Speaking at the ‘Learn From The Experts’ Session of Outlook Money’s 40After40 Retirement Expo, Tejas Ajit Kadam, Fund Manager at ICICI Securities PMS talked about how to find gems in an overvalued market. He started by talking about the Delhi-Mumbai divide and how investing unites the two, he said, “Mumbai and Delhi don't really see eye to eye. It's always like my Panipuri versus your Golgappa or your chole Kulche versus my pav bhaji. There are always differences. But today, if there's one question that unites Mumbai and Delhi, whenever I go meet a client, the one question that every client will ask me is how to find gems in an overvalued market?” Kadam shared his investment strategies in an in-depth manner.   

Indian Strategy

“You guys have been investing but do you know that there are two dominant strategies in the Indian markets? One is quality growth investing, where your fund manager or you if you are picking stocks, prefer stocks or companies which have robust financials with good balance sheets, low debt, great return ratios, stable earnings, and so forth. The other style of investing is value investing which is the kind of investing where your manager or you are buying companies that are available at a discount. They are cheaper than their industry peers. These are the two dominant styles in the Indian markets.”

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Stop predicting the Market

Kadam asked investors to stop predicting how markets are going to behave in the future and said, “To know about your fund, do this simple exercise - If you are happy with your fund in the last three years and it has done better than the broad market, better than the benchmark, most probably it is a value fund. If the last three years have been very difficult, it probably is a growth fund. Both of them are cyclical. There are times when value investing does well and there are times when growth investing does well. What is the worst thing that we, as investors, do? We buy into the fund that did well in the last three years but every three years that cycle is changing. So, what I often tell people is to stop predicting the market. No one has the crystal ball predicting the stock market is foolish. Stop predicting what is going to happen in the stock market. Rather you hear it, listen to it. The stock market will give you enough clues and ideas on what is the style that is currently working.”

Secret Mantra

“I will give you my secret mantra. What I do in some of my portfolios is that I start looking at companies or any investment from four perspectives which are momentum, quality, low volatility and value. Momentum is a style of investing that very few people follow. It is about investing when markets are rallying and then getting out as markets start correcting. It is a very, very strong style in the west, very rarely used in India,” Kadam said and shared the remaining qualities:

“The second is quality – companies with good balance sheets, robust fundamentals, low leverage, stable earnings. This is the bread and butter of investing. The third is something not a lot of people speak about low volatility where companies that exhibit less risk, less variance or volatility (are picked). What is the benefit of buying these companies? Whenever markets correct, these will correct below the market average. If your Nifty falls by 10 per cent, low-volatility stocks may fall by just 5 per cent. The fourth strategy, which is value, is about buying companies which are at a discount, buying companies which are cheaper than their industry peers.”