Our investment approach is pro growth, yet with a ‘sleep well at night’ quality: Vikaas Sachdeva of Emkay Investment Managers

“What is important is that the Indian investor should have the growing power of equity in his portfolio. The vehicle through which he accesses the markets is less important”, says Vikaas Sachdeva, CEO, Emkay Investment Managers (EIML).

EIML is a SEBI-registered Portfolio Manager since 2003 and currently manages about ₹1,000 crore worth of assets. It offers customised and personalised advisory services to large HNIs/NRIs and corporate investors. Popular PMS (Portfolio Management Service) schemes of EIML include Emkay Emerging Stars Fund - Series 1-3, Emkay L.E.A.D and Emkay Capital Builder.

Excerpts from an interview:

I think one would miss the wood for the trees if one just singles out specific sectors. Companies are starting to hit pre-Covid numbers in terms of sales, revenue and profitability. Disruption across industries globally is ensuring that Indian companies are as much at the starting line as their global counterparts. Relevant benchmarks in terms of growth are now global, not local.

The government and regulators are pulling out all stops to ensure growth.. This is already starting to get reflected in economic indicators like GST collections (topped ₹1 trillion for many months), E-Way bill issuance (reporting a 2-year CAGR of 11 per cent in Q2FY22), credit growth (6.8 per cent y-o-y growth, even as it is tepid, it is a marked reversal from bottom of 5 per cent), and consumer buying.

Hence, rather than seeking out good stocks or sectors, I would recommend seeking out good fund managers. You may go wrong in picking the horse, but if you pick a good jockey, he will make sure you win the race.

Having said that, high-quality companies run by exceptional managements in the space of pharma, auto, insurance and consumer sectors are looking the most promising currently.

What is important is that the Indian investor should have the growing power of equity in his portfolio. The vehicle through which he accesses the markets is less important. Having said that, there is an increasing band of savvy investors who want to access direct equity, but are comfortable with a focused, guided portfolio. They usually have a few thousands to a lakh to invest and patronise platforms like smallcase and cube.

The PMS or AIF investor is for a fairly sophisticated UHNI (ultra high net worth individual) investor who wants to have a customised/deeper understanding of his portfolio and a more regular interaction with the fund managers. The virtues of the PMS platform in terms of transparency, trust and flexibility are what has driven its growth.

These are two different platforms catering to two different sets of investors. The mutual fund retail investor is typically a first time, “uninitiated” investor and hence regulation and disclosures around the same are high. Besides, mutual funds have evolved since the days of UTI and each incremental experience across cycles has led to more disclosures. It is usually wealth creation, keeping a goal in mind.

A PMS platform has the benefit of hindsight of what has happened to the mutual fund industry. The regulators are cognizant of the view that the investor here is very well-informed, each charge made to his account is unbundled, audited and disclosed at frequent intervals and is a vehicle allowing customised portfolios catering to different risk appetites. Wealth creation here is in isolation and is seldom tied to a goal.

Our competitive advantages include Emkay Quality (E-Qual) Module (where stocks are allocated equal weights in portfolios) and Smart Alpha framework (wherein clear rules of stock picking are defined, even for quality parameters).

We follow a bottom-up stock picking process backed by extensive fundamental analysis..

The portfolio manager intends to invest at a time when prices of identified stocks offer reasonable value (considering the earnings growth prospects) and potential capital appreciation for long-term investors. Investors across our schemes should have an investment horizon of three years and more.

While the investment universe for some of the schemes is determined through market cap filter at first, it is further funnelled down based on the last 5-10 years’ history of Return on Capital Employed, cash flows to EBIDTA and debt to equity. In all cases, the stock has to pass through the test of E-Qual model even if it passes through above three filters.

Emphasis is laid on diversification across industries and companies (at the time of initiation sectoral exposure is capped at 30 per cent, 10 per cent for each stock and <20 per cent exposure in turnarounds or special situation stocks).

Besides, we also blacklist companies from further screening basis parameters such as more than 70 per cent of promoter holding being pledged, lack of investor communiques, debt equity of greater than 2.5 times, high salary to promoter group, etc.

Irrespective of the kind of fund we are working on, our investment approach remains the same. We aim to offer to our client investment advice that is growth oriented and yet has a quality of SWAN, i.e., Sleep Well at Night. As highlighted earlier, India is at an inflection point for growth and investors need to participate in that growth through equity. Through our approach, which involves solid research, long-term investing, focus on compounding, purchase price discipline, focussed portfolio approach and avoiding bad promoters, we are paving the way for investors to generate robust returns while mitigating risk. This approach runs through all our portfolio schemes.

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