Markets fluctuate, sometimes more than usual in an environment of increasing uncertainty. But for the intelligent investor, this should be the least worrisome part, for a portfolio of stocks with solid fundamentals would provide the ballast to withstand any shocks. The 2018 edition of ET500 offers a road map
Volatility. That would be the answer if one scouts for the most buzzing (and concerning) word of 2018 among investors. For starters, the benchmark S&P BSE Sensex had given a 14% return in 2018 until the third week of August on top of a solid 28% gain in the previous year. Come September and most of the gain was washed away in a matter of a few weeks - blame it on the turbulent domestic and international economic outlook. The extent of volatility was such that at the time of publication of this issue of ET 500, the S&P BSE Sensex had retained just over 3% of its gain whereas the Nifty 50 was almost flat compared with their levels at the end of 2017.
On the domestic front, trade and fiscal deficits have widened and the rupee is still weak despite some recovery recently. Interest rate refuses to soften and question marks hang over job numbers. Above all, uncertainty over the verdict of ensuing state elections and general elections in 2019 is adding to the concerns. Globally, tariff wars and weak emerging market currencies are stoking worries. In such a volatile environment, maintaining a sound stock portfolio is a challenge.
This year's ET 500 attempts to help investors take advantage of the volatility in the market. How? By buying into stocks that may have enduring value whenever the market dips - either due to news of the outcome of state elections or over new salvos fired in the raging global trade wars - to construct a long-term portfolio of companies that have a potential to withstand volatility.
The portfolio of such stocks would display lower beta, that is lower volatility than the broader market. It means, during a bout of market weakness, the portfolio stocks too would fall but by a lower magnitude. The strategy therefore helps in reducing the depletion of the investment capital. In addition, the portfolio stocks would benefit from an uptick in market sentiment coupled with an economic recovery given the sound business models and strong management teams of these companies.
In this year's edition, we feature companies that have strategies in place to wade through a tough external environment. Such strategies may manifest in market leadership, sharp focus on operating efficiency, capability to expand offerings to suit changing market conditions or a combination of such factors.
These companies are Asian Paints, Apollo Hospitals, Coal India, HDFC, Hero MotoCorp, MRF, Pidilite, Tata Consulting Services and UltraTech. A few common points about them are that they are frequently traded large-cap companies with high corporate governance and are well covered by analysts. They are leaders in their respective sectors and have demonstrated ability to sail through tough times.
Apart from that, the ET 500 issue contains coverage on various promising stock ideas through different features. For instance, readers would find out about companies such as Avenue Supermarts, Balkrishna Industries, Dilip Buildcon, JSW Steel and Sequent Scientific that are doing things differently. Another feature on nonbanking finance companies helps investors find out promising companies in the sector otherwise battered by low liquidity and uncertainty over asset quality.Â
As the saying goes, volatility is the name of the game. With the state and general elections scheduled in the coming months and rising uncertainty on the global front, volatility is here to stay. What investors can do is find ways to ride on it without drowning.