Day: May 11, 2015

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India Inc Confession

We goldplate plants, we don't tie up our raw material , we overleverage, we want to 'manage' system, then we blame Modi sarkar for inaction

— Harsh Goenka (@hvgoenka) May 8, 2015

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Mid-cap investing in India

Post author By Raoji
Post date May 11, 2015
No Comments on Mid-cap investing in India

Now, let us take a look at the list of contenders in 2007, i.e., mid-cap stocks with a market capitalization in the range of $2 to $5 billion, which had the promise to grow into large-caps by now. Out of the 73 contenders, only 14 have managed to move up the ranks to become large-caps, while 41 stocks actually slipped below the threshold of $2 billion market capitalization.

Stocks lose momentum for a variety of reasons. Many are able to grow spectacularly well when they start off from a small base. As size catches up, it becomes difficult to maintain the elevated rates of growth. Often constraints are imposed by the size of the business opportunity, the competitive intensity or the need to continuously reinvest cash flows. In some cases a de-rating may be caused by management action such as a bad acquisition or unrelated diversification. Or some stocks may just fall victim to cyclical swings in the economy.

Many mid-cap funds are launched with the marketing pitch that smaller companies will be able to compound their market caps faster. However, a look at the mid-cap indices suggests that over the last five and 10 years, the mid-cap indices in India have barely managed to outperform the frontline large-cap indices. On a risk-adjusted basis (as measured by the Sharpe ratio—a ratio used to evaluate the performance of an investment while adjusting for risk) the large-cap indices have given similar returns with lower volatility than the mid-cap indices.

This raises the question of whether mid-cap investing in India is more about getting the sector themes right rather than buying stocks with a view that they will secularly graduate to becoming large-caps.

The data quoted earlier does prove that linear extrapolation of stocks from mid-caps to large-caps is more an exception rather than a rule. If an investor is able to make early bets in themes that catch the fancy of the markets, and rotate out of them into newer themes before the old one fades out, one can make outsized returns. But this involves superior insight and great timing. And of course, if one is able to pick the secular winners from this group, the rewards are spectacular.

But more often than not, investors end up chasing mid-caps that are already “hot” where the odds are low that future returns will continue to sustain for the medium to long term.

To conclude, investors should recognize that attrition is often the rule rather than the exception when they seek to discover the giant sequoias in the stock market.-wrote Amay Hattangadi/Swanand Kelkar,Morgan Stanley Investment Management

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Nimesh Shah:Buy in 2015 to make money in 2018

Post author By Raoji
Post date May 11, 2015
2 Comments on Nimesh Shah:Buy in 2015 to make money in 2018

We are quite happy with the volatility. If you ask me, we always look at volatility as an opportunity. In fact we have got set of funds which only work on the benefit of volatility.

In India, historically if you see, whenever FIIs have sold for some technical reasons or problems in the West, when they have to sell India that is the best time to buy India. That is what we have always felt and it is proved historically that whenever FIIs sold if one buys there is a good chance of making money.

So, this technical correction was very good. It will remind investors also that there is risk in the market. They need to be careful when they are investing. They did need to get their asset allocation right. As a fund house we have always had this view that 2015 we expect lots of volatility to come because of international factors.

If volatility is because of international factors, invest throughout 2015 to make money in 2018. That has been our stand even four months back and that is what we have been saying even today. So, this correction to 27,000 looks very healthy to me.

We have been or are going overweight in technology. We are overweight on private banks. So, those are the sectors that we like.

Technology we have given a big call to our investors that invest in technology. Technology has corrected around 10 percent in the last one month and so with a stronger dollar and western world also doing well, technology companies are set to gain. We believe this correction in technology companies since last one week is good.

We have always been bullish on private banks. The nature of our funds are such that since we take cash position, whenever the price to book ratio of the market goes down, we go out and buy. Some of our funds are structured that way.

So, technology and banking are the sectors that we are overweight on.-said Nimesh Shah, MD& CEO,ICICI Prudential