Outlook for FY25 and key learnings from FY24 | Green Portfolio

Performance of smallcases in FY24

Our portfolios performed very well last year. The flagship portfolios – High-Quality Right Price and Smallcap Compounders delivered over 60% returns. While we are glad that we’ve been able to deliver these numbers, we continue to believe that wealth creation is not something to be looked at from a short-term perspective, you build wealth over a lifetime and not one or two years. 

We recommend investors stay for at least 3-5 years because that’s where you get a real experience of wealth creation navigating through both bear and bull runs. We’re here for the long haul and thus, the return I look at is our 35-45% CAGR for the last three or four years.

Investment Strategy followed for smallcases in FY24

Our investment philosophy is simple – we look for under-the-radar with stellar fundamentals. We have been following this strategy for a long time now. We don’t focus on overrated mainstream companies, instead, we look beyond the surface to find value deep into supply chains. 

We love proxy play, so, if we think electric vehicles, as a sector has tailwinds, we wouldn’t buy the companies who are assembling the vehicles, but we’ll look at the ones making batteries, wires, or mobile applications that are essential for the EV to work. Finding such players, that’s value for us.

Market Trends & Themes which took the spotlight in FY24

A lot of our companies have witnessed phenomenal growth last year. We are sector agnostic so most of it is rather scattered. However, textiles, discretionary consumer goods, and power and energy have been some of the well-performing sectors where we booked profits. 

Then there are specific companies of course. There’s Time Technoplast in plastic products, India Nippon Electricals in Auto parts, and more such niche players in different nooks and corners. We had companies like Caplin Point Laboratories in the underperforming sectors (pharma in this case) where the stocks gave stellar returns despite sectoral headwinds.

Sectors and Industries to track in FY25

We’re expecting growth in telecom, pharma, and chemicals. These sectors have been recently added to our portfolios. The chemical sector has been subdued during the last year and is now emerging from a low base. Recession concerns last year triggered a demand slowdown for pharmaceuticals and chemicals but we’re seeing the demand pick up now which should be reflected soon in financials. 

In telecom, 5G is at a nascent stage in India which has created opportunities for small companies to share a piece of the pie. We have HFCL in some of our portfolios where we’re going deep into the value chain to find the undervalued companies as 5G penetration in India increases.

Potential shifts in sector allocation one can expect in FY25 compared to FY24

Last was the year of small caps, indices have had a great run but FY25 has already kicked off with corrections. Volatility will persist and we’re foreseeing both rallies and corrections this year until the election results. 

For the short term, we’re allocating some funds to mid and large caps. However, we continue to find value in small caps, the recent corrections have brought a lot of stocks to attractive prices. We just rebalanced our portfolios during corrections to make the most of this mega sale markets have given us. 

There are no fundamental impairments in any of our companies so the future outlook remains as good as ever.

Various risks foreseen for the Indian markets

It’s going to be volatile for some time. With elections coming up, political uncertainty (or expected political stability) will guide the broader market sentiments. Inflation and thus interest rates will be a driver for most economies like the US, this isn’t a concern for India since our inflation is coming down and we’ve seen resilience to global economic events last year. More or less, Indian markets currently stay protected from geopolitical and fiscal challenges. 

The Red Sea crisis hasn’t been resolved yet and while it isn’t being focused on right now, it can make exports expensive for manufacturing companies, so that’s something we’re watching out for.  

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