Marcellus' Gubbi Explains What To Do When Bad News Hits Financials
Marcellus Investment Managers reckons easy access to information, incessant news flow around the economy, and policies and regulations make it difficult for investors to be inactive and hold on to high-quality financial services companies.
The impact of positive or negative news flow is very amplified in the case of financials, the investment adviser said in its newsletter. Volatility in the valuation multiples of the Bank Nifty index, at about 1.5 times that of the Nifty 50 index, underscores this.
But the impact of external news flow on the fundamentals of a high-quality financials company is much lower than what the change in price-to-book multiples suggests, Pramod Gubbi of Marcellus Investment Managers said in an interview with BloombergQuint’s Niraj Shah.
If such volatility in valuation comes about, an astute investor can take advantage of that, Gubbi said. At Marcellus, they make use of data points and behavioural biases to ensure they don't make any hasty exits when good financial companies get hit by bad news flow and when they know it’s temporary and does not impact the core earnings capability, he said.
Marcellus' newsletter talks about HDFC Bank Ltd. in great detail. Gubbi cited the last six-quarter performance of the lender to show why the investing public should not unduly worry about the temporary news flow about high-quality financial companies.
What the full conversation here: