One of India’s top PMS funds stakes revival on manufacturing & energy transition

ASK’s flagship Indian Entrepreneur Portfolio, with ₹11,908.74 crore in assets under management (AUM), has delivered 5.78% returns over the past year and a compound annual growth rate (CAGR)  of 13.84% over the past five. The portfolio comprised 70.3% large caps, 28.1% mid caps, and 1.3% small caps as of January 2025, according to data from the Association of Portfolio Managers in India.

Rohokale shared his approach to investment and other insights in a conversation with Mint. Here are some edited excerpts.

Where has been your focus in the equity portfolio in recent years?

Until recently, we have been quite focused on investing in high-quality, high-growth companies. Our flagship offering, the Indian Entrepreneur portfolio, has done well in this regard. We found that Indian entrepreneur-owned companies have shown better earnings growth, capital efficiency, and overall quality of management compared to multinational companies, public sector enterprises, and professionally managed companies.

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However, in the past couple of years, the market was chasing certain sectors and companies that were not part of our investment universe. For example, the market was very excited about government-owned companies in sectors such as power finance. These companies, by definition, did not fit our filters and investment approach. As a result, our portfolios missed out on the performance of these sectors, which led to some underperformance of our portfolios compared to the broader market.

What are some sectoral shifts and new investment approaches you have adopted for your portfolios?

After the elections, we identified certain sectors that we believed would be the new drivers of growth in India. These included manufacturing, driven by the ‘China plus one’ strategy and PLI (production-linked incentive) schemes, as well as the energy transition theme.

We refocused our portfolios to include companies that were beneficiaries of these themes, [looking at] sectors such as automotive, companies related to the energy transition, and other manufacturing-linked companies that were poised to benefit from the government’s policy initiatives.

We continue to maintain exposure to our core sectors such as financial services, technology and specialty chemicals, but have diversified our portfolios to capture these emerging opportunities. This has led to some volatility in the short term, but we believe it positions us well for the medium to long term.

Have you missed out on the performance of mid and small-cap stocks in the past couple of years?

As a fund house, we have an agnostic approach to market capitalisation. We are not averse to investing in mid and small cap stocks. However, our investment process is focused on quality filters such as earnings growth, price-to-earning multiples, and return on capital.

Many of the mid cap companies that have performed well in the past couple of years did not meet our strict quality criteria when they were ready to be bought. By the time they matched our filters, their valuations had already run up significantly.

Also in a portfolio management context, we need to consider the liquidity of the portfolio and the ability to manage client redemptions. Small and mid cap stocks can be less liquid, which poses challenges in this regard.

While we are not fundamentally opposed to mid and small cap stocks, our focus on quality and liquidity management led us to miss out on some of the outsized returns in these segments of the market.

What is the market-cap distribution of your portfolio?

Our portfolio is primarily focused on large cap companies. To give you a sense of the market cap composition, the median market cap of our portfolio in 2023 was around ₹80,000 crore.

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Around 65-70% of our portfolio comprises large cap companies, with the remaining 30-35% in mid cap stocks. We generally avoid small cap companies due to liquidity concerns and our focus on quality.

It’s important to note that our definition of large, mid, and small cap is not strictly based on index definitions but more on our internal assessment of liquidity, market cap and quality.

What is your view on the use of cash calls in portfolio management services?

We refrain from the use of cash calls in PMS. Our experience has shown that these tend to lead to poor performance. The rationale behind this is that no one can accurately predict market movements, and trying to time the market through cash calls often backfires.

We believe a PMS manager’s role is to remain invested and generate returns for clients over the long term. Cash calls disrupt this core objective and can significantly impact the portfolio’s performance.

We prefer to manage risk through other instruments and techniques, such as diversification, position sizing, and selective hedging if required. But the fundamental approach is to remain invested and ride out market cycles rather than trying to time the market.

Do you avoid multinationals in your portfolio?

We don’t entirely avoid MNCs in our portfolios. However, our analysis has shown that Indian entrepreneur-owned companies have demonstrated superior earnings growth, capital efficiency, and overall management quality compared to multinationals operating in India.

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Our research and backtesting have shown that these companies, on average, have outperformed multinationals and other ownership structures in the Indian market. This is not to say that multinationals are not good investments, rather that we have found the Indian entrepreneur-owned segment to be particularly compelling in terms of risk-adjusted returns.

We do have exposure to MNCs in some of our other portfolios, where we believe they fit well within the overall investment strategy and portfolio construction. Our primary aim is to provide clients with the best-performing companies, irrespective of ownership structure, as long as they meet our quality criteria.

What are clients’ preferences regarding fee structures of your PMS offerings?

Interestingly, our clients generally prefer fixed-fee structures over performance-based fees, despite our own preference for the latter.

As a house, we believe that a performance-based fee model, in which the manager is incentivised to generate alpha, is a more aligned and appropriate structure. However, we have found that most of our clients in India choose the fixed-fee option, which is about 2.5% in our case. 

This is in contrast to global markets, where performance-based fees are more commonly accepted and even expected by investors.