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Read The Market Inefficiencies Correctly

Monday, February 08, 2016

A fellow member of the Institute of Chartered Accountants of India and the Managing Director of Choice International Ltd., Kamal Poddar is currently working on the vision of creating country’s biggest financial services hub. A pure visionary this Market Wizard does his own research and believes in the theory of long term investing. In conversation with Dominic Rebello he espouses the view that...

A little background about your company?
Established in the year 1993, Choice Group is a financial conglomerate founded with a vision to create new benchmarks in financial services Industry. Choice offers an array of specialized, multi-disciplinary professional services in Investment Banking, Broking & Distribution, Management Consulting and E-Commerce services to its clients.

The group derives its strength from the diversity of skills and strengths of the members of the Leadership Team. Our leadership has extensive experience in Indian financial markets. Average experience of our leadership team members is 26 years. Members have worked in key positions with prominent financial services firm for decades. Our leadership is supported by a strong team of 500+ professionals which includes Chartered Accountants, CFAs, CSs, MBAs and CFPs. Head quartered in Mumbai, it has offices across 80 locations in India.

How do you pick your investments? Do you use technical analysis or employ fundamental data?
My individual investments are based, keeping in mind my likely expenditure be it education or wedding in the family or buying a large home/asset or ensuring better retirement income and in conclusion beat the inflation index. Hence, there are short term and long term investment target wherein I use the regular fundamental and technical tools to ensure a perfect balance of wealth creation and attractive dividend yields. While fundamental analysis gives the investor a long term perspective about the stock, the technical analysis by way of price movement on charts aids in taking a timely call on entry and exit. As a financial conglomerate, we have professionals catering to the needs of large individual investors and wherein we adopt similar plans keeping their expenditure and asset acquisition needs in mind.

How would you describe your methodology?
As a brokerage house, we follow the top down approach by adopting a strategy of Economic-Industry-Company (E-I-C) framework so that we not miss upon any opportunity in the investment supply-chain. The key parameters that I look into the company include a strong business model, growth potential and significant competitive advantage over its peers. While, the in-depth qualitative and quantitative analysis of the company gives the larger picture, technical approach helps in finding the support and resistance levels and gauging the correct market timing.

What appeals to you about trading? The short side or the long side?
Personally, I am more an investor and less a trader. I am a strong believer in the maxim that an investor takes more money home than the trader. Hence, I believe in the long side. But in a volatile and uncertain market, where we witness corrections and consolidation, I hedge my views by pledging a short position and improve my investment yield.

What differentiates you from other Investors?
With over one decade of experience in the broking industry, I have reasonably gathered the knack of reading the market inefficiencies correctly. To my mind, oversold good quality growth stock are perhaps a good idea for me to buy.

What gives you that edge?
As an economy or a market, we are no more de-coupled with the global markets, be it commodity, equity or debt.  Hence, we believe in simultaneously tracking all the three markets with a global perspective. Since all the three markets are correlated to each other, it helps us get those early signals, which I consider as my edge.

Is there any applicable lesson to investing?
Well, there is no thumb rule for trading/investing and every investor has to develop his own unique style of investing based on his expenditure plans or old age security needs. Investments are made by human beings and hence apart from fundamental and technical, there is role of perception that can decide whether an individual is a long term investor or a short term or a hedger or speculator. Market being the best teacher, the investor or trader who is flexible and can mold himself or herself according to the market fluctuations can go back home with a smile.

How much of what you do is gut felt?
There is no question of Gut Feel, if someone is using their gut feeling in Penny or Z Category stocks. You don’t need an expert to tell you that the inevitable of losing money is on the cards. Unless, there is a fundamental reason with a pivotal stock, the term `gut feeling’ can safely be dropped from an investor’s lexicon. My strategy is clear: invest in stocks for a longer period and keep trading with ‘X’ quantity on regular basis to take the benefits of market volatility, which one can visualize on day to day basis.

Do you try to anticipate or follow market trends? What is the basis?
To my mind, ‘Trend is Your Friend’ and hence one must go by it rather than gut feeling. If the stock is good on both fundamental as well as technical parameters and trading in the Bull phase, then a correction or downtrend in that particular stock will be limited and will not last long. With the recovery in the broad market, this particular stock would recover faster and outperform the broad market. The market trend is an outcome of the macro-economic indicators like Current Account Deficit, Index of Industrial Production, CPI, WPI and Trade Deficit. One must also foresee how the geo-political tensions span out on the international front that have a bearing on commodity prices in invariably on the equity and currency market.

When you put money on a trade and it goes against you, how do you decide when you're wrong?  What do you do next?
If the holding position is with a trading prospective then one can always have a ‘Stop Loss’ in mind on which I prefer to exit if the market reverses. For long term investments, I select fundamentally strong stocks and thus fluctuations in the prices does not bother me. In fact any fall or dip in prices is used for as buying opportunity and reducing by averaging acquisition price and in turn improves profit from that particular investment.

Any positions you ever lost sleep over?
I have never over leveraged nor gone beyond my means. Hence, I do not lose sleep nor exit positions in panic. To be a sound investor who does not lose sleep, one must ensure that he or she is not over leveraged. In a volatile market, things may go out of control if the investor is over leveraged.
What would make you wary about an Investment?
We seek adequate returns on the investment made in proportion to risk taken. If an investment into equity does not derive returns equal to fixed deposits, then it is certainly a cause for concern. I do not expect all stock ideas to deliver, but my worry is always for the principal amount invested in the market.
 Your success mantra?
As volatility has increased in market, entry and exit level has become much more important for investor. One can enter at any point in time but the successful exit in a time bound manner separate the men from the boys. More than entry into a stock, I believe that the exit is important that determines the trade would turn profitable or loss making trade. Consistency in investment approach is what I would term as a mantra. One should not believe on tips, do your own research before investing. If you are too busy and cannot do proper research, then take the advice of professional who is expert in the field or the industry. Give time & invest regularly so that your money grows & your wealth multiplies. My view is that make investment in all assets classes like Fixed Deposits, Equities, Commodities and Real Estate.  In equity, your portfolio should be diversified. Last but not the Least; don’t trade without ‘Stop Loss’ in the market. ‘Happy Investing’.

Where do you see the Indian markets five years down the road? Any number for the Sensex in 2017?
Consistency in investment is important ignoring the bull or bear market, which is why  Systematic Investment Plans as a product are assuming significance. Bull Market ends when the economy does not perform or starts its downtrend and vice-a-versa for Bear Market. But I am never keen to catch the top or bottom of an investment cycle. On the outlook for next five years, we might see Sensex in excess of 45000 and for 2017 it could be seen hanging around 33,000-35,000 levels.

What is your take on the current global market scenario?
Having declined by around 20% over the past nine months, investors with exposure to the Indian equity markets are more concerned over the prevailing slowdown in China as well as US Fed rate hike. In our view, while India is not immune to a potential slowdown in China, it is least exposed among most of the emerging markets given its less dependence on exports. Furthermore, likelihood of US fed rate hike will lead to capital outflow from Indian markets, world’s leading central banks are rushing to provide support to financial markets through increasing liquidity. While ECB has indicated it will increase liquidity by March, Bank of Japan has lowered the interest rate to negative -0.10% and PBOC is pushing funds into inter-banks system.

Sluggish improvement in earnings on the domestic front as well as slow recovery in economic conditions has checked rally and brought market into consolidation phase. Going forward, we are optimistic on earnings recovery in Q4 FY16 and FY17 as 1) fiscal policy is beginning to turn supportive (25% y/y increase in public capex budgeted for FY16); 2) the passing through of weak commodity prices to end-consumers is likely to aid the consumption recovery and improve corporate margins; and 3) easing inflation and interest rate scenario to boost demand in economy.

We are of the view that correction is a bull-run correction and despite some short term volatility, Indian equity benchmark will restart its rising path. However, this correction has given a big opportunity for investors to pile up position in fundamental strong stocks.

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