Investment Strategy

India is like a spring pushed down by disruptive reforms, inflation targeting and a strong dollar phase over the last few years. With excellent demographic and technology tailwinds and global monetary policy being even more accommodative post-Covid, India could witness the mother of all bull runs in the 2020s.

With the formalisation of India’s economy, listed organised players stand to benefit the most. But while thousands of companies are listed in India - many have poor corporate governance, promoter mismanagement, inflated accounts, excess leverage and poor cash flow management. Yet there are a few rare gems who show strong and relatively consistent growth, capture market share and can withstand down cycles.

We at Ashika Investment Managers specialise in picking out these diamonds in a coal mine with our diligent research work and structured investment framework.

We have developed a proprietary framework for investment decision making known as the GSP Model

The GSP framework is used to evaluate a company on 3 key factors with 3 sub-factors each which are :

Governance

India’s market is unique compared to the West in that most of the companies are promoter driven. It is important that the promoters have a clean record and that their incentives are aligned with minority shareholders.
The company must have healthy free cash flows or be working towards it. Excess cash should either be returned to the investor or used for funding value-accretive growth.
Empire building and excessive diversifying within the same listed entity are best avoided, exceptions notwithstanding.

S-Curve Growth

There are some industries which show an S-curve growth, that is a much faster growth for a few years compared to GDP growth. For example, consumer spending on staples may remain relatively stable as a fraction of per capita income but their spend on discretionary products may increase.
Within an industry that is experiencing such growth, we prefer a company that is either the market leader or a dynamic company which is experiencing faster-than-industry growth.
There are also opportunities to invest when an industry is at a cyclically low position, or a company that is currently at low utilisation levels as it would benefit when operating leverage kicks in.

Price

The market provides several buying and selling opportunities through market over-reactions or near-term catalysts/ events.
It is important to screen companies for their financial metrics (leverage, interest coverage, average cost of debt) but not focus too much on simplistic ratios or multiples.
We also need to account for the sustainability or the longevity of a company’s moat when looking at their valuations. A company that has a very clear long-term visibility should trade at a premium.

In addition to the above, some stocks (aka part ownership in companies) often carry a unique qualitative factor, which we can call the ‘x-factor’, which makes it different from most competitors.