ETMarkets Fund Manager Talk: This Rs 14000 cr money manager unveils his mantra to pick multibaggers

“We have always been following the QGLP philosophy of buying high-quality companies with high growth and longevity at reasonable prices. So, our strategy has always been three-pronged,” says Niket Shah, Fund Manager, MOAMC.

In an interview with ETMarkets, Shah who manages about Rs 14,000 cr in AUM, said: “At Motilal Oswal, we have always strived to give disproportionate return to our investors. Our DNA has been always to be at the top quartile. We are the largest investor of our own funds” Edited excerpts:

Motilal Oswal Midcap 30 fund has received a Number 1 rating from CRSIL. A proud moment for you. What does it mean for investors in general and the fund?
At Motilal Oswal, we have always strived to give disproportionate returns to our investors. Our DNA has always to be at the top quartile. We are the largest investor of our own funds.

We all have massive skin in the game and hence our endeavor always has been to give 5-7% higher returns over the index every year. We believe we should be able to replicate this till the fund reaches a size of more than Rs 10,000cr.

How much AUM you are managing and how has it grown so far in 2022?
I am managing ~Rs 14,000 cr of which the Midcap fund is Rs. 3,580.23 cr as on 31/10/2022

The Motilal Oswal Midcap Fund AUM growth in 2022 was moderate. The Midcap Fund's AUM reached Rs 2,643.97 crore on Jan 2022.

After a slight dip in June, its AUM stood at 2,575.14cr by the end of the month. Now, it is showing positive signs by moving upward, and it is at Rs 3,580 crore as of October 2022.

Based on the FactSheet – Rs 10 lakh invested since inception has more than doubled. When was the NFO launched and the CAGR return generated over the year?
Launch Date: 24/02/2014

The Rs. 10 lakhs invested on 24/02/2014 (inception date) have turned Rs.52.3 lakhs (as on 31/10/2022). The scheme has given returns of 21% since inception till 31 Oct 2022.

Returns are given in the below table.


How do you pick stocks for your scheme? Any particular methodology you adopt?
We always have been following QGLP philosophy of buying high-quality companies with high growth and longevity at reasonable prices. So, our strategy has always been three-pronged.

1) Identify businesses where the size of the opportunity is immense; growth of the industry has to be high; the company should continue to gain market share in that segment because we believe market share gain is also market-cap gain in a growing industry;

2) The quality of management has to be par excellence in governance and execution; and

3) We look at the company's ability to reinvest the free cash flow back into the business to scale it further.

These parameters help us to identify multi-baggers over a period of time.

You have more than 10% weight towards Auto Components, Consumer Durables, and Realty. What makes you positive on these 3 sectors?
We have historically played auto through ancillaries, focussing on leaders in the segment. The cyclicality of auto ancillaries is far lower, and growth in a good cycle is far higher than OEMs because they always have the option to increase content per vehicle, add new products, add new customers, look at exports and do more localisation to improve margins.

They are agnostic as to which OEM will become larger or vice versa. In the consumer sector, we have always looked at businesses where the company has the leadership position and businesses where there is massive value migration and premiumisation opportunity. E.g., Sports shoes and sneakers are trends of the future.

There is value migration today in offices from formal wear to sneakers or sports/casual shoes. We have seen in China that some of the companies have become 10x in size in the last seven years, and we believe, going forward, this is likely to play in India too.

Realty sector per se, we have always been playing through mall owners. Covid has done two things 1) removed the weaker mall owners from the market 2) new entrants have withdrawn from the market. This has made stronger player even better.

In terms of portfolio allocation – Tube Investments and Phoenix Mills carry more than 10% weightage. What is the rationale?

Tube Investments:

Tube Investments is a company that is successfully transitioning from being an auto ancillary to auto OEM but in EV space.

Within EV space, their selection of category has been very good by focusing on EV 3-wheeler, CV and tractors where there is a profit pool and scale simultaneously unlike 2-wheeler and 4-wheeler where profit pools are far away.

Secondly, the company has been improving its margins in existing business and creating massive Free cash flows which it is reinvesting into businesses of the future like EVs, medical devices, and mobile component manufacturing where size of the opportunity is massive and profit pools are large.

Lastly, about the management, Mr. Vellayan has been a visionary and has focused on execution since the time he has joined the company.

Phoenix mills

Retail business is a very large opportunity in India with multiple new international brands coming in, per capita income increasing and low penetration still in multiple states in India. Covid has led to dramatic changes in competitive intensity in the retail business.

Existing malls which were weaker have gone out of business or sold off to private equity guys and newer guys who had plans to expand have shelved their plans post Covid and hence there is a lower competitive intensity going forward.

In midst of this Phoenix Mills is doubling its sq ft from 7mn to 14 mn in the next 2 -3 years. With a strong balance sheet, the huge size of the opportunity, and structural growth rather than residential or commercial developer where growth in cyclical and credible management makes us bullish on this name.

Nifty hit record highs but there is still some catching up to do from the small & midcap space. How should investors play this theme which is still under pressure?
We believe mid-caps and smallcap will definitely do a catch-up in the next few weeks as FIIs’ flow come back. We believe earnings across high-quality midcap companies continue to grow currently at mid-teens.

Most of the issues of higher raw material costs, and higher logistics costs due to supply chain disruption is clearly behind. Globally, we are nearing the end of the rate hike cycle which should augur well for markets specially midcaps.

We believe that over the next 3 years, investors expect 13-15% CAGR return in the midcap index.

Who should invest in your fund? What is the ideal risk profile for investors?
Investors who have slightly higher risk profiles and who aspire for sustainable higher returns over the long term and want to invest in a fund house whose philosophy is to focus on buying high-quality names.

Investors with a growth mindset should look at our fund with a minimum of the 3-5-year horizon. We believe the power of compounding not only plays in stocks but also in investments in mutual funds.

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