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  • Fund houses show quality at a price works better than cheaper valuations

    Quote by Rajeev Thakkar in The Economic Times, April 13, 2016

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    Fund houses show quality at a price works better than cheaper valuations
    The premium of MSCI India vis-a-vis MSCI Asia has been at 25% against a 10 year average premium of 34%. Many of the MF houses were selectively adding stocks.
    NEW DELHI: Should you chase stocks quoting cheaper valuations or buy quality stocks even if they are quoting comparatively higher valuations? This is the foremost question every investor faces while going for value investing.

    Market experts such as Rajeev Thakkar, CIO and 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 SteelBSE 5.04 %, Torrent PowerBSE 0.37 % and NTPCBSE 0.41 % 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, CiplaBSE 1.64 % and LupinBSE 1.26 %, which command decent valuations, a monthly report by EdelweissBSE 0.00 % Securities suggested.

    "In the Indian context, it is the Warren Buffett and Charlie Munger approach of buying quality businesses at a fair price that scores over the Grahamian approach of buying stocks at rock bottom valuations," Thakkar said in an interview with ETMarkets.com.

    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 & APac Equity Strategist, BNP ParibasBSE 0.63 %. "If you want to buy a really good quality stock that would stand you in good stead over the long term, go for stocks that would be classified 'buy and forget' stocks. They would always come at a price. Having said this, we think that there are certain pockets which are likely to provide those kind of buy and forget characteristics to Indian investors," Raychaudhuri said.

    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 per cent against a ten-year average premium of 34 per cent.

    The original article could be seen here.

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