How to find opportunities across sectors and market caps?

PMS Bazaar hosted a webinar titled ‘Seizing opportunities across sectors & market caps’ featuring Naysar Shah, Fund Manager at Credent AIM Multi-Cap Strategy. The webinar discussed India's strong economic outlook, the potential of the manufacturing sector, navigating investments, portfolio management, and dealing with market volatility. Shah emphasised understanding individual companies and long-term investing for wealth creation, rather than trying to predict market movements.

Key aspects covered in this webinar blog:

Navigating the investment landscape
Market volatility
Market opportunities
Investment Philosophy

Naysar Shah began the webinar by highlighting India's promising economic outlook. He pointed to controlled fiscal consolidation both in current account and fiscal deficits. This achievement, along with a decade of government policies promoting economic growth, positions India as one of the world's fastest-growing economies with robust GDP figures. Shah also emphasised the transformative potential of the manufacturing sector, fueled by rising GDP share and government initiatives like the PLI scheme. Low labour costs and the ‘China plus one' trend further solidify India's attractiveness as a manufacturing destination.

Navigating the investment landscape

Shah delved deeper into specific investment opportunities, using the example of a private Indian bank undergoing a merger to illustrate special situation investing. This case highlighted the importance of understanding market dynamics and potential outcomes for success. He then shifted gears to portfolio management, emphasising the benefits of Portfolio Management Services (PMS) like the flexibility to invest in high-growth, smaller companies for amplified wealth creation.

Shah advocated a practical approach to navigating market volatility. He stressed the importance of identifying fundamentally strong companies and holding steady through short-term fluctuations. By acknowledging the cyclical nature of markets, he empowered investors to remain calm during uncertainty.

Shah acknowledged the risk-reward balance and the need for a tailored risk management approach based on individual risk tolerance and goals. He reiterated the importance of a long-term perspective and staying invested through volatility. By providing actionable insights and guidance, he aimed to equip investors with the tools to navigate financial markets with confidence.

Finally, Shah analysed market trends and sectoral allocations. He pointed to the manufacturing sector's growth potential, aligning with the government's ‘Make in India’ initiative. He emphasised using strategic allocations and a keen eye for emerging opportunities to capitalise on market dynamics and unlock long-term value.

Market Volatility

Rather than comparing strategies with other multi-cap approaches, Shah emphasised the importance of adhering to their unique investment philosophy and disciplined approach. Their strategy focuses on maintaining a process-driven approach to meet benchmarks and generate alpha over a 3 to 5-year period. Reflecting on sector allocations, he discussed the emergence of previously undervalued sectors, such as the PSU sector, and speculated on potential future trends. While identifying undervalued sectors like services may take time, he highlighted the importance of a long-term outlook in investment decisions.

Shah discussed how his portfolio approach has evolved over time, particularly in response to current market valuations. He stressed the importance of diversification across sectors and market caps to manage risk and navigate market fluctuations. He addressed investor concerns about high valuations by explaining the multi-cap approach and emphasising a long-term perspective. Despite short-term volatility, his bottom-up approach focuses on identifying undervalued companies with growth potential.

Looking ahead, Shah offered key takeaways for investors. He emphasised discipline, patience, and avoiding market timing. He advised new investors to understand their risk tolerance and allocate assets accordingly for long-term wealth creation. For asset allocation beyond equities, he recommended consulting financial advisors for personalised advice. While acknowledging the volatility of micro-cap companies, he suggested a 3-5-year investment horizon to potentially benefit from market recoveries.

Market opportunities

In a discussion about market prospects, Shah identified several opportunities for investors. He highlighted promising areas like special situations in lending, services, and manufacturing. Manufacturing, in particular, was seen as having significant growth potential due to India's room for expansion. Shah suggested that investors should focus on the companies’ fundamentals and industry trends when making investment decisions. Rather than prioritising market capitalisation, Shah suggested selecting companies with strong earnings growth and reasonable valuations. He emphasised a long-term perspective, advising investors to focus on individual company merits and avoid attempting to time the market.

Investment philosophy of Credent

Naysar Shah also discussed Creden’ts investment philosophy, which focused on delivering value to investors. His team builds a diverse portfolio of 20 to 30 stocks across different market caps after thorough research to generate alpha over 3 to 5 years. Diversification across various company sizes helps reduce risks and seize emerging opportunities. Shah's team balances long-term investments with special situations for effective risk management. They prioritise sectors like manufacturing, digitisation, and self-sustainable India.

Strategic sector allocation is crucial, requiring conviction in chosen themes backed by industry knowledge. Embracing diversity, they craft a resilient portfolio, ensuring sector balance and risk control. Special situations like corporate restructuring or policy changes offer unique value-creation opportunities in the investment approach. The team identifies companies with sustainable advantages, informing portfolio construction with sector diversification and risk management. Maintaining focus on growth drivers ensures readiness to capitalise on emerging opportunities.

Naysar Shah provided a comprehensive discussion on the above-mentioned topics and answered questions from the audience towards the end of the webinar. To gain further insights from this informative session, you can watch the recording.