Dhirendra Kumar elaborates on the strategy used by Value Research Stock Advisor in picking and recommending companies
11-Sep-2020
Most agencies are projecting a shrink in Indian economy. For instance, CARE stated that Indian economy might see a decline of 20 per cent y-o-y, while Moody's also came up with a similar prediction. However, Nifty has recovered by almost 95 per cent of its peak from February 2020. Is a correction expected soon? What is Value Research's strategy to advise stocks in such an uncertain scenario?
- Chinmoy Ghatak
To be honest, we don't know. We are also quite surprised by what is happening in the market currently, as we were not expecting such a sharp recovery. Earnings numbers for the first quarter of several companies are out and these numbers are quite disappointing, as some companies recorded a whopping 49 per cent decline in their sales. However, most of the participants in the market believe that this is temporary and earnings will recover in the next four-six quarters. Since the markets have recovered substantially, those who exited the market in March and April are now disappointed. Therefore, both foreign investors and domestic investors now refrain from pulling out their money from the market. This is ultimately leading to increased liquidity in the market.
At Value Research, we don't aim to guess the market. We think that most investors should invest their long-term money, i.e. the money that they don't need in the next three months, six months, one year or even three years. The amount that you don't need in the next five years should be invested in equity so that it does not cause any anxiety. Choose your funds based on your time horizon. When you don't need the money in the near future, invest the same in equity, as you can take risks with this money and hence, go for an aggressive fund. For the money that you require in the short term, such as three months, six months or one-two years, you can't take any chances, as it is a high probability that this money will be for an important, non-negotiable goal.
When it comes to advising stocks in the uncertain time, our fundamental principle is to invest in good companies at a suitable price. I think some great stocks did not fall during the market decline in March. On the contrary, these stocks have actually gone up. There are companies that do well irrespective of the state of the market. We actually had 25 stocks in our watch list that we wanted to recommend on Value Research Stock Advisor. However, we have our price limits and when the stocks fall in that price limit, only then we recommend them. Of those 25 stocks, only two-three stocks saw a correction in March and we were able to recommend them. Thus, even after a massive decline of 20-25 per cent in the market, several of the stocks in our watch list just didn't fall. Hence, there are great companies in the market and we, at Value Research Stock Advisor, are much focused on handpicking good companies for our investors so that if they hold them for five-10 years, they would become wealthy. In the process, we will go wrong at times and we will also be correct about some companies that will be extremely rewarding for investors. We don't try to time the market. We believe that if investors hold onto some good companies for a long period of time, they should be able to benefit from them.
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