We wish all the readers a great year ahead!
"When I told the people
of Northern Ireland that I was an atheist, a woman in the audience stood up and
said, 'Yes, but is it the God of the Catholics or the God of the Protestants in
whom you don't believe?"
—Quentin Crisp (English, 1908-1999)
Word for the day
Wing-Ding (adj)
A noisy, exciting
celebration or party.
(Source: Dictionary.com)
Malice towards none
Rahul Gandhi is on leave, but this time with due permission of the
Twiterrati!
First random thought this morning
Reportedly, 30 students in Kota have committed suicide in 2015,
supposedly for failing to cope with the pressure to succeed in professional
examinations.
Three things are worth pondering: (a) No one is crying for these
children as they would normally do for farmers committing suicide; (b) To make
matter worse, the government is considering to reverse "no hold till class
eight" policy so that even younger students feel the pressure; and (c) 3
Idiots was highly overrated as a movie with social message - students have
learned to take a leak at teacher's door, drink alcohol; commit suicide, and
make fun of a language but parents have not learned to let children live their
life!
Investment Strategy 2016 - 8: Investment Strategy
As discussed in one of my earlier posts, I believe that Indian
investors are most likely entering once in five year phase when the return
prospects on most asset classes are frustratingly low. Fortunately though the
return of investment is not under threat as yet.
On YTD basis benchmark equity indices have given a negative return
of ~4%. Given the poor earnings growth, slowdown in global flows and moderation
in optimism over economic reforms, the outlook for 2016 continues to be
clouded. Save for a major re-rating of Indian equities (no reason to foresee
that today) the benchmark indices may return a moderate 10-12% return in 2016,
with a reasonably higher degree of risk and volatility.
So what should be the investment strategy going into 2016?
Asset allocation
Since I do not expect much fall in interest rate, I would maintain
equity overweight in my portfolio (65%). Presently I am holding a material part
of my equity portfolio as tactical cash (25%). I would like to deploy this cash
fully in equities over next 3months. My target return for overall financial
asset portfolio for 2016 would be ~9%.
Debt investment
I would like to largely confine my debt investments to accrual
products only; strictly avoiding search for capital gains in my debt portfolio.
However, I may consider debt funds with very long duration if
benchmark yields rise over 8.25% due to some global event.
I would avoid undue credit risk in my debt portfolio to make few
bps additional return. Though I would not like to be paranoid about the credit
risk and not waste my time looking for risk where none exists.
I would target 7% post tax return on my debt portfolio.
Equity investment strategy
I would maintain a balanced stance on my equity investments and
consider entire spectrum of companies rather than focusing on large caps only.
I would:
(a) Target 10% price
appreciation and 1% dividend yield from my equity portfolio;
(b) Normalize overweight on
global pharma and IT;
(c) Normalize underweight
on financials mostly by adding NBFCs catering to LIG and MIG borrowers;
(d) Continue NIL weight on
pure commodity plays;
(e) Increase exposure to
domestic cyclical businesses through solution providers, technology leaders and
innovators rather than pure product or construction companies;
(f) Overweight luxury
discretionary consumption;
(g) Continue to avoid PSU
in general. However, I may consider some of the top PSU banks if stocks prices
correct irrationally from the current levels.
Equity trading strategy
(a) I would like to trade
frequently in at least one third of my equity portfolio and use 'buy &
hold' strategy for the remaining part.
(b) I see strong pair
trading opportunities in differentiated performances within same arena, e.g.,
private banks, consumers and exporters.
(c) I also see strong
trading opportunities emerging in commodities' space. Though I would mostly
like to trade in this space on the short side after each technical bounce.
(d) I would actively look
for shorting opportunities in PSU space, especially those who will see (a)
material rise in wage bill due to implementation of 7th Pay Commission
recommendation; or (b) lose out to foreign competition as government opens up
more areas to global competition.
Miscellaneous
(a) I would not consider
precious metals for financial asset allocation.
(b) I assume a relatively
stronger USD and weaker EUR & CNY in investment decisions. Therefore I
would be discreet in choosing exporters and foreign currency borrowers for
investments.
What will change my view?
1.
Full blown recession in US.
2.
Surprise recovery in Europe and Japan.
3.
Hard landing in China.
4.
INR breaking and sustaining over 70/USD.
5.
Full blown economic crisis in middle east led by
lower energy prices.
It is critical to note that short selling and derivative trading
involves materially higher risk. These require much higher level of technical
expertise and knowledge and therefore not suitable for all investors/traders.
The readers should seek expert advice before making any investment or taking a
trading call.
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