ETMarkets AIF Talk: This fund manager with over Rs 250 cr in AUM suggests these 4 filters to pick stocks

In an interview with ETMarkets, Oberoi who manages AUM of over Rs 250 cr said: “The Indian economy is doing very well. Companies focused on domestic demand are witnessing double-digit growth” Edited excerpts:

The Prudent Equity ACE Fund has been a marked outperformer since its launch in 2022. Take us through your investment philosophy.

The fund started in December 2022 and has been able to generate returns of 26% in the first 7 months of operation. Our core focus remains on the following:

• Capital Allocation – Management demonstrating prudent allocation of capital over the years.
• Margin of Safety – Buying at a significant discount to intrinsic value.
• Corporate Governance – Run by ethical management that treats minorities at par.

What are the investment criteria used by Prudent to filter stocks for investments?
Companies growing at high rates –

a) Buying at a significant discount to intrinsic value
b) Management demonstrating prudent capital allocation over the years
c) Run by ethical management that treats the minority at par
d) Highly leveraged companies, frequent equity dilution, etc are some of the traits which are avoided

What makes you so positive in banks, construction, and industrial equipment sectors?
During the covid period banks made large NPA provisions. Thereafter the economy saw a brisk recovery. Banks benefited in both ways; an economic recovery led by the reversal of past NPA provisioning.

Another positive was the increase of NIMs of banks due to the increase in interest rates at a time when the cost of funds still remained low.

The spend on infrastructure has increased massively. Within the next 1 year, capital spending of nearly ₹12 lakh crores is about to take place.

Order books of infra companies are full for many years going forward. This gives revenue visibility for the sector as well as individual companies.

Sensex near record highs. What is your call on markets?
The Indian economy is doing very well. Companies focused on domestic demand are witnessing double-digit growth. This will reflect in the financial situation of the companies going forward. We expect mid-double-digit growth in aggregate earnings over the next 1 year.

Have you made any entries or exit in the portfolio and why?
We continue to seek opportunities where the risk-to-reward is in our favour. We exited profitably from 8 positions in the first six months.

Our top five holdings though continue to remain the same and have generated returns of between 40-50% each in the first six months of the year.

Take us through your risk management practices as well?
Our investing criteria incorporate our risk management strategy. We make sure that there is adequate room to manoeuvre if the tide were to turn against us in any of our positions, just in case.

This is evident from our eleven-year experience, during which we have been successful in around 90% of our positions.

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