Is it the time to shift from defensives to cyclical stocks?

For the last couple of years, it is the defensive stocks that have outperformed the market. Be it IT, pharma or even FMCG; they have vastly bettered the markets. On the one hand, these companies enjoyed sustained growth and high levels of ROI. A sellers market ensured that margins were also quite exciting. A lot of that seems to be changing gradually. The question that arises is whether investment strategy must shift from pure defensive plays to a more aggressive play on cyclical sectors. While the shift may not be immediate, the first signs are there for the shift. Let us understand the reasons…

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Q2 Results – How the New Economy is likely to fare?

New economy is something hard to define. But we have used some broad highlighters to guide our decision. For starters, sectors that have grown recently will fall under that definition. This includes internet, media, IT and telecom companies. We also include sectors that are catering to niche global segments due to a clear price arbitrage. Pharmaceuticals and to an extent IT fall into this category. Lastly, we have also included companies with a strong intangible franchise which brings in the FMCG stocks also into the new economy mould…

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Q2 Results – How the old economy is likely to fare?

The Q2 season began with both the leading technology companies, TCS and Infosys, giving an earnings growth warning. The message was very clear; IT growth is likely to be constrained by cross currency headwinds and margin compression as clients bargain for better pricing. However, Reliance was a beacon of hope as it managed to report an all-time high gross refining margin (GRM) as well as strong petchem margins. As the Q2 season progresses, it is time to look at how the old economy sectors and stocks are likely to perform.

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Objectives of Mutual Fund investing for investors?

Investors often ask this question; why should they not invest directly in equities and debt and why do they not need to go through the mutual fund route? What is the value that a mutual fund can add to the investment performance? To answer these questions, one needs to understand the core objectives underlying investing in mutual funds. The objectives of investing through the mutual fund route are not just about returns. It is about convenience, diversification, choice and the ability to pigeon-hole their investments to a long term financial plan. Let us understand each of these things in detail. Continue reading

Rate cut and MSCI overweight; China worries continue for India…

When China cut rates by another 25 basis points effective October 24, it marked the sixth consecutive rate cut in the last 11 months. The rate cut by China is not great news for emerging markets in general and India in particular. India will have worries on two fronts. Firstly, the rate cut by China is going to have its own medium term implications for Indian equities. Secondly the decision by Morgan Stanley Capital International (MSCI) to include Chinese and Hong Kong ADRs in the MSCI emerging market basket is also not great news as it will lead to a lower MSCI allocation to India. Remember, MSCI Emerging Markets Index is the undisputed benchmark for emerging market allocations, especially among ETFs, Index funds and other active and passive portfolio managers.

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