Business

How Big Bets on Small Caps Helped Ayush Mittal Earn Rich Dividends


After becoming a full-time investor in 2008, Mittal has done a lot of collaborative work on research forums, where he meets seasoned investors. He ended up teaming up with a friend Donald Francis, who created ValuePickr.com, a research and discussion platform for investors.

Posted, my brother Pratyush Mittal joined the family business after he worked as a certified public accountant (CA). Then we created Screener.in and Dalal-Street.in (blog),” Ayush said.

In addition to running Screener.in, Ayush also manages the portfolio management service (PMS) -Mittal Analytics Private Limited. PMS has assets under management of approx $100 crore, and fund management for family and close friends.

Ayush Mittal shared his portfolio details, investment strategy, love for small and mid cap stocks, and his financial journey for the Mint Series Professional Portfolio especially. Edited excerpts:

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What brought you to the stock market?

My father started investing in the late 70s with very little capital. While studying CA, he was forced to join the family business. During this time, he realized that stocks were a good way to deploy surplus funds. Initially, I wanted to do software engineering, but after 12th grade, I knew that I would not be able to pass the IIT exams. Thankfully, my dad pushed me to invest. In 2000-01, I started helping him compile the quarterly results. I soon realized that companies that publish good numbers end up doing very well. That’s why I’m interested in stocks and why I’m passionate about it. I did my CA in 2008 and posted full time in the investment world.

What was your initial investment strategy?

Honestly, even today, we don’t have any specific strategy because we think investing is very dynamic. Every few years, you revisit the past and then decide that what you are doing is wrong or immature. So you learn and grow every three to five years. But for the most part, we try to focus on small and medium sized companies that are not well known or not widely discussed. We hardly own any company with more than $20,000 crore market cap meaningfully. We focus on small companies, where we try to look at their balance sheets, fundamentals and undervalues. So we focus on companies that are trading cheap despite a good amount of business or have a unique product, then you invest in management capabilities.

What was the first stock that let you down?

I had success with a small steel company called Vasavi Steel Industries. At the time, I was trying to work on revolving cases. I invested quite a bit in this stock and it just went bust. Then I realized that I never bothered to read the notes for the accounts. There are huge debts, but I only focus on the change in quantity.

How do you focus on a mid-cap and small-cap stock?

When you invest in this space, you have to consider hundreds of companies and we are a very diversified investor. So diversification is a must in this space because you will make a lot of mistakes and have to do a lot of testing. So if you build a portfolio of 10 stocks, maybe 3/4 will work great, 2/3 won’t work, and 2/3 will be terrible, but a portfolio will perform well on an overall basis.

Every time there are quarterly results, we are very busy and we try to go through nearly all the results. We try to find companies that have published a bunch of good numbers and try to understand the reasons for this and why they are doing well financially. We use several screens to receive company notifications about different filters. Besides, ValuePickr.com is a great platform for detailed discussions with the best minds in the field.

How many stocks are you targeting in your portfolio?

At any given time, we have more than 30-40 stocks, making up 60-70% of our portfolio. We also have a concept of having a long idea. So at any given time, in our family account, we will hold more than 100 stocks. But many of those 50-60 long ideas will contribute a very small percentage of the portfolio. Investing in these stocks would be like a ‘step in the door’ strategy.

Tell us about Screener.in.

This website was created by my brother Pratyush. When he joined the family business in 2010, he found that we were doing a lot of manual work, like sifting through a lot of data. So he has automated a lot of processes using Microsoft Excel. He continued to improve it over the next few years. Then he took it to the cloud and made it public. So far, we haven’t marketed it yet, but people still love it. We get around 40-50 million pageviews and over 2 million users on the platform in a month.

On Screener.in, we’ve created algorithms so you can identify your requirements, such as companies with a 30% increase in sales or a 30% increase in profits year over year. , but the price-to-equity (PE) ratio is still lower than 25.

So users get in-depth data on profit and loss, balance sheet, rating, annual report and DHRP (draft red herring prospectus) for the past 10-12 years, then they You can create tools, set alerts, and filter around them.

Screener is free for more than 99% of users and a very small percentage of very wide users choose to pay.

You also manage a PMS.

We started PMS three years ago, in 2019. At that time, small and mid cap companies were pretty much down around 30-50% after a big bull run since late 2017. We have limited it to family and a few friends, with whom we feel comfortable. Currently, we are managing nearly $100 cores in that PMS with 20-25 retail customers. We have a strategy called the MAPL Value Fund.

AUM is different from the individual family funds we have.

Before that, it was just the three of us—my father, my brother, and me—making spontaneous decisions. Today, we are able to do more intensive work thanks to a great team. We have Yogansh Jeswani and Ayush Agarwal who are very young but very passionate about stocks.

However, I personally don’t feel confident about scaling PMS. The small and mid cap space is too volatile and risky and most people don’t have a risk profile or direction for it.

How are you currently investing in your personal portfolio?

We’re serious equity investors—about 80% of our net worth is in equities, in the small to mid cap space. After that, 15% is in real estate and 5% in miscellaneous investments like jewelry. We use real estate as a diversification tool because we care a lot about stocks. So Dad had a plan to sell some shares and buy real estate during the boom. That’s what we try to do every 4-5 years.

Do you use large cap as a tool to maintain liquidity?

Not really, but we do pursue some PSUs (public sector undertakings). The logic is that these companies offer high dividend yields. We have PSUs like NMDC, Indian Oil Corporation and GAIL in our portfolio for high dividend purposes and because these are safe bets. In case we need money, these will come in handy.

How has your portfolio performed over the years?

We don’t measure our returns on a regular basis, but on a baseball field basis we have achieved a CAGR of more than 25-30% over the last 20 years.

Which strategies work for your portfolio and which don’t?

It’s not that some particular strategy worked or didn’t work. We have continued to take the same small cap approach. From the beginning, we tried to find new companies that had something interesting going on, and we tried to identify those names early on. That’s what worked for us. We have failed to take shortcuts and invest in companies without doing our homework.

Which stocks have contributed the most to your portfolio?

Some of the stars performing for us are Shivalik Bimetal, Avanti Feeds, NGL Fine-Chem, Rossell India, Godawari Power & Ispat, Sandur Manganese & Iron Ores, Balkrishna Industries and Astral.

Are these names also the biggest in terms of percentage gain?

Right. Avanti is a huge winner, with a 100x return. Similarly, many of these names are 10x or more profitable. We had Avanti seven eight years ago. Recent winners are Shivalik, NGL and Godawari Power.

Do you invest in international markets?

No. In itself, researching listed companies in India took too long.

Back home, are you optimistic about any area?

We don’t invest by industry, but what works for us are export-oriented companies. India has an advantage, because over the years our currency has continuously depreciated and companies have become more competitive over time. Availability of cheap, skilled labor. Also, India is slowly becoming a major manufacturing hub and reforms are happening at a really good pace. Electric vehicles, pharmaceuticals and agrochemicals look interesting as a theme.

How many months do you reserve your emergency fund?

We do not hold any emergency funds. We believe that equity itself is so liquid that if there is a need, we can simply sell some shares and receive funds within 3-4 days. We also have a LAS (security-based loan) facility for each of our accounts, although we rarely use it. This helps us manage the emergency fund.

Were you able to take a vacation in the past year?

We go on vacation with our family three or four times a year. We visited the northeast recently.

When are you planning to go on your next vacation?

Unplanned, it happens unexpectedly whenever friends and family decide to get one.

A lifestyle change you picked up during the lockdown?

I started walking and cycling a bit during covid-19. Another thing we’ve done during the lockdown is work from home, which I think will continue in one way or another.

What does wealth mean to you?

Being rich is freedom, so you don’t have to work for money and in a way the money starts working for you.

How do you define yourself as an investor?

I started trying to become a value investor after reading books by Benjamin Graham and Warren Buffett. I was very flexible when we tried to find small companies that were growing, had unique products and niches. In addition, I try to identify companies that don’t have too much competition and have a number of indicators of outstanding profitability as well as growth visibility. So maybe today, I’m more of a growth investor than a value investor back then.

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