Hello friends,

I am writing to you all in the midst of one of the worst market crisis and deteriorating macro factors. It may sound like Gyaan at an inopportune time; but nevertheless wished to bring to your notice some interesting analysis:

We have so far concentrated on selection of schemes based on Large Cap, Mid Cap or Small Cap criteria without taking into account prevailing macro factors and its impact on different themes, schemes, etc. Instead if we change our strategy to create a Top Down approach to selecting Themes or Schemes following these Themes; it will have a better impact on our Investor Portfolios. Also, we would have done justice to their trust reposed on us as their Advisors. I am not an advocate of Sectoral or Thematic Funds; but to identify from within the existing basket of schemes some of the Themes that may play out is an exercise which I would encourage you all to undertake.

Current Macro Factors

• Extremely elevated levels of crude oil
• Depreciating INR v/s $
• Due to above higher Current Account Deficit (CAD)
• Likely imported Inflation and finally
• Interest rates at elevated levels to control inflationary pressures
• Pressure on fiscal deficit

Which Theme would Work under above Macros

Under current macros, identify schemes which follow this Theme. This way we will be able to participate in this Theme. More importantly, in current market scenario with bearish trends and in correction mode; even this Theme may correct but will cushion downside. Following data of various NIFTY Indices clearly shows that both NIFTY IT and NIFTY Pharma have fallen the least amidst such heavy correction; thereby protecting downside:

While analyzing Portfolios of some of the popular Equity schemes, I came across following two schemes which are overweight on Export Oriented Theme viz:

DHFL Pramerica Large Cap Fund and
ICICI Prudential Export and Services Fund

Both the above schemes are overweight on Export theme as is evident from their exposure to IT and Pharma. DHFL Pramerica Large Cap Fund also has an exposure to NBFCs, Banks, HFCs, etc. (currently already beaten down substantially commensurate with current market melt downs).

Please remember that ICICI Prudential Export and Services Fund is a thematic fund but not DHFL Pramerica Large Cap Fund. I have included this as it is well positioned in the current market context. Fund Manager may change the Theme as and when Macros change and they switch to some other themes based on their own analysis in future. So, please keep in touch with Relationship Manager of the Fund House and keep yourselves updated as current Export Theme may change based on changing macros. Also Experts are of the opinion that we should be in Large Cap stocks v/s Mid or Small Caps.

According to Experts, Oil will be at elevated levels for some more time along with depreciating Rupee and higher CAD. So this Theme will play out for some more foreseeable period of time. To top this there is net negative foreign flows and that is a double whammy for Balance of Payments (BoP) and CAD.

Hence, by identifying such Themes through a Top Down approach will help us in selecting right schemes based on Market conditions.

So to conclude

Our aim should be to:

• Understand current macro factors
• Understand its implications on various sectors and themes and be aware of the same
• Identify themes that should do well
• Identify schemes with overweight in such themes
• To create a hedge in falling market conditions like the current one to protect downside and create a cushion in the portfolio

I am not recommending you to follow this approach for SIP investments. This should be followed for Lump sum investments (for those who follow this strategy) and tactical allocations.

Recommend Right Themes and Right Schemes at Right Times

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