We’ll shortly write an in depth research on the Indian Equity Strategy and the way forwards. However, until then since the market has substantially corrected, rejig your portfolio on the basis of Quality of the Stock.
Equity Stock Picking has changed from Momentum and Growth back to Fundamentals. Buying stocks of companies with high FCF, high ROE, low debt, low beta and low capex to depreciation has been the best strategy. The market continues to back trailing winners. Value has not worked. Low P/E, low P/B and high yield has lost money. Importantly, growth has not worked. The market has not cared for either earnings or revenue growth.
There are three further crucial style changes over the past three months. Firstly, buying what institutions are buying is no longer working – counter consensus trades are coming into vogue. Secondly, EPS growth is now a winning style even as revenue growth remains a losing investment criterion. Finally, high capex to depreciation is gaining favor with the market.
The shift is still hesitant – ROE is still fashionable and mega caps have been winning all along. Reasonably priced growth is our mantra for 2013 and we stay away from Stocks which can be influenced by Corrupt Government and its Policies [Infrastructure, Telecom, etc]