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How fund managers in the alternative investment space look to create wealth

Broadly, they look beyond the obvious benchmarks while sticking with the basics. They also keep an

eye on emerging trends to spot future winners.


Fund managers in the Portfolio Management Service (PMS) and Alternative Investment Fund (AIF) industry now have more options to add value to investors in a much more balanced way, say experts.


The current asset size of the Indian alternative investments is Rs 12 trillion (Rs 12 lakh crore), with around Rs 5 trillion (Rs 5 lakh crore) managed by PMSes and around Rs 7 trillion (Rs 7 lakh crore) looked after by AIFs.


In a panel discussion held during the Dubai Alternative Investment Summit organised by PMS Bazaar, experts weighed in on how India's portfolio managers create investor wealth. Edited excerpts:


Looking beyond benchmarks

Experts at the summit were of the opinion that there are many emerging trends to make money in India. Some common themes among these are consumer discretionary, manufacturing and digitisation.


However, experts felt that if one looks at how the large-cap index, which is Nifty, is constructed, investors may not be able to invest in these themes.


“Portfolio fund managers have no benchmarking sort of an approach. They look at stocks on a standalone basis, whether they have the potential to deliver higher returns or not. Today, in the benchmarks, most of the emerging themes are not available,” said Madanagopal Ramu, Fund Manager and Head-Equity at Sundaram Alternates.


Giving an example, he said that if an investor wants to bet on the consumption discretionary theme given India’s growing economy and per capita income rising above the key $2,000 level, the investor can only bet on auto companies in the Nifty index.


“A lot of emerging opportunities are not in the indices. So, we go outside the benchmarks. Most of our portfolios have overlap with indices of not more than 15-20 percent,” said Ramu.


Sticking with basics

While mutual fund managers are usually traditional, diversified and extra cautious in management style, the PMS sector is known for concentrated bets and unique styles of investing that suit individual investor needs.


However, experts in the industry feel that fund managers still need to stick with the basics while investing.


“The core mantra of a fund manager must be to stick with the basics. The key challenge for me is to understand the balance sheet. The other key component is to look for catalysts/triggers that can help us unwind values,” said Arun Malhotra, Founder and Chief Investment Officer CapGrow Capital Advisors.


He feels that the performance of portfolio managers should be judged based on a long-term time frame and not just on single-stock movements.

“Investing at times can be boring, challenging and even unnerving. But one needs to stick with quality, which is a combination of growth and RoE (Return on Equity),” said Malhotra.


Betting on sub-sectors

Experts feel that being in the alternative spaces gives portfolio fund managers additional advantage to deliver better returns.


While there are not many stocks in the indices to invest in emerging themes, Abhisar Jain, Head and Fund Manager at Monarch AIF, believes they can bet on these trends using some of the sub-sectors of the theme.


 “For example, 10 years back, if you were positive on real estate, DLF and Unitech were the only stocks to bet on. But today, you can invest in ancillaries, such as wood panels, plastic pipes or even a mattress company. In the same way, in the BFSI space, banks were the only option earlier. But today, you have life insurance, mutual funds, depositories, and stock exchange,” said Jain.

He believes there are 50 sub-sectors where a portfolio manager can build a portfolio of 15-20 stocks, which can get a boost from India’s growth story.


Challenges faced by portfolio managers Aman Chowhan, Senior Fund Manager at Abakkus Asset Managers, feels that the biggest challenge that India’s portfolio managers are facing is in embracing the changing global economies and the investing landscape.


“We are well versed and good at identifying companies in India. However, as India is growing, investing is not just domestic-focused. We need to be aware of changing global trends and know how to look at companies from a global perspective. The multiples that we assign to companies, which is PE (price to earnings), are becoming global because the money is global. This is the biggest challenge the industry is facing today, as not many of us are well-equipped or even thinking along those lines,” said Chowhan.

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