ETMarkets Fund Manager Talk: Rohit Beri of True Beacon talks about EFQ strategy to pick winners for portfolio

In an interview with ETMarkets, Beri said: “Investors with a moderate-aggressive risk appetite can invest in this product. An ideal time horizon to park capital in our PMS product is 3-5 years,” Edited excerpts:

True Beacon has been known for AIF, but this is a new PMS strategy? Tell us more about the Equity Factor Quant (EFQ) Strategy.

EFQ is a marriage between fundamental analysis and data science. The strategy is built on the foundations of 4 pillars:

• Fundamental Analysis – we look at similar metrics as fundamental bottoms-up investors, albeit through the pricing of the ML model.

• Quantitative Finance – It’s a quant strategy; instead of relying on traditional econometrics-based analysis, we use advanced data science techniques to analyse data and generate signals.

• Data Science – Our research is guided by data science principles and aided by data science techniques to generate robust alpha signals.

• Behavioural Psychology – Our research is targeted at finding casual relationships, which are usually explained using human behavioural biases and cognitive limitations.


How do you plan to expand the investor base?
Abhijeet Pai is a Hyderabad-based entrepreneur and industrialist who is part of the family behind the Puzzolana Group. His expertise lies in the construction, metallurgy, mining, engineering, and manufacturing sectors.

As Co-Founder, Abhijeet will forge new partnerships, help expand the client product suite, and focus on originating and executing private deals for True Beacon’s client base.

His induction to the company further increases the strategic value opportunities offered to True Beacon clients who are currently investing in Alternative Investment Funds, Portfolio Management Services or taking advantage of advisory capabilities.

How do you pick winners for your PMS strategy? What is your investment style?
EFQ doesn’t follow any particular style of investment. Instead, we rely on data and research in making our investment decisions.

Our focus is to find factors predictive of returns and, at the same time, determine the macroeconomic environment in which a particular factor can predict future returns. Our model churns through the factors as the economic cycle evolves.

Who should invest in this PMS? (high-risk investors/low-risk and time horizon)
Investors with a moderate-aggressive risk appetite can invest in this product. An ideal time horizon to park capital in our PMS product is 3-5 years.

How do you manage risk?
EFQ is a very active strategy where the risk of the portfolio is managed on a live basis. We hold between 25-35 stocks in the portfolio and make minor adjustments to the book daily.

What makes you so bullish on financial services and consumer services?

Financial Services –
Our positive outlook on the sector emerges from the belief that we are in the early stage of the credit cycle, and the NPL (non-performing loans) cycle seems to have bottomed out.

We have greater confidence in the banks’ earnings due to lower credit costs and better loan growth, leading to higher operating profits. The decline in credit costs implies that we are more likely to see healthy ROEs for banks.

Banks, especially public banks, which had been affected by the corporate NPL cycle, have returned strongly in recent quarters. This has resulted in credit costs declining sharply in recent quarters and strong improvement in headline asset quality ratios.

We also see public banks, regional banks and NBFCs showing greater comfort in growing their balance sheets as well. With a strong flow of funds, we see that the probability of NPL ratios declining further is still high.

This would imply that the lower credit costs across banks could also be visible for extended periods.

We don’t see an asset bubble currently either in the corporate sector through a large Capex cycle or in the Real Estate sector. These are usually sectors that can potentially result in a sharp slowdown and consequently result in high loss rates.

The loan book has more retail loans in the current cycle; hence, the probability of a higher credit cost appears to be lower. We prefer banks with solid deposit franchises.

Consumer Goods –

Despite the inflationary pressures, the post-pandemic outlook of the Indian consumer space is still promising. There are signs of inflation stabilising and we believe that the margins for consumer companies have bottomed out and see sequential improvement from here.

Rural cash flows seem to be improving with Kharif crop sales and expectations of good Rabi crops and remunerative crop prices.

We expect the relative outperformance of urban India to pare in coming quarters amid steady improvement in rural demand led by pre-election spending.

The shift from unorganised to organised is clearly visible, and we expect this trend to continue. We like companies that are leaders in their respective categories and have strong execution track records.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)