What were you doing with your money in March 2020? Going long in the stock market, most likely, given the state of markets world over. But most of us didn’t know what to do back then. By December 2020, markets were gaining ground and investor sentiment was looking up. Again, no one knew how the situation would be nine months after the pandemic started. So, what does one do with his hard-earned money? Does he go long or short? How can he make this decision?

Humans are biased and emotional investors. Even self-proclaimed experts cannot predict the future accurately. But if there’s one activity that can help you benefit greatly from following rules, its investing. Rule-based investing advocates investors steer away from human bias and emotions, and instead rely on a set of time-tested strategies to reap dividends.

Warren Buffett explained it quite succinctly:

To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”

This became the credo for Kanika Agarrwal, Atanuu Agarrwal and Nikhil Hooda, who are the cofounders of Upside AI, a Mumbai-based fintech that is utilizing machine learning to drive investments in the long-term. Upside AI is a SEBI-registered portfolio manager, managing over INR 100 cr worth of assets.

Kanika, Atanuu and Nikhil met while working in Credit Suisse in 2011-12. While Kanika and Atanuu are the financial brains behind the venture, Hooda is the deep-domain tech expert. He has worked with Credit Suisse on algorithmic trading, Microsoft on NLP and IBM on predictive analytics. He holds a PhD and B.Tech in Computer Science from IIT Bombay. Atanuu is a self-confessed Benjamin Graham disciple, and has extensive experience in public and private investing, having worked with private equity firms, venture capital firms and SPACs in India and USA. Kanika is a CA and CFA and has worked with Mayfield India and EY apart from Credit Suisse. She says Upside AI was conceptualized like a science project. It was Atanuu who introduced Benjamin Graham’s book The Intelligent Investor to Hooda and Kanika and got them thinking about the benefits of rule-based investing.

“If Graham was around today, he would be a technology-driven investor. Graham, Buffett and several other prominent wealthy people are primarily rule-based investors. If they had some tools at their disposal, they would be using AI for fundamental investing. This was the premise of Upside AI.”

This was an idea the trio kept coming back to, while they moved on with their lives and jobs. But in 2017, they decided it was time to build a product that would edify rule-based investing driven by technology. Currently, Upside AI is a Portfolio Management System (PMS) platform that seeks high-net worth individuals to become investors with a minimum ticket size of INR 50 lakh. Keeping retail investors out of the fray is a deliberate strategy by the trio, explains Kanika, for they want to make a solid product pipeline while dealing with one kind of investor alone while addressing the top end of the investor’s pyramid. They have two products now and two in beta. Over the next 2-3 years, they hope to apply for a mutual fund licence and open up their platform to retail investors.

The two products are UPSIDE Multicap and UPSIDE 250 – both equity products. UPSIDE Multicap, a high-risk option, aids investors to put their money in a basket of quality stocks across the market spread across large, small and mid-caps. UPSIDE 250 is medium risk that aids investors to invest in a basket of top 250 stocks by market cap, across large caps and mid caps.

So how does AI become important? After running more than 50 million iterations, the algorithms create a portfolio for every investor based on nearly 20 stocks. The algos automatically diversify portfolios and lowers risk at investment, no more than 10% of capital is invested in any one stock or more than 35% of your portfolio in any one industry. AI analysts then run manual interference on corporate governance to ensure company financials are accurately reported, and the portfolio is optimized every quarter, following the publishing of financial results by listed companies. The question the trio keep coming back to is: What is the machine recognize as fundamentally good or safe to invest in? The startup is keen to find the intersection where market sentiment and stock worth meet, and help their investors go there with the assistance of technology.

Today, it’s machine learning but in another five years, it could be quantum computing – but the focus remains, how to help investors make informed decisions with an alpha in mind, says Kanika.

With over INR 100cr in AUM, Upside AI is clearly addressing a much-needed market requirement. Kanika believes that their success to date is not only because of a niche, technologically superior product but also the changing market sentiments towards investing. “Demonetisation and COVID19 were two landmark events that have changed the way investors approach the market. Compared to a mature market like USA, where mutual funds are moving into Exchange Traded Funds (ETFs) at retail ticket sizes, India is just starting out but there is huge potential here. Developed markets are already thriving with rule-based investing and a country like India is following suit. Much like how a generation leapfrogged from landlines to mobile phones, we can expect the next decade of investors to enter the fray on the groundwork laid by rule-based investing,” she says.

COVID19 was a windfall for them, as the subpar performance of human-agent driven mutual funds and a bull market due to the pandemic spurred interest in a different approach to multiplying wealth. Today, Upside AI is already among the top performing PMS in India delivering 71% cumulative returns since July 2019. Based on organic referrals and stable performance, AUM has increased by nearly 15% in the past year.

Eventually, Kanika and her two cofounders want Upside AI to be a 100% tech-driven Asset Management Company, offering differentiated products for an array of investors and asset classes. Some ideas include developing an asset allocator using AI, where algos can read macro signals, understand allocations between debt, equity and gold, and then explore returns with a low standard deviation. In addition, the team is already working on a product for the US market that is focused on direct mid-cap and small cap exposure.

In June 2021, the startup raised $1.2 million from Endiya Partners. Other participants in the round included Vijay Kedia, Myelin Foundry’s Gopichand Katragadda and Quantum Advisors’ Ajay Nanavati. The company aims to scale distribution, product and tech.