Q3FY18: Portfolio Performance

In this post, we highlight the performance of the portfolio for the quarter ended 31st December, 2017. We document our portfolio performance on a quarterly basis for the benefit of our readers and those who are interested in knowing the performance of our advisory service.
This post focuses solely on the performance of stocks and not the company results.

Performance


Q3FY18 was a good period for our portfolio with 15.37% returns. Nifty 50 index itself delivered 6.95% returns and thus we were able to generate an out-performance of 8.42%. Once again, we cannot complain of the performance and our reasonably satisfied. Our clients are heavily invested in liquid and ultra-short funds as we look for more opportunities to invest in. On a risk-adjusted basis, we have been doing reasonably good. We see no reason to take any unnecessary risk and deploy our funds in companies trading beyond our acceptable valuations.

The above performance doesn’t include a neat Rs 19,000 profit in an arbitrage opportunity and dividends received. Both of these push up our returns further up!

A simple chart of our portfolio’s performance against the Nifty index looks like this:

We have been bullish on the mid-cap IT space and have added a company from this sector (we might add 1-2 more this quarter), there are also companies which offer a high growth outlook and are available at fair valuations. More than our stock selection, one has to credit the high momentum that the markets are experiencing. The valuations are now looking very expensive and every step at this juncture has to be taken with immense care.
PC Jeweller has turned out to be a neat 9 bagger (900% appreciation) for us and we continue to remain bullish on it (albeit with a lower allocation). This quarter returns were rather fuelled by the microcaps and smallcaps that form a small part of our portfolio but have delivered 60% to 80% in couple of months.
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Our aim remains to generate high returns for our investors without taking any unnecessary risk.

Q2FY18: Portfolio Performance

In this post, we highlight the performance of the portfolio for the quarter ended 30th September, 2017. We document our portfolio performance on a quarterly basis for the benefit of our readers and those who are interested in knowing the performance of our advisory service.
This post focuses solely on the performance of stocks and not the company results. To see the fundamental performance of our invested companies, read: Performance of invested companies

Performance

Compared to a stellar Q1FY18 performance of 15.12% returns, Q2FY18 was rather modest with a 6.72% return. This is a good number for a quarter performance. Our portfolio outperformed the Nifty50 by 3.02% this quarter.

As we write this post, our portfolio has crossed its previous high and is at its highest NAV since inception

We are satisfied with the performance when we look at it from a risk adjusted basis. Our client portfolios have heavy cash deployed in liquid funds as we await further investment opportunities. The cash also acts as a cushion in times of immense short term volatility. This quarter saw a little bit of volatility but there was no decent correction in the broader markets at all. A graph of our portfolio performance is shared below.
To read our Q1FY18 performance, click here.

Portfolio

This month saw some new additions in the portfolio and also some profit booking. We increased our portfolio allocation in one of our branded jewellery investment. This company has appreciated by 640% since our recommendation is 2014 and we expect it to do good over the next few years.
Further, we have added a new company to our portfolio with a 7% allocation. This company has outperformed its peers during tough times and has decent growth numbers and margin stability coupled with high return ratios which makes it a good investment for the long term.
Shakti Pumps was a perfect turnaround investment when we invested a couple of years back. Noone believed in the company and its bad business model and when it crossed Rs 500, we had PMS managers, fund managers, advisory firms all chasing to get their hands on it. We have however reduced our exposure to Shakti Pumps as the current valuations are commanding a significant risk premium over the expected returns. Shakti pumps has appreciated by nearly 400% in 2 years since our recommendation.
The above chart shows the breakup of the equity allocation only. We have 12 stocks in the portfolio with varying allocation and a debt-equity split which offers new clients an opportunity to invest over a period of time rather than all at once.

Q1FY18 – Portfolio Companies Performance

Of 12 companies in our new client portfolios (2016 and later members), 10 companies have declared their results for Q1FY18. Two companies have seen a dip in their revenues on YoY (Year-on-Year) basis and two companies have seen a dip in their net profits.
In a tough quarter for corporate earnings due to GST roll out hurdles, we are satisfied to see a healthy growth rate in our portfolio. Contrary to high valuation premiums of growth stocks in the current market scenario, our portfolio stocks are in the “Cheap-To-Fair” valuation zone on the EV/EBIDTA, PE Ratio and PB Ratio basis. Most companies have macro tailwinds in their favor and w expect revenues to grow at a healthy pace.
We have always emphasized on the construction of a well balanced portfolio between growth and value picks. Of the 12 stocks that we own in the portfolio, 9 are selected based on triggers for revenue growth (apart from fundamentals) and 3 are because of a statistical bargain in terms of margin of safety and peer valuation gaps. It would be unfair to say that there are many bargain “value-picks” out there.

In current conditions, we prefer companies with reasonable growth rates available at reasonable prices.

In an earlier post (Read: Nifty 50 Earnings Analysis – Q1FY18), we spoke of the deflated rate of growth in corporate earnings which has dragged the Indian markets to a crucial juncture (Read: Markets at a Crucial Juncture) for a better understanding of earnings and valuations in current market scenario.
Our portfolio is cheaper than the broader markets and has a better growth in earnings. Ideally investors should focus on their portfolio and the individual stocks in that portfolio instead of the broader markets, however when the broader markets are heated up then the number of opportunities evaporate. However, in the month of August, we identified a wonderful company for a long term investment (3+ years).

Q1FY18 performance of our portfolio: Q1FY18 Performance

5 key points of our portfolio:

i) We do not own more than 15 companies in our portfolio
ii) Our annual churn in the portfolio is usually 3-4 companies
iii) We maintain a equity-to-cash allocation weightage based on different parameters
iv) Our holding period of every stock on an average is 3+ years
v) On becoming a member, only 50% of your portfolio is invested into stocks ~ The remaining amount is invested over the next few months (Rupee cost averaging)

Q1FY18: Portfolio Performance

In this post, we highlight the performance of the portfolio for the quarter ended 30th June, 2017. Going forward, we will be documenting our portfolio performance on a quarterly basis for the benefit of our readers and those who are interested in knowing the performance of our advisory service.

Performance

For this quarter, our base date is 1st March, 2017. So effectively Q1FY18 also includes March, 2017 which means that we are presenting before you a 4 month performance.

Q1FY18 was a good start to the financial year with a 15.12% return on the portfolio. Our portfolio has out-performed the broader market (Nifty 50) by 8.69% in this quarter. The NAV chart is given below.

Portfolio
Our portfolio principles are:
  • Hold not more than 15 companies in the portfolio
  • Keep churn as low as possible
  • Monthly and quarterly tracking of news and results
  • Regular interaction with management to stay abreast of latest developments
  • Allocate between equities and debt based on broader market valuations
  • Double the portfolio every 3 to 4 years
The portfolio currently has 11 stocks with the largest stock having a 12% weightage. The portfolio at this juncture is majorly focused on midcaps and smallcaps with the largest company in terms of market capitalization being smaller than Rs 15,000 Crores.
There is a significant cash reserve in the portfolio which has been parked in 8% to 9% yielding debt funds for the time being. We are looking out for opportunities to deploy this cash but due to the frothy valuations, opportunities are few and we are not going to take investment decisions just out of the mere need to deploy cash. We are able to out-perform the market with this conservative portfolio.
We have a wide range of sectors ranging from Housing Finance, Personal care, Jewellery, Pumps, Pistons and industrial goods to name a few. We are strongly focusing on consumer driven industries and remain market-cap agnostic (Open to giant, large, mid and small caps). On a valuation basis, none of our holdings look over-valued and we expect significant gains going forward from them.

The above chart only shows the distribution of our equity portfolio. The debt-equity allocation is available only to clients.

Drawdown

This quarter didn’t see any major drawdown. Infact, we just had one week of negative returns. This in no way should be taken as guidance for future portfolio performance.