4 investment trends for next 5-10 yrs: Fund manager

“On a bottom-up basis, we run screeners based on operating cash flows, balance sheet strengths and latent capacity in companies,” says Aniruddha Naha, CIO, Alternatives, PGIM India AMC.

In an interview with ETMarkets, Naha who has over 22 years of industry experience in the equity and debt market and manages Rs 225 cr in AUM, said: “The philosophy is to buy good businesses with a consistent track record of cash flow and balance sheet at reasonable valuation,” Edited excerpts:

Please take us through your investment philosophy.

Aniruddha Naha: Our philosophy stems from clearly defining ‘what we will not do’ in the investment process.


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Other than exceptional cases, we avoid IPOs and companies with inconsistent operating cashflows.

The philosophy is to buy good businesses with a consistent track record of cash flow and balance sheet at reasonable valuation.

Our focus is on:

• Historical strong cashflow generation

• Clean balance sheets

• Promoter/management’s interests aligned to minority shareholders

What is your stock-picking strategy?

Aniruddha Naha: Given the positive outlook on the Indian economy, we have identified four trends that will pan out over the next 5 years to 10 years. These trends happen to be:

• Private sector capex & operating leverage

• Discretionary consumption & Healthcare

• Financialisation of savings

• Digitization & technology adoption

All business that we invest in will fall in one of the above categories. On a bottom-up basis, we run screeners based on operating cashflows, balance sheet strengths and latent capacity in companies.

Finally, shortlisted companies are evaluated based on valuation parameters to arrive at businesses where we go ahead and invest.

How do you manage risk?

Aniruddha Naha: The biggest risk in investing is the mortality of the business where one has invested. The focus on historical cashflows and clean balance sheets ensures that there is vintage in the business and has seen down cycles to sustain business cycles.

The alignment of promoter’s interest to minority shareholders ensures that the interest of the latter is taken care of. Once, mortality risk is taken care of, risks like liquidity, etc. are taken care of through diversification in the portfolios.

Do you think the next multibaggers could come from manufacturing thanks to Make in India push by the govt?

Aniruddha Naha: Returns are a combination of good earnings growth in the future and the chance of a PE re-rating, when the stock is bought at a right price.

Usually, the eventual multibaggers are good businesses, which probably are going through a down cycle, and hence both earnings and valuations are compressed.

As the cycle plays out, an up-cycle in earnings, along with a PE rerating, leads to outsized returns. Miltibaggers could come from any sector as long as the above conditions are met.

What are the other sectoral themes that you are positive on?

Aniruddha Naha: We are positive on –

• Private sector capex & operating leverage

• Discretionary consumption & healthcare

• Financialisation of savings

• Digitization & technology adoption

How do you see earnings of India Inc. in the next 2-3 year period?

Aniruddha Naha: In the near term, earnings will be subdued as top line growth is going to remain flattish while margins could see some pressure.

Over the next 2-3 years, we believe earnings across sectors should be reasonably strong and one can expect 15-16% earnings CAGR.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)

Roy Walsh

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