The investment approach adopted by Moneygrow Small & Midcap PMS integrates both top-down and bottom-up strategies. This dual approach allows the fund managers to:

1. Top-down strategy: Assess macroeconomic trends, industry cycles, and sector dynamics to identify favorable conditions for certain sectors or industries. This helps in making informed decisions regarding asset allocation across sectors.
2. Bottom-up strategy: Focus on identifying individual companies with strong fundamentals regardless of broader economic or market trends. Stocks are selected based on their intrinsic value, growth potential, and financial health.

Stocks are chosen based on a range of factors, including fundamentals, valuations, growth potential, and other key metrics, ensuring a balanced and diversified portfolio. This approach seeks to capture opportunities across the market cap spectrum (large, mid, and small caps) and provides the flexibility to adjust according to market conditions while maintaining a long-term investment horizon.

The investment strategy of Moneygrow Small & Midcap PMS is based on certain parameters and checks. Some of them are explained below:

1. Industry Potential:

– Focus on companies that are scalable and have long-term growth potential.

– Invest in businesses with pricing power and a favorable competitive landscape.

– Avoid sectors that are highly vulnerable to regulations, intense competition, or short growth cycles.

2. Business:

– Target companies with competitive advantages that deliver high returns on capital employed (RoCE).

– Prioritize structural growth stories with strong cash flow generation and manageable or no debt, except in clear turnaround cases.

– Avoid businesses with poor cash flow generation.

3. Governance:

– Look for management teams with a clear, long-term strategy focused on generating shareholder value.
– Favor companies with prudent capital allocation aligned with the interests of minority shareholders

4. Valuations:

– Seek investments that offer a favorable risk-reward ratio, particularly based on cash flow valuation metrics.
– Valuation alone is not the deciding factor; other strategic considerations are equally important.

1. Scope for PE-style investing:

• Employ a bottom-up approach to identify emerging sub-sectors and companies.
• Engage in value investing at an earlier stage of a company’s growth cycle, while avoiding the “winner’s curse” associated with larger, institutionally discovered companies.

2. Emerging Opportunities:

• Invest in sunrise sectors like green energy and recycling.
• Capitalize on the China+1 strategy, helping to de-risk global supply chains.
• Focus on infrastructure development, NCLT (National Company Law Tribunal) resolutions, and turnaround stories.

3. Ride the Compounding Story:

• Once governance and the earnings growth story are confirmed, benefit from the compounding of returns.
• High earnings growth attracts institutional investors over time.
• The combination of EPS (Earnings Per Share) growth and P/E (Price-to-Earnings) re-rating often leads to outsized returns.