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In an interview with ET Now, Hiren Ved, Director & CIO, Alchemy Capital , talked about contra investing and Indian markets. Excerpts:
Define contra investing for us.
Contra investing is when you invest against the popular perception in the market. We have these waves in markets which happen where generally people tend to follow a certain consensus and when you tend to be against the consensus; and there are times when it is very profitable to be against the consensus because you are still in a minority, people are not falling over each other to express that particular view on the market. But you have to be very careful about contra investing because you do not need to be a contrarian just for the sake of being a contrarian because market has its own wisdom; and in its own collective wisdom, it might have chosen to act in a certain manner.
There are certain phases when there is a difference between the perception and reality, and generally people do tend to get swayed by what the consensus is and that is the time when it is profitable to take a contrarian bet. When you are in the minority and have a very strong conviction about something and you think that the market is mispricing, that is the time when you take a contra bet.
So give us an example of contra idea which has worked very well for you.
Two things worked well for us. One was when we bought Maytas. It was a completely contrarian bet. The stock was down significantly because of what had happened in terms of the scam and then it fell to a value where we felt that probably the view is completely on the other side. We took the contra bet when there was a change in management and that is what worked for us. When IL&FS stepped in and we took a contra bet and said that well, now it looks like that with IL&FS on the seat, they understand the business extremely well and they will recapitalise this business and the value will increase and that is a time that we took a contra bet. So there is a time and context. The context for us was the change in management in Maytas which took a contra bet.
The other thing was that we stuck to the consumer theme in India and we have seen that people time and again have said that these stocks have become highly overvalued. And in essence by holding on to those investments, you are taking a contra bet because there is a phase in the market where quality is of extreme importance and with all the uncertainty that we are seeing today, globally, the market is very clearly telling you that I am going to go for quality and I am going to reward quality and sustainability and maybe in this phase, the valuations will not matter so much as the quality of the business would.
So the fact that some of these businesses cannot be justified at current PE multiples but the fact of the matter is that today the consensus is that these are very expensive but these businesses will continue to be valued the way they are valued today. For us, staying invested in those names also in many manners has been a contrarian bet and that has worked well for us.
Do you still like Maytas?
This year should be a year of consolidation but next year onwards, you shall see growth because the first round of re-rating is over. Now people will focus on the numbers and it will take them about a year for them to start showing numbers. So this year is going to be more a year of consolidation. Maybe next year onwards is when really the earnings growth momentum will start and then which should be interesting at that point.
Indian markets for the current calendar year which is FY11, they are one of the worst performing markets in the entire emerging markets region, do you think buying Indian markets itself is a good contra call?
I would think so. India is facing cyclical headwinds within a structural growth story and the developed markets are seeing a structural tailwind because of the liquidity impetus which is being given to those markets but they will face a structural headwind. So investing in Indian markets today is a contrarian call in itself. Today fixed income investments are giving 10-10.5% return and people say why should I put money in equities if I am going to get 10% return and just for 4% or 5% additional returns, why should I take all the volatility and the uncertainty in the marketplace.
But eventually on a post-tax basis, it is when you face headwinds and the best time to invest because that is a minority view and today, investing in equity markets at least in India right now locally is a minority view. Most of the allocation is either happening to precious metals or it is happening to fixed income and to some extent to real estate. So equities have taken a backseat. So investing today in equities would be a contrarian call. It is not a popular asset class to invest in today.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In an interview with ET Now, Hiren Ved, Director & CIO, Alchemy Capital , talked about contra investing and Indian markets. Excerpts:
Define contra investing for us.
Contra investing is when you invest against the popular perception in the market. We have these waves in markets which happen where generally people tend to follow a certain consensus and when you tend to be against the consensus; and there are times when it is very profitable to be against the consensus because you are still in a minority, people are not falling over each other to express that particular view on the market. But you have to be very careful about contra investing because you do not need to be a contrarian just for the sake of being a contrarian because market has its own wisdom; and in its own collective wisdom, it might have chosen to act in a certain manner.
There are certain phases when there is a difference between the perception and reality, and generally people do tend to get swayed by what the consensus is and that is the time when it is profitable to take a contrarian bet. When you are in the minority and have a very strong conviction about something and you think that the market is mispricing, that is the time when you take a contra bet.
So give us an example of contra idea which has worked very well for you.
Two things worked well for us. One was when we bought Maytas. It was a completely contrarian bet. The stock was down significantly because of what had happened in terms of the scam and then it fell to a value where we felt that probably the view is completely on the other side. We took the contra bet when there was a change in management and that is what worked for us. When IL&FS stepped in and we took a contra bet and said that well, now it looks like that with IL&FS on the seat, they understand the business extremely well and they will recapitalise this business and the value will increase and that is a time that we took a contra bet. So there is a time and context. The context for us was the change in management in Maytas which took a contra bet.
The other thing was that we stuck to the consumer theme in India and we have seen that people time and again have said that these stocks have become highly overvalued. And in essence by holding on to those investments, you are taking a contra bet because there is a phase in the market where quality is of extreme importance and with all the uncertainty that we are seeing today, globally, the market is very clearly telling you that I am going to go for quality and I am going to reward quality and sustainability and maybe in this phase, the valuations will not matter so much as the quality of the business would.
So the fact that some of these businesses cannot be justified at current PE multiples but the fact of the matter is that today the consensus is that these are very expensive but these businesses will continue to be valued the way they are valued today. For us, staying invested in those names also in many manners has been a contrarian bet and that has worked well for us.
Do you still like Maytas?
This year should be a year of consolidation but next year onwards, you shall see growth because the first round of re-rating is over. Now people will focus on the numbers and it will take them about a year for them to start showing numbers. So this year is going to be more a year of consolidation. Maybe next year onwards is when really the earnings growth momentum will start and then which should be interesting at that point.
Indian markets for the current calendar year which is FY11, they are one of the worst performing markets in the entire emerging markets region, do you think buying Indian markets itself is a good contra call?
I would think so. India is facing cyclical headwinds within a structural growth story and the developed markets are seeing a structural tailwind because of the liquidity impetus which is being given to those markets but they will face a structural headwind. So investing in Indian markets today is a contrarian call in itself. Today fixed income investments are giving 10-10.5% return and people say why should I put money in equities if I am going to get 10% return and just for 4% or 5% additional returns, why should I take all the volatility and the uncertainty in the marketplace.
But eventually on a post-tax basis, it is when you face headwinds and the best time to invest because that is a minority view and today, investing in equity markets at least in India right now locally is a minority view. Most of the allocation is either happening to precious metals or it is happening to fixed income and to some extent to real estate. So equities have taken a backseat. So investing today in equities would be a contrarian call. It is not a popular asset class to invest in today.
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