PMS Bazaar recently conducted a Quarterly Update Interview Series, where Fund Managers share their performance of the quarter and outlook on the market. This Blog covers excerpts of our Exclusive Interview with Mr. Madanagopal Ramu, Head of Equities, Sundaram Alternates, sharing his insights and performance for the first quarter of FY23-24.

Excerpts from the interview

The past quarter has been exciting and rewarding for Sundaram Alternates’ investment portfolio. With careful strategies and a focus on key sectors, Sundaram Alternates experienced fewer surprises and witnessed remarkable growth in earnings across the board.

According to Mr. Ramu, Sundaram follows a diversified approach investment strategy. Their investment strategy centers around four main sectors: Financial inclusion, Consumer/Manufacturing, and the Digital space. These sectors have proven to be robust performers, so Sundaram has strategically allocated funds to capitalize on their potential.

Performance across these sectors: A brief review

Financial Inclusion and the Banking Sector

According to Mr. Ramu, “In the Financial Inclusion team, investments are made in retail private banks and Non-Banking Financial Companies (NBFCs). This decision paid off well, as both segments saw strong loan growth. The market's fears of Net Interest Margin (NIM) compression were unfounded, and both banks and NBFCs delivered results that exceeded expectations.”

As the financial landscape evolved, it became evident that banks and NBFCs efficiently managed their NIMs, and their performance exceeded even the most optimistic expectations. One of the key drivers behind the success of NBFC growth was the substantial support they received from banks, particularly from reputable institutions such as PSU banks.

This support came in the form of funding and financial partnerships, which played a pivotal role in enhancing the overall performance of NBFCs. The synergistic collaboration between banks and NBFCs helped the latter expand their lending capacity, reach previously untapped markets, and mitigate potential liquidity risks.

The decline in Non-Performing Assets (NPAs) has significantly contributed to the banks' success. As a result of prudent risk management practices, robust credit assessment, and the overall improvement in the economic climate, NPAs have experienced a steady decline, positively impacting these banks' financial performance. The reduction in NPAs reflects the banks' ability to effectively manage their loan portfolios and minimize the risk of defaults. This, in turn, has bolstered their confidence in extending credit to businesses and individuals, resulting in high loan growth. As more creditworthy borrowers avail of loans, the banks have experienced an increase in their lending activities, contributing to the overall expansion of their loan books.

Consumer Discretionary and Manufacturing Sector: Weathering the Storm of Inflation

According to Mr. Ramu, “The fear of inflation impacting consumption was a concern for many investors, but our prudent approach paid off. Our investments primarily focused on urban consumption themes, including organized retail, Quick Service Restaurants (QSRs), and consumer durables. Despite inflationary pressures, the core numbers for most of our companies remained in line with expectations. Moreover, our exposure in the healthcare sector also yielded positive results, improving Revenue per Occupied Room (ROR) and margins contributing to better performance.”

Direct selling companies have faced some concerns, especially related to inventory pile-ups and challenges in distribution during the recent economic fluctuations. However, it's worth noting that companies operating as suppliers to others have managed to perform admirably, driven in part by the China 1+ policy. The "China Plus One" concept was first introduced in 2013 as a response to these risks. This strategy involves investing in additional countries to mitigate risk and diversify supply chains. By doing so, companies can reduce their dependence on China while taking advantage of its benefits.

India, in particular, has emerged as a favored destination for companies implementing the "China Plus One" strategy. India offers several attractive features, making it an appealing alternative manufacturing and investment location.

Mr. Ramu further said, “Despite challenges in the global agrochemical market and inventory pile-ups, our focus on companies that supply rather than directly sell allowed us to avoid significant impacts. While some marginal slowdown may be expected in the next two quarters, we remain optimistic about the long-term prospects of these companies and their potential for surprising earnings growth.”

Digital Investments: Promising Outlook

Mr. Ramu said, “Our holdings in the digital sector, specifically Zomato and Nica, delivered results that aligned with expectations. The encouraging guidance from Zomato regarding profitability was particularly noteworthy. Our strategy of betting on the profitability improvement story for these companies paid off, exceeding our initial expectations.”

Zomato, a leading food delivery and restaurant discovery platform, has been on an impressive growth trajectory. The company's strong revenue and user engagement performance align perfectly with our investment strategy. What sets Zomato apart is its commitment to continuously improving profitability, which has caught the attention of both investors and industry analysts.

The encouraging guidance from Zomato's management regarding its profitability outlook has been particularly noteworthy. Their strategic initiatives to optimize operational efficiency, expand into new markets, and enhance delivery capabilities have yielded positive results. As a result, Zomato's potential for sustainable and long-term growth is increasingly evident.

Nica, an emerging player in the e-commerce sector, has been making waves with its innovative approach to online retail. In a highly competitive market, Nica's ability to carve out a niche is a testament to the strength of its business model and management's vision. Nica can disrupt the traditional e-commerce landscape and provide consumers with a unique shopping experience. The company's focus on curating diverse products, coupled with seamless customer service, has contributed to its rapid growth. As Nica continues to expand its product offerings and deepen its market penetration, the outlook for the company remains promising.

Mr. Ramu stated, "At the core of our investment strategy is an unwavering belief in the power of digital innovation. We recognized the transformative potential of these companies early on and invested in their growth stories. As the digital ecosystem evolves, we will seek promising ventures aligning with our investment philosophy.”

Mr. Madanagopal Ramu discussed several other questions in detail during the interview. Watch the Interview session with the link appended below -

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