Motilal Oswal IOP

Fund Snapshot

Investment Philosophy

Motilal Oswal’s India Opportunity Portfolio seeks long-term capital appreciation by investing in a concentrated portfolio of high-growth small and mid-cap stocks with the potential to outperform nominal GDP growth over the next 5-7 years and are readily available at affordable market prices.

Their ‘Buy Right: Sit Tight’ principle underpins investment philosophy.

The Buy Right is denoted by – (QLGP):

• The letter “Q” represents the quality of the company and its management.
• Earnings growth and a stable RoE are denoted by the letter “G.”
• The letter “L” represents the business’s competitive advantage or economic moat’s longevity.
• The letter “P” represents our approach of purchasing a good business for a fair price rather than a fair business for a fair price.

Sit Tight:

• Purchase and hold: Strictly buy and hold, believing that selecting the right business requires skill. Holding onto these businesses to allow investors to benefit from the entire growth cycle requires even more skill.
• Focus: We prefer a high conviction portfolio of assets with 25 to 30 stocks.

We assume adequate diversification, but over-diversification dilutes returns and increases market risk.

Key Features And attributes of The Portfolio

• The fund is a small-cap-oriented, concentrated portfolio of 25 stocks investing in high-growth companies.
• Identifying companies in their early stages that have the potential to grow into midcap or large-cap companies, resulting in the creation of wealth.
• In 2018, a new portfolio was created in the midst of difficult market conditions, and it outperformed the benchmark by 2.0% (CAGR).
• Index agnostic: 89% off the benchmark, the Nifty Small-Cap 100 index.
• The portfolio includes investments in non-lending financials, oil and gas, and consumer discretionary.

QGLP Framework for Small-caps Quality:

Motilal believes that while quality in some small-cap companies has yet to be proven, many are at the ‘point of emergence.’ Motilal defines the ‘Point of Emergence’ as the point at which a company begins to generate a return on equity greater than the cost of equity (typically 12%).

• Growth: The correlation between small-cap companies and GDP growth is much stronger.
• Longevity: Several more small-cap companies have enormous growth potential, allowing for a long runway for growth. Identifying high-quality management is the key to selecting the right small-cap companies.
• Price: Prices are much more volatile. According to Motilal, “making money in small caps requires vision to see, courage to buy, and patience to hold.”

Unique Feature

Selection of small & mid Cap upcoming Multibagger Stocks

Investment Goal:

The strategy seeks to outperform the market by investing in stocks from industries that can gain from India’s emerging business organisations. It intends to invest primarily in small and midcap stocks, focusing on identifying potential winners. Concentrate on industries and businesses that are expected to grow faster than the average.

Types of securities are described as follows:

Equity Securities chosen as an aspect of the investment strategy: Concentrate on industries and businesses that are expected to grow faster than the average and emphasis emerging themes.

Portfolio allocation across asset classes:

The strategy seeks to invest primarily in small and mid-cap equity-related instruments. However, the strategy is adaptable enough to invest in companies with various market capitalisations.

Benchmark:

Their desired benchmark is Nifty Small Cap 100 TRI.