MOSL: India Strategy (Contrarian Investing – Quarterly update- A review of our contrarian investment strategies)

​India Strategy (Contrarian Investing – Quarterly update; A review of our contrarian investment strategies)

Our thematic strategy note on Contrarian investing, published in June’17 gives a detailed account of the subject matter. In this note we have reviewed the performance of our strategies. Also, since we have used quarterly rebalancing to test our hypothesis, we run the updated quintiles as on 30th September and present key findings along with our top contrarian bets.

The key takeaways from 2QFY18 quintiles

Our analysis suggested that neutral to moderately popular stocks deliver significant outperformance, even bettering the performance of the most popular stocks. In this quarter, neutral to moderately popular stocks outperformed the benchmark BSE-100 as well as the most popular stocks. The most popular stocks delivered the worst return in this quarter.

Our findings proved that out-of-favor low P/E stocks deliver disproportionate returns, significantly beating the benchmark. In contrast, the performance of high P/E stocks is dismal. In this quarter, low P/E stocks delivered the best returns, whereas the high P/E quintile delivered the worst returns, validating our thesis.

Similarly, out-of-favor low P/CF stocks deliver disproportionate returns, significantly beating the benchmark. In contrast, the performance of high P/CF stocks is dismal.

We also note that in some sub-themes, the returns from a quintile deviate from the long term pattern highlighted in our initial detailed note. However, this is in line with the trends observed even in the long term study – where returns can deviate for a quarter here and there but over a long period, the hypothesis is proven right. For example, in the Popularity theme, instead of Quintile -4, Quintile-3 has delivered best returns in 2QFY18.