Fantastic learning….

Research is always interesting – especially if you are getting paid for it! As a company we do research of a few hedge funds. The discipline that they show while picking stocks is quite amazing. There are various screens which they use – from market capitalization, no. of transactions in a day, value of trading transactions, no. of years of uninterrupted dividends, whether there has been any regulator warnings, ….really amazing rigor goes into picking the stock.

Needless to say there are only about 2500 companies across 15 countries (oops!) which come into the orbit. And then there are some currencies which look too risky – which could wipe out the perceived gains.

However when you go through the rigor you realise that the Indian market is expensive. Of course when you factor in the 8% growth, India does not look so expensive, but still it is not cheap. Some sectors have run really well (like auto) and the p/e is quite low for Tata Motors (at 12 vs. 18 for Ashok Leyland) – however if you are not sure about the impact of the base effect, it looks scary. There are foreign market stocks with 7% dividend yield – even if you factor the currency risk many of these shares will give you a good CAGR. When you see somebody come on the telly and tell you that Indian valuations are mouth watering, say Ha!

Ask the expert – have you seen Brazil, Turkey(it also has 5% growth), Singapore,….before you make the statement? The worry is for all of them India looks s*exy and it is fashionable to say ‘We have an India exposure’. Mouthwatering valuations are available in Europe (growth is missing) and in USA (growth is likely to be more than the current consensus.

Surely the learning is fantastic, but the lessons are blurred.

My call: as usual I have no clue on the short term direction of the market. This means my SIPs continue, but will take some profits from the table on certain stocks – either because they look expensive or because my requirement level of yield is so low that I do not NEED to take so much risk to get my expected returns.

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