Investment Philosophy
Our investment philosophy has been shaped by the learnings from our group’s 23 years of successful investment practice across several economic and market cycles.
Active, bottom-up, consensus agnostic
We are an active bottom-up fund manager focusing on opportunities across sectors and market caps. We collate the investible universe by meticulously tracking top-down macros, sector tailwinds, corporate actions, promoter trades, and specific fundamental filters. Stock selection, however, hinges entirely on our in-house bottom-up assessment of the respective companies. This ownership of conviction gives us the tenacity to stay the course until the investment objective is met, remaining unaffected by interim market movements or consensus opinion.
Pursuit of growth with value
We believe capital-efficient earnings growth is the key determinant of long-term market valuations. Accordingly, we strive to identify and invest in businesses that deliver or have the potential to deliver consistent earnings growth and superior returns to shareholders. We lay utmost emphasis on our entry valuations and ensure that they are sensible in relation to the intrinsic value of the business.
For us, buying a good business at a fair or bargain price is equally important as identifying a good business in the first place.
Objective assessment and continuous monitoring
We evaluate companies using our proprietary ‘FIRM’ scorecard with the intent to build our perception objectively without any personal biases. The scorecard is broadly divided into four key segments:
- Financial performance & cash flow analysis
- Intellectual bandwidth and governance record of the management
- Return on equity & capital employed across cycles
- Moats and longevity of the underlying business and earnings growth
The companies must obtain a specified threshold score in each segment and also reach a cut-off score on aggregate terms to make it to our green list. In addition to findings from our primary research, we consider industry reports, credit ratings, audit opinions, peer commentary, domain expert feedback, etc, to ensure that scorecard inputs are comprehensive. Integrity is a non-negotiable factor, and companies with dubious track records are totally avoided, irrespective of their scores. We also conduct extensive post-investment monitoring and periodic testing of our underlying hypothesis. We strive to be learning machines and constantly enhance our understanding of the businesses in which we invest.
Disciplined portfolio construction and management
We believe that consistent outperformance is a function of:
- Identifying fundamentally sound business
- Buy discipline of not overpaying
- Responsible portfolio diversification to navigate economic / business cycles
- Sell discipline on achieving objective/thesis change.
Accordingly, disciplined portfolio construction and management that are aligned with fund objectives are critical to achieving desired outcomes on a sustainable basis. We ensure that the portfolio is reasonably diversified without diluting the return potential and also avoid too much sector concentration, which is a double-edged sword. We typically think mid to long-term while constructing the portfolio but won’t hesitate to course-correct if our fundamental thesis changes structurally.
Debt Investments – Applying the equity litmus test
Capital markets present several debt and hybrid investment opportunities, which we believe can deliver meaningful real returns adjusted for inflation. We prefer short to mid-term accrual-based hold-to-maturity deals rather than aggressive duration calls linked to global and domestic macros. In addition to traditional credit ratings and security-based selection, we reckon that the greatest reassurance for a debt investment stems from the attractiveness of its equity proposition. Accordingly, we conduct comprehensive due diligence on the underlying business and people like we would do in an equity investment. Capital preservation is assigned utmost priority and hence diversification and rigorous risk management form an integral part of our debt practice.
V N Saravanan
Chief Investment Officer
Hear about our ethos from our Founder- Sarath Reddy, Chairman – Unifi AMC Board
Under the hood, India’s multifaceted economy is rarely firing on all cylinders. Its smooth and rapid macro GDP growth is an aggregate of a highly divergent and volatile micro-economy.
We illustrate how we invest in this great micro-economic flux in…