How do fund managers generate alpha?

A panel discussion, at the PMSBazaar Conclave 2024: Ahmedabad Edition, brought together prominent fund managers to navigate the current market environment and explore strategies for generating alpha.

A panel discussion was held at PMSBazaar Ahmedabad Conclave on the topic 'What are the secrets behind fund managers’ success in delivering alpha?', the following were the panellists and the moderator for the event.

Panellists:

Aniruddha Sarkar, CIO & Portfolio Manager, Quest Investment Advisors
Anirudh Garg, Fund Manager, Invasset
Arun Subrahmanyam, Founder & Managing Partner, Ampersand Capital
Balaji Vaidyanath, Director, Fund Manager, CEO & CIO, NAFA Asset Managers

Moderator: Rohan Mehta, CEO & Portfolio Manager, Turtle Wealth

The moderator Mehta set the stage by referencing the need for agility in market cycles, prompting the panellists to share their perspectives on the market conditions.

Vaidyanath suggested that investors should navigate the market regardless of the conditions. He pointed out that in the past, a small number of stocks could capture most of the market upside. However, this is no longer the case. Today, growth comes from companies outside of the Nifty index as well.

Subrahmanyam agreed with Vaidyanath and said that there was no need to book profits. He said that he (his firm) looks for opportunities in all sectors and sub-sectors.

Garg agreed with the other panellists but offered a slightly different perspective. He said that the market should be viewed objectively. He said that bull runs have cycles and that investors need to identify opportunities during these cycles. While it is hold, he suggested buying more during dips.

Sarkar also agreed that it is time to invest in India, given that it is going to be the fastest-growing economy. He said that the past few years have seen headwinds such as high commodity prices and inflation. However, he believes that these headwinds have become tailwinds, with interest rates peaking and raw material costs coming down. He said that the Indian economy is expected to grow 6-7% over the next 6-7 years, making it a good time to invest.

Mehta then steered the conversation to the alpha generation.

Vaidyanath said that investors don't need to be ahead of the curve to create alpha. He advised investors to avoid sectors that will underperform. He emphasised trend observation and gave an example. He suggested investors track international companies whose subsidiaries are listed in India, to anticipate domestic trends.

Subrahmanyam opined that alpha creation requires two components: growth and PE expansion.

Garg said that money chases growth. He explained that the market oscillates between valuation and relative change. He gave the example of the IT sector, which performed well during COVID-19 but has since become overvalued. He said that investors should participate in every market run to generate alpha.

Sarkar said that the market follows a business cycle. He said that his investment philosophy is based on sector rotation. It is important to be in the right sector at the right time and to pick the right stocks within that sector.

The session wrapped up with audience Q&A, providing further insights into the panellists’ investment philosophies. Watch the full session with the link appended below.