As China marches towards becoming a developed nation soon, they have begun to take the essential next step of cleaning up the country of industries that are hugely polluting in nature. Traditional steel manufacturing is one such industry that is taking a massive hit in China.Continue reading
Our portfolio managed to give its investors 8.34% gains in the month of October, highest returns for the month of October, when compared to all other indices and Mutual funds in the Diversified funds category. Automated system based stock selection helped us be invested into the best businesses of India. When a portfolio contains only top performers, it shows up in the results.
For the October month, broad markets were subdued; SENSEX was flat with 0.23% gains. The broader 500 stock index too gave 1.44% in the same period. Diversified Mutual Funds fared better with maximum recorded gains of 5.40% by L&T India Value fund, while our portfolio achieved 8.34% in October 2016.
We have been outperforming the NSE 500 benchmark across all time frames since inception date. Our portfolio has been tracked for the past 4 years since December 2012. We have achieved an absolute return of 91.30% as compared to 60.45% by the benchmark, more than 50% advantage to the broader benchmark.
Prominent sectors in our portfolio are Industrials with 25.60% exposure, Basic materials having 17.55% exposure followed by Financial Services with 17.45% exposure. And we have lowest exposure in the Utilities, have reduced exposure to the Healthcare Sector & have zero exposure to Technology.
Following continuous suits on the Pharma Industry by the USFDA, Healthcare Sector lost its shine with a lot of under performance. BREXIT has caused a severe dent on the Technology Sector, which is staring at the situation without any clue about solutions. There was no judgement or bias on decisions to keep off from these low performing sectors, our system takes care of the process and ensures that we are invested in the best always.
Some of the stocks like GNFC, ASTEC, RAMCO, Caplin Point, ADF Foods were stars in our portfolio, each of them giving more than 50% gains in October alone.
Our Discreet 12 month’s performance too has been outperforming both the major Benchmark SENSEX and the additional Benchmark NSE 500 in all the last 3 years, again with a wider margin. Where both the SENSEX and the NIFTY, the widely tracked economic benchmarks of India are yet to give a new high after their 2015 leads, our performance index has breached its historic and ventured into the uncharted territory.
How is the future?
While the longer term outlook for India is great, there are some immediate concerns which can have some stress on our markets, like the US presidential Elections and the Pakistan Insurgency. Time and again one or other incidences do crop in and have some destruction created, while all of them get passed off very soon and the markets get into their direction, which is always UP.
Markets have been doing well and there are media reports that there can be some correction. Which is true? Fundamentally on a broader perspective there is not much change seen in the earnings of companies. Then, why did the market take off post budget? Foreign Portfolio Investors who moved out of our markets post China crisis have returned back. FPI’s have poured more than $1 Billion into our markets.
When such high amount of money comes in, it will move the whole markets and that is what has happened. Businesses that were fundamentally strong, though there were very few, began to
Following BREXIT, markets have taken off well due to FPI inflows. More than a billion dollars have been invested in our markets in the last one month, which has helped in markets giving a good growth.
Metals & Infrastructure sectors were leaders in returns as they are moving up from the bottom, while on the fundamental side, the companies in these sectors are yet to show strength.
BREXIT and saturation in the BFSI segment which was contributing to growth in the Technology sector has turned the sector into the weakest in the prevailing markets.
SENSEX gained above 4% in the month of July, in line with our performance which stood at 4.20% for the month of July.
Being exposed to the right sectors that have the potential to get the best growth in the prevailing markets gives us an edge in performance. Our systems have ensured that we are invested in the right sectors. Presently, we are overweight on Financials, Cement, infrastructure, Sugar& Paper. NBFC businesses have got into an advantage position against the traditional banks. NPA’s position of NBFC’s has been fairly low when compared to the PSU peers. They are also placed well in the rural markets where the next thrust on the business growth is expected to happen. Likely boost in the consumption pattern after the 7th pay commission is getting factored into the market.
Financial sector has above 12% exposure in our portfolio. Bajaj Finance & Bharath Financial has been consistent performers following their robust result announcements.
We have had increased exposure into the Basic Materials sector comprising Metals and Chemicals, the sector that was down in the last year. After a good base formation there are some green shoots visible in this sector. Exposure was reduced in the Technology sector following weak performance numbers from the businesses in this sector.
Merger of Oil Marketing Companies into a single company was good news which helped the leader of this sector HPCL have good gains.
Result season though not very good on the broad perspective, it has pretty well on specific stocks. Stocks like Bajaj Finance, Bharat Financial, etc., have given phenomenal gains following result announcement. Good monsoon and subsequent rural demand have been helping in companies that have good rural presence gain momentum in the markets.
GST becoming a reality soon is also helping service sector businesses to gain as they are the biggest beneficiaries of this move. Following no new stimulants that have uncertainty in them, which can drive the markets from here, we are having small corrections and this correction is required often the markets to move out of weaker holdings and add new stocks into a portfolio.
Banking sector went into a turmoil following NPA’s and bad asset management. Public Sector Banks went out of investor favor. The Private Banks which always commanded rich premium among investors too began to lose attraction because of more and more regulations tightening their hands on growth. While all this was happening and keeping the financial sector at the razors edge, NBFC’s went to become leaders in the financial sector with phenomenal growth in their valuations.
The reasons behind NBFC’a gaining strength were –
- They are healthy on NPA’s.
- March quarter profit growth was 32%, while private banks had 23%.
- Home loan portfolio increased by 12%, all of it grabbed from the private banks.
- Focused approach made them best placed to grab opportunities arising from the base of the pyramid.
- Bountiful monsoon that is expected this year is likely to boost rural income, where NBFC’s are well placed.
- Most of them are positioned in the lower income segment, where the budget provision of more deduction on interest payment for the first time home buyers for loans upto 35 lakhs, came to their advantage.
Investors moved away from richly valued private banks to NBFC’s which shows in their stock growth in the last 1 year. NBFC’s had registered between 20 – 60% growth in the last 12 months. Toppers among them are Chola Finance, GIC Housing, Repco Home, Shriram Transport, Canfin Homes, Bajaj Finance etc.,
In our portfolio, 22% percent of the total equity exposure is in the financial sector and we do not have any banks in our portfolio. We hold all the top names along with stocks like SKS Micro, Edelweiss, which have shown good growth in their top line and bottom line. Our entry into these stocks was fairly early, giving us the edge to capitalize on their growth. Most of our investments have given above 15% growth since we have invested.
As an automatic process, our research identified the stocks in this sector for our investments.
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.
October was perceived by the media to be a ghost month, while it turned out to be wrong with the SENSEX gaining about 1.50% after a peak of 4.30% gain. It proved that, not every year is a bad year in October, particularly for India in the next 5 years, it is a Golden period. Every correction is an opportunity to get into the Equity markets. And take advantage of the current World leader in Economic growth.
Our portfolio managed to close with a 2.30% gain for the month of October 2015, having an Alpha of above 50% against the benchmark. We had good performance from the House Hold goods, Travel and Leisure, Support Services along with Computer Hardware, FMCG & Financial Sector stocks. The losers were from the Pharma & Textile space, which had marginal impact on the performance.
Deep Industries, Cosmo Films, FDC & ITD Cementation gave us more than 20% profits in October. Cosmo Films was added into our portfolio in June 2015, in 5 months this stock has given us 150% profits.
Bravisa Templetree, portfolio has managed to outperform the benchmark even with the lower exposure due to a good amount of exits following the market correction. We are 20% in cash at present and still have managed to do well due to the strength of the businesses we own. The dynamic nature of our system to move out of weaker stocks and add up to stronger ones as they show strength was the reason for the outperformance.
Biscuit packaging went into a total design makeover along with new varieties of films used in their packaging. Cosmo Films is the leader in this segment and has had a major benefit. Along with film manufacturers, packaging companies like Paper Products, SRF too had good gains.
After the Chinese market crash and followed by the Volkswagen scandal, where markets went into a tailspin, markets are getting ready for the next big run which is likely to happen after the next wave of correction just about the Diwali and post Diwali, Indian stock markets are poised for the next strong rally.
The reality sector which is one of the weak sectors at the moment is dragging other support sectors along with it like metals, home construction along with banking. Banking stocks have taken a bigger hit and there are no signs of slowdown in their weakness. So, the next rally is likely to be in the industrial sector.
2nd quarter results so far has been bleak for the large cap stocks. Most of the public sector banks have shown more weakness on their earnings. Automobile stocks which were the leaders in the 2014 rally have begun to show tiredness in their earnings. In our portfolio, exposure to Auto stocks have got considerably reduced baring few stocks like Eicher Motors, which continues to have good growth numbers. Sales numbers of Royal Enfield has shown 73% increase in the second quarter, while the stock is showing correction which may result in its exit from the portfolio.
Coffee Day listing did what it has to, down more than 20% as per expectation. Indigo IPO which went through with over subscription too is likely to open weak and the issue was pricey.
Bihar elections and FED interest rate hike will put some pressure on the market for some days after which the markets are likely to go into rally mood. Our portfolio is all set with the right stocks to participate in the rally.
A very Happy Diwali to all our patrons, clients and well wishers.