Trend is your friend. Stay with it
Some investors believe in being “contrarians” i.e. defying the majority and buying what is shunned by everyone else.
However, others are “trend followers” i.e. they buy what the masses are buying.
Atul Suri revealed that he follows the latter school of thought.
“I am a trend investor and I look for companies which have been consistently delivering good numbers and it gets reflected in the price movements also,” he said.
He also opined that there is no merit in venturing into the unknown and going where no man has gone before.
“As a trend investor, it is very rare that we pick up something unknown. For us, longevity of the trend is important,” he added.
Forget all other variables, focus only on the Dollar Index (DXY) to predict the market movement
Atul Suri explained that the DXY or the Dollar index is a simple but precise manner by which we can predict the state of the market
“There are many variables at play. If we start focusing on each of these variables, we will be very confused. So, one should really look at the DXY or the Dollar index,” he said.
He pointed out that there is an inverse co-relation between the value of the Dollar and investors’ appetite for risk.
Apparently, whenever the Dollar plunges, investors make a bee-line towards risky investments and vice-versa.
“We did a study of the last six months. There was an inverse correlation which means that when the dollar goes down, the risk-on assets like commodities and equities go up and this correlation is remarkable,” he explained.
“If one has to understand the movement of the market for the last six months and for the few months going ahead, it is very important to keep an eye on the movement of the dollar,” he added.
There is merit in Atul Suri’s theory because a weakening of the Dollar means that there is excess supply, probably because the Federal Reserve (FED) is flushing the system with the stimulus money.
Investors who are flush with funds have no other avenue but stocks and commodities to invest in since interest rates on Bonds are zero or pathetically low.
If you had followed the trend, you would have made tons of money even though the Nifty is still at 12000 as in February 2020
Atul Suri explained that while the Nifty cosmetically appears to be stagnant at the 12000 mark between February 2020 and October 2020, the fact is that there has been a sectoral churn within it which has enabled trend followers to make money.
Since the great CoronaVirus crash of March 2020, the Nifty is up 60%. However, the IT index is up 103%, the pharma index is up 100% and the Specialty Chemicals index is up 130%, he pointed out.
“These sectoral shifts are termed as mega trends. These are precisely the mega trends that we look for,” he said.
Four Mega Trends to focus on: Infotech, Pharma, Specialty Chemicals and Consumer
Atul Suri disclosed that his PMS Fund is “grossly overweight” the said four “mega trends” of Infotech, Pharma, Specialty Chemicals and Consumer.
“As portfolio investors, we have to be able to navigate the ship between the various tides that are happening and it is a very substantial move. IT, pharma, specialty chemicals and consumer are going to be the four overweight themes which will continue to play out,” he said.
InfoTech is a no-brainer given the magnificent out-performance of the blue-chip heavy-weights like Infosys, TCS, HCL Tech etc.
The sector is the best performing sector in the last six months.
“A tectonic shift is going to happen in consumer behaviour patterns socially and in office spaces. What we were anticipating in terms of digitisation to happen in the next five years is likely to happen in the next two years. This front loading is going to be a very big opportunity and that is being reflected,” Suri said.
He advised that we stick to the large-cap behemoth stocks like Infy and TCS instead of experimenting with their mid-cap brethren.
“In the midcap IT space, the companies are very differentiated in their approach, clientele and the businesses they cater to. So you are definitely likely to make more money in the midcap space but you will have to be a little more careful in your analysis. If you do not have that ability, then even a largecap is not going to disappoint you because those three-four stocks also have been doing well. They have reported good numbers and in the next 8 to 10 days we will get a confirmation of this mega trend which is going to play out,” he sensibly advised.
The Pharma sector is also a no-brainer owing to the humongous gains that investors have raked in from front-liner stocks like Dr. Reddy, Divis Labs, Cipla, Cadilla, Glenmark etc.
It is notable that Atul Suri has earlier disclosed that nearly 80% of his portfolio is concentrated in only three stocks and that Divis Labs is one of them (see I Am A Concentrated Investor. Only 3 Stocks Make 80% Of My Portfolio: Atul Suri).
“Just because IT and pharma has moved up does not mean you cannot buy it,” he said, anticipating the question whether the sector is a good buy even after the super-surge.
He explained that if the companies keep delivering good numbers and the industry dynamics keep improving, there is no reason for us to feel shy of such stocks.
Autos could be the dark horse theme
It is obvious that every sensible investor’s portfolio must include stocks from the autos and ancillaries space because they are powerhouses in their own right.
However, Atul Suri candidly admitted that he had completely missed out on the auto theme.
“The auto index is up 85% from the bottom. The autos also have outperformed and I have missed that whole thing out,” he lamented.
He cautioned that while auto stocks are a good trading bet in the short term owing to the upcoming festive season, demand constraints, rural push etc, they may not qualify as a “mega trend” because they are unlikely to prosper unabated over the next three to five years.