Tag Archives: contrarian approach

The genesis of ithought

Hi , I invest in stocks . I study businesses and scout around for good ones to put my money on’. The moment I am introduced I can see different reactions in people. Somehow, the stock market has this unique ability to make people reactive. In 1990, when I chose to become an investor , the reactions were strong.

What ? is that all you do ? Isnt that gambling ?. Those were times when we werent even familiar with business research. So, investment research was a far cry. I hated explaining and would simply smile at their judgement. I would rarely be let off so easily. Free advice will be forthcoming about how this was not the place to be and how one should do something else. Things have changed a bit over the years as people understood that the stock markets may after all be just another place of work, albeit a risky place. The soaring indices have also sexed up the job.

But, let me tell you a truth. The stock market and the organized financial industry wasn’t exactly the right place to work and make a career. In fact, I decided that I would be a misfit if I formally worked in the industry even before I started out. There was a part of the financial world that i disliked intensely and steered clear of it. I steered clear of working for any firm, fund or financial company within the industry. The reasons were strong and i am going to put them bluntly. Integrity was and still is a serious issue in this business. It was all about selling, no matter what the outcome would be.

The financial services industry was all about misselling. They made you put your money in the wrong place just to earn a small commission out of it. They sold you products which you should not have been buying. They never tell you what you should have known about a product before buying it. They sold you a `hot-selling’ product at a time when you should be staying away from it. Investment bankers would price IPO’s so high knowing fully well that investors you stood to lose. To fulfil their interest, they mostly worked against your interest. This simply wasnt agreeable to me. To keep my integrity intact, I simply never worked for anyone. I remained an Investor.

I worked in this environ for 21 years by keeping away from the mob and doing my own thing. So I was independent and doing what I liked. Identifying good businesses and Investing kept me busy. I have no reason to complain. I always could make my choices and there was no room to compromise on anything Growth was personal and always in the private domain. But, something was missing in what I was doing. I needed to find out my next calling. It had to be in the public domain and should be an idea that would make a difference to a lot of people.

I started looking around. The answers came in my interactions with people I met. I was always hearing stories of how people lost money in the stock market. The stories changed with the times but their outcomes were much the same. I knew the problem. Importantly , i knew that this was solvable. So ,I thought the best thing to do was to build something that would help every investor who wants to be helped. So I chose to work in the much beaten domain of financial products like mutual funds, ULIPS etc. There was one thing i decided even before I started. I will Not sell anything. I would buy investments in a judicious way on behalf of anyone who wants them.

That was how ithought was born. I didnt start out with a business model. I went about building a Process. I knew that what made my investing deliver over the years was my investment process. So, I set about building an investment process for financial products. A small team and a dedicated office were luxuries that my earnings afforded me. Friends who knew me and my work thought that i had gone bonkers to stake my money with no clue how we will make it a financially viable. I knew the answers will be found and it was the least of our worries . We were obsessed with the process.The investment process should be knowledge- based and method driven. So we focussed on intensive research of companies and funds and then developed a method to deploy capital systematically and effectively.

The ithought way is the process that evolved from our rigorous work. While we have an intense approach to research and strategy , we chose to keep our business model simple. Clients need to know a few things. And, they need to know them for sure.

1. We will help investors plan.
2. We will take care of decision making and deployment of money.
3. We will review the investment periodically and identify opportunities.
4. We will monitor performance and measure it continuously.

The business model was to be, as we believed, simple – The client will pay a fixed annual fee to us for services rendered.

The ithought way is meant to be experienced to be understood. That is the only way to effectively judge a process which works sincerely and systematically to grow your wealth.

Happy investing!

Shyam Sekhar.

Taking stock

Picture an old-school person like your grandfather. Try and reminisce how he dealt with money. Money would be kept in a steel Safe-locker and he always knew exactly how much money he had in it. In the good Old days, bank deposits were the only investments for the middle class. The bank deposits would all be tabulated neatly in the order of their renewal dates. Monitoring would be perfect. Everything worked like clockwork and money would be in a very orderly way. Discipline and caution were the buzz words and things were always kept simple in the way they handled money.

Contrast this with how money is handled in the present. We invest in several products like Stocks, Mutual funds, ULIP’s and bonds besides the traditional bank deposits. On the one hand, we invest in several options for the purpose of saving on taxes. On the other hand we borrow to spend on credit cards. We even buy homes with home loans so that we can save on taxes. Clearly, the way in which we deal with money is far more complicated that they were in the good old days. When we borrow and lend at the same time, we need to balance our finances and constantly keep watch so that they are within limits.

With so many product options and multiple financial goals like life insurance, health insurance, tax savings, home buys and equity investments we have clearly complicated our handling of money. As different times call for different approaches, we are left with limited options but to create a wider basket of financial products. That has given rise to a portfolio. Your portfolio includes all the financial products you have bought and maintain on a running basis.

But, do we really know what we own and manage our portfolio in a methodical way? In the race for time and against it, we hardly find the time to devote to financial matters. We mostly rush to fulfill specific needs at the last hour and forget about them after that. More importantly, we do not have the big picture nor do we routinely tabulate, monitor or review our money matters. The portfolio itself is only in our memory and hardly organized and tabulated. This clearly leads to lapses, oversight and loss of opportunity.

This is where the old school approach of Taking Stock will make a big difference to the way we handle money. If you have a way of arranging your finances, you are actually preparing yourself for bigger things. Wealth creation happens only when we arrange, manage and take stock of our finances periodically. Taking stock of your wealth gives you a deeper understanding of what you assets you need to own, how you need to grow your money and also the risks you are taking to achieve your financial goals.

Today, most of us are simply letting things be. We are hoping for some random decision to work miracles for us. Miracles with money are a rarity. The richest investors are the most systematic people. They constantly take stock of their decisions and finances and tailor them to achieve their goals. While each of us have our own finances and make our own decisions, we should start taking stock regularly. Start tabulating your portfolio and take stock of it regularly. Wealth will soon follow.

Happy investing!

ithought – Market strategy for 2011.


The markets have corrected after a sustained rise. Retail Investors have been waiting in the wings expecting a correction. Now , the retail investor needs to decide if he should enter the markets now or wait longer for a sharper fall . The dilemma of the investors who were left out of the rally of the NIFTY from 5000 to the recent peak continues.

The investor’s strategy have so far centered around three things.
1. They have redeemed from equity funds or sold stocks at every rise.
2. They have focussed on IPO’s and
3. They have held higher levels of cash.

Now that the markets have shown some signs of correcting , it is time to re-examine the merits of this strategy.
The bountiful monsoons , the stable growth in different sectors of the economy and the sustained interest in Indian equities from FII’s are factors that augur well for Indian equity markets. These factors will ensure that any correction in prices will be used as a opportunity by serious investors.

China is showing signs of tightening interest rates and changing its orientation towards consolidating global commodity markets. The intent of China seems to be to soften global commodity prices and stabilize them. Towards achieving this China will probably allow interest rates to rise gradually along with the calibrated appreciation of the yuan . This essentially means that the speculation in global commodities will definitely soften as China shows its intent of moving away from its earlier strategy which pushed prices up.

This augurs well for India which is a major consumer of commodities after China. Businesses which add value to commodities will see softer raw material prices and export oriented businesses will also show an improvement. The leadership of the Indian stock market which centered around banking may become more broad based .

Market leadership becoming more broad based would mean that we could see the rally once again consolidating for further moves. The investor should identify the businesses which will contribute to market performance in the future. Investors need to identify the new frontline as we will see a reconstruction of the performing basket of stocks in the NIFTY / SENSEX . The reconstitution of the index to include Coal India is likely and the question really is only `when’ and not `if’. This is a move that will be significant for the future. The investor needs to also look at other index heavyweights in the energy space which have clearly not participated in this rally like NTPC, RIL etc. These companies are in investment mode and are likely to show resilient growth in the years ahead. As the markets leave 2010 behind and move on to the next year , it may start looking at the performance of the subsequent years and discounting the earnings gains of the future. The timing of this re rating is however dependent on the sustainability of the global trends. Indian Telecom is seen as troubled waters to fish in. But, with the rough weather likely to recede and with better policy management in 2G and the implementation of the 3G roll out in 2011 , telecom will once again start showing greater traction and rebound strongly. Telecom sector is another sector which will regain its place among the index frontline and key stocks will once again start delivering.

While i advise re entering the markets , investors will do well to use every sharp fall to invest a part of his cash . It will not be prudent to rush in and invest all the money in one go. A phased approach will work well in volatile markets. The mutual fund strategy should be fund specific and scheme- specific. The investors must closely study the performance of their mutual funds. The fund managers have shied away from investing aggressively and are unlikely to reverse this trend anytime soon. This could impact their performance going forward as they have failed to assemble a line up of future performers in their schemes. Several schemes have more weightage of the companies which have already delivered. This could mean that investors must scrutinize each scheme and take decisions of holding or switching based on whether the fund manager is having adequate objectivity to his approach.

The cash levels can be maintained at comfortable levels within a band of 10- 25% . This should depend upon the risk appetite of the individual investors and according to the buying opportunities that the market corrections present to investors.

Happy investing!

ithought – time to be sober & selective.

The influx of FII money into India doesnt seem like ebbing. The index is close to 6200 at the time of writing. As you read this , the markets may well be trading at an all time high. You must be wondering what you should do in the stock markets. If you sold out early , then the feeling of being left out must be troubling you no end. To the investor caught out of the markets , the IPO rush seems to be enticing. If you are still holding stocks , it is time to decide when to sell.

Decision making always works well when the macro environment and the investment sentiment is sized up properly. Let us try and run through the various factors that will drive the markets in the near term.
The markets will be completely fund flow driven in the near future. FII’s continue to invest in India and the rush of money is increasingly concentrated on index stocks. This is mainly on account of a trend among overseas investors to prefer India centric ETF’s ( exchange traded funds ). This has resulted in the valuations of the Index becoming a tad stretched and we do see PE multiples in excess of 25 in several index stocks. The overall index multiple is lower only on account of the under performance of RIL , our index bell weather stock. It is a matter of time before RIL also performs in line with the other stocks and one will see this happen in the near term. When the underperforming scrips in an Index also deliver and align with the rest of the Index, the overall PE of the index will hit all time highs. At that level , i expect money to again start chasing value in mid caps and in the oncoming IPO’s. Their valuations will need close scrutiny and considered evaluation on a case to case basis.

The timing of several large IPO’s during the festive season clearly indicates that we are going to see strong participation in them. Most of those left out of this boom will seek out the IPO’s to get back into the markets. Clearly sentiment will favour IPO. But, i will advice caution and selectivity in choosing issues. Valuations of IPO’s seem stretched and issue pricing already factors in good performance by the issuing companies. The prices discount FY 12 earnings at healthy multiples. Therefore , it is imperative for the investor to be selective while investing in IPO’s. It certainly is time to be very cautious.

Mid caps continue to perform well and business fundamentals are robust in several sectors like auto ancillaries, engineering , consumer durables etc. But, one should appreciate that in several midcaps the valuations are quite steep and already factor in good performance. Therefore , one must book profits where the valuations have run way ahead of earnings. In mid caps which are trading at multiples in excess of 20, it maybe a safe strategy to sell and go into cash.

Overall , you must now be building your cash chest . Selectivity is critical in choosing new investment ideas. The liquidity driven rise of the market will ultimately turn when flows slow down or when the inflows do not match the capital requirement of the issuing companies. I believe that the never ending appetite of Indian companies to raise money will ultimately lead to a correction. The money that FII’s are putting in will get quickly absorbed and any reversal of FII flows will ultimately lead to a sharp crash in Indian stock markets. Clearly, sobriety is the need of the hour.



The markets have a way of catching us on the wrong foot. When you see magazine covers boldly printing a headline – Sensex @ 12000 , we see the index rising in the subsequent weeks. As an investor , we will end up feeling left out if we stay in cash in anticipation of a crash.

Market crashes are not events which follow magazine cover stories which are negative . They usually happen after a stupendous rise in valuations and when investors show maximum appetite for stocks.

Now that the magazine cover stories giving pessimistic views are behind us, it may not be a bad idea to go contrarian.

The factors favoring a positive view are gradually adding up. Let us list some of the factors:
1 The Indian economy is growing at a predictable and healthy pace. 8% plus GDP growth is something unthinkable for  most countries in the developed world.  This growth rate would mean that several sectors should see higher growth within the economy.

2. The monsoon should be closer to normal. That augurs well for agriculture and food inflation which hurt badly last year. A higher base effect would mean that food inflation will not come to hurt in the next 12 months.

3. The government has hit the bulls eye with the licensing of telecom  . The thrust will now move to disinvestment of PSU’s where we will see a surprisingly high mobilization way in excess of budgetary estimates.
That should mean that the fiscal situation will look much better by the year end .

4.  The DTC will make more investors think of investing in capital markets as there will be adequate incentives to invest more.  Therefore the per capita allocation of funds to capital market will rise. There will also be a rapid growth in the investment culture as the demography changes. We have a high head room to expand the reach of financial products and the next few years will see a paradigm shift in investing.

5. GST implementation  will further act as a growth fillip as the parallel economy will continuously lose out and the real economy will gain several basis points of growth from migration of business.

6. The telecom revolution in the making will see a second wave of transformation of businesses. This will change the way we work and provide a fillip to growth while raising efficiency and competitiveness.

When the real economy has several positive factors working in its favour, it will be a safe bet to make our investment  decisions  India-centric and use every volatile movement in  global  markets as a buy opportunity in India.

We should now watch out for  magazine covers which scream ‘SENSEX 28000′.

Then we must probably turn bearish and hit the exit button. Till then , fasten your seat belts. The INDIAN STORY IS HEADED FOR A SMOOTH TAKE OFF.