In the third Smart Portfolios interview, Amar Ambani, vice president (research), India Infoline, discusses his investment style and ideas with Rex Cano and Ram Prasad Sahu.
In Smart Portfolios, Ambani follows a diversified investment style across sectors and stock categories. He is not biased towards a top-down or bottom-up approach and generally avoids exposure to concept stories. His objective is wealth creation over the long term, partly using short term strategies to boost returns.
Since the beginning of Smart Portfolios on September 1, Ambani has maintained a high proportion of cash -- 82.7 per cent on September 19. He has three stocks in his portfolio – Gail India, Bharti Airtel and Jindal Saw.
Can you share more details about your investment style?
The investment style is a diversified one, yet concentrated. I like to own stocks across sectors that look good, but not many stocks from the same sector. While I believe in the saying that one should not put all the eggs in one basket, the converse is also true - one should not put eggs in too many baskets.
There is no bias towards a top-down or bottom-up approach and I generally avoid exposure to concept stories. The objective is wealth creation over the long term, partly using short-term strategies to provide a shot in the arm.
What’s your reason for holding so much cash?
It is an erroneous notion that a fund manager should remain invested at all times. The objective is to do what’s best for the client and sometimes, cash is the best option. We smelled trouble in the US. With FIIs choosing to sell at all levels, it seemed like the market was headed lower. At an appropriate time, I will look at deploying the cash component judiciously.
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What are the stocks or sectors that one should look at in a volatile market?
It is important to be stock specific in times like these. While India was a top-down story last year, a bottom-up approach is more suited in the present situation. The best approach is to invest in businesses with high visibility, available at attractive valuations with a three-year horizon.
What will be the impact of the rupee depreciation on the IT sector?
Given the different level of hedges this time around, the economic benefits would be limited and disparate across the sector. Infosys and Satyam, which were holding lower hedges, are likely to benefit from the rupee fall. On the other side, high hedges held by TCS, Wipro and HCL Tech would limit their gains.
How long would it take for the volatility to subside?
These days, some or the other devil keeps raising its ugly head; first it was the outbreak of the US subprime, then crude oil touched its highs followed by double digit inflation and now, US worries have resurfaced. Just when you think, negative news may have receded, a poor result season impacted by rate hikes could act as a spoiler. Hence, it is difficult to say when the volatility would subside.
The US is witnessing a once-in-a-century crisis, which will not vanish overnight. A look at the past tells you that an average US recession lasts 12-14 months. Therefore, it doesn’t look like much can be expected from Indian equities in 2008 at least. The earliest recovery that can be hoped for could coincide with elections in 2009. The market is yet to find a bottom. Once it does and spends time there, only then will we move back up again. Investors should keep an eye on signs of stability in the US and the interest rate cycle in India.
What are the qualities that make a good fund manager?
The market is governed by greed and fear. A good fund manager should be self disciplined with a sound temperament, which will help him resist greed and stick to his objectives. He should understand business cycles and industry fundamentals and have an eye for opportunity when others are afraid. He should have the nerve to challenge the rules, the adaptability to revisit age-old ideas and concepts, and the ability to accept a bad decision and make amends.
What kind of returns do you expect?
I usually strive to double money in three years. However, given that Smart Portfolios is a one-year, time-bound game, my primary target, given the present market conditions, is to beat the BSE200 benchmark and capital preservation. The other goal would be to achieve 15-20 per cent returns.
Any particular strategy or suggestion for first time investors?
The current market phase is a blessing in disguise for first time investors. Imagine if they would have entered at a Sensex of 21,000. I would like to tell them that the best time for equity investing is fast approaching. Invest with a three-year horizon through a good broker with a quality research set-up or give money to a mutual fund. Equities have proved to be the best asset class over the long term.
How does one play unforeseen events such as Lehman Brothers or the sharp increase in crude oil prices?
It is not easy for a retail investor to anticipate such events. Being well read and informed does help understand the impact intensity, but the best way to ride the storm is to remain invested for the long term.
Other than fundamental factors, should one also follow technical levels while investing?
Money managers do use technical indicators at times to give the portfolio that extra bit of boost. But it is not advisable for a lay investor. In any case, fundamentals reign supreme in the long run.