Recently, PMS Bazaar released a magazine showcasing a series of articles authored by diverse fund managers. This blog covers excerpts from the article by Mr. Vaibhav Agrawal, the Fund Manager at Motilal Oswal Asset Management, Exclusively covering the Motilal Oswal Founders Fund.

In investment strategies, one key principle reigns supreme – a proficient captain at the helm is imperative for steering a ship toward triumph. Drawing a parallel, just as a skilled jockey is essential to guide a champion horse to victory in a derby race, a company helmed by a competent founder holds the key to its future accomplishments. Mr. Vaibhav Agrawal, in this article, has stated that the Motilal Oswal AMC has embodied this principle and offers a multi-cap strategy that revolves around investing in founder-driven companies - The Motilal Oswal Founders Fund.

The Power of Founder-Driven Companies

Mr. Vaibhav Agrawal mentioned that the founders of companies possess a vested interest and are adept capital allocators. This efficiency in capital allocation is a cornerstone for evaluating a company's potential for generating returns on capital employed (ROCE). Founders who have a personal stake in their businesses, coupled with their direct involvement in steering the company, are oriented towards strategies that ensure long-term growth and wealth creation in sync with the dynamics of their respective industries.

Mr. Vaibhav states, "Founders build their companies on the inside and influence their company's success on the outside." The paramount importance of having a capable leader is akin to a good business accompanied by a visionary promoter or CEO. While poor leadership can erode the value of a strong business, a skilled leader can adeptly navigate a struggling business toward growth.

Notably, most of today's corporate giants began their journey as promoter or founder-driven entities, ultimately amassing significant wealth for their minority shareholders. A striking testament to this lies in India's high ranking concerning promoter holdings in the listed space among the top 10 countries based on market capitalization.

The Historical Triumph of Founder-Driven Companies

The Author pointed out that over a span of 25 years, founder-driven companies have exhibited remarkable prowess as wealth creators. They have dominated categories such as the Top 10 Fastest Wealth Creators, Top 10 Biggest Wealth Creators, Top 10 Consistent Wealth Creators, and All-Round Wealth Creators. This remarkable performance even extends to the US market, where founder-driven companies outperformed others by a factor of 3.1 over 15 years.

The Investment Approach: Balancing Preservation and Appreciation

The investment objective of the Motilal Oswal Founders Fund revolves around two core principles: capital preservation through quality and margin of safety and capital appreciation through earnings growth. Vested in their ventures, founders are inclined to explore businesses with higher success probabilities. This twofold approach ensures the fund's alignment with ventures poised for substantial growth.

According to Mr. Vaibhav, a meticulous investment framework is central to the fund's strategy. The fund selectively filters stocks from the top 500 Indian companies based on market capitalization. After applying criteria such as minimum promoter holding, minimum PBT (Profit Before Tax), and capital allocation efficiency, an investible universe of approximately 160 companies emerges. The QGLP (Quality, Growth, Longevity, and Price) filtration narrows this to around 80 companies, forming the basis for a diversified portfolio comprising 20-30 stocks.

If you find this blog informative and look forward to reading the article by Mr. Vaibhav Agrawal. Then, check out our July Edition Special Edition Magazine – Click HERE.