Risk Reward Not in Favour of Investors
There are times when one needs to be bullish i.e. go all in on the markets and then there are times when one simply needs to stay away from the markets. We are in neither of these phases as of now. So, what exactly then needs to be done in the current market situation? Portfolio churning is the answer. A shift from highbeta names towards more defensive ones is just one of the tactical efforts that can help investors not only to protect wealth but also to reduce the overall riskiness of the portfolio. It is in times such as now that one realises that portfolio management is truly an art.
It is an art because a fine judgement leads to wealth creation as it factors in numerous variables incalculable by most of the average investors. Smart portfolio management is the key to success in equity markets and you will realise this going forward as the market condition gets complicated. Lately, Indian markets have been more of a ‘sell on rally’ rather than a ‘buy on dips’. There is some fatigue seen in the market, and the bull wants to know the logic as to why it should continue its northward journey after having crossed so many milestones in the past one year alone. The FIIs have been selling in November citing valuation concerns.
Most analysts who track US’ markets are worried that even though the earnings have been strong in the September quarter, it is the guidance for 2022 and 2023 that is not as strong as expected and hence the market does not appear to be discounting the slip in earning growth momentum. Rising inflation concern is increasingly dominating the headlines. Also, the rising raw material prices and their impact on the bottom-line is being widely observed and discussed. The drastic drop in the profit margins in Q2FY22 for most of the companies is not a sign that bulls can easily ignore. The mood seems to have changed, the tone is cautious, and bulls lack confidence to participate with 100 per cent at the current near all-time high index levels.
In addition, the plethora of IPOs hitting the market currently is also causing a strain on liquidity. As far as stock selection is concerned in the current market, searching value in stocks has become almost an impossible task. Indeed, value investing and its principles are almost forgotten in today’s market condition where everyone is chasing future growth. That is exactly why we thought investors should revisit the concepts of value investing and as far as possible try to include value stocks in a diversified portfolio. In our cover story on value investing, we have explained why value investing is still relevant. Do go through the cover story, understand the gist of it and redefine your portfolio with value stocks.
It may turn out to be one of your finest decisions. Further, in our special feature we have captured some insightful trends on the stock broking industry. Trust me when I say that the stock broking industry in India is going through some of its most adventurous, anxious and formidable periods that can have a lasting effect for years together. I hope you enjoy reading the observations. To reiterate, the risk reward ratio does not look in favour of investors at this moment. Defensive stocks are the way forward in such trying times. And if you haven’t noticed, pharmaceutical stocks have underperformed recently. Stay tuned. We will be back with more soon.
RAJESH V PADODE
Managing Director & Editor