Outperformance of Indian markets will get stronger, says Richard Pattle of True Beacon

Richard Pattle, co-founder and Chief Executive Officer of True Beacon

Bengaluru-based True Beacon, a wealth management company, runs Alternative Investment Funds (AIFs) for onshore investors and a Portfolio Management Service (PMS), which is a Nifty 200 product. The firm also has a presence in Gujarat International Finance Tec-City for overseas investors.

Richard Pattle, co-founder and Chief Executive Officer of True Beacon, says that while India has done well in controlling inflation, it remains a concern globally. In an interview to Moneycontrol at the venue of PMS Bazaar’s Dubai Alternative Investment Summit, Pattle spoke about the expectation from the PMS industry and India’s economic outlook. Edited excerpts:

Realistically, there are around 300 stocks that PMS and mutual funds focus on. So, what do you do to create alpha compared to, let’s say, mutual funds?

Our AIFs are chiefly focused on Nifty 50 so we have an even smaller universe there. We have a small but very highly focused team based in Bengaluru. Obviously, they've got vast experience in this. So we're trying to generate some alpha there.

But going specifically to the PMS, that's an exciting product for many of our clients because it is using all of these data points and the behaviors of these stocks under perhaps 120 factors that may be at play at any one single time. So we know when to enter and to exit, a slightly higher churn because it's very active set of strategies that are running on that. But this isn't about stock pickers in isolation sitting there. Obviously, the fundamentals are fed into our own proprietary algos for producing the model portfolio. But it's around the analysis of this vast amounts of data for each of these companies going back 10 years.

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How big a worry is inflation?

Globally, I think it's a huge worry. We at True Beacon have been talking about and highlighting the dangers of inflation for the last 18 months or so before it had become this sort of mainstream conversation in financial markets. We've seen central banks around the world that have come too little too late to the party. In comparison, India has done very well at managing inflation, it has been very cautious and so on. But if we look at other economies, we still have double-digit inflation. The normal inflation pre-pandemic was clearly in the sort of 2-3 percent zone. There are some signs that inflation is certainly not rising, but it's not falling as quickly as possible.

It takes a number of years to get inflation under control. I think most worryingly, perhaps in some other economies around the world, is wage-pull inflation, and that makes this even more sticky because once you start inducing that into the economy, it's not just about dampening down consumption, it's also about what you do for companies, salary bills, going forward as well. So it remains a big concern for us when we look at other markets; India less so, because it has dealt with inflation, for a moderate level of inflation, for quite a few decades. It seems quite well placed to navigate that. Also, the government in India has taken a relatively conservative approach in making sure that it's kept under control, that it doesn't plunge the economy into a very difficult couple of years.

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Last year, India outperformed global markets but things have sort of reversed in the first few weeks of this year. Do you think that with the inflation worries coming back, India’s outperformance is going to get stronger going ahead?

Yeah, I do. India, in dollar terms, even with the rupee depreciation, was the only one in positive territory, and it was outperforming all the other global indices by between 10 percent and 45 percent. Things have changed and that's not necessarily what has happened to the Indian markets in isolation. It has happened to the other global markets.

My own personal view is that there has been perhaps a little bit of over-enthusiasm, particularly in the US markets, even back home for me in the UK over the last couple of months. And so I wouldn't be too concerned about it. And I would also point to the very strong dollar. Of course, the dollar is at historic highs over the last couple of decades. And that's not helping when we look at dollarized returns. I think it will be a transient phase as the world gets back to normal in the second half of this calendar year.

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The Budget has proposed a Tax Collection at Source (TCS) for foreign outward remittance under the Liberalised Remittance Scheme (LRS) of 20 percent. How big will that impact be on you?

It certainly is not going to help with LRS. I think that for us, we're exploring how we can build portfolios for our clients who are onshore in India, and not just in the country, but overseas as well. Most individuals, wherever they are in the world, they have global exposure, they have India exposure or home country exposure and so on. I think for us, what we hope at some stage to be able to do is instead of LRS flowing out to places like Dubai, Singapore, London, US, is that actually India is able to set up a hub in GIFT City to allow Indian nationals to participate in global markets that are on the GIFT City exchanges, so that they can diversify their portfolios and actually so that India isn't losing that business to places like the UAE.

How long should an investor wait in the alternative segment to get that outperformance?

I'm delighted from our point of view, our AIFs, if you look at that weighted benchmark, we've actually doubled the weighted benchmark if you look at our three-and-a-half-year track record, and that's done through the analysis of where the market is going. And within that, running very effective strategies and sub-strategies within our fund that will contribute to the overall P&L (profit and loss). For PMS, again very early days, but we already have 3-4 percent alpha over a six-month time period, and that will go up and down. But I think that for an investor, it doesn't matter where you're investing. You have to take an approach where we really need to look at two, three, four years to see whether that player is capable, not just of scoring alpha or outperforming the weighted benchmark, but actually to do that consistently. So I think that's what our investors look to.

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Can George Soros’s comments on India or the Hindenburg report on the Adani group impact India’s investment appeal?

I think the news stories like these going around the world are never going to be helpful to India or any other country. We have to remember where the report came from and their vested interest in making sure that the company gets under scrutiny, the stock price and the metrics fall. But I think anything that either implies a lack of governance at the country or regulatory level, is not helpful. However, whether it's this particular group under scrutiny, other global groups under scrutiny, I think you have to be patient to find out which of these allegations have any substance, if any, and to allow the regulator in whichever country to do their business as well to investigate them fully. So obviously, anything that's a negative story for any corporate anywhere in the world is not going to have a very positive light in the country that it operates in, but this is not an issue particular to India. It has happened all over the world and it will continue to happen as well.