Balancing Portfolio Weightages Key To Investments, Not Valuation: Hiren Ved

That’s according to Hiren Ved, chief investment officer and director at Alchemy Capital, who sees valuation, in comparison, as a misleading tool. “To take valuation as the only tool to take a call on whether one should invest or not may not be the right thing to do,” he said during a panel at the PMS AIF World Covid-19 To Wealth 20 conference, being held via video conference.

“The question that investors need to ask is that in their opinion and planning, how is their current asset allocation looking like,” he said. “If you’re already over committed it may be wise to sit on the sidelines and not to try to catch any perceived bottoms,” Ved said, adding it’s never a bad idea to delay an increase in exposure to when there is better visibility. “If you’re significantly underweight, however, there is a case for you to invest but when you invest it with a clearly long-term perspective.”

In comparison, valuations may not be reliable in the current environment. While there are several things that may go into ascertaining valuation, most important are the certainty of the cash flows, the future growth of the cash flows and the interest rates. Between 2014-15 to now, the entire market’s PE range has shifted upwards reflecting the lower cost of capital. In addition, markets across the world have become narrower as continuous consolidation and capitalism makes the strong companies stronger, giving them disproportionate valuations, he said.

Earnings visibility is also low as companies grapple with the coronavirus pandemic. Even over the last few years, the market has estimated a 15% earnings growth but ended up with high single digits, he said. “Assessing earnings in the current environment is not possible.”

“You can’t fix valuations when all the other variable are also variables,” he said. “That’s the challenge right now.”

Ved, however, warned that anyone who is investing in today’s climate needs to be prepared to face further uncertainty and downside. If they are, investing with a three-five-year view is a good idea, he said. “Let me put it this way, if you choose a basket of good stocks, they will definitely give you a better return than the money sitting in your bank account.”

“Second, for investors who are very, very savvy and have the ability to take risk, it may even be fair to make a tactical allocation.”

Watch | Nilesh Shah & Hiren Ved On Investing In Uncertain Times