IPL portfolio: Momentum stocks may not deliver sustainable returns, says Robin Arya
Synopsis
Robin Arya recommends investors stick with consistent stocks for steady growth over time, similar to reliable IPL teams. He suggests a diversified portfolio with equities, bonds, and alternative investments for stability and growth potential in uncertain market conditions. High-risk, high-return opportunities may seem enticing in the short term, the power of compounding and steady growth over time typically outperforms volatile ventures.
While momentum stocks may offer high adrenaline rushes, they may not necessarily deliver sustainable returns, he says, adding that the power of compounding and steady growth over time typically outperforms volatile ventures. Edited excerpts:
An ideal mix for IPL team selection is an all-rounder, bowler, batsman as well as a great fielder all together. Considering the current scenario, volatility in market, expectation of correction, what would be the ideal portfolio mix you would recommend to investors.
As per the observations over the past years Chennai Super Kings & Mumbai Indians had been consistent performers whereas, Sunrisers Hyderabad and Kolkata Knight Riders have shown high erratic performance. Similarly, what would you recommend to investors? Should they invest in sectors/companies showing consistent performance or should they opt for the in high risk/ high return (highly volatile) company.
Robin Arya: In the current market scenario, it's prudent for investors to stick with known and consistent stocks, akin to reliable players in an IPL team. While momentum stocks may offer high adrenaline rushes, they may not necessarily deliver sustainable returns. Just as Mumbai Indians and Chennai Super Kings have secured 5 titles each, indicating their consistent performance, compared to Kolkata Knight Riders' solitary title win and Punjab Kings' ongoing search for their maiden victory, investing in established companies with a track record of success can provide stability and reliability in uncertain market conditions. While high-risk, high-return opportunities may seem enticing in the short term, the power of compounding and steady growth over time typically outperforms volatile ventures.
Unlock Leadership Excellence with a Range of CXO Courses
Offering College | Course | Website |
---|---|---|
Indian School of Business | ISB Chief Technology Officer | Visit |
IIM Lucknow | Chief Executive Officer Programme | Visit |
IIM Lucknow | Chief Operations Officer Programme | Visit |
Robin Arya: Yes, Mayank Yadav is indeed an exceptional talent, and this is one of the beauties of the IPL—it brings forth hidden talent from our country. While I cannot speak about individual stocks due to regulatory guidelines, I can suggest sectors that may emerge similarly to Mayank Yadav. These sectors may include water treatment companies, PSU metals baskets, oil & gas sector companies.
Royal Challengers Bangalore, although have not won any IPL, their team always consists of key star performers. Considering portfolio creation, should investors only focus on the key asset classes or full mix of asset classes?
Robin Arya: Despite being packed with key star performers, RCB has yet to secure an IPL title. Similarly, while it may be tempting for investors to concentrate solely on key asset classes or star stocks, the path to success lies in maintaining a diversified portfolio. In the financial world, there's a parallel to the Pareto Principle, which suggests that 80% of gains come from 20% of efforts. However, predicting which 20% of assets will bring these gains is challenging. While certain stocks may outperform others, it's only in hindsight that we can truly evaluate their performance. Therefore, it's crucial for investors to maintain a diversified portfolio to mitigate risks and capture opportunities across various asset classes.
Stocks Recommendations
Robin Arya: The building materials sector is experiencing a surge in demand due to increased investment in infrastructure and real estate, particularly in smaller cities. This growth is driven by higher demand for products like pipes and paint. In parallel, sectors such as banking, finance, and manufacturing are thriving, propelled by increased demand and streamlined loan facilitation processes. Additionally, the auto industry, focusing on premiumization and electric vehicles, sees growth, especially in high-end and commercial segments. Despite recent challenges, the consumption sector anticipates a rebound within 1-2 years. Investing in these sectors presents opportunities for significant returns, reflecting Punjab Kings' potential in the IPL.
Robin Arya: The Mumbai Indians' knack for rallying after slow starts in the IPL mirrors certain sectors or stocks in the market, particularly cyclical industries. Similarly, sectors like IT demonstrate resilience akin to Mumbai Indians' comebacks. Despite recent challenges, the IT sector offers promising opportunities for investors with a 2-3 year horizon, making it an appealing investment prospect. For retail investors, while past performance offers insights, it should not be the sole basis for investment decisions. Instead, a comprehensive approach considering company fundamentals, industry trends, and long-term growth prospects is essential for sustained success in the market.
Dhoni is likely playing his last IPL season with a new captain Rituraj Gaikwad leading the team with his guidance. Dhoni and Gaikwad are acting as support systems and helping the CSK team perform well. Similarly, is there any sector and adjacent sector that are both propelling each other forward that investors should keep a watch on?
Robin Arya: Just as Dhoni and Gaikwad are acting as support systems for each other in the CSK team, sectors like technology and manufacturing are becoming increasingly intertwined, especially in areas like sustainability and productivity. Similarly, the finance and technology sectors are mutually propelling each other forward, with innovations in financial technology driving growth and efficiency in financial services. Additionally, we are bullish on wealth management companies, so broking and asset management companies should thrive in the current scenario. Furthermore, we see a huge growth opportunity in the construction and cement sectors, as they often go hand in hand in infrastructure development projects.
(You can now subscribe to our ETMarkets WhatsApp channel)