Exclusive Interview with the Fund Manager of an Emerging AIF Powerhouse

• 🎯Laser-Focus on Leadership: Focusing on leadership traits, management quality and clear competitive edge in stock selection

• 💰 Bottoms-Up Approach with a Sector Focus: Employing a bottoms-up approach with focus on sectors enjoying tailwinds

• 🧠 The Power of Deep Thinking: Engaging in deep, multi-faceted analysis and maintaining psychological balance

• 🏗️ Construct a Resilient Portfolio: Capitalizing on broader trends in hot sectors with strong focus on fundamentals and maintaining a balanced risk profile

• 🧩 Recognize the Art of Valuation: Using multiple valuation techniques, maintaining a margin of safety to avoid overpaying for assets

Monarch AIF's Differentiated Approach 🦋

Urvashi: How does Monarch AIF differentiate itself in the competitive landscape of AIFs and PMS?

Abhisar: At Monarch AIF, we have deliberately chosen to remain focused on a single Flexicap strategy, holding a concentrated portfolio of 20-25 high-conviction stocks. We believe in running a 🎯 focused fund house and not launching multiple schemes just for the sake of it.

Additionally, 95% of our assets have been raised through direct engagement with corporate houses and ultra HNIs, leveraging our group's strong relationships. Only 5% has come through distributors or wealth partners. 🤝 This direct approach helps reduce costs for clients and build a stable investor base aligned with our long-term philosophy.

We prioritize client interests above all else. In fact, there have been instances where we have executed an early closure of a fund and returned money to investors when we felt the risk-reward had turned unfavorable. The goodwill and trust generated through such actions will hold us in good stead over the long run. 🙌

Investment Process & Key Factors 🔍

Urvashi: Can you walk us through your investment process and the key factors you consider while building your portfolio?

Abhisar: Our process is rooted in bottom-up stock selection, focusing on businesses with leadership traits, capable management, strong cash generation, and improving return on capital. 📈

When analyzing a company, we look for leadership in the form of market share, cost efficiency, strong brands or pricing power. Then we assess 👨‍💼 management quality, their strategic vision, execution track record, capital allocation skills, and alignment of interests with minority shareholders.

On the financial front, we focus more on cash flow growth over just reported profits. 🧮 On return ratios, we work hard on the incremental ROCE metric to decode if the same is improving and sustainable at high level. Other vital metrics we track are balance sheet health and proportion of growth funded by internal accruals.

Valuation discipline is critical, and we strive to maintain a margin of safety while being willing to pay up for quality. 📊 We employ a mix of relative and absolute valuation methods to arrive at a fair value estimate.

While we don't base our stock selection on macro factors, we do track them closely to assess sectoral implications and position our portfolio accordingly. However, we believe that 🔬deep bottom-up research is ultimately what drives long-term outperformance.

Sector Preferences & Outlook 📈

Urvashi: Which sectors are you currently positive on, and why? How do you see them playing out in the coming years?

Abhisar: We are currently positive on banking & financial services, chemicals, infrastructure, and consumption themes. 🏦🧪🏗️🛒

The banking sector is experiencing a strong improvement in asset quality and profitability metrics. Many of these stocks are still available at reasonable valuations relative to their growth potential. As credit growth picks up, we expect well-managed banks to deliver healthy compounding. 💸

In chemicals, we like specialty chemical companies that have built strong market positions and are benefiting from supply chain diversification away from China. Many of these stocks have corrected recently and are now available at attractive valuations, in our view. 🧪

Infrastructure is another key theme, given the government's capex push. We see opportunities across roads, railways, ports, logistics, building materials and industrials. However, bottom-up selection remains critical here to identify the right beneficiaries as valuations have become stretched in some sub-segments within this broad theme but there are still ample pockets available at reasonable value. 🏗️

On consumption, rising income levels and aspirations should drive demand growth across categories. However, the sector is seeing some near-term pressures due to raw material inflation. We prefer companies with pricing power, strong brands and extensive distribution reach. 🛒

As always, our focus remains on identifying players showing leadership traits and scale abilities within each sector that can grow profitably and generate healthy cash flows over a 3-5-7 year horizon. 🏆