2020 taught investors many lessons and the new year started off on the right note with a unique Budget that lays out a vision for a new economy. Equity investing is built on optimism about the future. Yet, it is important to learn from the old ways. But when the country itself is on it way to transforming into something new, should investors still play the old themes? This all-important question was addressed by Aniruddha Sarkar, the CIO and Portfolio Manager at Quest Investment Advisors in a special PMSBazaar webinar. Bringing with him over 14 years of experience in the capital markets with diverse role managing money for investors across PMS, AIF and Advisory business, Sarkar shared interesting insights about the necessity to play the new economy, rather the new growing India. Read on know more.

Before going into the topic, Quest's Sarkar talked about a few lessons that PMS investors need to learn.

Lessons

1. All bear markets come to an end, but how it ends each time is different from the other; some faster than others.

2. Focus more on company fundamentals as otherwise there are too many things to worry about while investing. Companies with sound fundamentals will sail the tide and emerge stronger.

"Spending disproportionate time on worrying about macro factors beyond our control will not do us any good and it might also cloud our view on the good companies we want to otherwise own and create wealth in the long run. Have seen so many people sell their portfolio jewels in the fear of March-May 2020 only to see their price doubling there after," Sarkar said.

3. Bet on the management pedigree and one who has the capability to captain his ship through rough times. Companies with strong management have been able to steer through the rough year of 2020 and have gained market share also and now are enjoying larger market share.

4. Volatility in stock prices is a feature, not a problem and lets not pay too much attention to it on a daily basis. Some of the best investment ideas in the last 1 year we have been able to pick up in the middle of the volatility in the markets when fear factor was high.

5. You can never be prepared for the black swan event no matter how cautious you are. Just because we had a crisis in 2020 doesn’t mean we wont have another one in the next 5 years. But preparing or being extra cautious for it will not do any good as it would occur when majority of us least expect it to, Sarkar said.

New Economy

With the Budget 2021 laying a grand vision and doing it's best to pump prime the economy, investors need to realign their portfolios.

Quest's Sarkar describes the upcoming economic upswing as a super-cycle not seen in 8-10 years.

"A big private and public capex cycle is starting. New capacity additions are happening. We can see changes everything. For instance, the worst is already over for the real estate sector and on ground transactions are picking up," Sarkar point out.

In the industrials segment, the winds of change are here. "India is emerging as an alternative to China in global manufacturing area in segments like speciality chemicals, small industrials, auto ancillaries, textiles etc. The Atmanirbhar Bharat package had aimed PLI schemes that will boost Mobile, LED and manufacturing in general," the investment expert opined.

At the moment, corporates are financially in a better shape. Balance sheets have improved. "The banking sector and financials can give upside over the next 2 years. Net NPAs have gone down," Sarkar said.

Another sector to watch out for is IT sector. "The earnings cycle will see high teens to early 20s growth from single digit growth. We expect the cycle to sustain on a high base," he said.

Giving a flavour of Quest PMS schemes portfolio allocations, Sarkar said the portfolios are positioned to ride the next growth phase of Indian economy and within that there are higher allocations to sectors where there is most steady and strongest earnings revival like Cyclical Financials, Autos, Auto ancillaries, Chemicals, Pharma and Healthcare, Home improvement and IT & IT Services.

"We remain underweight on Consumer Staples and Consumer Discretionary products owing to their elevated valuations which does not give us the comfort to own considering their sub-par earnings growth. We also currently don’t have much exposure into pure play infra companies but would want to wait for some signs of revival and actual implementation on the ground before we turn bullish there," Sarkar disclosed.

One popular market segment he also shed some light on is PSUs, which has got a Budget boost in terms of privatisation. "PSU m-cap share has dropped from 31% at highs to 8% now; this points to significant scope of value unlocking," Sarkar noted.

Investor Queries

Handling a large volume of investor queries at the end of the webinar, Quest PMS Sarkar talked about a few important points.

Firstly, sector rotation is a key to alpha creation. This means being in the right sector at the right time is key to generating alpha, he said.

Sarkar also told investors how Quest focusses on a strategy of taking concentrated bets in 3-4 sectors at the beginning of the earnings upcycle and goes underweight or avoid sectors which are going to see earnings down cycle.

Talking about growth and value investing in Quest Flagship PMS and Quest Multi PMS, Sarkar said that overall portfolios have 40 per cent in growth, 25-30 per cent in value, and 30 per cent in Price to Earnings expansion parts of the market. Earlier, growth allocation was 60 per cent especially just after the correction in March-May 2020.

Those who missed the opportunity to hear from the expert directly can listen to the entire session through the link appended below:

For more information, please contact info@pmsbazaar.com