FII favorites were our favorites too

FIIsFavourite.11.05.16Shareholding data the companies have provided to the exchanges reveal that foreign institutional investors were selective on their stock picks and from the data, there were about 44 companies in which the FII’s had considerable stakes.

Money control has published this data and out of the 44 stocks, only 12 had negative price moves, while the other 32 were largely positive and 7 out of them had given more than 100% profits in the last 1 year. Following is the list of those companies.

 

Our portfolio in the last year consisted of 14 stocks from this list and 4 of the top 7 that made more than 100% profits. Hence we were able to beat the SENSEX in returns consistently.

Having a strategy to invest only in those companies that are showing growth on their sales and profits quarter on quarter, helps the investment to have phenomenal growth over a longer period.

When the broad markets turn weak, even this portfolio will turn down, while the advantage is that the weakest among the stocks that have formed the portfolio move out and the rest of them stay put and continue their stronger run.

Some of the stocks that consisted our portfolio among the top 7 stocks were TATA ELXSI, Indo Count, Jubilant Like, Take Solutions.

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.

How to be a winner in stock investing?

I had written an article on who is smart, the FII’s or the DII’s (https://bravisatempletree.com/mid-cap-stocks-are-stronger-than-their-large-cap-peers/) a couple of months back. I did not expect that so soon we will get back to square one. In one of the recent data on how the investments have been happening post China crisis, it was sad to note that again our retail investors have caught the tiger by its tail.

HerdMentality Holdings.19.10.15

The public participation had helped the DII’s to have larger exposure into the Mid Cap space which was the performing segment in the current bull rally. FII’s got their fingers burnt with their large cap exposure. Now, the retail data that comes out shows a sad story. FII’s were smart again, they learnt from their mistakes, changed fast. While our retail investors are still in the same swirl.

To be successful in stock market investment one has to be invested in companies that are big growth stories, both fundamentally and technically. The list of stocks that the FII’s have bought as per September data shows that they have placed themselves perfectly in those companies that have strong price patterns. Whereas, our retail investors have made perfectly wrong decisions by buying into stocks like Amtek Auto and Aban Offshore. These are companies that the FII’s have discarded from their portfolio.

Why people have bought into these stocks?

When we experience something good, we invariably want to experience it again. While doing so we naturally get carried away and take the experience in face value. Same thing happens in stock investing, when we see the price of a stock at a particular price and decide to buy into the stock, while it keeps rising not giving us an opportunity to buy, then one day suddenly it corrects and drops to some extent from its high. For us, it is a cheap stock and we load it into our portfolio. Little do we realize that the stock price has fallen for a reason?

For example, AMTEK AUTO is down because it has defaulted on its debt, a very big 15000 Crore debt default is staring large at them, it is also brought sleepless nights to fund managers in JP Morgan who have large exposure in this company’s debt. Similarly Aban Offshore is down because of crude price drop, will it regain its glory, is not known for now. When such impulsive investments are made, it is obvious that these investments will either stay flat or drop further. And when it drops, we tend to add more to our holding in the thought of averaging our losses without realising that, when we add investments into an already losing investment, we immediately add to our losses.

Over a period our investment will end up in a loss and what we talk about our experience to the outside world is that the stock market is GAMBLING.

Some of the exits from the retail segment like KEI and DEEP Industries too are wrong, these are stocks that have good potential for growth.

Be invested into good stocks, your investments will naturally be profitable. If the investment crosses 5 years, you’re down side risk is absolutely zero. And the profits will be the highest.

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?

Eveready hikes battery price.

BatteryAAThe management of Eveready Industries have increased the price of batteries by 5%, to manage costs that have got increased due to the rupee depreciation. This is a very bold decision, though Eveready commands a very big market share in India for Batteries, the price increase can put the competitors at an advantage, mostly the low priced Chinese products that come into India.

In his interview with CNBC, Mr. Amritanshu Khaitan, MD, Eveready Industries reiterated confidence that the competitors will follow soon.

This confidence shows the belief the management has on the business and the added profits this price increase is going to bring will increase the profits and the price of the stock too. In last June Eveready stock was prices at ₹45, when we added the stock to our portfolio. Today after about 15 months, it is at ₹290 after reaching a high of ₹370, so far giving us above 500% profits.

The management is expecting to have their profit margins at 11%, from the 3.83% that the company is having now, it is a fairly big jump and it is going to take the stock to greater heights.

Eveready has entered into LED lights business, where it is competing with many prominent brands. The advantage we found with their product when we shopped for a few lights was that the price is very competitive against the other brands. This will push the sales, which is again an advantage for our investment.

RBI has approved the increase of FII limit to 49% of the company’s equity. The present FII exposure is close to 44%, which gives scope for another 5% increase and to that extent there will be demand for the stock in the market and it is add up to its price rise. Just because foreign investors are having a big stake in the company does not mean that the company is going to be ever growing, there are many instances where some FII investments have gone wrong too. The advantage we have here is that, since the company is showing good strength, FII’s will be willing to take exposure even at a slightly higher level and that will be at our advantage as the stock will move up faster. We will track the performance & stay invested only till the company is growing.

Mid Cap stocks are stronger than their large cap peers.

FIISelling TableThe interest rate hike fear has come again this year after it had created a tantrum in 2013. A comparison of FII selling in our markets against what was in 2013 has been marginally higher. In 2013 they had sold to the tune of 22639 Crores, now it is 22693 Crores, just surpassed the previous numbers.

The situation now is entirely different from what it was in 2013. This time when FII’s were selling, we have had the Domestic Institutions (DII) buying, from 13K Crores in 2013; they have increased it to above 21K Crores in 2015. Domestic buying was possible because there was money available with the Mutual funds, which means there has been good retail participation in the markets. Indian public’s contribution to mutual funds.

Even though there were good amount of purchases made by the domestic institutions, the SENSEX has taken a bigger hit this time. The dynamics here was totally different. FII investments were mostly into the large cap stocks, while the domestic purchases were from the mid cap space.

Now, who is smart among the both?

I have been tracking MF purchases for the last 5 years, and all this while the domestic participation will always be on the wrong side. While, this time it is different here too. FII’s have been caught on the wrong foot. Their investments have largely been on the frontline stocks. There is a reason that the large cap stocks are not performing.  It is both they have a bigger base and growth from there is a challenge or there is de-growth visible in their balance sheet.

For example: Banking stocks do not have any kind of growth visible in them, this was more clearly known last year itself. Banking has hit the highest impact in the current downturn. FII’s splurged heavily by being invested in these stocks.

So, when they sold out, there was no saviour for large caps, hence the fall is 8.77% on the SENSEX this time when compared to 5.77% loss in 2013.

Have the MF’s become smarter on their own or the retail participation made them do it, we do not know. The inflows into mid cap mutual funds were higher compared to large caps and hence, the DII buying was concentrated on the Mid-Caps. It springs about good news; the retail investors of India have gone smart. This is news to celebrate.

I used to always think about, why foreigners are taking away all our wealth through stock market profits, while our people being the creators of this wealth are not enjoying it? Now, there is relief. People of India are enjoying the benefits of their growth.

The Rupee has also been strong when compared to 2013 Taper Tantrum, now it is down only 2.29% as compared to the 9.70% drop in 2013. Thanks to Raguram Rajan’s wonderful policy decisions.

All these data numbers throw out some predictable moves in the coming months.

  1. 1.       Currency is strong, so, the bounce back is going to be strong for India.
  2. 2.       Mid-caps show more strength, they are going to outperform in the next rally.
  3. 3.       Large Cap investments will take time to pay returns.
  4. 4.       FII’s cannot do much damage from here. They can only multiply the bullish effect.

If tapering of interest rate is happening in the US, FII’s will take time to come to India. There is no fear of big sell out, as they have already moved out considerable funds from our country.

In case the situation is opposite and the FED postpones tapering, the FII’s will rush back to our markets and this time they will buy more into Mid-caps as they have already burnt their hands on the large caps.

FII buying into Mid-caps will take the stock valuations to levels one cannot imagine off. The reason behind this is that Mid-caps don’t have the float that large caps have; which would simply mean that there will be very high demand for quality Mid-cap stocks while the supply is going to be minuscule. Unless the DII’s get into a selling spree, there cannot be much liquidity available for the FII’s to absorb. And it is unlikely because it is the public who have to decide on moving the funds out of the Mid-cap funds to provoke selling pressure.

What a beautiful situation we have come into?

Investors, sit tight with your mid-cap exposures, you will see astronomical valuations coming in a few months from now.

Out Bravisa Templetree portfolio is loaded with the best of quality Mid-cap stocks, which is likely to take us to the moon….. I suppose.

Let’s laugh all the way to the bank, enjoy our money growing in a super-fast manner. A speed that we have not experienced so far in our life.