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Investment strategy for 2020: Don’t ignore these 4 factors

It is always a prudent strategy to invest in high-quality companies with a steady growth outlook and light balance sheet - even if it means paying a premium for the same.

December 31, 2019 / 10:14 AM IST

Manish Jain

2019 has been an eventful and unprecedented year for the Indian equity markets. While the economy continues to slowdown, with rising unemployment, corporate sector core earnings going into a slowdown mode, equity markets on the other hand, keep hitting new highs.

While GDP may have slowed down from 6.58 percent in March ’19 quarter to 4.55 percent in September ’19 quarter, very little impact seems to be visible on the Sensex, which has yielded a handsome 12 percent return so far this calendar year.

Suffice to say, the key concern of all investors today is valuations. So getting into 2020, the key question remains – in times like these what should be one’s investment strategy?

A) Quality never goes out of fashion:

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While cycles will continue to play out, one thing that always stands the test of time is quality. The first and foremost rule for any equity investor should be to invest in quality names. This is even more relevant in tough times like these.

B) The risk-reward equilibrium:

One mistake that many people tend to make is to look at valuation in isolation, instead what one should try to do is to access the risk-reward balance. If a certain company has great corporate governance, a steady growth outlook, and a lean balance sheet, chances are that it will not come cheap. The absolute multiples don’t matter as much as the growth-multiple balance does.

C) Invest for the long term:

Equity can be a great wealth creation platform, provided it is utilized in the correct fashion. We believe that the best way to make money in equity markets is to invest for the long term and combine that with minimal churn. This power of compounding would make your wealth grow exponentially.

D) Growth Vs Value:

The toughest challenge that any investor faces is to differentiate between value-play and value-trap - differentiating between the two can be a very daunting task.

The better strategy is to invest in a steady growth business. Historical analysis spread over the last 2 decades, shows that investors will always make better relative returns (in both bull and bear markets) by investing in steady growth names.

At a time when growth is hitting new lows and inflation is hitting new highs and stagflation is potentially staring us in the face, safety should always be the first aim.

We do believe that the process of recovery will be a slow but steady one, and hence we are looking at a more U-shaped growth recovery.

In such an environment, it is always a prudent strategy to invest in high-quality companies with a steady growth outlook and light balance sheet - even if it means paying a premium for the same.

(The author is Fund Manager, Coffee Can PMS at Ambit Asset Management)

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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