Ricky Kirpalani, Lead Sponsor And Investment Advisor, First Water Capital Fund (aif)

By Author: Ricky Kirpalani
Total Articles: 24
Comment this article

In an interaction with Mamta Maity, indiainfoline.com, Ricky Kirpalani, Lead Sponsor and Investment Advisor, First Water Capital said, “Until September 2018, I was primarily managing a private equity group. But I always intended to institutionalize my methodology and develop a team that was capable of carrying out my investment philosophy/thesis.

Why the name First Water Capital?
Well, the term First Water was used long ago by diamond dealers who tested the quality of a diamond by throwing the stone into water. The purest and most translucent stones were called First Water diamonds. It metaphorically represents our endeavor in the arcane world of finance.

What would you say is your focus and how has it evolved over the years?
While I have been a passionate investor for nearly three decades, developing and refining a strong investment philosophy was an evolution and not a toggle switch. To be a good investor, one needs to learn both the art and craft of navigating the market. The craft emerges through the quantitative and qualitative aspects of stock/sector selection, but the art develops through time, ...
... experience and interaction with the markets. This is what allows us to take advantage of drawdowns, optimize profits, and remain stoic when everyone else is panicking.

The essence of my philosophy is to find a combination of value and growth plays. It’s one thing to find a company whose intrinsic value is significantly higher than its market price, but it’s even better if there is a strong element of growth, often structural versus cyclical, as perceived by the market.

One has to exercise a high degree of patience and fortitude. As the adage goes, in the short term the market is a voting machine and in the long term it is a weighing machine. In the short term, it will test your conviction to the point where self-doubt can creep in. However, in the medium to long term, if one is right and has the courage of their conviction to go the distance, then that is where they can potentially be richly rewarded.

I also tend to have a concentrated portfolio. Picking 30-40 stocks can help diversify your risk, but it’s less likely to give you alpha, because how is it really different from the index if you’ve generally bought the index? Similar risk mitigation could also be achieved with 15-18 actions. By having a more concentrated portfolio, not only can I better monitor the fundamentals of the companies I own, but if a stock outperforms, it contributes more to creating alpha. Of course, if not, then the flip side is true. So, it’s a double-edged sword.

Tell us about First Water Capital’s journey
Until September 2018, it was mainly managed by a private equity group. But it was always my intention to institutionalize my methodology and develop a team that was capable of carrying out my investment philosophy/thesis.

Although we started during a broad bear market cycle, it allowed us to average stocks at relatively decent prices. Of course, the pandemic arrived in 2020, which initially caused a sharp drop, but also later, a sharp rise in asset prices, from which we have benefited.

Has the pandemic affected your business growth and how?

Growth can be seen in two ways. One is yield and the other is AUM growth. The pandemic has been a big boost to performance, due to the measures taken by various governments around the world, whether it be injecting liquidity into the economy or increasing spending on infrastructure. These measures have led to sharp increases in asset prices across the board.

Of course, in light of rising inflation, there are now signs from governments, especially the US, to start bringing it down. But this is par for the course, and we have to take it slow. We are long-term investors, so while there may be an impact on prices due to rebalancing of funds, we look very closely at the intrinsic value of our companies, which, even now, we believe are still of good absolute value. and relative.

AUM growth is also a key part of building a fund. Of course there are challenges with limited travel, fewer networking events, etc., but we have managed to continue to build our book through new and existing clients. We think 2022, geopolitics and black swans aside, would be a year for consolidation, even as allocators look for exciting new managers and themes.

What is your perspective on the financial industry?
Well, we think that at least in India, the prospects are strong. To hone it in the asset management industry, penetration levels in India are still relatively low, but this should improve as incomes rise and people are able to save more and are looking to make their money work for them.

There are a number of factors that should encourage people to redeploy funds from hard assets like gold and real estate into stocks, such as:

We believe that India is at the beginning of its economic Golden Decade and choosing good sectors/companies will be a way to be part of its wealth creation. We are also hopeful that the Government continues to recognize the importance of markets in providing capital to the nation’s building blocks.

To know more information visit us:
https://www.firstwatercap.com/