In the second series of interviews in Smart Portfolios, Sadanand Shetty, vice president, Kotak Securities, shares his current investment strategy, impact of global slowdown and his advice to investors with Rex Cano. Since the launch of Smart Portfolios on September 1, 2008, the benchmark index, BSE 200, has slumped nearly 33 per cent, while Sadanand Shetty's portfolio has depreciated by a mere 6.4 per cent till date.
Have you made any changes in your strategy because of the global financial crisis?
Yes. Our strategy has changed in response to underlying volatility and earnings deceleration. We have shifted our position from mid-cap to large-cap companies; we have allocated a part of our assets to low beta defensive sectors. We have also benefited from volatility of the market by short term monetisation of our holdings. An important point to bear in mind is that the market will anticipate an economic revival and therefore the new bull market may begin at a time when the economic news is still bleak.
What will your strategy be going forward?
We will toil further to improve our outperformance vs the benchmark. Our strategy will reflect the changes in economic and corporate fundamentals. We will continue to use cash to hedge against market fall and also buy into corrections. Exposure to large caps will form part of our core strategy in this market although we will also be active in buying into high quality mid cap/small cap companies. Portfolio beta will also change depending upon the level of market.
What stocks have worked for you and what haven’t?
In general, large cap stocks like HDFC, BHEL, ICICI Bank and Bharti have done well for us, beside relative out-performance from pharmaceutical stocks like Sun and Lupin. We have cut our losses in mid/small caps like MIC Electronics, Sintex, United Phosphoros and Bartronics by switching into large cap companies. Our exit from mid/small caps is largely due to potential de-rating of valuation for mid/small caps than their actual financial performance.
Cash has played an important role in Smart Portfolios. What will your strategy be with respect to cash?
Economic slowdown and volatile markets over the next few months will provide enough opportunities to build broad-based portfolio. We will try to optimise the time and price correction to deploy large cash in the portfolio. Till then we will make judicious use of our cash.
What are the sectors you think will do well going forward and why?
When the economy slows down from 9 per cent to sub 6 per cent level, it impacts most sectors of the economy. We expect relative outperformance to come from pharmaceuticals, FMCG, telecom, banking and select mid-cap companies. We continue to remain bullish on long term opportunities in core Indian investment themes - domestic consumption, infrastructure spends and outsourcing at appropriate price points. The real point is that people will continue to eat, drink and take medicines even if they are short of money, whereas they may not buy a new car, move house, buy a new computer or washing machine until better times seem to be on the horizon.
What is your advice for investors?
Before deciding how to plan your bear market investing, it's important to be realistic about the time horizon you have, and to reconcile the returns you want to make with the risk level you are prepared to accept. The risk reward is in favour of investing in diversified portfolio with emphasis on companies with strong return ratios, sound governance track record, valuation comfort and reasonable growth prospects over the next two-three years. The next few months will throw lot of opportunities for investors.