PMS Bazaar recently organized a webinar titled “The Lollapalooza Effect in Investing Through Pricing Power” which featured Mr. Siddharth Bothra, Executive Director and Fund Manager, Ambit Asset Management. This blog covers the important points shared in this insightful webinar.

The webinar blog covers insights from Mr. Bothra, which includes the Ambit Pricing Prowess Fund, introduced by Mr. Siddharth Bothra, which promotes long-term investing through a focus on pricing power and high-quality businesses. It explains the fund’s strategy, market outlook, and differentiation from traditional investing methods, highlighting its emphasis on durable growth, qualitative analysis, and resilience amid changing macroeconomic conditions and volatile market trends.

Key aspects covered in this webinar blog are

• A differentiated approach to long-term investing
• Understanding the current market landscape
• The Ambit Pricing Prowess Fund's key differentiators
• Mindset: From short-term to long-term
• Process: The pursuit of pricing power
• The Lollapalooza effect and screening for quality
• Beyond conventional quality investing
• Market dynamics and shifting investment trends
• The Indian equity market outlook
• On qualitative vs. quantitative factors
  

A Differentiated Approach to Long-Term Investing

Mr. Bothra highlighted that the primary objective of the fund is to cater to investors seeking long-term, absolute-return-focused investments. He noted that in recent years, the market had been in a high-risk environment, causing a shift away from long-term quality investing.

The Ambit Pricing Prowess Fund aims to address this by:

• Balancing Offense and Defense: The fund is designed to be an "all-weather portfolio," prepared to navigate black swan events that can significantly impact long-term compounding.
• Focusing on Growth: It is a growth-focused fund that aims to hold a portfolio of 20 to 25 "forever" companies.
• Removing Behavioural Biases: The fund's strategy is to eliminate behavioural biases and institutional imperatives that often hinder long-term compounding.
  

Understanding the Current Market Landscape

Mr. Bothra discussed the major macroeconomic shifts that have created both challenges and opportunities. He explained that two significant tailwinds of the last 20 to 30 years—globalization and benign interest rates are no longer as strong as they once were. Additionally, he noted that company life cycles are becoming shorter, making it challenging for investors unless they focus on businesses with multiple competitive advantages and longevity.

He also shared his view that, following multiple years of an upward-trending market, the medium-term outlook for the next two to three years includes lower returns and increased volatility. Historically, volatility has been lower than long-term averages in recent years, but this is expected to change as markets face economic and earnings growth challenges. Despite these challenges, Mr. Bothra emphasized that India remains a standout investment destination.

The Ambit Pricing Prowess Fund's Key Differentiators

The Ambit Pricing Prowess Fund seeks to simplify investing by removing factors that impede long-term compounding. The fund's strategy is built on several key differentiators.

1. Mindset: From Short-Term to Long-Term

Mr. Bothra asserted that a significant advantage can be gained by shifting away from a short-term, three-month to one-year view to a longer-term, five-to-ten-year perspective. The fund’s focus is on the longevity of growth, which is more important than simply high growth. This is the infinite mindset, the idea of having no finish line.

2. Process: The Pursuit of Pricing Power

Mr. Bothra highlighted a quote by Warren Buffett, who stated that pricing power is the single most important factor in evaluating a business. The fund's entire framework is built on this concept.

What is Pricing Power?

Pricing power is a company's ability to raise prices and maintain profit margins despite rising costs or competition. Enduring competitive advantages come from either sustaining high prices or having lower relative costs than rivals, or both.

The fund looks for businesses with:

• Cost Advantage: Companies like Interglobe Aviation or Avenue Supermarket (DMart) that have significantly lower operating costs than their industry peers.
• Price Advantage: Companies like Titan or Abbott India, which can command a premium price due to strong brand differentiation.
• Both Cost and Price Advantage: In rare cases, a company may temporarily enjoy both advantages, as Interglobe Aviation has due to weak competition.
  

Why Pursue Pricing Power Plays?

Mr. Bothra explained that investing in companies with pricing power offers several benefits:

• Inflation Hedge: These companies can protect real earnings and shield investors from the effects of inflation.
• Margin Expansion: Pricing power companies tend to consistently increase their profit margins, providing an additional lever for growth beyond just top-line revenue.
• Stable Quality Compounders: These are often unglamorous, resilient companies that quietly compound wealth over time.
• Resilience: The strategy works across economic cycles and results in a high-quality portfolio.
• Valuation Impact: By extending the expected longevity and reducing the volatility of a company, pricing power can lead to higher valuations.
  

The Lollapalooza Effect and Screening for Quality

The fund's portfolio aims to create a "Lollapalooza effect," a term coined by Charlie Munger, where multiple mutually reinforcing factors come together to produce an extraordinary result. Pricing power is a way of identifying quality companies that possess these factors. The screening process combines quantitative and qualitative factors, with a 70% emphasis on the latter.

The fund screens for companies with:

• Dominant Franchise: Companies that are market leaders, even in a niche segment.
• Advantage in Key Consumer Variables: Businesses that excel in the most important factors for consumers, where there is a large variance in quality among competitors.
• Multiple Moats: Companies with expanding competitive advantages.
• Long-Term Focused Management: Leaders who think five to ten years ahead, not just for the next quarter.
• Forward-Looking Quality: A focus on companies that are improving their quality, not just those with a good past.
  

Beyond Conventional Quality Investing

Mr. Bothra clarified that the fund's approach differs from traditional quality investing in two key ways:

1. Avoiding Static Quality: Traditional methods, which are often backward-looking, can lead to investments in mature or declining companies. The Ambit fund instead focuses on companies in the high-growth or young-growth phase of their life cycle.
2. Focusing on Forward Quality: The fund seeks to identify companies that will be successful over the next five to ten years, moving beyond conventional wisdom and static metrics. The focus is on a company's life cycle, not its market capitalization (i.e., whether it's a large, mid, or small-cap).
   

The Illusion of Obvious Opportunities

Finally, Mr. Bothra addressed the misconception that pricing power companies are always expensive or that their potential is already "priced in." He explained that empirical studies show this is not the case, as the strategy has consistently created alpha over the long term. This is because most investors struggle to grasp the longevity of growth that these companies possess. They often miss out on obvious long-term winners like HDFC Bank or Titan, instead chasing a "next big thing" that often fails.

The fund's approach is not a "treasure hunt" for new, unknown ideas but rather an effort to identify "nuggets of gold" that are often in plain sight, such as undervalued private banks or consistently performing companies like Abbott India. The investment strategy prioritizes certainty and intrinsic value over speculative, short-term trends, aiming to build a portfolio of durable, high-quality businesses.

Market Dynamics and Shifting Investment Trends

Mr. Siddharth Bothra noted that from 2021 to a few months prior, the market was in a high-risk, high-beta environment. Deep cyclical and commodity-focused companies outperformed, while high-quality and resilient investments underperformed. He attributed this to the base effect, as companies with low quality had fallen sharply during the pandemic and saw a strong recovery as governments and global efforts stimulated markets. Their earnings and valuations grew significantly as supply chains were disrupted and demand returned.

However, Mr. Bothra observed that a shift had occurred between 2023 and 2024. While earnings growth for the broader market has become muted, valuations for many of these "transient growth" companies have become unsustainable, driven by a chase for liquidity. He concluded his presentation by suggesting the market is shifting from being broad-based to concentrated, with a renewed focus on quality, resilience, and durability. This environment, he argued, favors the Ambit Pricing Prowess Fund and similar long-term investment strategies.

During the Q&A session, Mr. Bothra addressed several questions.

On the Indian Equity Market Outlook

He shared a muted near-term outlook for the Indian market, citing low double-digit earnings growth and valuations that are more than 1.5 standard deviations above their average. However, he emphasized that India is a bottom-up market, meaning that while the overall market may be challenging, skilled stock pickers can still find pockets of opportunity and generate strong returns.

On Global Liquidity

He stated that global liquidity, which has been a major driver for both global and Indian markets, may no longer be a significant tailwind. He suggested that it could even become a headwind within the next six to nine months.

On Defining and Tracking "Moats"

When asked about the types of moats the fund looks for, Mr. Bothra referred to Charlie Munger’s framework, highlighting network effects, brand advantage, and high switching costs as particularly strong. He explained that they track leading and backward-looking indicators like market share, margins, and returns relative to peers to ensure these moats are expanding rather than shrinking. In regulated or commoditized sectors, he clarified, pricing power often comes from a significant cost advantage, as seen in the aviation or retail sectors.

On Qualitative vs. Quantitative Factors

Mr. Bothra justified the fund's 70% weighting toward qualitative factors by explaining that they are an "art," not a "science." Assessing management quality, capital allocation, and a company's growth hunger cannot be captured by numbers alone. This focus on qualitative factors, he said, provides a sustainable competitive advantage that is difficult for others to replicate.

Mr. Bothra covered all the topics mentioned above in-depth and answered questions from the audience toward the end of the session. For more such insights on this webinar, watch the recording of this insightful session through the appended link below.

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Disclaimer: The content shared in this blog is for informational and educational purposes only and should not be construed as an offer, solicitation, or recommendation to invest in any Alternative Investment Fund (AIF). As per SEBI regulations, AIF investments are allowed only for investors with a minimum commitment of ₹1 crore. Prospective investors are strongly advised to carefully review the Private Placement Memorandum (PPM), including all associated risk factors, and seek independent financial advice before making any investment decision. PMS Bazaar neither endorses nor recommends any specific fund or product mentioned herein and is not responsible for any investment decisions made based on this content.