Qual­ity at a Price Works Bet­ter than Cheaper Val­u­a­tions: Ex­perts

The Economic Times - - Smart -

timesin­ter­net.in ETMar­kets.com: Should you chase stocks quot­ing cheaper val­u­a­tions or buy qual­ity stocks even if they are quot­ing higher val­u­a­tions? This is the fore­most ques­tion ev­ery in­vestor faces while go­ing for value in­vest­ing. Mar­ket ex­perts such as Ra­jiv Thakkar, di­rec­tor at PPFAS Mu­tual Fund, be­lieve it is the sec­ond case that works well in the do­mes­tic mar­ket. Re­cent in­vest­ment de­ci­sions of top mu­tual fund houses prove this.

Some top mu­tual fund houses se­lec­tively ex­ited in­fra­struc­ture stocks such as Re­liance In­fra­struc­ture, GMR In­fra, Jin­dal Steel, Tor­rent Power and NTPC in March even when on the face of it, their val­u­a­tions looked cheap.

On the other hand, many of these fund houses were seen se­lec­tively adding stocks such as the HDFC duo, Ci­pla and Lupin, which com­mand de­cent val­u­a­tions, a monthly re­port by Edel­weiss Se­cu­ri­ties sug­gested.

“In the In­dian con­text, it is the War r e n Buf f e t t a n d Charl i e Munger ap­proach of buy­ing qual­ity busi­nesses at a fair price that scores over the Gra­hamian ap­proach of buy­ing stocks at rock bot- tom val­u­a­tions,” Thakkar said. Thakkar said the Gra­ham ap­proach to in­vest­ing works out well in a mar­ket with ac­tivist in­vestors and high M&A ac­tiv­ity, since in­vestors stand to gain for the asset value/ex­cess cash get­ting un­locked.

Qual­ity al­ways comes at a val­u­a­tion pre­mium, said Man­ishi Ray­chaud­huri, MD, BNP Paribas. Ma­hesh Patil, Co-CIO, Birla Sunlife MF, be­lieves that do­mes­tic cycli­cal com­pa­nies, where earn­ings growth has been de­pressed and val­u­a­tions are slightly higher than long-term av­er­ages, but where the earn­ings growth could sur­prise pos­i­tively, holds the real po­ten­tial. At present, the pre­mium of MSCI In­dia vis-a-vis MSCI Asia has been at 25% against a ten-year av­er­age pre­mium of 34%.

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