Let us talk about different styles of investing. You are of the view that the most successful investing style should be value. Keeping that in mind, what exactly is your advice in this situation?
We started with focused portfolios which had quite a few value names. It has done pretty well. A simple equal weighted focussed portfolio has outperformed Nifty by over 15% in the first quarter. The nature of this bull run has itself changed, it is very different from the rally that we were seeing in the last five-six years. A lot of central banks have tried to hand over money to the average person in the economy, rather than throwing it on the financial markets. In the last 5-6 years, there was money in the financial markets but people were not so confident about economic growth. What that meant was people, who could see profit growth, were willing to overpay for such stocks. I think that is changing now.
The premise of this bull market is based on actual economy recovering. One should let go of some of the legacy stocks of the last 5-6 years when expensive stocks continued to be expensive. Growth was the clear dominant style, so the most expensive stock on Nifty got more and more expensive. I think that is something which has changed. The other thing is that now you know not to lose side of defensives. In our focus list of 13 stocks in India, six of them are defensives. We have 2 pharma names and two IT names. We also have a telecom and a utility stock. In our recent report, we said valuations of defensives, particularly pharma, as compared to a relative basis to Nifty, are actually at one of the most attractive levels in the last 10 years or so. Don’t lose sight of defensives and also focus on value.
What are your expectations from the earning season?
The hits or the misses would be defined by the commentary. Expectations are pretty low for banks. I suspect that the management commentary after banking results may be able to soothe fears of many investors. Given the kind of corrections that we have seen in banking stocks, I think the commentary may allay worries and that should be positive for some of those names. Watch out for commentary from banks in terms of credit related risks and balance sheet risks since that is a sector which has got hammered badly in the last three weeks or so. The second wave will perhaps make the market a little more tolerant even if there are some earnings downgrades.
