I don’t think Indian investors have made as many mistakes as US investors. Look at the number of losing initial public offerings in the United States. It was very high. There was a class of IPOs called SPAC and those IPOs were very illogical to me. It didn’t happen in India so I think the amount of errors in the US was much higher, he says S NarynED & CIO, AMC.
When the markets turn back, will we see a change in leadership because this year the change in leadership has already taken place? Growth stocks have peaked, IT stocks are peaking, value stocks are outperforming, and energy stocks are outperforming. Do you think the leadership in the market or the leadership of the new bull market has really changed?
Thank God that in India we didn’t have a lot of new loser companies on the list. Hardly three to five companies were listed and many of them had already collapsed. So fortunately in India we didn’t have that segment getting too big but in other parts of the world that would be the problem because they had hundreds of companies that were trading on revenue rather than cash flow.
But when we look at sectors like chemicals, for example, that seem to be in some very high value sectors, some of the smaller ones in some sectors seem exaggerated. So maybe those areas won’t be part of the next bull market, but I don’t think we’re going to have much change because sectors like finance and infrastructure have been underperforming for a decade.
Read also: We are in a bear market for the Central Bank; They have not yet reached the extremes of pessimism in India
It is clear that manufacturing as a sector should do well for the next ten years. One cannot be manufacturing bad for long. So yeah, some of the leaders for the next boom will be different but at least it won’t be like what we’re seeing in the US where there were a lot of losers becoming market darlings. Sectors like chemicals may go out of fashion but there won’t be as much change as I expect to see in the US.
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Are there some tactical strategies that retail investors can adopt to try to beat inflation in their portfolios?
The first is that the expectations of investors between them have reached very high levels, as if making money from stocks is very easy. If making money from stocks is easy, why do you have to work so hard in so many areas? . So once you lower your yield expectations to lower levels and you think stocks are a long-term asset class, some of the problems go away and stocks are clearly beneficial in an inflationary environment and unlike in 2020 and 2021, I think a quarter or so of debt will also provide more reasonable returns.
Regarding the coupons you’d get in most debt mutual funds because the yield to maturity has fallen to very low levels at the end of 2020. In three to four months, after two more rate increases, you’ll get a much better yield to maturity. So, don’t forget stocks, even debt mutual funds will have a good amount of products that will give you a reasonable return until maturity. So expectations of low return in stocks, and long-term expectations of equity and debt mutual funds across the board are all going to be experiments.
I hope investors don’t think derivatives are an easy way to make money in the market. I’m sure people have learned over the past six months that it’s not that easy. All of these things are going to happen, and eventually once we have a mild return environment, people lower their expectations of their return and things will be fine.
I don’t think this is a big problem. I don’t think Indian investors have made as many mistakes as US investors. Look at the number of losing initial public offerings in the United States. It was very high. There was a class of IPOs called SPAC and those IPOs were very illogical to me. It didn’t happen in India so I think the size of the errors in the US was much higher.
The US had a one-way bull market from 2012 to 2020. The size of the Indian bull market is much smaller than the American bull market and the extent of abuses to be removed in the United States is much higher than the extent of abuses to be removed in India.
I understand your point. I was referring to Investor Psychology because 2020 told us that making money was very easy but aside from that, have the excesses in the IPO market been removed? Are there any of them in the value area?
I was involved in investment banking between 1990 and 1994 and one of the lessons we learned
A single bear market awaits for many IPOs. Let the IPOs go in a bear market or at least act in a bear market and then, look at them in a very big way. We are not talking about industry groups that already have experience dealing with investors.
I think in the next two or three years, we’ll have a chance to look at a lot of those IPOs, but a lot of the IPOs are going to have to take place in a normal economic environment. Let’s see how they can make it happen and then we’ll have a good chance. In the 1999-2000 IPOs, there were some companies like
that was beautifully presented. But there have been so many IPOs in IT that no companies even exist at this time.
Something similar happened in infrastructure in 2007. Of all the listed companies, some did not deliver at all. We have to monitor some of these companies over a period of time. We have to watch the governance, we have to watch how they allocate capital and that’s what our entire team at ICICI Prudential is focusing on across sectors.
We will look at companies that focus on governance and introduce and increase our allocation to those companies. This is how we look at it and not all companies will apply good governance in our opinion, because they are not familiar with the general shareholders. They don’t even understand what it means to be a public company. This is what we learned after looking at some of the infrastructure companies that were listed in 2007.
Fortunately, we avoided a lot of them and that was our biggest benefit at the time. Like that, here too we must be careful in some of these companies.