the zen of investing - motilal · pdf filequality : quality of business and management growth...

THE ZEN OF INVESTINGTHE ZEN OF INVESTINGTHE ZEN OF INVESTINGTHE ZEN OF INVESTING

November 2014

THE ZEN OF INVESTINGTHE ZEN OF INVESTING

Contents

� Why India ?

• India’s Next trillion Dollar Era

• New Cycle of Earnings Growth

• Current Valuations below Decadal Average

� Why MOAMC- PMS?

� Why Value ?

2


Source: Motilal Oswal Securities Ltd, as on 31st March 2014

3

� It took almost 60 years for the first US$ 1 trillion of GDP, today India is 10th

largest economy in world

� It is expected to take only 7 years for US$2 trillion

Above forward-looking graphs & statements are based on external current views and assumptions and involve known and unknown risks and uncertainties

that could cause actual results.

India’s Next Trillion Dollar Era21

33 57 150

293

464

475

492

523

618

721

834

948 1,2

39

1,2

26

1,3

66

1,7

08

1,8

79

1,8

58

1,8

81

2,1

33

2,4

08

2,7

31

3,1

12 3,5

62 4,0

78

FY

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FY

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FY

90

FY

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E

FY

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E

FY

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E

FY

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E

FY

18

E

FY

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E

FY

20

E

1st US$ tn

2nd US$ tn

7 years

58 years

3rd US$ tn

4th US$ tn

2 years

3 years

GD

P (

USD

bn

)


New Cycle of Earnings Growth

4

The chart below indicates the S&P Sensex expected Earnings Per Share (EPS) growth from FY13 –FY15E.

Above forward-looking graphs & statements are based on external current views and assumptions and involve known and unknown risks and uncertainties

that could cause actual results. Past performance may or may not be sustained in future.

Source: Motilal Oswal Securities Ltd, as on 31st March, 2014

81129

181250 266 291 278 280

216 236 272348

450523

718

833 820 834

1,0241,123 1,183

1,331

1,525

FY9

3

FY9

4

FY9

5

FY9

6

FY9

7

FY9

8

FY9

9

FY0

0

FY0

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FY0

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FY0

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FY0

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FY0

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FY0

9

FY1

0

FY1

1

FY1

2

FY1

3

FY1

4E

FY1

5E

FY93-96:

45% CAGR

FY96-03: 1% CAGR

FY03-08: 25% CAGR

FY08-13:

7% CAGR

FY13-15E: 14%

CAGRFY93-FY13: 14% CAGR

THE ZEN OF INVESTINGTHE ZEN OF INVESTING 5

Current Valuations Below Decadal Average

SENSEX P/E (x) SENSEX P/B (x)

SENSEX ROE (%) SENSEX EARNINGS YIELD Vs BOND YIELD (%)

Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments.

Source: Motilal Oswal Securities Ltd, as on 31st March, 2014

24.65

10.67

14.68

7

12

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10 Year Avg:

15.4x

4.15

1.64

2.40

1.2

2.1

3.0

3.9

4.8

Ma

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10 Year Avg:

2.7x

24.15

15.9116.39

15.0

17.5

20.0

22.5

25.0

Ma

r-0

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10 Year Avg: 19.3%

1.84

0.52

1.64

0.77

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0.7

1.2

1.7

2.2

Ma

r

-04

Ma

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10 Year Avg: 0.90x


Why MOAMC- PMS ?

6

� Amongst India’s one of the leading PMS Service Providers, with Assets under Management

of approx Rs. 2135 Crores.

� Our Flagship “Value Strategy” has outperformed the benchmark across market cycles over

a 11 year period.

� MOAMC - PMS has one of the largest active accounts (more than 4,170) on PMS Platform.

� Value Strategy’s performance is rated by internationally reputed agency Morningstar every

quarter.

� MOAMC - PMS has active clients in 138 different cities right from Agra to Vijayawada ; a

testimony of strong acceptance of our PMS across the length & breadth of the country.

Data as on 31st October 2014

©2012 Morningstar, Inc. All rights reserved. The data and analysis provided herein do not constitute investment advice offered by Morningstar and are provided only for informational

purposes. It should not be construed as an offer or the solicitation of an offer, to buy or sell securities. Morningstar is not responsible for any error or omission in the data.

Investments in Securities are subject to market and other risks and there is no assurance or guarantee that the objectives of any of the strategies of the Portfolio Management Services

(PMS) will be achieved. Investors in the PMS Product are not being offered any guaranteed/assured returns. Past performance of the portfolio manager does not indicate the future

performance for any of the strategies.


Why Value ?

7

�Value Investing

• Wealth Creator- Value Investing

• Buy & Hold Philosophy

• Value Philosophy

• Rigorous Investment Process

�Value Strategy

�Consistent Performance


Our investment philosophy – ‘Buy Right: Sit Tight’

8

A philosophy distilled from over 25 years of wealth creation expertise of

Motilal Oswal Securities Ltd.

Q-G-L-P approach to buying right stocks

Quality : Quality of business and management

Growth : Growth in earnings and sustained RoE

Longevity : Longevity of the competitive

advantage /economic moat of the business

Price : Buying a good business for a fair price

rather than buying a fair business for a good

price.

Focus and Discipline

Buy and Hold: We are strictly buy and hold

investors and believe that picking the right

business needs skill and holding onto these

business to enable our investors to benefit from

the entire growth cycle, needs even more skill.

Focus: Our portfolios are high conviction

portfolios with 20 to 25 stocks being our ideal

number. We believe in adequate diversification

but over-diversification results in diluting returns

for our investors and adding market risk.

Buy Right Sit Tight


Our investment philosophy – ‘Buy Right: Sit Tight’

9

Why “ BUY RIGHT: SIT TIGHT” is significant?

� Real wealth is created by riding out bulk of the growth curve of quality companies and not by trading in

and out in response to buy, sell and hold recommendations.

� This philosophy enables investor and manager alike to keep focus on the businesses they are holding

rather than get distracted by movements in share prices.

� An approach of buying high quality stocks and holding them for a long term wealth creation motive,

results in drastic reduction of costs for the end investor.

� While BUY RIGHT is largely the role of the portfolio manager, SIT TIGHT calls for involvement from the

portfolio manager as well as investor. This brings in greater accountability from the manager and at the

same time calls for better involvement and understanding from investor resulting in better education

for the latter.

� Long term multiplication of wealth is obtained only by holding on to the winners and deserting the

losers.


Wealth Creator- Value Investing

10

� A business is prudently picked for investment after a thorough study of its underlying hidden long-term potential.

� Value Investment involves determining the Intrinsic value of a stock, and investing in it if the difference between the value

and the stock price provides a sufficient Margin of Safety.

� "We don't get paid for activity, just for being right. As to how long we'll wait, we'll wait indefinitely." - Warren Buffett

Source: MOAMC

Please Note: The given stocks are part of portfolio of a model client of Value Strategy as on 31st October 2014. The stocks forming part of the existing

portfolio under Value Strategy may or may not be bought for new client. Past performance may or may not be sustained in future and should not be used as

a basis for comparison with other investments. Name of the PMS Strategy does not in any manner indicate its future prospects and returns. The Companies

mentioned above is only for the purpose of explaining the concept and should not be construed as recommendations from MOAMC.

Stock Purchase DateAdjusted Purchase

Price

Current Market Price % Growth

31-Oct-14

Bosch Limited Jun-03 497.00 14900.75 2898%

State Bank Of India Jun-03 360.00 2702.8 651%

HDFC Ltd Jan-06 241.80 1105.9 357%

Hdfc Bank Jul-08 201.00 911.85 354%

Hero MotoCorp Ltd Jun-03 253.65 3064.25 1108%


Buy & Hold Approach

11

BUY & HOLD strategy, leading to very low churn, lower costs and enhanced returns

For relative comparison, base has been taken as 10 for all the above charts. Based on the closing market prices of 31st October 2014.

Please Note: The given stocks are part of portfolio of a model client of Value Strategy as on 31st October 2014. The stocks forming part of the existing portfolio under

Value Strategy may or may not be bought for new client. Past performance may or may not be sustained in future and should not be used as a basis for comparison with

other investments. Name of the PMS Strategy does not in any manner indicate its future prospects and returns. The Companies mentioned above is only for the purpose

of explaining the concept and should not be construed as recommendations from MOAMC. Source: MOAMC,NSE

NA

V

NA

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Hero Moto corp CNX NIFTY Index12.07X

7.34X

0.00

50.00

100.00

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200.00

250.00

300.00

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-03

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-04

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g-0

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Bosch CNX NIFTY Index 28.28X

7.34X

9.00

11.00

13.00

15.00

17.00

19.00

21.00

23.00

25.00

27.00

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-10

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Nestle India CNX NIFTY Index 2.47X

1.70X


Value Philosophy

� Focus on Return on Net Worth

• Companies which are likely to earn 20-25 % on its net worth going forward.

� Margin of safety

• To purchase a piece of great business at a fraction of its true value.

� Balance between growth and value

• The focus is on buying undervalued companies

• Buying stable earnings / cash flows in reasonably priced assets

� Long-term investment View

• Strongly believe that “Money is made by investing for the long term”

� Bottom Up Approach

• To identify potential long-term wealth creators by focusing on individual companies and their

management bandwidth.

� Focused Strategy Construct

• The strategy should not consist of more than 15-20 stocks

12


Rigorous Investment Process

13

Top Down analysis: market views, thematic drivers, winner categories, category winners

500 Stocks 80-100 Stocks 15-20 Stocks

QUANTITATIVE

SCREEN(focus on earnings, FCF,

ROA & ROE)

Secular growth thesis

Discount to intrinsic value >30%

Accelerating earnings growth/ upward

revision

Discount to intrinsic value >50%

‘360 degree view’ of company

Identify competitive

advantages High Conviction Ideas

Superior risk-adjusted return

characteristics

FUNDAMENTAL

ANALYSISFUND

PORTFOLIO

Nature, duration, sustainability of

catalyst

Barriers to entry

INVESTMENT

UNIVERSE

Event driven ‘special

situations’

Existing/Emerging

Large-cap

companies


Value Strategy

�Strategy Objective

�Investment Style & Timing

�Risk-Return Matrix

�Strategy Construct

�Model Holding

�Investment Committee

�Fund Structure

14


Strategy Objective

The Strategy aims to benefit from the long

term compounding effect on investments

done in good businesses, run by great

business managers for superior wealth

creation

15


Investment Style & Timing

Buy undervalued stock and sell overvalued stock, irrespective of Index movements.The below mentioned table gives the performance of the Stocks after exiting from the Strategy.

16

Source: MOAMC

* Data as on 31st October 2014

The Stocks mentioned herein are for general and comparison purpose only and not a complete disclosure of every material fact. It should not

be construed as investment advice to any party. Past performance may or may not be sustained in future.

Scrip Name Buy DateAdjusted

Buy PriceSell Date

Adjusted

Sell PriceCMP *

Scrip

Returns

post selling

Value Returns

post selling

Nifty

Returns

post selling

Balkrishna Industries 14-Jan-04 24.20 31-Aug-05 169.32 770.1 18% 16% 15%

BHEL 23-Jun-03 27.38 26-Mar-07 224.31 256.7 2% 16% 11%

Ranbaxy 06-Nov-07 442.02 11-Jun-08 570.65 633.35 2% 16% 10%

Tata Steel Ltd 06-Nov-07 857.40 29-Mar-10 648.20 490 -6% 14% 10%

DLF 06-Jul-07 576.18 10-Jul-08 458.55 124.75 -19% 17% 12%

Bharti Airtel Ltd 25-Apr-03 17.24 07-Mar-12 329.20 398.9 8% 23% 19%


Risk-Return Matrix & Strategy Construct

� Investment Horizon:

• Medium to Long Term (3 Years +)

� For Whom:

• Investors who like to invest with a Long-term

wealth creation view.

17

� Allocations - Market capitalization

• Large Caps : 65 % - 100%

• Mid Caps: 0% - 35%

� No. of Stock

• 15-20 stocks for a portfolio

� Scrip Allocation

• Not more than 10% –12% in a single stock

� Sector Allocation Limit

• 35% in a sector

Strategy Construct


Model Holding

18

Top HoldingsSector Allocation

Source: MOAMC

Please Note: These stocks are a part of the existing Value PMS strategy as on 31st October 2014. These Stocks may or may not be bought for new clients. Past performance may or may not

be sustained in future and should not be used as a basis for comparison with other investments. The strategy may or may not have any present or future holdings in these stocks. The

companies mentioned above are only for the purpose of explaining the concept and should not be construed as recommendations from MOAMC.^ Based as per the closing market prices

on 31st October 2014.

^Above 5%

Scrip Name %Holdings^

Eicher Motors Ltd. 16.76

Bosch Ltd. 10.32

HDFC Bank Ltd. 8.92

Tech Mahindra Limited 8.79

H D F C Limited 7.30

State Bank Of India 7.15

Sun Pharmaceuticals Ltd. 7.06

Tata Consultancy Services Ltd. 6.91

Larsen & Toubro Ltd. 5.88

Hero Motocorp Limited 5.34

Divis Laboratories Ltd 5.18

Asian Paints Ltd. 5.15


Chairman

19

• Mr. Raamdeo Agrawal is a Co-founder and Joint Managing

Director of Motilal Oswal Financial Services Ltd.

• Mr. Agrawal is also a Director on the Board of Motilal Oswal

Asset Management Co. Ltd.

• He is the key driving force behind strong research capability as

well as a renowned Value investor, and has also been

instrumental in setting up the investment management

philosophy of the firm.

• He has an extensive experience of more than 25 years in

Financial Service Sector.

• Mr. Agrawal is an Associate of Institute of Chartered Accountant

of India.

• One of India’s foremost Value Investors and author of the

‘Wealth Creation Study since its inception in 1996.

• In 1986, he wrote the book Corporate Numbers Game, along

with co-author Mr. Ram K Piparia.


Fund Manager & Head Equity PMS

20

• Mr. Manish Sonthalia is Senior Vice President and

Head -Equity PMS

• He has more than 17 Years Experience in Equity

Research, Fund Management & Equity Sales.

• Qualifications – FCA, ICWAI, CS, MBA

• Past Experience : He has been Vice President –

Equity Research at Motilal Oswal Securities Ltd.

• Fund Manager with PMS since 2006


Fund Structure

21

Mode of payment By Fund Transfer/Cheque and/or Stock Transfer

Investment Horizon Medium to Long Term (3 Years +)

Benchmark CNX Nifty Index

Account Activation Next business day of Clearance of funds

Portfolio Valuation Closing NSE market prices of the previous day

Operations•Investments managed on individual basis

•Third party Custodian for funds and securities

Reporting

•Monthly Performance Statement

•Transaction, Holding & Corporate Action Reports

•Annual CA certified statement of the Account

Servicing•Dedicated Relationship Manager

•Web access for portfolio tracking


Performance Track Record

22

Since Inception Value Strategy has delivered a CAGR of 27.43% vs. Nifty returns of 19.90%, an

outperformance of 7.52% (CAGR).

* Strategy Inception Date: 24/03/2003.

Please Note: The Above strategy returns are of a Model Client as on 31st October 2014. 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. Strategy

returns shown above are post fees & expenses. Returns above 1 year are annualized.

% R

etu

rns


Performance Since Inception

23

The chart below illustrates Rs.1 crore invested in Value PMS in March 2003 is worth Rs. 16.6 crores as on 31st

October 2014. For the same period Rs. 1 crore invested in Nifty is now worth Rs. 8.23 crores.

Strategy Inception Date: 24/03/2003.

Please Note: The Above strategy returns are of a Model Client as on 31st October 2014. 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. Strategy

returns shown above are post fees & expenses.

Both, Value Strategy and CNX Nifty rebased to 10 as on 24th March 2003

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Value Strategy CNX Nifty Index16.66X

8.23X


Risk Analysis – By Morning Star

The Value strategy has outperformed the benchmark with a lower level of

volatility and has managed to deliver strong returns while offering defensive

characteristics, reducing losses during periods of market downturn but

participating in the upside.

24

Source : Motilal Oswal AMC/Morningstar Direct, Data as on 30/09/2014, returns annualized using model strategy * CNX Nifty Index

5 Years Data Portfolio Benchmark*

Beta 0.75 1.00

R2 76.92 100.00

Up Capture Ratio 91.74 100.00

Down Capture Ratio 70.10 100.00

Sharpe Ratio 0.51 0.25

Standard Deviation 15.16 17.80

©2012 Morningstar, Inc. All rights reserved. The data and analyses provided herein do not constitute investment advice offered by Morningstar and are provided only for

informational purposes. It should not be construed as an offer or the solicitation of an offer, to buy or sell securities. Morningstar is not responsible for any error or omission

in the data. Past performance may or may not be sustained in future.


Risk Disclosure And Disclaimer

25

Thank You

Registered Office: Portfolio Management Services Department

10th Floor, Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai – 400025

SEBI Certificate of Registration as Portfolio Manager INP 000000670

Disclaimer: This presentation has been prepared and issued on the basis of internal data, publicly available information and other sources believed to be reliable. The information

contained in this document is for general purposes only and not a complete disclosure of every material fact and terms and conditions. The information / data herein alone is not sufficient

and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions, figures, charts/graphs,

estimates and data included in this presentation are as on date and are subject to change without notice. While utmost care has been exercised while preparing this document, Motilal

Oswal Asset Management Company Limited does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this

information. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions

and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements.

Readers shall be fully responsible / liable for any decision taken on the basis of this presentation. No part of this document may be duplicated in whole or in part in any form and/or

redistributed without prior written consent of the Motilal Oswal Asset Management Company Limited. Readers should before investing in the Scheme make their own investigation and

seek appropriate professional advice. • Investments in Securities are subject to market and other risks and there is no assurance or guarantee that the objectives of any of the strategies of

the Portfolio Management Services will be achieved. • Clients under Portfolio Management Services are not being offered any guaranteed/assured returns. • Past performance of the

Portfolio Manager does not indicate the future performance of any of the strategies. • The name of the Strategies do not in any manner indicate their prospects or return. • The

investments may not be suited to all categories of investors. • The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete,

and it should not be relied upon as such. • Neither Motilal Oswal Asset Management Company Ltd. (MOAMC), nor any person connected with it, accepts any liability arising from the use of

this material. The recipient of this material should rely on their investigations and take their own professional advice. • Opinions, if any, expressed are our opinions as of the date of

appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that

prevent us from doing so. • The Portfolio Manager is not responsible for any loss or shortfall resulting from the operation of the strategy. • Recipient shall understand that the

aforementioned statements cannot disclose all the risks and characteristics. The recipient is requested to take into consideration all the risk factors including their financial condition,

suitability to risk return, etc. and take professional advice before investing. As with any investment in securities, the Value of the portfolio under management may go up or down

depending on the various factors and forces affecting the capital market. Disclosure Document shall be read carefully before executing the PMS agreement . • Prospective investors and

others are cautioned that any forward - looking statements are not predictions and may be subject to change without notice. • For tax consequences, each investor is advised to consult his

/ her own professional tax advisor. • This document is not for public distribution and has been furnished solely for information and must not be reproduced or redistributed to any other

person. Persons into whose possession this document may come are required to observe these restrictions. No part of this material may be duplicated in any form and/or redistributed

without’ MOAMCs prior written consent. • Distribution Restrictions – This material should not be circulated in countries where restrictions exist on soliciting business from potential clients

residing in such countries. Recipients of this material should inform themselves about and observe any such restrictions. Recipients shall be solely liable for any liability incurred by them in

this regard and will indemnify MOAMC for any liability it may incur in this respect.

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