How has SISOP managed to be one of the Top Wealth Creators of Last Decade & What is the Fund Manager's guidance for the next decade?

Fund Manager explained traits, and facts of its one of top wealth creating equity portfolios – Sundaram India Secular Opportunities Portfolio (SISOP)

– Sticking to process

– Investing in Secular businesses with predictable earnings

– High conviction & concentrated investment portfolio

Fund Manager explained the rationale for the sector and stock level selection and correlated it with the market view.

What makes SISOP technically superior?

• SISOP buys businesses in the portfolio as opposed to the notion of a stock – which helps the fund management team remain focused on the business metrics more than the stock prices, valuation is evaluate post the business.
• The fund manager wants sustainable growth of atleast 15% for 5-10 years which is a non negotiable for the fund manager, simple financial filters like ROCE is used to evaluate if the business is generating cash to fund growth through accruals which in turn helps keep debt low.
• Cash is king : Cash flow analysis is checked to ensure that no unexplained large cash transactions are taking place withing related companies or outsiders – any such transaction is a red flag.
• Avoid mean reversion stories – the fund manager is more comfortable with business metrics than growth, he feels growth is essential criteria and gains due to re-rating is only and added advantage but not a necessary condition.
• Superior execution measured by working capital cycle , generating cash is the most important for any businesses. Those companies which don’t run effective working capital cycles will falter at some point.
• the most important evautaion criteria remains the quality of management and the vision of the management team. Corporate governance plays an important role in the SISOP portfolio being a technically superior one.
• Undercovered or underowned mid and small cap stocks that fit the other criteria’s offer great potential to grow. Sundaram has been known to mine this space quite well.

Trends for the next decade:

• Low ticket Discretionary Consumer items : As Indian demographics change most people cover their basic FMCG needs and move to branded products across products like packaged foods, consumer electronics, clothes, shoes etc.. which over a huge upside potential.
• Penetration of new business like Insurance cover, branded and patented medicines as safety as a concern increases post Covid-19.
• Chemical companies like PI Industries which offer branded molecules compared to the commoditized chemicals. PI Industries now commercializes 5-6 molecules which earlier used to be close 2-3 molecules a year. Such companies represent a huge upside potential.
• Manufacturing in India has a theme is going to play out fairly well as more global companies like Samsung, Apple etc… line up to manufacture in India . India sees sales of roughly 20cr smartphones every year which is a huge opportunity. Although companies where business is complex or capex is quite frequent can be avoided like Bharti Airtel – they just got of a capex cycle to upgrade to 4g and now 5g seems around the corner.