Thematic | Contrarian Investing
Please refer our report dated
Contrarian Investing – Quarterly Update
A review of our contrarian investment strategies
Our thematic strategy note on
published in Jun’17, gives a detailed
account of the subject matter. In this note, we have reviewed the performance of our
strategies. Also, since we use quarterly rebalancing to test our hypothesis, we have run the
updated quintiles as on 30 Jun’19 and present our key findings along with our top
Key takeaways from 1QFY20 quintiles
Please refer our report dated
Our analysis suggests that, over a longer term, neutral-to-moderately popular
stocks deliver a significant outperformance, even bettering the performance of
the most popular stocks.
In 1QFY20, the most popular stocks performed the best,
beating the benchmark, whereas the neutral to moderately popular stocks
delivered the third best return.
Our findings prove that, over the long term, out-of-favor low P/E stocks deliver
disproportionate returns, significantly beating the benchmark.
In 1QFY20, high
P/E stocks performed the best, whereas low-P/E stocks came in second.
Similarly, out-of-favor low P/CF stocks deliver disproportionate returns,
significantly beating the benchmark. In contrast, the performance of high P/CF
stocks is dismal.
In 1QFY20, low P/CF stocks delivered the best returns, whereas
high P/CF stocks delivered the second best returns.
1QFY20 was characterized by the decent performance of the value quintiles (low
P/E, low P/B delivered second best returns, whereas low PCF came in first).
We also note that in some sub-themes, the returns from a quintile deviate from
the long-term pattern, as highlighted in our initial detailed note. However, this is
in line with the trends observed even in the long-term study – where returns
can deviate for a quarter or two, but over the long period, the hypothesis is
proven right. For example, in the Popularity theme, instead of Quintile-4,
Quintile-1 has delivered the best returns in 1QFY20.
Best delta: Consensus change from Net Sell to Net Buy
As part of our analysis, we
have divided BSE100 in 5
groups of 20 – Quintile-1
(Q1), Quintile-2 (Q2),
Quintile-3 (Q3), Quintile-4
(Q4) and Quintile-5 (Q5),
with Q1 composed of the
most popular stocks and so
Our findings suggest that a simple strategy of investing in stocks for which
analyst consensus has changed from ‘Net Sell to Net Buy’ with a holding period
of one year has delivered 21.1% annual returns over the last 12 years.
Net Sell to Net Buy stocks for 1QFY20:
There were no stocks that satisfy this
criterion for this quarter.
Exit from list: United Spirits
have exited our list after completing 12
months. These stocks entered from ‘Net Sell to Net Buy’ in May’18 and
delivered (17.2%) and 27.8% returns in a year.
Gautam Duggad – Research analyst
(Gautam.Duggad@MotilalOswal.com); +91 22 6129 1522
Research analyst: Bharat Arora
(Bharat.Arora@MotilalOswal.com); +91 22 6129 1566
Investors are advised to refer through important disclosures made at the last page of the Research Report.
15 July 2019
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.