It is important to take a more balanced approach while investing in equity markets. Moreover, your risk appetite and style of investing should also be taken into consideration while building a long-term portfolio.
Quality:
These are stocks that belong to sectors that have promising growth prospects. India is a fast-growing economy and almost all the sectors are showing a healthy growth trajectory.
However, some of the broad industry growth trends which are playing out include low penetration levels as compared to the world average, shift to organized sector, government policy or initiatives and rising income levels.
Not only is the sector showing strong growth momentum, but the company is also outpacing the industry leading to market share gains.
Identifying these sectors and companies early in their cycle can potentially fetch much higher returns relative to the risk. Some of the prime examples over the years include , , , etc.
Value:
These are stocks that usually belong to mature sectors where growth is stagnant and there is little scope for companies to outperform the industry.
Hence, these companies are available at a discount compared to companies/sectors which are showing healthy growth. Usually, we would not find companies with quality and value go hand in hand because markets reward growth at a premium.
Diversify:
Never put all your eggs in one basket is a classic investment rule that investors should not forget. If the past is any indicator, it is clear that even companies which used to be leaders in their space have collapsed be it due to high debt, corporate governance or just failure to keep up with changing consumer needs or competition.
Therefore, it is important to diversify your investment between sectors and within sectors as well to reduce the risk.
Time:
We would not advocate timing the market however there are certain sectors where timing can actually help you generate alpha returns in your portfolio. These include highly cyclical sectors like Oil & Gas, Metals, Auto which are more vulnerable to economic cycles.
Identifying quality companies within these sectors when the economy is regaining momentum after a slowdown can help investors potentially generate higher returns.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)