How Max Life Insurance Fine-Tuned Its Investment Model Amid Pandemic
At a time when investors are trying to wrap their heads around the deviation in valuations and earnings, Max Life Insurance Co.’s Mihir Vora has fine-tuned his investment strategy to fit the changing times.
There was a time when Vora needed valuations—measured in terms of price-to-earnings ratio or price-to-book ratio—to be around a certain level to feel comfortable buying into a stock. However, over the last five to seven years, the fund manager has realised that the market overall has become more expensive.
“If you look at the 10-year average and look at the current valuation, many stocks will fall out of the filter. So what we have fine tuned in our model is that we are looking at the relative valuations versus the overall market also,” he told BloombergQuint in an interview. While other conditions of growth and quality are still necessary when he considers to invest in a company, he’s now more flexible on valuations, he said.
As for current valuations, Vora said they reflect the global sentiment of optimism amid the flood of liquidity and fiscal measures taken by the foreign governments and central banks. Indian investors, too, expect a stimulus announcement by the government around August or September, he said.
The excess liquidity in the market—courtesy of the U.S. Federal Reserve and Reserve Bank of India—has been holding the gap between low earnings and high valuations seen over the last four-five years, he said. “Whether earnings catch up or valuations catch up, we have to see.”
- Government needs to focus on boosting infrastructure, private capital expenditure, and overall ease of doing business.
- Overweight on IT and auto ancillary catering to global companies, exporters will do well.
- IT companies may be able to increase margins in near term due to reduced real estate cost amid work from home culture. But the wider margins will not sustain in the long term.
Watch the full interview here: