly there are days when the markets tank.
07:10 Do you jump in and say that I will buy on this day?
07:13 Or will you stick to your philosophy of what my research has guided me?
07:17 So, you know, for like the simple answer, we stick to our philosophy that we want to
07:23 buy stocks at a certain price where we are comfortable with.
07:27 So you know, very often what we do is whether the market is going up or down, we may want
07:33 to buy something at x price and that price could be like 5% lower than the market, it
07:37 could be 10% lower than the market, it's more like, okay, at these levels, we feel that
07:42 you know, the risk reward works out to be good.
07:44 And we are generally patient and we're waiting for that sort of price to come.
07:48 On down days, we do find that one or two of those stocks reach up to the level at which
07:53 we want to buy and we end up buying at those levels.
07:56 So it's not like you don't have, it's not a zero one game because you know, you're sitting
07:59 on cash.
08:00 So you want to deploy 1% today, you want to deploy 2% today, it may happen that one stock
08:05 has fallen.
08:06 So you end up buying that stock on that day.
08:08 Okay, so at this point in time, I'm sure your research would, may not match the price that
08:14 you want, you know, so you might have a bunch of stocks, where you know that look, it's
08:18 they are not in my portfolio, but they are not at the price I want to buy.
08:22 Do you have those kinds of stocks?
08:23 Would you like to name them?
08:24 Or would you like to mention what kind of stocks that you are there, which are in the
08:29 waiting list, if I may say so?
08:31 Yes, you see, you know, without naming stocks, we have like two types of stocks, right?
08:37 One is the stocks which are already in our portfolio, which we want to buy, but we may
08:41 not want to buy today's prices, because we think they'll still do well.
08:45 But if we can get lower than we can, you know, make even more return on it, then we can make
08:50 it to this prices.
08:52 So typically, you know, some of these are in the engineering space, some of these are
08:55 in the banking space, and some of the cement space.
08:58 So just to name a few sectors.
09:00 So what we may be doing here is let's say a new portfolio comes and we want to put 8%
09:05 weight into that stock, we may at some point go and buy 3-4% weight in that stock and say,
09:10 some direction will probably add another 3-4% weight to that portfolio.
09:16 And there's another set of stocks which are not there in our portfolios at all, which
09:20 is, you know, we don't own them at all.
09:22 But we do want to buy them if we can get like a pullback and we can get prices looking very
09:27 sensible.
09:28 Some of these are actually in the banking stock, which we are looking at today, that
09:32 these banks have done quite badly.
09:34 And if we can get them cheap, then we do want to buy them.
09:37 So there are banking stocks which we want to buy.
09:40 And there are a lot of other sectors, because the rating list normally is very, very large
09:43 linked to some prices and linked to some events.
09:46 So now, you know, even some chemical stocks are starting to come on the horizon, because
09:50 we've not owned them for a long time.
09:53 But now that they're connected, there are some chemical stocks which are starting to
09:56 look interesting.
09:57 And we may at some point go and buy them also.
10:00 Jyoti, the next question I want to ask you, let me focus on the Rising Star Opportunity
10:05 Fund.
10:06 So here, the kind of returns, it's primarily 75 to 80 percent small and small capital largely.
10:14 Now how many small caps do you have in this fund?
10:17 And what kind of small caps are they?
10:19 So see, you know, typically the portfolio has 50 to 60 stocks.
10:24 So in some sense, it's a very concentrated portfolio if you compare it with let's say
10:29 the mutual funds.
10:30 And so because we have 15, 16 stocks, typically the weight of each stock, you know, then we
10:35 like to have is 5 percent weight in a lot of these portfolios.
10:40 Now it has a mix of stocks which are not known today and which we think will be known three
10:45 years later.
10:46 And some of the stocks have now got known and, you know, they are generally beaten.
10:50 But most of the time when we buy the stock, we are looking for disproportionate return
10:54 on this.
10:55 So our whole analysis works on what will it take us to double this money in the next three
11:02 to four years.
11:03 And that's the way we start like a lot of analysis.
11:07 How many of these stocks have doubled their money in the last three years, if I may ask?
11:12 Also the last three years, I think most of them have done.
11:14 But frankly, you know, last three years is not an indicator because it's been one of
11:17 the very easy phases, right?
11:19 Because this is post-COVID.
11:21 So you know, like the fund itself has done some crazy amount of it.
11:26 But that may not be like a great way to look at it because we have this COVID base which
11:31 created a lot of problems.
11:32 So what I can say is, you know, over the period since we started the fund, we've had at least
11:38 like C4 stocks which are up like seven, eight times in five years.
11:43 So that, you know, would be interesting way to look at it that you managed to get quite
11:47 a few of those multi-baggers there.
11:49 Okay.
11:50 So I think essentially we should call it as a multi-bagger kind of portfolio over a period
11:56 of time.
11:57 If I can take one example, I want to understand how you have spotted these companies and why
12:02 have you invested and what is your conviction here?
12:05 For example, Ganesha Ecosphere is your top holding.
12:09 You know, what drove you to look at this stock?
12:13 So, you know, without getting too much into specifics, because, you know, we'll end up
12:19 with some compliance issues.
12:20 So if you think about it, recycling and pollution is going to be a big theme for the next five,
12:27 10 years.
12:28 But, you know, pollution is a theme because we are getting more environment conscious
12:33 and you know, India signed a lot of these, you know, climate agreements also.
12:37 And the Prime Minister himself is very, very aware of it.
12:40 So if you think about it, you know, like we all have pet bottles, we use them.
12:44 You know, the bottle in which you have Bisleri, the Coke bottle, the Pepsi bottle, all these
12:49 are pet bottles.
12:51 And plastic, as you know, does not just naturally get into the waste.
12:54 So it needs to be recycled.
12:56 So the government of India has mandated from next fiscal year that all the bottlers will
13:01 need to have a certain amount of recycled material when they make the bottle.
13:06 So it's like what happens with this bottle, pet bottle is you can crush it and create
13:11 pet again, which can be used to make bottle again.
13:14 So in some sense, you know, it's a whole recycle chain that you buy a Pepsi and the empty bottle
13:20 is converted back into a bottle by crushing it and taking pet chips out of it and making
13:25 a bottle again out of it and ensuring all the safety and quality standards so that because
13:30 it's a food grade product.
13:32 And so that will be a really big thing for most of the people like Coke, just in general,
13:37 I think they want to move to using 80-90% recycled material over the next decade.
13:44 So most of the Coke bottles or the Pepsi bottles will be from recycled material rather from
13:48 virgin pet.
13:50 And it's companies like this which will stand out a lot because you know, the whole ecosystem
13:56 is going to move in such a way that they will have a lot of demand in future.
14:00 And if you can build a sustainable model around it, you can do very well with it.
14:05 Right.
14:06 So as an extension of that theme, you know, yesterday I looked at a very interesting piece
14:10 of news.
14:11 Balram Poorchini is looking at making plastics out of a particular chemical made from sugar.
14:18 I think it's called polyclactic, you know, that's a very interesting.
14:22 So there is some innovation happening.
14:24 Do you also look at companies which go in for such innovation?
14:27 Yes, you know, we are very open to it.
14:31 So we never say never is like a philosophy to anything.
14:34 It's more like, you know, can we understand it well because we are not probably great
14:39 technology guys.
14:41 So sometimes you know, it's something can I understand it simply or not.
14:45 And the second is, is it a little more sustainable because we are not venture funds.
14:49 So we can't afford to bet on somebody who, you know, the technology may or may not work
14:53 and it may take many years.
14:55 So we will get in at a later stage when capital gets at some stage, we'll get in when the
15:00 technology model is discovered or at least proven that, OK, this is going to work.
15:05 So for us, we are happy to look at a lot of the space.
15:08 In fact, you know, for us, it's a theme.
15:09 So there are lots of these recycling companies or companies which will do very well when
15:14 the technology tech environment comes around, which we want to play.
15:18 At the same time, we don't want to go and bet on like we don't want to bet on somebody
15:22 who's starting to do R&D or something else.
15:24 Right.
15:25 Very interesting observations.
15:26 I was looking at the sector allocation and I find that infrastructure has got about 16
15:32 percent, capital goes about 10.75 percent, auto ancillary 9 point, more or less evenly
15:37 distributed.
15:39 What in infra one can look at?
15:41 Are they road builders?
15:43 Are they kind of the bus makers or the EV battery makers?
15:47 What kind of infra are you actually looking at?
15:49 So, you know, it's very interesting because the reason we took infra and you know, one
15:54 of our themes was we prefer investment theme over consumption theme.
15:59 And that's been a theme right from, you know, 21 that we think investments will do well.
16:04 The logic for that was to one was our whole three use philosophy.
16:08 So you know, the consumption theme was overvalued, whereas the infrastructure was undervalued.
16:12 It had underperformed a lot and most people didn't own it.
16:15 So it was undergone.
16:16 The other was that the government, if you see as a government capex as a percentage
16:21 of GDP was going up and it was going up like every if you see every year, the percentage
16:28 was going up.
16:29 So the last five years, more or less double as a percentage of GDP.
16:33 So it was like we have to play that government capex.
16:36 Now one thing which we played and this sounds not so much the prime minister came with this
16:41 is a good job, which was water that every tap in the villages.
16:46 And that was something which we played in a big way, because one of the gainers from
16:50 that was putting up the pipe companies.
16:53 So we bought a lot of these pipe companies because one is, you know, additional demand
16:57 would come from this.
16:58 I've not done the government.
16:59 And the second is the pipes were anyway doing well because of all the infrastructure from
17:05 the government.
17:06 It was a sector which we picked up like close to four years ago.
17:11 And today that sector now is become universally loved.
17:14 Everybody's buying it, a lot of the mutual funds on it.
17:16 But at that time, we had picked up a couple of very small companies and most of them will
17:21 become like, you know, a multi-baggers now.
17:24 So it was like taking a very small segment of the government spending, which was not
17:28 a crowded space, not very well known and starting to, you know, play out of that.
17:33 One thing which I always like in these companies is I don't want government sales to be more
17:37 than 20-25% of total sales.
17:40 So that is something which we were very, very on.
17:42 So when you're comparing this with those building companies or something, for us, this was the
17:46 advantage that, OK, if the government sales become very large, then your balance sheet,
17:51 if they don't pay you on time, the balance sheet starts to get strained.
17:55 Whereas if it's like 20-25%, then you can do much better with it.
17:59 Right.
18:00 OK, so I think it's time to switch focus to multi-cap.
18:04 I think the market is also now moving away from mid and small to large caps.
18:09 What's your strategy for multi-cap and what kind of returns do you think you would be
18:15 able to deliver?
18:16 And you know, today, would you lean more towards large caps within multi-cap?
18:21 Yes.
18:22 So, you know, like within the multi-cap space, we are adding to the large cap and selling
18:30 or reducing the weight of the small cap.
18:33 And the reason for us is very simple, right?
18:35 It's valuation.
18:36 Again, I just go back to the CEO's philosophy.
18:39 So relatively, you know, the large caps have become overvalued.
18:43 Relatively the large caps have outperformed a lot.
18:45 And that's where the ownership has built up over the last couple of years.
18:50 So we are basically switching more to small cap.
18:53 But having said that, you know, like two years ago, we owned probably like 40% large cap
18:59 in our portfolio.
19:00 That number's come down closer to 20% now.
19:03 So there's a lot of gaps.
19:04 So, you know, if you think of where we were two years ago, we are much, much lower than
19:08 that.
19:09 And part of this has happened just by performance, because the small caps have done so well,
19:13 that their weight keeps going up every month if we do no action on it.
19:17 So I think the next six months of trend is going to be reduced to small cap and increase
19:21 the large cap in the portfolio.
19:23 Right.
19:24 So talking about large cap and trying to, what to say, align it with your strategy of
19:31 hidden value or undervalue when the market gets worried about large caps.
19:37 I can take one of the most current examples is HDFC Bank.
19:42 You know, everybody got worried.
19:44 Even yesterday, the CEO very clearly said that we are not going to disappoint.
19:50 Do you look at those kind of opportunities which come your way?
19:53 Yeah, so for us, you know, our whole CEO's philosophy automatically, a lot of the schemes
19:59 which we do guides us to that.
20:01 So it's like, you know, three years ago, and you know, I don't split the banks into, you
20:05 know, people always have this public sector versus private sector.
20:08 For me, it was retail banks versus, you know, the corporate banks.
20:12 And three years ago, we took the call that the corporate banks is where, you know, bigger
20:17 value is because retail banks have done very well.
20:20 So they had outperformed.
20:22 Retail banks had become very expensive relative to the corporate banks.
20:26 The corporate banks were undervalued.
20:28 And you know, the retail banks were overloaded and the corporate banks were underloaded.
20:32 And so, you know, that was the call we took that, you know, it's the corporate banks where
20:35 we want to focus on, though the whole market is focusing on the retail banks.
20:39 And you know, in the last three years, that worked out very well for us.
20:43 So for us, it is we are always getting into space, which is not the most common known
20:47 today, whether it is a large cap, whether it is a mid cap or whether it is a small cap.
20:51 That's the way we think, you know, and we get very worried of high valuation.
20:55 So we typically get out early of stocks.
20:58 We get in early into stocks, we get out very early into stocks.
21:01 I think that is a lesson for many investors.
21:04 You have to get in early and you have to get out very carefully.
21:08 I think once sold, you may not get that price.
21:10 Selling is tougher, I suppose.
21:12 Jyothi, thank you very much for all the insights and wish you all the best.
21:16 Thanks for watching NDTV Profit.
21:18 Thank you.
21:19 Thank you.
21:20 Thank you.
21:21 (dramatic music)