Carnelian “The Shift” Strategy

Fund Snapshot

Fund Overview

Carnelian Asset Management introduces the Shift Strategy, a meticulously designed Portfolio Management Service (PMS) aimed at capturing structural decadal shifts that present significant opportunities in today’s dynamic markets. This strategy leverages emerging trends and focuses on high-quality growth companies to deliver sustainable returns for investors.

Strategy Overview

The Shift Strategy is built on a forward-looking approach, targeting key areas of growth and innovation:

• Manufacturing Opportunities: Capitalizing on a conducive regulatory and global environment to drive growth in the manufacturing sector.
• Tech Evolution: Harnessing the power of digitalization on a global scale to identify and invest in technology-driven companies.
• Concentrated QGARP Portfolio: Focusing on Quality Growth at a Reasonable Price (QGARP), the strategy invests in a blend of mid- and small-cap listed companies that demonstrate:
  • Niche core competence and large opportunity size.
  • Proven track record of performance.
  • Impeccable management capabilities.

Key Features

• Stock Holding: The portfolio consists of 20–25 carefully selected stocks, ensuring a focused yet diversified approach.
• Benchmark: Measured against the BSE 500 TRI, providing a robust standard for performance evaluation.
• Rigorous Selection Process: All investments are subjected to stringent Carnelian filters and forensic checks (CLEAR framework), ensuring only the highest-quality companies are included in the portfolio.

Investment Philosophy

• Within Carnelian’s risk-reward system, the investment strategy is designed to invest in structural growth businesses run by great management at a reasonable valuation.
• Believe that long-term investment success is the product of continuously making sound decisions. Good decisions are those that are taken “objectively, without prejudice,” taking into account “probability of result,” and assessing “risk reward.”
• Carnelian prioritises capital preservation, so every organisation is subjected to Carnelian’s patented Transparent forensic testing system before being invested in. Believe in persistence and long-term vision.

Investment Framework

Carnelian Capital Compounder Fund investment framework is structured around four key pillars:

Quality – Focuses on business and management quality.

Growth – Includes:

• Magic: Accelerated earnings growth and valuation re-rating.
• Compounder: Sustainable earnings growth.

Forensic Analysis (CLEAR) – Evaluates:

• Cash flow analysis
• Liability analysis
• Earnings quality analysis
• Asset quality analysis
• Related party & governance issues

Valuation – Ensures reasonable valuation relative to growth.

The framework emphasizes “Quality Growth at a Reasonable Price”, integrating business quality, earnings sustainability, forensic risk analysis, and fair valuation.

Unique Feature

Before spending money, they go through the unique forensic framework to explore the following: “CLEAR.”

C – Cashflow evaluation & Capital Allocation. No damns are given about earnings that aren’t linked to a cash flow conversion. Instead of relying on the amount of money coming in, they dig into the source of cash flow.

L – Underwriting Analysis, actual vs reported debt, contingent liability and likely future earnings implications

E – Analysis of Actual vs Expected Earnings, True Economic Profit vs Reported Profit, Discretionary vs non-discretionary profit

A – Asset Quality Analysis, Some worrisome points – huge built up in loans and advances, a large quantum of long duration inventories/receivables susceptible to value diminution, large payables are supporting large receivables/inventory, profits getting re-deployed in non-core/expensive/uncertain inorganic growth, profits getting into intangible assets/goodwill – without visibility of commensurate profitability, subsidiaries/JVs which require a constant infusion of profit without any visibility of returns.

R – Governance concerns of another company and related party transactions.

Carnelian Asset Management is an investment company that focuses on real estate and marketing as well.

Carnelian Advantages Over Competitors

Carnelian Capital has a unique approach & unique insights into investing. Carnelian Capital is an exceptional independent, entrepreneurial boutique with a reputed board of advisors. Carnelian focuses on long-term approach with high active share (differentiated portfolio), Concentrated QGARP portfolio –Quality Growth companies (Business & Management) at a Reasonable Price. This offers them a unique blend of companies with accelerated and sustainable growth proprietary forensic analysis known for identifying larger themes, trends /stocks early.

People

Carnelian Capital founders are Industry veterans with strong complementary skill sets. They have a deep understanding of capital markets, businesses & strong relations with corporate India/industry which helps them invest in the right fund.

Process

Carnelian Capital focuses on a unique forensic framework –“CLEAR”. Carnelian Capital focuses on quality. Carnelian follows a disciplined investment process & it has a differentiated approach to risk management.