Outlook for FY25 and key learnings from FY24 | Estee Advisors

Performance of smallcases in FY24

FY 23-24 was a great year for Gulaq. We were able to generate phenomenal returns for our investors. Our flagship portfolio, Gulaq Gear 6, generated a 90% gross return compared to 37% return generated by the Benchmark Multi cap index. 

We generated a significant alpha of 53% (90% – 37%) this year. And although we were able to comfortably beat the benchmark, it is important to note that there were months where we underperformed the benchmark. In fact, we underperformed the benchmark 3 months out of the total 12 months in the year. This is why it is so important to not judge portfolios based on short term performance.  

The maximum drawdown that we experienced this year was -16% against -9% of the benchmark. Our Sharpe Ratio, which is a measure of risk-adjusted return (higher the better) was 2.5 compared to 1.53 of the benchmark. 

Investment Strategy followed for smallcases in FY24

At Gulaq, we follow a multi-factor investment strategy. We track 130+ factors, including fundamental, technical, and macroeconomic factors, to construct a portfolio capable of generating consistent alphas. 

We believe in a data-driven approach. All our investment decisions are made by a sophisticated quantitative algorithm that identifies the most active factors and throws out investment recommendations. Every month we rebalance our portfolios to adjust for any recent market movements.

We work diligently on building models that are free from market noise and emotional biases. Instead of hand-picking individual stocks  to construct a portfolio, we believe in building tried and tested strategies that, in turn, works for us by providing profitable investment recommendations.

Market Trends & Themes which took the spotlight in FY24

The factor that worked the best for us last year was the momentum factor followed by low volatility and quality. Last year, we saw a good market rally, Nifty itself saw close to a 30% jump and when overall markets are at all-time highs, the momentum factor tends to behave more actively. 

We follow a flexi-cap allocation strategy. We started the year with a heavy allocation towards large cap and gradually shifted towards mid and small cap to squeeze out more performance out of them. Nevertheless, large cap remained the biggest contributor to our returns followed shortly by mid cap and little to no performance from small cap. With sectoral allocation, we were not only able to identify the best performing sectors but also the best performing stocks out of those sectors. Industrials, IT and Consumer Staples were our best performers with our performance being 2-3X the industry average.

Sectors and Industries to track in FY25

We always restrain ourselves from commenting on the sectors that we think might do well in the near to short term. This is because our opinions are not static. We form our opinions based on data that we see, and when the data changes, so does our opinion. 

Potential shifts in sector allocation one can expect in FY25 

We never try to predict where the market is going to be moving or which sectors will perform well. Instead, we focus on building sophisticated algorithms that can read the market sentiment and identify the factors that are currently hot and likely to perform well going forward. Based on this analysis, the algorithm provides us with sectoral and market-cap allocation.  

Risks foreseen for the Indian markets

We always like to categorize risks into short-term risks and long-term risks. Over the short term, we see several risks that can be considered material – the uncertainty regarding the upcoming elections, increasing market volatility, heightened food inflation due to poor monsoon conditions, expensive equity valuation, just to name a few. However, over the long run, we have always seen many of those risks fading away. In our opinion, if you are a long-term investor, you should not pay heed to most of what most investors worry about and enjoy the compounding journey. 

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Investments in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.