Shah: 'Striking the right balance between growth and valuation is fundamental to our investment approach'

‘India Inc can deliver sustainable earnings growth’

With ICICI Prudential PMS emerging as the fastest growing portfolio management service in India, leading both in AUM expansion and client acquisition, Anand Shah, CIO, PMS & AIF, ICICI Prudential AMC, talks about the growth, which is rooted in a disciplined investment process, centred around the BMV framework – business, management and valuation. This approach emphasises investing in quality businesses with sound financials, competent management and trading at reasonable valuations. Excerpts:

Published on:

08 Jun 2025, 1:54 pm

Could you elaborate on the BMV investment framework?

BMV is an in-house framework, which helps identify resilient companies with long-term growth potential. Under ‘business’, we look for companies in industries growing faster than GDP, which can outpace peers in earnings and have a sustainable competitive advantage or moat. We also prefer sectors that are consolidating, rather than fragmenting. If the business does not meet these criteria, we won’t move ahead. Next, we evaluate ‘management’, where we look at the governance, competence and stakeholder alignment track record. If the management does not clear these filters, we do proceed, no matter how attractive the business might be. Finally, we look at ‘valuation’. Great businesses with competent management do not always come cheap. Given this reality, we are willing to pay a reasonable premium for quality and consistency, but we do not believe in buying at any price. If valuations are not reasonable, we are ready to pass on the idea. In essence, we aim to invest in strong businesses, run by capable management, at fair valuations.

What’s your approach to balancing growth potential with valuation discipline while choosing investments?

Striking the right balance between growth and valuation is fundamental to our investment approach. Growth without valuation comfort can be risky. Finding a company with strong earnings potential is promising, but if the stock is too expensive, it could take several years before investors see meaningful returns, leading to an uneasy experience. At the same time, value without growth is equally challenging. History has shown that cheap stocks lacking growth catalysts can underperform for prolonged periods. This was particularly evident in the decade leading up to 2020. That is why we focus on finding companies that offer a compelling combination of both growth potential at reasonable valuation, underpinned by strong cash flow generation.

What is your advice to investors at this point in time?

Our advice is to stay focussed on fundamentals and resist the urge to time the market. Emotional decision-making during turbulent periods often leads to suboptimal outcomes. Investors should set realistic expectations and ensure their portfolios are aligned with their long-term financial goals and risk appetite. Engaging with experienced portfolio managers and wealth managers can help an investor navigate through market cycles.

What is your advice for asset allocation to ride over the market uncertainties?

The optimal approach to navigating uncertain times is through adhering to asset allocation. Having a well-diversified portfolio, which includes exposure to equities, fixed income, commodities, alternative assets, etc, is essential to manage risk, while staying positioned for growth. The right asset mix should reflect an investor’s risk profile, investment horizon and liquidity requirements. Within equities, diversification across market capitalisations and investment styles is imperative. In a volatile environment, having a resilient portfolio can help tide over economic and market uncertainties.

we aim to invest in strong businesses, run by capable management, at fair valuations

Which are the sectors that look attractive for investors, according to your understanding?

From a long-term perspective, we believe that capex-oriented sectors hold significant promise. The revival in capital expenditure – both by the government and increasingly by the private sector – is a structural trend that could sustain earnings momentum. Sectors such as industrials and infrastructure are direct beneficiaries of this trend. Financial services, particularly large banks, are also well-positioned, as they are likely to benefit from increased credit demand and overall economic expansion.

We also see compelling opportunities in consumer services, driven by rising disposable incomes and evolving consumption patterns. However, it is important to be conscious of valuation. Overpaying for growth is a risk, especially in a market where optimism can lead to inflated premiums. Our bottom-up stock selection strategy ensures that we focus on fundamentally strong businesses with favorable risk-reward profiles.