'2010 may not favour top down investing'

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.

Which sectors would you bet on?
2010 is unlikely to favour top down investing as almost all sectors have been discovered and trading at reasonable valuations. However some sectors such as IT, infrastructure and banking provide select opportunities and may throw up surprising winners by the end of the year. Mid-cap IT businesses with some competitive advantage such as a niche product, a strong MNC parent, domain expertise, or stable client engagement for a long time are more likely to hold forte in the new wave of vendor consolidation. Infrastructure is a mixed bag with valuations for most of the segments such as construction, power, and real estate being fair with a few opportunities existing for seasoned investors. Banking also throws up mixed results with private sector banks being preferred bets over their PSU peers as the valuation discount widens in their favour with the prospect of increased credit growth and provision write backs on the back of improving asset quality. Similarly some pockets of industrial capital goods hold promise on the back of resumption of industrial capex and attractive valuations.

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.
 

PRAVEEN PANJWANI Assistant Vice President, Edelweiss
Top Holdings	% of   assets	Cost  Price (Rs)	Current  price (Rs)	Value (Rs lakh)
Pidilite	6.16	184.70	206.15	0.68
Bharat Forge	6.06	269.77	283.25	0.67
RECL	6.05	238.30	259.55	0.66
Allahabad Bank	6.04	130.23	134.85	0.66
Hind Oil Exp	5.80	271.00	276.80	0.64
Total investments	84.49			9.28
Cash	15.51			1.70
Net worth				10.98
Returns (%)	9.82

AMAR AMBANI Vice President (Research), India Infoline
Top Holdings	% of   assets	Cost  Price (Rs)	Current  price (Rs)	Value (Rs lakh)
Havells India	4.63	532.95	576.85	0.58
Dredging Corp	4.22	691.75	701.45	0.53
Sun TV	4.12	380.00	380.25	0.51
Raymond	4.01	241.00	249.65	0.50
Selan Exploration	4.01	421.95	421.95	0.50
Total investments	0.50			5.03
Cash	59.63			7.42
Net worth				7.42
Returns (%)	24.52

 

PHANI SEKHAR Fund Manager - PMS, Angel Broking
Top Holdings	% of   assets	Cost  Price (Rs)	Current  price (Rs)	Value (Rs lakh)
eClerx	11.98