Investors often state that the next decade belongs to India. In an interview with MintGenie, Jiten Parmar, small case manager and Co-founder of Aurum Capital, believes that Indian economy is expected to be the third-largest economy.
He attributes his bullishness to a series of reforms that are taking place now. He also shares his view on investing in cyclicals, which he does not find risky, contrary to popular opinion.
He also shares more about the bottoms-up approach. He also explains the difference between professionally-created portfolios and mutual funds i.e., the former have optimum number of stocks for sufficient diversification — much lower than what mutual funds offer.
Edited Excerpts:
You used to invest in the US markets and are now making investments in India. It's often said that Indian markets have a lot of scope because they are yet not as mature as those of developed economies. What is your opinion on this based on your personal experience?
I have experience in investing in the US markets. But I believe the next decade belongs to India. Our economy will do very well. We are already a service powerhouse. We have all the ingredients to be a manufacturing powerhouse. Our share in global manufacturing will grow exponentially. China+1 and Europe+1 should play out and India will be a key beneficiary. We just need to focus on execution.
The reason we are bullish is that a lot of reforms have happened. India has waded the Covid-19 period relatively well and we can say ours is probably one of the best handled major economies. We need to give credit to policy makers and central bank for that. It’s good to see states competing for projects.
This will only accelerate. Lot of wealth is to be created as we become a $5 trillion economy in the next few years and post that a $10 trillion economy. India is expected to be the third largest economy before the end of the decade. The biggest risk investors will take is to not invest in India. We also see FIIs increasing their allocations to India.
Can you tell us something about the categories of 'value investing' and 'cyclical bets' smallcases? How do you manage to pull off such exceptionally high returns as 30.7 percent CAGR for value smallcase and 54.7% CAGR for cyclical bets?
Our focus on value investing made it possible. I believe in hardcore value investing. I have experience in understanding business and market cycles for almost two decades now. Being an entrepreneur in various industries helps a lot in understanding of business.
We have brought all of our experience to these smallcases. We focus on turnaround and contra cycles to generate these returns. Investing during these times makes you invest when valuations are in favour. We pay far below the intrinsic value of the underlying asset. The gap between value and price narrows when cycle plays out.
We try to capture that. Investing in cyclicals is not risky, contrary to popular opinion, if done right. We have developed this skill. This makes us net far more winners than losers. And that’s what we focus on. Our process of selection is quite deep and detail-oriented. We look at lot of parameters before stocks get into our buy list. Only about 1 out 10 ideas which we generate gets selected.
We stick to our core philosophy of value, risk-reward in favour of reward and margin of safety. We have loads of patience and back the managements of our investee companies to perform by giving them sufficient time. Our churn is not very high. We want to emphasise that past performance will not be easy to replicate. But we will keep trying our best to outperform our benchmark indices. We will continue to focus on our process and leave the rest to Mr. Market.
Market indices are touching record highs while there is an overall not-so-positive sentiment amid high inflation, Ukraine war, and worries over recession. How do you reconcile the two contrarian occurrences?
Market cycles behave in a different way than what current macros suggest. More often than not, markets are forward-looking. Markets are telling that India will do well despite all these macro global challenges.
And India is a shining star amongst the major economies. India is expected to have 25 percent of the economic growth of the world for 2023. That’s a significant outperformance. This is the reason that the Indian markets have outperformed all other major markets in 2022. Having said that, we do not focus on indices.
We prefer to look at individual stocks and sectors. Ours is a very bottoms up approach. We have positioned ourselves towards least disrupted and beneficiaries of this global turmoil.
When seen from the perspective of investors, these professionally created portfolios seem similar to active mutual funds barring the higher threshold of entry in small cases. Besides this, what is the key distinction between the two?
Mutual funds in general have far higher than optimum number of stocks. Our belief is 20 is the best number for stocks for our strategies. It gives sufficient diversification to curtail the risk as well as a significant chance to outperform.
Some strategies have far lower stocks, but then risk increases. Hence, we settled at 20 stocks, trying to strike a balance. Our endeavour is always to beat the benchmark indices by a significant margin. And markets have been kind to reward us.
Do you have any new small case that is in the pipeline next year?
We want to focus on these 2 strategies. We want to give justice to our clients. Too many strategies may not be a good idea, as one can get defocused. As of now, there are no plans for any new strategy.
What is your future outlook of the market? According to you, are there any specific sectors that are likely to go well in the immediate future?
We remain upbeat on the Indian market from a long-term perspective. We never hazard short-term predictions. Corrections and drawdowns keep happening in the journey of equity investing. One should have the long-term mindset while investing in equity and not panic during drawdowns, which are an integral part of investing. Ride these with patience, if one has the conviction in their ideas.
Sectors we like are Capital Goods, Banking and Finance, Infra, Cement, Chemicals, Paper, Packaged Foods, Hotels, Auto ancilliaries. On corrections, we would like to look at IT and Pharma.
