As an emerging market, India, like other EMs, is guided by the policies of the developed world. The synergies between policies across the developed world and at home are typical long-term triggers for investors. The ongoing opposition to China and the seismic shift of global supply chains is having an impact on many EM suitors, prominent among them – India, Vietnam, Indonesia, Malaysia, Thailand, the Philippines and Bangladesh. In India, broad-based PLI scheme covering most of the major manufacturing sectors and sub-sectors has been encouraged to build export centric capabilities. Indian companies have been at the forefront of using these advantages to rapidly grow a global presence.
Earnings have been strong in the last two quarters. Commodity-oriented companies were the major outperformers driven by rising commodity prices and balance sheet optimization. Technology companies, including Internet names, reported strong results driven by higher utilization and higher margin contracts. The utility and energy sector underperformed consensus analysts’ estimates. Channel checks also indicate a strong second quarter as festival demand precipitates. While global chip shortages and supply constraints have put pressure on select sectors, demand remains bullish and near-term challenges should not affect the long-term capabilities of these industries.
The third and I think the key trigger for wealth creation is disruption. Disruptors have always changed the way we look Investment. In the 1920s, Radio Corp of America (RCI) was the largest US company and dominated by traditional bellwethers such as AT&T as well as the steel and oil industries. Radio waves were a disruption in communication services at the time, and as the US entered its golden age of development, investors turned to the ‘new economy’. In the 1950s it was the turn of the auto industry to take the reins of the new economy. And the emergence of computing giants like IBM and software makers like Microsoft in the late ’80s and early ’90s redefined how we view investing. Our belief in these themes is so strong that we have launched 2 funds with this theme – a domestic fund and an international fund of funds targeting global opportunities with our partner Schröders.
Our emphasis on portfolio building revolves around the idea that stock selection is the key to wealth creation. We strive to identify inherent wealth creation levers that are sustainable over the medium to long term. The core of our research is to identify a group of companies whose primary characteristic is financial strength. This emphasis on business assets with the ability to manage and capitalize on opportunities provides us with strong financial metrics and a portfolio of companies with a sustainable long-term growth trajectory.
Our in-house portfolio companies, today encompass a cross section of growth ideas, which are ideally suited to capitalize on opportunities and capitalize on the gaps left by weaker incumbents. The core of our portfolio consists of companies that emphasize quality, which we uphold.
The bullish has seen beta and value outperforming over the past few months. We call it normalization, because quality has consistently outperformed over the years. However, with the broader markets including ‘beta’ stalling, quality-oriented companies have once again assumed the reins of the market leaders. This has also led to a fall in the markets. We have started seeing early signs of a rally in the market prices as trends like strong retail participation and enthusiasm in many parts of the markets have started.
To say that the market is at an all-time high is a very misleading statement. The value of Sensex or Nifty is an indicator of the performance of our investments and as such should not be a barometer for positioning or capitalizing investments. Ultimately, when one buys equity, either directly or through a mutual fund, he/she participates in the earnings of a company or portfolio.
New investors entering the equity markets should not be swayed by the recent bullish but should focus on the long-term prospects of equity investments. A systematic investment plan is an ideal solution for first time investors. We are careful in identifying markers and have used high valuations to rotate our portfolio. Investors can expect volatility in the near term and should use sharp market declines to add to the current allocation.
(Author, Jinesh Gopani, Head Equity is Axis Mutual Fund. Thoughts are his own. The stocks/issuers/sectors mentioned above are for illustrative purposes and should not be taken as a recommendation.)