How betting big on small caps helped Ayush Mittal reap handsome dividends

After becoming a full-time investor in 2008, Mittal did a lot of collaborative work on research forums where he met experienced investors. He eventually collaborated with a friend, Donald Francis, to create ValuePickr.com, a research and discussion forum for investors.

“After that, my brother Pratyush Mittal joined the family business after doing his Chartered Accountancy (CA). After that we created Screener.in and Dalal-Street.in (blog),” says Ayush.

Apart from running Screener.in, Ayush also manages a Portfolio Management Service (PMS)- Mittal Analytics Pvt Ltd. PMS has assets under management of approx. 100 crores, and manages funds for close family and friends.

Ayush Mittal shares his financial journey with his portfolio details, investment strategy, love for small and mid cap stocks and exclusive Mint Series Guru Portfolio. Edited excerpts:

What brought you to the stock markets?

My father started investing in the late 70s with very little capital. He was forced to join the family business while pursuing his CA. During this, he realized that equity is a good way to invest surplus funds. Initially, I wanted to pursue software engineering, but after class 12th, I knew that it would not be possible for me to clear the IIT exam. Thankfully, my father inspired me to invest. In 2000-01, I started helping them by compiling quarterly results. I quickly realized that companies that post good numbers tend to perform very well. That’s how I got interested in equity and why I’m passionate about it. I did my CA in 2008, and then entered the world of investing full time.

What was your initial investment strategy?

To be honest, even today we don’t have a specific strategy because we think investing is very dynamic. Every few years, you look back on the past and decide that what you were doing was wrong or immature. So, you learn and grow every three to five years. But by and large, we try to focus on small and medium sized companies that are not well known or widely discussed. We hardly have any company that has more Market capitalization of 20,000 crores in a meaningful way. We focus on smaller companies wherein we try to look at their balance sheet, fundamentals and undervaluation. So, we focus on companies that are trading cheaply despite their good business numbers, or that have a unique product, and then you invest in management capabilities.

Which was the first stock that disappointed you?

I bumped into a small steel company called Vasavi Steel Industries. At the time, I was trying to work on turnaround cases. I made some reasonable allocation in this stock and it broke. I realized later that I never bothered to read the notes to the accounts. There were huge liabilities, but my focus was only on changing the numbers.

How do you zero in on stocks in the mid-cap and small-cap space?

When you’re investing in this sector, you have to look at hundreds of companies, and we’ve been very diversified investors. Hence, diversification is essential in this area as you will make lots of mistakes and have to do lots of experiments. So, if you make a portfolio of 10 stocks, maybe three-four will do very well, two-three will do nothing and two-three will do really bad, but overall the portfolio will do well.

Whenever quarterly results come, we are very busy and we try to see almost all the results. We try to look for companies that have posted good numbers and try to understand the reason for that and try to understand why they are doing well financially. We use multiple screens to get alerts of companies on various filters. Apart from this, ValuePickr.com has been an excellent platform to hold detailed discussions with the best minds of the field.

How many stocks do you target in your portfolio?

At any point of time we have more than 30-40 stocks which make up 60-70% of the portfolio. We also have the concept of having a long tail of ideas. So, at any given time, in our family accounts, we’ll have over 100 stocks. But many of the long tail of 50-60 ideas will contribute a very small percentage to the portfolio. Investing in these stocks would be like a ‘get your foot in the door’ strategy.

Tell us about Screener.in.

This site is made by my brother Pratyush. When he joined the family business in 2010, he saw that we were doing a lot of manual stuff, like sifting through a lot of data. So, he automated a lot of the processes using Microsoft Excel. He kept on improving it over the next few years. Then he put it in the cloud and made it public. Till date we haven’t marketed it, but people love it. We get around 40-50 million page views a month and over 2 million users on the platform.

At Screener.in, we have created algorithms with which you can define your requirements, such as companies where sales have grown by 30% or profits have grown by 30% year-on-year, but by value Equity (PE) ratio is still less than 25.

So, users get in-depth data on profit and loss, balance sheet, rating, annual report and DHRP (Draft Red Herring Prospectus) for last 10-12 years, and then they can create instruments, set alerts and Screeners can be placed around them.

Screener is free for over 99% of users, and a very small percentage of users who choose to pay are very broad.

You also manage a PMS.

We started PMS three years back in 2019. At that time, small-caps and mid-caps had fallen by around 30-50% after a large run-up since late 2017. We have limited it. Family and a few friends with whom we are comfortable. So far, we are managing close 100 cr with 20-25 odd clients in that PMS. We have a strategy called MAPL Value Investing Fund.

The AUM is different from the individual family funds that we have.

Earlier only the three of us—my father, brother and I—were taking spontaneous decisions. Today we are able to work more deeply because of a great team. We have Yogansh Jeswani and Ayush Agarwal, who are very young and yet very passionate about equity.

However, I personally don’t feel confident about increasing PMS. The small and mid-cap space is very volatile and risky and most people do not have the risk profiling or orientation towards it.

How are you currently invested in your personal portfolio?

We are staunch equity people – around 80% of our net assets are in equities, in the small and mid cap space. Then, 15% is in real estate, and 5% is in miscellaneous investments like jewelry. We use real estate as a diversification tool because we are heavily in equities. So, Dad had a plan to sell some of the equity and buy real estate during the boom. That’s what we try to do once every 4-5 years.

Do you use large-caps as a tool to maintain liquidity?

Not really, but we follow some PSUs (Public Sector Undertakings). The reasoning is that these companies offer higher dividend yields. Public Sector Undertakings like NMDC, Indian Oil Corporation and GAIL are in our portfolio for high dividends, and because they are safe bets. This will come in handy if we need money.

How has your portfolio performed over the years?

We don’t measure our returns on a regular basis, but on a ballpark basis, we would have done over 25-30% CAGR over the last 20 years.

Which strategies work for your portfolio and which don’t?

It’s not that a particular strategy worked or didn’t. We have continued with the same small and mid-cap approach. From the very beginning, we’ve tried to look for new companies where something interesting is happening, and we’ve tried to identify those names. This is what has worked for us. We failed when we took shortcuts and invested in companies without doing our homework.

Which stocks have contributed the most to your portfolio?

Some of the star performers for us include Shivalik Bimetal, Avanti Feeds, NGL Fine-Chem, Rossel India, Godavari Power & Ispat, Sandur Manganese & Iron Ore, Balkrishna Industries and Astral.

Are these names also the biggest in terms of percentage profit?

Yes. Avanti was a huge winner with 100 fold returns. Similarly, many of these other names have 10x returns or more. We got Avanti seven-eight years ago. Recent winners have been Shivalik, NGL and Godavari Power.

Do you invest in international markets?

No. It takes a lot of time to cover listed companies in India.

Back home, are you up to speed in any area?

We do not do regional investments, but export-oriented companies have worked for us. India has an advantage, as our currency has depreciated over the years, and companies have become more competitive over time. Availability of cheap, skilled labor. Also, India is slowly becoming a major manufacturing hub and reforms are happening at a really good pace. Electric vehicles, pharma and agrochemicals look interesting as themes.

How many months of emergency fund do you provision for?

We do not keep any emergency fund. We believe that the equity itself is liquid enough that if needed, we can sell some shares and get funds in three-four days. We also have LAS (loan against security) facility for each of our accounts, though we rarely use it. It helps us in managing emergency funds.

Were you able to go on vacation last year?

We go on family vacations three or four times a year. We recently visited the Northeast.

When are you planning to take your next vacation?

There’s no planning, it just happens randomly whenever friends and family decide to have one.

One lifestyle change you picked up during the lockdown?

I started doing some walking and cycling during Covid-19. The other thing we did during the lockdown was work from home, which I think will continue in some form or the other.

What does wealth mean to you?

Money is freedom, so that you do not have to work for money and in a way money starts working for you.

How do you identify yourself as an investor?

I started trying to become a value investor after reading books by Benjamin Graham and Warren Buffett. I’ve been very flexible as we try to find small companies that are growing, have a unique product and niche. Also, I try to identify companies where there is not a lot of competition and some have better profitability metrics and growth visibility. So, perhaps today, I am more of a growth investor than the value investor I used to be.