Just like previous weeks, the week gone by also saw volatility in markets, as investors reacted to factors such as the global markets, euro zone and the EU bailout fund. The net worth of Smart Portfolios’ fund managers followed suit. Mehraboon Irani’s net worth slipped 9 per cent to Rs 9.1 lakh, Ashish Mittal’s net worth was down 4.6 per cent to Rs 9.5 lakh, Alex Mathews net worth declined 2.2 per cent to Rs 9.8 lakh and Ajay Parmar’s net worth fell 1.7 per cent to Rs 9.8 lakh.
This week, Shilpa Johnson spoke to Rikesh Parikh, vice president (equity strategies), Motilal Oswal Securities, on the strategies he adopts to cope with the prevailing volatility in markets and how he uses it to his portfolio’s advantage. Having invested Rs 4.3 lakh so far, his net worth stands at Rs 9.76 lakh, down 2.4 per cent. For his portfolio, he adopts the “opportunistic plus value investment approach”. He says, “As we can see, the markets are volatile and I would like to take the advantage of short-term swing by booking profits and waiting for dips for increasing the espouser."
An issue with buying shares in a bear market is that despite appearing undervalued at one time, prices can still drop along with the market. What do you do to safeguard yourself during such situations?
To safeguard my portfolio, I have been buying stock in tranches. I have already identified certain stocks for the portfolio. If I see further decline, I would like to increase the espouser in two-three tranches. As you can see, I have been restricting my investments to around 30-35 per cent. But, with the current fall, I would like to increase allocations to 50- 60 per cent of the portfolio.
The essence of value investing is buying stocks below their intrinsic value and, preferably, selling them once the price reaches their fair value. Can you quote a few instances from your investments, so far? Also give reasons, if any.
At Motilal Oswal, we feel the telecom sector has seen intense competition and steady decline in margins over the past few years. With the recent price increase taken by companies and the reduced competition intensity, companies are bound to benefit. Bharti Airtel, the leader in listed telecom space, stands to gain the maximum from this. We expect its revenues and Ebitda (earnings before interest, taxes, depreciation, and amortization) growth in India operations to rebound sharply, driven by normalization of traffic growth & the launch of 3G services. Its Africa business is also expected to start showing signs of a turnaround.
You have made four sell-side transactions so far, including Bharat Heavy Electricals, Rural Electrification Corporation, Bharti Airtel and Cipla. While you booked profits in some, you lost money in others. Was there a specific strategy behind these? Were your targets met?
In a volatile market, one needs to capitalise on opportunities from time to time. In case of Cipla and Rural Electrification, I had booked gains in the range of 8 -11 per cent in a few days, as I cashed in on swings. However, in the case of Bharti Airtel, I had bought additional shares at a lower level, which I exited from, on rebound, to reduce the average holding price and benefit from the volatility. In the case of Bhel, since the stock had not performed along expected lines, I booked partial losses with the intention of buying it back at lower level.
A word of advice for the readers?
In this volatile market, we suggest investors not to be leveraged and to take a sector- and stock-specific approach. We are advising clients to be heavy on consumer discretionary, telecom and information technology sectors and avoid companies with huge debts and forex espouser.
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