Dalal Street Voice: Aashish Somaiyaa of White Oak Capital explains his investment strategy to spot wealth creators

Aashish P Somaiyaa, Chief Executive Officer, White Oak Capital Management highlights that outsize returns are earned over time by investing in great businesses at attractive values, it is a stock selection-based approach of investing in businesses rather than betting on macro.

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Somaiyaa is a market veteran of over 20 years. Since 2020, he has been serving as the CEO at White Oak Capital which currently manages over $4.5 billion in AUM.

Edited excerpts from his interview with Zeebiz’s Kshitij Anand.

Q) What is the investment strategy of your fund in picking winners?

A) Our investment philosophy is that outsized returns are earned over time by investing in great businesses at attractive values.

It is a stock selection-based approach of investing in businesses rather than betting on macro. The two critical elements of our philosophy are business and valuation.

We want to invest in the companies that present most compelling combinations of these two elements. To be considered great a business should possess three attributes: (a) superior returns on incremental capital, (b) scalable, (c) well managed in terms of execution and governance.

These attributes are rooted in the fundamental value equation where value is a function of cash flows and growth. Most importantly, the governance DNA of the company should be robust.

The team strives to buy these businesses when they are available at a substantial discount to their intrinsic value. Our proprietary, OpcoFinco™ analytical framework provides insights into economic cash flow generation characteristics and the intrinsic value of a business.

Q) What is your investment philosophy? Has your holding in cash increased amid the recent run up in prices?

A) I would like to state that we are a very bottom-up stock selection driven team. Our investment philosophy is such that we consciously avoid market timing or sector rotation or other such top-down bets.

We stay fully invested, at all times, with a bottom-up approach of investing in great businesses at attractive valuations, and always maintain a balanced portfolio construction to hedge against macro risks.

Q) The market is giving plenty of opportunities to investors to make money, but how should one avoid losing money in this market?

A) In our experience, it is impossible to make money by getting out of market and coming back in when it is a ‘good’ time or a ‘better’ time.

Investors who are inclined to play the market timing game end up more often than not on the losing side. Thus, one should avoid market timing.

Secondly, it is important to not get bogged down by a particular style of investing such as growth or value. What is important is that one should have a process in place before entering the stock market.

Ultimately, the style a fund manager practice is juxtaposed on a particular market and macro context. When the macros shift and the market context changes, investing styles will go in and out of favour.

Q) What is your view on the equity markets for the next 6-12 months? Nifty near 18000 while the S&P BSE Sensex has hit 60000 level?

A) As explained earlier, market timing is a futile exercise. It is only in hindsight that we will know whether we are at all-time highs or have a significant runway from here.

Interestingly, we have seen many such ‘lifetime highs’ over the last two decades and will continue to see many such ‘all-time highs’ over the next two decades as well.

Each time the markets have scaled new highs, similar questions have been raised about whether this is a euphoria. It is thus important to stay invested at all times.

Q) How will the US Fed outlook impact equity, currency markets? Even though the clarity has emerged but can lead to a reversal of funds from FIIs?

A) By our style of investing, at White Oak, we maintain a balanced portfolio and ensure that the portfolio is not susceptible to any such macro development, more so than the market.

But having said that, some degree of volatility can be expected as and when some of the extraordinary measures are rolled back by global central banks but from India’s context though, external sector vulnerabilities are far lower than what was seen in 2013 during ‘Taper Tantrum.’        

Q) How are FIIs looking at India? They have turned net buyers after 5 consecutive months of being net sellers at least in the cash segment of the Indian equity market?

A) Beyond the very near term, the surge of FII inflows (US$ 38bn) into India since April 2020 suggests that foreign investors continue to place confidence in India’s diverse corporate universe which creates large alpha opportunities.    

Q) The market is rising on the backdrop of expensive valuations when compared to history? How does the number stack up for Nifty as well as for mid, and small-cap indices?

A) There will always be higher alpha-generating opportunities in mid and small caps due to greater inefficiencies that exist in this area.

However, in the recent past, we have also seen some of the companies with questionable governance move up sharply & the challenges will be felt over there.

At White Oak at any point in time, half of our portfolio is large cap while the other half of our portfolio is roughly in small and midcap.

But, the way we look at it is that even within the small and mid-cap, what we own is the leadership of any sector or sub-sector of the industry.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)