It’s common knowledge that if you position your stock portfolio to that of the Sensex, you might not be able to generate alpha or superior returns. Therefore, fund managers create an investment that’s different than the sector allocations of the Sensex. Fund managers invest in stocks and sectors that are likely to generate better returns for investors. Says Sashi Krishnan, CIO, Bajaj Allianz: “One cannot stretch too far away from the index, but fine tuning the portfolio towards sectors that look better than the broad market is helpful.”
For starters, finance is the largest sector in the Sensex and comprises 22 per cent of the index (see chart). But a slackening credit growth may not warrant an exposure of 22 per cent in your portfolio. In fact, experts reckon that apart from a few high performing low-priced PSU stocks, there’s really not much happening there. Besides, the next heavyweight, the oil and gas sector, is also showing signs of slackening as refining margins have come down. On the other hand, for PSUs, there’s always the lurking burden of subsidy sharing. Experts reckon that here, too, investors can go light on their portfolios.
The outlook for the next few quarters is weak for technology. Valuations have come off significantly from three years ago, and the outlook here, too, is to go easy and buy only select stocks in tune with your portfolios. Telecom comprises about 7 per cent of the Sensex and that’s where it should also remain in your portfolio. While their operating profits are improving due to efficiency gains, revenues per subscriber have been declining.
But individuals can distinguish their portfolio and get an edge by investing a bit more in consumer nondurable stocks and autos. In short, tweak your portfolio to sectors that have relative growth as compared to their current valuation. Says Krishnan: “Your portfolio’s return is a function of the price and also where you can find the value.”