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Overview
PGIM India Equity Portfolio seeks to achieve long term capital appreciation by investing in equity and equity related instruments across market capitalisation.
overview
In the PGIM India Equity Portfolio, we identify and invest in companies that perform strongly in the market due to their higher projected earnings. We also focus on companies that are not performing well but have the potential to earn big over the next three to four years.
In this investment approach, we use a judicious mix of operating leverage and turnaround candidates.
When it comes to operating leverage (due to capacity expansion/spare capacity), our focus would be on:
  • Focuses on companies that are entailing capital expenditure or are more or less done with it.
  • Increased gross block will likely lead to increased utilization over the next 3-4 years.
Increased utilization leads to better top line, and a tight control on costs may lead to strong operating leverage playing out in terms of a swing in profitability.
However, when it is a matter of turnarounds, we look at companies at the bottom of the business cycle and a beneficiary of a recovery in the sector/company.
Portfolio Strategy
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Our endeavour will be to buy good businesses at the bottom of a cycle.
Good businesses are the ones that have demonstrated strong cashflows and have a clean balance sheet over their history.
At the bottom of the cycle, near-term profitability is impaired. This leads to subdued stock prices and valuations. As earnings start coming back over the next 3-4 years, these companies are likely, not only to see stocks returns in tandem with earnings recovery, but also the chance of a PE expansion, if bought at subdued valuations.
To ensure that these turnarounds work both sectors and stocks playout, the focus will be on turnarounds where:–
  • Historical cashflows have been strong (60-70% positive operating cashflow generation through the history).
  • Balance sheets are clean, hence debt servicing is not an issue.
Investment Process
Multi-filter stock selection
The selection process we follow works by considering the business risk involved and the strength of the businesses while investing. We use three filters including stocks or companies already in our investment universe:
The portfolio manager shall have a leeway of up to 10% to invest in stocks beyond the above-mentioned process.
The portfolio will comprise about 20 to 25 businesses which demonstrate the following qualities:
Downside business risk management
  • Positive Operating Cashflows for at least 60% of the business history
  • Low leveraged balance sheets (Net debt: Equity < 2)
  • No major corporate governance issues in the past
Potential Returns
The returns made in a stock comprises:
  • Ability to deliver growth in earnings in the future
  • Opportunity of a PE re-rating (if the stock is valued)
The portfolio will try to focus on buying business that benefits from visible earnings and could see the added benefit of expanding beyond their value.
Growth Businesses with at least one of the following characteristics
  • Well-capitalized
  • Strong in technology/knowledge- based businesses.
The team will consistently focus on companies that can grow their earnings in 4-5 years. This is easier said than done, as predictability of earnings over a 5 year period is reasonably challenging. The portfolio construction process shall entail a framework, where the probability of this happening is more likely.
Company Valuation
We follow a Price/Earnings-To-Growth (PEG) strategy where P/E is divided by predicted earnings growth over the next 3 years. This ensures that every business, whether strong structural businesses or cyclical commodities moves through a common denominator setup and inevitably reduces the Affect Bias.
Here the portfolio manager will have the freedom to invest a maximum of 20% of the funds in businesses outside the above themes, keeping in mind long-term potential.
Investment Approach
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Investment Objective
PGIM India Equity Portfolio seeks to achieve long term capital appreciation by investing in equity and equity related instruments across market capitalization. However, there can be no assurance that the investment objective will be achieved.
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Types of Securities
Funds would be predominantly invested in listed equity and equity related instruments.
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Basis of selection
The portfolio will invest in businesses with a visibility of earnings growth over the next three to four years, with an aim for capital appreciation. The portfolio will be conscious about downside business risk management and strength of the businesses while investing. The strategy will have three filters for including stocks in the investment universe:
  • Positive Operating Cashflows for at least 60% of the business history*
  • Low leveraged balance sheets (Net debt: Equity < 2)
  • No major corporate governance issues in the past
*Nifty 50, Nifty Midcap 100, BSE 200 and top 250 stocks defined by AMFI are automatically apart of the investment universe.
The portfolio manager shall have a leeway of up to 10% to invest in stocks beyond the above-mentioned process.
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Portfolio Allocation
The portfolio will comprise 20-25 businesses across a range of market capitalizations. Pending deployment of funds of the Portfolio in securities in terms of the investment objective, the funds of the Portfolio may be parked in short term deposits of scheduled commercial banks or in the liquid and debt schemes of PGIM India Mutual Fund.
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Investment horizon
This portfolio is suitable for investors with investment horizon of at least 3 years.
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Risk Associated
Please refer to disclosure document disclosure document.
Portfolio Manager
PMSbanner
Surjitt Singh Arora,
Principal Officer and Portfolio Manager - Portfolio Management Services,
PGIM India Asset Management Pvt. Ltd.
Surjitt Singh Arora is Portfolio Manager – Portfolio Management Services at PGIM India Asset Management Private Limited.
Surjitt Singh Arora has more than 18 years of rich work experience in the Equity Markets including over 8 years in the asset management industry. In his last stint, Surjitt was Head - PMS and Head - Principal Officer with Tata Asset Management, where he was managing Tata ACT and Tata Emerging Opportunities Portfolio. Prior to that he was with Tata Mutual Fund as Equity Research Analyst.
Surjitt holds a Bachelor’s degree in Management Studies from Sydenham College, Mumbai and a Master’s degree in Management Studies from Sydenham Institute of Management and Research (SIMSREE), Mumbai.
Performance
Period
Portfolio
Nifty 50 TRI
1 Month
-0.85%
1.57%
3 Months
0.39%
2.92%
6 Months
6.45%
14.09%
1 Year
36.83%
30.08%
Since inception date 19/01/2023
29.13%
20.00%
#w.e.f. April 1, 2023, the benchmark has changed to the Nifty 50 (TRI) from Nifty 500 TRI. The portfolio is live from Jan 2023 and thus the performance is shown for 1 and 3 months period.
Portfolio
Top 15 Holdings of India Equity Portfolio Strategy as on 31st March 24
Company
Portfolio Weightage
ARTEMIS MEDICARE SERVICES LTD
9.59%
ICICI BANK LTD
7.14%
RADICO KHAITAN LTD
6.25%
HAVELLS INDIA LTD
5.45%
THOMAS COOK I LTD
5.18%
TATA STEEL LTD
5.04%
RBZ JEWELLERS LTD
4.91%
MARUTI SUZUKI INDIA LTD
4.91%
MAX FINANCIAL SERVICES LTD
4.30%
ENDURANCE TECHNOLOGIES LTD
4.24%
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