In the second series of interviews, Phani Sekhar talks about the markets in 2010, the sectors to bet on and his portfolio. Meanwhile, in a week marred by net losses for the markets, Smart Portfolios too saw net declines in net worth. The benchmark S&P CNX 500 net worth was down 3.5 per cent to Rs 11.23 lakh as against Rs 11.64 lakh in the preceding week. The portfolio value, however, is up 12.3 per cent when compared to the one prevailing at its inception on September 1, 2009, with a base corpus of Rs 10 lakh. Amar Ambani, Ajay Parmar, Phani Sekhar and Praveen Panjwani saw net losses in the range of 2.3-3.7 per cent each. Fund managers, barring Phani Sekhar, have increased their cash levels last week.

What are your expectations for 2010?
The year 2010 is expected to reward diligent investors who own good companies at the right valuations. It may not be a year of extraordinary gains and the market is likely to be discerning about the quality of earnings and valuations as it reacts to mixed news flow especially from the West. The next 12 months would test the conviction of investors as the popular method of entering the markets by looking at the index levels and feeling the sentiments of the majority is more likely to mislead. An opportunity lies for the prepared mind that is willing to take the plunge in individual stocks from a medium to long term perspective irrespective of short term volatility. By the end of 2010, one is likely to witness varied report cards for investors but in general if you focus on good businesses, you should be doing fine.

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Which sectors should investors stay away from?
We have a negative bias against sectors such as automobiles which have run their course and metals which are rallying more on hope than on fundamentals. Cement may remain lacklustre while power is likely to raise more money at valuations difficult to justify. Overall the strategy would be to avoid paying higher valuations than the intrinsic worth even if the results are above expectations for a quarter or two.

Your portfolio is a mix of large-caps and mid-caps. How do you balance your investments and outlook?
As I indicated before, 2010 is unlikely to prefer one market cap over the other. The strategy is to generate absolute returns over a period of time by investing in superior businesses at reasonable/cheap valuations or ordinary businesses at cheap/dirt cheap valuations. We are focused on the value addition by our portfolio companies over a period of time by an increase in earnings or an improvement in capital efficiency. Re-rating of market multiples happens over a period of time on the back of consistent business performance but it is difficult to time. It is however important for us to know at all points in time if we are overpaying for our buys which keeps us alert to the shift in industry trends and change in business models.
 

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