Hi
Been a while since I blogged! Last wrote in May. June July August have largely shed 1-2% per month on broader markets. September has bucked the trend and we saw a minor reversal though that has also been sold into towards the end. So point to point, if a investor looks at index levels, looks boringly similar at 5900 levels. However, the internals tell the story!
June and July, sectors like banking largely shed whilst FMCG and IT held up the index. However there was broad based selling in August where even family jewels like ITC HDFC Bank HDFC ICICI Bank etc. were sold into.
What caused this? The elephant in the room - Banking - was finally called out. FIIs darling for the last few years, highest sector weight in Index (30% at peak) and so on. But everyone knew the problems. The financial/banking sector will take a hit if your broader economy is screwed up. NPAs, restructuring, lower growth and so on. Finally these things caught up with banks, albeit with a different stick! RBI tightened liquidity with a series of measures to reign in a rogue Rupee which tumbled from a comfortable 55-56 levels to Rs68/$ before coming back to more acceptable 63-65 range. This hit guys like Yes Bank, Indus Ind and so on who are wholesale funded. Suddenly banks were not invincible. Everyone sold banks like they are going out of business. 30-50% fall in certain counters was not unheard of! Yes bore the brunt and so did safer banks like HDFC Bank ICICI Bank. PSUs anyways are used to that torture for some time now and they fell as per cue.
So what now? GDP print is more like below 5%, Corporate earnings flat, macro indicators bleak. Only silver lining being we may have a better CAD print thanks to lesser imports (more due to demand destruction) and reasonably buoyant exports (Thanks to IT and weakened rupee).
So how does one position a portfolio? I would still have banks in it. About a couple of good names like HDFC Bank and ICICI Bank, the former having stood the test of time and with stellar NPA and growth credentials and the latter for its risk reward perspective. I would be comfortable still holding on to my TCS/HCLs of the world. Remember TCS is at 20x forward, a shade below 22x a few years back. Net profit growth rates are similar in the 20-25% growth hemisphere! Hold it, especially when there is little else to bat for. Tech Mahindra can be a juicy addition as well post integration of Satyam and their decent traction on client mining. So hold your IT guys. FMCG I would sell others barring ITC and Dabur. Too expensive for a single digit volume growth story. Pharma seems to continue growing, like Cipla DRL SunPharma and Glenmark. Metals have been a star! THey have rallied almost 30-40% from lows. But having said that they were beaten to death by 70-80% from peaks! More of the China causal factor than anything else. I would stick with Hindalco and sell off TISCO. Hindalco seems good to grow its free cash post ending its massive capex journey. Aluminum carry trade should continue for prices to hold. Long term fundamentals also look good for it relatively seeing how Bauxite prices should sky rocket thanks to China's appetite and heavy imports. It is 100% sufficient in the good mouldy clay stuff! Hence a low Cost of Production. Utkal and Mahaan expansions should help the party. Rupee depreciation means (you sell Alumina in $ and RM is rupee based) you get your margin fillip. Add all time low valuations to the mix and you have a multi bagger! From my reco stock is up about 15% odd (after going low and rebounding back). Expect a good 40% from this stock. Other usual suspects good to hold are NTPC, Powergrid, L&T, Crompton, V Guard, Jubilant Food and Cairn.
When will there be light at end of the tunnel? I can postulate but end up being wrong! All I can say for a medium term investor is, dude, if you do not love equities....do not love holding stocks for the long term...do not bask as a part owner of a great company...DO NOT enter equities. You are better off with debt. Your risk adjusted returns on a one yr basis may be much better there considering the Earnings Yield versus Bond Yield scenario.
So why should I buy equities or rather..stay invested? Especially after a sad sad 3-4 yrs? Hold for a couple of more years. During this time you should see macros bottom (I know...I know...been saying this for a while!), earnings bottom and then a gradual GDP + corporate recovery. Capex initiation is already on with $3tn of projects being passed. The next cycle should more than compensate your 4 year dry spell. So on a 6-7 year basis, you may end up with the long term average growth on equities i.e. 15% CAGR! Now smarty pants may wonder - that is all fine. I should have just put my money in FDs and got it out at end of FY14 and invest then in mkts and make 40-50% for next two years! My take on that - Dude, I am not God nor are you. So nobody can time markets perfectly or even reasonably. So what if markets tomorrow start rising from 6000 onwards and do not stop till they reach 9000? What then? You would have just missed the mother of all bull runs! Kind of like how people missed the bus in 2004 -2007. Just relax, put only money which you do not need for the next 10 years in Equities. Sit back and enjoy the ride!
Been a while since I blogged! Last wrote in May. June July August have largely shed 1-2% per month on broader markets. September has bucked the trend and we saw a minor reversal though that has also been sold into towards the end. So point to point, if a investor looks at index levels, looks boringly similar at 5900 levels. However, the internals tell the story!
June and July, sectors like banking largely shed whilst FMCG and IT held up the index. However there was broad based selling in August where even family jewels like ITC HDFC Bank HDFC ICICI Bank etc. were sold into.
What caused this? The elephant in the room - Banking - was finally called out. FIIs darling for the last few years, highest sector weight in Index (30% at peak) and so on. But everyone knew the problems. The financial/banking sector will take a hit if your broader economy is screwed up. NPAs, restructuring, lower growth and so on. Finally these things caught up with banks, albeit with a different stick! RBI tightened liquidity with a series of measures to reign in a rogue Rupee which tumbled from a comfortable 55-56 levels to Rs68/$ before coming back to more acceptable 63-65 range. This hit guys like Yes Bank, Indus Ind and so on who are wholesale funded. Suddenly banks were not invincible. Everyone sold banks like they are going out of business. 30-50% fall in certain counters was not unheard of! Yes bore the brunt and so did safer banks like HDFC Bank ICICI Bank. PSUs anyways are used to that torture for some time now and they fell as per cue.
So what now? GDP print is more like below 5%, Corporate earnings flat, macro indicators bleak. Only silver lining being we may have a better CAD print thanks to lesser imports (more due to demand destruction) and reasonably buoyant exports (Thanks to IT and weakened rupee).
So how does one position a portfolio? I would still have banks in it. About a couple of good names like HDFC Bank and ICICI Bank, the former having stood the test of time and with stellar NPA and growth credentials and the latter for its risk reward perspective. I would be comfortable still holding on to my TCS/HCLs of the world. Remember TCS is at 20x forward, a shade below 22x a few years back. Net profit growth rates are similar in the 20-25% growth hemisphere! Hold it, especially when there is little else to bat for. Tech Mahindra can be a juicy addition as well post integration of Satyam and their decent traction on client mining. So hold your IT guys. FMCG I would sell others barring ITC and Dabur. Too expensive for a single digit volume growth story. Pharma seems to continue growing, like Cipla DRL SunPharma and Glenmark. Metals have been a star! THey have rallied almost 30-40% from lows. But having said that they were beaten to death by 70-80% from peaks! More of the China causal factor than anything else. I would stick with Hindalco and sell off TISCO. Hindalco seems good to grow its free cash post ending its massive capex journey. Aluminum carry trade should continue for prices to hold. Long term fundamentals also look good for it relatively seeing how Bauxite prices should sky rocket thanks to China's appetite and heavy imports. It is 100% sufficient in the good mouldy clay stuff! Hence a low Cost of Production. Utkal and Mahaan expansions should help the party. Rupee depreciation means (you sell Alumina in $ and RM is rupee based) you get your margin fillip. Add all time low valuations to the mix and you have a multi bagger! From my reco stock is up about 15% odd (after going low and rebounding back). Expect a good 40% from this stock. Other usual suspects good to hold are NTPC, Powergrid, L&T, Crompton, V Guard, Jubilant Food and Cairn.
When will there be light at end of the tunnel? I can postulate but end up being wrong! All I can say for a medium term investor is, dude, if you do not love equities....do not love holding stocks for the long term...do not bask as a part owner of a great company...DO NOT enter equities. You are better off with debt. Your risk adjusted returns on a one yr basis may be much better there considering the Earnings Yield versus Bond Yield scenario.
So why should I buy equities or rather..stay invested? Especially after a sad sad 3-4 yrs? Hold for a couple of more years. During this time you should see macros bottom (I know...I know...been saying this for a while!), earnings bottom and then a gradual GDP + corporate recovery. Capex initiation is already on with $3tn of projects being passed. The next cycle should more than compensate your 4 year dry spell. So on a 6-7 year basis, you may end up with the long term average growth on equities i.e. 15% CAGR! Now smarty pants may wonder - that is all fine. I should have just put my money in FDs and got it out at end of FY14 and invest then in mkts and make 40-50% for next two years! My take on that - Dude, I am not God nor are you. So nobody can time markets perfectly or even reasonably. So what if markets tomorrow start rising from 6000 onwards and do not stop till they reach 9000? What then? You would have just missed the mother of all bull runs! Kind of like how people missed the bus in 2004 -2007. Just relax, put only money which you do not need for the next 10 years in Equities. Sit back and enjoy the ride!
