APJ 20 Fund

Objective

The Fund seeks to achieve superior absolute returns with below-average risk over a horizon of 5 years. The thematic approach focuses on sectors that will benefit from the next stage of India’s growth on the back of improvement in India’s economic and policy climate. APJ 20 invests in firms that have evolved and are in a ripe position to benefit from such growth prospects.

Investment Approach

We believe that select participants in industries such as (a) agriculture, (b) speciality chemicals, (c) mining, (d) hi tech manufacturing and (e) infrastructure will see a new wave of growth over the next 5 years and will be a direct beneficiary of India’s macro policy initiatives as well as inherent demographic strengths it has built over a period of time.

Over the years, each of the target sectors has built a niche set competencies that have bordered on being disruptive. This has translated to them enjoying a quasi-oligopolistic status in their industry. However, these developments in absolute terms are at a small number. The evolution of the end user industry is such that, this base is poised to experience high growth and operating advantage over the next few years. In other words, each of these firms, have a high inbuilt option to participate in a disproportionate pay off. Our endeavour is to participate with concentrated positions across sectors that will be a direct or proxy beneficiary of the growth in the specified industries. While our study of the opportunities reveals the underlying and obvious risks that could play out in future, we believe the risk reward equation is favourable to an equity investor at current valuations considering the next 5 years’ potential growth. 

Universe

The Fund’s primary source of investment ideas will come from firms within industries that are a proxy to the following industries: (a) agriculture, (b) speciality chemicals, (c) mining, (d) hi tech manufacturing and (e) infrastructure. The investee companies would necessarily be one that has built a niche for itself over the years and is set to leverage on the same to deliver a pace of return that is disproportionate on the upside, in the coming years.

 

Investment risks

 

The key risk is a sustained under performance in all or select components of the Indian economy which will then automatically slow down the pace of growth of our investment universe as well. Also, risks may emanate from adverse policy climate or regulations that may affect the operations of the industry as such. In addition, the micro level risks include:

 

  • Inability to grow revenues in sync with expectations previously communicated and thought reasonable
  • Change in the macro industry structure due to which margins may come under cloud
  • Wrong full capital allocation across capital expenditure or  expensive acquisitions
  • Change in business strategy/management behaviour that are at odds with prior communication
  • Governance issues

 

Portfolio Structure 

The portfolio is likely to have around 15-20 stocks in the PMS platform. The investor's assets will always remain in the investor's name with a SEBI registered custodian. While tracking and monitoring of investments will be active, there’s likely to be low turnover in the fund.

Benchmark: S&P BSE Midcap