
From BFSI to consumer brands: WhiteOak's Trupti Agrawal on hunting for durable alphas
WhiteOak Capital AMC
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"We seek to maintain a balanced portfolio without over-emphasizing on top-down themes," she says. Edited excerpts from a chat:
BFSI has had its fair share of drama in recent years—NPAs, fintech disruptions, rate cycles. What's your current framework for identifying winners in this space?
The investment philosophy is that outsized returns are earned over time by investing in great businesses at attractive values. It is a stock selection-based approach of investing in businesses rather than betting on macro. The two critical elements of this philosophy are business and valuation. We want to invest in the companies that present the most compelling combinations of these two elements. To be considered great a business should possess three attributes: (a) superior returns on incremental capital, (b) scalable, (c) well managed in terms of execution and governance.
Every industry goes through cycles. However, it is only the well-run and well-managed companies which can generate sustainable growth. In general, as in any sector, there is a long runway for growth, but execution is the key. That is why a critical 360-degree evaluation is essential especially within mid and small cap financials. Governance assessment is typically the starting point of our analysis.
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With rate cuts happening and inflation tapering, how are you positioning your BFSI bets—leaning more toward lenders, insurers, or fintech hybrids?
A stable macro always bodes well for the financial services sector. However, BFSI is a very heterogeneous sector with different sub-segments having different drivers; for example, fintechs or intermediaries and distributors may be less impacted by monetary policy than traditional banks or NBFCs.
In general, we believe that financial services is a diversified sector which offers numerous opportunities for alpha generation from a bottom-up perspective. Apart from well-run private sector banks which continue to gain market share there are NBFCs with strong underwriting practices operating in niches. Insurance companies, asset management and fintechs also present a diversified set of opportunities, each with a long runway for growth given the relative under-penetration of financial products and services in India.
Within the consumer discretionary sector, are you seeing signs of fatigue or a fresh wave of premiumisation?
India is projected to be the fastest growing major economy in the world and as per estimates by leading global agencies, India will be the third largest economy by 2030. By the end of this decade, India is projected to have a per capita income of US$5,000.
A potential multi-decade growth opportunity is unfolding as per capita incomes rise creating inflection points for various categories where India is at the lower end of the consumption curve. Driven by the lowest data costs globally, the internet has democratised aspirations across 200mn+ households which are at an early stage of adoption of many discretionary goods. The Indian consumer is increasingly more aspirational and expressive.
The consumption economy is having a pyramid structure - at every level, there are new entrants (households) who are moving up the consumption ladder every three to five years. It is often said that 'One man's staple can be another's discretionary!'. Thus, premiumisation is not a quarterly or annual trend but is more structural in nature. At a company level, the realisations may not be commensurately visible from quarter to quarter because of value engineering. In time, this trend is reflected in higher profit margins.
Having said that, while there has been a recent slowdown in consumption at a broader level, near term trends do not suggest any slowdown in the path to premiumisation. Companies continue to invest in innovation and focus on the premium/contemporary segment.
How do you balance valuation froth with structural opportunity, especially in consumer-facing businesses where narratives often get ahead of numbers?
At WhiteOak when we think about valuations, we do not use PE or EV/EBITDA multiples, because such metrics can be very misleading and lead to wrong decisions. Instead, we rely on our proprietary OpcoFinco™ valuation framework, built on principles of economic cash flows and returns on incremental invested capital that is integral to the disciplined research process. The basic framework remains the same; tools, techniques, and lenses differ for different sectors.
When we evaluate consumer companies, the framework consists of many variables including unit economics, nature of structural competitive advantage, agility, and adjacencies. Going by conventional multiples, if a sector seems to be richly valued at an aggregate level there could be significant disparities within the sector, which we try to exploit. It is important not to get too caught up in themes but to evaluate every company basis the management's execution capability. Many team members also have global investing experience, which brings about a unique pattern recognition perspective to investing in Indian companies, especially the new emerging businesses.
When it comes to consumer companies, how big is the threat for established players from D2C players which seem to be the favourites on quick commerce platforms and from selling of own labels by the likes of Reliance Retail?
Most D2C brands target niche markets ignored by established brands, particularly at the high end where customers are willing to pay more. This limits their market size, making it hard for many to scale. The competition is fierce as multiple brands aim for the same market space. Some gain market share at the top end of the pyramid through quick commerce channels, while established brands dominate the lower end with strong branding and distribution. So far, private labels pose a threat but haven't gained much traction yet, though this could change.
If you had to pick one segment within BFSI and one within consumer discretionary to back through FY26, what would it be and why?
Both of these sectors are very heterogenous with a strong runway for growth but differing near term growth dynamics. We seek to maintain a balanced portfolio without over-emphasizing on top-down themes.
From a more longer-term perspective, besides the growth multiplier that the financial services industry would enjoy in a developing economy like ours, the significant under penetration of financial products like credit, insurance and investments makes financial services a multi-decadal and structural theme in the Indian context. The portfolio has a mix of names from private banks, NBFCs, custodians, insurance companies, asset managers, and fintechs.
Consumer Discretionary is a diverse sector. Apart from demographics and rising income levels which are reasonably well understood, a higher female labour force participation is revolutionising the demand landscape silently. It is difficult to cherry pick any one category. What is important is to have a replicable investment framework which can be applied across segments to identify winners.
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