Investment Philosophy

June 17, 2023

The core philosophy at A2A Insights is to outperform benchmark indices by investing in undervalued companies which have performed well but are still away from public attention. While looking for value, I’m not necessarily after ‘bottom of the barrel’ stocks, but rather select stocks which have triggers to unlock value in the immediate term as a result of earnings improvement, management changes, sectoral tailwinds. At all times, safety of capital is paramount so I try to stay away from instances of turnaround in operations, management change and special situations unless there is strong evidence backing up the thesis.

I firmly believe that the merits of following a well-defined process far outweigh the temporary brilliance offered by intuition or discretion. Nevertheless, despite the usage of several screening factors, there is an ample amount of discretion in the final list. One obvious area is the corporate governance scan but there are others too, specifically in selection of metrics (parameters) at various levels. It is easy to become captive of certain metrics while searching for undervalued stocks. For example, PE ratio takes a back seat in my philosophy, especially when it comes to cyclical stocks. At this point, I find it important and beneficial to keep some space for this discretion without deviating too much from the core philosophy.

In the 15 years I’ve spent in analyzing industries, I’ve realized most mature industries work in cycles either short or long. It is coming together of 2-3 factors which can act as catalyst for a multi-year trend of better sales and margins. For the Indian automotive industry, it could be factors such as interest rate cycle (70% cars are sold on loans), input cost inflation, and policy changes (direct shift from BS-IV to BS-VI). As an analyst, my job is to stay away from the automotive industry when the headwinds are strong and enter when these factors start offering tailwinds.