India’s Most Successful Smallcase Manager: Decoding His Investing Secrets
At first glance, Divam Sharma may look like the next-door guy.
but wait! You have to take him very seriously.
He is India’s most successful Smallcase manager. And I really mean this when I’m saying this. Let’s dissect the performance of his different Smallcase products presented under the Green portfolio:
- High Quality, Right Price: 154% CAGR
- Best NIFTY (Bluechip) Companies: 72% CAGR
- High Dividend Yield + Capital Appreciation: 108% CAGR
- Smallcap Multibaggers (**New**):32% Return in 2 months
See the blue line in the performance graph given below. It really diverged from April 2020 and beat the index with
That’s mindboggling! Crazy I’d say by any yardstick. He has set the benchmark that’s difficult to beat for other portfolio managers in the Smallcase Universe and even outside. Even the most successful mutual fund managers seem mediocre compared to this result.
Is it a fluke?
Might be a plane luck, you may say.
Sadly, it’s nothing.
There is a thoughtful method behind this stellar performance, and we will try to decode this investing style.
First of all, it’s not possible to deliver such a return without having an astute investing mind.
He has the knack to catch the big trend before starting it and then he rides it through the entire cycle.
He understood that the Indian economy is going through a unique phase were privatization, import-substitution, incentivizing local production, PLI scheme, Aatmanirbhar Bharat is going to change the way many industries function.
With his unique HQRP formula (High Quality, Right Price), he successfully picks the winners. So, what is this HQRP philosophy? How he applies this. We’ll know about all of this in this blog. For example, Balkrishna Industries is a leading off-highway tire manufacturing company in India. It’s a debt-free, best operating margin in the industry and has the ability to capitalize on because of backward integration. It has done most of the CAPEX through internal accruals. No wonder it turned out to be a Multibagger for the portfolio.
Astec life sciences is another example that reflects his investment prowess. Coming from Godrej Group pedigree, it has done backward integration to de-risk from China and produces agrochemicals and active ingredients for pharmaceutical companies.
What is HQRP or High Quality, Right Price?
This is quite simple. However, the most powerful things in the world are really simple. The portfolio comprises stocks that have a strong balance sheet, low debt, and growing consistently for the last many years.
And most importantly, they should be available at a reasonable price compared to their earning potential. Here it is to be noted that the thrust of the portfolio is on growth companies having a presence in midcap and smallcap space with ample space to grow over the next 3-4 years.
Other things such as return on equity should be more than 15%, profit CAGR growth should also be above 15%.
He seriously feels, building a portfolio is more about the rejection of stocks than selection.
Green Portfolio identifies value stocks that are in a growth trajectory and offers a good margin of safety. That’s why though it gave a stupendous return, the drawdown is reasonable.
Disclaimer: I’m not invested in this Smallcase, but I have bought this for my brother’s portfolio that I manage.
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