In an interview with Insights Success, CA Arpit Shah, Co-founder of Care Portfolio Managers Pvt Ltd gave some insightful answers highlighting the influences made by his company to take Sunday Mattresses to a new level.
1. Kindly brief us about your company.
Ans. Care Portfolio Managers Pvt Ltd or “CarePMS” is a SEBI registered portfolio manager with seven years of track record. We invest in public listed companies in India. We have a bottom-up, stock specific approach. Our basic selection criteria revolve around (i) growth potential; (ii) management capabilities; (iii) strong financials; (iv) attractive valuation; and (v) niche player with leadership position. We invest with time horizon of atleast 10-12 quarters.
2. Please tell us something about your Founder/CEO and his/her contribution towards the company and the industry.
Ans. I graduated from Narsee Monjee College, completed my qualification as a Chartered Accountant and was certain about making a career in equities. I decided to enterprise into stock broking but quickly realized that forming an asset management company was the way ahead. But I wanted 100% dedication, so I quit my stock broking business and started Care Portfolio Managers Pvt Ltd — with PMS as single line of business. I was joined by my mentor and our fund manager CA Jayant Mamania, CA Harmukh Gangar and my dear friend CA Amit Doshi who had the same dream of creating wealth for investors. With respect to contribution towards the industry, Care Portfolio Managers was among the first to introduce no fixed fee structure where clients only pay if there is performance.
3. How emerging technologies are changing the portfolio and wealth management industry?
Ans. Emerging technologies are changing the way portfolio and wealth management industry does marketing and CRM functions. Within Marketing function, increase in channels of communication to the right audience. For CRM, technology allows seamless client communication, engagement and addressing concerns thereby increasing the bandwidth of CRM personnel in terms of the number of clients that he can manage. Technology, however, has not changed the way we do Research. The conventional way of due diligence is most reliable.
4. How new economic and taxation policies of Govt. and the global trade scenario are transforming the portfolio and wealth management industry?
Ans. Government policies in recent years including some major steps like Demonetization have been positive for asset management industry. Taxation policies including introduction of the GST has been a boost to the organized sector. Broadly, formalization of the economy and government measure to curb cash economy resulted in surplus capital in the hands of investors, looking for avenues other Bank FDs. This gave a boost to inflow in equity markets confirmed by the meteoric rise seen in SIPs in Mutual Funds
5. Explain the industry challenges in terms of current trends?
Ans. The are three challenges in current trends (that we see for portfolio and wealth management industry)
(I) Understanding of Products: Wide variety of Products introduced by Portfolio and Wealth management Industry have created too many options for the endclient who may not be equipped to choose the right product matching to his risk appetite.
(ii) Volatility: Volatility is the new normal. Changes in portfolio market value makes investors with curiosity about how future will enfold. This volatility in market value, in case of small caps, is north of 25-30%. This fills the end-client with anxiety which is a challenge as we see end-clients taking unwarranted decisions like pulling out when valuation are most compelling.
(iii) Investor behaviour: Return from equities in the previous four years have raised end client expectations. It is rationale to assume that equities will outperform other assets classes in the long-term. But, given the current trend, investors may not be prepared to accept that growth in equities is non-linear.
6. What are the unique factors of your company? Explain in brief the purpose behind starting and the success story of your company?
Ans. What is unique to our company is the fact that we have created the most client centric ecosystem as a PMS — because this is only line of business that we are engaged in and performance is the only way we can bill our clients — therefore to deliver growth in portfolios is not just our prerogative but also a matter of our survival. In 2007, I had formed this company after observing that during 2002-2007 we made good money but saw a lot investors had mixed experiences. We realized the difference was our temperament and research skills. We thought that we should provide a platform to other investors by which they can subscribe to our services. The basic sentiment engrained in our thought was that we cared for these investors who believed in long-term equity investing. Hence we named the company Care Portfolio Mangers Pvt Ltd. However, between 2009-11 we had to surrender our license to SEBI as they raised promoters’ capital requirement from Rs50 lakhs to Rs2 crore. During this time we grew our own capital using our investment principles and re-applied to SEBI for a license in June of 2011. Even today, we continue to follow the same investment principles and this has allowed to deliver a CAGR of over 24% to clients. This number is net of our fees and transactions costs. Comparable number for BSE Midcap and BSE Small Cap were 10.8% and 7.7% respectively.
7. Kindly describe about the products and services of your company.
Ans. We provide both Discretionary and Non-Discretionary portfolio management services. (Non-Discretionary is for clients who have restrictions at their work place and need prior approval from their compliance for example the Big 4 Audit firms). The investment philosophy and portfolio construction, however, remains the same. We essentially run a Multi-cap PMS with a bottom up stock specific approach. Also, we don’t follow model portfolio strategy.
8. What are the future challenges in your industry and how are you preparing the company for that?
Ans. Future challenges is that as market participants become more efficient the universe of under researched companies will compress. As we move nearer to an efficient market stocks start trading nearer to their fair values. This will put a pressure on fund managers in delivering an alpha over market return. We are currently not affected by this. But once we cross AUM of USD $200 million (over Rs1500 crore) in the coming years we may have to look for relatively bigger companies.
9. Kindly provide a quote which describes your company in the best way.
There are two quotes that I can think:
What we really want to do is buy businesses that we would be happy to own forever – Warren Buffet
Understand the nature of the companies you own and the specific reasons for holding the stock – (“It is really going up, doesn’t count”) – Peter Lynch
