How Mihir Vora picks stocks using Gorilla hunt and a LIM test

Time of India

26-06-2025

From a jungle of 1,100 companies,
TRUST Mutual Fund CIO Mihir Vora
hunts down just 50 using a playbook built on ROCE filters,
terminal value
theory, and a keen eye for gorillas riding
megatrends
.
Edited excerpts from a chat on market outlook, stock picking strategy and sectoral ideas:
The markets have rallied sharply from April lows. How sustainable do you think this uptrend is, especially in the context of rising valuations and global uncertainties?
The recovery we've seen since April isn't just sentiment-driven — it's built on some solid macro shifts. Domestically, Q4 GDP growth surprised positively at 7.4%, inflation continues to trend well below the RBI's comfort zone, and liquidity has decisively turned surplus. The
RBI
has moved clearly into pro-growth mode with rate cuts,
CRR
easing, and sizable
OMO
purchases. On top of that, the ₹2.7 lakh crore dividend from the RBI to the government adds further fiscal support.
Globally, while headlines around tariffs and fiscal risks in the US remain in play, we're seeing signs of a peak in rate tightening. Markets are increasingly pricing in policy easing across major economies as we have seen Europe, Switzerland, India etc. already beginning the rate-cut cycle and there is also intense pressure in the US to cut rates.
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Domestically, government spending has accelerated again. There are green shoots in private sector investment and rural demand seems to be improving. The recently concluded earnings season was good and there were more positive surprises than negative. Profit growth for mid and small caps was higher. Moreover, the June quarter results may see further improvement in growth as the base last year was weak. The weak spots are the tepid credit growth in the banking system and some questions on urban consumption growth.
So yes, while valuations are elevated in parts, the broader context remains supportive. Earnings are coming through, liquidity is abundant, and policy remains growth-focused. The uptrend looks sustainable, though we do expect pockets of volatility due to global geopolitical developments.
Many investors are again raising eyebrows on valuations in the small and midcap space. As someone managing a small-cap fund, how do you approach stock selection at a time when fear of overvaluation is rising?
First of all, the small-cap universe is too vast to make an overall statement on valuations. There are over 1100 stocks with a market cap of over Rs 2,000 crore. Certainly not all of these are expensive. I just need to select 50 stocks out of the vast universe, which is just 5% of the relevant stocks in numbers. So, there is always scope for stock picking in the smallcap and midcap space.
Second, the small and midcap segments went through a meaningful correction over the past few quarters — both in price and time. That reset valuations to a more reasonable zone, especially for quality names. The earnings season has seen more positives for midcaps. Moreover, valuations should not be seen only through the prism of multiples (price/earnings, price/book value etc.) - we need to adjust multiples for growth prospects, especially the longer-term growth potential.
The market gives a disproportionate value to long-term profit growth, especially for high-growth stocks where the runway of growth is for many years, not just the next 2-5 years – i.e., these stocks have a high terminal value. So, if we just focus on near-term multiples for valuations, these stocks will always look expensive, but in real life the earnings compounding takes care of the long-term returns.
So, as fund managers we keep doing what we are supposed to do i.e. meet as many companies as possible, kick the tyres, understand the business, take a view on growth prospects and keep being on top of your game of picking stocks.
What filters do you use to separate sustainable smallcap stories from those riding temporary momentum?
Our process remains fundamentals-driven. We focus on companies where growth is visible, and capital efficiency is sustainable. Credibility of management and promoters is non-negotiable.
We rely on a layered approach. That helps weed out the short-term momentum names. There are about 1100 companies with a market capitalization of over Rs. 2,000 cr. Out of these about 600 fall into segments and sub-sectors which we believe have higher growth potential. We then apply filters of ROCE, cash flow generation (if not historical, then at least prospective), promoter ownership, emerging moats, and other sanity checks to shrink the list to about 250 stocks which we actively study.
To select stocks, we use our Growth at Reasonable Valuation (GARV) and
Terminal Value Investing
(TV) framework. The TV approach hunts 'Gorillas': rare, dominant, unchallenged franchises whose competitive edge rests on intangibles—technology, brands, IP—and that ride long-duration megatrends. Our LIM framework (Leadership, Intangibles, Megatrends) helps judge whether a business can keep compounding well beyond the explicit forecast horizon, justifying higher valuations (on near-term earnings) when the growth runway is exceptionally long.
The final portfolio consists of about 40-60 stocks. We sell when 1) the initial thesis of investing is not panning out as expected 2) valuations become insane or 3) we have other, more attractive opportunities.
Consumption, capex, and financials seem to be the market's favourite themes right now. Are there any sectors you believe are flying under the radar?
Absolutely. While capex and financials have clearly led the recovery, there are several sectors that we believe are only now starting to get noticed. While defence, railways, etc. have done well within the industrial basket, there are segments like construction which have lagged. In financials, we have seen capital market plays doing well but banks and NBFCs have lagged. Consumer discretionary segments like automobiles (two-wheelers as well as four-wheelers), white goods have also lagged. Such segments can now start performing.
Nifty now has 3 stocks - Trent, Jio Financial and Eternal - trading above 100 TTM PE levels. Do you see this trend as a sign of market accepting triple-digit PE stocks as part of the mainstream narrative?
In established high-growth companies, we are seeing that the market prices in high Terminal Value i.e the ability of these companies to scale, reinvest, and capture fast-growing markets for a long period of growth. That can justify elevated multiples but it's not a free pass. Investors are quick to reassess if execution falters. So while some businesses are being rewarded with high PEs, that premium is conditional. It's based on consistent delivery, expanding addressable markets, and reinvestment discipline.
In the case of cash-burn models, the current earnings are less relevant and the valuations are based on the market's expectation of the profits after a few years. The current valuation would be based on the total addressable market, value per subscriber, growth rates etc.
We are not averse to investing in companies which look expensive based on near-term profit multiples if we believe that the runway of high-growth is long. However, we keep testing the hypothesis at regular intervals.
We've seen promoters, PEs, and VCs aggressively selling stakes recently. Do you see supply-side risk to the market?
Some supply pressure is inevitable when markets rally — and to an extent, it's healthy. It improves free float and brings price discovery in names that were tightly held. In many cases, we've seen these sales met with strong institutional demand, especially from domestic mutual funds and insurers.
We look at the intent behind the sale. If promoters are monetizing to invest back into the business, or if PE/VC funds are exiting after long holding periods, it's not a concern. What we avoid are situations where exits are paired with governance red flags or signs of operational stress.
How should investors think about sector rotation right now? Are we seeing a change in leadership in Indian equities?
Yes, there is a clear broadening of leadership. Industrials and financials may have been the early movers, but we're now seeing traction in pharma, real estate, defence and smallcaps.
We focus on themes with sustained earnings momentum and not just those that have worked in the past. Being flexible, data-driven, and valuation-aware is key in managing sector rotation.
We're positioning ourselves to benefit from emerging themes like defence, power infra, railways, electronic manufacturing, chemicals, auto ancillaries, capital markets and domestic capex plays — all of which have legs for a multi-year run.
If you had ₹10 lakh to invest today, how would you split it between equities, debt, and gold/silver?
I would advocate a balanced, growth-oriented allocation: 60-70% equities for capital growth, 10-20% to gold/ silver primarily as a hedge against global volatility, inflation or geopolitical surprises and 20-25% to fixed income which stand to benefit as rates decline further.
The underlying idea is to participate in India's long-term growth story, while keeping some ballast through fixed income and tactical commodities exposure.
India continues to stand out globally — we have macro stability, policy support, and earnings breadth all moving in the right direction. While pockets of the market are richly valued, the opportunity set remains deep and diverse. The risks are mostly global in nature. For investors, the key is to stay invested, stay selective, and think long term.