Nuvama Equities Expansion Target PMS

Objective

To deliver superior returns by investing in high-growth companies across SMID benefiting from India’s $3tn+ प्रगति

Portfolio

Well-diversified with 30 – 35 high-conviction, quality companies across SMID

• Market Cap : Mid-caps 80-100%
• Small Caps: Up to 20%

Selection and risk mitigation

Selection and risk mitigation Sector and benchmark agnostic focusing on bottom-up stock selection, grounded in research. Leverage primary connects with 100+ companies

Key themes

• Premiumization: ~70
• Globalization: ~30
• Transformation: ~40-50
• Number of stocks in universe covering chosen themes. Focus on reasonably valued emerging themes
• Ideal for investors seeking to multiply their returns over a long term investment horizon of 3–5 years
• Prudent risk management to mitigate volatility in SMID
• Well defined risk framework, overseen by an institutionalized, three-tier risk governance structure
• Portfolio built over a period for definitive returns over immediate returns, with low churn
• Clearly defined red flags to be avoided

Active and close monitoring through primary checks

• Disciplined exit strategy: Lock in profits at euphoric valuations
• Ability to hedge and rebalance portfolio using derivatives
• Diversified portfolio: 30–35 stocks
• Single Stock Weight: 7%
• Single Sector Weight: 30%
• Days to liquidate: 100% portfolio, 5–7 days

NEXT Wealth Opportunity

Small and Mid-caps (SMID): Higher earnings growth expectations and ability to invest in emerging sectors

NEXT Investment Themes

India’s प्रगति story driven by

• Premiumization of consumption patterns
• Globalization: India’s time in global trade
• Transformation of nation’s infra

NEXT Selection Rigour

Bottom-up, primary research via direct connect with 100+ corporates within chosen universe

NEXT Growth Portfolio

30-35 high conviction, quality companies with the potential to multiply 2x over next 3–5 years

NEXT Level Managers

Experienced equity investment team delivering top notch returns in existing equity schemes

Frontline indices unable to effectively capture emerging themes

Increasingly innovative, investible themes and sectors providing unique growth opportunities over large caps

Chemicals

Global clamp downs on pollution and diversification of global supply chains creating business flows for India

Hospitals

Increasing health insurance penetration and consolidation in tertiary healthcare improving profitability of hospitals.

Construction/ Building materials

Demand for ancillary materials like sanitaryware/ pipes/ cables expected to shoot up with real estate recovery and housing demand

Discretionary retail

Rising GDP per capita and higher discretionary spends creating new growth waves for this sector

Electronic Manufacturing Services

Strong government focus on indigenizing durables manufacturing and components ecosystem + PLI benefitting rapid growth

Capital Goods

Revival in industrial capex. Strong tailwinds in manufacturing sector with the highest ever capex budget outlay leading to a strong runway for growth

India’s $3trn + प्रगति story

• Premiumization: Rising aspirations of the Indian consumer

Domestic consumption, which powers ~60% of GDP, is expected to grow into a US$5 trn opportunity by 2030

• Globalisation: India taking centre stage in global trade

Every 0.5% market share increase in global trade adds 3.5% / U$110 bn to the GDP

• Transformation: Structural overhaul of the country’s infrastructure

Long runway to catch up to global standards, India’s GFCF as 29%, vs 42% for China – a massive opportunity and critical focus for the government and private sectors

Birth of a young India, on the move, aspiring for a materially better life, backed by the ability to spend and make it a reality

India gets younger, as US, China age – 77%

Share of Millennials and Gen. Z in India’s population in 2030, with median age of 31, compared to US: 40, China: 42

With a working age majority – 19%

India’s share in global working age population remains broadly constant, steady decline in China’s contribution

Everyone Steps Up – 1 out of 2

Households from upper middle and high income segments by 2030 from 1 in 4 today

Basics Covered ‘wants’ Activated

Having grown up with better education/ employment opportunities, and having higher incomes, young India will break away from the frugal attitudes of the preceding generations

Sectors likely to benefit

• Retail & Clothing brands
• Hospitality
• Durables
• Alcohol & Beverages
• Real Estate

Premiumization

Better earning capacity and higher disposable incomes leading to an upgrade in lifestyle and want driven

spends

• Retail & Clothing brands
• Hospitality
• Durables
• Alcohol & Beverages
• Real Estate

Globalisation

Increasing reliance on India’s manufacturing capabilities given cost and quality arbitrage combined with the need to diversify away from traditional hubs

• Textiles
• Engineering goods
• Auto/ ancillary
• Pharma/ API

Transformation

Heavy capex in key vectors such as roads, railways, airports, power modernizing India and its infrastructure

• Cap goods
• EPC
• Equipment manufacturers
• Logistics

Disciplined fundamental approach to selection of winners within defined themes

• 3Y Forward PAT CAGR: > 25%
• Forward looking ROE: > 18%
• Debt/ EBITDA: < 2x
• Free Cash Flow trends: Positive
• Promoter Ownership: > 50%

Additional filters

• Sustainable business moats
• Pricing power and profitability
• Management quality
• Industry dynamics
• Earnings growth visibility
• Valuation comparable

While bringing the rigour of private markets into public market investing

Strong networks enabling on-ground checks with 100+ companies within defined universe

Company / Channel checks

• Management interactions Active monitoring and review, site visits to gauge quality of enterprise, efficient use of capital and governance standards
• Peer, supplier, distributor feedback Holistic checks via multiple touchpoints with key stakeholders

In depth business analysis of catalysts

• Visibility of multiplying current PAT by 2x over next 3–5 years
• Re-rating driven by deleveraging in specific sectors
• Re-rating as a result of increasing institutional ownership and coverage

Business specific factors have a much higher impact than macro factors for under-covered SMID.

Building an independent view is key to generating returns, and more importantly, managing drawdowns