New investors should in all probabilities look at the mutual fund route but for others, our strategy of staying with Leaders in their individual areas of operation works well over a period of time.
A lot of funds have been launched which look at global equities, so the choice is there for investors, however, they should also be considering the tax implications related to such investments made, Mayuresh Joshi, Head of Equity Research, William O'Neil India, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpts:
Q) What is your take on the GDP data for the June quarter?
A) The GDP print at -23.9% is the worst contraction witnessed so far but for most economies across the globe it has been a similar phenomenon.
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However, the reported data was for one of the most affected periods where lockdown measures were far more stringent but with the gradual unlock processes and resumption of economic activity would assume better numbers going ahead.
Again the key macro indicators, the latest being the PMI print for August which came in at 52 indicating an improvement in manufacturing activity.
Whether these indicators hold up would largely depend on Government spending, reform measures undertaken to bring Consumption back, and policies to ensure Investments are on track as well.
RBI is doing the calibration on liquidity management through timely OMO's and are keeping a close tab on the inflation print as far as the policy outlook is concerned.
Q) Broader markets are back in limelight after 2 years of underperformance. How should one play the theme – should one increase exposure via individual stocks or by mutual funds?
A) Broader markets have seen a strong action in the past few weeks and significant moves have come in stocks across different sectors.
New investors should in all probabilities look at the mutual fund route but for others, our strategy of staying with Leaders in their individual areas of operation works well over a period of time.
As per our O' Neil methodology leaders tend to exhibit far greater resilience in their earnings growth and are able to wade through different business cycles due to their consistency in earnings delivery getting reflected through robust Balance sheets, Institutional holdings, and return ratios.
So focus should be on stocks that exhibit these characteristics as they tend to be winners compared to the aforesaid parameters when it comes to market outperformance over a period of time.
Q) It looks like we are heading towards 12000 and then towards 12400 levels going by the estimate of one of the brokerage house reports. The market is discounting a lot of things, but what could upset the appetite of bulls?
A) The markets shall be divided into two phases from the stage we are in. The first stage shall extend till the time the vaccine is found, which hopefully should happen over the next few months with the extent of placebo-controlled tests and the various stages that the development is going through.
Till this point of time, the liquidity support from central governments/bankers across the globe shall ensure that the risk-on rally in equity markets would continue.
Also, in this phase, the earnings deterioration is gestated by the markets, and markets shall be forward-looking in terms of both earnings revival in the second half and the next fiscal and other data points like the sharp bounce back expected in Global GDP in the next financial year pegged by most global agencies.
The second phase and the most critical one shall be once the vaccine is found and the global production of the cure begins. This shall be like a resetting exercise where we shall recompute the impact from a fiscal and monetary perspective and stack it up against the reality that the earnings and the macro indicator statistics are throwing out.
We shall then be looking at forward data and if numbers disappoint or demand to catch up is not strong and macro indicators take time to revive then the markets if we remain at elevated levels at that point of time shall be thinking about adjusting to these realities and calibrating the higher multiples on which the markets were hinged.
There might at this stage be a reality check on the markets and a precursor to possible judge that would be how the yield movement is shaping up over the next few months which would incorporate economic/financial implications in its number.
Q) Sectorally, which are the sectors that will produce leaders of tomorrow and why?
A) Historically after such impactful crisis periods, the beta correlated sectors seem to exhibit and show strong leadership traits as has been seen in the past crisis periods.
So far the earnings resilience has remained with the pharma pack, agro/specialty chemicals, and rural-focused stories.
The second half might throw out opportunities in the Banking, Auto, Consumption names as demand starts picking up gradually and the economic stress starts wearing out with the presumption of economic activity and credit cycles normalizing.
Q) Are you also seeing a scenario where investors are selling funds and using the money to buy into stocks – is that rotation evident?
A) Sector rotation is given considering cyclical adjustments that the markets go through as they readjust to the sectors that are exhibiting strong earnings growth and evidently where the momentum is expected to remain with these sectors at least over the next few quarters.
Not privy to whether investors are doing that but investors should be scouting for opportunities that certain sectors throw up in different stages and phases of the market direction, the caveat being sticking with leaders would have a higher probability of protecting oneself through market volatility.
Q) What is the strategy which one should follow around asset allocation? How much money should one be parking let’s say in overseas funds or stocks?
A) That is an individual risk-reward perspective with the choice of fund enabling global diversification of assets and reducing the dependence of returns from one geographical area.
A lot of funds have been launched which look at global equities, so the choice is there for investors, however they should also be considering the tax implications related to such investments made.
Q) There are more than 100-200 stocks daily which hit a fresh 52-week high on a daily basis. What does history tell us when it comes to putting money in stocks with momentum or in the stocks that are hitting 52-week lows?
A) Sticking with stocks that are showing momentum has to be seen in two perspectives. One of the underlying fundamentals has to be extremely strong and consistent and secondly, the entry into such stocks should be determined with technical factors showing proper base formations.
If the combination if there for such stocks there is good reasoning for having calibrated entry into such stocks.
As they keep on exhibiting strong data on both counts the ideation of adding positions as price moves higher or pyramiding can be followed. We follow as a disclaimer similar strategies as per our O 'Neil methodology and through our CANSLIM approach.
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