Rising Dollar & its implications on our economy.

Strong dollarA rise in the value of the dollar has always been painful and has impacted the economy negatively & it will not be anything new this time. The dollar is likely to touch 70 to the INR soon. When the impact on the overall economy is negative, there are some good news too when the dollar appreciates in value. The businesses that are deriving their income from exports become beneficiaries of additional profits with zero effort; all of a sudden the Net profit margins of these companies will have a rise along with their EPS, thus bringing in additional value to their stocks.

The sectors that have a positive bias when the dollar appreciates are Software, Pharma, Textiles etc., among these sectors, the companies that have good management and high growth in their performance attract high valuations in the market. Some stocks that we have picked up just before the negativity set into the rupee depreciation were Tata Elxsi, Aurobindo Pharma etc., these stocks have begun to gain strength and are contributing to the overall performance of the portfolio.

News2As of December 18th, the broad markets are down more than a percent for the month while our portfolio has managed to have 0.25% profits, thus having an advantage of 1.25% over the benchmark from 1st December 2015.

In the last 6 months our portfolio went into a churn more post China crisis and it has got automatically aligned to the software, pharma & textile stocks, holding investments in the top performing stocks in each sector. In the Mid Cap Software sector, we have exposure in Tata Elxsi, KPIT, NIIT Tech, Tale Solutions, Zensar Tech and Ramco Systems, 6 out of the top 10 list. Pharma and Textiles too have similar exposure thus giving us the best of advantage to capitalize on the dollar rout.

 

 

After Ghostly October its December pain now…..

IWaiting GirlOctober was perceived to be a weak month for the markets based on past records, while it went on to be a fairly good month. Whereas November took a marginal hit & now comes the December pain. In the last 5 years, 2 years in December was negative. So, will this year turn out to be a weak one for our markets?
Now the dynamics have taken a different shape. December has a lot of events which will make the markets swing on both directions. Some important news flow are expected on the implementation of GST and FED interest rate hike and it is most likely that in December the markets are going to be volatile. SENSEX should re-test the 25100 levels reached in August to gain strength before any rally can happen, which has a fairly good chance to occur in December.
After the Bihar election results, the government at the center has an urgent need to bring some reforms into action, while the support at the Rajya Sabha to do that, will not let it happen smoothly. So, GST may or may not happen in the winter session of the parliament. This can be tricky on the markets.
Raguram Rajan has cleared that there is not going to be any positive surprise from his side in the December policy review, which is now confirmed that there is not going to be any good news to the markets from this front.
Gold Bonds, the brainchild of Rajan, did see some good take off with about ₹917 crores on investment coming in, over a period this product will gain some market share which is a very good change for our country as we need not import Gold and that much of FOREX is saved, boosting the Current Account Deficit numbers.
Again the FED issue is getting into limelight, with the jobs data in the US markets showing strength, there are fairly good chances that the FED will hike interest rates. As of now FII’s are on the side-lines having the positive expectation on the FED meet, which if interest rates are increased, though will not cause a bigger impact to our markets as the FII’s have already sold off. While on the other hand if the decision gets postponed or has come confirmation that it is going to be delayed, then, we should look at some inflows from the Foreign Portfolio Investors (FPI’s). With the domestic institutions already having a strong hand on the markets, any support from the FPI front will give an additional strength to the markets.
So, it is confirmed that there is a lot of confusion prevailing at the moment and the line of resistance in on the down side. If it so happens, which has a fairly good chance, it is good for the markets as it will build the strength required and move up. And this base building will not happen in a hurry; it will take its own time which, in the process will kill patience of traders and investors, who got into the market in the later part of the 2014-15 rallies.
Weaker hands in the market should get moved out to have a strong rally.

With such confusion prevailing what can happen to investments?
Our market is in a clear bull market trend, so all the corrections and consolidations are an advantage to accumulate on the investments, while it will require smart decisions. There are a good number of businesses which are very attractive based on their earnings, these stocks will move up and give opportunities to profit.
Pharma, NBFC, Textiles and some select technology stocks will have good runs in the coming month. Whereas the large cap stocks that form the broader indices like the SENSEX and NIFTY will have pressure. Banking is weak and is not in a hurry to run up. Metals are still weak, which might see some more consolidation and down ward pressure.
Stock investments are going to be volatile in performance; even the Equity Mutual Funds will have pressure on their performance. Baring few schemes like the ICICI Prudential Exports, which has a very dynamic portfolio, holding on to the best stocks.

Results of the September quarter was muted, sales growth was sluggish which did not bring out any businesses worthy of investment, some existing ones that were in the growth phase continue to hold on to their performance, while some prominent ones like Eicher Motors, Page Industries which had been commanding a major share of long term investment portfolios have moved out following slowdown in their business growth. These are stocks that have given its investors more than 1000 percent profits in the last 5 to 6 years and now it is correction time for them.
In the Pharma sector, front line stocks have taken a very big hit following USFDA issues, Dr. Reddy’s has lost more than 35% of its value in 2 weeks from the time the US authorities began questioning them. While bigger players have been losing the mid-caps in this segment are doing well. Stocks like Alembic Pharma, Aurobindo Pharma, Cadila etc., are getting more exposure in portfolios.

How is 2015 likely to end for the Indian Stock markets?
So far from January 2015, the major indices like the SENSEX are down about 4% and with no big booster dose available in the month of December, SENSEX is likely to close negative for 2015. After a gain of 40+ percentage in 2014, the very next year getting into Red is of a concern to the long term trend of our country.
One good advantage with a prolonged correction or consolidation as it should be fairly called, since the markets have begun to consolidate after a pretty strong rally is that the break out from the consolidation will have a higher chance of going into another very strong rally. With the prevailing economic conditions and the way India is positioned among the global markets, we will have some more super strong growth years to experience.

How is BTT portfolio placed in the markets now?
Before the markets began to consolidate, the SENSEX reached its peak in April 2015, while our portfolio held on to its strength, reached a new peak in August, just before the Chinese market crisis, which showed that our portfolio was stronger than the SENSEX. As soon as the correction set in, we had a slew of exits from the investments which had given substantial gains and have begun to get slow on their growth, in our portfolio which brought down our exposure in the markets by 25%. Our performance for 2015 has mimicked the SENSEX.
Now, there is a question, with a strong portfolio and reduced exposure, why are we not outperforming the indices?
The stocks that form our portfolio are super strong on their fundamental strength, due to which the price increase was very high. We have stocks that have generated triple digit growths on their stock prices within 2-3 months from the date of our investment. Such high growth in price have the tendency to correct faster too when the whole market gets subdued, due to which the impact on the performance is high. This impact should have normally caused under perform to under perform the broader markets, while it was not. The reason that we are at par with the index in performance was due to the reduction in exposure.
September results did not bring out new investment opportunities and with the subdued sentiment in the markets even in the festive season, January results are also not likely to show any big surprises. We will be adding new investments only when the companies begin to report good numbers and until then, we will be light on exposure giving the best possible safety to the capital invested.

April-August in 2015, is my money safe?

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.

Sensex Gain ChartThis 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%.

fundAll these events that come often, like the Currency War that is happening now, will inflict a small damage, make the valuations realistic andPharma-Tabs 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.

Apr-Aug15 Returns

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.

7 Lakh crores lost! Should I be invested, now?

After August 24th carnage in the markets which took away 7 Lakh crores of investor wealth, due to global currency crisis, triggered by slowdown in the Chinese economy, investors in the equity markets are having thoughts to liquidate their holdings and be in cash.

This is a phenomenon experienced among all normal individuals, because sudden shakeouts create fear of further losses.

Chinese economy crashed due to many bad decisions the government took, to keep the robust growth continued. It also shook many other economies that were closely linked with it like Vietnam, Malaysia etc. Malaysia is staring at a near collapse situation with their currency losing value on a continuous basis.

Following China and Vietnam, there are a slew of countries planning to devalue their currency. Some prominent names that are showing strong indications are Kazakhstan, Turkey, South Africa, South Korea etc,. At present none can predict the future course, but, how are we placed in India is a major question that is of importance to us.

As for as India is concerned, it should be said that, “All is Well”. Our economy will be emerging as the strongest after this currency war is over. Thanks to RBI Governor, Raguram Rajan, he is committed to steer India into a totally different path due to his very stringent policy decisions. Along with him, the political climate in India is good compared to other countries.

The expectation we had on the business growth after Narendra Modi got elected as Prime Minister has somewhat lost track, as we did not have much of the expectations met. Corporate results did not show expected growth. Instead, consolidation continued with some companies which had already been in the growth path continuing to meet expectations. But, this consolidation is forming a strong base, from where the bounce will be very strong. It may take time, but for sure there is going to be a turnaround.

Though we had been getting news very often that the rain fall would be deficient, we have received fairly decent rainfall. Crude Oil hitting its 29 year low has been a boon to us, even though our currency is losing against the dollar; we are saving on forex reserves.

In stock market investing, there is bound to be volatility and every such time there is a drop in the market, the economy goes through a change by moving out of the prevailing sectors that have exhausted their growth and enter into the new sectors that are promising in growth. After which it resumes the up move. In the similar manner this time we are moving out of the automobile and ancillary along with agriculture sector that was leading in performance last year to Pharma, Textiles and NBFC companies that have come up to show strength this year.

It is a right time to buy into stocks that have very good fundamental growth in them. And always when the market corrects it gives a higher low and then moves on to take of the previous high. This pattern has been there in any market, across the globe, which can be seen from the chart of SENSEX. It is such corrections that help the investments in stock markets give the highest returns when compared to any other investment asset in the world.

Sensex

The only requirement is that, the portfolio should be tracked and changed according to the prevailing conditions. We at Bravisa Templetree have an automated process that helps us identify new sectors and move out of sectors that are getting slowed down in growth. Bravis Templetree’s investment portfolio has achieved 68.96% return in the last 3 years against the 36.09% return achieved by SENSEX in the same period. Annualized returns on our portfolio are 25.32%, while SENSEX is 13.25%.

big-vs-small-left

This time there is something more interesting in the markets. For the first time in the history of Indian stock markets, Mid Cap stocks have outperformed the Large Caps when markets correct. Traditionally, Large Cap stocks are the ones which lead the growth and the fall. Even the previous correction in 2013 was the same, but this time, Mid-Caps took the lead. While the SENSEX has corrected 13.96% since January 2015, the correction in the Mid-caps so far has been only 4.57%. The biggest reason behind this change is that, among the large cap companies, the metals sector and PSU banking was serious wealth destroyers. And many of the big boys don’t have strong growth in their sales and profits. Whereas, Mid-caps have shown good growth in their earnings and, are also having good managements running them.

In our portfolio we used to have large cap presence in 2013, but, from 2nd half of 2014, the concentration in our portfolio gradually shifted to quality Mid-cap stocks which were the other big reason for us to outperform the benchmarks with a wide margin.

Being invested will be a better choice, as the whole market is poised for phenomenal growth for the next 5 years, beyond that even our market will fall into the saturated category giving lower returns. So, until then take advantage of the life time opportunity, be invested and give your savings the highest possible growth.