Old Bridge

Mutual Fund
Newsletter

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Current marketplace

Finally, a month where the markets seem to be correcting. NSE500 has largely given away all returns generated in the past 6
months, being down 8% from its peak. Number of events including the global uncertainty around the new administration in the US
have been contributors to this fall. Domestic liquidity continues to remain strong– and the FPI trends are not unidirectional.

The other element was the results – quarter two was quite a shocker at the aggregate levels as the growth metrics seem to have
completely disappeared. Is this temporary and just a post-election phenomenon – or is this structural in nature? The next two
quarters will be critical to determine the direction of the future trend.

Despite this correction – stocks/ valuations have not gotten any cheaper. Our Portfolio valuations of Old Bridge Focused Equity
Fund remain competitive vs the broader marketplace.

Portfolio Valuations

80 EV/EBITDA - Oct 31, 2024 Portfolio PE – 25.8**

70 BSE 500 – 28.8**

60

50

40

30

20

10

Old Bridge Focused Equity Fund* Constituents BSE500*

(14.6) (16.1)

* Excludes financial services exposure in the portfolio and benchmark

** PE excludes Financial Services and Bharti Airtel exposure in the portfolio and benchmark
Old Bridge’s Focused Equity Fund exposure in Financial Services is in Shriram Finance, which was trading at PE – 14.9x, PB – 2.3x on 31.10.24
Earnings have been considered for Trailing Twelve Months of Sept’24
Source – ACE Equity, Old Bridge, Ambit Institutional Equities

Portfolio metrics

In our last update, we have highlighted valuation risks and the difficulty of buying stocks at a reasonable price. In the same breadth
we have been trying to navigate the portfolio towards addressing the global markets and further acknowledging Corporate India’s
role in the global supply chain as provider of services or goods

In this direction pharmaceuticals remain our top exposure – these companies made >20% of our portfolio and were amongst the top
performers during the quarter. Other stocks with similar characteristics account for an additional ~35%.

NSE500 – What the past foretells

At the end of September, all the NSE500 companies had declared their annual financial statements for the March financial year end
2024. A read through of the numbers essentially corroborated the fact that markets trade at these multiple just for the quality of
these statements. RoE’s are mid-teens, leverage/ debt on balance sheet at their historical lows. Cash flows are at their historical
highs. It’s difficult to find a business that is losing money in an economy that has managed the worst crisis in the last decade.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
On the other hand, if one had to look for growth metrics, most of the businesses at current levels of profitability could expand
capacity by 20% and their leverage levels would not change.

The negative on this table – we are making cyclical highs in profitability margins; RoE expansion is absent in this subset. Probably the
worst conclusion is for the lending businesses – corporate India is so significantly cash surplus/ solvent, the ability to price debt is
virtually absent to this pool of customers.

NSE 500 Financials

1.00 20.0%

0.90 ROE
16.0%
0.80
0.70 12.0%

0.60
8.0%
0.50 Debt : Equity
0.40 4.0%
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24

Source – ACE Equity, Old Bridge

A forecast reading through these numbers

The start of the leverage cycle could be around the corner, but it may come in from the most unexpected quarters – working capital.
The cost of doing business, as well as when capex is complete – could mean a scale up in capital employed.

The deterioration would most probably come from the Government and businesses that are linked to Government expenditure. This
will be much more difficult to manage – and would have a domino effect. Compared to pre-2024, most governments even at the
state level focused on efficiency of capital – this time around it seems to more socialist in nature. While socialism has its positives,
any transfer of capital, without a compensating economic activity leads to inflationary pressures. This is a global trend that seems to
be ongoing, and this is not relegated to just India. While most corporates have tightened their belts during the pandemic, this time
around they may not have the choice of being as capital efficient as in the past.

The economy over the course of the decade will chug along, we continue to be bullish on the volume led manufacturing growth, but
the valuation cycle is not in favour to pick any significant trend out here. The capex may continue, and the volume throughput
would exist, albeit with lower margins and capital efficiency. Add debt to this cycle. Trade realignments and surplus capacities in
some industries would normalise margins.

The Future

We can’t really foretell how this would evolve, but if a combination of a working cycle deterioration and a margin contraction would
mean that there could be a lull in the growth cycle for a while. Along with the current valuation spike - the market returns could
normalise for the rest of the decade.

We sign off this update with a chart of how the future can take away from some experience of the past. 2008 to 2013, the NIFTY
returned single digit return.

Nifty 50 TR
8000 8%
6000 6%
4000 4%
2000 2%
0 0%
2008 2009 2010 2011 2012 2013

Nifty 50 TR value CAGR return (RHS)

Source – Bloomberg

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
To emphasise differently – one may have to look at rotating out of the most favoured segments of the marketplace to generate
returns. Two things will we think will work – avoiding consensus and finding a few businesses that can generate incremental returns.

Continuing from our last newsletter in September...

Portfolio inclusion would be potentially in sectors and companies that have a larger international footprint and has established their
right to win vs competition. These would be companies that can generate cash flow – without any subsidies or protectionist
measures. This will help us navigate any slowdown in the domestic macros.

Old Bridge Focused Equity Fund – Our value proposition

▪ A non-consensus portfolio
▪ Focus on capturing all changes in one Portfolio - The strategy focuses not only on “what we own” but also “what we don’t own”
▪ Early movers in any transition – Keep valuations favorable.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
RISK O METER
Old Bridge Focused Equity Fund (An Open-ended Equity Scheme investing in maximum 30 stocks) (multi cap)
This product is suitable for investors who *Risk-o-meter
are seeking*:
Scheme Benchmark (BSE 500 TRI)

• Capital appreciation over long-term

• Investing in a concentrated portfolio
of equity and equity related
instruments of upto 30 companies

*Investors should consult their financial advisers of in doubt about whether the product is suitable for them.

# For latest riskometer, investors may refer to the Monthly Portfolios disclosed on the website of the Fund viz.
www.oldbridgemf.com

Disclaimer

The information contained herein is provided by Old Bridge Asset Management Private Limited (the AMC) on the basis of publicly available information, internally
developed data and other third-party sources believed to be reliable. However, the AMC cannot guarantee the accuracy of such information, assure its completeness, or
warrant such information will not be changed. Stocks/Sector referred in this newsletter are illustrative and are not recommended by Old Bridge Mutual Fund/AMC. The
Fund may or may not have any present or future positions in these stocks /sectors. The statements/analysis in this newsletter should not be construed as investment
advice or a research report or a recommendation to buy or sell any security covered under the respective stocks/sectors. Hence, each investor is advised to consult his or
her own professional investment / tax advisor / consultant for advice in this regard. There can be no assurance that any forecast made herein will be realized. These
materials do not take into account individual investors’ objectives, needs or circumstances or the suitability of any securities, financial instruments or investment strategies
described herein for particular investor.

Date of Release: 29th November 2024

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.