This is how you generate outsized returns, say market experts

Generating compounded returns in the stock market is a mammoth task as not every bet can lead to favourable results. Money managers also have different approaches when it comes to harvesting maximal returns.

But when it comes to the idea of generating 10X returns in a decade, fund managers, even though not very bullish, still see some possibility of achieving the goal.

Speaking at the Crystal Gazing Summit and Awards 2023, organised by PMS AIF WORLD, three fund managers presented different strategies that one can apply when it comes to stock selection and allocation, with the aim of generating outsized returns within a decade's time.

PMS AIF WORLD(www.pmsaifworld.com), is a new age investment services online platform focused in the space of alternative investments offering analytics & strong content backed quality investment solutions to the HNIs, UHNIs & NRIs.

Get the mix right

Dhiraj Sachdev, Managing Partner and Chief Investment Officer, Roha Asset Managers, suggests putting larger sums of money into companies the investor knows well and which have a strong management pedigree.

"Avoid diversification if you do not understand the company's business or value. Weightage of pedigreed quality businesses should be higher but investors should also have smaller allocations to some early stage or small companies, while still assessing them on quality parameters," Sachdev said.

Sachdev believes doing so will give investors exposure to early stage or smaller businesses that are capable of delivering outsized returns, without increasing their risks.

Risk hai toh…

Anil Rego, Founder and CEO of Right Horizons, a financial advisory, believes that bringing about a change in investor mentality is a major pivot that should be considered before embarking on an investment journey.

"Investors should brace themselves before starting the journey and be well aware of the risks," Rego said.

He added that one would need to increase one’s risk appetite when aiming for outsized returns. "In order to generate outsized returns, one will need to look beyond largecap stocks and dive into small- and midcap firms where the risk and volatility is much higher," Rego said. "Hence, investors should first decide if they have the risk appetite to handle such uncertainties and then allocate a part of their portfolio on such bets, and then sleep on that money for a long time to maximise their returns."

Look for future leaders

Anirudh Garg, Managing Partner, Invasset PMS (portfolio management services), isn’t a fan of the market cap-based investment style and believes that in the next leg of India's strong growth story, the preservation of wealth will be as important as its generation.

To do so, Garg suggests that investors start with smallcap firms and gradually shift to mid and largecaps as the market moves forward and valuations become expensive.

Garg is also of the view that investing in largecap stocks is unlikely to generate outsized returns, as that segment of the market has already seen its lion's share of outperformance in the past decade.

"One should look for future leaders for outsized growth. You won't find those future leaders in the current list of top 200 companies. Hence, one should go a step ahead to determine potential multibagger companies at a very early stage. It will be companies within those unexplored pockets of the market that will eventually become the darlings of the street in the coming decade," Garg added.