Widely read:
Over the past year, several of WhiteOak's equity funds have climbed the ranks to become top performers in their categories. For example, the WhiteOak ELSS Tax Saver Fund now holds the second spot out of 39 funds, while the Multi Cap and Large Cap funds are ranked second and third in their respective categories (on the basis of one-year returns). Ramesh Mantri, CIO at WhiteOak Capital AMC, credits the funds' impressive run to a sector-diverse approach, including investments in IT, Industrials, Financials and Pharma, along with following a bottom-up approach.
Additionally, Mantri also shares his core investment philosophy, emphasising the need for "disciplined execution" and a "balanced portfolio approach" for generating value, regardless of market conditions. He also discusses the rationale behind the large number of stocks in some of his funds, whether opportunities exist in the mid- and small-cap space and the sectors he finds attractive post the recent market downturn.
The equity market has been volatile after the US announced tariffs. Do you see this as the start of a prolonged consolidation, or are we on the verge of a quick recovery?
Predicting short-term market movements is like flipping a coin - you're right half the time and wrong the other half. The dangerous part is that you start believing you can consistently call the market when you get a few predictions right. I won't attempt to predict short-term outcomes. However, the markets have signalled that the proposed US tariff regime is highly disruptive, and this message has been loud and clear. Even the US administration has acknowledged this and expressed willingness to negotiate. Hopefully, cooler heads will prevail in the coming days and months, leading to a new, less disruptive trade regime that is more widely accepted.
Could you share your core investment philosophy and how you adjust it across different market cycles, especially during uncertain times?
Our core investment philosophy is straightforward: outsized returns come from investing in great businesses at attractive valuations. This is a common refrain among fund managers - buy quality businesses at the right price. However, what sets us apart isn't the investment philosophy itself but its disciplined execution. Much like maintaining good health, where everyone knows the basics - eat well, exercise, sleep and manage stress - the challenge lies in consistent daily execution rather than not knowing what to do. Similarly, in investing, success hinges on diligently applying our philosophy every day.
In uncertain times, we adhere to a balanced portfolio approach. We are not macro or thematic investors making top-down bets. Instead, we are bottom-up, focusing on understanding businesses at a granular level. We aim to build portfolios that deliver consistent performance through meticulous stock picking, aiming to outperform in both up and down markets. This approach has proven effective in the short history of our mutual fund as we've navigated both market cycles. By focusing on selecting the right stocks, our balanced portfolio is designed to generate value regardless of the market conditions.
Mid- and small-cap stocks have taken a hit recently. Do you view this as a buying opportunity for quality names, or are their valuations still too high?
First, let's put this in context. Mid and small caps had a strong rally over the past two years, particularly from March 2023. So, at an aggregate level, they've seen substantial gains.
Even today, when you look at the relative valuations between mid, small and large caps, mid and small caps are about 20 per cent more expensive on average. However, within this aggregate, there are still a lot of opportunities. The correction we saw in February was fairly indiscriminate - it didn't differentiate between high- and low-quality companies. This presents a good opportunity for fund managers to improve the quality of their portfolios. If both inferior and strong businesses fell at the same rate, you can reduce your position in the weaker ones and reallocate that capital to better firms. So, while there are opportunities in both small and large caps, it's not a broad 'buying opportunity' across the board due to the recent correction.
Several WhiteOak equity funds have delivered strong one-year performance, landing in the top quartile. What key decisions and market factors contributed to this success?
That's a good question. Generally, we build balanced portfolios and aim to minimise the impact of market factors, focusing instead on stock selection for performance. Since June 2024, the market has shifted. Previously, we saw a one-sided rally, especially in mid and small caps, where lower-quality businesses ran up the most. Now, the market is more bottom-up. Some companies are doing well, while others are struggling. This has created an excellent environment for stock pickers like us, who can generate alpha.
Additionally, there's a stronger focus on governance now. During a bull market, governance can be overlooked, but as the market has become more volatile in the last six months, it's become a key differentiator. So, it's a great time to be a bottom-up fund manager, as the market is no longer one-sided.
Is there any particular stock or sector that has contributed to this outperformance?
There have been several individual stocks that performed well over the last year. Still, when I look at the attribution analysis of our flexi-cap fund, the winners have come from a mix of large-, mid- and small-cap stocks across various sectors - IT, Industrials, Consumer, Financials, Pharma and more. We don't want our portfolio to be reliant on just one market cap or sector. If it were, it would be like having just one player in a team performing well. The best teams are those with several strong players. So, in our case, a range of sectors and market caps have done well, which is precisely how we want it.
Funds like Flexi Cap, Mid Cap, Multi Asset and ELSS include over 100 stocks, while the Multicap Fund holds around 178 companies. Is this a strategy for diversification, part of a portfolio rebalancing phase or a long-term approach?
That's a great question and a keen observation. We often get asked about the large number of stocks in our portfolios. Let me address this from both a philosophical and practical perspective.
At WhiteOak, our strategy of maintaining a large number of positions is designed to maximise alpha in portfolio performance. To put this into context, the market has a common misconception that highly concentrated portfolios always perform better. However, historical data suggests otherwise. For example, Peter Lynch of Fidelity, one of the greatest mutual fund managers, managed portfolios with an average of over 200 positions throughout his career. If you compare the diversified and focused fund categories in India, the former has consistently outperformed the latter over the long term. These examples demonstrate that a diversified approach can work exceptionally well.
Now, why do we hold such a large number of stocks? The primary reason is that WhiteOak has a significant advantage with one of the best investment teams in the industry - not just in size, but in quality. This allows us to explore opportunities further down the market cap curve and identify promising companies at their early stages, even those with very small market capitalisations. For instance, just before this interview, I was discussing a company with a market cap of only Rs 500 crore. Despite its small size, we believe the business has multi-bagger potential.
However, because these companies are small, we cannot take large positions in them - nor can anyone else. For instance, while I might be able to allocate 25 basis points of the portfolio to such a company, allocating 1 per cent would be impractical. In contrast, I could easily allocate 25 basis points to a large-cap stock. Still, if I believe that a small-cap stock with a 25 basis points allocation can generate significant alpha over the long term, that's a smarter way to deploy capital.
After the recent market correction, which sectors or themes do you find appealing, and which ones do you think are still overvalued?
At WhiteOak, we generally avoid taking top-down views on sectors. Instead, we focus on areas where fundamentals are strong and valuations are attractive. One sector that stands out is BFSI - banking, financial services and insurance. We find both the fundamentals and valuations in this space compelling, which has led us to be overweight in BFSI.
Another promising area is pharmaceuticals and healthcare, where India has significant long-term competitive advantages. On the pharma side, India plays a critical role in the global market, producing 50 per cent of the US's generic drugs. As the US seeks to diversify its supply chains away from China, India is well-positioned to be a preferred partner, despite any rhetoric around tariffs.
Healthcare, on the other hand, is a defensive sector. When people are sick, they prioritise medicine and healthcare over other expenses, and as wealth increases, they consistently seek higher-quality healthcare. No one asks for a cheaper doctor - they want a better one. This makes Healthcare a resilient form of consumption, and combined with Pharma, it's a sector we view favourably for the long term.
Also read: Global risks at this point may outweigh potential returns
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
For grievances: [email protected]
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
