In this extract of the interview which he gave to Value Research, he speaks of his stock picking strategy, his view on the current bull run and advises stock market investors on what to expect in the coming year.
His message to equity fund investors in these turbulent stock market timesIn these interesting times, the right suggestion would be to pick and choose funds which have high quality portfolios and which do not have potential illiquid stocks.
A fund with a well diversified portfolio and which consciously avoids undue stock or sector concentration should be preferred.
Investors should allocate a good portion of their savings for investing in equities through a diversified investment vehicle like a mutual fund.
Be long term in your investments to reap full benefits of the transformation, which our Indian corporate sector is experiencing.
On the current level of the stock market
I believe in the valuation depth of the stocks held in the portfolio rather than only looking at the index.
The index level per se does not reflect the attractiveness or otherwise of any particular stock market unless it is analysed in the light of growth rates achieved by important companies and the potential in the near future.
In India, the P/E multiple of the index currently is at an attractive level considering the profit growth rates achieved by the leading companies in the last two to three years and good potential for the future growth on the back of strong demand, capacity additions and focus on cost efficiencies.
The volatility in the Indian market is here to stay and one needs to equip himself with better and superior knowledge about the companies and sectors and their growth potential to remain ahead of times.
In volatile times it always pays to stick to basics and have faith in the fundamental approach to investment.
Overall, the Indian stock market is at an interesting stage and good skills in stock picking would immensely help the portfolios to deliver superior returns.
On his stock selection process
The portfolio of each scheme is strictly based on the specific investment objective and a disciplined approach is followed for selecting stocks from such investible ideas, which meet the scheme's objectives.
For a diversified equity fund, there would be a mixture of top down and bottom up approach. A mid-cap fund would have more emphasis on the stock specific selections.
Some factors we look at when selecting a stock:
- Management quality and capability
- Sector in which the company is operating
- The growth potential of such a segment
- Technology being used by the company and its comparison to the most efficient technology available globally
- Strategies consciously followed by the companies to achieve cost efficiencies over a longer period of time, whether the company has pricing power and the potential benefits of such positions or strategies
- Financial and business risks
- Expansion plans
- How rewarding the company is to its shareholders
How Sahara Wealth Plus Fund is different from other equity funds
This fund adopts a different approach in selecting stocks. It is based on Return on Equity a company delivers.
It has been empirically proved that those stocks that post higher ROE generate wealth for shareholders over a longer term period.
In fact, we created model portfolios purely based on ROE of stocks, and not surprisingly we found that the portfolio comfortably generated returns more than all the benchmark indices over a period of three to five years.
It is not that we do not consider other fundamental attributes but ROE is the prime filter.
When to sell a stock
Intrinsic valuation of a stock is the main guiding factor. A close monitoring is kept for over valuation to decide on exit strategies.
Relatively more attractive alternate opportunities are also evaluated continuously to maintain a good portfolio mix.
Negative news on the company or sector is analysed continuously and our portfolio is revaluated on a regular basis.
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