QUANT SYSTEM OVERVIEW 02.06.24

From the desk of Capt.D.Ganesh Raja                                                                       

DISCLAIMER

Please be informed that the author of this blog by Capt Ganesh Raja Dhanuskodi (Hereinafter called Capt Ganesh) is not a SEBI registered Research Analyst or Financial Advisor. Capt Ganesh writes this blog to express his views based of more than two decades of experience in capital markets and based on the Quant system which he has invented and he does not do this for “consideration” as per SEBI regulations, which means he does not receive economic benefit through it. Readers of this blog must seek advice from registered Investment Advisors / Research Analysts before taking any trading or investment decisions.

Capt Ganesh has been investing and trading actively since 2001, building trading models since 2013 and has invented an AI based intraday trading system, which has a pending patent approval.

Dear Friends,

The exit polls are out and we are awaiting actual results of the Indian general election. Since I have already shared my thoughts on this in my previous post, I do not wish to indulge in these discussions. Even reports shared by leading brokerages and foreign fund houses about various scenarios, at best can be just considered as information, without much actionable importance. Now the speculation is a gap up opening etc.

Let us discuss what might be in store for minor time frame.

India's per capita disposable income is expected to be ₹ 2.14 lakh in 2023-24, which was ₹ 74,380 in 2013 , which is CAGR 11.14% In 2024, the household disposable income in India is forecast to amount to US$4.13 trillion. 4% entry in equities USD 165.2 billion, which translates to ₹ 13.74 lakhs crore.

In just ten years, from February 2014 to February 2024, the AUM has grown a staggering sixfold, reaching a whopping Rs 54.54 lakh crore. Total accounts or folios stood at 18.15 crore as of 30th April 2024.

So do the simple math, basically almost 25% of the entire AUM is at disposal, even at a conservative figure of disposable income coming into the market.

Public memory is short and given the recent irrational gains in the market, a sudden spike in equity investments with help of many “experts” who have mushroomed in social media cannot be ruled out.

As per my experience, the most dangerous psychological trait is making a quick buck by a newcomer, when caution can be thrown to wind and a feeling comes. “Oh its that easy”.

VIX is at 24.60, from lows of 9.87 about a month ago and this is the fear gauge as they say. In minor timeframe it seems it might give up this sharp gain, which implies that market might rally. This is also corroborated by 10-year GS index filters which indicate a buy.  This also favours an uptrend to continue at least in shorter timeframe. One significant development here is the approaching JP Morgan Index inclusion for Indian Government bond.

Data reveals that retail investors have taken bold bets in the derivatives market, holding 52.79% of the long positions in the NSE compared to 35.5% in 2014.

Recently I met a big trader and investor, to explore possibilities for my Quant system, which has delivered 26.5% CAGR since July 2020. His reply was that they generate far more returns so won’t be interested. Instead of taking it on face value, I decided to look beyond it. As a mutual fund category, small-cap is the third-best performing category in the three-year period after thematic-PSU and sectoral infra funds (As per Value Research data). The category has given 25.92 per cent returns in the three years. Quant mostly focusses on varied asset classes, indices and mostly large caps, so a strict comparison is unfair , but still has stood out.

A casual look at the market will give scores of stocks, which have given spectacular returns and this entices investors and traders to jump into the next big mover.

The logic is simple. A proven system with minimum drawdown and steady equity curve without large fluctuations is a litmus test and where large sums (As a percentage of one’s investible surplus) can be deployed. But for bragging rights, people might invest a small amount, get supernormal returns in a short time and rely on that. What they would be unaware is the perils of a drawdown.

One needs to ask a basic question when venturing in equity markets, whether the returns will make a tangible difference in their day-to-day life. If you don’t have a clear plan as to what you want, either make a plan or seek expert help, but don’t be in a state of financial irrelevance.

In my personal portfolio, I am sitting on a large profit of 86% in 10 months, which works out to 103.25% annualised profit. To be honest, the performance has been stagnant in the last 3 months, but this has not prompted me to churn the portfolio to chase some big movers. I think I have said before that if Quant system triggers a buy in small or midcap stocks, I never execute it unless I have a firm grasp of the fundamentals, which has its own set of filters. This however is not the case with large cap stocks.

Now another factor one needs to look into before switching stocks is long term fundamentals and tax component. If the correction is less than 30%, then the taxes and charges will eat into profits.

The more sophisticated the strategy honed over several years, one can confidently face all vagaries of the market.

I might have system triggers in mock portfolio, but since it might be construed as I am putting it based on exit polls, I refrain from posting it. A system which is dependent on a single event will not be robust either.

RETURNS TILL DATE SINCE 04.07.20 : 154.11.% (AS OF MONDAY 13.05.24 CLOSING) LEVERAGE FOR EXISTING MOCK PORTFOLIO TRIGGERS: 1.60

SYSTEM EXIT DELEVERAGE: 0.00

LEVERAGE FOR NEW MOCK PORTFOLIO TRIGGERS: 0.00

TOTAL LEVERAGE: 1.60

ASSET ALLOCATION PROFIT POTENTIAL FOR NEW PORTFOLIO TRIGGERS : NA

TIME PERIOD OF TRADES RECOMMENDED : 15 DAYS TO 3 MONTHS.

MOCK PORTFOLIO.pdf

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