Neil Bahal Managing Director of Negen Capital Interview with Moneycontrol’s Kshitij Anand.
Q. Negen Capital’s SmallCap Emerging Fund outperformed other PMS across themes in August, according to PMSBazaar data. What is the core strategy of the theme which helps you pick winners?
Ans: We are predominantly value investors. But, lately, we are also paying a lot of importance on growth. A combination of value plus growth has been the reason for our stocks to do well.
Recently, we have also developed a system which enables us to pin-point sectors where there is a tailwind of earnings. Once you can identify a sector that is doing well, then the job becomes easier to identify the leaders in the space.
Q. Can you please elaborate further on the investment framework?
Ans: Mostly the same as above and the usual things like high RoIC, good promoters, long earnings runway etc. But, the real outperformance for us came due to position sizing.
If you like a company, it is important to back yourself and give a strong allocation to the company. That is the real key according to us.
Q. The Small-Cap Emerging Fund has given phenominal returns in the last three months as well, but on a 1-year basis the performance falls short of double-digit returns, and since inception it is negative. Do you think the trend is Smallcap and midcap has picked up again which will drive performance?
Ans: As fate would have it, we launched our fund at the absolute peak of the smallcap rally towards the end of 2017. Since we started our fund, the smallcap index had fallen -67% in the bottom during March 2020.
Even today, our benchmark smallcap index is negative 41.5 percent since the inception of our PMS while we have now nearly broken even. So there is considerable outperformance in that sense.
Also, a lot of funds just shut down and start new funds to mask bad performance. We are not like that. We will keep this PMS strategy active through bad and good times.
And yes, small-caps tend to give lumpy returns. We still have a long, long way for the smallcap index to go just to reach its 2018 high. We are probably still just reverting back to the mean. Hence, I definitely feel that small-caps will do very well going forward.
Q. A little about yourself – at what age you fell in love with equities or it just happened?
Ans: Ever since school, I have been doing some or the other business like selling old stamps, currencies, posters, etc. I was introduced to the stock market in my 10th standard and it was love at first sight. I would trade 2 or 3 shares of Infosys and it would give me satisfaction like none other.
I was never interested in studies and I just kept trading through college and tried some other businesses as well. I opened a restaurant and sold my stake.
Also, opened a pharmacy chain and sold my stake. At the insistence of my father, I joined FMB from SP Jain and it was a life-changing moment. Highly recommend this course to anyone.
It gave me access to thousands of business owners and helped me understand their way of thinking and a lot of contacts. It was after my time in SP Jain that I matured as a businessman and started my brokerage which later evolved into a PMS.
One regret was that I never took any work experience. It would have saved me many years of trial and error. I never worked anywhere.
Q. What was your earlier trading strategy, and how did you evolve as a trader?
Ans: In my early teens and mid-20s, I was a clueless trader and investor. I loved the markets but I never understood the market. It was more of gambling instincts instead of true investing.
I evolved as an investor after my younger brother introduced a new concept of investing to me which was special situation investing.
Special Situation Investing is nothing but Value investing but with a trigger. There has been no looking back since. We have kept adding more and more filters along the way but that was the starting point of everything.
Q. The first trade which you remember? And, any trade which went bad for you?
Ans: The Petronet and Yes Bank IPOs I will never forget. If memory serves right, they had come in 2004 at around 10-15/share and both were super hits. They really got me hooked on.
People often quote Warren Buffett saying don’t invest in IPOs. I say that is not applicable in India where tremendous companies keep coming with IPOs.
The 2008 crash. I was 24yrs old and I entered 2008 thinking I am some sort of a market demi-god riding on some years of a bull market. Then came January 2008 and it was all over within days. It is something that I can never forget.
It was like seeing ghosts. I was literally frozen for months.
Q. What is the vision you have for Negen Capital any new products lined up in near future?
Ans: The vision is to grow without drawdowns now. The world is fast changing hence it is important to keep the ship steady and have consistent growth. We have planned accordingly.
No new products. For now, we want to be an alpha-generating emerging PMS for the years to come and grow our AUM doing the same things over and over again.