From Private Equity to Value Investing: Insights from Sarvesh Gupta, Founder of Maximal Capital PMS

Sarvesh Gupta’s journey into the world of investing began during his engineering days when he first encountered value investing through the book “Buffetology” by Mary Buffett. His natural inclination towards value investing, rooted in his cultural background, led him to pursue this path further. After working in private equity at Gaja Capital, Gupta transitioned to public markets, taking a significant pay cut to align with his investment philosophy.

The Maximal Capital Approach: Contrarian, Concentrated Value Investing : Maximal Capital PMS, founded by Gupta, follows a contrarian concentrated value investing strategy. The firm focuses on sectors facing temporary headwinds but offering good valuations. Gupta emphasizes the importance of normalized earnings and maintaining a concentrated portfolio to beat market returns. The top 10 stocks typically comprise 60-70% of the portfolio, reflecting high conviction bets.

Navigating the Current Market: Opportunities and Challenges : Gupta identifies several sectors that currently offer value, including lending, chemicals, pharma, and cement. He notes that while some sectors like defense and power have become overvalued, others like lending are available at 10-20 year low price-to-book multiples. Gupta’s strategy involves holding higher cash levels (around 10%) to capitalize on market corrections and focusing on beaten-down large caps and special situations.

The Role of Technology and Information in Modern Investing : Discussing the evolving landscape of investing, Gupta highlights how technology has democratized access to information. He credits platforms like AlphaStreet for providing timely access to earnings calls and other crucial data. While acknowledging the benefits of new-age tools in enhancing research efficiency, Gupta emphasizes the importance of intuition developed through years of focused practice in the field.

PMS vs Mutual Funds: Choosing the Right Investment Vehicle : Gupta provides insights into the differences between Portfolio Management Services (PMS) and mutual funds. He explains that while mutual fund managers are highly skilled, their large asset bases make it challenging to outperform the market consistently. PMS, with its more concentrated approach, can potentially offer better returns, but investors need to be cautious about the size of assets under management and the fund manager’s ability to transition between market caps.

The Importance of Continuous Learning in Investing : Emphasizing the significance of reading and practical application in investing, Gupta recommends classic books like “The Intelligent Investor” by Ben Graham, “You Can Be a Stock Market Genius” by Joel Greenblatt, and “Common Stocks and Uncommon Profits” by Philip Fisher. He stresses the importance of applying theoretical knowledge to real-world investing scenarios to develop a unique investment approach.

Nuggets of Wisdom: Key Quotes :

“Private equity in India, it’s more of a high-growth sort of an investing journey.”
“In India, the situation is different, and hence, most of the private equity deals also happen only when the markets are really good.”
“In public markets, you can get very good valuations, which significantly reduces your risk if you are a long-term investor.”
“Private equity in India pays very well.”
“I had to take a pay cut of almost 75% to enter this space.”
“We are fairly well penetrated in terms of the capital markets in India.”
“The level of sophistication, even amongst the UHNIs, is very low in India.”
“It is very important to choose the right clientele.”
“No one withdrew the money during COVID, which really helps you as a fund manager.”
“The objective is to be long-term invested.”
“We are not momentum traders or people who are frequently doing in and outs.”
“It is very important to educate clients about how you are going about doing the things.”
“Maximal Capital focuses on sectors offering good valuations, even in bull markets.”
“Value investing reduces risk and aligns with my personal investment style.”

Key Takeaways : Sarvesh Gupta’s journey and insights offer valuable lessons for both novice and experienced investors. His emphasis on value investing, contrarian thinking, and concentrated portfolios provides a framework for potentially outperforming the market. Gupta’s approach to navigating current market conditions, balancing risk and opportunity, and continuously adapting to changing market dynamics offers a blueprint for thoughtful investing.

The interview underscores the importance of developing a personalized investment strategy, staying informed about market trends, and maintaining a long-term perspective. Gupta’s transition from private equity to public markets and his success in founding Maximal Capital PMS demonstrate the potential rewards of aligning one’s career with their investment philosophy.

For investors considering PMS or other investment vehicles, Gupta’s insights on the limitations of mutual funds and the potential advantages of more concentrated strategies provide food for thought. However, his cautions about AUM size and manager transitions serve as important reminders of the due diligence required when selecting investment managers.

Ultimately, Gupta’s emphasis on continuous learning, practical application of knowledge, and the development of intuition through experience encapsulates a mindset crucial for success in the ever-evolving world of investing.