Transcript
Fund Manager Interview:
Sonam Srivastava's take on FY25, Market Outlook & quant investing in India
Ms. Akshara Menon: Hi, this is Ms. Akshara Menon from PMS Bazar.
Welcome to our exclusive Fund Manager interview series. Today, I have Ms. Sonam
Srivastava with us, the CEO and founder of Wright Research. Hello, ma'am!
Ms. Sonam Srivastava: Hello!
Ms. Akshara Menon: Let’s dive into our first question. You've
recently started a new financial year. How would you sum up FY 2024?
Ms. Sonam Srivastava: I think FY 2024 has been an amazing year for
everyone. The strategies we've implemented have had a spectacular run. Our
Portfolio Management Service (PMS) is only eight months old, and launching it
this year was timely. It performed well, and many strategies outside of PMS
delivered high returns. Overall, it’s been insightful and interesting, with
small caps outperforming and then a shift towards larger caps and quality
stocks as the year progressed.
Ms. Akshara Menon: Looking ahead to FY 2025, it seems like it will be
an eventful year with elections and interest rate hikes. What’s your outlook
for the upcoming year?
Ms. Sonam Srivastava: Absolutely, it will be an interesting year.
Historically, markets have trended before and after elections, but outcomes can
be unpredictable. Rate cuts will significantly impact the economy, but these
cuts are being delayed. We also need to keep an eye on valuations, earnings,
and geopolitical tensions. While the outlook for India remains positive, we
must remain cautious due to various upcoming factors.
Ms. Akshara Menon: What kind of strategies do you believe will work
for investors in this scenario?
Ms. Sonam Srivastava: A healthy mix of strategies is essential. In a
growing economy like India, momentum strategies work well. However, it’s
crucial to understand a company’s actual valuations, quality, consistency in
profitability, and market reception. So, we need to focus on fundamentals while
picking stocks.
Ms. Akshara Menon: Can you explain the three strategies you
mentioned: Alpha, Factor Fund, and Factor Hedge? How are they different, and
who are the ideal investors for each?
Ms. Sonam Srivastava: Sure! Our most talked-about strategy is the Factor
Fund, which follows a momentum strategy. The Factor Hedge is also
momentum-based but focuses on hedging, offering stable returns in volatile
markets. Alpha is a high-risk, concentrated strategy involving only ten stocks,
aiming for sharp returns but also carrying more volatility.
- Factor Strategy: Moderate risk, suitable for those with a moderate risk horizon.
- Factor Hedge: Moderate risk, purely momentum-based; investors should understand
its price-following nature.
- Alpha Strategy: High risk, ideal for clients seeking higher returns, typically
involving a split allocation across these strategies.
Ms. Akshara Menon: How does the Alpha strategy work in a downturn?
Ms. Sonam Srivastava: During market downturns, there can be aversion to
momentum stocks, which might affect performance. However, we’ve noticed that
once the market picks up, these stocks tend to climb the fastest.
Ms. Akshara Menon: How have you customized allocations for clients?
Ms. Sonam Srivastava: We tailor allocations based on the client’s risk
profile. For instance, a client seeking moderate to high-risk exposure might
allocate 80% to the Factor Fund and 20% to Alpha to experience high-risk
investing while taking advantage of long-term returns.
Ms. Akshara Menon: Quant strategies have become popular in recent
years. What do you think has caused this growth, especially considering that
you’ve been in this space for some time?
Ms. Sonam Srivastava: Quant strategies have been in India, albeit on a
smaller scale. I’ve worked in this space for about ten years, and while
awareness was initially low, it's gradually increasing. In tech-centric cities
like Bangalore, people are more data-savvy and understand technology, which
makes them more receptive to Quant strategies. As more people grasp our
philosophy and methodology, I believe the interest and adoption of Quant
strategies will only grow.
Ms. Akshara Menon : What are your thoughts on the impact of short-term
corrections in the market on long-term investments?
Sonam Srivastava: I
think not every fund is similar. Some investors may have a contrarian strategy
and hold stocks for the long term even during corrections. However, we've
observed that some individuals have very strict stop losses, which can lead to
a significant sell-off during corrections. While we do buy and sell stocks, we
are focused on generating long-term profits. Wealth creation comes from holding
stocks over time, and a lot of churning doesn't help in achieving that.
Ms. Akshara Menon: You mentioned considering alternative data in investment
decisions. What does that entail?
Sonam Srivastava: This
is a fascinating topic! If you rely solely on financial data, remember that
it’s reported quarterly and doesn’t reflect a company’s current potential.
You'll notice stock prices often move ahead of good results. To capture these
movements, we need insights into what companies are doing in real-time. Metrics
such as market activity or spikes in e-commerce traffic can provide signals not
captured in traditional data. With advancements in AI, analyzing this data has
become much easier.
Ms. Akshara Menon: How do you differentiate your approach in the market from
other investment strategies?
Ms. Sonam Srivastava: Each
strategy has its unique flavor, even within the same category like momentum or
value investing. Our approach is comprehensive, focusing on various factors and
strong risk management. We have checks and balances in our strategy, and we are
constantly improving it. Our system has proven to be reliable over the past
five years, which is a significant advantage we offer to our clients.
Ms. Akshara Menon: Given the reliance on AI, do you think investors have trust
issues because you don't meet companies daily like traditional equity fund
managers?
Ms. Sonam Srivastava: Trust
hinges on data quality. If you don't have high-quality data, your system won't
function effectively. While there is a reliance on AI, there is still human
intervention in understanding stock valuations and formulating the signals we
use. We work hard to build our models, ensuring they are robust and can operate
independently once they are well-structured.
Ms. Akshara Menon: You enrolled in WorldQuant University in 2016. What was
that experience like for you?
Ms. Sonam Srivastava: I had
been working in the core investment space for about six or seven years when I
started the program. It was a structured course that refreshed my learning,
with weekly assignments that were often practical. The interaction with
instructors and the course content covered not just core concepts but also
market factors, AI, and machine learning algorithms. It helped me structure my
knowledge effectively. There’s a growing demand in India for similar programs,
and I believe we need to promote investment education further.
Ms. Akshara Menon: With your busy schedule, how do you manage to find time for
everything?
Ms. Sonam Srivastava: It
does get hectic, but I have a fantastic team. I rely on them to manage tasks
when I'm unavailable, allowing us to focus on research and strategy. We utilize
AI for content generation and to assist in meetings. AI tools summarize meeting
discussions, which simplifies my workload significantly. I’m excited about the
advancements in AI tools that could replicate interviews like this one in the
future!
Ms. Akshara Menon: Thank you mam, thank you for your time.
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