The half-year that was: Regret of missing out trades (ROMO) generally ends in sorrow

Everyone is grappling with contrasting set of numbers – Rising Nifty, Falling economic data. This is on account of low interest rates and liquidity.

Jul 15, 2020 03:07 IST India Infoline News Service R. Venkataraman |

The first-six months of 2020 have been unprecedented. The last time such words were used was way back in 2008 at the height of the Global Financial Crisis (GFC). Let’s take a look at key highlights in these six months:
  • Nifty lost 38% and regained 38%, though mathematically both are different
  • India VIX skyrocketed from 13 to 78 and settled around 29 in 3 months
  • 58 stocks from BSE 500 have generated returns ranging from 20% to 174%, while BSE 500 is down 14%
  • Stocks like Idea, Ruchi Soya, Suzlon have made a comeback.
  • 15% or more losses in 6 months have happened 4 times in the past – each half of 2008 which was a fallout of GFC, H1 of 2004 after the surprise loss of NDA and H2 of 2000. They were followed by periods of decent returns
  • 5-year SIP returns is now zero or thereabouts
  • YTD FII sold US$2.2bn, primary market investments were US$3.8bn, which translates that FII sold US$6bn in the secondary market. DIIs bought to the tune of US$11.6bn
  • Indian corporates led by Reliance have raised US$20bn
Everyone is grappling with contrasting set of numbers – Rising Nifty, Falling economic data. This is on account of low interest rates and liquidity. It also makes one wonder if Penny-wise Pound-foolish investing philosophy is back!
Moreover, Nifty constituents do not correctly reflect the stressed-out segments of the economy – which is MSME segment. The larger corporations are better positioned to handle the pain caused by the Covid pandemic. Many times, in the global economic history, we have had periods of such divergence, mainly driven by liquidity. Therefore, it is best not to worry too much about this. My advice would be – analyse your companies, set your price, and wait. Do not regret and chase stocks in momentum. Such behaviour ends in grief. ROMO – Regret of Missing Out Trades, generally ends in sorrow.

Two interesting tit bits from our research desk to end the note:
  1. FII Selling: This is more to do with to emerging market flows, rather than India in particular. June saw huge inflows into emerging markets globally. It may be just a matter of time India before India too sees a healthy flow. Clearly, low interest rates are increasing investor appetite for risk.  
  2. Consensus Calls: High degree of institutional consensus coverage is not good for stock returns. Consensus Buys and Sells do not work.
For example, as per Bloomberg analysts’ ratings, 90% analysts had a Sell on Bharti and 78% had a Sell on Reliance. In first half of Calendar 20, both these stocks were amongst the best performing cohort generating returns of 24% and 15% respectively. Interestingly, stocks where over 50% analysts polled had a Buy rating, performed very badly losing over 40% of value.

Maybe there is a Long Short quant idea hidden in the data. One may be tempted to construct a portfolio where you do the opposite of what analysts are saying. Maybe, contrarian investing has its roots in this.  

As the global economy sees a gradual re-opening, several uncertainties remain as far as the pace of recovery is concerned. Investors will do well to remain modest in their expectations and prudent in their stock selection.

The author of this article is R Venkataraman, MD, IIFL Securities Ltd 

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