Motilal Oswal Asset Management Company Ltd. (MOAMC) is a public limited company incorporated under the Companies Act, 1956 on November 14, 2008, having its Registered Office at 10th Floor, Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai - 400025.
Motilal Oswal Asset Management Company Ltd. has been appointed as the Investment Manager to Motilal Oswal Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated May 21, 2009, executed between Motilal Oswal Trustee Company Ltd. and Motilal Oswal Asset Management Company Ltd.
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Motilal Oswal Dynamic Fund (Div-A) - 12.6804Motilal Oswal Dynamic Fund (Div-Q) - 11.8779Motilal Oswal Dynamic Fund (G) - 13.4805Motilal Oswal Dynamic Fund-Dir (Div-A) - 12.9279Motilal Oswal Dynamic Fund-Dir (Div-Q) - 11.8384Motilal Oswal Dynamic Fund-Dir (G) - 14.0828Motilal Oswal Equity Hybrid Fund - Direct (G) - 11.7586Motilal Oswal Equity Hybrid Fund - Regular (G) - 11.4058Motilal Oswal Focused 25 Fund - Direct (D) - 17.3358Motilal Oswal Focused 25 Fund - Direct (G) - 25.2533Motilal Oswal Focused 25 Fund (D) - 15.7705Motilal Oswal Focused 25 Fund (G) - 22.8872Motilal Oswal Large and Midcap Fund - Dir (D) - 9.6206Motilal Oswal Large and Midcap Fund - Dir (G) - 9.6206Motilal Oswal Large and Midcap Fund (D) - 9.4825Motilal Oswal Large and Midcap Fund (G) - 9.4825Motilal Oswal Liquid Fund - Direct (Div-D) RI - 10.0077Motilal Oswal Liquid Fund - Direct (Div-F) RI - 10.02Motilal Oswal Liquid Fund - Direct (Div-M) - 10.0404Motilal Oswal Liquid Fund - Direct (Div-Q) - 10.0427Motilal Oswal Liquid Fund - Direct (Div-W) RI - 10.0103Motilal Oswal Liquid Fund - Direct (G) - 10.8334Motilal Oswal Liquid Fund - Regular (Div-D) RI - 10.0055Motilal Oswal Liquid Fund - Regular (Div-F) RI - 10.0189Motilal Oswal Liquid Fund - Regular (Div-M) - 10.0399Motilal Oswal Liquid Fund - Regular (Div-Q) - 10.0376Motilal Oswal Liquid Fund - Regular (Div-W) RI - 10.0173Motilal Oswal Liquid Fund - Regular (G) - 10.8067Motilal Oswal Long Term Equity Fund (D) - 14.4236Motilal Oswal Long Term Equity Fund (G) - 16.2781Motilal Oswal Long Term Equity Fund -Dir (D) - 15.6289Motilal Oswal Long Term Equity Fund -Dir (G) - 17.5467Motilal Oswal Midcap 30 Fund (D) - 16.8771Motilal Oswal Midcap 30 Fund (G) - 23.6246Motilal Oswal Midcap 30 Fund-Dir (D) - 17.3077Motilal Oswal Midcap 30 Fund-Dir (G) - 25.5852Motilal Oswal Multi Asset Fund - Direct (G) - 10.0035Motilal Oswal Multi Asset Fund (G) - 9.9996Motilal Oswal Multicap 35 Fund (D) - 22.5311Motilal Oswal Multicap 35 Fund (G) - 25.5742Motilal Oswal Multicap 35 Fund-Dir(D) - 22.5865Motilal Oswal Multicap 35 Fund-Dir(G) - 27.1563Motilal Oswal Nasdaq 100 FOF - Direct (G) - 17.4897Motilal Oswal Nasdaq 100 FOF - Regular (G) - 17.371Motilal Oswal Nifty 50 Index Fund - Direct (G) - 9.3229Motilal Oswal Nifty 50 Index Fund (G) - 9.2989Motilal Oswal Nifty 500 Fund - Direct (G) - 10.4731Motilal Oswal Nifty 500 Fund (G) - 10.4097Motilal Oswal Nifty Bank Index Fund - Direct (G) - 8.1201Motilal Oswal Nifty Bank Index Fund (G) - 8.0715Motilal Oswal Nifty Midcap 150 Index Fund (G) - 10.9204Motilal Oswal Nifty Midcap 150 Index Fund-Dir (G) - 10.9867Motilal Oswal Nifty Next 50 Index Fund - Dir (G) - 9.6887Motilal Oswal Nifty Next 50 Index Fund (G) - 9.6488Motilal Oswal Nifty Smallcap 250 Index Fund (G) - 10.3436Motilal Oswal Nifty Smallcap 250 Index Fund-Dir(G) - 10.4069Motilal Oswal S&P 500 Index Fund - Direct (G) - 11.3052Motilal Oswal S&P 500 Index Fund (G) - 11.282Motilal Oswal Ultra Short Term Fund - Dir (Div-D) - 9.646Motilal Oswal Ultra Short Term Fund - Dir (Div-F) - 9.664Motilal Oswal Ultra Short Term Fund - Dir (Div-M) - 9.6528Motilal Oswal Ultra Short Term Fund - Dir (Div-Q) - 9.7916Motilal Oswal Ultra Short Term Fund - Dir (Div-W) - 9.6566Motilal Oswal Ultra Short Term Fund - Dir (G) - 13.6675Motilal Oswal Ultra Short Term Fund (Div-D) - 9.6494Motilal Oswal Ultra Short Term Fund (Div-F) - 9.6598Motilal Oswal Ultra Short Term Fund (Div-M) - 9.6499Motilal Oswal Ultra Short Term Fund (Div-Q) - 9.7902Motilal Oswal Ultra Short Term Fund (Div-W) - 9.6528Motilal Oswal Ultra Short Term Fund (G) - 13.2905

Buy Right Sit Tight Insights - January 2017

Blog Blog Details
  • January 16, 2017
  • Raamdeo Agrawal|
  • Chairman, Motilal Oswal AMC
Dear investor friends,

Firstly, I wish you a very happy and prosperous 2017! One way to fulfill this wish is to invest in the equity markets, armed with investment insights and frameworks. I will keep sharing some of mine through “Buy Right Sit Tight Insights”, and hope you find the same useful in your investment journey.

In this edition, I briefly discuss the role of Narrative and Numbers in equity investing.

Beware of the Narrative Trap!

 “A compelling narrative fosters an illusion of inevitability.”
— Daniel Kahneman, in his book “Thinking, Fast and Slow”

The whole of equity investing can be reduced to the dynamics of two factors – Narrative and Numbers.

What is Narrative?
The simplest definition of Narrative is a story. In the equity investing context, it is a cogent argument for investing in a stock. A narrative typically weaves together elements of the past and present to create a fabric of the future. In this sense, it is the “fabricated future” of a stock.

What is Numbers?
If Narrative is story, Numbers is history! If Narrative is the fabricated future, Numbers is the irrefutable past and present. It is the stark reality of a stock captured by a wide variety of hard facts and figures – company market share, revenue, margins, return on capital, growth, capex, dividends, valuation multiples, etc. 

Narrative & Numbers – the dynamics
There is a dynamic inter-linkage between Narrative and Numbers. More often than not, the driver of most investment decisions is the Narrative. But whether the investment will be successful or not depends largely on the extent to which the Numbers track the Narrative.

The matrix on the next page captures the potential outcomes of the Narrative-Numbers interplay. 


The four quadrants can be explained as follows – 

Strong-narrative-Strong-numbers (MULTI-BAGGER):  If a strong Narrative is followed by strong Numbers, the stock will most likely emerge as a multi-bagger, led by earnings growth and valuation re-rating.

Weak-narrative-Strong-numbers (CREDIBILITY GAP):  At times, stocks have strong relevant Numbers, but not much of a Narrative to accompany them. We may call these cases Credibility Gaps. Markets tend to be circumspect of the reported Numbers as unsustainable or even “too-good-to-be-true”. So, valuations may remain modest, and yet such stocks tend to outperform led by sheer earnings growth. 

Weak-narrative-Weak-numbers (UNDERPERFORMER):  This is self-explanatory.

Strong-narrative-Weak-numbers (NARRATIVE TRAP):  Many times, stocks come accompanied by a strong Narrative. But the reported Numbers just fail to live up to the Narrative. We call these Narrative Traps. For some time, such stocks may outperform as the Narrative drives up valuations. However, if the Numbers fail to match up within a reasonable time, the stocks will eventually end up as deep underperformers.

Like stocks, like markets: India – Multi-bagger or Narrative Trap?

The Narrative-Numbers framework can be applied not just to stocks but to markets as a whole. Take India for example.

Ever since the new government came into office in mid-2014, the Narrative for Indian equities is strong – visionary PM, business-friendly government, far-reaching reforms led by absolute majority in Parliament, one of the fastest growing economies in the world, favorable demographics, falling interest rates, and so on.  As a result, market valuations are rich with TTM (trailing twelve-month) P/E around 20x, 10% higher than long-period average.
However, the Numbers for India remain persistently Weak – investment cycle has not picked up, the banking sector is laden with bad loans, corporate earnings growth are flat for the last two years, and further downgrade possibility looms.

Post-demonetization, the Numbers are expected to improve beginning FY18. If this happens, the Indian market will be a long-run Multi-Bagger. If not, it may well prove to be a Narrative Trap.

Conclusion – Beware of the Narrative Trap
In his classic book, “Thinking, Fast and Slow”, Nobel prize-winning behavioral economist Daniel Kahneman says, 
“A compelling narrative fosters an illusion of inevitability.” A Narrative largely involves the future which is fraught with uncertainty. Hence, the reality (i.e. Numbers) may be significantly different from expectation (i.e. Narrative).

In equities, “a compelling narrative” usually means super-rich valuations in anticipation of robust numbers ahead. Many IPO offerings also come wrapped in compelling narratives. Investors need to beware of such potential Narrative Traps. If one has invested in a stock based on Narrative, and the Numbers fail to live up to expectations within reasonable time, it is advisable to cut one’s position even at a small loss. Holding on to the stock with hope could lead to a much bigger loss and deep underperformance.


I welcome your feedback and suggestions for improvement. Please email the same to insights@motilaloswal.com.

Thanking you,

Raamdeo Agrawal
Chairman


Disclaimer
This bulletin has been issued to explain our investment philosophy. The information contained in this document is for general purposes only and should not be construed as investment advice to any party. Readers shall be fully responsible / liable for any decision taken on the basis of this bulletin. Past performance may or may not be sustained in the future. This bulletin is not for circulation in general and is meant for intended recipient only. The bulletin does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied by such statements.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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