PGIM India Equity Portfolio


The portfolio will aim to invest in companies with a visibility of earnings growth over the next three to four years, with an aim for capital appreciation. The focus will be to look for:

  1. Beneficiaries of operating leverage (largely due to capacity expansion/ spare capacity)
  2. Companies at the bottom of a business cycle and a beneficiary of a recovery in the sector/ company.

Investment Process

We are conscious about downside business risk management and strength of the businesses while investing. We have three filters for including stocks in our investment universe:

* Nifty 50, Nifty Midcap 100, BSE 200 and top 250 stocks defined by AMFI are automatically a part of the investment universe.

The portfolio manager shall have a leeway of up to 10% to invest in stocks beyond the above-mentioned process.

Parameters

The portfolio will comprise 20-25 businesses, which demonstrate the following qualities:

Downside business risk management:

  1. Positive Operating Cashflows for at least 60% of the business history
  2. Low leveraged balance sheets (Net debt: Equity < 2)
  3. No major corporate governance issues in the past

Growth:

Businesses with at least one of the following characteristics:

  1. Well capitalised
  2. 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. To accomplish this, the focus will be on:

Operating leverage:

  1. Our focus will be on companies that are entailing capital expenditure or are more or less done with it.
  2. Increased gross block will likely lead to increased utilisation over the next 3-4 years.
  3. Increased utilisation leads to better topline, and a tight control on costs lead to strong operating leverage playing out, in terms of a swing in profitability.

Turnarounds:

  1. Our endeavour will be to buy good businesses at the bottom of a cycle.
  2. Good businesses are the ones that have demonstrated strong cashflows and have a clean balance sheet over their history.
  3. 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 may start coming back over the next 3-4 years, these companies are likely, not only 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, both sectors and stocks playout, the focus will be on turnarounds where:

  1. Historical cashflows have been strong (60-70% positive Operating Cash Flow generation through the history)
  2. Balance sheets are clean, hence debt servicing is not an issue (refer section on Downside business risk)

The returns made in a stock generally comprises 2 components:

  1. The ability of the company to deliver earnings growth in the future
  2. The stock is reasonably valued, which gives the chance of a PE re-rating

The portfolio will try to focus on buying business that benefit from the earnings visibility part and could see the added benefit of valuation expansion.

Valuation:

The valuation followed in the strategy is PEG, where P/E is divided by the 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 framework and inevitably reduces the Affect Bias.

The Portfolio manager will have a leeway of investing maximum 20% of the funds in businesses outside the above themes.

INVESTMENT APPROACH

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.
Strategy Equity
Types of Securities Funds would be predominantly invested in listed equity and equity related instruments.
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:
  1. Positive Operating Cashflows for at least 60% of the business history*
  2. Low leveraged balance sheets (Net debt: Equity < 2)
  3. No major corporate governance issues in the past

* Nifty 50, Nifty Midcap 100, BSE 200 and top 250 stocks defined by AMFI are automatically a part of the investment universe.
The portfolio manager shall have a leeway of up to 10% to invest in stocks beyond the above-mentioned process.
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.
Investment Horizon This portfolio is suitable for investors with investment horizon of at least 3 years.
Risk associated Please refer Risk Factor document
Benchmark Index NIFTY 50 TRI

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PGIM INDIA EQUITY PORTFOLIO – SERIES I (High Conviction Themes)

Investment Objective

PGIM India Equity Portfolio – Series I (High Conviction Themes) seeks to generate returns by investing in a portfolio of quality companies that are beneficiaries of efficient operating leverage, helping them to grow profitability, over the longer term.

Strategy

Equity

Types of Securities

Funds would be predominantly invested in listed equity and equity related instruments.

Basis of Selection

The portfolio will aim to invest in companies that benefit from timely capital expenditure, manifesting in increased profitability and better return ratios over a period of time. The portfolio will endeavor to focus on companies with strong operating leverage and avoid companies with higher financial leverage. Primary screening is based on ability to generate operating cash flows, healthy balance sheets with relatively lower net debt to equity ratio and demonstrated corporate governance track record.

Portfolio Allocation

From a risk management perspective, portfolio will be adequately diversified across sectors and across companies. 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.

Investment Horizon

This portfolio requires a longer holding period, suitable for investors with investment horizon of at least 3 years.

Risk associated

Please refer Risk Factor document

Benchmark Index

Nifty 50 TRI

PGIM INDIA EQUITY PORTFOLIO – SERIES II

Investment Objective

PGIM India Equity Portfolio – Series II seeks to generate returns by investing in a portfolio of predominantly quality stocks with good fundamentals.

Strategy

Equity

Types of Securities

Funds would be predominantly invested in listed equity and equity related instruments.

Basis of Selection

The portfolio will identify and invest in quality companies with strong fundamentals. These companies will be evaluated on safety, growth and prevailing valuations parameters before including in the portfolio. The fund manager may rely on ratios like ROCE, ROE, operating cash flow among other parameters to evaluate the company.

Portfolio Allocation

The number of stocks is not expected to go beyond 10-15 stocks under normal market conditions. 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.

Investment Horizon

This portfolio requires a longer holding period, suitable for investors with investment horizon of at least 3 years.

Risk associated

Please refer Risk Factor document

Benchmark Index

Nifty 50 TRI


Disclaimers and risk factors: PGIM India Asset Management Private Limited is registered with SEBI (Portfolio Managers) Regulations, 1993 [as repealed and superseded by SEBI (Portfolio Managers) Regulations, 2020]. This Document is for information purpose only. This Document and the Information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/ schemes or any other financial products/investment products (collectively "Products") mentioned in this Document or an attempt to influence the opinion or behavior of the Investors/Recipients. Any use of the information contained herein for investment related decisions by the Investors/ Recipients is at their sole discretion & risk. Please read the Disclosure Document and the agreement along with the related documents carefully before investing. Investments in Products are subject to market risks, various micro and macro factors and forces affecting the capital markets and include price fluctuation risks. There is no assurance or guarantee/ warranty that the objectives of any of the Products will be achieved. The investments may not be suited to all categories of Investors/ Recipients. Investors/ Recipients must make their own investment decisions based on their own specific investment objectives, their financial position and using such independent professional advisors, as they believe necessary, before investing in such Products. The Client can avail the Portfolio Management Services directly from the Portfolio Manager without any recourse to distributors.
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