The Hindu Business Line : `Investors should aim at proper stock selection'

Kolkata June 6 The equity market may be on fire but not all stocks can truly create wealth for investors, feels Mr Vikaas M Sachdeva, Country Head - Business Development, ING Investment Management (India) Pvt Ltd. "Clearly, there is a case for efficient stock selection... and not everybody can be equally good at it", he notes.

Excerpts.

Equities have recorded a smart bounce-back from the last sell-off earlier this year. Is this a time for a round of quick profit booking?

Investors need to see if the targets they had set have been reached before they begin to look at taking profits. If this key objective is not sufficiently fulfilled, there is no way they should start pulling out.

Yes, the stock market has indeed been very alive, a trend that is especially evident after the sell-off that we saw in February or thereabouts.

We have seen a fairly good quarter, reflected adequately in March-end results. However, despite all such positive signs, investors should aim at proper stock selection.

It is not that every stock will advance the way they want to. Creation of a relatively superior portfolio will depend on the way it is constructed.

There is a view that bullish sentiments will remain intact for some more time. How do you react to this?

Well, there are a few strong indicators that are leading some people to believe this. That significant parts of the economy are resilient, is true without doubt.

Overall, there is strong domestic demand, which has a positive bearing on a whole range of sectors. Corporate profitability is also quite evident.

However, it is not for us to speculate as to whether the broad trend will be sustained in future. We can only expect that certain issues will continue to hold true for the country.

In such a scenario, shifting partly to fixed-income is good strategy, right?

That will depend on the investor's risk profile. If he or she thinks that fixed-income makes more sense at a certain point of time, the asset allocation strategy should be modified accordingly.

There is, as the famous saying goes, no one-size-fits-all principle here. What has to be borne in mind that fixed-income too is not without risks.

You will have to weigh the pros and cons of it before switching to it even partly from other asset classes. If you, say, choose longer-term debt funds, there will be a certain type of risk to contend with.

Not so for an investor who focuses mainly on shorter-term products. For such a participant, the risks will be differently aligned.

Should cash holdings be scaled up in these circumstances?

As you may well appreciate, there is merit in staying fully invested. For a diversified, growth fund, for instance, cash can be used intelligently for boosting strategic holdings.

It will all depend on what the circumstances are and the way the fund manager concerned looks at them.

Stacking up on cash reflects an ultra defensive strategy. Such a policy will be justified if unit-holders' interests are kept in mind.

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