DEBT

High Yield Strategy Debt

Objective

The High Yield Strategy (PMS) focuses on fixed income investment opportunities in domestic capital markets with an endeavour to generate pre-tax returns of 5% p.a. over the rate of core inflation. The objective is to consistently generate superior compounded annual returns than conventional debt instruments with uncompromising emphasis on capital preservation.

Investment Strategy & Approach

The principal investment strategy is to diligently find high yield debt opportunities in Alternative NBFCs with good fundamentals and proven track record across economic cycles. Meticulous evaluation would be done by our in-house team with external ratings used only as a starting point. Typically, majority of the corpus would be invested in such fixed income investments with a weighted average tenor of 3 years or below. The balance part would be opportunistically invested in select structured corporate credit, hybrid INVITs / REITs, corporate event arbitrage and mean reversion directional calls emerging from the listed equities segment to enhance the overall returns.

Alternative NBFCs - Over the last 15 years, new breed of NBFCs have emerged that adopt alternative ways to offer financing to those households and enterprises traditionally excluded or under-served by banks and large NBFCs. These companies have embraced agile digital enabled methodologies in sourcing, credit evaluation as well as collections making their businesses scalable and commercially viable. They are also the first alternative and cheapest source of funds from the organized sector for these borrower segments who were earlier depended on local high-cost moneylenders. By delivering the last mile credit, these institutions are ensuring unorganized to organized transition and democratization of credit access in India. There are about 9700+ licensed NBFCs in India and only 260+ have credit ratings. About 200+ of them can be classified as Alternative NBFCs.

Event Arbitrage Opportunities - Emerges from corporate events like mergers, acquisitions, buybacks, regulation triggered / voluntary open offers made to the public by controlling shareholders, company delisting, declaration of special dividends etc. The risk-return pay-off in most of such deals is deal-specific and has limited correlation to market cycles.

Select Directional Calls - Long-only opportunistic position on a highly selective basis in listed equities, leveraging our access to the in-depth research repository from our equity strategies.

Hybrids (REIT’s & INVIT’s) - These special purpose vehicles downstream income from several high-quality infrastructure and real estate assets across India. There is a dual opportunity of spread trade as well as higher carry yield in these hybrid instruments as compared to conventional debt deals.

Investment Risks

As is the case with any debt investments, our portfolio is also subject to credit, liquidity, and price risks. Maintaining low duration (sub 3 years), amortisation structures to ensure periodical liquidity, portfolio diversification by having specified concentration limits and regular monitoring of the investee companies to detect early warning signals are some of the risk mitigation measures undertaken to manage the diverse types of risks facing the strategy.

Portfolio Structure

The portfolio is likely to have around 10-12 debt investments in the form of NCDs, MLDs, CPs, liquid funds etc., besides 3-5 equity or hybrid investments in the nature of arbitrage, directional calls, INVITS and REITs. The assets will always remain in the investor's name with a SEBI registered custodian.

Benchmark

The portfolio will be benchmarked with the performance of CRISIL Composite Credit Risk Index.