The underperformance notwithstanding, wealth management platform service provider Quantech Capital has parked most of the money in this space.
“We are over 85% allocated to mid and small cap as of now, particularly PSU banks, industrial manufacturing and some into consumption stocks,” says Sujit Modi, a WealthBasket Curator, Founder & CEO of Quantech Capital. Edited excerpts:
How has your WealthBasket performed in 2022?
Russia-Ukraine war, higher crude oil prices, interest rates, and tech sell-off dominated 2022 news headlines.
In ‘OpenQ Defensive Momentum’, we started the year with overweight on IT, which clearly was rejected by the market. At the start of the year, we were underperforming the benchmark by a wide margin. But since our processes are dynamic, we rotated out of IT and gradually moved into consumer goods and industrial companies. That helped us recover all the underperformance and we ended the year closer to the benchmark. We returned 4% in 2022 with a 3-year CAGR of 29%.
Which are the key parameters/metrics you look at while choosing stocks in your portfolio?
We are a quant firm that focuses on systematic equity factors to design our portfolios. Price and earnings momentum are two such factors. We overlay it with low volatility such that we prefer stocks that are going up with relatively lower volatility. We also look at analyst coverage for a consensus view.
The start to the New Year has not been good for markets. Given the volatility due to persisting global risks, how should investors approach markets?
Volatility is a constant companion in equity investing. The only way we can counter volatility is through discipline. Stay invested, stick to the process and follow the process methodically. At OpenQ, we rely on principles of data science and quantitative finance to evaluate such processes over three business cycles before going live with them.
It is the process-led approach that helped us recover all the underperformance in the first half of the year and end the year closer to Nifty 500.
Do you foresee a capex-heavy Budget this time in view of the PLI schemes and infrastructure boost planned by the government?
We don’t speculate on any market events. We wait for the events to play out, understand its impact on the market and let our quant processes react to such changes.
In the run-up to the Budget, which are the sectors that will see most of the action? Which are the sectors you would recommend getting into?
Though we do not take bets on budget or other similar macro events, seeing the current market structure, we are over allocated to PSU banks and industrials.
Which sectors/stocks are looking attractive to you and would want to add to your portfolio in 2023?
It will be a dynamic process. As and when the new information comes in, we realign our portfolio. We believe more in casting rather than forecasting. As of now, we are overweight on mid- and small caps. There will be rotation as we move ahead in the year and more data comes in.
Retail inflows remained buoyant in 2022, do you expect the buoyancy to sustain in this year too?
Despite FII redemption and higher volatility last year, retail SIPs have not only been steady but continues to be growing month on month. Also, given that there is a general consensus that this is India’s decade, I feel, inflows should continue to be steady.
There might be some rotation of funds as and when other asset classes become attractive, but those will be more tactical in nature rather than strategic.
What kind of diversification in asset allocation would you recommend to your clients in an expected volatile market conditions?
In investing, discipline is of utmost importance. There are three ways in which we can manage volatility: 1) Spreading out your investment over time (like in SIP), 2) invest in negatively correlated assets (like Gold/Debt/Equity) and 3) invest for a long enough time so that one completes the cycle.
What the above three methods do is not let the volatility affect your portfolio.
Having said that, diversification should be a dynamic process where both the need for as well as the way of diversification should be evaluated basis the market regime.
Which pockets within the midcap and smallcap segment look attractive to you and why?
We are over 85% allocated to mid and small cap as of now, particularly PSU banks, industrial manufacturing and some into consumption stocks.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)