A 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.
As 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.
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