Stock markets have taken a nosedive post Chinese currency crisis, affecting valuations worldwide. In a sense, this correction has been getting the real value of those stocks, which had run up without any fundamental support. In this scenario, how our portfolio has performed or is my money safe? Is the question that will strike our mind?
Overall there is likely to be a drop in value of the investment, because one cannot be positive always by investing into Equity. Equity is a volatile asset and it is only due to that volatility, there is opportunity for the smart people to outperform all other asset class in returns.
If it is continuously going up like a Fixed deposit, there is no chance to have any better profits than the average and there is nothing much to do with this asset. And if there is something, that secure, it would have factored in for all the fears and have the minimum appreciation. It is because of this reason that the secure assets grow below the inflation which is normally said in the investment parlance as ‘Negative Returns’.
These kinds of corrections are not a surprise; a small magnitude correction does happen once in 2 years and some corrections of higher magnitude happen once in 5-6 years. This is mandatory and we have seen them quite often only that over time, we tend to forget the pain we went through. Once we move into a zone, where we experience pleasure, there are very less chance that we remember the pain we underwent, before reaching the joyful zone.
This is what is happening with the markets now. Last year we had a euphoric run and now it is correction time. We have not moved below where we started on this current rally, but, when markets corrected, there is panic of losses and newspapers & media are blowing it up. When the bull market of 2014 started SENSEX was at 19500-21500 range, now the correction is happening at the 30000-25000 range. It is more than 3500 points higher than the space where it began. When this consolidation is complete and we resume the next journey upwards, we will have a support zone that is for sure, higher than the previous one at 19500.
For a regular investor, this was a good opportunity; having secured about 15% profits and moving up to add more. But, for people who time the markets and wait for a lot of confirmation before entering in, the losses could have been higher, because, by the time they decide and take the plunge, market would have had a fairly higher move and be ready for a correction. If someone had entered the market in March 2015, their losses as of now will be more than 15%.
All these events that come often, like the Currency War that is happening now, will inflict a small damage, make the valuations realistic and vanish from the scene. Then, we tend to forget the pain the move on. To avoid major damage, any portfolio has to re-adjust the holdings by moving out of weaker stocks and add stocks that are showing new strength thereby getting prepared for the next move.
Every time there is a correction, the leadership among sectors and stocks change. In 2013 Technology sector was strong, in 2014 Agriculture and Automobile stocks had a very good rally, now in 2015, Pharma and NBFC stocks along with Textile stocks are showing strength.
Let’s take a look at how our portfolio at Bravisa Temple Tree has performed so far, in this financial year compared with the other funds that are available in India. As our portfolio consists of diverse sectors, it is apt to compare the performance with the diversified funds and the broader index that can be either the NSE 500 or the BSE 500 Index.
In the last 5 months in this financial year, the top performing diversified fund, is the ICICI Prudential Exports & Other Services Fund with a near 8% returns, while the NSE 500 Index has given negative returns of close to -7% in the same period. Bravisa Temple Tree portfolio has managed to record 3.34% returns in the last 5 months.
Bravisa Temple Tree portfolio stands second in the top order in performance. Our portfolio does not consist of any Banking or Metal sector stocks which have been the biggest wealth destroyers in the recent past. We moved out of Banking in end 2013 as the performance of Banks sowed and they began to feel the impact of wrong lending. Moving into the Pharma sector along with the NBFC and Textile sectors just as they began to show strength in 2015, was the reason that we have performed well. ICICI fund has exposure in the Technology sector which has been showing a run up following the currency depreciation. We have low exposure in Technology stocks as we follow the discipline of investing only in those companies that show strength on their Sales and Profits. Technology sector profits are likely to show more growth in the coming quarter because of currency depreciation, which is not a right valuation. We might miss a few percentage gains by not adding them to our portfolio, but, on the hindsight a portfolio that only consists of growth stocks gives more confidence when there is a shakeout in the market, because, overnight there cannot be a situation where such g companies with good fundamental will falter and bring down the valuations.
We have been reducing exposure and moving to cash as many of the stocks in our portfolio that were showing tiredness are moving out of the portfolio. On a continued weakness in the market, lower exposure will ensure lesser losses and when the market moves up after the correction, we have funds to add new stocks and be on the next journey with a stronger presence.