Gallop ahead with India Opportunity Portfolio February 2020
1 About the strategy India Opportunity Portfolio (IOP) is a small and mid cap oriented strategy Invest in emerging businesses having growth potential with economic moat Aims to identify the next leaders in respective segments to create long term wealth Key sector allocation is to Banks, Capital Markets, Consumer-oriented businesses, Pharma and Healthcare Services Investment Manager Motilal Oswal AMC is the pioneer of PMS business in India with over 16 years of track record One of the co-founders, Mr. Raamdeo Agrawal is one of the most honored and trusted names in the investing world It has a unique positioning of being “Equity only AMC” with defined “Investment Philosophy” Trusted by over 42,000 HNI investors and with around Rs. 17,000 Crs of assets as on 31st January 2020 High quality concentrated portfolio of 21 stocks Index agnostic: ~91% away from benchmark Nifty Smallcap 100
2 Mini (1,465) 4% (102) -32% (3) Mid 11% Mini From Mid Mega Mega To (32) (66) (2) 46% (9) 27% 61% (25) 24% (89) 9% 68% (3) Mega bouquet held (88) -32% (3) Investing is probabilistic, there will always be one or two calls that go wrong: one must look at the overall portfolio or One must look to understand and improve probabilities of success as a stock picker by applying appropriate quality (Q), (1,841) growth (G) and longevity (L) filters. It is estimated that if investors invest for 5 years in midcaps and the higher market cap ranges of small caps, they can make outsized returns Disclaimer: The statements made herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. The above information should not be used for development or implementation of an investment strategy. It should not be construed as investment advice to any party. -19% 33% (24) 11% (71) 38% (64) 0% 9% (88) -13% (26) 76% Mega Mini, Mid, Mega crossovers - 2000-05, 2005-10, 2010-15 Mini Total stocks 1,908 200 100 Mini Mid To 158% (1) 55% (17) Market return: 10% 2010-15: Median return CAGR 200 Note: Figures In brackets indicate number of companies 2000-05: Median return CAGR Market return: 5% Total stocks 1,098 100 100 2005-10: Median return CAGR Market return: 22% Total stocks 1,492 200 21% (59) Mid high as ~50% Mega Mega Mid and Small Caps – Large Wealth Creators For any given 5 year period, maximum wealth is created when a small cap company becomes mid/ large cap and a mid cap company becomes a large cap If one invests in midcaps, the probability that a midcap will remain or become large cap in 5 years and reward investors, is as In any 5 year cycle when this plays out, there are 2-3 terrible years and 2-3 great years. 2000-2003 were very bad followed by From 2004-05, 2005-07 were great followed by 2008-09, 2010-13 were terrible followed by 2014-15 To Mini Mid Mini From Mid (13) 57% (58) 21% (90) -4% (28) 19% (1,039) -3% (93) -40% Source: Motilal Oswal Wealth Creation Studies. Past performance may or may not be sustained in future.
3 Institutional and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. The above information should not be Disclaimer: The statements made herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known Ownership pattern as disclosed by index constituent companies to the NSE as on QE June 2019 Average analyst coverage is the average number of analysts covering each of the index constituents as on September 30th 2019. Source: Bloomberg early and generating higher alpha. Mid & Small Caps are hardly covered by analysts, this gives fund manager an edge in spotting good businesses 63 55 Promoter 19 26 19 Mid and Small Caps – Bigger Opportunity for Alpha 18 Retail 101 – 400 Ownership Pattern amongst Index Constituents (%) Top 100 Under Owned : Lower Institutional Holding 17 16 101 – 400 Average Analyst Coverage Top 100 Under Researched : Limited Analyst Coverage used for development or implementation of an investment strategy. It should not be construed as investment advice to any party.
4 Jan-18 Aug-18 Jul-18 Jun-18 May-18 Apr-18 Mar-18 Feb-18 130 Oct-18 120 110 100 90 80 70 60 Sep-18 Nov-18 68 Sep-19 Dec-19 Ni�y Smallcap 100 Ni�y Midcap 100 Ni�y 50 averages Nov-19 Oct-19 Aug-19 Dec-18 Jul-19 Jun-19 May-19 Apr-19 Mar-19 Feb-19 Jan-19 50 85 Mid and Small Caps – Favorable Valuations 280 Jul-15 Apr-15 Jan-15 Oct-14 Jul-14 Apr-14 Jan-14 230 Jan-16 180 130 80 Source: Nseindices.com. Data as on 31st January 2020. Past performance may or may not be sustained in future. The above graph is used for illustration purpose only and should not used for development or implementation of an investment strategy But historically, Mid cap and Small cap Indices have massively outperformed the Nifty 50 Nifty has outperformed Mid cap/ Small cap indices by 30%/47% since Dec’17 Oct-15 Apr-16 115 Jan-19 Ni�y Smallcap 100 Ni�y Midcap 100 Ni�y 50 averages Oct-19 Jul-19 Apr-19 Oct-18 Jul-16 Jul-18 Apr-18 Jan-18 Oct-17 Jul-17 Apr-17 Jan-17 Oct-16 Jan-20
5 -29 -71 107 18 Mid and Small Caps – Declines Followed by Sharp Revival 37 -8 55 7 2 57 -10 42 Ni�y Smallcap 100 Index Generally a large negative year is followed by equally large positive year. Source: Nseindices.com. Data as on 31.01.2020 Disclaimer: The statements made herein may include statements of future expectations and other forward-looking statements that are based on the current views and assumptions of the Author and may involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. The above graphs should not used for development or implementation of an investment strategy. Past performance may or may not be sustained in future. 5 7 87 -34 62 56 Ni�y Midcap 100 Index 35 29 77 -59 returns in mid and small caps. 19 -31 39 -5 99 6 7 47 -15 -4 Mid and Small caps tend to perform in extremes and revive sharply after bouts of negative returns CY18 and CY19 are the only 2 consecutive years in 15 years history to have negative D T 0 2 Y C D T 0 2 Y C
6 _ _ _ _ _ _ _ _ _ _ 1.00 _ _ _ _ _ _ _ _ _ 1.20 0.80 _ 0.52 6 Source: Nseindices.com. Data as on 31st January 2020. Past performance may or may not be sustained in future. The above graph is used for illustration purpose only and should not used for development or implementation of an investment strategy end of the range 1x. Currently the ratio is at the bottom The ratio bottoms at ~0.5x and tops at divided by Nifty 50 Ratio chart shows Nifty Smallcap 100 0.46 0.60 0.50 _ _ _ _ _ _ 0.20 0.40 _ _ Jan-04 Jul-09 Jul-13 Jan-13 Jul-12 Jan-12 Jul-11 Jan-11 Jul-10 Jan-10 Jan-09 Jul-14 Jul-08 Jan-08 Jul-07 Jan-07 Jul-06 Jan-06 Jul-05 Jan-05 Jul-04 Jan-14 Jan-15 _ _ _ _ _ _ _ _ _ _ _ Jul-15 Oct-19 Jul-19 Jan-19 Jul-18 Jan-18 Jul-17 Jan-17 Jul-16 Jan-16 Small Caps – Favorable Valuations
Buy Right investors and believe that picking the right 7 and adding market risk results in diluting returns for our investors diversification but over-diversification ideal number. We believe in adequate portfolios with 20 to 25 stocks being our Focus: Our portfolios are high conviction more skill. from the entire growth cycle needs even businesses to enable our investors to benefit business needs skill and holding onto these Buy and Hold: We are strictly buy and hold Sit Tight buying a fair business for a good price good business for a fair price rather than ‘P’rice denotes our approach of buying a the business competitive advantage or economic moat of ‘L’ongevity denotes longevity of the sustained RoE ‘G’rowth denotes growth in earnings and management ‘Q’uality denotes quality of the business and is centered on 'Buy Right: Sit Tight‘ principle. At Motilal Oswal Asset Management Company (MOAMC), our investment philosophy Investment Philosophy
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