CLOSED STRATEGIES

BC - AD

Objective

The investment focus of this strategy is on growth oriented companies in specific sectors which are leading the migration of market share from unorganised players to organised players. As India’s economy grows rapidly in scale and sophistication, several sectors are positioned to change dramatically over the next decade. Certain powerful trends are driving the shift in the balance of competitive advantage in favour of organised businesses.

Investment Approach

India’s economy has a high proportion of unorganised businesses which are estimated to account for about 35% of the GDP. As the economy grows in size from the current $2.6 Tn to $5 Tn over the next decade, it will traverse certain social, technology, scale, legal, taxation and regulatory changes. These changes are likely to challenge the current business models of unorganised players in certain sectors. As a result, well established organised players in such sectors will gain market share along with improving margins, potentially generating very high earnings growth. The BC-AD strategy has been structured to benefit from this imminent migration of market share from the unorganised segment to organised players. The strategy would be investing in well-established organised players who would be gaining market share from the unorganised players thus posting a higher revenue growth rate than that of their industry. The high top line growth along with the benefits of operating leverage would help them record a superior earnings trajectory over the next decade.

Universe

The Universe of Companies would be broadly selected from the following sectors:

• Building materials
• Consumer durables
• Logistics
• Personal grooming & Hygiene
• Dairy
• Retail & Jewellery
• Healthcare
• Hospitality & Entertainment
• Alternative finance
• Real Estate

These sectors are only indicative of our current thinking and it is entirely possible that as our research progresses we might look at companies beyond these sectors.

Investment Risks

The strategy would focus on companies in sectors where it expects a gradual shift in consumer demand from the unorganised players to the organised. The investment process would involve analysing multiple sectors and drawing up the list of factors which would be triggers for the migration of demand to the organised space. The key risk would be the time required for the transition to start playing out within the selected sectors. There might be stocks/sectors wherein the anticipated migration might take longer than the initially estimated time periods. Thus, it is suggested that investors take a longer time horizon view when investing in this particular theme.

Portfolio Structure

Unifi’s core competency lies in conducting deep bottom-up fundamental -oriented research to curate client portfolios. Basis our investment philosophy, our portfolio construction framework prioritizes a balanced mix of stocks across sectors based on our investment thesis and conviction, ensuring adequate diversification amongst such quality businesses. The portfolio’s concentration at any time purely reflects our sectoral or stock-specific investment thesis. While maintaining responsible diversification by limiting company/sector level exposure is an important priority, we do not have rigid allocations. When we evaluate a business, we are not biased about its market capitalization but are concerned more about the size of opportunity that the business can offer. Hence, our portfolios are generally market cap agnostic.

Our typical portfolios endeavor a good balance between diversification and concentrated exposure. We periodically review the portfolios to maintain an appropriate portfolio mix depending upon investment objective, market conditions, risk tolerance and liquidity requirement to ensure diversification.

Benchmark: S&P BSE 500 TRI