SIFs Explained: Can Sundaram Select SIF Unlock Opportunities Beyond the Top 100 Stocks

PMS Bazaar recently organised a webinar titled “SIFs Explained: Can Sundaram Select SIF Unlock Opportunities Beyond the Top 100 Stocks Webinar,” which featured Mr. Madanagopal Ramu, Fund Manager, Equity, Sundaram Mutual.

This blog covers the important points shared in this insightful webinar.

The webinar blog covers insights from Mr. Madanagopal, which include launch of “Select,” a Specialised Investment Fund (SIF) introduced by Mr. Madanagopal Ramu. It highlights the fund’s concentrated investment strategy, tax efficiency, and use of derivatives for risk management and returns. The blog also explores India’s growth opportunities in manufacturing, power, infrastructure, and AI, emphasizing disciplined stock selection amid market volatility and uncertainty.

Key aspects covered in this webinar blog are

Bringing alternate strategies to mutual funds
Strategic utilization of derivatives
Global capex, AI, and India’s manufacturing surge
Robust domestic indicators and the gold wealth effect
Navigating valuations in mid and small caps
Capitalizing on investor panic and macroeconomic fluctuations
Tactical integration of derivatives for risk management and alpha generation
Concentrated portfolios versus traditional benchmark allocation
Industrial capex expansion, power demands, and structural emerging winners

Summary: Mr. Madanagopal Ramu introduced “Select,” a Specialised Investment Fund (SIF) combining concentrated investment strategies with mutual funds’ tax efficiency and cost advantages. The fund focuses on promising mid, small, and micro-cap companies across manufacturing, power, capital goods, and consumer discretionary sectors. Derivatives will support risk management, yield enhancement, and alpha generation. He highlighted India’s growth potential through infrastructure development, AI investments, manufacturing expansion, and rising household wealth. Despite market volatility and high valuations, he believes disciplined stock selection and strategic investing can generate attractive long-term returns.

Mr Madanagopal Ramu started the session by introducing an innovative investment vehicle, marking the launch of their first Specialised Investment Fund (SIF) under the brand name "Select." Drawing on the legacy of their former mutual fund offering, Select MidCap, the new fund aims to bridge a critical gap in the market by offering an alternative-style portfolio strategy within a mutual fund structure. He highlighted that while traditional Portfolio Management Services (PMS) and mutual funds have distinct advantages, they often come with trade-offs regarding tax efficiency, fee structures, and portfolio diversification.

Bringing Alternate Strategies to Mutual Funds

Reflecting on his extensive experience managing alternate portfolios, Mr. Madanagopal Ramu explained that his investment philosophy has consistently centred on concentrated, high-conviction portfolios comprising around thirty to forty stocks. Traditional mutual funds often hold extensive portfolios spanning 170 to 200 stocks across mid and small-cap segments, creating a "long tail" where underperforming stocks drag down overall returns. Furthermore, investing through a PMS typically incurs higher fees and significant tax friction due to frequent portfolio rebalancing, potentially eroding investor wealth by up to three percent annually.

The newly launched SIF product seeks to eliminate this friction by combining the agility of a concentrated alternate strategy with the lower fees and tax advantages of mutual funds. By curating a multi-cap portfolio across mid, small, and micro-caps without heavy exposure to large-cap stalwarts, the fund offers a unique positioning. Mr. Madanagopal Ramu noted that this approach allows investors with a moderate capital base to access sophisticated alternate strategies without needing the steep minimum investments typically required for Alternative Investment Funds (AIFs).

Strategic Utilization of Derivatives

A standout feature of the new SIF offering is its tactical integration of derivatives. Mr. Madanagopal Ramu elaborated that derivatives would not merely serve as speculative instruments but would function as vital tools for risk mitigation, yield enhancement, and alpha generation.

Given market volatility, fund managers can hedge downside risks temporarily without liquidating underlying long-term holdings in promising sectors like capital goods. Additionally, the strategy incorporates yield-generating mechanisms such as covered calls and alpha-generating pairs trading—taking long positions on market-share gainers while shorting their struggling sector peers. This dynamic flexibility allows the portfolio to navigate market corrections effectively while protecting downside capital.

Global Capex, AI, and India’s Manufacturing Surge

Shifting focus to the broader macroeconomic environment, Mr. Madanagopal Ramu shared an optimistic outlook on global and domestic growth. Globally, economic growth numbers are experiencing an upgrade, driven by a sharp uptick in capital expenditure (capex) and massive investments in artificial intelligence (AI) infrastructure. He pointed out that the exponential rise in power consumption required to support advanced AI models and large language models has triggered a global renaissance in energy and power infrastructure investment.

India is uniquely positioned to capitalize on this global capex cycle. Supported by Production-Linked Incentive (PLI) schemes, domestic manufacturing has gained massive momentum across sectors such as solar technology, electric vehicles, battery production, and electronics manufacturing. Mr. Madanagopal Ramu observed that India's transition toward domestic manufacturing substitution is successfully reducing heavy import dependencies, creating enduring structural growth drivers.

Robust Domestic Indicators and the Gold Wealth Effect

To substantiate the underlying strength of the Indian economy, Mr. Madanagopal Ramu highlighted several robust domestic indicators. Banking credit growth remains exceptionally strong at twelve to thirteen percent in real terms, a feat matched by very few major economies. This expansion is broad-based, spanning corporate, SME, agricultural, and retail segments. Furthermore, consistent growth in GST collections and strong gross foreign direct investment (FDI) into startups reflect genuine economic activity.

Another vital economic pillar discussed was the staggering expansion of household wealth through gold. Mr. Madanagopal Ramu noted that the total value of household gold in India has surged significantly since the pre-pandemic era, reaching approximately four trillion dollars—an amount comparable to the nation's entire GDP. This immense wealth effect is directly fueling a structural shift toward premium discretionary consumption, benefiting sectors ranging from automotive and travel to healthcare and higher education.

Navigating Valuations in Mid and Small Caps

Addressing concerns surrounding elevated valuations in the mid and small-cap segments, Mr. Madanagopal Ramu emphasized that while broader market valuations appear rich, genuine growth opportunities remain highly concentrated. He cautioned against broad, diversified indexing, reiterating that a disciplined, stock-selective approach focusing on fifteen to twenty high-conviction ideas across preferred sectors—such as capital goods, power, and targeted financials—is essential for outperformance.

Capitalizing on Investor Panic and Macroeconomic Fluctuations

Addressing investor anxiety regarding geopolitical tensions, crude oil price volatility, and currency depreciation, Mr. Madanagopal Ramu observed that periods of elevated market panic historically present the most attractive entry points for long-term equity allocation. He explained that while short-term macroeconomic disruptions—such as temporary oil price surges or global interest rate concerns—frequently trigger market pullbacks lasting two to three months, India’s underlying economic foundation and managed current account dynamics enable the country to absorb these shocks far more effectively than many peer emerging markets.

When asked about the rationale behind launching a new fund offering during a period of market uncertainty, Mr. Madanagopal Ramu noted that gathering capital during periods of peak market optimism often results in suboptimal entry valuations for investors. In contrast, deploying capital when broader market sentiment remains subdued allows fund managers to systematically accumulate high-quality growth cyclicals at compelling valuations. He urged investors to look past temporary market noise and base their investment decisions on underlying fundamental data. Drawing from his extensive experience in managing alternate strategies, he emphasized that maintaining disciplined exposure to high-growth themes during market drawdowns consistently generates substantial alpha during subsequent market recoveries.

Tactical Integration of Derivatives for Risk Management and Alpha Generation

When questioned regarding the fund’s capacity to execute short positions and deploy derivative strategies within the Specialized Investment Fund framework, Mr. Madanagopal Ramu stated that derivative capabilities function as a vital differentiator for the portfolio. Downside protection achieved through selective hedging allows fund managers to safeguard core, illiquid holdings during volatile phases without resorting to selling underlying positions. Furthermore, yield enhancement techniques, such as writing covered call options on consolidated holdings, assist in generating an additional four to five percent return without diluting long-term portfolio conviction.

Additionally, the ability to selectively short overvalued mid-cap equities or execute relative-value pairs trading—taking long positions in market-share gainers while simultaneously shorting underperforming competitors within the same sector—provides an auxiliary mechanism for alpha creation. Mr. Madanagopal Ramu clarified that the fund intends to approach derivative strategies with measured discipline, establishing a structured operational framework rather than aggressively taking unhedged positions immediately. As market opportunities present themselves, derivative overlays and tactical shorting will become integral tools to navigate changing market conditions while preserving core equity returns.

Concentrated Portfolios versus Traditional Benchmark Allocation

Discussing broader equity market behavior, Mr. Madanagopal Ramu expressed skepticism regarding the capability of traditional large-cap benchmark indices to deliver double-digit returns over a three-year timeline. He pointed out that index heavyweights—including established technology services providers, large-cap consumer staples companies, oil and gas conglomerates, and major legacy banking institutions—are increasingly encountering structural slowdowns, single-digit volume expansion, and heightened domestic competition.

In contrast, the strategy deliberately focuses on high-growth areas including capital goods, industrial machinery, energy infrastructure, consumer discretionary platforms, and emerging financial institutions. While traditional large-cap names contend with margin pressures and market share losses that cap top-line growth, selected mid, small, and micro-cap businesses benefit directly from domestic capital expenditure, supply chain diversification, and targeted policy incentives. By maintaining a disciplined portfolio of fifteen to twenty high-conviction ideas per capitalization segment and eliminating underperforming tail holdings, the fund is mathematically structured to target an underlying earnings growth rate of approximately twenty-five percent. Even after accounting for potential analytical adjustments, this high-conviction framework aims to deliver superior high-teen compounding performance for unit holders.

Industrial Capex Expansion, Power Demands, and Structural Emerging Winners

Addressing queries about the sustainability of capital goods and power sector themes, Mr. Madanagopal Ramu explained that global capital expenditure driven by artificial intelligence infrastructure, energy transition imperatives, and regional supply chain localization has created multi-year capacity constraints. Advanced technology models require substantial electrical power input, which has led global equipment manufacturers to build multi-year order backlogs across power generation, transmission, and distribution channels.

As global supply chains continue to diversify and domestic manufacturing capacity expands under policy support, Indian power equipment manufacturers and component suppliers are experiencing significant order inflows from both domestic grid modernization and international markets. Mr. Madanagopal Ramu emphasized that this industrial capex cycle is structurally different from historical short-term cycles, offering strong revenue visibility over the next three to four years.

Furthermore, emerging business models across niche segments—such as specialized electronics manufacturing, electric vehicle supply chains, solar cell production, and private healthcare networks—are scaling rapidly while maintaining robust balance sheets. Unlike previous economic cycles where manufacturing growth was localized or constrained by aggressive foreign dumping, current domestic structural reforms combined with global localization trends are enabling Indian enterprises to capture expanding market share.

Mr. Madanagopal Ramu noted that while mutual fund flows remain heavily weighted toward broad large-cap strategies, taking non-consensus allocations toward manufacturing and consumer discretionary themes provides the foundational engine for absolute return generation. By combining focused stock selection, tax-efficient mutual fund mechanics, flexible derivative management, and strict avoidance of growth traps, the fund aims to capture the full upside of India's ongoing multi-year economic transformation.

Mr. Madanagopal 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.