100% return in 20 months! How stocks like Zomato, Policybazaar helped a digital disruption PMS deliver solid returns to HNIs

A portfolio management scheme (PMS), which zeroed in on digital disruption, emerged as the top gainer in August. The strategy aims to give investors the ability to get concentrated exposure to listed digital platforms like Zomato, Policybazaar, Nykaa, among others. Valcreate Investment Managers LLP’s IME Digital Disruption strategy delivered the most return (12.05%) to high-net-worth individuals in August 2024. The strategy, launched in February 2023, gained 33.61%, 36.56% and 58.98% in the last 3 months, 6 months and 1 year, respectively.

In an interaction with Business Today, Ashi Anand, CIO, Valcreate IME Strategies, said that when the strategy was launched, there was a high level of disbelief and pessimism due to the high losses these companies were operating at.

“Our detailed research of companies like Zomato and Policybazaar showed a clear path to profitability, as these companies moved into a monetisation phase since our launch, our thesis that the profitability of listed digital platforms will improve at a pace that will surprise market participants,” Anand said, adding, the revenue growth combined with a sharp reduction in losses and a shift towards profitability, has been one of the key drivers of the outperformance, supporting the strategy to deliver a 100% return within the 1.5 years of its launch.

Going forward, he believes that the companies they hold in the portfolio can continue to deliver attractive returns and profitability should continue to improve.

In terms of holdings, the fund has a 100% concentration on listed digital platforms. “However, at an industry level, the fund is well diversified with exposures across discretionary consumption (food, beauty and personal care), financials (insure tech, payment tech), B2B, gaming, logistics, recruitment, travel, and more,” said Anand.

The money manager added that the two stocks that have contributed the most to portfolio returns are Zomato and PB Fintech. “We continue to hold these stocks,” he said. Shares of Zomato and PB Fintech have surged 170% and 134%, respectively, in the last one year.

When asked how the market will perform going ahead, Rajesh Pherwani, Founder & CIO, Valcreate explained that post-Covid, there was a huge pent-up demand which got satiated through a significant rise in consumption as well as capital expenditure, driven by government push.

“Most segments of the economy excelled through 2021-2024 including discretionary consumption, engineering, defence, hotels, travel & tourism, infrastructure building, real estate, power, pharma and housing, and financials,” said Pherwani.
The pace of earnings growth has been stark with Nifty 50 EPS almost doubling from Rs 545 in FY21 to close to Rs 1,000 in FY24, which is around 23% CAGR. Pherwani believes that Nifty EPS could touch Rs 1,300-1,350 by FY26, which indicates close to 19X P/E for the index.

“Although we expect the growth in the Indian corporate sector to continue at around 12-15% on an annual basis, markets have discounted higher growth numbers in its valuations. Many pockets of the market including public sector companies, engineering firms, MNC companies and multiple small and midcaps have given astronomical returns due to good earnings, high liquidity and a booming IPO market which has kept valuations above a floor. Overall the cyclical side of the market has become expensive,” Pherwani added.

Pherwani is also optimistic about specific sectors such as home improvement, housing finance, certain financial segments, select engineering firms, road infrastructure, generic pharmaceuticals, contract manufacturing, agrochemicals, specialty chemicals, parts of auto ancillaries and defence, all of which are available at attractive valuations.