In the trade-off between quality and price, we believe that the best risk/reward conviction comes at either ends of the spectrum – buying very high quality economic moat franchises or deep out-of-money value opportunities – at significant relative margins of safety.
Long-term Moat Businesses
We like businesses with sustainable long-term competitive advantages that are run by high-performance owners and management teams delivering consistent superior financial performance. Our emphasis is to discover and build a concentrated portfolio of these businesses through proprietary bottom-up work from the universe of micro, small and mid-cap stocks in India, which tend to have minimal or no sell-side coverage. While we are sector agnostic, we have a bias towards businesses in consumer goods, financial services, healthcare, IT services and precision engineering industries.
Medium-term Deep Value Opportunities
We also opportunistically invest in stocks which we believe the market is significantly underpricing and where we see a clearly identified catalyst in the medium-term. These could be cigar butt bargains trading below cash, book or net asset value due to a market dislocation, or fallen angels going through a period of turmoil, or the like. We seek horizon or catalyst-based, diversified exposure to our contrarian conviction on these stocks or situations, based on our bottom-up work.