Brief Summary
This podcast features Ankit from Zen Nvesh discussing microcap investing. He talks about the mission behind Zen Nvesh, why investors are scared of microcaps, and busts the myth that information on small companies is unavailable. He shares an investment framework to find quality microcaps, explains "variant perception" with examples, and uses case studies like Indian Energy Exchange (IEX) and CarTrade to illustrate his points. Ankit also touches on high-potential sectors in the microcap space and the mentors and books that have shaped his investment journey.
- Zen Nvesh focuses on filling the gap in microcap investing, a space often overlooked by institutions.
- Variant perception, where you have insights the market doesn't, is key to finding undervalued opportunities.
- Patience is crucial, as many investments, like IEX, may take time to play out.
Introduction
Shashank welcomes Ankit from Zen Nvesh to the podcast. Ankit expresses his gratitude for being invited, mentioning that he follows Shashank's podcast and respects the guests who have appeared on it. He feels honored to be considered worthy of being on the show.
The Mission Behind Zen: Finding Gaps in Microcap Investing
Ankit explains that Zen Nvesh started in April 2025 with a clear focus: to find a unique niche in the investment education space. He notes that many people are already doing great work in the RA and education community. Zen Nvesh aims to add value by focusing on microcaps, an area where there's a lot of misinformation and misunderstanding. Ankit believes that while large-cap companies like HDFC Bank and Aisha Motors are well-covered, microcaps offer opportunities where they can provide unique insights.
Why Are Investors Scared of Microcaps?
Ankit points out that investors in the microcap space often fall into two extremes. Some look for quick tips on social media and end up losing money, blaming the market. Others are too scared to even consider companies with a market cap of less than ₹3,000 crore. This fear stems from the fact that institutions and large PMS/AMCs don't promote microcaps because they can't invest in them due to liquidity issues. Also, the best microcap investors often work silently and don't seek publicity. Zen Nvesh aims to bridge this gap by learning from these silent investors and sharing their insights.
Myth Buster: Is Information on Small Companies Unavailable?
Ankit addresses the myth that information on microcap companies is scarce. While this was true a decade ago, it's less so now. Out of over 5,000 listed companies, more than 4,000 are in the microcap range. However, Zen Nvesh focuses on a smaller subset of 200-500 quality companies that are too small for institutions to notice. These companies, with market caps ranging from ₹100 crore to ₹3,000 crore, are increasingly providing more information through quality annual reports, con calls, and detailed presentations. Events like Alpha Ideas Meet, organized by Nitin Rao, also provide a platform for these companies to present their case. Management teams are generally open to talking to interested investors, making information more accessible.
An Investment Framework to Find Quality Microcaps
Ankit shares Zen Nvesh's investment framework, which includes a top-down approach with four mental models. These models are:
- Turnarounds, Restructuring, and High Convexity: Identifying companies with a bad past that are undergoing restructuring and showing potential for significant improvement.
- High Growth, High Tailwind, and Yard Investing: Buying stocks when they are in the "yard" (undervalued and unnoticed) with a long runway for growth, a concept learned from Atul Rahul G.
- Special Situations: Identifying opportunities where corporate actions, management changes, or demergers can unlock value.
- Deep Value: Investing in decent businesses that are forgotten by the market, requiring patience to hold on until the market recognizes their value.
The Ultimate Edge: Understanding "Variant Perception"
Ankit explains the concept of "variant perception," where you have a completely opposite view of a business compared to the consensus in the market. This isn't just about being contrarian; it's about having unique insights that the market is unaware of. He emphasizes that you can only have a variant perception thesis for a limited number of stocks at any given time, as the market is generally right.
Variant Perception Example 1: The Misunderstood Cash Management Sector
Ankit provides an example of a cash management company (market cap around ₹700 crore) where he has a variant perception. The market views it as an ATM cash management company, but Ankit believes it's a retail cash management company that helps retailers manage their daily cash flows. He explains that this company picks up cash from retail outlets and deposits it into bank accounts, reducing the risk of theft and the need for employees to handle cash. Despite the rise of UPI, the amount of cash in the economy has tripled since FY7, driven by RBI's practice of printing new currency notes and taking back old ones, creating a need for reverse logistics players like this company.
Variant Perception Example 2: A Fallen New-Age Tech Company
Ankit discusses a new-age tech company in the hotel industry that has fallen out of favor. The company provides technology to help hotels plan their inventory and optimize pricing. While the market is concerned about the company's reduced growth guidance and failure to make acquisitions after raising QIP money, Ankit believes the management is being cautious and waiting for the right acquisition opportunities at the right price. He notes that the company has a history of making smart acquisitions and is willing to wait for the right deals. Additionally, the company's valuation is now at a level not seen since its listing, making it an attractive investment.
The Reality of Investing: 70% Losers, 30% Winners
Ankit shares that in his 15 years of investing, he has had 70% losers and 30% winners. However, by being humble, accepting losses, and letting a few good winners ride, he has achieved market-meeting returns. He emphasizes that a few good winners can take care of your portfolio, so you don't need too many.
Case Study (Patience Required): Indian Energy Exchange (IEX)
Ankit discusses Indian Energy Exchange (IEX), a company he was bullish on in March 2023. While the stock price hasn't performed well, he remains invested. His thesis was that the market was overly focused on market coupling (government consolidating demand data to come out with a price), which he believed would not significantly impact IEX's dominance. He argues that IEX has experience launching good products and has high-tech abilities that competitors lack. Additionally, IEX has two other promising businesses: Indian Gas Exchange (IGX) and international carbon exchange. Ankit compares IEX to Rohit Sharma, a cricketer who didn't perform well for several years but eventually unleashed his potential.
Case Study (10X Winner): How CarTrade Went From ₹1800 Cr to ₹12,000 Cr
Ankit shares a successful case study of CarTrade, a company that went from a valuation of ₹1,800 crore in March 2023 to ₹12,000 crore today. He wrote a blog post about CarTrade, questioning whether it was a fallen angel or a value trap. He explains that CarTrade got listed at a very high valuation of 30 times sales, and many HNIs and institutions bought the stock. However, by March 2023, the stock had fallen 75%. Ankit saw an opportunity because CarTrade's main business was growing at 25-30% year-on-year, and the market was wrongly perceiving it as just a secondhand car selling company. He also notes that the company had a significant amount of cash on its balance sheet and the potential to make good acquisitions.
Two High-Potential Sectors in the Microcap Space
Ankit identifies two sectors with high potential in the microcap space. The first is cash management companies, which are currently out of favor. The second is the NBFC sector, specifically companies in the secured finance space that use assets like houses or gold as collateral. He believes these businesses are safer because banking and finance are difficult businesses where money goes out when you make a sale. He mentions SBFC Finance and Northern Arc as examples of companies in this space.
Mentors and Books That Shaped the Journey
Ankit credits Warren Buffett and Charlie Mer for their simple and practical approach to investing. He also mentions Professor Sanjay Bakshi as a mentor who has greatly influenced his investment journey. For books, he recommends "Common Stock and Uncommon Profits" by Philip Fisher, as it remains relevant even today.
Conclusion
Shashank thanks Ankit for the insightful conversation, noting that they have removed some of the myths of microcap investing. Ankit expresses his gratitude for being on the podcast and admires Shashank's work.
