(Article by Mr. Kunal Pawaskar, Portfolio Manager, Tata ACT PMS)


CY 2021 has been a rewarding year for equity investors. It has also been a year of continuation of events beyond the usual that started in 2020. We saw unprecedented supply chain logjams and commodity price increases that are gradually reverting now. Monetary policy has taken us into uncharted territory and is affecting asset classes disproportionately compared to the past.

From the time Covid-19 arrived in early 2020, we have had multiple lessons in not being too dogmatic in our approach to the market. Gains have come from sectors that were in slumber in the past and are now seeing improvements. It is also the case that relatively small changes in business performance at the margin greatly help stock prices where the consensus view is not positive or where there may be collective biases based on experiences of the past.

Keeping this background in mind, we would like to highlight our Tata ACT portfolio approach (A – All-weather stocks constituting around 40-50% of the portfolio, C – Catalyst for growth at 25-30% of the portfolio, T – Turnaround candidates at 25-30% of the portfolio).

This approach gives investors exposure to different investment styles and market capitalization categories (large, mid and small). All-weather candidates are usually businesses that have consistent and predictable financial performance.

They will typically be larger companies. The catalyst for growth candidates would be ones where we expect improvement in the next 12-18 months period as they are correcting for some deficiencies in the past or adapting better to a changing environment.

Turnaround candidates would have a higher timeframe, 2-3 years, over which we expect improvement in prospects, and be typically trading at relatively more attractive valuations than the Catalyst category for the probable improvement in business.

The ACT approach should serve investors well in the coming years considering that the portfolio composition explicitly has earmarked Catalyst and Turnaround exposure. We are seeing changing macro environments globally – more interventionist central banks and governments. Domestically, there is a certain economic direction being taken within India that is prioritizing capex growth – both government and private. Higher inflation has helped a class of companies make windfall profits that are being spent in capex. Low real rates assist real estate in addition to the factors like RERA.

Over the last few months for the reasons mentioned above and bottom-up research, we have increased exposure to selected companies in sectors including real estate and industrial goods manufacturers (both capital goods and consumables). There may be ups and downs in the market, but we feel that one should not hesitate to back multi-year business trends in companies that are positioned well. Of course, we will do our research to confirm that there is a decent probability of good outcomes for the chosen companies. While we have talked about the “C” and “T” portions, the “A” portion of the portfolio will lend stability across a cycle. In summary, the investor in ACT benefits from a strong core accompanied by exposure to potentially higher outcomes in the other half of the portfolio.

RISK DISCLAIMER: Investments are subject to market-related risks. This write up is meant for general information purposes and not to be construed as any recommendation or advice. The investor must make their own analysis and decision depending upon risk appetite. Only those investors who have an aptitude and attitude to risk should consider the space of Alternates (PMS & AIFs). Past Performance may or may not be sustained in the future and should not be used as a basis for comparison with other investments. Please read the disclosure documents carefully before investing. PMS & AIF products are market-linked and do not offer any guaranteed/assured returns. These are riskier investments, with a risk to principal amount as well. Thus, investors must make informed decisions. It is necessary to deep dive not only into the performance, but also into people, philosophy, portfolio, and price, before investing. We, at PMS AIF WORLD do such a detailed 5 P analysis.


Do Not Simply Invest, Make Informed Decisions

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