Contra Strategy - takes a different view

Picking ‘overlooked’ or ‘undiscovered’ stocks-albeit with sound fundamentals. These companies exhibit strong balance sheet and sustainable business models, but may be underperforming the markets for a brief period due to various reasons, which are temporary in nature.

 Invest in companies, which are out-of-favour with the overall market but at the same time have unrecognized value. Identify these out-of-favour stocks and go against the tide, look for that first mover advantage in these scrips, in case of a turnaround.

Investors tend to follow trends and short-term events, and flock to the performing themes. Conversely, they tend to overreact to negative news. Higher the prices go up; more the people want to buy, resulting in herd mentality. Herd mentality often leads to stocks trading at a much higher premium/discount than their intrinsic value, thus creating ‘Contra’ opportunities.

Buy ignored companies and then wait for market to discover them, which then results in their share prices going up, thus benefiting by going against the tide.

Sell companies when Re-rating target is achieved.

The strategy aims to invest in fundamentally sound companies that can benefit from changes in a company’s valuation which reflects a significant change in the markets view of the company over an horizon of three years.

The Strategy focuses on investing in stocks that can benefit from growth in earnings, re-rating of business or higher valuation of assets.

The objective is to increase return rather than reduce risk for Investors.

Ø            Follows the principle to pick best ideas rather than diversification
Ø            Concentrated Strategy Structure of less than 10 stocks
Ø            Investment Horizon: Medium to Long term
Ø            Investment Approach: Follows a “Buy and hold” philosophy with low to medium churn

Bottom - up stock selection approach
Ø            Investment in fundamentally sound Contra stocks
Ø            Concentrated strategy of 8 - 10 stocks

Buy and Hold philosophy - Low portfolio churn
Investment Horizon
Ø            Hold stock till Re-rating potential is realized
Ø            Medium to Long Term - 2 to 3 years

Allocation:
Ø            Cash: 0 - 100%;
Ø            Stocks: 0 - 100%;
Ø            Derivatives: NIL

Risk : Medium to High

Exit load : Applicable in the 1st year

Benchmark : BSE 200

Companies whose earnings are likely to do better than market expectations
Companies benefiting from fundamental changes
New management team or new product launch
Cost-cutting initiatives or improved pricing
Takeovers / Mergers or Acquisitions
Companies benefiting from changes in business environment
Consolidation or reduction in industry capacity leading to improved pricing
Shift in consumption patterns or demographic trends
Out of favour companies
Fundamentally sound companies that have underperformed due to a various reasons, which
are temporary in nature.
Companies with lower valuation as compared to sector or peers or market

For investors who seek for high returns with high risk

Medium to Long Term - 2 to 3 years