Performance of the live portfolio. Changes in the portfolio for November. Stocks that are coming in and going out. Analysis of HDFC AMC, which has given 50% profits in the portfolio holdings and 108% to its investors in the last 1 year.
BravisaTempletree added HDFC AMC to our portfolio of India Top 30 stocks in June 2019, today this investment just crossed 1 Crore mark. In 120 days 64 lakhs goes on to become 1 crore. The gains made in this position gives me the first signs that our market has revived from its bear hug. Feels like the return of good old bull market days of 2014-17. Brings confidence that, the next leg of top performance against all other investment portfolios like we had done in 2017 has begun.
As HDFC AMC leads the pack of gains this season, we are having stocks like Bajaj Finance, Bata, SBI Life, Avaas Financier, KEI kind of stocks supporting with good gains building up in their positions. Both SENSEX and NIFTY are reaching for their all time high levels, now the tide is changing. In the last 2 years a handful of stocks were leading the markets upwards bringing confusion in the minds of investors as to why their investments have not gone up, where as the market is going up.
Now, it is time for the SENSEX and NIFTY to cool off while the broad markets will take a lead. Already in the couple of past sessions we have seen big traction in price moves of Mid & Small cap universe. Even today as I write this small note, NIFTY and SENSEX are down, while both Mid and Small caps are up. Infosys, which was the Gold Standard of India’s corporate world got mired into problems, today a whistle blower letter indication discrepancies in their accounts has tanked the stock 13%.
Showing that one day like how a bad market can revive to good times, some good also can go down. Being in the market, we should not worry about all these issues. If we have a process and follow it with discipline, we will not be caught in any of these challenges.
In our experience, we have not had any of the bad names of the resent season in our portfolios. DHFL was there with us 3 years back. At that time company was growing we made our share and got out with 100 plus percent gains. INFY, was out of our radar in 2013. Same stories for many stocks that have lost more than 50 to 90% in the recent meltdown in our markets.
We have had a good correction in stock prices of Mid & Small cap segments in the last 2 years. When Small cap saw 40% drop in prices and Mid cap had a near 30% drop, Large cap segment which kept the markets up in most part of 2018 have not participated in the weakness. Even now, after more than 20 months of broad correction in our markets, Large cap indices like SENSEX and NIFTY have given back only about 4 to 6%, which is not at all a correction in prices of those stocks.
The present patterns in the indices and the stocks that kept them at high’s are showing signs of weakness. When the turn comes, most of the stocks that lead the rally will give way to weakness in prices. This will have a big downside move, on the funds that hold these giant large cap caps.
Stocks like HDFC Bank have maximum exposure in many Mutual Fund Schemes. 14.41% of the Bank’s Equity is held by Mutual Funds present across 395 schemes, most of them holding it to the max permissible limits.
Fundamentally HDFC Bank is one of the biggest contributor to stock market wealth creation in the last 2 decades. Along with its parent, HDFC, which was having a 500 Crores market cap when it was listed in the early 90’s, current value of both these companies along with their subsidiaries have crossed 13 plus lakh crores.
HDFC Bank had been growing at 30% per annum for a very long period, in the recent past for a couple of years its growth has tapered to below 20s. Even the September quarter results is expected to hold the 18 to 20% growth range.
On the technical side, HDFC Bank’s chart seems to be getting close to bearish divergences, which is an indication that it is getting saturated at the top. Post the results, if the price moves are not pretty strong, it will give way to the bears.
Two possible outcomes is likely in this stock.
- It succumbs to bear power and goes down, which will become a very good opportunity for long term investors to add this stock to their legacy holdings or
- Lose momentum, will hold to the current range to build strength for the next rally.
In the present condition, later is most likely to happen. Though the stock might not see a steep fall, as it has formed a range of 1050-1250 on its prices, this range should hold and then have an up side breakout. When this consolidation plays out, all of the mutual fund schemes that hold this stock will go through the same pattern of consolidation because of the large exposure this stock has in all the portfolios. Today 14.41% of the Bank’s Equity is held by mutual funds, which is present across 395 mutual fund schemes.
Like HDFC Bank we have many such Giant Large Cap stocks which are having similar patterns both on their profit numbers and technical patterns. This raises concern on the near future performance of funds holding exposure into these stocks. This also coincides with the thought of non-participation of large cap in the correction. Now with the developments that are expected, we will see good amount participation, which will mean that we have to brace for another bout of weakness for our markets.
Since it is the big businesses of our country that will go through this change of correcting themselves, it might not be a big drop in values.
After the mid and small cap value correction, now it is time for the big stocks to correct. Since the last 2 years, we have had investors complaining about non-performance of their portfolios where very few of them still had some positive growth in their investments. This was due to the over stretching of the Giant Large Caps in our country. Thanks to the current developments, soon this non-correlation will come to an end.
All of these developments are bringing new opportunities too, since the large cap space is going to correct now. It will be good to take exit from your existing investments, move the funds to liquid and have the same get back into the same large cap scheme in a staggered manner through STP. This will help you book available profits, not take the hit when NAV drops and also get in with an average NAV to participate in the next rally.
Those of you who have exposure to schemes which are in the large cap space, which has completed their exist load period. Mainly having stocks that are likely to turn negative can take this unique opportunity to add more returns to your investments.
Infosys CEO Vishal Sikka resigns citing ‘continuous assault’ by NRN as the reason. With the kind on interference that the Ex-CEO was doing often, this news was expected…..
The wealth creator has now become the destroyer. 20000 crores of value lost today alone, since the stock corrects 7%. As it is, the Tech sector is loomed with slow growth, losing margins and now governance issues. INFY is one of the highly owned stocks by mutual funds, which means all the investors have lost wealth. And all this due to one person’s insecurity.
Old management in actual reality wants to control the company, while for the world, they show that, they have given management to expert hands. This episode along with the events that have been happening in the TATA group, shows the world that, Indian’s are still to learn a lot when it comes to having their wealth managed by professionals.
Though the Tech sector is a poor performer and the stock is showing very less growth, why did Mutual funds load so much exposure into this stock? HDFC owns 2%, ICICI Pru owns 1.50%. Is it due to the vicious thought that, it will come up one day and they should own it or just parked funds forcefully due to high capital availability, as the company has good liquidity and old track record of performance?
Such exposures are some of the reasons that Mutual Funds under-perform and lose confidence of investors.
There is open criticism in the media about the Infy board not able to manage a man with 3.44% stake, clear signs of more trouble in future. Stay away from technology stocks and more so from INFY. Protect the profit made from the stock in the early years, move out and invest in some good performing one’s and grow wealth. Do not become emotional and lose the gains made.