One must-have quality for an artist

As equity research analysts at Acuity Knowledge Partners, we thrive on analytical discussions to keep improving our fundamental research skills. We like to stay abreast of trends and discuss different sectors, company results and strategies, regulatory and technological changes, macroeconomic and geopolitical factors and now, the pandemic. However, as we moved to a work-from-home format, these discussions took a nosedive. Within two weeks of WFH, we knew that we needed to do something to satisfy the analyst within us.

We launched a virtual stock-market investment competition that we named “Invest Karo Na” (meaning “make investments”) over three months — 1 May to 31 July 2020. Participants were judged on their skill in selecting stocks and generating portfolio returns. India’s primary stock index, the NIFTY 50, was our benchmark; we provided virtual initial capital of INR1m and asked the participants to invest, based on their research. Restrictions on minimum holding periods and maximum weightage of a single stock and announcing winners every two weeks made the competition even more interesting.

The markets were also fascinating to watch during this time, with a gap wider than ever before between the real economy and stock markets as markets fell globally as lockdowns were imposed. However, we began to see initial signs of a V-shaped recovery. While the economic indicators were telling a different story, the liquidity injections by central banks and, probably, investor’s fear of missing out on the recovery took many global markets to their pre-pandemic levels. India was no different; rather, it was more interesting, due to the India-China tensions.

Performance of major world indices YTD

Note: YTD charts, indexed to 100

Source: nseindia.com, indexes.nikkei.co.jp, dax-indices.com/indices, spglobal.com

The participants performed well amid such market conditions. They generated an average return of 23% within the three months. The top five participants generated a substantial average return of 31%+, an alpha of 12% more than the benchmark. What was interesting to see, though, was the fundamental research process adopted to select these high-performing stocks. Acuity Knowledge Partners has been supporting world-leading investment managers and analysts with fundamental research for years, but seeing investment/stock selection strategies put to practical use was satisfying.

A snapshot of team performance over the investment period

Source: nseindia.com, Acuity Knowledge Partners

The participants conducted detailed research not only on the markets, but also on the companies and the global situation. They adopted classic investment textbook strategies that had to be flexible given changing market dynamics. This enhanced their skill sets and led to better decision making and more learning for the whole team. Our weekly discussion calls provided a glimpse of several such strategies used:

Note: Best performance is calculated based on the entry into and exit from the stock by a participant and could be different from the three-month investment period return

Source: nseindia.com, Acuity Knowledge Partners

At Acuity Knowledge Partners, our highly qualified and experienced analysts work as an extension of the teams of global investment managers and research analysts. We support our clients to find new investment opportunities and stay abreast of industry, regulatory and technology trends, and evolving company performance. Our teams of fundamental research experts and data experts provide customised solutions by combining alternative data and technology expertise to provide differentiated research insights. With one of the largest pools of investment analysts with higher professional degrees in finance (such as CFA and CPA), we employ and engage the best of minds and technology (e.g., our BEAT suite of tools) to provide significant value to financial firms across the globe.

Originally published at https://www.acuitykp.com.

About the Author

Champak Patel, Assistant Director, IR, is a part of investment research vertical at Acuity Knowledge Partners, Gurgaon. He has over 11 years of total work experience in equity research & advisory, financial modeling, generating stock ideas, writing research reports, and presenting investment themes to fund managers. Currently, he leads various equity research engagements supporting clients across sectors and geographies. Champak is an MBA in Finance from Institute for Technology and Management, Mumbai and a Bachelor of Technology in Chemical Engineering.

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Acuity Knowledge Partners

Acuity Knowledge Partners

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We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/