With crores of Indians hooked to their screens to watch ICC Cricket World Cup matches, we reached out to smallcase managers to find parallels between the two worlds of sports and investing.
Edited excerpts from a chat with Arvind Kothari, smallcase manager & Founder of Niveshaay:
An ideal mix for a great World Cup team is an all-rounder, bowler, batsman as well as a great fielder. What should be one’s preference in terms of asset allocation while selecting for their portfolio?
In cricket, the top order has to play fearlessly to maximise the field restriction in power-play despite being most prone to the risk of swinging the ball. Middle order has different roles of anchor or aggressor depending on the state of the game. An experienced middle order always provides the necessary balance to the team.
You also need bowlers who can disrupt the opposition with upfront wickets and simultaneously restrict or defend the run flow in the final overs.
“No single strategy fits all”. An ideal team is the one with not just specialist batsman, bowlers or all-rounders but also has some x-factor in them to outperform. You need both Virat Kohli, someone who can perform consistently in every condition and Ravindra Jadeja, someone who provides that balance and stability. Beyond this, you also need players like Mohammed Shami and Shubman Gill who provides that X-factor and take down any opposition with their sheer talent and skills. Niveshaay’s core focus is on small and mid-cap companies which have features of not just specialist or all-rounder in themselves but also have some x-factor in them to outperform the market.
Technological innovation influences all sectors and fields. Today, in cricket we see Stump bails with LED lights, LBW decisions with smart tech innovations etc. Similarly the investing world has seen a lot of changes and improvements over the years and especially since COVID. What do you think is one tech innovation that has benefitted your business?
“Evolution is inevitable”. If you look how over the years businesses have evolved due to constantly performing in a dynamic environment along with rapid developments in technology, it is no surprise that capital markets have also evolved over the years. Smallcase is playing a big role in DIY investing. Now many investors are taking their investing in their hands. It is a game changer for India’s retail investors. It has transformed how we connect with our investors and deliver our services. Now, investors can initiate investments directly in their demat accounts and seamlessly execute suggested changes with just a few simple steps. This has allowed us to place greater emphasis on research and provide investors with a hassle-free means of managing their investments. In turn, this has enabled us to reach a broader audience and deliver our services more efficiently.
Just like pitch conditions that keep varying, we see volatility in the market conditions all the time. What do you think should be an ideal strategy to counter the market volatility?
Cricket always demands players to be adaptable to different oppositions, in different conditions and across formats. Similarly volatility, uncertainty, disruptions, crisis, shocks are inherent part of the capital market; asset allocation shall be made in manner to adapt to such changing dynamics. Ideal strategy is to consider both past performance and pedigree of a player while building a team. Past performance brings experience which helps fare difficult times and pedigree of a player helps deliver performance when opportunity knocks the door. Our portfolio consists of companies who can deal with pressure of high interest rates, rising inflation, geopolitical tensions, supply chain disruption but still have the ability to change the overall outcome.
In cricket we have scenario’s like KL Rahul 97 vs Australia would be valued more over Rohit’s century against Afghanistan. Similarly, an investment strategy’s higher returns in the bull market would be valued more than them performing well during a bearish market! What would be your take on such scenarios? Would generating alpha twice in 6-8 years be valued more over constant return? How would you value a performance and what would be its significance?
Sometimes the amount of runs a player scores may not particularly look impressive, but their impact on the match could be understood in hindsight. Suresh Raina played crucial knocks against the then defending champions Australia and arch-rivals Pakistan in 2011 World-cup guiding the team to the final. We always debate whether Gautam Gambhir’s knock of 97 was bigger than MS Dhoni’s knock of 91 but what goes unnoticed is the opening bowling spell Zaheer Khan which set the tone for the finale. It’s common for investors to place a higher value on an investment strategy that delivers higher returns in a bull market compared to how it performs in a bearish market. However, it’s important to note that a strategy that excels in a bull market may also carry higher risk and may suffer more significant losses in a bearish market. Ultimately, the ideal investment strategy should be aligned with your financial objectives, time horizon, and risk tolerance. In summary, whether generating alpha sporadically over 6-8 years is valued more than constant returns depends on unique financial situations and preferences. It’s crucial to have a well-defined investment strategy, align your portfolio with your financial goals, and consider both the risk and reward associated with pursuing alpha.
How corporate governance, ESG parameters and stability in board amplifies the fitness of a firm and assures its performance in the market and helps upliftment of investors’ portfolio?
The fitness cult was started by Virat Kohli post 2014 and the fruits of those practices are yielding today. The energy, performance and fitness level is incomparable. One thing which we keep hearing from Indian players in this World Cup is about how everyone is encouraging and enjoying each other’s success and healthy team environment which is in-turn uplifting the overall performance of the team.
Similarly, along with the rewards, the risks involved with small and mid-cap companies are high, leaving no room for error. Even a small management error can spell doom. At Niveshaay, we go on regular scuttlebutt, keep meeting the management of varied business interests to understand different businesses at the micro-level. A sound corporate governance and stable board will ensure ESG compliance and assure proper asset allocation which will eventually yield profits. Hence, corporate governance, ESG parameters, and a stable board play crucial roles in enhancing the performance in the market, and contributing to the upliftment of investors’ portfolios.