How are investors playing the market?

Indian equities have been on a roll and the Sensex and Nifty are surging to new highs. While slow and steady is the time-tested route and timing the market is not for everyone, there are many investors who have capitalised on events and trends that have shaped the current rally, and emerged richer.

Markets offer different wealth creation opportunities and macro events such as demonetisation, GST and monsoon are important ones for both traders and investors.

Demonetisation effect Over the last six months, there have been interesting sector shifts in the market. For instance, following demonetisation, the stocks of banks and non-banking financial companies (NBFCs) took a hard knock.

Identifying trends has been a rather easy exercise for Yogesh Sundaram who has been tracking stock markets for nearly two decades now, with around 17 years of experience across debt and equity markets.

“I shorted Bharat Financial Inclusion because it was apparent that micro-finance companies would be severely impacted by demonetisation as they are heavily dependent on cash collections from their customers.

I also shorted two NBFCs in the commercial vehicle space — Shriram Transport Finance and M&M Financial Services, given that a large chunk of their borrowers repay their monthly instalments in cash. Dislocation in the rural economy due to demonetisation will have affected the financing demand for commercial vehicles,” explains Sundaram. Hari, a software professional with a multinational IT services company, has a contrasting view. He says that he took a long-term view on the financials space, including NBFCs and MFIs (micro finance institutions), and decided to buy them during the November-December 2016 correction.

GST bets The roll-out of GST also provided ample opportunities for traders and investors. Muthukumar KA, an engineer by profession who currently serves as Project Manager in a multinational engineering services firm, sensed the opportunity in Bata India due to the shift towards the organised segment post GST implementation and added that to his portfolio a few months back. And that has done well for him.

Similarly, Singaraju R is positive about the weeding out of unorganised Chinese players in the stationery segment and is betting big on domestic branded players in this space. Singaraju quit his job early to start his own finance venture and has been tracking the markets since 2001.

“I felt that sectors such as auto and ancillaries, FMCG and cement will benefit due to the reduction in tax once GST is implemented. Hence, I started buying stocks such as Motherson Sumi, Pricol, Tata Motors, Asian Paints and Ambuja Cements which, while benefiting from GST, were also poised for good returns in the longer term, thanks to their sound fundamentals,” explains Hari.

Sundaram’s GST bets include stock of cigarette maker ITC and VST Industries, the reason being that GST for these items was capped at 28 per cent plus cess.

“Typically, during the annual Budget, taxes on cigarette tend to go up by about 10 per cent every year. Before the announcement of GST rates, investors were apprehensive about taxation of these items under the GST regime. I also bought the stock of PC Jewellers after the GST Council fixed the rate on gold and gold jewellery items at 3 per cent,” he says.

Long and short Hari and Yogesh Sundaram try to strike a balance between short-term trading and long-term investment bets. “I use fundamental research for identifying long-term investment bets and technical analysis for choosing the right trading bets,” states Sundaram.

In contrast, Muthukumar and Singaraju are big believers in value investing. “Given that my investment horizon is quite long, I look for companies that are fundamentally sound whose stock prices have been beaten down due to short-term negatives” explains Muthukumar.

“Earnings yield (measured as earnings per share divided by share price), sales to working capital and asset to turnover ratio are some of the key indicators I look at,” he adds.

Whatever the conviction and approach, one thing comes through clearly: All these professionals believe in doing their homework before taking the plunge.

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