Investing: Paras Adenwala

Is a strategy based on investing in stocks favoured by foreign institutional investors advisable? Most stocks mentioned in the article were B-group ones. Are these stocks bankable?
It is not a good idea to invest your money by depending on someone else’s investment choices. The best strategy for stock-investing is one that is based on your own research. Well-known, successful investors follow a research process, which helps them to buy into businesses run by trust-worthy managements, have a balance sheet that is under-leveraged, a growth track record that is consistently above average, good liquidity in the stock and attractive valuations. Disciplined application of these filters helps such investors make good risk-adjusted returns over the long-term.

I want to start investing for my three-year-old daughter. Most people have suggested I opt for mutual funds. But I have a long investment horizon of 15-20 years. Therefore, I want to adopt a more aggressive investment strategy. I want to invest about Rs 10,000 monthly. Which sectors should I consider? Does the systematic investment option offered by some brokers for direct equity investments work well?
Investing in mutual funds, using the systematic investment plan (SIP) route, is perhaps the best way to invest for the long-term. You could adopt an aggressive approach by investing in a sectoral, midcap or smallcap fund. However, if you choose the stock route for investments, you could look at investing in stocks from sectors, such as banking, technology, agro-chemicals, agro-equipment, auto ancillaries. The SIP route is again advisable here. SIPs help one mitigate the impact of market volatility on the portfolio.

Experts are often asked on television if they feel the markets have already discounted the FY12 earnings. What exactly does it mean? Does it impact the current market scenario, and our investments?
Discounting is a multiple on estimated earnings, book value, cash flows, etc. It is commonly used by market analysts to evaluate the attractiveness of the markets/stocks. These ratios may be used either in isolation or in conjunction with each other to evaluate the attractiveness. Simply, higher the multiple, lower is the attractiveness of the markets/stocks, and vice versa. However, the appropriateness of the multiple could vary for each industry and stock.

The writer is managing director & principal portfolio manager, Capital Portfolio Advisors. Send your queries to yourmoney@bsmail.in