PMS Bazaar recently hosted a webinar titled "Where Does Quant Fund Manager See Value in Today's Market?" featuring Sonam Srivastava, the Founder and CEO of Wright Research. This blog summarises the key takeaways from this informative session.

Key aspects covered in this webinar blog are

• Investment strategies
• Risk management
• Triggers for small cap investing
• Role of Quantitative Strategies
• Long-term market outlook

Investment Strategies:

In the webinar, Srivastava discussed the risks of both momentum and fundamental investing. While momentum investing can be more volatile, the long-term risks are similar to or slightly higher than fundamental investing. She also pointed out that elections don't have a big impact on the overall stock market. She stressed that investors should exercise caution, especially with small and mid-cap stocks.

Srivastava also emphasised the importance of active portfolio management. She suggested making adjustments to your stock holdings every month to keep up with changing market conditions. For new investors, she recommended investing gradually and avoiding overpriced stocks. This will help them build a well-diversified portfolio.

Risk Management

Srivastava stressed the need to be flexible with cash during market ups and downs. She outlined a strategy that involved buying undervalued stocks when cheap but also keeping some cash allocation. As the market stabilises, investors can gradually invest that cash.  She also discussed risk management, which includes diversifying portfolios, considering multiple factors, and adding gold and bonds in high-risk scenarios. 

Srivastava is optimistic about the NBFC sector due to ongoing reforms and potential growth, especially with expected interest rate cuts. However, she warned investors to avoid suspicious stocks flagged by regulators.  As the market focuses more on value and quality, she expects high-quality, well-performing companies to be in demand. To succeed, investors need to rely on data and adapt their strategies as the market changes.

Triggers for small cap investing

Srivastava acknowledged ongoing opportunities in certain pockets of the small-cap universe, especially around critical events such as the general election. She highlighted how government announcements related to specific sectors such as railways or defence can positively impact the stocks in that universe. 

Further into the discussion, she clarified the differences between Factor PMS and Small Case Strategies, underlining that Factor PMS involves end-to-end management, enabling more active calls in real time. On the other hand, small case strategies are usually pre-defined portfolios typically executed on a schedule at the end of the month for a larger subscriber base. 

She delved into explaining the nuances of Momentum Hedge Funds, which combine price trends with future earnings potential Analysts’ estimates are considered in the allocation strategy to capture investment opportunities. 

Srivastava then clarified that the quant model uses both technical and fundamental analysis, with roughly equal weight given to each (50/50 each). This emphasises that her approach is not purely momentum-driven. 

To manage risk, especially during unforeseen events like black swan events, the deallocation strategy reduces holdings triggered by a 10% correction in two weeks. Additionally, hedged strategies like Momentum Hedge and Alpha Hedge use long-dated put options, based on VIX levels and market correction, to provide further protection during volatile periods.

Role of Quantitative Strategies

Srivastava discussed how quant investing can be effective in the Indian market. It works well with two key factors – sufficient liquidity, where there needs to be enough buying and selling activity for the strategy to function and volatile markets - frequent ups and downs in the Indian market provide good opportunities for quant models to identify profitable trades. 

She also highlighted monthly rebalancing of the portfolio, an optimum frequency, and it offers a slightly better risk-reward profile compared to quarterly adjustments.

Srivastava explained how quant funds in India find investment opportunities. They look for stocks that are mispriced (trading at a price different from their true value) by analysing factors like momentum, quality, and value to allocate funds strategically.

While she is optimistic about the Indian market's outlook, especially with potential rate cuts and post-election growth, she cautions investors. It is important to consider valuations and avoid overvalued stocks to maintain a balanced and safe investment approach.

Sonam Srivastava had a delightful interactive session where she answered multiple questions from the audience.

All the points of discussion are covered in-depth in the video. Watch the recording for the full session through the appended link below:

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