Capitalmind Launches Flexi Cap Fund How Quantitative Investing Can Help You Reach Your Goals

As I think of quantitative based investing or factors and stuff like that, one of the first questions that comes to mind is why have you often anchored on momentum, which is what you did for so many years at the PMS when you launched it in our sponsor entity when value sounds fairly compelling the the strategy where you can find stocks on the cheap and buy them before other people have discovered them. Surely that’s also a very credible way to make money. If you were to be thinking about picking your best driver or the driver you think is going to be most effective or win the most points over the next season or so, all of these guys and decide who you think is the best driver among them. For instance, I have uh I have two kids and they’ve been growing over the last decade and I’ve been worried that I will not have enough money for their college expenses. And that could be any big number. So the way your child develops, you’re like, “Oh, he wants to go there. That’s the kind of fees I’m going to need to save for.” And that goalpost as it shifted, I just changed the math and then said, “Okay, this is how much I need to move.” The important point that it did to me was it removed that anxiety saying I’m on track.

If you were to ask me, I’d like to be able to go to Lords to watch a test match between India and England because I really enjoy the the prospect of that experience and not having to worry too much about how am I going to pay for it. That would count as financial success to me. I think the philosophy here is your stocks are just elements of parts of your portfolio or your strategy. It’s better to be focused on the strategy than it is to be focused on the individual investment itself. I however think it’s not quite as straightforward like let’s completely concede that with the economy being where it is there’s almost this of inevitability about how things will unfold over the next say decade or two with regard to economic growth wealth creation and the like. I think I’m even willing to take that as the table stakes assumption for how we should look at the future. But then as I just feel it’s not like our day-to-days as I said are some blissful existence right I mean we have a endless set of tensions that that preoccupy us as anyone would I mean let’s not even talk about things like traffic and infrastructure there’s like parts of the country where people pretty much have to leave because they will lose years of their life from pollution uh that exists. um there’s expenses that rise so disproportionately that you may have to keep downgrading say your rental flat or uh or may not be able to afford the school because its fees keep going up every year like at many factors or multiples that of inflation. So I think the question I’m really coming to is yeah maybe this is a world where we’re all going to indeed be wealthier in India or many of us are going to be wealthier in India but does that mean that we’re going to have this better quality of life or that things will just be better and happier going on? I mean surely there’s more to it right what’s your take an you know fair point sh so as investment managers I think we talk a lot about money but at the end of the day money is a means to an end and not not an end in itself right so I think to me for examp and it’s a very personal sort of a question that each of us has to ask ourselves what does it mean to be financially successful or to be financially secure and it to me it’s not about posting you know Instagram selfies with flashy cars or you know flashy vacations. It’s it’s it’s a lot more personal as to what really matters to me. So, if you were to ask me, I’d like to be able to go to Lords to watch a test match between India and England. Uh because I really enjoy the the prospect of that experience and not having to worry too much about how am I going to pay for it. That that would count as financial success to me. Whereas a lot of the other maybe flashy uh evidences of being, you know, financially successful don’t matter as much. So it it really does come down to what what matters to each of us and um and then finding and then sort of aiming for that as we as we kind of go through life. Deepak Anup is very much bought into the experiences versus things or internal versus external mindset. What’s your take? What does the money or the wealth enable that that we’re all going to hopefully have in the decades to come? Yeah, I think the idea of wealth for wealth itself sounds like uh like Anup said, it’s probably not the most exciting thing because if if you’re building wealth just to show off that you have wealth, then there will always be someone wealthier than you. It’s about what that wealth can do to change your life in a way that you desire that makes a difference. And sometimes some of those desires uh don’t have to be things or uh uh experiences. Sometimes it might just be the relieving of a fear that constantly plagues you. For instance, I have uh I have two kids and they’ve been growing over the last decade and I’ve been worried that I will not have enough money for their college expenses and that could be any big number. You look at any number today, it sounds too big. And then uh I was able to plan this out and I wrote a post about in capital mind. I I I we actually wrote a tool on how to calculate this is if it’s a goal that sounds big, if you have enough time for it, it just takes consistent building over a period of time. What that did to me was I could just figure out where I was. And the goalpost itself was changing. A government college can cost so much. A private medical college can so cost so much. So the way your child develops, you’re like, “Oh, he wants to go there. That’s the kind of fees I’m going to need to save for.” And that goalpost as it shifted, I just changed the math uh and then said, “Okay, this is how much I need to move.” And it was small baby steps taken over a period of years. The important point that it did to me was it removed that anxiety saying I’m on track. I don’t need to have gotten there. I don’t need to have saved that much money 5 years before he graduates. But I just or gets into the uh uh past his 12th standard, but I know that I’m on the right path there. That gives me the freedom to say well the rest of whatever I have saved I can use it to spend on something that betters my life in a meaningful way today and I’ll have a meaningful uh uh way to finance his education tomorrow. So I don’t I I live life a little bit less anxious because I am on track for my goals in that sense. So I think wealth has that ability to kind of uh uh you know flamox you in terms of saying oh this is x crores or y lakhs or something like that but in the end when you break it down into well this meets my this need and this meets my that need that makes me a little bit happier and then I can I can uh uh move forward a little bit better. I think that’s a better or a more desirable version of using wealth rather than just using it as a number by itself. for both of you. I have actually a very strange example. I think it’s a little closer to Anoop’s but but has a bit but has a bit of a element of yours as well which is a couple of no actually it’s been a decade or so ago I went skiing for the first time with some friends and there was nothing in my life that suggested I would be any good at it or that it’s something I would enjoy but uh you know life itself has a sense of humor and that turned out to be something both me and all those friends really got into and I think to me that’s something that really comes to mind which is that there’s so many things in life you simply don’t know what you would like or that this thing exists. And while initially the thought of doing this every year for many of my friends at least they were like this would be prohibitive expense-wise as you’ve pointed out Deepak if you make a plan and and and sort of like things are cooperating you can probably achieve several of the things you’ve set out for yourself of course barring crazy setbacks or whatever and now those same friends who I went with on this almost inadvertent trip have turned into frequent skiers and this is something that they enjoy doing and they do every year or every other year. So it’s as I said sometimes even you have no idea what the future holds. Um and on that I think I mean skiing may be too too niche or too out there and an example but the fact is whether just going to a new place every year going to a different part of India every year or whether it’s just something else that appeals to you. The fact is that I think what money can hopefully enable if you if you’ve invested it well and you have a sense for how the planning works is enables you to do certain things that you couldn’t think you could before and do it with the confidence that you’re not causing problems in the rest of your life. Completely concede and agree on that point. So Anup we’ve kind of like covered India’s macro journey a bit. We’ve talked very loosely about how things are going to change over the next say decade or two and we’ve even spent some time in philosophy on what like money can do for you and how we think about it. But let’s bring the focus more to like our investing framework and maybe start getting towards the actual NFO itself. But on the investing framework, you’ve now had many years investing at Capital Mind Momentum was like I think we’re one of the only people doing it when we launched. So you’ve had your fair set of experiences on this. what’s the framework or how are you thinking about the first fund or first few set of funds we’re going to launch uh at the capital mind mutual fund. So if I were to talk about think of our flexi cap fund in a nutshell I’d say it is quantitative at its core uh with humans in the loop and that that often gets a blank stare from people who uh when you say quantitative because the traditional style of investing is of course looking at companies and understanding everything there is to about them before you decide whether to invest or not. So I I’ll use an analogy. Maybe I I’ll go to Formula 1 as a as as an example of explaining the difference. So if if you were to be thinking about picking your best driver or or the driver you think is going to be most effective or win the most points over the next season or so, there’s two ways you could do it, right? So one is you could go by the name essentially reputation and and then make your make your pick. The quantitative way of doing it would be something along the lines of what makes a good driver and and think about the different aspects or elements that would go into making a world-class champion driver. So, you know, thinking about it, it could be something like uh reaction time, how how good are they at at reacting to changing conditions and and taking turns, etc. Uh how good are they at managing tires? How good are they at defending their position? uh how good are they in wet weather. All of those would sort of tell you a little bit about how good a driver is. So quantitative or factor investing is really about distilling those a driver into those component aspects and then identifying the ones which score high on some of those key key elements that that you think are important at to win races and and podiums. So, uh, a a quantitative approach would be about if your next race is at Silverstone and you’re expecting massive rains and it’s going to be a a wet weather race, then you would find all the drivers who are good in wet weather or rather you would use the wet weather factor to decide which drivers you’re going to pick for your team or your your theoretical team and and then and sort of invest in them. So factor investing is really about breaking it down into the component aspects and then finding the drivers that fit with those in in an investing context. That essentially means given any company breaking it down into saying how does it rate on quality, value, volatility and let’s say momentum just just keeping it simple for this in in in real life. There are many more factors that could go into it. And then deciding which which factors do you want to really overindex on when you’re picking your portfolio of stocks. So if you’re looking at quality stocks, instead of looking at company names, you’re literally looking at all companies that score high on the quality factor. Or if you’re looking at value stocks, all the stocks that score high on the value factor, and so on and so forth. Or you could even combine some of them to say I’m going to pick all stocks which meet a certain minimum threshold on quality value and then score high on momenta. So you could do each of these and you know various permutations and combinations of these to to decide what your investing approach is going to be. So that that is how I would explain what quantitative investing is really about. Where does the human in the loop element come in? Human in the loop simply because uh there are certain things that don’t captured in get captured in the data. uh you don’t really know whether um a company’s is is a is let’s say a merger target or an acquisition target. You uh the data doesn’t say anything about you know what’s going to happen or maybe there’s going to be a change in ownership which which is not factored in uh or there might be I don’t know other slightly questionable issues with the with corporate governance which are not very evident in the data. So that’s where you need the human in the loop to apply that judgment and that context of of what these companies have done in the past to decide whether it it still makes sense in your portfolio or not. So Deepak Anup has now given us quite some detail on how we both think of factor investing or quantitative investing and maybe what people can expect from the flexiap NFO. But maybe as you think out over the next I don’t know 5 years or 10 years um at a slightly higher level how do we think about investing as a company per se and what sort of funds or products or philosophies uh can people expect that capital mind uses when it figures out new strategies or new products to launch. There are in fact say strong investment beliefs that we’ve had and I think one I articulate some of them. One of the things that we do believe and you know to be honest this is more because of a lot of the experience that we’ve had is that uh we use a lot of variable things during investing and in part of that investing framework we may have a lot of parameters maybe a bunch of things around macroeconomic factors company specific factors and so on or wherever we use these numbers the fear the the problem that we tend to have is uh that you should not try to get too precise in your long-term invest estimates and uh versus operating in a range of possibilities rather uh than trying to be more precise about where you’re going. Let me give you an example and there was an experiment conducted about this where there was a telescope pointed to a very very distant galaxy and uh the astronomer just moved the telescope by an inch by a degree actually and one degree itself could make it point to an entirely different galaxy about millions of light years away because you’re looking so far away the slight change in the initial set of directions just moves the telescope on to an entirely different galaxy and again they’re they’re light years apart. The same way in investing if you have you know macroeconomic factors and ROE and profitability and sales growth and all these numbers are estimates that you make based on the numbers that you know you know reality is going to be a little different. But what difference does that make? Apparently if you make a small change today the tomorrow’s results not going to change so much. But when you’re thinking 10 years down the line, the result can be dramatically different when you change the estimates by a degree down or a degree up or a percent down or a percent up. And that’s going to change your uh uh end result in a dramatic way. If you were focusing on precision, there would be a large amount of disappointment or you know uh surprise at at upsides or downsides. Instead, we tend to focus on a range that says, well, if it can be a range of inputs, what’s the range of possible outputs that you can receive? Oh, I have a back test, but is this the only version of that back test that makes sense? Can we test on a lot of ranges? Uh, do simulations on this and are we comfortable with where this whole system is is looking at. So, the idea of using probabilities in ranges allows us to say, well, we like investments where the range is more comfortable. uh to where we are. I I don’t think that I mean I think that it helps us qualify companies and strategies in a much better manner when we are trying to not be exactly precise about the future versus being simply u uh operating in ranges and in that way operating in areas where we are comfortable rather than exact pinpoints where we want to be. I think I’ I’d interject there and I sort of agree. I think a lot of analysts tend to look at businesses just as spreadsheets with very fixed inputs in them. But then anyone who spent time inside businesses knows that reality is messy. I mean your maybe your team in the in the in in the south zone wins an additional deal that you weren’t expecting but at the same time you hear that your sales team in the north has just quit because a competitor has you know gone and hired them off and then you’re trying to sort of figure out what to do with that. So in in reality businesses deal with very uncertain you know futures and and current the present and and that sort of figures into how their results sort of pan out and I suppose we in a way sort of recognize that messiness and feel that it’s impossible to accurately predict what where a business or where its earnings are going to land a year from now let alone 5 years from now which is what a lot of models tend to do. So just just building in that inherent uncertainty into the way we think about the future is is probably what what that belief really is about. That’s a good one. Give me another. Yeah. There’s another area of this entire operation is about how what we feel is market perception matters. And this sounds uh uh ephemeral. Of course market perception will matter at some level or of course why why why should it matter? The answer is a lot of times analysts and investing philosophies focus primarily on earnings growth or a growth of the fundamentals or a growth of a certain type. But we believe that in the long term it’s not just that how well a company performs but how companies are perceived that makes the difference of investment returns. Now one of the experiments did an wrote about it in 2022. He did an analysis of stocks that had done ridiculously well 10x returns in between 2012 and 2022. He said what’s the characteristic among them in terms of uh earnings growth that has happened in those 10 years for these very companies. It turns out that while they grew more than 10x in terms of stock prices, only 25% of that move was explained by their increase in earnings during that time frame. More than 75% of that increase was attributable to the change in the price to earnings ratio. Price to earnings ratio is a reflection of how the market perceives these stocks. uh 75% or two three three fourth of the growth that they had seen came from market perception changes or an increases in market perception. So in that sense if a company sometimes can have ordinary results and be perceived to be the next big thing and that drives your pro prices stock prices to give you great returns. In another case, the investment may actually have um fantastic fundamentals. But if the market perception of that sector, the company or a governance layer of that company changes, you might find that your investment though it’s in a company that has a great fundamental growth story uh has resulted in no returns to you as well. So market perception account is key or account to us in in capital mind is is a key input in one of our thought processes on how the future what the future holds for us. I’d actually add to that and say market perception is often right in the sense that there is a lot of value in the wisdom of crowds in the way that if if a company that you believe is slated for significant earnings growth is still seeing its price go down, the market is probably telling you something where there is some level of knowhow or understanding out there somewhere which believes that which is either foreseeing or already knows about things that are probably not so rate with that company which is pro which is why that is being reflected in the price which you think is you know significantly undervalued and the and the other way around as well where you might believe that why is this uh uh X company being uh valued at at such a high number given its its current or historic earnings where the market itself might be preempting significant growth in those earnings which which is eventually going to show up in the in the stock price and Sonuk we’ve had a couple from Deepak anything on your mind I mean One one phrase I particularly liked in a in one of the books that that I read was the stock does not know you own it. Which means that you might own a stock. It it’s a great company. It’s done for well for you in the past, but that does not mean that it’s going to continue, you know, doing well for you in the future and is is a hold for for the for the next 10 or 15 years. And and a couple of examples here u in in back in the 1960s or ‘7s in the US there was these set of stocks called the nifty50 which were uh essentially all these blue chip companies like the the Gillettes and the Kodaks and the McDonald’s which were considered to be uh one decision stocks in the sense you buy them but you you never have to think about selling them. Uh the reason being that they done extremely well going leading up to the late60s and and with good reason. and they were all dominant in their respective industries. They had high return on capital. They had shown significant growth. So for that reason, it felt like a no-brainer. Why, you know, you you just buy those 50 and hold them for the the next couple of decades and you’re set. Turns out over the next 15 20 odd years, the the Nifty 50 stocks underperformed just the S&P 500 uh by quite a margin. And and the reasons were, you know, there were varied reasons for it. Some of those companies stopped existing like companies like Kodak and Polaroid just you know saw their industries and businesses decline and and went into bankruptcy while certain other companies like GE did reasonably well but then their stock price didn’t really reflect um too much or didn’t do too well for them. So so the overall return from having bought and held these holding these really great companies was that you would underperform the the broad benchmark index. So that’s just one example of of how buying into the narrative that just because these companies have been great in the past, they’re going to continue to be great is is probably not the right way to think about things. I’ll add a layer to this. In fact, look at the last decade. In fact, maybe a decade and a half. Um I have enough gray hair to remember a time when you could not displace ever think of displacing a company called Nokia from the mobile world. The kids of today probably don’t know what that means. So it is strange that within a short period of just 10 years a company has gone from number one player I can’t see anybody else coming into the space to who are the who is this company uh it’s a good company in the sense it still exists it just doesn’t do as much uh in that in the mobile phone era as they used to in the past in terms of retail consumption but there is a uh point to the fact that companies need not always stay great forever there is always scope for changing your mind about them and at some point like uh the phrase of you know the stock doesn’t know know you own it is great but I often thinks that you shouldn’t fall in love with your stocks because they don’t love you back in in that sense so in I think the the philosophy here is um your your stocks are just elements of parts of your portfolio or your strategy it’s better to be uh focused on the strategy then it is to be focused on the individual investment itself. Fun fact about uh Nokia. So in 2007 uh the CEO of Nokia at that time appeared on the cover of Forbes magazine and the and the the headline there was can anyone catch the the mobile king as in because they had just reported fantastic results. They were starting to make headway into China. India was just about starting to open up in terms of mobile consumption. So it was all very rosy at the time except uh just about a year or so later uh Apple launched the iPhone and the the date on which the Forbes magazine came out turned out to be the the peak of Nokia’s stock price for basically from then on. So I hope you are using Forbes magazine covers as one of your indicators in your in your models. It’s it’s something that we do back test. One question that comes to mind is the examples you’ve given are often foreign and I’m familiar with these. Do you have as high levels of disruption or companies falling from grace in India as well or do they tend to last a bit longer? While in a lot of ways India’s been as I earlier mentioned more family led. So a lot of the names have been household names. Some of these names and if you look at even the Sensex that started out in the 1980s when it was first coined, uh many of those names continue to be household names but probably are now small and micro caps in comparison with what they were earlier. a number of names that you remember from the past perhaps even fondly uh for the service that they provided you maybe uh uh I know this this sound like a thing but they may be airline companies that you might have gone through over the last two decades you would have almost thought you can’t displace them they’re everywhere and yet the best biggest airline has been a different one in the every one of the last three decades so uh I would say that is is a slowing slow phenomena in India but things are changing. The biggest retail company was of today was not the biggest retail company of a decade ago. The biggest telecom company of today is perhaps not what it was 3 years ago. Each of these names have shifted and uh regardless of what I’ve said even the best of these companies may not have been the best investments to have made in the last 20 decades. The other point about India getting wealthier is also that there are more names in the wealthiest or best or biggest Indian companies too. So the names that are there in the Nifty 100 or the even the Nifty 500 today, a significant number of them didn’t even exist as listed companies 20 years back. So uh the changes are are slow and subtle, but they’re real. uh think about where you get your food from, where you get your uh uh travel uh recommendations from. Chances are they’ve moved from one medium and one set of companies to the internet in a completely different set of companies. So the changes are real. The changes are happening except we don’t see them as much. I think for me what really struck me was at some point someone asked me if this company was public yet and it turned out yeah I I I don’t remember the company in question anymore but it had gone public six months ago and I just missed it and I thought that was quite an illustrative moment because I remember there was one point where you kept wondering whether Indian startups would ever go public whether they would ever become big and now you’re just missing them because they keep doing so in in the dozens and and if not more and I think that really does speak to where we are as a market and a country. So, you know, I’ve traveled quite a bit over the last couple of years, meeting friends who I went to school with, went to college with, and so on. And now they’re living basically all over the world. There are folks who are in all parts of the US, starting with the West Coast, drifting all the way to New York, and then there’s folks in London, there’s folks in Europe, and pretty much all over. And by and large, they’re all doing fairly well in their careers, and they have good quality of lives. But increasingly over the last year or two, it’s become fairly, if I may put it, it’s become fairly obvious that there is quite a marked difference between how they view their economic prospects versus how people in India view theirs. Now, I think the best way to put it is no matter how much they earn, I mean, unless they’ve really just hit it out of the park with some hedge fund job or something and now money is just a concept for them, but unless they’re in that very rarified universe, the fact of the matter is that all of them when they look at say the wealth they have and the money they have and they look at their future prospects in their countries, there’s almost this sense of anxiety or despair that they seem to be showing about what they think their investments will yield. And then you talk about Indian stock market returns or the Indian GDP growth and they’re like almost taken aback and they’re like can we invest with you and you’re like yes please come on. But that really got me thinking it’s not like over here we live lives of like daily urban bliss or something. I mean we’re complaining about the traffic. We’re complaining about the pollution. There are multiple challenges every day. But when you look at say your personal prospects for your wealth for the savings you already have. there seems to be this almost unstated or taken forranted level of confidence that the money you have today will will do much better over the next five or 10 years and if you had to make a prediction you’d pretty much be looking at the last 5 to 10 years and saying well look GDP growth is reasonably high there’s so much in from inflation there’s so much in corporate profits so you can see a path to your money maybe doubling in something like I don’t know 5 years or a little bit around that then maybe doubling again and this keep happening so with this deep I just wanted to ask is this stuff real? Are these economic prospects? Is this just us like extrapolating two years of crypto price action and say, “Oh, this will keep going up forever and taking over all currency or is this something that we can almost bank on?” But maybe before I get to you Deepak Anup, I mean you’ve worked many years abroad as well, right? Do you see the same thing of your friends and colleagues who are still like say not in India? Do you see a difference between how they’re viewing things versus how we are? So I’ve got a little bit of a personal anecdote to that you know in addition to all the data that we look at. Um a decade or so ago I was I was a management consultant like you know I was I spent first half of my career as a as a consultant and as freshly promoted managers as as part of like a leadership development program the firm kind of brought brought in managers from across the across the world across different offices. This included India, Asia Pac, Europe, the US and you know we were all brought together for for a bunch of sessions etc and team bonding what have you. uh when I when I look at everyone now it’s been almost a decade that I quit consulting when I look at the career trajectories of all the people who were part of that cohort there’s a stark difference like the people who were from the India offices uh the Asia pack offices have gone on and become partners in consulting and moved on to either other firms or other other jobs the folks who were in Europe and even a lot of them in in the US just about made it partner or may might still not be partner in in their various forms which basically just shows a stark difference in in the rate of advancement progress opportunities that that that folks in those geographies had versus the the ones who had it in India and it’s purely a function of literally growth uh growth in the firm itself that decides who gets promoted and how many how many opportunities there are so that to me is like a a stark reminder as that their maybe their base state was probably significantly ahead of us way back then the rate of progress has been significantly faster here in India. Deepak I think we can both be accused of being linear thinkers and just extrapolating the last 10 years into the future but do you think the confidence in India is justified and are we really on track to become I don’t know Vix Bat in 2047 if I’m getting the slogan right. Yeah, you know that that slogan itself I think talks about growth but it is also true that India’s relatively speaking one of the more uh faster developing economies in fact it is probably the fastest developing large economy uh fastest growing large economy in comparison with everybody else and one of the reasons perhaps is that we’re starting from such a low base where our per capita GDP is uh uh roughly less than $3,000 anom whereas most of the larger economies have gone gone past maybe $10,000 uh per capita. So you’ve got to a point where people have gone slightly beyond and maybe a lot beyond the basic needs of uh food, shelter, clothing and now are talking of more complex things like instead of saying internet now I’m talking about uh fancier computers. I’m talking about uh uh travel, hospitality, dining, uh the concept of uh uh just using more cars, using more uh uh things that were relatively unaffordable. ACs uh which were relatively uncommon are are getting more common. So a lot of these things are coming into the consumption universe. And remember India is a consumptionoriented economy not an export oriented economy unlike China or uh uh many of the uh you know Southeast Asian economies the tiger economies if you may they came up on the back of manufacturing and exports but we came up on the back of services and domestic consumption and our foray into this point where our domestic consumption is spreading its wings as we grow is also adding that layer of uh wealth growth is coming around. If you look at even corporate profits because our corporates that serve our domestic economy, uh if you look at just the listed corporate world, there two things that China out. First, in the last 10 years, they’ve been able to grow their profits 15% a year. That’s even more than the 6.5% real growth you’re seeing. Uh well, add a little bit of inflation and that’s about 10% of economic growth that you’ve seen over the last uh nominal economic growth that you’ve seen over the last decade. But corporate profits have grown at 15%. And that is also on the back of lower leverage. So our companies that were highly levered had a lot of debt have been able to pair down their debt by using either more equity raising from the equity universe or from just taking over the uh uh the fact that their their profits have increased to a point where they don’t need debt to finance further um expansions. and they’ve been able to grow it on the back of rising interest cost of only 4% per year versus uh uh the economy. So and then the government itself has been able to borrow uh relatively lesser than it used to. So to that extent our government debt to GDP is much lower than these western economies. Now you can see where perhaps their anxiety and uh the despair in the west comes from the fact that they have an extremely leward government. They have growth that is not meaningful. They think of 5% as high. we think of 6.5% as low uh relatively and they also have a bleeaker prospects because of lack of growth like Anuk said because if you don’t have that growth you don’t have that uh ability to say well if where do I move up from here if the person above me does not have a place to move up into and you don’t move up unless there’s there’s cross across the field growth add to that India’s growing age as well so we are our average age is perhaps 28 we don’t have a census for this decade right yet. But I believe our ages will slowly grow into about 30 or 32 years old in the next decade. That adds to this layer of I will have a higher income as I grow older. When I have a higher income, I have dis higher disposable spendable uh money that is available that spending feeds into economic growth from that perspective. So I think your friends are also right in that there is potentially greater opportunity in India and perhaps that makes for a great case in terms of long-term investing because if you’re looking at that as a perception of if I’m going to use more cars, I might as well buy into the equity market that effectively owns those shares of those cars as well because then I can benefit both from the fact that I’m getting a better car but also from the fact that the our manufacturing is also becoming more and more profitable. So in that sense I think that economic growth story is leading into an extremely interesting universe of investing as well. Deepak that does sound right. I mean GDP growth I mean this this baseline level of GDP growth expectation is probably like one of the factors contributing to how we’re all feeling but you know GDP growth has been quite high for many years that I can remember and I feel something’s a bit different this time. I’m trying to remember like the conversations I’ve had over the last decade with say fund managers and other folks and I think one thing they’ve all pointed out is maybe when people cross a certain threshold on the per capita income which I know is a little more complicated than just the overall GDP number right but on the per capita income then they suddenly start consuming differently. There’s like a whole host of things they consume that they just simply could not have done below some threshold of I don’t know was it 2,000 3,000 something like that. Um or maybe it got me thinking maybe there’s now just enough of a critical mass of say wealthy people that they can afford to behave differently or the country can do things differently. Something does feel just different about how things are at the moment. What’s your take on that? So I think you’re right in both crowds in the sense that there’s bit of bit of both that what’s happened in the last maybe decade or so maybe two decades maybe one and a half decades is that more people have been able to become wealthy and this is not just because uh you know of of maybe their own relative successes but it’s also because of the success of the country as a whole but this is means the wealth has traditionally been concentrated in a few families that had a lot of capital and that has now changed to a lot more people are both small level of rich and a large level of rich. So you have a bunch of more people that have now suddenly found wealth and that wealth has been created. Maybe part of it in the stock markets, part of it from their businesses, part of it from acquisitions that have acquired and and so on or just even salaried people. The salary levels have increased uh uh at the mid end uh to a large extent to create a lot of uh the pear shap shaped economy from the pyramid which is the more middle class more people concentrated in the middle class than they were uh much earlier. That has also resulted in at some level a greater willingness to spend on things that you were perhaps not so willing to spend earlier in the past. Things that were called a luxury. Oh, am I going to pay a person to come to my house to deliver food? Are you out of your mind? This should have been free. This has moved to well, I’m willing to pay that. And some suddenly that introduces a whole host of services that comes in. Oh, an AC is an is a luxurious expense to know well it’s too hot and I’m very uncomfortable and I do want to be able to spend a as much as I can as much as affordable and the affordability layer has gone up in a lot of these things. uh in a lot of cases the the willingness to spend has has kind of turned circles. So when I started Capital Mind as a research firm that at that time people were telling me nobody’s going to pay for content and today things have come to a point where you know people are not only just buying Indian but also non-Indian uh newspapers and articles and subscriptions and so on. So the propensity to spend and uh the ability to spend and the willingness to spend has both uh increased across the services domain. So we’re not just talking manufacturing and we’re making more stuff but we’re also uh paying to use more stuff, paying from upgrading from the roadside barber shop to the salon. Uh changing our lifestyles and this is a larger and larger population that’s getting into this segment that said well I was barber and now I’m salon. So I know at at some level the service layer is increasing that uh is also causing this. The third point that you made was is there a critical mass? Some industries actually do need a critical mass. Take a restaurant for instance which needs say a minimum number of so many tables per month need to be taken in order for me to just survive. That was always true of the dashi. The dashi would never go out of fashion because you you know base level consumption. But at some layer, this one layer above the mid-end restaurant now has become the new uh dashnney of sorts in the sense they have so much demand that they are beyond that critical mass. The same thing applies to a lot of services, a lot of goods where if you didn’t have a critical amount of demand in India, you wouldn’t find that being manufactured for the domestic society or even provided as a service for the domestic society and now suddenly things have changed. So I think that layer of uplifting is is uh is happening and you know to a certain extent this has some kind of a reflexive effect in the sense of uh because there is so much positivity in the future there is a propensity and a feeling that I could do this for myself today and I will not you know take away from my future if I if I did this today and that effect is creating uh GDP growth across the place and perhaps the downsides of too much traffic and all that but it is Just a layer of that positivity adds up to uh the economic growth story in that sense. That brings me I mean I reminds me of an article I read about how Coldplay apparently broke the the 21st century record for the number of concert attendees that they played for and that happened happened in Ahmedabad apparently over a weekend where they played for more than two lakh people. Now if you told me 10 years ago that there would be enough demand for an international band to come play in India and the ticket prices were not not really cheap if you if you remember then I wouldn’t have believed you but apparently that is happening. So there’s enough people who can afford to pay that kind of money to go uh attend a concert buy a gold play or whoever um so that probably bears out your point about how there’s more people with a little more money that they can now spend. So Anup as I think of quantitative based investing or factors and stuff like that one of the first questions that comes to mind is why have you often anchored on momentum which is what you did for so many years at the PMS when you launched it in our sponsor entity um when value sounds fairly compelling the the strategy where you can find stocks on the cheap and buy them before other people have discovered them surely that’s also a very credible way to make money and I think I’ve also been thinking a lot about how quant Quantitative investing is in the end a bit like an arms race. I mean in the same way like Warren Buffett and others say you can’t now just pick up a magazine or pick up some some thick book and find a stock that no one has discovered and invest in it like he used to do back in the day. Uh the fact is that the strategy that you probably launched the PMS with the momentum PMS strategy with what 7 years ago I think you’ve had to adapt that quite significantly over the years uh because everyone just got more sophisticated every other year. So with this in mind, how have you taken the learnings on factor-based investing? M why have you picked say momentum um and how are you incorporating these learnings into creating the strategies for the capital mind flexiap NFO? Sure. So the idea of buying really cheap stocks and then holding them sounds very compelling except until you actually look at the data and the thing about quantitative investing is it looks at the world as it is not as it should be. So if you look at historical data in India going back to let’s say the early 2000s uh and assess how different factors have performed there’s momentum has essentially outperformed all the other factors by distance. Uh it’s not even close. Uh value has had very long periods of underperforming and by underperforming I mean underperforming just the broad benchmark index. So you’d be better off investing in just the nifty than in a in a value based factor strategy for long periods of time over over over the past decade and a half. So it’s momentum that’s really stood out uh in terms of not just overall return and overall outperformance versus the index. It has also been most consistent uh on any three five year rolling periods that you would assess. Um and in terms of even draw downs it has been it it has had its draw downs but it it’s they’ve been comparable to what the broader market have seen. So given all that if you were to look at across the across the key major uh factors like momentum low volatility quality value it’s momentum that’s really done uh ex exceptionally well in India. Uh and and that is one reason that that that we kind of anchored on momentum as our as the core of our strategy when we when we started that in the PMS. Uh over time we we’ve kind of understood that all of these factors go through their periods of indifference, underperformance. Uh one way is to obviously just grit your teeth and live through them. The the the only downside to that it it makes it pretty hard to kind of stay invested in a strategy like that when you’re seeing underperformance, especially momentum over the last couple of years has underperformed the the broader market. Uh the the market in general is is is up a little bit while momentum strategies across the board have been down over the last year or so. And that that kind of makes makes things difficult to kind of stay invested even though you know that staying invested is probably better for you in the long run. So what we’ve done in the flexi cap is is built on a core of momentum. Our primary factor continues to be momentum because we know that as it has done and continues to do well in India. But then we’ve uh added a couple of layers of u sophistication there where uh based on market conditions we pivot to alternate factors. uh when momentum is particularly weak, we we find alternate factors to allocate to which could be low volatility, quality, value or anything else that offers a better riskreward at that point in time. Uh in exceptionally weak markets, we even going to be hedging and completely reducing exposure to equities at that point. So that combination of being primarily allocated to momentum and then moving to alternate factors when uh when the market conditions dictate and to and and then completely step out when markets are weak is is how I would really summarize what the flexi cap strategy is going to be about. Okay folks, so we’ve had this fairly long conversation. Uh my last question would be so we have this NFO coming up and the first fund is the Capital Mind Flexiap fund. Do we have any other points or or things you just want people to take away or remember or take note of? I think one of the things is that of course remember that all uh equity market investing should be necessarily long-term in thought process even though a fund manager may change their mind uh over a long period of time. It is only the thought process or the strategy that disciplines itself over a period of time to give you great returns but or or give you give you uh the kind of returns that you might be expecting. The capital man flexi cap fund is designed to be for the long-term investor uh who has the patience and the ability to diversify across all the asset or across market caps uh in the equity universe for the most part to uh build themselves into long-term portfolios. Um uh the the one thing that I would like to say here is uh uh the the flexiap fund while it is postulated as where it is today it allows the fund manager flexibility to adapt to different markets. So the the weights that we have today on uh a kind of factor or a kind of strategy may change based on the changing times. This is also part of our investment philosophy. uh however the results of something like this will only be apparent in the very long term. Anoop anything comes to mind. So the only points I would reinforce are that the the flexiap fund has been designed with the objective of uh over the long term being able to deliver some outperformance versus the benchmark which is the nifty 500 in our case. So that that outperformance will only happen over the long term and not necessarily over 6 month 8 month 12 month periods. So that’s one. The the couple of other things I would highlight just or maybe reiterate is uh at its core it’s a quantitative strategy. It is fluid across market caps in terms of large, mid and small. It is not bound by any sector. Uh in the back test that we’ve seen we’ve seen reasonable diversification both across market caps as well as sectors. Um and in terms of uh churn is one thing that I would highlight is that this strategy will have significantly higher churn than let’s say the typical buy and hold strategy which which does not have any reason to sell any stock. So that is just those are some couple of things that I would highlight about the fund for folks who are who are evaluating investing in it. And I think for me the thing that’s always stood out is I think again must be Buffett or at least he’s the one who introduced me to this was the saying that in the short term the market is like a voting machine or something. In the long term it’s more like a weighing machine if I get that right. And I think I that really that point was driven home to me is that and a short time horizon it’s always a bit of a coin toss of whether you’re doing better or worse than you wanted to. But if the strategy is is solid and it and there’s decent people behind it then the longer you hold the better you do and eventually at some point it just becomes non-debatable. And so that’s really the confidence with which I was getting into this. We hope this is exactly what uh drives uh uh uh investors to look into our uh fund as a relatively new fund uh to add to their portfolios as well. Well, congratulations folks and all the best. Thanks. Thanks Jay. Thanks Jay. Folks, we started Capital Mind about 10 years ago and at that time it was a distant dream that maybe one day we’d have a mutual fund vehicle and would be able to reach out to many people. Uh that dream looks like it’s actually coming to reality soon. So if you’ve been one of the people who’ve supported Capital Mind across many of these years and you’re listening to this video, then you’re probably someone who’s still interested in us. Then please do consider this NFO and see if it makes sense for your portfolio. [Music] Mutual fund investments are subject to market risk. Read all scheme related documents carefully. Past performance may or may not be sustained in future and is not a guarantee of any future returns.