Over the last six months, small-cap investments have generated significant wealth for investors. While the benchmark index BSE Sensex saw a modest 4.52 per cent rise from May to October, the BSE MidCap and BSE SmallCap indices witnessed substantial rallies, surging by 23 per cent and 28 per cent, respectively, in the same period.
Notably, Equitree Capital Advisors’ Emerging Opportunities small-cap PMS scheme delivered an impressive 56.07 per cent return to its investors during this timeframe.
In an interaction with Business Today, Pawan Bharadia, MD of Equitree Capital Advisors, explained that as a deep value investor, his firm strategically invests in under-researched companies with strong fundamentals.
“We are generally the first professional investors in these categories of companies. Our long-term investment approach ensures exceptional returns for our investors and has made us one of the top performing PMS,” he said adding the average holding period of companies are three-five years.
Equitree Capital Advisors’ Emerging Opportunities gained 5.83 per cent in October when the BSE Sensex and broader indices declined 3.38 per cent. The strategy has delivered a 32.98 per cent CAGR return in the past two years and a 53.85 per cent in the past three years.
He added that the aim is to accompany these businesses throughout their entire growth trajectory. “If the underlying businesses experience a 25-30 per cent compound annual growth rate (CAGR) and considering our early-stage investments, the valuations appear quite reasonable. As these businesses progress and mature, it attracts the attention of larger institutional investors, resulting in a performance reminiscent of a multi-bagger,” explained Bharadia.
He further added that they are sector agnostic. “We do a reasonable level of due diligence of the business, promoters and the management while investing,” the market watcher said, adding their average price-to-earnings (P/E) ratio is 15-16 times, which is not expensive.
Bharadia, who prefers to keep 12-15 stocks in the portfolio, added that the domestic equity markets may see some volatility going ahead due to the forthcoming elections. However, being a long-term investor one should use this volatility and build a long-term portfolio for wealth creation.
While sharing his views on various sectors, he added that banking as a sector should do well. “Our large focus is on manufacturing, engineering and infrastructure businesses. China plus one thing is playing out and now the Europe plus one thing playing out. Many of these companies established in the global supply chain are emerging as the biggest beneficiaries,” he said adding infrastructure continues to be a very large opportunity in the Indian context.
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