Sonam Srivastava, Smallcase Manager & Founder, Wright Research

13 Feb 2023 , 07:40 PM

What have been your key learnings from the market post the pandemic?

The COVID-19 pandemic has had a profound impact on global markets and economies, leading to significant volatility and uncertainty. However, some key learnings from the market post pandemic include:

• The importance of technology and innovation: The pandemic accelerated the shift to digital and remote work, leading to a surge in demand for technology companies and firms with strong online presence.

 

• The resilience of e-commerce: The pandemic has led to a rapid increase in online shopping and e-commerce, as consumers turn to the internet to purchase goods and services while avoiding physical stores.

 

• The impact of monetary policy and government stimulus: Central banks and government stimulus have also played a key role in supporting markets, but post pandemic the market has struggled from the negative impacts of the low interest rates which came out as heightened inflation.

 

• The need for diversification: The pandemic has highlighted the importance of having a well-diversified portfolio, as some industries and asset classes have been hit hard while others have remained relatively stable or even thrived.

What strategies are working in the current market situation?

Earnings momentum works well in volatile market scenarios like now because it highlights companies with consistently improving earnings, which can indicate their resilience and growth potential, potentially leading to higher stock price appreciation even in uncertain market conditions.

Value investing has been working well in the current market scenario because it focuses on buying undervalued securities with strong fundamentals, which can provide stability and potentially generate higher returns over the long-term compared to growth stocks that are more susceptible to market fluctuations.

What message do you want to give to retail investors?

Volatility is a normal part of investing, and it is crucial for investors to maintain a long-term perspective and avoid making impulsive decisions based on short-term market fluctuations.

Quant-based investment strategies can provide a systematic approach to investing and can help to mitigate the impact of emotional decision-making specially during volatile times. These strategies can also offer the potential for strong returns over the long term.

How much AUM do you manage? and how has your fund’s performance been in 2022?

We manage close to 250 crores. In 2022 our portfolios outperformed the market. Our best performing portfolio was the smallcaps portfolio which gave more than 20% return.

How much returns did smallcases of Wright Research provide in the past 2-3 years?

Our Momentum portfolio has given a CAGR of 42% in the last 2.5 years and our Balanced have given a 25% CAGR in last 3.5 years.

In which sectors are you bullish and bearish and why?

We like the banking and financial services sector which has posted great earning numbers and also have very strong growth prospects in a high interest rate environment. We also like the infrastructure linked sectors like capital foods, cement, logistics and railways which got a big boost in the budget. The IT sector is seeing interest come back with the revival of global demand and we are also watching it with interest.

We are seeing corrections happen in Energy and Metals linked stocks this quarter due to the subdued earnings.

Which momentum investing theme is preferred by Wright Research?

We like the earnings as well as price momentum themes. Price momentum is a phenomenon in which a security’s price continues to trend in the same direction due to investors buying or selling based on the security’s recent performance and it ends up being a very strong factor in India. Earnings momentum refers to the change in a company’s earnings over time, usually measured by comparing the company’s current quarter earnings to its earnings from the same quarter in the previous year. It is interesting because a company’s earnings performance can be a key driver of its stock price, and earnings momentum can provide insight into the company’s overall financial health and future growth prospects.

What are your main holdings and have you changed your portfolio recently? Any new entries or exits in your portfolio?

We have holdings in the Banking, IT, Consumer, Chemicals & Metals space. We have recently added IT and Metals and reduced some PSU Banks & Insurance exposure.