The Sugar swing

Sugar stocks in the market are not always sweet as the product is to taste. Rarely do they gain momentum and play up to give good profits. The reason behind this pessimism is because most of the sugar mills are owned by politicians and almost all of them make use of the bureaucracy for their favour and not bring any benefit to the company.

Towards the end of 2015, Sugar stocks began to show strong upward movement in their price which was followed by their balance sheets showing good numbers. Many a time such number crunching happens and it fades away as it came, like a surprise. While this time it was different, strength in Sugar stocks followed with Paper gaining strength too, it showed that, Sugar rally was not false, there is something really brewing underneath.

Almost all the sugar stocks had similar pattern, the reason was a drought in Maharastra, which is a dominant sugar producer and supported by global prices moving up. Our mills had something more in store. They had finished their crushing season, where their cane procurement came at fairly lower prices. This meant that, mills are going to be the ultimate beneficiaries of all the price increase in Sugar. Sugar price in the retail markets went up from 35 to 57 per kilogram. And all the difference in price was profit to the companies, which was showing up on the balance sheet.

Sugar stocks gave close to 1000% return in the last 2 years. Portfolios that had sugar stocks in them made solid gain in this period. We were one among them; we had exposure all the high volume sugar stocks in our portfolio. We made above 300% gains on our investment in the 2 year period between all the sugar stocks we held with us.

As we do a system based approach to investing, we did not pick up at the bottom of the price stack and did not sell at the top. We entered after good confirmations on the performance, as this sector is prone to deceive investors. Then our exits too were a little late as the price of Sugar took a sudden slide due to various reasons that brought pressure.

End of 2017 was the exit for Sugar stocks and after that the slide in prices have been phenomenal as stock that began at 32 in September 2015, went up to 325 in November 2017, takes a dive to reach below 100 by April 2018. The correction was pretty sharp.

We took the cream of the cake in the price rally, now do not own any sugar stock in our portfolio. The reason for the fall is the high supply of the commodity in the international markets, mills have been forced to export 20% of their produce, so that, and there is lesser damage in the local markets due to high supplies. And up on this, the government has asked mills to give advance payment to farmers for their next crushing season procurement. To arrange for funds, they have to export at lower prices.

The beauty of being a stock investor, we participated in the price rise, made our profits, moved out at the right time and now hold investments in other sectors which are in the up move. No pain of demand supply crunch, no government intervention only profits all the way, while one needs to be smart to get in and out at the right time.

 

2 years of normal monsoon a boon to the markets

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Met department has predicted normal monsoon this year. It follows the previous year which was also normal. This means big good news for the markets. We are going to see big gains coming…. Reason, farmers will have surplus income in their hands and will add to consumption. Rarely does such occurrences happen, where always there are drought conditions following one good or normal year of monsoon. Where our farmers clear off all their loans when there is normal monsoon and a fairly good crop. Now, if there is a second year of good income, where they will not have loans to pay, and can think of some luxuries for their families.

Once they have surplus funds, they will think of buying a new TV, automobile, renovate his home and more such goodies…. As their lifestyle improves, so will the economy. Businesses will have good sales, sectors like home construction, which already has a booster in the form of the Government’s “Home for all Scheme”, consumer goods and auto companies.

We look forward to have a great year for the markets. As this writing happens, the market is in consolidation, with no mood to get into correction. Mid caps, which were the stars as always have corrected to some extent. Sector rotation is happening, Sugar is showing signs of weakness, while banking is showing strength.

Good times ahead…….

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:

BrokerageStockPref.July16top-gainer

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

Above 3% gain in June 2016.

stock-june-2016

For the month of June 2016, our markets took a breather from its rally. We had pressures from 2 events which were surprising, Raghuram Rajan exit and BREXIT. While both were shocking, none had any broad based impact on the markets. In BREXIT became an advantage to our markets. Post BREXIT, emerging markets became favorite’s among fund managers & India had an advantage.

In this period of uncertainty our portfolio had an edge. We had a gain of above 3% on our portfolio against the 2.40% gain achieved by the broad based indices.

Good news is that we have achieved this out performance against the benchmarks with only 60% exposure to Equity. Not fully exposed to the market is also an indicator that the markets are in the wait and watch mode yet. Following June and September results, we should see full loading to happen.

SENSEX could manage to be flat for the month, giving a clear indication that front line stocks are yet to show reasonable growth. It is the Midcaps and a selected few among them that are in good strength. Infrastructure sector had begun to show strength; we have about 5% exposure to the Infrastructure, Cement, Construction and Reality sectors. Most of the stocks in this sector have registered good gains.

ARSS Infrastructure has reached 100% gain within 30 days of our investment giving strength to the exposure we have in this sector.

Sugar & Paper along with NBFC’s are the leaders in the current market. Media stocks have shown growth, with the big releases like SULTAN, KABALI etc., to hit the screens this year, the rally here is likely to continue. We have PVR in our portfolio.

Automobile and Pharma exposure in our portfolio is getting considerably reduced. We have used the system rules to move of stocks and the action also eventually coincided with the future developments. There are news that Auto sector is likely to under perform and stocks are getting downgraded. Following the system diligently helps us be in the right sector at the right period and this has largely helped us outperform all the benchmarks.

Look forward to more fireworks in price moves in the coming months.

May 2016 performance

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Performance of our portfolio is trailing the benchmarks in the 1 month to 6 month period. The broader benchmarks like the SENSEX have done better because of the Large Cap stocks that have had good increase in price, following their results announcement. Most of them have shown increase in profits, while sales numbers are yet to catch up.

Public Sector Banks (PSB’s), that have become untouchables in the last one year, have after the sharp clean up done on their balance sheets, getting rid of NPA’s, now showing good upward price moves. This turnaround in the PSB’s is not because of positive growth in them, it is just that, they have cleaned themselves and going forward, the expectation is that the performance will be good. Bank stocks have moved up on anticipation of better results in the coming quarters.

Turnaround is just happening and it should take another quarter or two to show up on the top line of companies’ performance. We have been adding stocks to our portfolio, following the March 2016 results. Our portfolio was moved out of stock exposure when the markets turned weak, and presently with new additions in the Paper, Sugar and NBFC sectors, our exposure have moved up to just above 50% and soon it should be reaching full loading.

Stocks like Balrampur Chini, Bajaj Holdings, Chola Finance, Bajaj Finance, DCM Shriram that were added in the last fortnight have been doing very good and going forward, these businesses are expected to give stronger growth to our portfolio.

We invest only in those business that show both Sales and Profit growth, hence, our portfolio does not carry Large Cap stocks in the current market, while we will be adding stocks that show strength, unbiased on the category or sectors.

Gaining leadership again…

Perf.13.05.16

In the last 30 days our portfolio outperformed the Nifty with a positive gain of 3.10% while the index had -0.60% returns. This was possible because of the good performance the fundamentally strong stocks had along with the new companies that came into our portfolio.

We have added companies from the Paper and Sugar sector into our portfolio. The coincidence here is that, Sugar & Paper are complementary products. As the consumption of Sugar is increasing so it paper, is that true? Don’t know if it is true, while the balance sheet numbers are saying that, both the sectors are gaining leadership among other sectors. Presently we have exposure of 3% each into both the sectors.

Along with the above sectors, financial sector, predominantly the NBFC’s have done pretty well and have helped us have out performance. With new stocks getting added to the portfolio, we look forward to have strong performance in the months to come.