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2023, a momentous year – reflecting on our journey…

Updated: Jan 3

Greetings from Team Carnelian!


Happy New Year - 2024!


We hope this letter finds you in good health and high spirits😊. Turning of the calendar is usually a good time to reflect and plan. As we close a remarkable year and embark on a bright 2024, we are delighted to take this opportunity to reflect on the growth, achievements, and significant milestones that we at Carnelian have achieved over the past twelve months.


2023 was a momentous year, marked by a lot of uncertain events – the US banking crisis, increasing interest rates, US-China geopolitical tensions, Israel-Hamas conflict, etc. Throughout the year, most investors were worried about the risk these events would bring; but despite that, the Indian markets continued to remain resilient, driven by growth in domestic manufacturing, China + 1, increasing global market share in merchandise exports, robust infrastructure & railway capex, and a strong credit growth. Corporate earnings continued to surprise the market on a positive side. After witnessing an outflow of USD 6bn during Jan-March 2023, FII flows came back strongly towards the end of the year (USD 4.5bn inflow during Nov-Dec 2023). Through the year, we had communicated via our letters (link)/quarterly connect calls/media interactions (link), that India will emerge stronger on account of the global crisis and FII flows will eventually come back. Domestic money continues to pour in due to financialisaton of savings.


Nifty was up 18.8% (in USD terms) during CY23 vs EM up 6.4%. Small and mid-cap continued to surprise everyone. Nifty mid cap index was up 43% & Nifty small cap index was up 55% vs Nifty up 20% clearly showcasing the interest in broader markets. During the month of May, we wrote our letter on – “Small is beautiful” (link) - why we think it is a great opportunity to invest in Indian small and mid-cap companies, especially when they are undergoing transformation.


Now let us move to update on Carnelian. We believe you as an investor and partner must know the developments at the organization level.


2023 was a satisfying and enriching year for Carnelian – with the overall team size going up from >15 to >35. We shifted to a larger space – at One Lodha Place in mid-town Mumbai. Our Asset Under Management grew to Rs. 4,400 crs. (USD 525mn), almost 2.6x vs the start of the year. Our client base has gone up from 500 to 1300. We now have our people across ~4 cities vs only Mumbai previously. Our performance across all our product baskets was exceptionally good and market leading. Our flagship Shift Strategy has delivered a robust 39.1% alpha during the last 12 months.

Performance Review


Our proprietary MCO framework helped us in finding path-breaking ideas delivering robust returns while mitigating risks. Our CLEAR and CONNECT framework has helped us avoid the “Type A” risk. Throughout the entire year 2023, our portfolio attributes remained much better vs the benchmark. We have been able to create a Faster (Growth), Stronger (Higher ROE & lower leverage) & Cheaper (valuation with respect to growth) portfolio. We are proud to share that the large alpha generation has happened with a low beta of the portfolio (0.9x)! Notwithstanding the fluctuations and uncertainties prevalent across the geopolitical scenario, our Shift Strategy has outperformed market benchmarks, achieving an impressive 39.1% alpha over the last 12 months. The YnG Strategy which focuses on high dividend payout companies has also delivered a stellar performance. Refer our performance below:

Research: The zeal for finding the “Magic” with “CLEAR” lens is deeply engrained


Process is what determines your outcome over long periods of time. Our processes around our proprietary frameworks have served us well. 


“Magic” forms the core of our MCO framework. The framework encompasses identifying opportunities with a view to capture both earnings growth and a valuation re-rating. Our Shift Strategy was also born from this framework in August 2020. At any point in time, we monitor about 80 -100 ideas under this framework.


7 of our portfolio stocks more than doubled during 2023. This framework has allowed us to pick interesting alpha generation names. Despite heavy clouds of uncertainty encompassing the IT sector during the year, all our mid/small IT picks delivered 40% to 250% return during the year. One of our CMO/CDMO portfolio companies received strong traction in the CMS segment, delivering astounding returns. Another portfolio company (engineering) engaged in the business of heat exchangers and reactors had a change in the top management accompanied with a pick-up in the order book - the stock is up >3x in the last 1 year.


We continue to strengthen our team (added 4 team members during the year) with people having strong research background, good work experience and an encouraging idea generation mind-set. We have always believed in building talent ahead of the curve. We have a sector dedicated structure enabling us to build in-depth and connected research. While experience is important to us, we give more weightage to learnability of the person, as we would like to follow our own investment philosophy.


Our active coverage has gone up from 103 stocks to 170 stocks now. Interactions and plant visits have gone up significantly – with the team now getting habituated to morning/late night flights 😊. We have empanelled most major sell-side houses, helping us in our research process.


CLEAR and CONNECT framework has remained the backbone of our forensics and we are satisfied that right from inception, we did not have any accidents on “Type A” risk.


Investor communication and letters


One of our constant endeavours from day one has been writing letters to our investors every month “either addressing the questions/concerns on their mind, highlighting a trend or insights into our process”. As our tribe grows, it becomes even more important. Some of the noteworthy ones written during the year include:


  • Jan 2023 - Tailwinds amid Headwinds – which highlighted that markets may be volatile but lot of tailwinds will give great opportunity to make money in specific focused themes. Our Manufacturing theme did very well.

  • Feb 2023 - Budget, Adani & Fed – when markets was reeling under the Adani and Fed crisis, most people were shaken, our note highlighted BAM (Banking/Auto/Manufacturing) will do very well. BAM delivered exceptionally well and reflected in our performance.

  • April 2023 – Is financial crisis looming, when the SVB crisis was weighing on every mind equating it to the GFC, we argued on the basis of well deciphered data, why this won’t be impacting the Indian banking system in a big way. This gave a lot of comfort to our investor to invest and allocate.

  • May 2023 – Small is beautiful, when risk perception was so high and investor confidence was low, we wrote “we see mid & small caps as a "real pot of opportunities where one can make disproportionately large returns while being mindful of the risk and putting up with short term volatility. Mid and small caps turned out to be star performers this year, delivering almost 70% returns.

  • Aug 2023 – We don’t find the market expensive – simplifying asset valuation - When the whole market was concerned/ talking about high valuations, we instilled confidence through our detailed framework

  • Nov 2023 - US recession & Geopolitics - This time it’s different – Supported with rationale and data, we wrote, why these will have least economic and liquidity impact on the Indian markets if these two were to materialise / escalate.


Other letters gave insight into When do we sell, Our connect framework and many more.


Our regular quarterly calls to investors are well attended and recordings are available on our website.


Many of you have written to us complementing our efforts. It motivates us to do more. Thank you!


Sales & Distribution: Augmenting the reach


This year we significantly ramped up our Sales team. Starting from a single person in 2022, we now have a total of ~10. We have on-ground teams across the cities of Mumbai, Delhi, Gurgaon, Bangalore. These are people with diverse and a rich experience. Our sales team is quite senior, and the average work-ex is >10 yrs. We are now empanelled with most of the reputed wealth management houses, HDFC Bank being the latest one. (360 one, Nuvama, Barclays, Julius Baer, Axis Bank, Citi Bank, Trust Plutus, ICICI Bank, ICICI securities and many more). We love working with our partners. Their product team grills us all the time😊


We are happy to share that we have started our office in Gift City, Gujarat and launching our USD denominated offshore fund in January 2024. We are super excited about this - please do reach out to us.


Operations: Customer experience is the ultimate priority


No building stands tall without its foundation and plinth being firm. All our systems and process across onboarding, operation, servicing, compliance, dealing function are being put in place keeping in mind our vision to converge “Carnelian” to an enduring “Institution” lasting beyond our lifetime.


Two years ago, we pioneered in achieving a fully digital onboarding process. We have consistently dedicated ourselves in enhancing the client experience throughout the entire journey right from the initial onboarding to activation to regular servicing, and final redemption as well. We strive to enhance client satisfaction even further in the coming year. We are diligently working with all our service providers - be it Fund Administrators, Custodians, Trustees, RTA to fortify these initiatives. We have significantly augmented our team with seasoned professionals across various segments to ensure remarkable experience for all our clients and distributor partners. All these endeavours remain steadfastly aligned with our unwavering commitment to compliance and regulatory mandates.


Stepping-stones in place; the journey is still a long way…


While we have travelled a few miles in our journey of building Carnelian, the journey is long & far. Innovation + Efficiency are important necessities of a thriving survival.  We strive to innovate across all our wings – “Research, Sales & Operations”. We aim to find efficient ways of improving our processes and technology quotient.  Over the next years, we aspire to build an organisation with:

  • A team with continued focus and commitment to add value to our customers.

  • A team with a passion to excel, perform and win.

  • A customer base which trusts us for their generational wealth.

  • A group of partners who are willing to endorse & recommend us without any hesitation.


We are extremely thankful for all the support, trust, and blessings we receive from you. It keeps us motivated. We wish to continue our stride with similar zeal and enthusiasm.


Wishing you & your loved ones a happy, healthy & prosperous 2024. We pray to the Almighty for bringing peace & progress in the world.

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