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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 , published in Jun’17, gives a detailed account of the subject matter. In this note, we have reviewed the performance of our strategies. Also, since we use quarterly rebalancing to test our hypothesis, we have run the updated quintiles as on 31st Mar’19 and present our key findings along with our top contrarian bets. 

Key takeaways from 4QFY19 quintiles

• Our analysis suggests that, over a longer term, neutral to moderately popular stocks deliver a significant outperformance, even bettering the performance of the most popular stocks. In this quarter, the most popular stocks performed the worst, failing to beat the benchmark, whereas the neutral to moderately popular stocks delivered the second best return.
• Our findings prove that, over the long term, out-of-favor low P/E stocks deliver disproportionate returns, significantly beating the benchmark. In this quarter, the low P/E stocks performed the best, whereas high-PE stocks came in third.
• 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. In this quarter, low P/CF stocks delivered the best returns, whereas the high P/CF stocks delivered the second worst returns.
• 4QFY19 was characterized by the impressive performance of the value quintiles (low P/E, low PCF delivered the best returns, whereas low PB came in second).
• 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 there, but over a long period, the hypothesis is proven right. For example, in the Popularity theme, instead of Quintile-4, Quintile-2 has delivered the best returns in 4QFY19.