Five new studies prove the rising importance of macro on market
moves and how they impact portfolio construction
1) First study shows market cycles are now sharper and shorter versus
before.
2) Right market direction calls, accompanied by minor adjustment in
portfolio beta, could result in significant “alpha” generation.
3) Even the worst performing stocks from the best sectors in each market
cycle outperform the best stocks from the worst sectors by over 40% per
annum.
4) Comprehensive studies look beyond beta to identify sectors that do well
when markets go up and those that do not.
5) We identify stock pairs from the same sector, e.g. ICICI Bank versus
HDFC Bank, where the key driver of outperformance has been market
direction!
■ Macro to stay dominant in 2010: We use a series of novel tools to identify
the causes of heightened volatility since 2007. The drivers of macro market
moves, policy and imbalances are still present (albeit in a different form), we
thus conclude macro will dominate stock/sector performances in 2010 too.
■ Positive regional view against deteriorating local policy environment:
We stay positive on the market with a 12-month viewpoint expecting proper
policy corrections in fiscal situation. Yet, next few months could be negative
locally on account of policy. With positive regional view, we neutralise many
sector biases in recommendations except high conviction Underweight on
telecom and cement, and Overweight on IT and pharma.