The macro environment does not paint a good picture at present, however, markets are forward-looking and stock prices would start moving much before a recovery in the economy.
Amit Mantri, Co-founder of 2Point2 Capital, believes that creating wealth in the equity market is tough, but investors can do so if they focus on asset allocation.
Speaking to Moneycontrol on the sidelines of the PMS Bazaar and AIF Summit in Mumbai on 18 October, Mantri said that the environment is fast changing and benchmarks have become more efficient; hence, generating alpha or returns over the benchmark index is becoming more difficult.
To generate effective and sustainable returns over a period of time, Mantri highlighted the strategy deployed in 2Point2 Capital – Long Term Value Multicap Fund. The idea is to invest in high-quality businesses at a reasonable price and staying invested in the companies over a long period of time.
It is a value investing approach in which the fund focus or give weight to corporate governance, forensic analysis just to figure out which companies have genuine businesses and are following ethical standards.
These small parameters have made a huge difference in portfolio returns of investors. A look back in recent history suggests that weak businesses or questionable governance standards are getting killed in the markets compared to good quality businesses which are doing well in markets despite tough environment.
The investment strategy for investors at this point is to focus on asset allocation with respect to equity and debt, suggests Mantri. Once allocation is made then avoid timing the market because markets are usually forward-looking.
He further added that while the macro environment is not that good at this point in time, but markets are forward-looking and stock prices would start moving much before the recovery in the economy.
In the short term stock prices have very little correlation with the macro environment and is not the right approach to focus on the macro to take investment decisions in equity markets and the focus should be on asset allocation, explains Mantri.
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