Powerful rule-based algorithmic trading models have consistently shown that they can beat the benchmark over the long term. What exactly should the rules and signals be is of much research, discussion and debate. In today's cover story, we unravel one approach to implementing a sector rotation/momentum based trading strategy which in our back tests has delivered 2X the returns of the benchmark. Hope you enjoy it!
IN THIS WEEK'S NEWSLETTER
News in brief
Quiz, price is right
Soundbites - That's what they said
In crypto news
Cover Story : Equity trading strategy - Systematic sector rotation
In case you missed it : The BEST tax saving ELSS mutual funds
How many members does the RBI monetary policy committee have?
NEWS IN BRIEF
Retail and QIBs ‘piled into’ Barbeque nation’s IPO on the last day of subscription. Retail investors’ portion of the IPO was oversubscribed by 13X. This is the 19th IPO of the year and every one of them has been oversubscribed. Shares of Suryoday Small Finance Bank (down -9%) and Kalyan Jewellers (down -14%) that opened for trading post-IPO this week however listed at a discount to their IPO price.
The government this week pumped money into Punjab & Sind bank to the tune of Rs.5,500 crores upping its stake in the bank from 83% to 97%. This is the second time the government has infused cash into bank (the last time around was in November 2020).
The Code of Wages bill passed in December 2019 is coming into implementation from this week.What this means is that, as a salaried employee, your basic pay has to be at least 50% of overall CTC. This may lead to your employer adjusting the salary structure resulting in what is likely to be a lower take home salary (Just what we needed!), but higher pension & retirement benefits.
Edtech start-up Byju’s is reportedly in discussions to raise $500-$700 Million from existing investors valuing the company at $15 Billion (That is bigger than Britannia industries or Indigo airlines or Hero motocorp). It is being called a ‘Decacorn’ (think 10 x Unicorn). The funds being raised are aimed at acquiring the exam preparation firm Aakash Educational Services.
A massive bulk shipping container called ‘Evergreen’ got stuck in the Suez Canal.Over 12% of word trade passes through the canal and consequently a lot of container ship traffic is building up. Here is an image of the ship that is stuck in the Canal.
Picture Courtesy: Bloomberg
This picture shows the other ships waiting to enter the Suez Canal.
GAME : PRICE IS RIGHT
Check out the interiors of the latest Mercedes Benz A-class Limousine Sedan. It is ‘a masterpiece in its own right, with an unmistakable character’. It features a gently sloping roof, high performance LED headlamps, panoramic sliding sunroof and an interior which ‘literally hugs its occupants’. Your job now is to guess its price.
That's what they said
Speaking at the Times Network India Economic Conclave, veteran banker, KV Kamath said this week, that “the entire financial services spaces is set for disruption in the next 10 years”. He suggests that this will lead to reduction in transactional costs. "Unless you internalise it's going to be a digital world…”. Aye, aye, captain!
"I will say one thing that I have two interests in life; markets and women. They are both concerned with four letter words, women with love and markets with risk" – Rakesh Jhunjhunwala in an interview with Madhu Kela at the Times Network India Economic conclave, more like an entertainment conclave.
“The COVID-19 pandemic, along with its related impact on the aviation industry, has worsened the financial position of airlines in the country, including Air India,” Minister of State for Civil Aviation Hardeep Puri told Parliament. Air India is likely to post Rs.10,000 crores in losses this year. Indigo’s TTM losses are about Rs.6,000 crores while Spicejet has posted Rs.1,600 crores TTM losses. So, yes, Mr.Puri is right.
Heuristic (rule-based) based equity trading strategies have existed for well over 50 years. The advent of powerful computation tools and the availability of data has only accelerated research on these criteria-based trading models. Large hedge funds like Renaissance Technologies generate several terabytes of data each day and run advanced quantitative models to select stocks.
One such approach is the systematic sector-rotation strategy published by two Italian academics - Paolo Sassetti and Massimiliano Tani. The paper was originally published in 2003 and has been quoted in various subsequent research on this subject. At its heart, the ideas comprised in it are quite simple.
At different points on the economic cycle, different sectors (and their stocks) tend to perform well.
Momentum based trading strategies make higher returns than the benchmark.
We apply this trading strategy to the Indian context and find exceedingly positive backtest results. Hit the link to read more.
THE BEST Equity Linked Savings Schemes (Mutual Funds)
IN CRYPTO NEWS
The single tweet that sums up all the crypto action from this week.
ANSWER TO QUIZ
The number of members on the RBI’s monetary policy committee who vote on interest rate decisions. They are Ashima Goyal (Professor at Indira Gandhi Institute for Development Research), Shashanka Bhide (senior advisor, research programmes at the National Council of Applied Economic Research), Jayanth R. Varma (Professor at IIM, Ahmedabad), Shaktikanta Das (RBI Guv.), Michael Patra (RBI Dy. Guv,) and Mridul Saggar (Exec. Director at RBI).
ANSWER TO PRICE IS RIGHT
The starting price of a Mercedes-Benz A-Class Limousine. The performance version costs a cool Rs.56 Lakhs. You’ll need to hurry up, because prices are slated to go up from July 2021.
A graphical look at how different countries are cracking-on with vaccinating their citizens against COVID-19. REUTERS
Here is Business Insider telling us the 7-things people who are good with money never buy. MEDIUM
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