Motilal Oswal Asset Management Company Ltd. (MOAMC) is a public limited company incorporated under the Companies Act, 1956 on November 14, 2008, having its Registered Office at 10th Floor, Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai - 400025.
Motilal Oswal Asset Management Company Ltd. has been appointed as the Investment Manager to Motilal Oswal Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated May 21, 2009, executed between Motilal Oswal Trustee Company Ltd. and Motilal Oswal Asset Management Company Ltd.
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Motilal Oswal Dynamic Fund (Div-A) - 11.5211Motilal Oswal Dynamic Fund (Div-Q) - 11.3635Motilal Oswal Dynamic Fund (G) - 12.2479Motilal Oswal Dynamic Fund-Dir (Div-A) - 11.9736Motilal Oswal Dynamic Fund-Dir (Div-Q) - 11.5369Motilal Oswal Dynamic Fund-Dir (G) - 12.646Motilal Oswal Equity Hybrid Fund - Direct (G) - 10.6548Motilal Oswal Equity Hybrid Fund - Regular (G) - 10.4956Motilal Oswal Focused 25 Fund - Direct (D) - 17.1518Motilal Oswal Focused 25 Fund - Direct (G) - 23.2848Motilal Oswal Focused 25 Fund (D) - 15.4729Motilal Oswal Focused 25 Fund (G) - 21.3491Motilal Oswal Liquid Fund - Direct (Div-D) RI - 10.0077Motilal Oswal Liquid Fund - Direct (Div-F) RI - 10.008Motilal Oswal Liquid Fund - Direct (Div-M) - 10.0534Motilal Oswal Liquid Fund - Direct (Div-Q) - 10.1223Motilal Oswal Liquid Fund - Direct (Div-W) RI - 10.0096Motilal Oswal Liquid Fund - Direct (G) - 10.4377Motilal Oswal Liquid Fund - Regular (Div-D) RI - 10.0055Motilal Oswal Liquid Fund - Regular (Div-F) RI - 10.0078Motilal Oswal Liquid Fund - Regular (Div-M) - 10.0527Motilal Oswal Liquid Fund - Regular (Div-Q) - 10.1074Motilal Oswal Liquid Fund - Regular (Div-W) RI - 10.0166Motilal Oswal Liquid Fund - Regular (G) - 10.4261Motilal Oswal Long Term Equity Fund (D) - 14.7221Motilal Oswal Long Term Equity Fund (G) - 16.6149Motilal Oswal Long Term Equity Fund -Dir (D) - 15.7612Motilal Oswal Long Term Equity Fund -Dir (G) - 17.6953Motilal Oswal Midcap 30 Fund (D) - 17.2879Motilal Oswal Midcap 30 Fund (G) - 24.1482Motilal Oswal Midcap 30 Fund-Dir (D) - 18.8258Motilal Oswal Midcap 30 Fund-Dir (G) - 25.8814Motilal Oswal Multicap 35 Fund (D) - 22.052Motilal Oswal Multicap 35 Fund (G) - 25.0303Motilal Oswal Multicap 35 Fund-Dir(D) - 23.3427Motilal Oswal Multicap 35 Fund-Dir(G) - 26.3536Motilal Oswal Nasdaq 100 FOF - Direct (G) - 11.8641Motilal Oswal Nasdaq 100 FOF - Regular (G) - 11.8263Motilal Oswal Nifty 500 Fund - Direct (G) - 10.0894Motilal Oswal Nifty 500 Fund (G) - 10.0874Motilal Oswal Nifty Bank Index Fund - Direct (G) - 10.194Motilal Oswal Nifty Bank Index Fund (G) - 10.192Motilal Oswal Nifty Midcap 150 Index Fund (G) - 10.1853Motilal Oswal Nifty Midcap 150 Index Fund-Dir (G) - 10.1873Motilal Oswal Nifty Smallcap 250 Index Fund (G) - 10.3331Motilal Oswal Nifty Smallcap 250 Index Fund-Dir(G) - 10.3352Motilal Oswal Ultra Short Term Fund - Dir (Div-D) - 9.2197Motilal Oswal Ultra Short Term Fund - Dir (Div-F) - 9.237Motilal Oswal Ultra Short Term Fund - Dir (Div-M) - 9.2263Motilal Oswal Ultra Short Term Fund - Dir (Div-Q) - 9.3589Motilal Oswal Ultra Short Term Fund - Dir (Div-W) - 9.23Motilal Oswal Ultra Short Term Fund - Dir (G) - 13.0636Motilal Oswal Ultra Short Term Fund (Div-D) - 9.2231Motilal Oswal Ultra Short Term Fund (Div-F) - 9.2327Motilal Oswal Ultra Short Term Fund (Div-M) - 9.2235Motilal Oswal Ultra Short Term Fund (Div-Q) - 9.3576Motilal Oswal Ultra Short Term Fund (Div-W) - 9.2264Motilal Oswal Ultra Short Term Fund (G) - 12.7032

Value Strategy Newsletter - From the Desk of Shrey Loonker and Susmit Patodia

Blog Blog Details
  • June 26, 2019
  • Mr. Shrey Loonker|
  • Fund Manger - PMS

Dear Investors,


Welcome to the first of the series of communication that we as Portfolio Managers (Shrey Loonker and Susmit Patodia) of VALUE PMS will send to you on a periodical basis. We thought that the opportune time to start this would be with the winding up of the earnings season for FY19 and the uncertainty of election results behind us.

 

What should you expect from the newsletter? 

•   Re-visiting the key tenets of our philosophy and style of investing 

•   Performance Review of the portfolio 

•   Insights that we have learnt in the due course

 

As this is our first communication with you, we would like to use a little bit of extra time for explaining how we think about our philosophy.


Tenets of our Philosophy and Style of Investing

We as a team try in all earnestness to invest within the BOUNDARIES OF QGLP PHILOSOPHY.

Q – Quality Companies run by Quality Managements

G – Companies that grow their earnings or invest to grow their earnings capability

L – Longevity of firstly the company and then the earning power of the company

P – Try not to Overpay

 

We use the word TRY as we will make mistakes during our journey but our endeavor would be to minimize and to strive to never repeat them.  We do not think of Under-Weight,Over-Weight, Equal-Weight. It is a freedom that we would like to thank you forgiving us and a promise that we will not abuse it

 

WHAT DOES BUY RIGHT SIT TIGHT MEAN TO US

 

BUYING RIGHT implies that we are buying the RIGHT BUSINESS WITH THE RIGHT LEADER. It is very important that the LEADER has the right strategy and the management ability.  It is not a one-time exercise,rather a continuous one, wherein, we re-assess and re-test our initial hypothesis at regular intervals. Only the companies that conform to the test over the long term, sit tight in our portfolios. Buying Right (i.e. what you understand) helps you stay for long, which in turn helps us leverage the long term power of compounding. 

 

The fact that still looks like fiction re-iterates this:

§  20% Compounded for 10 Years is 6x

§  20% Compounded for 20 Years is 38x 

§ 20% Compounded for 30 Years is 237x 

§ 20% Compounded for 50 Years is a STAGGERING 9000x 

 

So if you invested a Lakh for your kid as soon as he is born with a trustworthy fund manager and then sprinkle a little bit of luck, that will turn to 90 Cr by the time she is 50! COMPOUNDING is THE EIGHTH WONDER OF THE WORLD. Most of us have not seen the original seven but THIS IS FOR ALL OF US TO LIVE WITH.

The example cited above is used to explain the concept of compounded returns and is for illustration purpose only and should not be used for development or implementation of an investment strategy. It should not be construed as investment advice to any party.

LASTLY, our primary aim is to BUY COMPANIES WHOSE EARNINGS GO UP and NOT STOCKS WHOSE PRICES GO UP. We believe that the former causes the latter – STOCK PRICES ARE SLAVES OF EARNINGS


A Performance Review of the Portfolio 


CY18 has been a challenging year for the portfolio. Some of the very same stock selection/omission that gave us outsized alpha in CY14 led to the negative alpha in CY18. As Batman famously said – You either die a Hero or live long enough to see yourself become the villain! We continue to be vigilant on the companies we own and ask ourselves the key question – Is the slowdown in earnings STRUCTURAL OR CYCLICAL. If we are convinced that the slowdown is Structural, we will sometimes exit the stocks as demonstrated in the recent past.  


CY14

CY15

CY16

CY17

CY18

CY19 (Jan-May)

Since Inception

Value Strategy

57.6%

0.4%

2.9%

29.5%

-5.4%

9.9%

22.7%

Benchmark  (Nifty 50)

31.4%

-4.1%

3.7%

28.6%

3.2%

9.8%

18.4%

Alpha

26.2%

4.5%

-0.8%

0.9%

-8.5%

0.1%

4.3%







 

* CY: Calendar Year.

Calendar Year returns from 31st December 2013 to 31st December 2018.

The above strategy returns are of a Model Client. Returns of individual clients may differ depending on time of entry in the strategy. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. Returns below 1 year are absolute and above 1 year are annualized. Strategy returns shown above are post fees & expenses.


TRACKING UNDERLYING EARNINGS GROWTH – 

Some of the changes that we have made to the portfolio have started to bear fruits in terms of earnings growth. Our Portfolio Stocks cumulatively delivered a 26% Earnings Growth in Q4 FY19 compared to Nifty’s 15%. For the year as a whole, the earnings growth was 9% vs Nifty’s 9%.


WHAT IMPACTED OUR PORTFOLIO COMPANIES IN FY19

Ø  Reforms – FY19 saw the brunt of reforms on the earnings of larger set of companies. IBC, GST and the late liquidity squeeze have slowed down growth in the near term. Larger ticket discretionary spending was most impacted (Autos). These reforms dent the near term earnings of the companies but substantially increase the long term earnings power – something that we love to see in our companies.

Ø  (C)Rude Shock – It was too nice to us for too long! The 50% up-move in 2018 took everyone by surprise. In fact, in INR terms Crude was just 10% away from its all-time highs of 2013!  The Crude Shock led to a mini Balance of Payments crisis which led to the INR depreciation- hence benefitting IT. We continue to believe that the IT sector is unlikely to be more than a 10-12% earnings growth story in normal years. Case in point being EPS CAGR for TCS the last 5 years (2014-19) has been 11.3% despite FY19 being a 25% Earnings growth year. The Dollar Growth in FY19 was Infosys and TCS was 8% and 10%.

FY19- A Unique Year 


Ø  In the last decade, FY19 stood out as a unique year in the way Index performed. Out of the 15% gain which translates to 1510 points on the Nifty, 950 (~2/3rd) points were from just 4 stocks – Reliance Industries Limited (RIL), HDFC Bank, Infosys and TCS. Such narrow attribution has not been seen before. It is interesting to note here that RIL and Infosys EPS growth for FY19 is 9.5% and 0% respectively, thus implying the stock returns were a result of sheer change in perception towards these companies (or flight to relative certainty) vs returns driven by fundamental earnings growth.

Ø  It was also the first time in the last decade that the largest 5 Companies by Market Capitalization outperformed the Index.

The above two observations are critical to understand and assimilate. This not only shows the polarization and narrowness of the market but also the significant outperformance of ETFs last year.

We expect market returns to become broad based in due course of time and with that the portfolio returns would as well more than catch up, given the underlying earnings growth remains intact.

Regards,

Shrey Loonker and Susmit Patodia


Disclaimer: *Earnings as of March 2019 quarter and market prices as on 31st May 2019; Source: Bloomberg consensus, Capitaline and Internal Analysis. The above strategy returns are of a Model Client as on 31st May 2019. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. Motilal Oswal AMC does not provide any guarantee/ assurance any minimum or maximum returns. Investment in securities is subject to market and other risks and there is no assurance or guarantee that the objectives of any of the strategies of Portfolio Management Services will be achieved.


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