Vinay warned us a year ago about 7 specific micro bubbles– and they have all deflated big time. He told us 6 months ago that value’s time is up and only high quality – high growth companies will outperform going forward. In this correction, that’s what has happened – and Vinay says this segment will continue to outperform in the coming years as well.
He now cautions us about the biggest risk investors face after a big sell-off: anchoring bias. Poor quality stocks which are now trading way below their 52 week highs are often seen as the best “bounce-back” candidates – we consider them cheap as we anchor our minds to the 52 week high levels. They may actually turn out to be the riskiest bets – they fell hard fora reason and may stay fallen for the same reason.
We may not have come to an end yet of this earnings downgrade cycle. Its very important to be highly stock specific and stick only to high quality high growth stocks.
Watch out for negative wealth effect from market losses that might impact some high end discretionary consumption – which was fuelled in recent years by positive wealth effect from rising markets.
PGIM India’s Large & Midcap Fund completed its 1styear amidst challenging markets with a 5% return vs 0.5% posted by BSELarge&Midcap TRI. Focus on high quality – high growth stocks and a clear large cap tilt drove outperformance.
Vinay is positive on several segments of discretionary consumption, hospitals/healthcare services and telecom.