Be greedy when there is fear: Tips to bag big alpha generators

In stock market, be fearful when others are greedy and greedy when others are fearful — Warren Buffett

Going by this piece of wisdom from the legendary investor, it seems time is ripe on Dalal Street to build portfolios, as most market participants have turned cautious on worries over trade war, rising oil prices and ahead of general election, 2019.

Market creates opportunities to buy stocks at lower levels. Investors just need an eagle eye to hit the right spot. The BSE smallcap and midcap indices are down in double digits for this year after rallying more than 70 per cent between January, 2015 and December 2017.


When individual stocks have tumbled up to 90 per cent so far in 2018, it is time to build portfolios. The biggest alpha creators will come from these stocks. But be careful, ignore the low-quality stocks.

“Small and midsized companies would grow slightly faster than their larger peers. I think if you are diligent in your stock research and balance sheet analysis, then you would end up creating that alpha from here on. That potential and opportunity exist in any timeframe and any market. Even now there are opportunities,” said Sunil Singhania, Founder, Abakkus Asset Manager.

Alpha measures the performance of an investment against the benchmark index, which considers the market movement as a whole. Excess return on an investment relative to a benchmark index is the alpha on that investment.

Manish Gunwani, CIO (equity investments), Reliance Mutual Fund, sees potential in large corporate banks from a two to three years perspective. He, however, said lenders may see volatility in numbers over next few quarters, because of RBI’s stiff provisioning norms.

Barring ICICI Bank (down 5.60 per cent), other major private lenders such as HDFC Bank (up 33 per cent) and Kotak Mahindra Bank (up 11 per cent) have already generated good alpha for investors this year. The BSE Sensex is up 5 per cent in the same period.

Harendra Kumar, MD, Institutional Equities, Elara Capital, sees alpha coming from IndusInd Bank, Kotak Mahindra Bank and HDFC Bank in the private banking space.

Investors can also zero in on infrastructure, pharma and logistics themes for stocks that can deliver good returns in the coming years.

“Over the next two-three years, we expect credit cost to come down to close to long-term averages and, therefore, we find those stocks attractive. We also like pharma, select players from consumer discretionary, infrastructure, engineering, road construction and logistics sectors,” Gunwani said.

Most of the logistics firms have delivered negative returns to investors ever since the implementation of goods and services tax in July last year. However, shares of Inter State Oil Carrier, Aegis Logistics, Prime Customer Services and VRL Logistics rallied up to 62 per cent in the same period.

Abhimanyu Sofat, VP-Research for IIFL, says auto should do well going forward. “One can expect significant alpha creation even on the ancillary side despite there being some pressure because of higher raw material costs. Hero MotoCorp is among our preferred picks from the auto space.”

Shares of Hero MotoCorp slipped nearly 3 per cent on a year-on-date basis till June 20.