Using quantitative strategies in investing and risk management is one of the evolving concepts in stock markets. In this State of the Economy podcast, businessline’s Parvatha Vardhini C speaks to Siddharth Vora, Head of Investment Strategy and Fund Manager at Prabhudas Lilladher on applying quantitative techniques to investment decisions.

 Siddharth acknowledges that the markets have remained lacklustre since the beginning of the year after a stellar run in 2023. He sees this consolidation as an opportunity for investors to re-evaluate and reshape their portfolios. He anticipates a shift from mid and small caps to larger caps in the coming weeks or months. 

When asked about earnings growth predictions for 2024, Siddharth provides a nuanced view. While he acknowledges the robust growth in 2023, he expects moderation in earnings and returns going forward. He emphasises the need for a healthier outcome for investors, considering the elevated base from the previous strong performance. 

The speaker also provides a consolidated view on the quantitative strategies he uses in investing. He states that it is important to bring in a multifaceted approach in selecting stocks, encompassing analysis of sector, style, risk, liquidity, valuation, and volatility along with fundamental and technical analysis. Siddharth introduces the concept of the 6S framework (Include Sector Rotation, Style Alignment, Superior Fundamentals, Sound Valuations, Strong Technicals, Smart Risk Management) as the foundation of their equity strategy. 

Coming to what his quant models are telling them now, the speaker discloses their avoidance of private banks, chemicals, agrochemicals and IT in the last eight months and a significant emphasis on sectors like diversified financials, industrials, and automobiles. Currently, their allocations include energy, financials, automobiles, utilities, and healthcare. This reflects an adaptive approach to changing market conditions by moving from pro-cyclicals earlier to being somewhat defensive now.

A crucial aspect discussed is the role of quantitative techniques in risk management and the key question of when to sell a stock. Siddharth elucidates their strategy for dealing with known and unknown risks. The periodic rebalancing mechanism ensures that weaker stocks are eliminated, and the portfolio adapts to new opportunities without emotional bias of a fund manager, he concludes.

Listen to the podcast now. 

(Host: Parvatha Vardhini C, Producers: Anjana PV & Siddharth Mathew Cherian)

About the State of the Economy Podcast

India’s economy has been hailed as a bright spot amid the general gloom that seems to have enveloped the rest of the world. But several sectors continue to stutter even as others seem set to fire on all cylinders. To help you make sense of the bundle of contradictions that the country is, businessline brings you podcasts with experts ranging from finance and marketing to technology and start-ups.