All of us are fascinated about equity investments. For some, it had been a money
minting machine but for rest it has been a worst investment experience of their
life. Each one of us thinks that we can best judge the market valuations and make
money out of it. But how many of us could really do this!!!
How about having a tool that will guide you as to what part of your equity allocation
should actually be invested at prevalent valuations?
Amongst all the asset classes, decision to equity allocation should carry highest
importance as equity markets have wild fluctuations and also has potential to substantially
change the performance of the entire portfolio. Once the decision on the equity
allocation has been finalized, it does not necessarily mean that the entire investible
amount should be invested at existing level. It is important to evaluate what part
of this fund should be invested immediately and also draw a roadmap for investing
balance funds. Current equity valuations and future outlook plays an important role
in deciding this. One may have to wait for more compelling valuations to invest
the balance amount.
Based on the PE ratio of the index, we have developed a model with empirical evidence
that guides us as to what would be prudent exposure to equity at given valuation
On analyzing the above data, it is evident that markets have delivered excellent
returns when investments are made below PE ratio of 18. Returns get deteriorated
as we move above PE ratio of 18.
On the basis of this table, we have designed invest-o-meter that can guide us as
to what part of the total equity allocation should actually remain invested in the
market. Invest-o-meter is updated on a daily basis for latest index level, PE ratio
and change in equity allocation. By adhering to dynamic equity allocation, the portfolio’s
risk can be brought down substantially and the return can be improved by 5-7% over
longer period of time.
It is important remain disciplined for a longer period of time to take best benefit
of the above study. You can subscribe to our R. Wadiwala Agile P/E Ratio Portfolio under PMS
& Advisory Services to take benefit of the tactical equity allocation and get the
best out of your equity investments.
The primary objective of the portfolio is to seek to generate long term capital
appreciation with relatively lower volatility through systematic allocation of funds
into equity; and in debt /money market instruments for defensive purposes. The portfolio
will decide on allocation of funds into equity assets based on equity market Price
Earning Ratio (PE Ratio) levels. When the markets become expensive in terms of 'Price
to Earnings' Ratio; the portfolio will reduce its allocation to equities and move
assets into debt and/or money market instruments and vice versa. The portfolio will
have very low churning ratio and is suitable for non-trading, long term investors.
>Fundamental stock selection approach.
>Active equity allocation between large caps and mid-caps.
>R. WADIWALA is known for its very strong in-house equity
research capabilities. The portfolio will leverage upon this knowledge to create
investment opportunities that offer attractive returns to the investor.
>The portfolio will provide capital appreciation by investing
primarily in equity instruments using multiple investment strategies.
>Identifying the right sector and right company with a
scalable business managed by competent managers.
> To look out for companies with Transparency, Execution
Capability and Management Bandwidth.
>The portfolio will follow an active process of Profit
Booking based on the Price Earning Ratio (PE Ratio) levels of the Nifty.
>The portfolio is created keeping a close watch on the
dynamic conditions of the market.
>The portfolio will employ a combination of judicious investment
strategies to provide optimum returns to investors.
>The portfolio aims to deliver higher returns in medium
to long term by investing in fundamentally strong stocks and by staying invested
for long term.
>Our investment approach would be to identify stocks that
are prudent mix of growth and value.
>Equity & equity related instruments: 20% to 100%.
>Cash & Cash Equivalent: 0%to 80%.
> Mix of mid-cap and large cap with Large Cap Biased
> 15 to 35 stocks in a portfolio
> Maximum 20% allocation to a single sector
> Maximum 8% allocation to a single scrip
> This strategy may under-perform its benchmark in short
Minimum Investment : Rs 25,00,000
Ideal Investment Horizon : Exceeding 3 years
Benchmark : S&P CNX Nifty
Exit Load : 2% if redeemed within one year
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