Stars of the Modi Sarkar

It’s been 2 years since Modi Sarkar is in power and the expectations that Modi was to deliver propelled the financial markets to big rally. What began with a lot of euphoria began to weed out as results of companies failed to keep pace. In the 2 year period there were some businesses which did tremendously well on the sales and profits as well as on their stock prices, while there were many laggards which took away investor wealth along with their confidence.

Mid caps were the stars of the rally and there were 17 stocks which zoomed more than 100%. Among them the top 4 were from diverse sectors which had more than 200%. All the 4 were part of our portfolio and we still hold to 3 of them Bajaj Finance, Ashok Leyland and 3M India.

Top4 Gainers.May16

Stocks that gained more than 100% were-

HPCL, Marico, India Bulls Housing, Piramal Enterprises, Torrent Pharma, Berger Paints, Emami etc., and among the 100% gainers too, we had 4 of the stocks in our portfolio.

It was not a rosy period for all the stocks in our market, we did have 20 stocks that fell in value in the last 2 years. Losses were between 5-90%, between them the top 4 losers were the following.

Top Losers may16

None of the above were in our portfolio, having the best performers and not having any of the weak ones in the portfolio is what helped us have phenomenal growth against the broader benchmarks.

In the last 2 years the returns from SENSEX, MIDCAP and Bravisa Temple Tree shows the superior returns we were able to achieve.

BTT with Index May16

“Midcaps have delivered significant returns over the last three-five years compared to large cap funds but you have to be wary that they are more volatile. So you clearly need to have a long-term horizon in terms of investing in some of these funds. So, I will say even 5-7 years might be a short time because you can have cycles in the market where mid-caps might under perform and since they have run up so much, you have to be a little cautious when entering this segment.” – Kaustubh Belapurkar, Director – Manager Research, Morning star India.

Pre-election rally began with the banking stocks in 2014, while surprisingly, apart from Yes Bank, all of the bank stocks 20-73%. In our portfolio, we were totally out of banking exposure since 2013, just before the challenges we faced in the Subba Rao period. After Raghuram Rajan stepped in, our economy went into a dramatic change, while there is still a long way to go before the banking stocks get strength, because there have been so much muck to be cleaned in them, without Raghuram Rajan, it wouldn’t have been possible for sure.

Factors like ease of doing business, Make in India, Roads and Railway infrastructure along with GST will instill very good growth for our economy, selecting the right stocks and being invested in them till they complete their growth phase will give any investor tremendous profit potential on their investments.

SENSEX stocks of 2020.

classic350_right-side_blue_600x463_motorcycleIndia is the world’s best economy today. Following its robust journey that is going to come up in the next 5 years, there is going to be a dramatic shift in the whole economy and with it even the economic barometer of India, the SENSEX. The SENSEX will also undergo change by replacing some of its constituents. Those stocks that will take a space in the future index will be the stars of the markets in the next 5 years.

What if we can identify them and be invested in them?

The growth those companies will have is going to be tremendous and the potential for profits will be equivalent. The expected stocks that can move in to the SENSEX, the list is big with some new not yet listed companies too. Though for the new ones we may not have a direction, for those that are existing, and if identified and invested, can give great gains.

Some of the company’s whose are likely to move in are: NESCAFE

EICHER Motors (Royal Enfield Bullets)

Page Industries (Jockey and Speedo brand products)

TITAN (Watches and Jewelry)

NESTLE and the likes.

Companies that have premiumisation as their focus are likely to shine bright. So, look for premium products in the market and the companies that produce them and be invested in them, chances are you will end up having a goldmine.

jockey-logoAt present our portfolio contains the first 2 names and we have been holding them for quite a long period, in these years that we have owned these businesses, they have showed continuous growth in their sales as well as profits. If they continue the same for the next 5 years, we will still have them. While, there is no guarantee that it will be so.

In the last year, there were some companies that made it big on their growth and become the darlings of the market. Some of the best ones are

Ashok Leyland, Britannia., HPCL, Baja Finance, Ramco Cements, Maruti, TCS, Ultratech Cements, PVR & Kotak Mahindra.

And there are a next set of business that are showing signs of reaching for the best. They are Canfin Homes, TCI, Tata Motors, Orient Cement, Persistent, Heritage Food and BHEL.

These were the names that have come up in the ET500 listing.

Among the above names we are invested in about 7 businesses, while we have doubts on some like BHEL, TCI etc., while if they qualify our parameters in the future we will definitely look at adding them in our portfolio.

By being invested in the best performing companies, our portfolio is managing to grow the best. Last year we had an Alpha of 63% against the NSE 500 Index, This year in the first half, so far we are at 28% Alpha against the NSE 500.

We will continue to grow in the same manner adhering to the best practices and innovative thoughts.

Dollar comes back to India.

Dollar comes back.22.10.15In August 2015, when markets crashed post China Crisis, FII money fled out of our markets. Though it did not cause much damage to the retail investors, because the losses were mostly in the large cap stocks while our retail investment was mostly in the Midcap space.

FII money went out of our country for a reason. The expectation that FED will reduce interest rates in the US made the FII’s pull out from the Emerging Markets to park the investments in their countries in order to reduce risk.

When FED postponed the decision to reduce rates, by which time most of the money had moved out. The only possibility was for the money to come back and India was the most favourable destination. On 15th September in our article “Mid Cap stocks are stronger than their large cap peers.” We had written that, all that is going to happen is positive for India. FII money will soon come back, it became a reality.

In the first 20 days in the month of October, India has received 4675 Crores from FII’s. As this money is reaching here our SENSEX has made a near 4% gain in the same period.

Somehow, FII’s made some wrong decisions, while they are pretty fast to take responsibility and change. Now, their investments are in the Midcap space. The advantage here is that, this segment is already low on liquidity and pretty strong. With the additional flow of capital, wanting to buy more in this space will increase demand far higher than supply and that will result it very high valuation for the stocks.

One of the Mid Cap stocks, Britannia has in fact given more than 10% profits in the last one month alone. Some stocks like KEI, DEEP Industries, ITD Cementation etc., are having good runs in the market.

In our portfolio that already has investments in these stocks; we have added exposure and have been gains. We look forward to have a small correction in the markets, post which, our market is going to have a big rally in prices.

Anticipation & caution as markets go volatile.

lower-interest-ratesAfter the August sell off post China Crisis, September began with a consolidation while our PM met with the Industry leaders, bankers and economist to get ideas on managing the prevailing global turbulence. He had requested the industry captains to increase their risk and step up investments. The industry leaders used this opportunity to ask for policy actions that will improve the ease of doing business and the need for the interest to be reduced at the earliest.

This action brought strength into the markets which got supported by the European and Asian markets showing recovery along with some strength in the Indian Currency. Following which Government approved several reforms including the allowing of telecom companies to sell radio waves, added as a booster to hold support for the strength in the markets. The European markets charged further following the rise in exports and imports in Germany.

However there was still a lot of caution in the markets as investors were anxious on the outcome of the US Federal Reserve policy, which turned to be subtle as the cut was postponed. There is expectation that the strong fundamentals of India will provide enough protection from the global developments.

Then came, the sudden news of Volkswagen cheating the US markets with a fake emission report which shook the automobile stocks worldwide, Volkswagen lost 48% of its stock value in 2 days, which also impacted many of the prominent Indian companies having big presence in the European markets like Motherson Sumi, Bharat Forge, Bosch etc.,

The reports that the inflation went down to 3.66% and the Wholesale Price Index being negative at -4.95%, was a good stimulus to the markets and then followed the surprise from the RBI with a 0.50% interest rate cut, after which markets went into rally mode.

The ambitious goal to have the inflation at 6% by January 2016 looks like an achievable target. The RBI has now started working towards having the inflation at 5% in 2016-17. All these developments will take our economy to levels which we haven’t seen so far in our life.

Even after all these developments FII’s were net sellers while the Mutual Funds kept continuing with their buying spree in the markets. There are fairly high chances that the FII’s will return back and with a higher allocation for India.

In the meantime, Saudi Arabia withdrew about $70 billion from global asset managers to bring down the widening deficit & reduce exposure to volatile economies as their economy is going into a recession. On the other side of the globe Prime Minister Naredra Modi’s bilateral meet with the US president Mr. Barrack Obama concluded on a high note. Among the countries present like Pakistan & China, India became the centre of attraction. Business captains in the US committed to more investments in India which is a very nice development for our economy.

What was done on the portfolio?

There were 5 exits, 2 reduction of exposure, 6 additions and 2 increases in exposure. Our portfolio is going through a dramatic shift. In the first week of September we moved out of MM Forgings and Bharat Forge well before the Volkswagen news hit the markets, thus saving bigger losses. SKS Micro was exited after the company missed the Small Banking license. Schneider and Sun Pharma Advanced Research moved out of our portfolio. We brought down exposure in Cadila and Welcorp by 100 basis points following their ratings coming down on our ranking tables.

MaduraBrandsOn the additions side, we had 0.50 basis points increase in exposure to Aegis Chemicals and Cosmo Films and have added 100 basis points new exposure to Britannia Industries, Himatsingka Seide, JMC Projects, FDC, Aditya Birla Nuvo and Deep Industries.

Auto sector exposure is getting reduced considerably and is getting replaced with companies having good exports revenue and consumer centric businesses. Weakness in the Rupee is an advantage for companies having export revenues.

This festive season, as you shop for your Van Heusen, Louis Philippe, Allen Solly, Peter England and Planet Fashion for your clothing needs, you will be making a small profit to yourself due to your ownership in Aditya Birla.

Britannia has made a packaging change and has gone into a new promotion, its business is growing, and so, the next time you pick a ‘GOOD DAY’ biscuit pack in the store, you will be contributing a small profit to yourself.

We also have exposure in Hindustan Petroleum, every time you fill gas at the HPCL bunk, you make a small profit.

Feels good that our portfolio owns companies that produce most of the daily use products, just our consumption will not have an impact on the profit of the company, while we can take pride that we are using the products of companies that we own, is it not a good feeling?