Performance report for July 2016

Markets have been doing well and there are media reports that there can be some correction. Which is true? Fundamentally on a broader perspective there is not much change seen in the earnings of companies. Then, why did the market take off post budget? Foreign Portfolio Investors who moved out of our markets post China crisis have returned back. FPI’s have poured more than $1 Billion into our markets.

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When such high amount of money comes in, it will move the whole markets and that is what has happened. Businesses that were fundamentally strong, though there were very few, began to

Following BREXIT, markets have taken off well due to FPI inflows. More than a billion dollars have been invested in our markets in the last one month, which has helped in markets giving a good growth.

Metals & Infrastructure sectors were leaders in returns as they are moving up from the bottom, while on the fundamental side, the companies in these sectors are yet to show strength.

BREXIT and saturation in the BFSI segment which was contributing to growth in the Technology sector has turned the sector into the weakest in the prevailing markets.

SENSEX gained above 4% in the month of July, in line with our performance which stood at 4.20% for the month of July.

Our Exposure:

Being exposed to the right sectors that have the potential to get the best growth in the prevailing markets gives us an edge in performance. Our systems have ensured that we are invested in the right sectors. Presently, we are overweight on Financials, Cement, infrastructure, Sugar& Paper. NBFC businesses have got into an advantage position against the traditional banks. NPA’s position of NBFC’s has been fairly low when compared to the PSU peers. They are also placed well in the rural markets where the next thrust on the business growth is expected to happen. Likely boost in the consumption pattern after the 7th pay commission is getting factored into the market.

Financial sector has above 12% exposure in our portfolio. Bajaj Finance & Bharath Financial has been consistent performers following their robust result announcements.

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We have had increased exposure into the Basic Materials sector comprising Metals and Chemicals, the sector that was down in the last year. After a good base formation there are some green shoots visible in this sector. Exposure was reduced in the Technology sector following weak performance numbers from the businesses in this sector.

Merger of Oil Marketing Companies into a single company was good news which helped the leader of this sector HPCL have good gains.

Result season though not very good on the broad perspective, it has pretty well on specific stocks. Stocks like Bajaj Finance, Bharat Financial, etc., have given phenomenal gains following result announcement. Good monsoon and subsequent rural demand have been helping in companies that have good rural presence gain momentum in the markets.

GST becoming a reality soon is also helping service sector businesses to gain as they are the biggest beneficiaries of this move. Following no new stimulants that have uncertainty in them, which can drive the markets from here, we are having small corrections and this correction is required often the markets to move out of weaker holdings and add new stocks into a portfolio.

Being invested in the leaders


At Bravisa Temple Tree, we emphasis more on being invested in the leaders of the sectors and industry groups. The reason behind it is that, stock prices of top performers have the potential to gain much faster and at a higher rate, they also have a lesser chance of falter overnight. Like a motor vehicle travelling at above 60 km speed cannot come to halt all of a sudden.

In many situations the leaders have a better gain on their prices than the whole Industry group. This strategy also helps us to be invested in the top performing industries of the economy at any given period. After the China crisis and the correction in the markets, Sugar, Pharma, NBFC and Infrastructure along with Cements turned out to be leading Industries.

Some of our investments in the leaders and their profits are:

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EDELWEISS gains 49%, top performance among brokerage and financial services business sector among its peers.

TAJ GVK Resorts gains 63%. Top performance among the hotels sector peer group.

Both these Businesses when compared against their Industry groups have given the highest price growth on their stocks.

Such regular investments are helping us achieve outstanding performance against the benchmarks like SENSEX.

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock markets ready for its next euphoric rally

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Expectations….expectations. Expectations, towards the end of a Government term which did not have the confidence to decide on any plans that will allow the economy to grow. Expectation on the team that was coming to power, which was aggressive. Expectation on Narendra Modi, who was presumed to be a strong decision maker, as the next Prime Minister. Expectation that, the new government will clear all the infra projects awaiting clearance, which will drive the economy into a robust growth phase.  Indian economy staged a pretty strong recovery and went on to give a robust growth.

Favourable RBI policies, supported by Raghuram Rajan’s strong commitment to revive the Indian economy with his bold decisions on the interest front along with the cleaning up the banking system. His decision to impose curbs on Gold consumption, bring transparency into the Real Estate markets.

Almost all the external factors supported the expected growth. Crude Oil prices crashed, never to see the high’s that it went through. Favourable monsoon, good automobile sales followed by growth in profits of companies in competence. 2014 was a wonderful year for investors as the SENSEX surged more than 40%.

This expectation fizzled out earlier than it was to, things changed. As markets grew leaps and bounds, businesses did not see growth in sales. People began to complain that, “only the stock markets are moving up, money flow is not seen yet. No visible developments in the economy.”  Soon, it was followed by the historical crash of the Chinese markets. Volkswagen case and normal to flat growth from the businesses, markets turned down, went into a tailspin throughout 2015.

After the March quarter results, there are glimpses of change visible. One of the most important factors in the results announced so far is that, sales growth has been still at a slower pace, while profits are showing good growth numbers. Such number growth is possible only if operations are controlled. On one side it is a negative, as controlling operational expenses cannot give continuous growth, it can become counterproductive.

While, on the other side, there are green shoots visible, if the companies who have managed to bring down their expenses, continue to maintain the same tightness on their expenditure and along with that when the sales numbers improve, the profit margins are going to be phenomenal. And that would mean a euphoric rally in stock prices.

As many analysts say on the media, “we are in a cusp of a great bull market” the future looks very attractive for India. It is time to give more exposure to Equity investments. For those who have missed the 2014 rally, now there is an even bigger price move waiting to happen. Those who have maintained a wait and watch on their stock investments, now it is the right time to begin investing. One can even think of adding to their existing investments. Those of you who had stopped their SIP’s or had moved to the debt markets for safety of capital can now think of venturing into the Equities segment to have very good gains.

If things pan out well, we might witness a rally in stock prices, which we had not seen so far in the Indian Stock market history. The next 5 years are going to be a boon to all those investors who venture into the markets.

Take advantage of the markets next move; at the early stage itself, waiting for more confirmation will only result in lost opportunities.

Not in a hurry to turnaround……

Slow TurnaroundThe Indian stock markets which had an euphoric rally in 2014, turned down in 2015 and is looking to have another negative year in 2016. Price increase in stocks are always backed by earnings growth, and when earnings show a slowdown, price moves either get flat or decline based on the interests each individual stock has built in it.

In 2014, earnings growth was very good and it supported the price increase following which expectations got higher and it fuelled the valuations to get a little bit stretched. Once the reality set in to show that the expectations were wrong, rather it was in fact the other way around, a slowdown in the growth rates, investors were in for a surprise. All of a sudden all the buy orders became sell orders and hence the larger fall we have had in the markets post Chinese market crisis.

Automobile companies which were leaders in 2014 began to slow down on their growth. Infrastructure restructuring which was expected to be big and to support the banking sector, has been taking more than the anticipated time to get on the roads. New sectors that began to show strength were NBFC’s and Pharma along with export based businesses. Each one went on to face its own challenges. As spending declined, which has been shown in the top line growth of the Indian businesses in their December financial results, with sales growth in the lower single digits and profits showing an increase which means, companies have resorted to controlling operations to increase profits, which is also a negative in a growth story. Controlling operations expenses cannot continue for a long period. Without sales growth, it will bring in more challenges. This facilitated the weakness in the NBFC sector. USFDA played the devil’s advocate to pharma companies, big names in the Pharma space began to fall like nine pins. Between 20-30% drop in prices of stocks like Dr. Reddy’s Cadila, Cipla etc.,

Exports sector went into a different challenge, external forces played against them, all of a sudden they become un-competitive to their markets following the devaluation of Chinese currency. Orders began to slow down and some of the prominent stocks have lost more than 50% from their peak price.

With big time damages done to the markets, Indices Nifty and SENSEX breached their near term supports and turned bearish. Within few months what was the world’s best economy became the opposite. Now, it will take a little longer than anyone could guess for the markets to turn around. Government through its next arsenal, “THE BUDGET” looks like not to give any big fillip, with just a couple of days for the budget, markets don’t show any kind of strength. Next triggers can come only from the Q4 results, which already shows weakness as banks like SBI have announced that, they are going to show more bad loans in their books.

The best way to approach the market at these troubled times is to wait on the side lines, ready with funds to take the next opportunity early on. In our portfolio for our clients, we have liquidated most of our holdings baring very few best performing stocks like Bajaj Finance, Pidilite etc., Being invested in short term debt will help our capital grow at nominal rates till the next opportunity arrives. In Equity investing, if we deploy this method of getting in when the markets are strong and out when it is weak, it is possible to outperform the benchmarks over a longer period. Hence, again it gets proved that, buy and hold will not be the best strategy in Equity investing. It can only give returns to the extent of that which is got from FD’s. Rarely one can find stocks that have given super normal returns on a continuous basis for decades.

Take a look at your portfolio and do a churn of holdings wherever required and be in cash to take the next opportunity.

EPFO rethinks Equity

47033746Employees Provident Fund Organization (EPFO), after a long thought out process, delaying decision for more than 18 months decided to take exposure into the equity markets to its contributors the advantage of Equities. What turned out is history again, the long dilemma in deciding took away the best of opportunities in the markets and just after their decision to pump in ₹6000 crores or 5% of the corpus into equities in the month of June 2015, the markets took a U turn with the China Crisis in August followed by the downward spiral of the Crude Oil markets.

In 6 months from the decision, the EPFO is rethinking its strategy and wants to pull out its investments following losses it has suffered in the markets. While this condition will give wrong signals to the employees whose contributions were the corpus of this organization? That the Equity markets are not a good investment avenue, while it is not the markets whereas the time of the entry which came amidst a lot of fear and attracted what it was feared off.

They had actually planned a regular investment, which in reality is a very good decision, over a period with the might the equity markets have in providing the highest return on investments which no other asset class in the world can match. To give such good returns, it also requires another important factor, which is TIME. If equity investments are approached with a short term view or with a mind-set that we will only make profits, that is not going to happen. It is the volatility that gives this asset the advantage of giving best profits.

Give your investments time of anything  between 3-5 years, the risk quotient almost becomes zero and it has a potential to give more than 15% annualised returns, provided the necessary churn is done on the portfolio.

China Ghost haunts again….

Sleeping BullReturn of the dragon for the markets in beginning of calendar 2016, though not a welcome sign, it was waiting to happen. All the effort that the Chinese government is making to stop the markets from sliding down is becoming counterproductive. Following the market crash in August 2015, they had imposed a ban on selling for large investors for a period of 6 months, which is now coming to a close and in the meantime, they introduced shorter circuits. Circuits are a mechanism to put the market to a halt when it goes out of control in any direction.

Falling Bears

 

This new decision brought more selling pressure and their markets hit downward circuit twice in a week. Overall strength in the Chinese economy is very low, it cannot get revived overnight. Even if they strengthen, there are no chances that it will be the same as it was in the last few years. China story is over now, whereas the tremors that this behemoth economy will bring to the global markets are going to be pretty high. As the Chinese government take the next step to devalue their currency which is expected to be 4-5% from the current levels, it will impact the emerging markets highly.

Export businesses will take a hit and following this event, USD is likely to touch or move past Rupees 71 to a dollar.

As the large cap stocks have taken a bigger and prolong hit, recovery is likely to be in that segment, though it might give significant gains, it will for sure help the SENSEX and the NIFTY give some decent gains in 2016. Mid Cap stocks will take a back seat this year and there are likely to be many exits in our portfolio and to some extent this space will get occupied by Large Cap stocks.

While there are opportunities available always in the markets to grow our savings if we are able to identify good growth companies, which is the stronghold strategy at BTT.

When will the market go up?

ConsolidatePost China crisis, our stock markets have moved into correction mode. There were continuous challenges in the form of disturbances like the Volkswagen scandal, Bihar election results, attack on Paris along with the regular nuances like the FED rate hike and the selling by the Foreign Portfolio Investors (FPI) in our markets, which has almost become like a monthly issue.

In October, there was the fear of the FED hiking interest rates which got postponed to December, now the fear has come back again on the thoughts that, whether there will be a re-thinking by Yellen. And every time there is this news about the interest rate hike, it gets followed by the withdrawal of the FPI’s from our market. We have been so much at the mercy of foreign investors to support our market; a small change in their thought itself creates a downturn in our markets. As an emerging market, we have got used to this foreign investment to support our markets.

While in reality, the present situation in our markets has taken a different direction. Dependency on foreign money to move our markets are slowly coming to an end. From the data that is available it is clearly visible that the foreign support is no more required for our markets. In the April to October period, domestic institutions and retail investors have bought stocks worth 51000 Crores, on an average the domestic funds are buying stocks worth 6638 Crores or just about $1 billion, every month since May 2014 as against the FPI contribution of $787 million in the same period.

These figures show that any kind of selling by FPI’s is getting absorbed by the domestic purchase. The investment dynamics of the Indian public have had a dramatic change; SIP’s used to be about 1000 crores per month before 2014, which has now got increased to 2500 Crores per month. The beauty here is that, all this money is going into the midcaps and not the large caps. When we talk about so much inflows and the market is still weak, doubts arise as to why it is so?

The FPI’s are mostly invested in the large cap stocks, which they are liquidating, apart from the fact that the reduced interest rates will become attractive for these investors to be invested in their economies; they are realizing the mistake of wrong investments. Large cap stocks have become poor performers in the present market. The SENSEX dropped 1.48% on 18th November 2015, while the mid cap index dropped only 0.68%, the reason was FPI selling in large caps. Stocks like Larsen & Toubro, ONGC, TATA Steel etc., have been losing heavily, while their mid cap counter parts like Eicher, Page etc., are gaining big time. In the last week alone Dr. Reddy’s lost more than 25%, along with it all the frontline Pharma companies losing a large portion of their value, while stocks like Aurobindo Pharma, Cadilla, Glenmark etc., did not lose much.

Pressure of the USFDA investigations have brought down the stock prices of most of the big names in the Parma Sector. Again, this USFDA is one another issue that has been haunting our markets often. There is too much of dependency by our frontline Pharma companies for their sales from the US markets and the US is commanding, this situation will change soon. Our companies will realize that there is a similar market available in the rest of the world and with the medical facilities getting improved in India, one of the biggest economies by population, India sales itself will have a bigger contribution in the years to come.

In the first 20 days in November, FI’s have sold in our markets to the extent of 7200 Crores while the domestic institutions have bought for 17360 crores. It is close to 150% more than the sales that have happened. Most of the selling was in the frontline stocks and the buying was in the mid cap space. To some extent the selling pressure is getting absorbed by the local institutions and that is the reason we have the markets going up and down in short periods. It is like a sort of confusion and will result in a prolonged consolidation.

FPI’s are forced to re-align their portfolio if they have to make money from our markets, hence the selling pressure. Whereas the domestic funds are already loaded into mid-caps which have had a very good run and are also adding to their portfolio taking advantage of the correction in the market. Our markets witnessed an above 40% straight rally after the new government got elected, from such a steep rise, it has to get re-adjusted before it takes off again and this readjustment will take a little more time. The way the charts are formed, the bullish sentiment is pretty strong. If the next round of bullish move has to be even stronger, like the experience we had in the 2003-2008 bull market, the markets have to consolidate and re-shuffle leadership.

happy-investorsLast year Automobile stocks had a great run supported by good earnings from the companies, while this year, they have a kind of taken back seat. Most of them have completed their dream runs. Now the leadership position is slowly getting shifted to Pharma and NBFC stocks. September quarter results were muted, the average sales growth has been around 1.50% while the earnings growth is at 7%, which shows that companies are cutting down costs to increase profits and this cannot continue for long. Soon, we will have sales numbers showing up.

This change in leadership is going to take some time to get aligned, maybe till the 3rd quarter results are out, in which there can be some positive surprises. Till that time, the markets will not turn bearish; it will consolidate at the present levels and then break out. The longer the consolidation, so much stronger will be the next rally, while in the consolidation period; it will kill the patience of anxious investors. For those who stay with patience, the next rally will be a bigger reward. The same happened in 2014, before the 45% rally we had between March 2014 and April 2015, the markets consolidated for a full long year staying within a 15% range in 2013.

With Money BagsPresently the consolidation is again at 15%, the more it gets stretched, and the chances of another 45% rally are higher. In such a scenario the SENSEX should be at 43500 and the NIFTY at 13150. At present these numbers look a little too over optimistic, while it was the same when there were talks of SENSEX to reach 30000, in early 2014, hard to believe, while it did happen. The SENSEX breached 30000 in March 2015.

As I complete this writing, I myself am getting euphoric, how throwing a little light on the hindsight has given a very beautiful picture to look at in the future. For those who have missed the 2014 opportunity, there is one more chance waiting to happen, take advantage and grow your savings faster.

Post Diwali…..Market Rally

dhamaka_stocksOctober was perceived by the media to be a ghost month, while it turned out to be wrong with the SENSEX gaining about 1.50% after a peak of 4.30% gain. It proved that, not every year is a bad year in October, particularly for India in the next 5 years, it is a Golden period. Every correction is an opportunity to get into the Equity markets. And take advantage of the current World leader in Economic growth.

Our portfolio managed to close with a 2.30% gain for the month of October 2015, having an Alpha of above 50% against the benchmark. We had good performance from the House Hold goods, Travel and Leisure, Support Services along with Computer Hardware, FMCG & Financial Sector stocks. The losers were from the Pharma & Textile space, which had marginal impact on the performance.

Deep Industries, Cosmo Films, FDC & ITD Cementation gave us more than 20% profits in October. Cosmo Films was added into our portfolio in June 2015, in 5 months this stock has given us 150% profits.

Bravisa Templetree, portfolio has managed to outperform the benchmark even with the lower exposure due to a good amount of exits following the market correction. We are 20% in cash at present and still have managed to do well due to the strength of the businesses we own. The dynamic nature of our system to move out of weaker stocks and add up to stronger ones as they show strength was the reason for the outperformance.

Biscuit packaging went into a total design makeover along with new varieties of films used in their packaging. Cosmo Films is the leader in this segment and has had a major benefit. Along with film manufacturers, packaging companies like Paper Products, SRF too had good gains.

After the Chinese market crash and followed by the Volkswagen scandal, where markets went into a tailspin, markets are getting ready for the next big run which is likely to happen after the next wave of correction just about the Diwali and post Diwali, Indian stock markets are poised for the next strong rally.

The reality sector which is one of the weak sectors at the moment is dragging other support sectors along with it like metals, home construction along with banking. Banking stocks have taken a bigger hit and there are no signs of slowdown in their weakness. So, the next rally is likely to be in the industrial sector.

2nd quarter results so far has been bleak for the large cap stocks. Most of the public sector banks have shown more weakness on their earnings. Automobile stocks which were the leaders in the 2014 rally have begun to show tiredness in their earnings. In our portfolio, exposure to Auto stocks have got considerably reduced baring few stocks like Eicher Motors, which continues to have good growth numbers. Sales numbers of Royal Enfield has shown 73% increase in the second quarter, while the stock is showing correction which may result in its exit from the portfolio.

Coffee Day listing did what it has to, down more than 20% as per expectation. Indigo IPO which went through with over subscription too is likely to open weak and the issue was pricey.

Bihar elections and FED interest rate hike will put some pressure on the market for some days after which the markets are likely to go into rally mood. Our portfolio is all set with the right stocks to participate in the rally.

A very Happy Diwali to all our patrons, clients and well wishers.

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.