HOW YOU CAN OUTPERFORM THE MARKET EVEN IF YOU ARE NOT GOOD AT PICKING INDIVIDUAL STOCKS..

Link to my last 2 posts :

1. https://www.grapevine.in/post/e47bfb3e-5611-4b57-a23a-8c567c2a7c2e
2. https://www.grapevine.in/post/7309776c-3256-4bac-b9ed-ed8d5ee4d981

In my last two posts, I discussed sectors such as defense, capital markets, healthcare, Banking, and metals. In this post, I want to dive deeper into certain aspects of these themes. As the title suggests, I will try to explain a few things that one can do even if they are not particularly skilled at picking stocks. I completely understand that stock selection and holding through market cycles is not easy. It requires patience, conviction, and emotional discipline - not everyone is comfortable with.

The decision to maintain a cash level of 30% this year is turning out to be excellent. During the recent fall, I deployed 15%, and now that the U.S. has started to sneeze I’ll deploy the remaining 15% as we fall. We will see some kind of reaction, but we are not going to fall as much as the U.S. market. From here on we are likely to outperform the U.S. market.

There are broadly three ways to invest in the market or ride a trend. The first is through mutual funds or index funds, where your returns typically move in line with the market +,- 5%. The 2nd approach is to identify sectors that are likely to perform well in the future this can help you outperform the index by a significant margin. The 3rd and most focused is when you understand a sector deeply and invest selectively in individual stocks within it ,that’s where real outperformance happens. For eg, I started discussing defense sectors a month or two ago. Since the recent market lows, the Nifty has moved about 3.7%, the defense sector around 9%, while my defense portfolio has gained nearly 28%. You can refer to my previous post for the list of stocks I am buying and I have also shared a screenshot of one of my trades below.

Here are a few key takeaways from the recent monetary policy which was quite strong:

1. The latest RBI policy signals possible rate cuts in the coming months, pointing to easier liquidity and lower borrowing costs. Despite global challenges, the RBI expects India to stay on a strong growth path with stable prices.

2. Recent GST and income tax easing will cushion trade impacts and support GDP growth. The removal of the 10k crore exposure cap for large corporates is another pro-growth step, allowing banks to fund major projects and infrastructure - all positive for equities.

3. RBI’s move to expand rupee trading with more global partners will help reduce dollar dependence and attract foreign trade settlements in INR.

4. With the current account deficit at 0.9% of GDP, strong reserves, and projected BoP surpluses in FY26–27, India’s macro position remains solid, With low inflation (2–3%), strong growth (7–7.2%), and easing liquidity , BE POSITIVE. BE BULLISH.

I have mentioned in my previous posts why I believe the defense sector is set to go places. It is still at a very early stage, but this is a decadal story in the making. You can think of defense as India’s own version of an 'AI moment, a long term structural opportunity. The government’s support and the overall macroeconomic outlook clearly point in that direction:

1. India now targets ₹50,000 crore in defense exports by 2029, signaling its intent to become a global supplier, not just a domestic consumer.

2. The defense production target has been raised to ₹3 lakh crore by 2029, showing strong expectations for growth in domestic manufacturing capacity.

3. The recent India–Pakistan conflict acted as a catalyst. It boosted confidence in indigenous weapons such as drones and missiles, sped up procurement cycles and drew international attention to India’s growing defense capability.

4. India is projected to see the fastest defense spending growth among major powers , an increase of about 51% (from 86.1B to 130B) by 2029, outpacing the U.S. (15%), China (34%), Russia (7%), and France (16%).

So, the fundamentals are extremely strong. But fundamentals alone don’t drive my investment decisions. I never invest just because the data or narrative looks good given my account is small and i have lower capital currently. I look at technicals and market structure before taking a position.

For eg, Banks currently look attractive from a valuation and outlook standpoint. The potential in banking is massive, and Bank Nifty, as a sector, is bound to perform over time. Despite seeing similar data and optimism through 2023–24, the technical structure of Bank Nifty still doesn’t look ready for a strong move. It will likely take time before it starts trending, its also a high beta sector.

On the other hand, the defense sector looks perfectly aligned from both a fundamental and technical perspective. It had a strong rally earlier followed by a healthy correction. Interest around the sector has also faded lately , you don’t see many people talking about it anymore. Social media activity has cooled down, which often happens before the next leg of a move begins.

I wont go into detailed technical analysis here , that would require another post , but from a chart perspective the setup looks ideal. The sector has corrected about 25% recently, and whenever a fundamentally strong sector goes through that kind of decline it usually presents the best entry opportunity.

Now, the recent price action gives me further confirmation that the sector wants to move again. That’s why I have started accumulating early. For me, the defense sector aligns perfectly , both fundamentally and technically.

Now, the question is, how can one invest in the defense sector? I completely understand that investing in individual stocks can be difficult and risky. For example, I’ve shared my trade in Apollo Microsystems before. When I started buying it around 175–180, its P/E ratio was about 90 and now it’s close to 150. From the PE of 90 it has moved 100% .From a pure valuation standpoint, it’s hard to justify such numbers. But that’s how markets work , some businesses you’ll get cheap, others you’ll have to pay a premium for. Apollo is currently undergoing consolidation and I will put more money when it sets up again.

Banks are still available at attractive valuations, one can simply buy the banking index and stay invested for steady returns. However, in my pov the defense sector is likely to outperform most others over the next few years. Of course I could be wrong, but that’s how I see it.

If someone wants to participate without picking individual stocks, they can simply buy a Defense Sector ETF. If I were building a 10L position, I would deploy 5 lakh right away into the ETF and invest the remaining 5 lakh gradually ,say over 8 to 12 weeks in equal parts every friday.

For better timing, one can look at technicals to decide when to pause or accelerate deployment. But even if you don’t follow charts, having a 2-3 year outlook should still yield decent returns and help you outperform the broader market.

Just like my outlook on the defense sector, I hold a similar view on capital markets and healthcare services. The healthcare sector hasn’t yet confirmed strength on the technical side, but capital markets gave clear confirmation at the index level this week. I started accumulating stocks from these sectors 2 months ago, after observing them for 6 months. Many investors look only at the index and assume nothing is moving, but if you check individual stocks within these sectors, you ll be surprised ,several have gained 50–70% in just the past 2 months. If I were to diversify with a mix of high beta and low beta sectors, I would go with capital markets and defense right away, while waiting for hospitals to confirm an entry setup. Among high beta plays, I would prefer a combination of banks, metals, and autos.

Sit tight. Dont get swayed by the news or social media , it’s so easy to become pessimistic, it’s just human nature. Stay patient, and you’ll see good returns. I have been saying this since the start of the year , this isn’t going to be a great year for the markets. I still don’t see things improving for at least another 4 to 6 months. After that, we might see a rally, or it could take a bit longer , no one really knows. But stay invested. Study the sectors you believe in and put your money there. If you can’t pick individual stocks, just buy the ETF and you will outperform the benchmark index by a solid margin.