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In an interview with ETMarkets, Sachdeva said: “We have set frameworks in place, 3Q – Quality of Business, Quality of Management & Quality of Management & 4 x 4 Wealth Multiplier Themes – Consumer Discretionary, Manufacturing, Phygital & Financial Inclusiveness,”. Edited excerpts:
You have recently written a white paper on Quality vs Value. Can you tell us if one has an upper hand over the other?
Vikaas M Sachdeva: In the past, stock analysis primarily focused on beta, the risk compared to the overall market. However, the Fama and French study introduced additional factors like size, momentum, low volatility, quality, value, and growth, expanding the discussion beyond beta.
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Factor investing merges active and passive strategies to optimize returns while mitigating risk through macroeconomic and style factors. Indian fund houses are progressively embracing this approach.
Quality indices consistently prioritize high return on equity, stable earnings growth, and low financial leverage. These indices often outperform parent indices, with lower drawdowns, particularly in mid-cap and diversified segments.
Value indices emphasize low Price to Earning, low Price to Book and high Dividend Yield. While they also outperform parent indices, they exhibit varying drawdowns, with large-cap indices benefiting more from value selection.
Comparing quality and value indices, quality consistently generates higher returns and offers better downside protection, especially during market downturns like the Global Financial Crisis (2008 – 2009) and Rangebound Markets (2011 – 2013).Value indices tend to experience steeper corrections and prolonged underperformance. In summary, quality indices tend to offer better risk-adjusted returns over time.How do you define quality and value in today’s market environment? Has the definition evolved over a period?
Vikaas M Sachdeva: The definitions of quality and value remain constant. While quality encompasses factors like high ROE, growth stability, and lower leverage, value consists of stocks with low price-to-earnings, low price-to-book value, and high dividend yield.
Although the meaning of quality and value has not changed but the companies that can be classified as such have evolved. Factors like higher loan spreads, lower NPAs, and better ROAs are necessary to evaluate banks.
While factors like healthy ROEs, strong earnings and visibility are important for material handling companies and average revenue per user, active subscribers and growth are important for emerging digital platform companies; there is no standard measure unlike what was considered earlier.
Quality emphasizes durable business models, sustainable competitive advantages, and strong financials, making it attractive for investors seeking long-term returns and during times of volatility.
With India’s growth potential, focusing on quality can be advantageous, offering both return potential and downside protection in the evolving landscape.
Please take us through the recent performance of Sundaram Atlas Fund, Premier Fund, and Acorn Fund.
Vikaas M Sachdeva: ATLAS I & II our current CAT III AIF offerings are multi cap portfolios with investments across the cap curve, seeking long-term capital appreciation. The fund has a diversified target portfolio of between 15 to 25 stocks, across sectors.
The investments will focus predominantly on structural growth stories and a portion of allocation to cyclical turnaround stories. ATLAS I has yielded a 1-year CAGR of 27% and since inception (Jan 2022) has yielded a CAGR of 14% while ATLAS II has yielded 22% and 21% CAGR in 1-year and since inception (Dec 2022) respectively.
Sundaram India Premier Fund aims to generate absolute returns by investing in stocks of companies catering to the ‘consumption and consumption-related themes.’ SIPF has yielded a CAGR of 23% and 15% in 1 year and since inception (Oct 2018) respectively.
Sundaram ACORN aims to generate absolute total returns by adopting a bottom-up investment process. Portfolio will invest in small and mid-cap stocks with the objective of seeking long-term capital appreciation. The portfolio also has an enabler of up to 10% in large caps. ACORN has yielded a CAGR of 19% since inception (Feb 2020) respectively.
In our PMS offerings – Sundaram India Secular Opportunities Portfolio, Sundaram Emerging Leadership Fund, Sundaram Rising Stars and Sundaram Voyager, we have clocked in average alphas of around 4% over the last 14 years.
Our performance is a testament to our commitment to unearthing opportunities for you always.
Can you provide insights into the strategies employed by Sundaram Alternates to identify “Tomorrow’s winners” in the market?
Vikaas M Sachdeva: As India passes the USD 2000 GDP mark, we at Sundaram Alternates, believe that the next decade belongs to India, becoming one of the world leaders in digital adaptation and transformation.
India growth might moderate in the short term but will remain much higher compared to global growth in this decade.
We see immense value in our 4×4 wealth multiplier themes —
1. Financial inclusiveness – here we play the growth opportunities in retail credit penetration and shift from unorganized to organized lending,
2. Consumer “Czars”– we are positive on urban discretionary consumption growth, particularly small ticket spending, where we expect robust growth to continue supported by healthy urban job growth and recovery in rural consumption,
3. Phygital “Bluechips” – here we play beneficiaries of India’s online penetration across various sectors. India is at a nascent stage technology penetration in various consumer facing services, and lastly
4. Manufacturing Maestros – we believe players in specialty chemicals and other manufacturing companies will gain market share driven by the China +1 or Europe +1 trend.
With a focus on mid-cap and small-cap strategies, how does Sundaram Alternates navigate the unique challenges and opportunities presented by these segments?
Vikaas M Sachdeva: At Sundaram Alternates, we believe in India’s decadal growth story. We focus on exploring opportunities beyond large benchmark indices, investing in stocks that have the potential to generate returns of 2x – 3x in the next 4 – 5 years.
We believe in following a concentrated approach, even though diversification has helped investors over the past 3 years, we believe in being selective as per our high growth quality stock selection strategy.
While investing in low PE stocks (despite the business being weak, e.g., low ROCE, high working capital, poor cash flows, etc.) yielded good results during the last 3 years, investing in reasonably valued good business models (e.g., high growth, high ROCE, low debt/equity, and high cash flow generation) is expected to prove beneficial in the coming 3 years.
We have invested in companies with good/stable business models, which have the potential to generate targeted returns without compromising on our quality framework.
How does Sundaram Alternates differentiate its approach to fund management from other players in the industry?
Vikaas M Sachdeva: Sundaram is well diversified in terms of our investment offerings, geographical presence, and diverse salesforce.
With a robust presence across 90 centers across 160 active relationship managers. Backed by a 12-year average track record, our PMS’ have delivered a 5% average alpha since inception over S&P BSE 500 TRI and have won several awards.
We offer you the flexibility of a boutique being highly agile and nimble footed in terms of our investment processes, while adhering to strict risk management guidelines.
Under the strong tutelage of our parent organization Sundaram Finance, we have a strong due diligence process, solid foundations, and extensive industry networks adding to our capabilities.
With the strong parentage of Sundaram Finance, we are backed by a strong and highly reputed financial institution.
Our unique stable of products under equity – being midcap specialists, we can unearth unexplored market opportunities for you, under debt – we operate under private corporate credit and private real estate credit – focusing on capital protection and consistent cash flows.
We are sure to be able to cater to every individual, family office and institution’s investment objective/appetite.
How does the firm prioritize risk management while catering to the investment needs of high net-worth individuals (HNIs)?
Vikaas M Sachdeva: At Sundaram Alternates, we select and vet our partners very carefully since we operate in a business with immense trust necessary to maintain conducive relationships.
We have a robust risk management system in place, with periodic meetings / risk reviews to always ensure strict adherence to all risk guidelines.
Our equity funds focus on investing in quality stocks with a high growth generation ability aimed at multiplying your money 2x – 3x in 4 – 5 years.
We have set frameworks in place, 3Q – Quality of Business, Quality of Management & Quality of Management & 4 x 4 Wealth Multiplier Themes – Consumer Discretionary, Manufacturing, Phygital & Financial Inclusiveness.
Liquidity and concentration are major factors in selecting stocks as well.
Our private credit funds, across corporate credit & real estate credit focus on principles of consistent cash flows, capital protection and concrete due diligence.
The core management from across The Sundaram Finance Group is at the helm of the investment committee, ensuring a well-rounded and astute perspective.
We have a sizable skin in the game with sponsor commitments from our parent company Sundaram Finance being at the 20% mark across our credit funds.
Analyst Disclaimer: Securities investments are subject to market risks and there is no assurance or guarantee that the objective of the investments will be achieved. The statements contained 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 events to differ materially from those expressed or implied in such statements.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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