It could be a matter of debate whether the current economic down
cycle will hit the rock in FY15 or the economy will continue to slither down
even in FY16. One may also argue over the shape of the recovery, viz., it will
be a ‘V’ or ‘U’ or ‘J’ or an “L’ shaped recovery.
However there could be little difference of opinion that the
economy would continue to struggle with below par growth through 1H2014 at the
least.
The election season has already been kicked off in India. If the
recent round of policy statements by US Federal Reserve (Fed), European Central
Bank (ECB), Bank of England (BoE) and Bank of Japan (BoJ) and utterances of IMF
and ADB provide any indication – the monetary stimulus driven global economic
recovery is firmly stuck in first gear and not likely to pick up speed in near
future. The political impasse in US over critical fiscal Bills is also not
helping the cause.
Under the circumstances, for being relevant, any investment
strategy has to be focused on the time horizon that looks at least beyond 2014
if not 2015.
InvesTrekk therefore has decided to modify the construct of
equity strategy and accordingly its model portfolio.
Changing from present absolute return portfolio that focuses on
a 12month horizon with a return target of 10% over the consensus nominal GDP
growth forecast, we suggest the following strategy:
(a)
The portfolio should be divided into two parts –
(a) Core portfolio (67%) and (b) Tactical portfolio (33%).
The investee companies therefore should be such that have
demonstrated capabilities to remain relevant over many business cycles due to
their product, market and technology leadership, strong financial position,
lower beta to macro fundamentals, proven managerial capabilities. An analysis
of the companies listed on BSE suggests that not more than 100 companies would
fit the basket. We have selected 25 out of these.
The core portfolio should be constructed with the longest
possible timeframe and expectation of returns better than other asset classes,
e.g., fixed income, gold, and real estate. We call it “Generational Portfolio”
signifying that these are stocks are such that could be passed on to next
generation comfortably.
The tactical portfolio should have a time perspective of next
economic cycle (normally 3-5yrs) with a higher return expectation.
(b)
The adverse valuation argument for some of the
core portfolio could be handled with opportunistic trading positions thus
bringing the cost down.
(c)
The portfolio should be constructed over next
6months period to account for the major local political event (election) and
global liquidity event (tapering).
…to continue tomorrow
Thought for the day
“Whether zeal or moderation be the point we aim at, let us keep fire out of the one, and frost out of the other.”
— Joseph Addison (English, 1672-1719)
Word of the day
Malign (v)
To speak harmful untruths about; speak evil of; slander; defame:
(Source: Dictionary.com)
Shri Nārada Uvāca
Should the people choosing to participate in electoral politics be mandatorily required to begin from the lowest level, i.e., Panchayat or Municipality and move up the ladder through state assembly?
If done, no one could become MP unless he/she has at least 10yrs of experience as elected representative. Most dynasties would end here.
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