Daily Voice | Markets not expensive; defence & PSUs have an edge, says Weekend Investing's Alok Jain

No, I don’t think so. While we at Weekend Investing do not judge markets or stocks on the basis of valuations, my personal opinion is that markets have been in a sideways mode since the past 14 months and are undergoing a time correction. The market had certainly run up a lot in 2020 and 2021, and whenever a market does that it tends to stagnate till earnings catch up.

Had there been lack of liquidity flows the markets may have given up part of the gains, but the liquidity flow from domestic investors has been phenomenal. At the end of the day it's the liquidity that drives the markets and that is what we should be following.

Considering the falling inflation and other data points, do you think the terminal rate for the US Federal Reserve (the Fed) will be above 5 percent?

So far, the Fed has moved quite aggressively, in fact some say this is the most aggressive move ever in terms of increase of rates in a very short period of time. However, despite such a move, there is not much of an impact yet.

The inflation figures have barely dipped by a few basis points (bps), which is likely due to the base effect . The other view is that the impact of the raise is best seen three to six months later with a lag and so far, that impact is not visible.

There may be a case that the terminal rate will have to be above 5 percent, but the government may not wish to go there given that it has the ability to disrupt civil life.

What are the key parameters behind your investment strategy at WeekendInvesting, and what is your advice to new investors?

We run momentum strategies at Weekend Investing. These are long term strategies that strive to run portfolios with a clear mandate of following the strength in the markets without any emotional attachment to any stock or sector. What this means is that we have no biases and will gladly pick stocks that are showing positive behaviour. We follow the principle of BBC, or Bhav Bhagwan Che: a saying in Gujarati that means price is God.

The price of a stock can essentially capture the mood of the market towards that stock or sector. In our portfolios, we diversify across stocks but remain open to changing sectoral strength, and switch from one sector to the other as price trends dictate. This way we are never stuck with losing stocks. In our thesis, sticking with losing stocks is a double whammy — you lose money on the stock, and you lose the opportunity cost of the capital invested in it.

Our advice to new investors is very simple. If you are not invested, start investing, and if you have a lump sum amount, invest it gradually. These two are the only two things you need to know. As long as the portfolio or strategy you are investing in is a “self-correcting one,’’ you will never fail.
An example of a self-correcting portfolio can be the index itself, where strong contenders replace weak companies every six months, and thus, metaphorically, heals itself with no permanent damage.

All our strategies tend to self-heal or self-correct, and they are able to deliver absolute positive returns without the pain that is usually inflicted on investors trying to second guess trends in the markets, and then having to select stocks, and carrying the burden of when to enter and exit.

Also, in order to invest properly, one should have clear answers to these four questions: What to buy, when to buy, how much to buy, and when to sell. If one is clear about these then investing can be a lot of fun.

Do you think the smallcase segment is a game changer for individuals?

Yes, smallcase is indeed a dream come true for so many investors. Earlier, you could access professional advice and research only if you were an HNI (high net worth individual) with a portfolio of Rs 50 lakh or more. Everybody else had to be content with the mutual fund (MF) or ETF (exchange traded fund) segment.

Today, retail investors have access to hundreds of managers with different investing styles, who have vast experience in the field. The best part is that investors can approach them directly. The other convenience is the single-click operation that is integrated with your own broking account, plus the fact that the money and stocks always remain in your own control.

What are the themes / sectors that are worth looking at now, with a medium-to-long term perspective?

As I mentioned earlier, we do not have a forecast or a prediction about the future, but currently the defence, PSU banking, and public sector enterprises seem to be having an edge in our firm’s portfolios. How long these will stay on top is anybody’s guess, but if one is running a momentum portfolio, the portfolio will automatically churn out the sector that is falling out of favour.

What challenges lie ahead for India in its quest to become a $5 trillion economy by 2025, considering the current global environment? Or is the changing global environment a boon for India in this quest?

The fact that Indian markets are near their all-time highs while most others are near their 52-week lows itself shows the relative strength of our economy, and the fact that the world is looking to India to lead in this decade.

We have many challenges when it comes to managing the fiscal deficit and energy security, but I feel confident that over time the good and stable management provided by the current dispensation will be able to navigate the path forward without much turbulence.

With manufacturing taking off in a big way and the focus towards de-globalisation helping domestic industry get self-sufficient, the future belongs to India. The demographic dividend should also kick in this decade. We are certainly going to achieve the $5 trillion mark towards the second half of this decade.

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