5 Winning Strategies for Investing in the Stock Market — Insights from a Fund Manager

5 Winning Strategies for Investing in the Stock Market - Insights from a Fund Manager

Learn how investors can pick their pinch hitters like cricket teams and the importance of focusing on fundamentals rather than IPO subscription numbers in this article featuring insights from Ashwini Shami, smallcase Manager, EVP & Portfolio Manager OmniScience Capital.

NEW DELHI: With the IPL sea­son in full swing, investors can’t help but draw analo­gies with crick­et and Dalal Street. As part of a spe­cial series, we reached out to mon­ey man­agers to know how they pick their pinch hit­ters, whether they like spe­cial­ists or all-rounders and their on-field strate­gies.

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.



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