MOSL: STRATEGY | Contrarian Investing-Exploring two sub-themes-“Net Sell to Net buy” theme working well in CY17 as well

​STRATEGY | Contrarian Investing: Exploring two sub-themes; “Net Sell to Net buy” theme working well in CY17 as well

In our follow-up note on Contrarian Investing, ‘Digging Deeper’, dated 24th August 2017, we had indicated several anomalies in stock positioning among Nifty stocks. Interestingly, these anomalies have delivered impressive returns. We had also highlighted that over the last decade, a simple strategy of investing in stocks wherein analyst consensus has changed from “net sell to net buy” with a holding period of one year can deliver phenomenal returns of 23.9%. This strategy is working well in CY17 also.

Net Sell to Net Buy: Three new stocks to highlight

In our Contrarian Thematic report published in June 2017, we had highlighted one of our key findings: the simple strategy of investing in stocks wherein analyst consensus has changed from “net sell to net buy” with a holding period of one year has delivered 23.9% annual returns over the last 10 years.

Among the BSE100 stocks, Marico, PNB, United Spirits and Dr. Reddy’s have turned “net buy” from “net sell” in October/November 2017. From a fundamental perspective, PNB appears to be a clear beneficiary of the government’s massive re-capitalization plan for public sector banks (amounting to INR2.11t). UNSP is benefitting from triple tailwinds: continued premiumization, more number of states granting price hikes and benign raw material prices (molasses). Marico, after underperforming for the last 15 months owing to expensive valuations, is showing signs of volume recovery even as underlying raw material costs (especially Copra) have spiked up. Resolution of issues at key plants and competition in key products remain an overhang for DRRD, although recent niche product approvals and upcoming launches will help drive sales growth until FY19.