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“We are humbled to have consistently ranked among the Top 10 funds over the past five years, achieving an exceptional CAGR of 43%. At the heart of this success is our disciplined and focused investment philosophy,” says Pawan Bharaddia, Co-founder of Equitree Capital. In an interview with ETMarkets, Bharaddia said: “We deploy a rigorous “private equity approach” to investing in listed micro and small-cap companies—businesses we understand deeply and can analyze comprehensively,” Edited excerpts: Thanks for taking the time out.
After doubling investors' wealth in 2023, your Emerging Opportunities fund rose more than 50% in 2024. Please take us through the numbers and what worked despite being a volatile year? At Equitree, our approach as deep-value investors has been the cornerstone of our success, even in a highly volatile market . By staying true to our philosophy of identifying and investing early in under-researched companies with significant potential, we have consistently focused on long-term business ownership rather than short-term market fluctuations.
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Please take us through the investment philosophy of the fund? We are humbled to have consistently ranked among the Top 10 funds over the past five years, achieving an exceptional CAGR of 43%. At the heart of this success is our disciplined and focused investment philosophy. We deploy a rigorous “private equity approach” to investing in listed micro and small-cap companies—businesses we understand deeply and can analyze comprehensively.
Our strategy focuses on companies with a proven track record of over 20 years, allowing us to assess their ability to navigate different business cycles, evaluate promoter pedigree, and measure the underlying resilience of their business models. Our emphasis lies on identifying businesses with strong cash flow generation and the ability to reinvest profits efficiently, which is key to long-term value creation. As value investors, we are deeply conscious of the price we pay for every investment, ensuring we maximize returns without compromising on quality.
We focus on under-researched stocks that typically have low institutional holdings and minimal sell-side coverage, as these provide unique opportunities for discovering undervalued investments. Our portfolio remains concentrated, holding 12-14 high-conviction stocks with minimal churn. This reflects our disciplined approach and long-term commitment, with an investment horizon of 3-5 years.
This combination of deep research, thoughtful allocation, and patient investing is what has enabled us to deliver consistent, market-leading returns over time How much investors would have made if they invested Rs 1 cr in the fund on 31st December 2023? 1 cr invested on 31st December 2023 would have turned into 1.51cr by 31st December 2024 Which sectors are you overweight on in 2025? In 2025, we are overweight on sectors such as Engineering, Infrastructure Ancillaries, Manufacturing , and select Consumer plays. We believe these sectors represent decadal opportunities that are closely aligned with India’s rapid economic expansion and structural growth story.
The Engineering and Infrastructure Ancillaries sectors are poised to benefit from the country’s increased focus on capital expenditure and infrastructure development. Manufacturing continues to gain momentum as India establishes itself as a global hub, supported by government initiatives like PLI (Production Linked Incentive) schemes and rising domestic demand. Select Consumer plays are also part of our focus, driven by India’s growing middle class, rising disposable incomes, and increasing urbanization.
These sectors are well-positioned to capitalize on the country’s demographic advantage and the long-term consumption growth trajectory. Our overweight stance on these sectors reflects our belief in their potential to deliver sustainable growth and strong returns in the coming years. Any theme or a sector that you think is looking overheated? Certain names in Defense, EMS, Renewables do look overheated to us.
While we agree that these sectors may have large growth prospects, but execution is also an important factor. Even after correction these pockets look expensive, and continuity of growth remains a monitorable. How do you see markets in 2025 – any big trigger points which you are watching out for? After an impressive rally in previous years, the markets appear to be in a consolidation phase in 2025.
The Nifty Small Cap Index has corrected by 8.5% since the start of the year, reflecting cautious investor sentiment. Q3 earnings have also begun on a subdued note, highlighting the need to closely monitor sustained business visibility and earnings growth.
Any slowdown in earnings could trigger a healthy correction, particularly in certain overvalued segments of the market. Additionally, the evolving geopolitical landscape remains a key factor to watch, as it has the potential to disrupt existing business models or create opportunities in unexpected areas. We believe 2025 will be a stock-picker’s market, where selective, high-conviction investing will drive returns.
While short-term volatility is likely, the long-term prospects for India remain robust, supported by strong economic fundamentals and structural growth drivers. It is a smallcap fund that also went through some bit of volatility in the 2H2024. How should one play this theme in 2025? Investors should not be afraid of volatility.
It is important to distinguish volatility from risk. Investors should use volatility to their advantage and build their portfolios having the potential to generate significant financial gains. Having said that, investors should be watchful for the underlying business trajectory and starting valuations In the last 6 months while the market has been volatile (evidenced by the fact that 77% of the stock universe in trading at least 20% below 52 week high), we have been able to deliver 18% return showing robust strength.
At Equitree, we use a staggered buying approach to deploy our investor’s money. Investors who joined us in 2H2024 initially had 30-40% cash, which is now being systematically deployed into high conviction ideas. Are you seeing earnings growth in the small and midcap space in 2025? Yes, we are seeing promising earnings growth in the small and midcap space in 2025, particularly in sectors like manufacturing, infrastructure, and engineering.
These high-growth sectors, which make up a significant portion of small caps, are well-positioned to capitalize on India's infrastructure boom and industrial development. In contrast, the Nifty 50 is heavily weighted towards sectors like Financial Services, IT, and FMCG, which are facing headwinds due to global economic pressures and sluggish domestic consumption. On the other hand, small caps, particularly in the Nifty Microcap 250, have a substantial 44% exposure to manufacturing and engineering sectors that are currently experiencing robust growth.
As these sectors continue to expand, we believe small caps offer an attractive opportunity for earnings growth in 2025. What are your expectations from Budget? Any big announcements that could trigger growth in the broader market space? Looking at past trends, the Budget has often turned out to be more of a statement of accounts, with key policy decisions unfolding throughout the year. However, we do expect the government to continue its focus on infrastructure spending, as it has proven to be a critical driver for growth, job creation, and long-term productivity enhancement.
In addition, there may be measures to stimulate consumption, which would help revive domestic demand and support broader economic recovery. Any strategic focus on these areas could provide significant tailwinds for the broader market, particularly in sectors like infrastructure, manufacturing, and consumption-driven industries. (Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own.
These do not represent the views of the Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel ).
