What explains the recent underperformance of Portfolio Management Services (PMSes)? At BT Market Today Summit in Mumbai on Tuesday, BT’s Global Business Editor, Udayan Mukherjee, noted that many PMSes earlier did not buy rallying commodity stocks; later, many others did not participate in the PSU rally. To this, market guru Shankar Sharma, who was among speakers, added that many PMSes and mutual funds also did not own Adani group stocks that performed quite well.
Sharma, who is founder of GQuantInvestech said, fundamentally, a lot of the stocks that rallied of late could not be justifiably held in a fund structure. “You could hold them in your personal investing. It is okay when they go up 10-20 times. But there is no real fundamental, on the ground reality. No, I am not disputing the numbers, but to justify valuations to unit holders, shareholders and regulators, if something were to go wrong, is quite difficult. You cannot play every game that is being played in the market.”
The law of the market, Sharma said, is the money gets made where people are least invested. “There is no real reason why you should be in least invested stocks, but usually that is the place where one ends up making the most money,” Sharma said.
Sharma said the incentive structure of fund managers are geared towards retention of assets, and hopefully some growth.
“It is not really a structure in which they are paid to take a fair amount of risks. Investors are their worst enemies. They want an impossible set of combinations: They want to beat the market; they want you not to lose money when the market falls, all in the same group of stocks. That is not possible,” he said.
Sharma said that is what one will find, that an odd fund took the bet in say an Adani stock or commodity stocks and will have a good time in the market for an year or so. “Will they repeat the outperformance, who knows,” Sharma said.
Also Read: Market Today Summit: It’s an under-appreciated skill to get bear market right, says Shankar Sharma
