Portfolio Performance

Just a follow up on my last post - My portfolio returns in the last six months below. Please bear in mind this is a concentrated portfolio not aligned to any benchmark however for comparison I have compared it with Nifty. Also, portfolio initiated in mid october with continous ramp up of AUM from Nov to Apr. I guess clearer picture would be to see this portfolio six more months down the line once it is properly seasoned.

	Return	Benchmark Return	Alpha
October-11	-2.08	9.84	-11.92
November-11	-2.59	-9.28	6.69
December-11	-7.33	-4.30	-3.03
January-12	-3.05	12.43	-15.48
February-12	7.97	3.58	4.39
March-12	1.66	1.9	-0.19
April-12	0.38	0.9	-0.56

So you can see 7 data points. 3 months of under performance, 2 months of out performance and 2 flat months. October was when there was very little in the portfolio. Power Grid and BoB did well while PFC, Coal India, BHEL underperformed.

Nov was pretty good in terms of max Alpha. 669bps out performance to Nifty. Largely thanks to Power Grid, BoB, TCS, CIL, LT and ONGC.

Dec a drag due to RIL PFC, LT and Adani Ports (some Scam news). Used the opportunity to buy more.

Jan was worst month because markets rallied, was still in portfolio build up mode and BHEL PFC continued to lag. 

Feb was again a 439bps outperformance to Nifty mainly due to rally in BoB PFC (used to exit partially), LT (sold off to buy later), TCS etc. 

March flattish as gains from HUL ITC were set off by weakness in MM which held steady so far. I continue to hold it. Mid caps like TTK also underperformed but next month they performed , used to exit.

April Auto pack good with hero doing well and TCS steady. Sold Sun, Nestle and TTK for decent gains. Drag due to LT BHEL Hindalco.

Remain Invested!

Last I posted was two months back, how time flies! Anyways, last time I posted, I did mention about how hot money could flow out pretty quickly and be ready to redeploy. Well that theme played out partially with FIIs getting bored with markets post the Budget and RBI Policy. The government chipped in and spooked them some more with the GAAR regulations which threatens retrospective taxation and may bring P Noted within their ambit. Also the rupee is not helping. Its in free fall mode as we speak. So what happened was the beta play of Jan and Feb stopped. People got scared with the massive deficit numbers and sticky inflation. RBI’s outlook more or less indicating this rate cut is all you get for the next 2 quarters and falling growth led to a nose dive into defensives. End result? Broader markets remain range bound. FMCG continues to outperform. Nestle, ITC, HUL take a bow.

So where do we go from here? Q4 numbers are also more or less in line, done with. Market for the interim atleast is searching for triggers. And not many are too encouraging. S&P downgraded sovereign rating of India to BBB- Negative outlook. Now that will spook the firangs even more!

Remain invested. Good thing is from a valuation perspective 13x one year forward gives us comfort. So downside to that extent is protected. What we should bear in mind is probably a significant time correction still ahead of us for the next six months at least. There would be interim opportunities in the meantime. So all is not lost! Stay invested, stick with blue chips for stability. Introduce beta in the portfolio through quality private banks, who are doing surprisingly well and available at decent valuations. Add beta through auto, a proxy to consumption and valuations not as demanding as FMCG. Do take a bit at cap goods through known names like Larsen and Crompton. For the interim, to hedge the deficit, buy exporters like Cipla, TCS. Pick up some quality mid caps along the way, they have really outperformed the markets by a large margin. Risk reward in some cases better than large caps.

Maal Laav!

Enjoy the relief rally! Like I last stated last time, banking stocks and cyclicals have rebounded. Firangs basically have made 22% since January, thanks to rupee and stock returns. So claw backs have been done, returns made, makes sense to book partially and re enter at a later stage. Fiscal situation has not changed overnight but what has happened is global liquidity influx from the ECB's version of the QE i.e. the LTRO, so money has found way to the worst performing emerging market i.e. India. FII flows were $2bn in Jan alone compared to negative last yr. Be swift while getting out once hot money flows evaporate and be ready to deploy money after the correction - Long onlys are waiting for that. The interest rate cycle has almost turned, globally things are more or less stabilising, domestic front reforms seem imminent...there has been a significant time correction in the market whilst earnings have grown ~40% in the last 3 years. So a re rating is inevitable. Time for equities has come! Rejoice!

Q3 revival and market cheer

So the markets have gained 8% in a span of less than a month. Relief rally in a bear market, or genuine revival? The results released so far have been viewed in a positive light with the IT majors being in line or exceeding it, auto companies largely in line though circumspect of the future and the bank NPA bomb has not exploded yet with Axis numbers and HDFC Bnk numbers bearing out.

SO what I mentioned in my last post largely remains true with debt yield locking (M2M strategy) and dipping into equity. I would not be specific sector long, more stock specific, though some sectors like Power, Cap Goods, Infra - largely cyclicals...may take their own time to revive due to macro and policy issues.

What to do for now? Book partial profits in auto, FMCG etc, which has moved smartly, start taking small positions in cyclical names - probably I dare say some banks, even GMR, Suzlon, L&T, ICICI Bank, Axis Bank, M&M, Hindalco, Exide & Adani Ports.

2012 - Renewed hopes or hopes dashed?

2012 has begun, we are trying to be all chirpy and happy. I remember attending a panel last year, where in Madhu Kela, Navneet Munot etc were on the panel (Was Sameer Arora around? My memory fails me). I remember Madhu being cautiously optimistic - saying it will be a stock picker's market, Navneet being circumspect etc. The same note of caution being sounded now. Lets take stock of things now...
PROs: Government finally doing things, we can expect atleast some traction in retail FDI, GST, energy de regulation etc. Probably the fiscal deficit gaps get plug with divestment and buyback strategy, interest rate cycles peaking out, inflation taming off.

CONS: Widening deficit, if rupee remains the same and oil prices where they are, things could get ugly. Some policy paralysis could nullify growth. FII sluggishness will affect our markets.

So my strategy? Play debt in the first half of 2012. Lock in those fantastic yields, play for return or M2M. At the same time, dip a bit in equities, especially the structurally strong business models. Assume 2 quarters of bad numbers. Also, realise that we may see some anemic growth for a while. Its been 7-8 years of continuous growth by corporates, probably that growth may take a breather. 2012 may be more of patience and strategy than a roller coaster ride.

Flip Flops and more...

Nifty touched below 4600 and back. I believe these interim downward rallied will continue for a while till a 4200-4400 base is formed. Traders may also be wary to play this 200pt range now. More than global factors, its the absolute collapse of governance domestically which has caused the weakness in markets. These problems were there before...but like they say, in a bear market everything gets magnified! Fiscal Deficit woes may continue unabated considering the rupee situation and consequent inflation, which remains subdued but sticky. My sense, two more quarters of very bad earnings for corporates, then the new normal where markets have fully adjusted to downgrades.
Stock picking should be done now. Lot of stocks are near their all time lows, most at their 52 week lows. Like RIL, BHEL (yes even BHEL!), Hindalco have tremendous upside for an investor with the courage and patience to hold on. Also like Mundra, G E Shipping, M&M, Exide and Dabur. Understand that except Dabur all these are cyclical plays. So basically when the cycle turns...right now seems far away...is anybody's guess. But what we know for sure are these are stocks with proven business models and are winners. In the financial space as well HDFC Bank is available cheap.
LT, Adani, GAIL can also be looked for some entry/accumulation/averaging...depending on when you entered the markets! Debt yield can be locked in fixed intruments for a longer duration as I believe this may be the peak of interest rate cycles in recent times.

There is light at the end of the tunnel...once we see it...markets will rebound...you do not have to even reach there!

Tis the season to be jolly...

Indeed, Xmas has come early to Indian markets, where there was a broad based recovery from recent lows of 4750 odd....a neat 300-350pt rally. You know which stocks made me money during this recent spurt? Boring staid names like ONGC, NTPC, Cipla, Coal India....yes. Giving annualised returns between 44% (COAL) to 492% (ONGC)!! Moral of the story: We do not have to re invent the wheel. I found comfort in these counters fundamentally knowing fully well that while I may not catch the bottom, I know I have picked quality stocks which will stand by me in the long run....so that is what they did.

I believe we are in the last phase of the bear market which tends to be very painful. But this is a mutated phase in the sense that it wont last that usual 4 months...may take 2-3 quarters...and this will wear people out. Everyone would have quit equities for sure by then.

Globally, after the concerted central bank efforts and recently announced austerity measures, bond yields came off, and European equity markets rallied smartly. As of now, US treasury seems to be better off, with lower credit risk, of course, with governments going bankrupt, the credit risk aspect still hangs, however remote. So your Kd has an increasing component of that.

The flip side is S&P warning of a Eurozone downgrade, questions on sustainability of US unemployment data.

Rates are being cut across the world...be it China or Australia. When would RBI blink is the question. Historically markets have rallied whenever there has been a rate cut. So have our markets rallied in anticipation? Or the rise is more due to global cues and the December effect? All said and done, if the rupee continues to weaken, somewhere our market returns plus rupee effect should look terribly attractive to a FII.

Gold story seems to be over for the time being. Back home M&M planning to double XUV500's capacity and Hindalco planning to double is capacity may very well be the first signs of capex cycle picking up.

What do we do till then? I would still allocate a larger part to debt to lock in those fantastic yields domestically. I may be a tad wary of FMPs, but some corporate bond issues look juicy (rates are upfront unlike FMP, despite the tax disadvantage), and for liquidity hungry investors, UST and Liquid still pack a punch. Equities would largely be family jewels like Unilever, ITC, Exide, Infosys, HDFC Bank, RIL and the names I mentioned above. Play a larger allocation towards defensives and lock in a few growth stories. Rebalancing can be done on greater clarity.