| 'Expect earnings upgrade in Q2FY10' |
| Rex Cano / Mumbai September 28, 2009, 0:33 IST |
What would be your contribution to Smart Portfolios Season II?
The primary aim of Smart Portfolio is to create a platform where the readers/investors get involved in the fund management process. All four of us are supposed to show our investment strategies to the readers/investors and create a dynamic portfolio with investment rationale. Today’s market condition is very uncertain and volatile. In such a situation, I would try to beat the market with certain investment principles in mind. Instead of following what stocks I bought, if the readers can understand the process behind these investments, my job is done.
Could you highlight your investment style and strategies that you will adopt in Smart Portfolios?
Currently, the broader market looks expensive on fundamentals. In spite of this, market has been moving up on foreign inflows. The liquidity v/s valuation debate still continues. Valuations might narrow down with expected earnings upgrades, post the forthcoming quarterly results.
With the primary objective of outperforming the market, I have tried to identify mid caps with strong growth and value potential. I have also made some allocations for large caps. I have tried to remain fully invested with cash of around 5 per cent. At this moment, I do not want to trade but might rationalise the portfolio selectively.
Could you explain equities as an asset class for the lay investor?
More From This Section
Investment in equities always gives better returns than other avenues over a medium to long term horizon. But at the same time, it is a very expensive place for excitement. There are certain principles that an investor needs to follow in order to be on the winning side.
First, he should define a clear investment objective before investing. Second, he should create a disciplined approach. This will only help maintain effective risk control. Third, he should be indifferent to the positions. The objective in investment strategy is to make money and not get married to the scrips. Fourth, one should keep on booking profits at regular intervals. Fifth, there is no alternative to hard work and hence, one needs to keep on monitoring/analysing the portfolio in light of the news or events that can impact the sector/ stock.
Please remember that, making money in the market is not as easy as is made out to be.
The markets are at multi-month highs, what are your expectations ahead?
The markets try to discount the future. We have seen an upsurge in the market after experiencing the worst period in 2008, when the Sensex lost 45 per cent from its peak. The global economy is likely to revive sooner than later; the liquidity situation in the US seems to have been resolved and the world economy is trying to come out of the woods.
All these signify a positive outlook for the market in the medium to long term. The domestic economy is also showing signs of improvement, corporates are able to raise money with reasonable ease and the FII inflow has been quite robust in the recent past.
The valuations look a little stretched (but not alarming) and we expect further earning upgrades in Q2FY10, which will further justify the current levels. However, in the short term, since the market has run up quite sharply it needs a correction. This correction should be used as an investment opportunity.
| AJAY PARMAR Head Research Institutional Equities, Emkay | ||||
| Top Holdings | % of assets | Cost Price (Rs) | Current price (Rs) | Value (Rs lakh) |
| Torrent Pharm | 10.19 | 269.00 | 299.85 | 1.1 |
| Bhushan Steel | 6.29 | 1,113.90 | 1,296.40 | 0.7 |
| Orbit Corp | 6.23 | 194.09 | 256.65 | 0.6 |
| Bajaj Auto | 5.62 | 1,494.20 | 1,447.25 | 0.6 |
| Sabero Org | 5.47 | 42.85 | 46.95 | 0.6 |
| Total investments | 97.09 | 10.0 | ||
| Cash | 2.91 | 0.3 | ||
| Net worth | 10.3 | |||
| Returns (%) | 3.04 | |||
Your rationale for investing entirely in mid- and small-caps?
Out of the 18 stocks that I have invested in, 12 are mid caps. Definitely, we do specialise in mid caps but apart from that, I have a few fundamental reasons for such a preference.
According to me, improved liquidity and better global economic outlook have helped the markets continue their uptrend despite valuation concerns.
Besides, these mid caps are leaders in their segments/sub-segments and have excellent ROE and ROCE ratios. Thus, at this juncture I see a lot of upside in these mid caps and see an outperformance even during a possible downtrend, as the valuations are quite attractive as compared to large caps.
What stocks or sectors would you focus on going forward?
Our preference is towards sectors like auto and pharma. Auto and pharma have outperformed last year as defensive plays and in the current uptrend, these sectors have outperformed as aggressive bets. We also like the real estate sector, which was beaten down on debt concerns, adverse business climate and over confidence of the players on the 'land bank' factor.
We believe that the situation has changed drastically and that the players have successfully raised money through QIPs. The players have changed their business model in the residential segment from luxurious housing towards affordable housing.
We also like infrastructure and engineering sector on a macro level. We are bullish on metals and agri- input sectors in India. We will be quite stock specific while investing and one can see some of the stocks already in my portfolio.
What are the key factors that you look before selecting a stock?
Primarily, we study the macro factors of the industry and the company’s positioning in the sector. We give a lot of importance to the management background and the leadership qualities. Apart from this, we prefer companies with positive operating cashflows, better ROE and ROCE ratios, and less leverage. We also take into consideration the company’s dividend history. Sometimes, we take positions in companies that are likely to see a change in its fortunes due to event specific reasons. We also take a critical view on the company’s projections on parameters like predictability, scalability and sustainability.
What are your targets or what kind of returns do you expect?
We should be able to outperform the benchmark substantially. I would prefer to let my investments/portfolio performance do the talking.
| AMAR AMBANI Vice President (Research) - India Infoline | ||||
| Top Holdings | % of assets | Cost Price (Rs) | Current price (Rs) | Value (Rs lakh) |
| Indian Overs Bk | 6.06 | 94.70 | 120.20 | 0.63 |
| MRF | 5.84 | 4659.70 | 5525.00 | 0.61 |
| Reliance Comm | 5.79 | 286.30 | 301.40 | 0.60 |
| Himat.Seide | 5.48 | 38.00 | 47.50 | 0.57 |
| IFCI | 5.41 | 53.90 | 56.35 | 0.56 |
| Total investments | 87.51 | 9.11 | ||
| Cash | 12.49 | 1.30 | ||
| Net worth | 10.41 | |||