Greetings in the New Year!
Have been receiving lot of queries and feedback from fellow investors, of late 
Thought of summarising the gist of those interactions, to throw some light on what most of us are thinking/doing going forward in 2018.
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As the Guru’s say, Markets are driven primarily by three things A. Liquidity B. Sentiment C. Fundamentals. In 2017 Markets were driven hugely by liquidity and sentiment even in the absence of earnings growth. Now, we are seeing Earnings growth coming back for sure, while domestic liquidity is unlikely to fizzle out in any hurry. What can queer the picture though is Sentiment!
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While everyone felt good that the long term India story has got stronger with big-time structural reforms initiated and their shock-effects behind us, rising crude scenario has taken away much of the (economic buffer) sheen of that feel-good. Especially as there are additional concerns of rising inflation, credit growth unable to take-off in a hurry, and worse populism (Govt measures) taking over now in the run up to 2019 elections. So there are enough triggers for “Sentiment” to temper down in 2018
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Everyone though is agreed on one thing - that 2018 will probably be a year of Consolidation. That it is going to be very difficult to make good money in 2018, on the back of a stupendous 2017 where most things doubled :). The other factor where most seem to be agreeing is - Kuch correction to banta hain, especially in view of changing sentiment levels.
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If we speak to seniors, there is also agreement that while 10-15-20% corrections may happen anytime (due to over-heated pockets/other triggers), there is no case for a big secular crash/peak bubble stage yet. Despite the buzz in markets (more and more uninitiated folks getting drawn to MF/Direct Equity), they cite absence of mainly three things - which are essential preconditions for bubble peaks A. Where is the huge “Leverage”? B. Where are overwhelming “Sectoral Manias” (at the exclusion of everything else - when if you are not present in these - you feel you have missed out on the bull market) C. Where is the case where you find money-making is too easy?? (Infact most of us are finding it very tough to make money now in these markets, isn’t it?
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So, what are some of the strategies for our Portfolios going forward - at this stage of our markets? Let’s start putting some pointers forward.
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Some of my friends have mentioned one big learning from 2017. Not to take extreme positions. A few had too much of over-valuation concerns, and sat out most of 2017 with 50-60% Cash, which wasn’t productive. Similarly a larger number (though still small) are now moving/thinking of moving to 30-40% Cash, given what we have outlined above.
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Many cite that the other extreme position of - remaining 100% invested in 2018 again may not be that productive a strategy given what we have outlined above. We must have some Cash (always) to take advantage of Market situations. As markets have got progressively more heated, they have progressively trimmed allocations and/or exited completely some over-valued pockets to get to some 20% Cash levels.
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I belong to this segment - that believes in playing a risk-adjusted game - not try to extract the maximum juice - happy to leave something on the table, always; so yes I have moved to 15-20% Cash across Portfolios. I truly think if we are patient and hardworking Mr Market always gives us couple of opportunities every year - based on my experience of watching Markets from 2005. If we have no extra Cash to deploy, how would we take good advantage of corrections to enter some businesses cheaper!
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In these Markets one useful Risk-Edict to follow (since nothing is cheap) - is to ensure that wherever we remain invested - those businesses must exhibit growth visibility. Good to strong Earnings growth is something that takes care of most of our mistakes (even staying put in over-valuation territory).
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Corollary to above - some friends cite the reversion to mean rule - what has moved a lot in 2017 is unlikely to move much in 2018 - more likely to consolidate the huge gains already made - much of the earnings growth (& visibility, if present) is probably already priced in, there. So a starting strategy is to look at sectors that haven’t moved that much, or not moved at all?? Especially where you see signs of growth visibility emerging!
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They cite Oil & Gas as one such sector. Logistics as another. 4G equipment suppliers/Digital Content as the other. Insurance sector - at heightened valuations, everything is priced in?? Wealth Management has still lot of leg-room to run fast, and the like
Your views are invited.