Persistence Capital Fund I is a scheme of Persistence Capital Trust managed by Persistence Long Term Value LLP SEBI Registration No.- IN/AIF3/24-25/1501
Joined August 2024
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A single diya brings warmth to a weary world; shared together, it creates an unshakeable glow. May your year be filled with peace, purpose, and prosperity.
Warm Diwali wishes,
Persistence Capital
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Fwiw we think ai builds getting cancelled in the US is unlikely given the positive impact data centers have on blue collar jobs. But regulatory risk can affect multiples regardless of how strong the tailwinds are and how good the business is. A few months ago, we got asked why we weren't fully allocated to AI winners despite being early to the theme. This is why. We respect risk and we want to survive cycles. Long-term compounding requires long-term survival.
“Most textbooks advise asset liability match so your assets and liabilities have to match but money is made by doing an asset liability mismatch.”
That was August 2017, the year the best-known housing finance stocks nearly doubled. They went on to fall 92% from their peak.
By the time everyone is talking about a theme, most of the money has been made. We went back over the sixteen that led the Indian market between 2015 and 2023, and looked at what happened if you bought each one once it was popular. For a year or so, it worked.
Three years in, 13 of the 16 had lagged the NSE500, and the typical theme had fallen 40% from its peak along the way. We’ve pitched a few of these names at the wrong time ourselves. The deck ends with five questions we ask before buying into a hot theme. The one for this platform: would we invest in this theme if it was not popular on X?
The full deck is accessible in .pdf format here: docsend.com/view/g3vkigu8v8i…
A lot of time has been spent debating the pros and cons of stocks that enable the AI buildout.
Not enough time has been spent discussing businesses that benefit from AI diffusion.
Some examples that come to mind:
Clinical testing cos benefit from proliferation of early stage drug development
Distributors of cyber security software benefit from structural uptick in cybersecurity spend
CCTV businesses now have network effects as LLMs can query entire CCTV network to search for the bad actor. Brand moat transitioning to network effects which is more durable
Software / services businesses that are deeply entrenched, own critical outcomes and are affordably priced can leverage ai to drive productivity and accelerate productivity launches
Advent of agents can lead to direct bookings as a % of revenue going up for airlines / hotels. Good for the asset owner and bad for the OTA
Delivery apps can benefit from agentic orders (provided they earn from delivery fees not ads)
Low cost ecom platforms can win a larger percentage of value purchases
Content owners can accelerate content creation velocity while bringing down spend
This list is not meant to be comprehensive. Remember the real money is made buying the inflection before it occurs, not chasing the rally after it occurs.
Beneficiaries of ai diffusion have outperformed the classic ai build out winners (neoclouds, optics, memory etc) since Jun ‘26.
Maybe India will trade differently but we don’t think that’ll be the case. If there is a regime change, we need to be ready.
Disclosure: no but / sell recommendations. DYOD.
Very very timely reminder on why investing isn't as easy as it looks.
If you have wondered why investing is such a tough job, take a look at this table
In 2023, you could have been right about Amazon achieving higher sales growth, gross margin improvement, and better operating margins than Walmart
You could have perfectly predicted that AI would take off and AWS would become a core pillar for the delivery of AI tools
But if you bought Amazon stock over Walmart, you would have underperformed by 80% over the next 3 years.
Sometimes you can be right about everything in your forecast model and still get smoked by the market anyway.
The combined market cap of Parag, Heritage, Vadilal, Dodla is INR 17.5k cr. These 4 cos did INR 680 cr PAT on a TTM basis.
Milky Mist has a mkt cap of INR 24k cr. It's TTM PAT is INR 127 cr .
Interesting state of affairs.
Given the pace of this correction, you don't even need to lengthen your time horizon for forward PE multiples to get compelling.
Here's a simple framework that helped us navigate the last few years well.
During euphoric times, shorten your time horizon. This'll reduce the likelihood of overpaying and permanent loss of capital.
During despondent times, lengthen your time horizon. Portfolio companies may look super cheap in the out years and this'll increase the likelihood that you buy the dip.
Always remember, nothing is certain. The above framework is a necessary but not sufficient condition to generating strong absolute / relative returns over the long term.
Here's a simple framework that helped us navigate the last few years well.
During euphoric times, shorten your time horizon. This'll reduce the likelihood of overpaying and permanent loss of capital.
During despondent times, lengthen your time horizon. Portfolio companies may look super cheap in the out years and this'll increase the likelihood that you buy the dip.
Always remember, nothing is certain. The above framework is a necessary but not sufficient condition to generating strong absolute / relative returns over the long term.
Persistence Capital retweeted
Markets so bad that the tax debate has changed from-
Should ltcg be cut to should I do tax loss harvesting 5 months earlier?
This is how sentimental bottoms are formed.
Topped up more into strong conviction names from Pharma, chemicals, niche cap goods and power sector
Can we just have a normal year for a change? 😅
Last month, we demonstrated high-rate alchemy: turning mercury into real, stable gold, beating CERN’s record by a factor of 10.
Last week, we enriched isotopes in the world’s most powerful plasma centrifuge, beating the Soviet record that stood for 40 years.
Now, we’re building a fusion reactor in San Francisco to achieve record power density.
As the image below indicates, it has been a painful few months for Indian equities.
Across market cap bands, there are very few stocks that are down less than 10% from ATH. If you are seeing a large drawdown in your portfolio, do not worry. Even in businesses whose market cap exceeds INR 50k cr, 69% of companies in this universe have witnessed at least a 20% drawdown. 83% of businesses whose market cap is INR 1-5k cr have drawn down 20% or more from ATH.
All of this to say that you are not alone. The pain is broad-based.
Stick to businesses that show attractive growth rates, have strong business models, cater to end markets with long growth runway and are backed by ethical promoters. There have been many such drawdowns in the past but if you've bought businesses that demonstrate the above characteristics AT SENSIBLE PRICES, everything will work out. This too shall pass.
Couldn’t agree more. Small caps done well can deliver phenomenal irr over long term even without leverage. The long term bit is key. If you add leverage, you may not be able to stay the course. Tread with caution. Don’t get too greedy.
Persistence Capital retweeted
a bride just gifted her husband a $12,000 GPU.
and they say romance is dead.
The perfect Persistence investment is a mean reversion setup with margin of safety that through accelerating fundamentals becomes a momentum favorite. Hit us with your best idea.
Super interesting development. Time to check 3 data points:
1. How do CSB TTM PB multiples compare vs IDBI?
2. At what multiples were recent banking transactions done - Blackstone / federal bank, Warburg / idfc first and federal / Jana? How do these multiples compare vs CSB?
3. Did these transactions involve a change in control or were these minority stakes?
Disclosure: invested and biased. Please do your own due diligence and don’t rely on X for stock tips!
There are pockets of froth in small caps AND in large caps.
And there are also pockets of value in both categories as well.
Enough ink has been spilt on this debate in Sep ‘24. The last 2 years have shown that unless you manage multiple billion dollars, trying to catch the large cap bottom or call the small cap top is a waste of time.
Instead, investors should focus on setups that demonstrate the holy trifecta (assuming CG etc is good):
Accelerating top line
Margin expansion
Valuation comfort
This is what ultimately drives shareholder outcomes. Now back to earnings season 🫡