March 31, 2017
Synopsis ➢ Investment Outlook ➢ Investment Philosophy ➢ Valuation Fundamentals ➢ Performance ➢ Portfolio Strategies ➢ Quest Foundation ➢ Stock Picking – Case Studies 2
Investment Outlook 3
Victory in UP – India’s chance of 7 years of stability Resounding Victory in UP leading to political stability Development, social inclusion and probably ‘ Hindutava ’ have delivered Uttar Pradesh ➢ and in all likelihood will deliver general elections as well to Narendra Modi in 2019 PM Modi’s ratings continues to be very high even after almost 3 years in government ➢ Macro-economic stability Significant improvement in macro economic variables due to lower crude prices and ➢ path breaking government initiatives ▪ Current account & fiscal deficit in control; inflation & interest rates in single digits Rupee, a barometer of economy, has proven to be one of the most stable EM currencies ➢ GST on track for implementation from July 1 st , 2017 ➢ Mr Modi is expected to pursue his well thought out policies with greater vigor and start planning for his second term and India of 2025 Modi’s inclusive India stands for Governance and Development 4
India – Transitioning to a better future Changes being brought about is best described by the following excerpt from one of ➢ PM Modi’s recent speeches “ We are bringing a shift from relationship-based governance to system-based governance, from discretionary administration to policy-based administration, from random interference to technological intervention, from favouritism to level playing field, from informal economy to formal economy ” Changes often are imperceptible, specially if one is part of the change, and become ➢ more visible only in retrospect! India indeed is changing and markets are beginning to recognize the same ➢ More Indians are participating in the India equity story ➢ Clear shift in savings towards financial instruments - away from physical assets ▪ Domestic inflows are now indeed matching and overtaking the FII flows and this ▪ trend is expected to continue India of 2020 and beyond likely to be far more prosperous and happy ➢ It will not be a surprise if history talks of a pre Modi and a post Modi era a few decades down the line! Modi’s inclusive India stands for Governance and Development 5
Emerging challenges for the markets Global Headwinds Rise of nationalists / populists in developed countries and the risk of ‘protectionism’ ➢ Continued political uncertainty in Eurozone (impending elections in Germany and ➢ France) and Brexit related pain in UK Local Risks Weak monsoon as El-Nino seems to be raising its ugly head third time in 4 years ➢ Implementation of GST can be disruptive in the short term ➢ Growing risk of disruption Pace of innovation has increased manifold in the last couple of decades – Moore’s Law ➢ Impact of new developments / technologies such as digitization, internet of things, ➢ biotechnology, artificial intelligence etc. can be very profound and unpredictable Ability to successfully navigate through these risks (and indeed opportunities) will be crucial in delivering superior returns in the coming years Modi’s inclusive India stands for Governance and Development 6
Investment Philosophy 7
Why Quest Our Passion to identify tomorrow's blue chip yesterday ➢ Quest’s out performance is due to consistently investing in growth oriented quality ➢ stocks at a reasonable price Avoid wasting time on understanding global macros – The Lesson of Oil ➢ Like governance - investing is a long term process ➢ Our Investment Strategy Identify under researched mid-cap company whose intrinsic value is yet to be ➢ discovered by the market Look for fundamentally sound companies that are coming out of slow growth phase ➢ vs their long period averages and are moving into much higher growth trajectory Construct a reasonably concentrated portfolio and nurture the investment as a ➢ private equity investor over 3 to 5 years Remain invested though company’s journey from being a mid cap to a large mid -cap ➢ - gaining from earnings growth, P/E expansion and price discovery Modi’s inclusive India stands for Governance and Development 8
Our Investment Philosophy • Macro economic factors, technology, commodity prices, Investment Universe market movements • Forecasting these is not our strength • Sound businesses backed by management with honesty and Focus List integrity with respect to minority shareholders • Sound businesses backed by management Portfolio with honesty and integrity with respect to minority shareholders that are available at discount to their intrinsic value Modi’s inclusive India stands for Governance and Development 9
Few Quotes which describe our Philosophy ➢ Herd-like stock selection can only lead to herd-like performance. To get to the top of the performance distribution you have to escape the crowd – Howard Marks ➢ Keep all your eggs in one basket, but watch that basket closely. ― Warren Buffett ➢ Our portfolios are set up to outperform in bad times, and that's when we think our performance is essential. Clearly, if we can keep up in good times and outperform in bad times, we will have above average results over full cycles and below average volatility, and our clients will enjoy outperformance when others are suffering. – Howard Marks ➢ In stocks as in romance, ease of divorce is not a sound basis for commitment. If you have chosen wisely to begin with, you won’t want a divorce. – Peter Lynch ➢ A concentrated portfolio of strong and predictable companies acquired at a price that makes sense will do the job. - Charles T. Munger ➢ You learn quickly in this business that you are not going to look smart all the time, which invariably brings criticism. We always remind ourselves of a quote “I had rather lose clients then lose clients’ money” – David Samara Modi’s inclusive India stands for Governance and Development 10
Valuation Fundamentals 11
QuestPMS Valuation Fundamentals Current Index - PEs Nifty Full SENSEX NIFTY 50 Nifty-Midcap50 Small100 Index Value 29620 9173 4383 6984 PE as reported by 22.6 23.3 49.7 63.3 exchange (TTM basis) QuestPMS portfolio companies’ revenues are QUESTPMS Companies – Composite PE expected to grow at CAGR of ~11%, however, due to margin expansion, projected earnings are FY-2017E 22.0 expected to grow at a substantially higher ~30% FY-2018E 17.2 CAGR over the next 3 years (FY16-19) FY-2019E 13.3 Estimated weighted average CAGR QuestPMS portfolio’s weighted average price- growth earnings multiple is 17.2 times FY18 and 13.3 for 3 years till FY19 times FY19 earnings Revenue 11% (Source: Quest Internal Research) EPS 30% QuestPMS portfolio is trading at reasonable valuations providing margin of safety & giving us confidence in its ability to outperform in future as well Modi’s inclusive India stands for Governance and Development 12
Performance 13
Quest PMS Performance as on Mar 31, 2017 - XIRR XIRR Performance % Period Nifty BSE Nifty Nifty BSE Portfolio Sensex Midcap Small Small 50 Midcap 50 Cap 100 3 Months 20.8 11.2 12.1 17.2 19.7 19.8 20.8 6 Months 14.3 6.3 6.5 7.1 10.7 12.9 13.8 1 Year 47.7 16.9 18.5 32.7 37.0 36.9 43.0 2 Years 26.3 2.9 3.9 15.4 14.0 15.1 11.5 3 Years 34.8 9.8 11.0 25.8 21.2 26.8 23.7 5 Years 26.8 11.2 11.6 17.3 13.8 16.8 15.6 The Above returns are of a Model Client as on Mar 31, 2017. Returns shown above are post fees & expenses. • Returns of individual clients may differ depending on time of entry in the Strategy. Returns above 1 year are CAGR • Past performance may or may not be sustained in future and should not be used as a basis for comparison with • other investments. Consistent outperformance across benchmarks and time periods 14
Quest PMS Performance as on Mar 31, 2017 - Absolute XIRR Performance % Period Nifty BSE Nifty Nifty BSE Portfolio Sensex Midcap Small Small 50 Midcap 50 Cap 100 3 Months 20.8 11.2 12.1 17.2 19.7 19.8 20.8 6 Months 14.3 6.3 6.5 7.1 10.7 12.9 13.8 1 Year 47.6 16.8 18.5 32.6 36.8 36.8 42.9 2 Years 59.5 5.9 8.0 33.1 29.9 32.5 24.2 3 Years 144.8 32.3 36.8 99.0 77.8 104.1 89.1 5 Years 228.3 70.2 73.2 122.1 90.5 117.7 106.3 The Above returns are of a Model Client as on Mar 31, 2017. Returns shown above are post fees & expenses. • Returns of individual clients may differ depending on time of entry in the Strategy. • Past performance may or may not be sustained in future and should not be used as a basis for comparison with • other investments. Consistent outperformance across benchmarks and time periods 15
Quest PMS Performance as on Mar 31, 2017 350 328.3 Growth of Rs. 100 Lacs Invested in QuestPMS 300 v/s Investments into various indices (In Last 5 years) 250 222.1 217.7 206.3 190.5 200 173.2 170.2 150 100 QUEST Sensex Nifty BSE Midcap Nifty BSE Nifty PMS 50 Midcap 50 Small Cap Small 100 The Above returns are of a Model Client as on Mar 31, 2017. Returns shown above are post fees & expenses. • Returns of individual clients may differ depending on time of entry in the Strategy. • Past performance may or may not be sustained in future and should not be used as a basis for comparison with • other investments. Consistent outperformance across benchmarks and time periods 16
Quest Foundation 17
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