(Formerly known as Veda Investment Managers Pvt Ltd.) 1 Index Why - - PowerPoint PPT Presentation

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(Formerly known as Veda Investment Managers Pvt Ltd.)

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Index

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 Why Choose Valentis Advisors?  Investment Process and Philosophy  Products  Market view

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Why Valentis?

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• Client centric approach
• Easy access to founders, fund manager and analyst team
• Our skin is in the game
• The founders would invest in the same fund with you.
• Our interests are aligned with yours
• Performance fees incentivizes superior performance
• Flexible solutions
• We are happy to work with you to find customized solutions to your

investment needs.

• Strong pedigree and financial market experience
• The founder has over 30 years experience in the financial industry and has

successfully carved a niche for research based, non-consensus views.

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The Man Behind PMS

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• Mr. Jyotivardhan Jaipuria

Founder & Managing Director

• Jyoti has an overall 32 years of experience in the Indian

Capital Market including 21 years in DSP Merrill Lynch and 8 years in ICICI.

• He was Head of Research and strategist for India at Bank of

America Merrill Lynch. He helped build the research team as the leading research provider in India as well as one of the top institutional brokers in the country.

• As a strategist, he was rated amongst the top strategists in

India by leading institutional investors in India.

• Jyoti has also served as a member of the Board of Directors
• f DSP Merrill Lynch, the Asia Pacific Research Executive

Committee and Operating Committee, the India Country Leadership Team (CLT) and other management committees.

• Jyoti graduated in Commerce (B.Com) from Sydenham

College and has an MBA from the Indian Institute of Management, Ahmedabad.

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Team has over 80 years capital market experience

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• Daljeet has an overall 22 years of experience in the Indian

Capital Market including 7 years in IndiaNivesh Securities and more than 2 years in Emkay Global Financial Services Ltd.

• He was Director and Head of Research at IndiaNivesh

Securities Ltd. His experience spans across understanding of macro-economic factors and many specific sectors such as chemicals, pharmaceuticals, auto ancillaries, retail, etc.

• Daljeet's strengths lie in his ability to relate global macro-

economic situations, political and social factors to their micro impact at industrial sector or company level.

• Prior to IndiaNivesh he has been HOR at Emkay Global &

IORAM, an Australian company in its Global equity research hub in India. He has also led the Equity research teams in

• ther eminent financial services houses of India.
• Daljeet graduated in B.Sc. from Bareilly College and has an

MBA from the Institute

• f

Management Technology, Ghaziabad.

• Mr. Daljeet Singh Kohli

Fund Manager

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Team has over 80 years capital market experience

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Kalpesh Gothi, Investment Analyst

• Kalpesh has over 11 years of experience in research across various sectors.
• Prior to joining Valentis advisors, he has worked with Wallfort Financial

Services Ltd., an institutional broking firm, as equity research analyst.

• He

was tracking different sectors like Construction, Textiles, Plastics, Consumer Durables, and was responsible for generating as well as tracking small and mid cap ideas.

Educational Credentials

• Certified Financial Analyst (ICFAI)
• Advanced Diploma in Taxation, University of Mumbai

Unmesh Pawar, Manager – Operation

• Unmesh has over 13 years of experience in PMS operation.
• Prior to joining Valentis advisors, he worked with Ambit Capital Pvt Ltd and

has handled their operations in the wealth as well as PMS divisions.

Educational Credentials

• B.com from Mumbai University

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Index

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 Why Choose Valentis Advisors?  Investment Process and Philosophy  Products  Market view

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Investment Process – Macro to Micro (MTM)

8 Portfolio Construction

500-600 companies 15-20 companies 80-100 companies

Macro Approach

through  Global Indicators & Markets  Macro Economic Analysis  Industry Analysis

Bottom Up Quantitative Approach

screening for  Reasonable valuation  History of earnings growth and return ratios  Debt gearing & Free cash flows

Due Diligence

 Company management meetings  Meetings with competitors, suppliers, distributors  Porter analysis

Research & Modeling

 Detailed financial model  Analysis of management's track record

The 3 "U"s

 Valuation: PE, PB, DCF, RoE, Free Cash flow  Ownership: FII holding, MF holding  Analyst Coverage

Stock Ideas

Constant Monitoring

 monitoring growth parameters including volumes & price  valuation monitoring to ensure risk-return trade-off

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#1: What are we looking for?

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• We seek large discrepancies in risk:reward
• Stocks trade like a bell curve with a large number of stocks trading at near fair

risk:reward

• We focus on stocks at the extreme where returns can be disproportionately high for the

risk we take.

• The 3 “U”s approach

1. Undervalued: risk-reward trade off should provide margin of safety 2. Under-owned: we prefer stocks that have low FII, institutional investor interest 3. Under-performing or Undiscovered: low expectations on the stock

We are looking for stocks with asymmetrical risk reward

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#2: Research, research and more research drives our investment philosophy

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• Detailed research wins over gut feels and market sentiment
• Process driven research to eliminate market noise – blend of science and

art

• Largely scientific process. This involves, screening to identify ideas and then detailed

modelling to arrive at fair valuations.

• Bit of art involved
• We look at market sentiment and psychology
• We try to stay away from the herd.

“Buy not on optimism, but on arithmetic.” —Benjamin Graham.

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#3: What stocks do we focus on?

• We focus on stocks at earnings “inflection point”
• We are looking at companies with high operating leverage.
• This will likely kick in due to higher utilization levels as demand improves.
• We buy stocks early before they are flavor of the market
• Stocks we like have following characteristics
• Large size of market and attractive industry dynamics
• Competitive advantage of the company vs competition
• Strong Corporate governance

"Even the intelligent investor is likely to need considerable willpower to keep from following the crowd." — Benjamin Graham

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#4: Buy and hold for wealth creation

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• We believe in buying under-valued stocks and holding them for long

term partly like a Private Equity investor

• We buy unloved companies that are either out of favor or are undiscovered and

unresearched.

• We are willing to do deep research on the industry dynamics and company positioning.
• We are passionate about being “dispassionate” in our analysis.

When do we sell stocks?

• When the stocks has rallied & is no longer cheap
• Will I buy the stock at current market price?
• When the reason for buying the stocks has not materialised
• e.g. now competition come in or size of market changes.

“The big money is not in the buying and the selling, but in the waiting” — Charlie Munger.

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Index

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 Why Choose Valentis Advisors?  Investment Process and Philosophy  Products  Market view

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Valentis Rising Stars Opportunity Fund

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Investment Objectives: The 3 Us

• The objective of the scheme is capital appreciation in the medium term to long term by

investing in cherry picked stocks mostly in the Mid and Small cap space.

• The portfolio focuses primarily on a buy and hold strategy at most times.
• We will focus on the 3 Us (Under-owned, under-valued and undiscovered stocks).

Market Cap

• No. of Stocks

FII holding % >50000 cr. 37 20.92 30000 - 50000 cr. 27 16.38 10000 - 30000 cr. 92 11.49 5000 - 10000 cr. 85 13.40 1000 - 5000 cr. 327 6.94 500 - 1000 cr. 214 2.45

Investor Profile:

– Ideal for investors with a 3 year or longer investment horizon.

Midcaps are under-owned by FIIs...

Valentis Focus stocks

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Portfolio Performance November 2019

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• Return of Model portfolio shown above is after deducting performance and management fees.
• Portfolio inception date is September 29, 2016.
• Returns of individual clients may differ depending on time of entry in the Strategy.
• Returns above 1 year are CAGR

0.8%

• 13.0%
• 8.2%
• 14.6%

3.8% 2.7% 2.4%

• 3.7%
• 1.6%
• 7.0%

4.9% 0.1% 1.2%

• 9.8%
• 6.5%
• 18.3%
• 0.2%
• 2.8%
• 20%
• 15%
• 10%
• 5%

0% 5% 10% 1M YTD 1Y 2Y 3Y Since Inception (September 29, 2016) Rising Stars Opportunity Nifty MidCap 100 Index Nifty SmallCap 100 Index

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Valentis Multi-Cap Fund

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Playing early beneficiaries of earnings cycle recovery

• Between 20-40% exposure to large cap (top 100) companies.
• Will enable portfolio to be a dynamic mix of well established, liquid names and mid-

caps that may be greater beneficiaries of a cyclical rebound

Rationale – Earnings doubling next 4-5 years

• Over the past 10 years most of the returns have been driven by valuation re-rating

with earnings rising an aggregate of only 60%.

• What will change next 5 years?

1. Market returns will be driven mostly by earnings growth. 2. Earnings growth will be robust - earnings can double over next 4-5 years

Sectors like corporate banks, capital goods, gainers from GST (ceramics), raw material price pressure (plastic processors, tyres), commercial vehicles, agro- chemicals will lead growth revival.

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Portfolio Performance November 2019

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• Return of Model portfolio shown above is after deducting performance and management fees.
• Portfolio inception date is November 22, 2018.
• Returns of individual clients may differ depending on time of entry in the Strategy.
• Returns above 1 year are CAGR

2.0% 13.8% 3.5% 14.4% 15.7% 18.0% 1.2% 9.4% 0.3% 7.1% 7.9% 9.8% 0% 4% 8% 12% 16% 20% 1M 3M 6M YTD 1Y Since Inception (November 22, 2018) Multi-Cap Fund S&P BSE 500

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Fee Structure

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Fund Type SEBI Registered PMS Fund Tenure Open Ended Structure Discretionary PMS Fees Fixed Management Fee: 1.5% p.a. charged Quarterly basis Performance Fee: 15% of return Above 10% Hurdle Rate charged annually (subject to High Water Mark level) Exit Load 3% - before 12 Months 2% - between 12 to 24 months 1% - between 24 to 36 months

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Index

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 Why Choose Valentis Advisors?  Investment Process and Philosophy  Products  Market view

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What will drive markets? #1: Global factors

• Global markets are the key driver of India markets (Chart 1)
• Strong co-relation between MSCI India and MSCI EM
• Since 2008, developed markets, especially USA has strongly outperformed EM
• US corporate sector roaring
• Margins in US are at an all time high.
• Profits as % of GDP are hitting close to double digit (India struggling at 3.5%)
• Can central banks prevent a recession?
• But worries of recession taking centre stage. Negative yields rampant.
• US Fed cuts first time in a decade & stops shrinking its balance sheet. ECB also

ready to ease rates and liquidity.

• Goldilocks scenario for India is a weak US economy that prompts Fed cuts but not

weak enough to lead to a recession.

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#2: Economy & Corporate Earnings - Awaiting a growth revival

Source: MOSL, Valentis Research

21 Earnings have troughed –recovery ahead? Corporate profit to GDP (%)

3.0 4.7 5.4 6.2 7.3 7.8 5.5 6.5 6.2 4.9 4.6 4.3 3.8 3.1 3.5 3.6 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Average of 5.1%

• 20
• 10

10 20 30 40 50 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Nifty EPS Growth (%)

FY97-03: 3.5% CAGR FY03-08: 25% CAGR FY08-18: 4.9% CAGR

(%)

• Macro in decent shape but growth missing
• CAD, fiscal deficit not at stress

levels, inflation under control, interest rates low.

• Is Government going the socialist way or

can they revive animal spirits?

• Corporate earnings can double in 4-5 years
• Weak spell has been elongated relative to

history

• Corporate banks to drive revival
• Balance sheet of corporate India very

strong

• 3 factors that can revive near term growth
• Transmission of lower interest rates can be

helped by surplus liquidity (Chart 2)

• Government spending will start in next 2

months - a 15% yoy increase possible (Chart 3)

• Base effect of NBFC crisis starts from

October

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#3: Valuations reaching historic averages; mid-caps cheap

Source: MOSL, Valentis Research

22 Bond yield Vs SENSEX yield Midcap Vs Nifty PE Prem/(Disc) (%) Nifty 12M Forward P/E (x)

0.35 0.75 1.15 1.55 1.95 2.35 2.75 Jan-00 Jul-01 Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 Jul-10 Jan-12 Jul-13 Jan-15 Jul-16 Jan-18 Jul-19 G-Sec Yield/Earnings Yield Mean Mean 1.3

Nifty 12M Forward P/B (x)

1 2 3 4 5 Dec-05 Jul-07 Jan-09 Jul-10 Jan-12 Jul-13 Jan-15 Jul-16 Jan-18 Jul-19 12-month forward Nifty P/B (x) Mean Mean 2.75

• 60
• 40
• 20

20 40 60 Dec-05 Jul-07 Jan-09 Jul-10 Jan-12 Jul-13 Jan-15 Jul-16 Jan-18 Jul-19 Midcap Vs Nifty PE Prem/(Disc) (%) Mean Mean -3.1 8 12 16 20 24 Dec-05 Jul-07 Jan-09 Jul-10 Jan-12 Jul-13 Jan-15 Jul-16 Jan-18 Jul-19 Nifty PE (x) Mean Mean 16.7

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#4 Sentiment Low - Is this capitulation?

Source: Valentis Research

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Return (%) % of Stocks 50% + 3% 20% to 50% 3% 10% to 20% 2% 0% to10% 3%

• 10% to 0%

5%

• 20% to -10%

6% (20%) - (50%) 29% (50%) + 49% Total 100%

• Stock performance has collapsed since LTCG

introduced 18 months ago

• Worst July in 17 years
• Portfolio returns are now looking poor over a 5-

year period as returns were front-ended

• Few stocks have held up index
• Most portfolios not reflecting the relative strength

in index

• Negative sentiment normally marks a low for the

market

• is the pain enough or more panic needed?
• FPIs rather than Indian retail selling
• tax issue an irritant but growth critical element

Indices Return CAGR % 1 Yr 2Yr 5Yr 6Yr Nifty 50

• 2.1%

5.0% 7.6% 11.6% MidCap 50

• 13.1%
• 4.7%

6.7% 15.5% SmallCap 100

• 26.0%
• 15.9%

1.8% 13.0%

Stock performance since LTCG introduced

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Markets will mirror earnings growth

• Earnings growth critical to market returns
• Rally from 2013 largely driven by valuation re-rating
• Returns next few years will reflect earnings growth
• Near term markets will be range-bound till more signs of economic revival
• Average drawdown over 15% in large cap and 25% in small and mid-cap is

normal (Chart 4)

• Small and mid-caps should outperform large caps
• Cheaper valuations
• Grow faster in economic and earnings revival
• Not seen 2 consecutive years of negative mid-cap performance in last 20 years

(Chart 5)

“All past correction looks like missed opportunities; except this one.”

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The making of a Blue-chip

20 40 60 80 100 120 140 May-95 Nov-95 May-96 Nov-96 May-97 Nov-97 May-98 Nov-98 May-99

Price Rebased MCap Rs.570Cr.

• 36%: 4 months
• 55%: 5 months
• 52%: 7 months

204%: 4 months

Stock today up 156 times: CAGR of 23.5%

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APPENDIX

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#1: Indian markets huge co-related to global markets

Source: MOSL, Valentis Research

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200 400 600 800 1000 1200 1400 1600 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 MSCI India Index MSCI EM Index

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#2: Net Systemic Liquidity Deficit

Source: EDEL, Valentis Research

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• 2.0
• 1.5
• 1.0
• 0.5

0.0 0.5 1.0 1.5 2.0 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19

INR Trillion

Net Systemic Liquidity Deficit

DEFICIT SURPLUS

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#3: Government Capital Expenditure

Source: EDEL, Valentis Research

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3029 869 2160 3385 630 2755 1000 2000 3000 4000 FY20 3M FY20 9M FY20 (F) FY19 (A) FY20 (BE)

INR Billion

Government capital expenditure down 27% in 3MFY20

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#4: Drawdown in line with history

Source: BSE, NSE, Valentis Research

30 CY SENSEX NIFTY MIDCAP 50 BSE SMALLCAP MDD % Return % MDD % Return % MDD % Return % CY04

• 27%
• 1%
• 27%

30%

• 34%

38% CY05

• 13%

42%

• 16%

37%

• 23%

73% CY06

• 29%

59%

• 39%

25%

• 42%

16% CY07

• 15%

47%

• 21%

72%

• 21%

94% CY08

• 60%
• 52%
• 71%
• 65%
• 77%
• 72%

CY09

• 21%

81%

• 30%

100%

• 27%

127% CY10

• 11%

17%

• 16%

10%

• 22%

16% CY11

• 26%
• 25%
• 42%
• 40%
• 44%
• 43%

CY12

• 13%

26%

• 21%

35%

• 14%

33% CY13

• 12%

9%

• 31%
• 3%
• 33%
• 11%

CY14

• 7%

30%

• 12%

46%

• 9%

69% CY15

• 16%
• 5%
• 17%

2%

• 14%

7% CY16

• 12%

2%

• 22%

7%

• 20%

2% CY17

• 4%

28%

• 8%

51%

• 7%

60% CY18

• 14%

6%

• 23%
• 11%
• 33%
• 24%

Average

• 19%

18%

• 26%

20%

• 28%

26%

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#5: Midcaps outperformed 11 out of 18 years…

Source: NSE, Valentis Research

31 Year Nifty Index MidCap Index Difference SmallCap Index Difference CY01

• 16%
• 30%
• 15%

N.A. N.A. CY02 4% 25% 21% N.A. N.A. CY03 74% 143% 70% N.A. N.A. CY04 11% 25% 15% 35% 25% CY05 34% 33%

• 1%

61% 27% CY06 41% 28%

• 14%

41% 0% CY07 53% 78% 25% 85% 32% CY08

• 51%
• 59%
• 8%
• 70%
• 20%

CY09 72% 97% 25% 106% 33% CY10 18% 18% 1% 17%

• 1%

CY11

• 25%
• 32%
• 7%
• 34%
• 10%

CY12 28% 41% 13% 39% 10% CY13 6%

• 6%
• 12%
• 8%
• 14%

CY14 31% 56% 24% 54% 23% CY15

• 4%

7% 11% 7% 11% CY16 3% 6% 3% 1%

• 2%

CY17 29% 47% 19% 57% 29% CY18 3%

• 15%
• 19%
• 29%
• 32%

Average 17% 26% 8% 24% 7%

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#6: Midcaps generally outperform over a 3 year period

Source: NSE, Valentis Research

Holding Mid-caps for 3 years: Outperforms large caps 71% of times. : Positive return 91% of times. : Average annualized return is 24%.

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400 800 1200 1600 2000 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Nifty Index Nifty Midcap Index

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#7: Since FY12, consensus Sensex EPS has been marked down significantly every single year

Source: Ambit Capital report. Note: The chart above has been made using Bloomberg consensus estimates for Sensex EPS for a given financial year over the course EPS estimate has been charted over the

course of April 2014 to March 2016.

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#8: Asset turnover of corporate India (x)

34 0.90 0.91 0.88 0.83 0.82 0.74 0.76 0.80 0.80 0.77 0.73 0.67 0.67 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Asset Turnover (x)

Source: ACE Equity, Valentis Research

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Disclaimer

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• Valentis advisors Pvt Ltd. (Valentis) is a registered Portfolio Manager with Securities and Exchange Board of India.
• This presentation is strictly for information and illustrative purposes only and should not be considered to be an
• ffer, or solicitation of an offer, to buy or sell any securities or to enter into any Portfolio Management agreement.
• This presentation is not intended for distribution to public and is not to be disseminated or circulated to any other

party.

• Valentis does not offer any guaranteed returns nor is there any capital guarantee in the Valentis PMS. Valentis

advisors shall not be liable for any losses that the client may suffer on account of any investment or disinvestment decision in the Valentis PMS or based on the information or recommendation received from Valentis advisors on any product.

• Investments in the Valentis PMS, as in any other equity product, may go up or down due to various factors

affecting the market. There are market risks, political risks, financial risks etc in equity investments. Investors should take into consideration all their risk factors and their risk profile before investing. Clients should also take professional legal and tax advice before making any decision of investing.

• Our past track record is no guarantee of our future performance

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112, Mittal Chambers, Nariman Point, Mumbai- 400 021, India.