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How to survive a polarised market? Stick to cash generators like these

Only 20 stocks in Nifty pack have delivered over 10 per cent return since January 2018.

ETMarkets.com|
Jul 03, 2019, 12.04 PM IST
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Polarisation in the equity market will continue at least till the end of this financial year, says Saurabh Mukherjea, Founder and Chief Investment Officer, Marcellus Investment Managers.

Equity benchmark Sensex and Nifty are hovering near their all-time high levels on the back of a steady rise in select blue chips.

Only 20 stocks in the Nifty pack have delivered over 10 per cent return to investors since January 2018, while 24 others have plunged up to 67 per cent during the same period.

Mukherjea said the market needs a growth-oriented environment to come out from this phase. “We need to see the cost of capital come down. And I do not foresee this happening in at least this financial year. The dominance of few companies driving share price return will continue for some time now,” he said.

Mukherjea is long known for picking compounders on Dalal Street.

He said a slow economic environment bodes well for consolidation of well-run companies.

Commenting on his investing strategy in this market condition, Mukherjea said his team was consistently focusing on high quality companies that are cash generators.

As a piece of advice to investors, he said one should buy companies that have unbeatable competitive advantages, which do not get affected much by macroeconomic dynamics such as a GDP slowdown, NBFC crisis and a tweak in RBI monetary policy.

He said companies like Relaxo, Asian Paints, Tata Consultancy Services and Dr Lal Path Labs fit this criteria. Mukherjea said he or his clients owned these stocks in their portfolios.

“You buy companies which are categories dominators, and you compound with them over several years,” he said.

Mukherjea said there is no need to chase high-beta stocks or Nifty 50 companies with weaker balance sheets. Smaller versions of TCS and Asian Paints available in the market which can provide decent returns going forward.
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