A basic outline of long-term quant investing in Indian markets

A webinar on "Long-Term Quant Investing in Indian Markets" was hosted by PMS Bazaar and featured Anirudh Garg, Fund Manager at INVasset. Read more to know what was discussed

The webinar discussed various topics relevant to long-term investing in India using quantitative analysis. This included market trends, investment strategies, forecasts, analysis of mid-cap stocks, the effects of inflation, and how markets change over time.

Additionally, the webinar offered views on quantitative investing with mutual funds and portfolio management services (PMS), emphasising the personalised approach and client focus of INVasset. Anirudh Garg's well-rounded view on investment philosophy and market dynamics was also a key part of the discussion.

Note that any discussions on stocks or sectors are not to be construed as a recommendation or advice.

Key aspects covered in this webinar blog are:

Market trends: Earnings, consumption and geo-political tensions
Quant strategies, and PMS vs mutual funds
Risk management and portfolio management
Addressing valuation concerns

Market trends: Earnings, consumption and geo-political tensions

Anirudh Garg offered his view on the current earnings season in India. He noted that earnings had been mixed but generally positive. He highlighted that the banking sector, particularly the State Bank of India, performed well, while Asian Paint's results were disappointing.

The conversation then shifted to the FMCG sector. Garg observed increased buying activity despite the sector's lack of stellar results. He attributed this to investors moving towards safer sectors like FMCG, due to the recent increase in valuations of small-cap and mid-cap stocks.

Geopolitical tensions were also addressed. Garg provided a broader perspective, stating that markets tend to react differently to bad news than humans. He explained that markets often form bottoms during crises and attributed the current correction in Indian markets to high valuations and upcoming elections. He advised maintaining a long-term view.

Finally, the discussion turned to INVasset's investment approach. Garg explained their AI-driven strategy, INVasset AAID, which focuses on capital protection, alpha generation, bias-free investing, and technology. He described how INVasset divides the market into quadrants and allocates investment focus based on market conditions. He highlighted the strategy's effectiveness in navigating different market phases.

Quant strategies, PMS and mutual funds

Garg explained the investment options. One, quant strategies, where Garg explained that these strategies rely on algorithms, essentially encoding the fund manager's experience and learnings. Each manager develops their own unique approach.

Then on mutual funds and PMS and how both differ. While both are valuable tools, they have key differences. Mutual funds offer wider access to investment and promote financial assets. However, large fund sizes limit their flexibility in investing in smaller companies. PMS, on the other hand, allows for more nimble investing due to smaller portfolio sizes, potentially leading to higher returns. Another difference is in taxation. Mutual funds offer tax advantages until units are sold, whereas PMS investments are taxed on each transaction. PMS also offers more flexibility in portfolio allocation, allowing managers to adapt to market changes more freely.

Risk management and portfolio management

Garg then discussed INVasset's strategy, which focuses on choosing the right investment approach over the specific investment vehicle. Their four-phase approach (value, growth, quality, and safety) allows them to adapt to different market conditions.

He highlighted their low portfolio turnover rate, typically changing holdings only once a year. This minimises taxes and fosters long-term gains. Their last portfolio shift resulted in 95% of investors realising long-term capital gains with a low 10% tax burden.

Risk management and performance: During the COVID-19 pandemic, INVasset focused on risk management. They monitor the risk-reward ratio and adjust their beta (market risk measure) to limit losses during downturns. While their portfolio did experience a temporary drop, it quickly rebounded, reaching new highs by mid-2020.

Their approach prioritises capital protection and consistent growth, maintaining a 20% downside risk threshold, even during exceptional events. This disciplined strategy allows them to navigate market cycles effectively.

Addressing valuation concerns

Garg addressed concerns regarding the current market conditions by explaining his investment philosophy. He balances aiming for returns with safeguarding capital. He acknowledged that mid and small-cap stocks are currently expensive and hinted at a potential price correction. However, he assured the audience that such corrections would provide opportunities to re-evaluate the portfolio and optimise returns.

Garg used the example of a friend's investment to illustrate that between old and new investors. Garg said the fund delivers good returns over time, despite market fluctuations. He assured that all investors, regardless of when they enter the market, would benefit from the same guidance and growth opportunities.

When it comes to market timing, Garg advised against trying to predict market movements. Instead, he recommends systematic investment plans (SIPs) and strategic asset allocation. These strategies help mitigate risks and benefit from long-term growth. He emphasised staying invested and expressed confidence in the market's ability to recover from dips.

Finally, Garg acknowledged that India's valuation is higher but believes it is justified. He highlighted India's strengths such as democratic governance, a young workforce, and economic reforms. He downplayed comparisons to other countries, emphasising India's strong growth prospects despite its current valuation.

Garg delivered a comprehensive presentation, diving deep into all the topics discussed above. Afterwards, he answered some questions from the audience for a well-rounded discussion. To gain even more valuable insights, watch the insightful recording of the session through the link below.