At the start of Smart Portfolios, you had set a tentative outperformance target of 10-15 per cent, and have easily surpassed them. What were your key winning strategies?
When Season II started in September, the Indian equities were already four months into the rise that began from the lows of March and my endeavour was to outperform the benchmark Sensex by 10-15 per cent. The absolute returns of around 45 per cent till date wasn’t on account of any one particular stock or sector. Instead, there were several stocks where value was unlocked and they worked for me. I had mentioned during an interaction with Smart Portfolios previously that equities would be the best asset class and I would remain fully invested during this season, and this has been the case.
Again, at the start of this calendar year, you had suggested a buy-on-dips and a bottom-up approach. Does this still prevail, or would you like to change your stance now?
The strategy worked for the paper portfolio — I hope this would have worked for investors following the game. I continue to believe that a bottom-up strategy and gradually building positions on market dips will work in the future as well
You hold around 35 stocks in your portfolio, a vast majority of which are mid-caps. Are you concerned about large-cap valuations?
The Sensex is trading at around 14.5x FY12E (fiscal 2012 estimated) earnings. By this measure, large-caps aren’t hugely expensive — although not cheap, too. Key market indices have sustained at 16-18 times price-to-earnings in the past and, thus, we can still go higher. Having said that, many large-cap stocks do appear stretched, whereas select mid-caps offer tremendous value and the potential to deliver huge gains. This explains my large exposure to mid-caps. As mentioned in my previous interview, money will move out from overbought sectors to ones that have not participated heavily in the rally and non-index stocks will outperform their larger peers.
We are in the middle of the earnings season. What do you make of the results so far?
So far, results have been a mixed bag. Technology delivered positive numbers. Manufacturing companies delivered robust earnings growth due to high demand.
But the margins were impacted on account of a rise in input costs. Bhel, Bajaj Auto and Sesa Goa reported superior quality results, while RIL was in line.
Even select mid-caps have witnessed strong growth in the quarter. However, the numbers recently declared by IOC, HPCL, JSW Steel and Hindustan Zinc haven’t been too encouraging.
What is your outlook on the market for the rest of the calendar year? Which sectors should one focus on?
It is extremely difficult to predict Nifty levels at a particular point in time. If there are no major devils originating from the global market, Indian equities could well be around their previous highs. In case of a rush of bad news from across the world resulting in liquidity unwinding, we could see a correction of 10 per cent. But I would recommend buying even on such falls.
We believe the infra theme is ripe for a rally again. Auto ancillaries are back in favour on strong demand growth and India is being perceived as a manufacturing hub of the world. The pricing power with auto ancillaries has increased and a 15 per cent growth is on the cards during FY11.
We are also overweight on pharma, given the huge opportunity arising from the generics market in the US. Select consumption stories and mid-caps will also do well.
As we will end our second season very soon, what would you advise your followers on Smart Portfolios?
Be stock-specific and stick to the basics of investing. Look for quality of management with a proven track record, good business models and valuations, and invest for the long term. India is among the fastest growing economies and in a sweet spot. No matter where the markets go in the short term, you will be the winner in the long term.