Our Wealth Creation strategy is Market-Cap and Sector Agnostic. The portfolio is carefully constructed after screening through a vast investment universe of over 3000 listed stocks; which would typically cover all known and unknown companies.
Our stock selection criteria for Wealth Creation heavily focuses on businesses that exhibit the following criteria –
- Businesses that are in sectors that can grow higher than India’s Real GDP growth rate with fair degree of consolidation. E.g. If we believe India’s real GDP will grow at 7% p.a. then we will like to focus on sectors that have the potential of growing at 12-16% p.a.
- Businesses that do not face risk of losing business share to substitute or alternate products. Businesses that have minimal regulatory policy related risks.
- Businesses that have strong and sustainable competitive strengths derived out of Market Leadership / Customer Relationships / JV Partnerships / Cost Leadership / First Mover advantage / Brand Pull etc.
- Businesses that do not require recurring and large capital requirements i.e. both working capital and fixed capital to fund growth.
- Businesses that are run by management of exceptional caliber with ability to successfully scale up.
- Businesses that generate free cash flows with supreme focus on balance sheet management.
The result from the above screener is further shortlisted based on liquidity, beta / volatility and risk return potential.
We firmly believe that a 25-30% CaGR on a large, growing, market leading company with robust financials and healthy balance sheet is far superior compared to say a 50% return on a relatively unknown company which will have many moving parts adding to the uncertainty in the expected returns.
Having said that we are always on the lookout for investing in sound businesses (unknown and known companies) run by high quality management which are available at compelling valuations.