IPL-flavoured portfolio: Diversify stocks like a well-balanced team, says Ashwini Shami

NEW DELHI: With the IPL season in full swing, investors can’t help but draw analogies with cricket and Dalal Street. As part of a special series, we reached out to money managers to know how they pick their pinch hitters, whether they like specialists or all-rounders and their on-field strategies.

Edited excerpts of a chat with Ashwini Shami, smallcase Manager, EVP & Portfolio Manager OmniScience Capital:

Which event in the history of the Indian stock market would you relate to the victory 83 cricket world cup?
The way the market bounced back after the covid-19 crash in 2020 was a historic victory for the market participants who held onto their nerves and faced extreme uncertainties including end of the world kind of scenarios. When Covid-19 hit, equities were the underdogs given the complete economic shutdowns and huge uncertainty on the sustainability of many businesses such as real estate, travel, hospitality, and entertainment among others, and many argued reallocation to assets such as cash, gold, crypto or other commodities. However, investors with a long-term belief in equities came out winners against all odds.Do you think, just like winning tosses at the start of the match can be one the deciding factor for the outcome of a match, subscription numbers should also be the one of the factors for selecting an IPO?
More than the toss, it is the strength of the team which decides the outcome of a match. Similarly, making money in stocks does not depend on whether the stock was bought during an IPO or from the secondary market, what matters is the fundamentals of the company and the discount to the intrinsic value at which the stock is bought. Looking at the oversubscription numbers in an IPO and investing for listing gains is very speculative and quite often results in a loss. So, to make heads or tails of it focus on valuation and fundamentals only. Also, why bet on a single stock when you can seamlessly buy a full team of stocks on smallcase?

What is your selection criteria for building a portfolio? Do you believe in past performance or pedigree of a player? Who is your cricket idol and which quality of his, you would like to replicate in your portfolio/strategy?
While building a portfolio focusing on fundamentals (pedigree) is the important first step. Evaluation of past performance is also important but that of the fundamentals and not of the stock price. For instance, if a company has maintained a high return on equity in the past it indicates that the company has a persistent competitive advantage. On the other hand, if the evaluation parameter is just the good past price performance, then one will end up in most cases with overvalued stocks. Also, looking at the past valuation multiples does not help as it only addresses relative mispricing and not absolute mispricing. Your portfolio building process should have characteristics of MS Dhoni. Some of the characteristics are: 1) Consistency – applying the stock selection process consistently across market conditions, 2) Focus – just because a stock has fallen in price does not make it a bad stock, it might be facing some short-term challenges (out of form) or getting ignored by Mr. Market, 3) Patience – just like Captain Cool investors need to stay invested in without getting impacted by the market ups & downs. 4) Adaptability – Dhoni played all formats of the game, could bat at any position and under all conditions similarly one needs to design a portfolio that can survive under unfavourable conditions and thrive under favourable conditions.

Do you select a specialist or an all-rounder for your portfolio/strategy and why?
Just as a good cricket team needs a well-balanced combination of specialist batsmen, specialist bowlers and all-rounders, an equity portfolio also needs a well-diversified pool of companies exposed to multiple, independent growth vectors such as defence, railway infra, Power, Banks, IT so that something or the other keeps on striking from your line-up. One also needs a combination of different types of investment opportunities such as mispriced growth stocks, stocks with a deep discount to intrinsic value, stocks that are going through special situations such as business transformation, spinoff, etc., so that one has multiple catalysts for unlocking success.

Narrate a market turnaround event that you can relate to India’s GABBA test victory in 2021?
The performance of some of the growth vectors such as defence and railways in our clients’ portfolios was the turnaround event in 2022. With one of the steepest interest rate hikes in the US, the Russian-Ukraine war and high commodity prices, the broader market was in bearish sentiment, Omni Bharat Defence and Omni Bullet Train smallcases presented stiff resistance to the negative sentiment and persisted to deliver match-winning performances.

Who would like to nominate as Dipti Sharma of your portfolio (a well-run company by a women business leader)
We would nominate Madhabi Puri Buch as a leader of the Indian equities markets. As the first women chairperson of SEBI and also as the first private sector person to be appointed to this post, she has brought in significant changes to improve the efficiency, effectiveness and accountability at the regulatory body. Her data-driven approach and the emphasis on the greater use of technology shall strengthen the markets in the long run.How do you decide your investment strategy for the investors whether they should opt for Test match or One day or T20?
Investing in equities is always a ‘Test’ match. And there are specifically three Tests that an investor must pass to win this game – the Test of Originality, the Test of Character and the Test of Patience. If the investor wants to beat the market then he needs to have an original game plan to remain one step ahead. Investors need the strength of character to execute the game plan with conviction even if it is against the conventional wisdom and finally, have the patience and stick to the plan even in the face of setbacks. In equities, the time horizon (format) itself tilts the chances of winning in favour of investors (Test match) and away from traders (T20) so choose your game cautiously.

Disclaimer: https://omniscience.smallcase.com/#disclosures

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