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?

Ms. 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?

Ms. 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.