Edited excerpts of a chat with Ashwini Shami, smallcase Manager, EVP & Portfolio Manager OmniScience Capital:
Which event in the history of the Indian stock market would you relate to the victory 83 cricket world cup?
The way the market bounced back after the covid-19 collapse in 2020 was a historic victory for the market participants who held onto their nerves and faced extreme uncertainties including end of the world kind of scenarios. And once Covid-19 hit, equities were the underdogs given the complete economic shutdowns and huge uncertainty on the sustainability of numerous enterprises such as real estate, travel, hospitality, and entertainment between others, and numerous argued reallocation to assets such as cash, gold, cryptocurrency or other commodities. Nonetheless, investors with a longstanding belief in equities came out winners against all odds.Do you think, just like winning tosses at the start of the match can be one the deciding factor for the outcome of a match, subscription numbers should likewise be the one of the factors for selecting an IPO?
Greater than the toss, it is the strength of the team which decides the outcome of a match. Similarly, making money in stocks does not depend on whether the stock was purchased during an IPO or from the secondary market, what matters is the fundamentals of the company and the discount to the intrinsic value at which the stock is purchased. Looking at the oversubscription numbers in an IPO and investing to be listed profits is quite speculative and quite often results in a loss. And, to make heads or tails of it focus on valuation and fundamentals only. Similarly, why bet on a single stock when you can seamlessly buy a full team of stocks on smallcase?
What is your selection criteria for building a portfolio? Do you believe in past performance or pedigree of a player? Who is your cricket idol and which quality of his, you would like to replicate in your portfolio/strategy?
Although while building a portfolio focusing on fundamentals (pedigree) is the important 1st step. Evaluation of past performance is likewise important but that of the fundamentals and not of the stock price. For example, if a company has maintained a high return on equity in the past it signifies that the company has a persistent competitive advantage. On the other hand, if the evaluation parameter is just the good past price performance, then one will end up in most cases with overvalued stocks. Similarly, looking at the past valuation multiples does not help as it only addresses relative mispricing and not absolute mispricing. Your portfolio building process should have characteristics of MS Dhoni. Several of the characteristics are: 1) Consistency – applying the stock selection process consistently across market conditions, 2) Focus – just because a stock has dropped in price does not make it a bad stock, it may be facing some short-term challenges (out of form) or getting ignored by Mr. Market, 3) Patience – just like Captain Cool investors must stay invested in without getting impacted by the market ups & downs. 4) Adaptability – Dhoni played all formats of the game, could bat at any position and under all conditions similarly one has to design a portfolio that can survive under unfavourable conditions and thrive under favourable conditions.
Do you select a specialist or an all-rounder for your portfolio/ strategy and why?
Just as a good cricket team needs a well-balanced combination of specialist batsmen, specialist bowlers and all-rounders, an equity portfolio likewise needs a well-diversified pool of corporations exposed to multiple, independent growth vectors such as defence, railway infra, Power, Banks, IT so that something or the other keeps on striking from your line-up. 1 likewise needs a mix of different types of financing opportunities such as mispriced growth stocks, stocks with a deep discount to intrinsic value, stocks that are going through special situations such as business transformation, spinoff, etc., so that one has numerous catalysts for unlocking success.
Narrate a market turnaround event that you can relate to India’s GABBA test victory in 2021?
The performance of some of the expansion vectors such as defence and railways in our clients’ portfolios was the turnaround event in 2022. With one of the steepest interest price hikes in the United States, the Russian-Ukraine war and high commodity prices, the broader market was in bearish sentiment, Omni Bharat Defence and Omni Bullet Train smallcases presented stiff resistance to the negative sentiment and persisted to deliver match-winning performances.
Who would like to nominate as Dipti Sharma of your portfolio (a well-run company by a women business leader)
We would nominate Madhabi Puri Buch as a leader of the Indian equities markets. As the 1st women chairperson of SEBI and likewise as the 1st private sector individual to be appointed to this post, she has brought in whole lot of changes to make better the efficiency, effectiveness and accountability at the regulatory body. Her data-driven approach and the emphasis on the greater use of technology shall strengthen the markets in the long run.How do you decide your financing strategy for the investors whether they should opt for Test match or 1 day or T20?
Investing in equities is always a ‘Test’ match. And there are in particular 3 Tests that an investor must pass to gain this game – the Test of Originality, the Test of Character and the Test of Patience. If the investor desires to beat the market then he has to have an original game intend to remain one step ahead. Investors need the strength of character to execute the game strategy with conviction even if it is against the conventional wisdom and finally, have the patience and stick to the strategy even in the face of setbacks. In equities, the time horizon (format) itself tilts the chances of winning in favour of investors (Test match) and away from traders (T20) so choose your game cautiously.
