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Why growth, rather than value, is a better investment peg. By Sandeep Dasgupta
Let's face the truth. Are we anywhere close to the mature markets of the US and Europe? Obviously not. In a country where policies are governed by personal whims and coalition pressures, the rules of the game change every six months, if not sooner. Besides, many managers in corporate India are unduly wary of competition, and have scant respect for quality. Add to that the plethora of micro-cap companies with questionable accounting practices. Where, then, do you find your value stocks at bargain prices? Are you sure you will be right in seven out of 10 cases? My guess is no. Is there no hope? There is. The past four years have taught us a few things: smart and disciplined investment can still outperform the market indices, and good companies still catch the fancy of long-term investors. I would, therefore, focus on stocks that, I believe, can increase earnings consistently through strong volumes-driven growth and market dominance, and that have a proven management. And I'd be ready to buy growth stocks at a price-earnings (P-E) ratio that might well horrify a typical value-investor. But so long as the p-e is in line with the growth rate, I say, it is all right. The way I see it, a successful investor will reach some big top-down conclusions about the economy, or an industry, and then about the specific stocks that will gain. This, again, is violating the bottom-up approach of value-investing. She would then reach her investment decision, which is, to invest in 20 or 25 stocks. And that's it. No investor can hope to have more than a handful of superlative ideas. True, we all want companies which are consistently underpromising and overdelivering. Basically, we are all looking for the next Infosys. Isn't that so? I know what you'll be telling me now: ''Where do I find these stocks? Even if I am able to identify them, the cost of acquiring even a few such stocks may be prohibitive.'' My reply is: mutual funds. Mutual funds can be very useful, and, in fact, could prove to be the ideal vehicle for your investments. If 1997 ushered in the open-end debt funds, 1998 could well be the turning point for funds investing predominantly in equity. Mind you, I'm only referring to the wellmanaged open-end funds. Funds which follow the international practices of 100 per cent portfolio disclosure, and daily disclosure of the net asset values, besides scoring very high on operational efficiency, standards of customer service, and ease of transaction. There are only a handful of them anyway. Remember to choose a fund that has a manageable size. Channel some of your money into smaller, and more nimble, funds. Select a fund that has not more than 25 stocks constituting more than 90 per cent of its net assets. Examine the track-record of the fund manager: how long she has been with the company, what her investment style is et al. Lastly, bet on a fund manager who is opportunistic, and can shift focus in response to early signals. Some mutual funds have already displayed sagacity even in this restive market. And they have been able to keep their heads above water quite comfortably. So, even with as small an investment as Rs 500, you could be a part-owner of growth stocks if you invested through these funds. There's the method in my madness. All for you. |
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I am crossing swords with the credo of
value-investing. I am putting my bet on growth opportunities instead. Stocks soar one
week, plunge the next, and go nowhere in particular for months. In such an unpredictable
scenario, how do you plan your investments? 