The Investment Philosophy pursued by us reflects our beliefs about the basic mechanisms of financial markets and how they work. They provide us with a fundamental framework that determines both our approach to market analysis and how we assess both the economic environment and individual companies. When it comes to the India growth story, we understand its structural matrices in high definition.
• The price of any financial asset should reflect the present value of its future cash flows. In reality though, financial asset prices can deviate quite significantly and sometimes over quite extended periods from their equilibrium levels. The equilibrium value of a share depends on the ratio between the relevant company’s return on equity and cost of capital.
• In the long term, the price should eventually revert to its equilibrium value. The nature of such inefficiencies in the market can change over time, but there are always opportunities to be seized.
• The ‘ready’ valuation of a financial asset does not give insight into its likely near-term return, but it is central to its long-term return (five years or more).
• Inflation and interest rates are key cogs in market mechanisms.
• In the short to medium term, there is greater certainty in anticipating economic trends on the basis of financial market developments than vice versa.
• Correlations between the different asset classes fluctuate over time.
• Wealth creation can be pursued only as a long term objective.