Manish Bhandari is known for his penchant to spot multi-baggers. In the past eight years since he has been the managing partner and CEO of Vallum Capital Advisors, his portfolio has been consistently delivering spectacular returns.

Prior to Vallum Capital, Bhandari worked with ING Investment Management as vice-president and portfolio manager between 2004 and 2009. During this period he was managing and advising $500 million Indian equity portfolio for ING Investment Management. In 2007, ING CUB Fund was ranked 66th best performing fund in the world by Lipper and 43rd best performing fund in the world by Lipper in Q2 CY09.

Between 2002 and 2004, Bhandari was employed at HDFC Securities in the equity research division and before that at Tower Capital and Securities from 2001 to 2002.

Top picks

Vallum Capital’s picks that have given stellar returns in the past include Indo Count Industries, basmati brand KRBL, Deepak Fertilizers, Pennar Industries, Aditya Birla Nuvo, PI Industries and Shilpa Medicare. Since inception in October 2011, the Vallum India Discovery PMS Fund has delivered considerably higher returns than the BSE S&P Mid Cap.

Investment strategy

Vallum Capital looks for companies which gain the most from operating leverage. “Our strategy for stock selection and portfolio construction is to invest in mid-market companies or business turnarounds and make concentrated bets. We diversify ourselves in 23-24 opportunities available across sectors, companies and individual opportunity with sales of more than Rs 500 crore per annum. Each bet is around 5 per cent of portfolio value,” he says.

“Our rationale is simple – these two segments (mid-market and turnaround firms) attract fewer investors, equity value is mispriced thereby offer better margin of safety for our investments and adequately compensate us for illiquidity, volatility, and concentration risk. Investors should have more than three years of review horizon for such kind of strategy,” he adds.

According to Bhandari, India is likely to witness a shortage of quality, investable companies in the future. “The seeds were sown a few years back with policies like the scrapping of press note 1, allowance of 100 per cent FDI in most sectors and buy back by listed MNCs, and regulatory arbitrage available to do buy back rather than paying dividend. Moreover, in many cases, initial public offerings are from companies that have been private-equity funded, leaving less room for upside for secondary market players. All these factors are compounding the valuation for high quality companies to stratospheric height,” he finds.

Moreover, MNC with technological edge, global relationship, brand, superior business processes have an edge, emerging as leaders or have gained dominant market share in their respective fields. Many such are not represented in the listed equity universe of India. This sets us in a dilemma of how to invest in an excellent business. Therefore, hold on to the good companies you have discovered rather than attempting to find new gem,” he says.