Investment scenarios are always unique and we can’t respond the same way to every scenario. Each scenario is a function of the broader equity market and calls for a customised response. An investor must align her response keeping in mind the risk-reward balance in each scenario. One’s investment strategy must not be fashioned solely on the judgement of either the reward or the risk. Year 2014 was a very different scenario from the present. Then, investors were viewing the markets as a hope trade. Rewards were the sole driver after the historic election verdict. A new government raised expectations of change. We were betting on an aggressive approach to liberalisation. Speedy resolution was expected of issues faced by several industries, most of which were core industries. These issues were weighing heavily on the banking sector. We were betting on the resolution of the pain in banking. We were also betting on the speedy resolution of challenges to growth. We were happy to sidestep the risks that a top-down trade faced then. Large institutional monies chased headline growth. Money poured into the indices. Foreign institutional investors (FIIs) added top-up fuel to the indices exactly when fundamentals were not supporting them. Fund houses sold large-cap and diversified schemes heavily. There was a scurry to put money into equity as people scampered to get in. Predictably, that bet proved short-lived.
By early 2016, the index-hugging funds were struggling. Performance was eluding them; the top-down approach wasn’t working.
