'The yardstick of quality is qualitative as well as quantitative'

SHREYASH DEVALKAR Senior Fund Manager - Equity, Axis Mutual Fund

The theme of this month’s issue revolves around investing in good-quality companies. We speak with Shreyash Devalkar of Axis Mutual Fund to get his views on the same. We asked him about the various aspects of investing in quality companies, including how to identify them, what makes them stand out, their valuation and potential pitfalls to watch out for.

What is your definition of a highquality business? How does one evaluate quality?

The Axis Mutual Fund investment philosophy is a fundamental-based, research-oriented approach to investing. We are high-conviction investors who seek to identify strong and sustainable businesses. Our emphasis on portfolio construction revolves around the thesis that stock selection is the key to wealth creation.

The fundamental nature of our research looks to identify a pool of companies whose primary attribute is financial robustness. This coupled with the capability of the management to sweat the business assets and exploit opportunities provides us with a portfolio of companies with strong financial metrics and a sustainable long-term growth trajectory.

We believe our quality-centric investment approach is ideally suited to weed out weaker companies as we look to identify our investment universe. The approach is two-fold – qualitative & quantitative.

Quantitative Factors 

• Strong return metrics – Example: ROE, ROCE.
• Stable cash flow – A company should be able to fund its organic growth from internal accruals and use long-term capital and working capital efficiently.
• High profitability, low debt-toequity and earnings consistency.

Qualitative Factors