July 2019 Newsletter – Negative Sentiments

Market Outlook

As we write the July 2019 Newsletter, the sentiment on the street is negative. Investors do not want to put their money in small-caps or even mid-caps. Whoever is still sticking to equities is now talking about investing in Bajaj Finance or other large caps that are at 52-week highs. Just a simple trend analysis of the term Multibagger on Google will show you this graph:

Multibagger Search Trends

Even multibaggers have fallen out of trend now. Look at the peak of 2017 and compare it to the scenario now. Investors want to invest in Index funds, large caps and want to stay away from small & mid-caps. The mid-cap forward PE tracked by institutional analysts usually trades at a discount of 5% to 10% to the Nifty’s forward PE. This discount is now above 20%, a level seen when the market sentiments are depressed. The valuation gap between the indices will eventually reduce. Another indicator of the depressed sentiments is the dull IPO market:

Dull IPO Markets

Ground Sentiment

We have been speaking to businesses on the ground. Bearing traders are saying that business is down by up to 70% this year, car dealers are saying that unsold inventory has been inching up. However, restaurants have been rejoicing the newfound business through delivery apps like Swiggy & Zomato. Soft drink companies have seen a spurt in the demand for diet / sugar free variants of their beverages and the more people are enrolling for wellness programs of startups like Cult.fit. We feel that traditional businesses, especially those that took place in cash to evade taxes have taken a hit from which they will not be able to recover.

When we look the numbers being posted by listed companies, we see shrinking margins, slower growth and higher inventory days. This is reflected in the stock prices which are sinking day in, day out. What is encouraging is that the SIP book of the mutual fund industry now stands at ~ Rs 8,000 Crores per month which is an all-time high. Usually, the retail investor runs away from the market after a year like 2018. However, considering that the large cap funds and indices haven’t really seen a bloodbath yet, the regular mutual fund investor must have shifted from small & mid-caps to large caps.

The above table shows the trend in growth of Midcap earnings (ex-financials).

We will stick to companies that meet most of the below criteria:

  • Growing their revenues at 15% p.a. and higher
  • Maintaining / Improving margins
  • Have a history of earning a ROCE higher than Cost of Capital
  • Debt-free or low debt levels
  • Have low reliance on external debt to expand
  • Cash generating companies
  • At cheap/fair valuations
  • Regular dividend paying companies
  • Offer high margin of safety

How many stocks do we own in our portfolio: Live Portfolio

Take a free trial of our research reports: Free Trial Form

Join our SPAM free Whatsapp list: Add Me

Alphamultiple Shuffle Portfolio

In our quest to reduce human bias from investing, we have come up with a high risk – high return strategy. This strategy makes up the Alphamultiple Shuffle Portfolio which consists of 15 stocks. The portfolio follows a Buy and Hold approach.

Alphamultiple Shuffle Portfolio Strategy

  • Market Cap of companies: Rs 300 Crores and higher
  • Number of stocks: 15
  • Holding period: 1 Year
  • Start Date: 1st working day of June
  • Cash Holding: NIL

We churn the portfolio only once a year. The expected returns are 15% p.a. and higher over a 5 year period.


We look to buy decent businesses at cheap valuations. The markets are known to mis-price stocks and create bargain opportunities. A basket of 15 stocks creates a diversification that is neither too concentrated nor too diluted. While not all stocks deliver positive returns, the overall portfolio performance delivers good returns. However, the draw-downs in the portfolio are relatively sharp. The stocks are ranked on the basis of their earnings, return ratios and valuations.


Alphamultiple Shuffle Portfolio

10 Year Performance


The Alphamultiple Shuffle Portfolio performance is as follows:

  • Positive returns in 3 out of 10 years
  • 10 Year CAGR at ~ 20.5% p.a.
  • Lowest 3 year returns: -0.63% p.a. (June, 2010 – June, 2013)
  • Highest 3 year returns: +46.68% p.a. (June 2013 to June 2016)

Who should invest?

Investors who:

  • Have a time frame of 5 years and more
  • Expect ~ 15% p.a. over a 5 year period
  • Can sit through phases of high volatility and drawdowns
  • Age group: 60 and lower (Suggested)

We suggest investors to invest less than 20% of their portfolio in the Alphamultiple Shuffle Portfolio.

How it Works

Once you have access to the portfolio, you can execute the transaction in just one click through the Smallcase platform. Every year, our team will review the portfolio and rebalance it. We will send you regular updates about the portfolio’s performance along with other reports.

To invest, checkout our advisory plans.

How many stocks do we own in our portfolio: Live Portfolio

Take a free trial of our research reports: Free Trial Form

Do subscribe to our telegram channel: Click here.

March 2019 Newsletter

<This is an extract from our March 2019 newsletter to clients>

Return on capital employed – The Promoter angle

Recently, Naresh Goyal stepped down from this leadership role at Jet Airways. The media was buzzing with the story of a travel agent turned airliner who was at the forefront of the air travel boom in India. If you think of it, the air travel industry has grown multi-folds over the last couple of decades. However, Jet Airways has failed to create wealth for its shareholders. This should serve as an example for those who believe that just because an industry will grow, shareholder returns will follow. But, the focus of this letter is on another aspect.

Imagine – You started a business and ran it for many years during which the business made big losses, you would have ended up under a lot of debt and would have to eventually sell off your assets to pay these liabilities. However, businessmen like Naresh Goyal, Venugopal Dhoot, Ruia, etc. are examples where your business goes bankrupt in couple of decades and yet the promoter amasses huge wealth over this period. I am not saying that you think of this phenomenon as a scam or siphoning away of funds. But, think of this as a way to evaluate businesses and stay away from a particular type of company that we will discuss later in this note. I am trying to think from a promoter’s perpective and not from that of a retail shareholder.

So what is Return on capital employed?

The academic formula is Earnings before interest and taxes divided by the average capital employed. The capital employed includes own funds (shareholder) and borrowed funds (lender).

Particulars Company A Company B
EBIT (Rs. Crores) 100 300
Avg. Capital Employed (Rs. Crores) 500 2,000
Return on capital employed 20% 15%


Company A is earning as much as Company B but the capital it is using is much lower than the capital Company B is using. This shows that Company A is a better business. Now let us add a twist to this example.

Particulars Company A Company B
EBIT (Rs. Crores) 100 300
Avg. Capital Employed (Rs. Crores) 500 2,000
Shareholder’s Funds 500 100
Borrowed Funds 0 1,900
Interest Cost 0 228
Profit After Tax 70 50
Return on capital employed 20% 15%
Return on equity 14% 50%


Company A has borrowed nothing while Company B has taken a big loan at 12% p.a. and invested it in the business. Both of them have paid tax at 30%. Because of this leverage, the return on equity for Company B has shot up to 50% against 14% of Company A.

Return on equity

Return on equity is the Profit After Tax divided by Shareholder’s Funds. Thus, the loan has boosted returns for the shareholders. Now, assume that you were the promoter of Company B. You started the company with Rs. 1 Crore of your own investment, kept re-investing the profits and came with an IPO, selling 25% of your stake to the public for Rs. 50 Crores. The you took a Rs. 1,900 Crores loan and pushed the business into the big league. Now, 75% of the profit belongs to you. Everything that you are earning is on the Rs 1 Crore that you had invested.

While the ROE for the investors is 50%, for you it is astronomical! And you have already made a fortune by selling 25% to the public. That amount is being invested into real estate, restaurant businesses, etc. You have created multiple sources of income for yourself. And on top of that, your family and you are withdrawing handsome salaries from the business. Many promoters also indulge in related party transaction and pay family members rentals, leases, etc.

A bad phase strikes


Particulars Company A Company B
EBIT (Rs. Crores) 30 100
Avg. Capital Employed (Rs. Crores) 500 2,000
Shareholder’s Funds 500 100
Borrowed Funds 0 1,900
Interest Cost 0 228
Profit After Tax 21 (128)
Return on capital employed 6%
Return on equity 14%


Soon, the industry faces headwinds and the company goes into losses for 3-4 years in a row. To keep the cashflows running, you keep taking more and more debt hoping things will turn around. But things don’t turn around and the company declares bankruptcy. You and the company are separate legal entities, so nothing happens to your wealth. Yeah, you have lost the business but then you are affluent enough and have many other sources of income now. Your lifestyle doesn’t change, but the shareholders of your company see their investments go down to zero.

In this way, despite being part owners of a company the promoters and the retail shareholders get different results from their investments. Yes, the promoter had a vision and he took the risk, executed his vision and deserved to make money out of it. But then a 10% ROCE for him is good enough while for a retail shareholder he will desire at least a 15% ROCE.

How many stocks do we own in our portfolio: Live Portfolio

Take a free trial of our research reports: Free Trial Form

Do subscribe to our telegram channel: Click here.

February 2019 Newsletter

<This is an extract from our February 2019 newsletter to clients>

Investor Behavior – Returns will come

While 2018 was a tough year for most investors, the optimism is still there. Many investors remember the 2017 performance of their stocks and believe that returns will come back in 2019-2020. While investors have enough maturity of thought to understand that returns are not a given and that there could be periods of negative returns, they tend to forget that the market has a 3rd dimension as well – Flat / range bound.

Many investors are assuming that the Small / Mid-Caps will bounce back and deliver stellar returns over the next 2-3 years. The expectations of 15% CAGR from their equity investments are still alive.

Nifty 10 year chart (1992 to 2002)

The above chart shows the movement of the Nifty index from 1993 to 2003. As you can observe, the index remained in a range and delivered no returns. Typically, such a range bound movement happens after a strong rally (something like a 2x-5x move).

In the hindsight, we know that the Nifty / Sensex delivered 12% to 15% CAGR and the “power of compounding” is engraved in our mind. But imagine if you were an investor who had invested in equities in 1993 and was witnessing no returns for many, many years. Wouldn’t you eventually lose interest in equity investing? The point is that many investors still have that expectation of getting multibagger returns. The blame is not on the investors but on the entire community of brokers, advisors, funds, etc. who preach the risk and return part of investing but don’t talk of patience.

In no way are we saying that the next decade will be like the decade between 1993 and 2003, infact the 2008 to 2018 period was a dull period in general for the market and most of the returns just came in the later years (2014 to 2017). Investing in equities and equity funds should have a multi-decade outlook to create wealth that can make a difference. If you start with Rs 3 Lakhs today and turn it into Rs 6 Lakhs by 2022, it would not have any drastic impact on your lifestyle.

What should investors do?

As a retail investor, split your equity investments into direct stocks, equity funds (including ELSS), PMS (if you net worth is > Rs 2 Crores) and other such avenues. Also, continue with SIPs into mutual funds of any amount that you can set aside every month. In range bound markets, you keep collecting units at low NAV values and once the market witnesses a strong period of high returns, you really see your wealth grow.

Infact, in the long run the range bound markets and bear markets are the best friends of an SIP investor. They let you purchase more units at lower NAV values. As your investment keeps increasing, the potential returns you will generate in the future keep increasing too!

Let’s assume you started with a Rs 5000 SIP at the start of a bull market, your entire returns will come on the initial investment which is hardly Rs 60,000 a year! Now, if you start investing and the market is flat for 3 years, your investment would be in Lakhs and whenever a bull market starts, your portfolio will deliver returns in Lakhs! So, if you are an SIP investor, your prayer should be for a dull market in the initial 6-7 years of investing.

I would take this opportunity to convey a social message – Please Vote. We are the lucky few people who have the right to elect / throw away our Governments. Our forefathers gave their blood & sweat to make this Democracy which is one of the most successful democracy in the world! If you don’t have a voter id card or if your name was deleted from the rolls then you can enroll online. If you are a registered voter, then just re-check your name online.

How many stocks do we own in our portfolio: Live Portfolio

Take a free trial of our research reports: Free Trial Form

Do subscribe to our telegram channel: Click here.

Alphamultiple ETF Portfolio

All Weather Portfolio for India

The Alphamultiple ETF Portfolio runs on the concept of the All Weather Portfolio. This portfolio invests in multiple asset classes to reduce volatility and deliver decent, stable returns over the long term. We have created the All Weather Portfolio for India using the available ETFs.

A Passive Investment Strategy

We truly want to change the way people treat their investments. Look at your equity portfolio just how you look at your FDs and PPF. But the problem is that you need to actively track your equity investments while your FD and PPF hardly require any regular monitoring. So, to strike a balance, a part of your equity investments should be in portfolios that require little research from your end.

Now, how can you harness the power of equities while doing little research? Index funds & Exchange Traded Funds. Index funds invest your money in Indices like Nifty 50, Sensex, Nasdaq, etc. If these index funds (or any other fund) can be bought and sold on the stock exchange, then they are called Exchange Traded Funds.

Where do we invest?

Our portfolio consists of the following ETF’s.

All Weather Portfolio for India

List of ETFs


As you can see, the allocation range varies from one asset class to the other. Now, we review the allocation every quarter and depending on multiple factors like valuations, technical trends and volatility, we re-balance the portfolio (if needed). The churn rate stays low, leading to lower transaction costs and requires little monitoring. However, the allocation also focuses on returns. Our aim is to deliver stable returns that beat inflation and helps investors achieve their financial goals.


You can request us access to the portfolio. Investing in this portfolio is free of cost from our end. However, your broker will charge you the brokerage and taxes as applicable. So, we suggest you to go with a broker who has low transaction costs. You do not have to open a demat account with us.

The minimum corpus needed to invest in this portfolio is ~ Rs 20,000. There is no lock-in period. However, we recommend investors to have a 2+ years time horizon for this investment.

How it Works

Once you have access to the portfolio, you can execute the transaction in just one click. The investment will be made as per our suggested allocation. Every quarter, our team will review the portfolio and if needed, we will rebalance the allocation. You will be sent proper alerts and the rebalance will be executed in just one click! You do not have to make any calculations at your end.

Risk and Return

The Alphamultiple ETF Portfolio is an All Weather Portfolio for India and the expected returns are 10% p.a. The expected drawdown on the portfolio is low as the investment is diversified into liquid funds, gold and both domestic and international equities.


How many stocks do we own in our portfolio: Live Portfolio

Take a free trial of our research reports: Free Trial Form

Do subscribe to our telegram channel: Click here.

ETF Investing in India – Part 2

This blog is the second in our “ETF Investing in India” series. While the first part ( ETF Investing in India – Part 1 ) of the series gave the users a brief overview of what ETFs were, this blog will focus on the best ETF in India to choose for investing.

As an investment tool, ETFs give you the power to exploit the growth prospects of a particular country, sector ( IT, Pharma, Banking, etc ) or an index. In India, while we do have ETFs for USA and HongKong, the ETFs for other emerging markets are not yet there. Even for sectors, only the banking ETF has liquidity. The best ETF in India cover Nifty, Nifty Junior, Gold and Nasdaq.

Invest in Indian and Foreign indices


Regularly investing index ETF’s give you the exposure of the entire market and keeps your profits running as and when the market goes up. Suppose you decide to monthly invest a fixed amount in an index ETF, you are able to buy different quantities of the fund every month. When the market is low, you get to buy more units and when it starts moving up, you get to buy lesser units. And in our growing economy, this seems the best investment for the long term. The only cost is the brokerage for buying it and the expense ratio you pay annually. This expense ratio is usually 0.75%-1%, also you get the benefit of dividend which the index companies pay. As the index comprises companies of every sector of the economy, you get a diversified exposure to risk.

Advantages of INDEX ETF:

  • Spreads your risk over diverse sectors of the economy.
  • Let’s you invest small amounts now to make money from the future bull rally.
  • Gives you dividends from the index companies.
  • The market men are very intelligent and always remove under-performing stocks from the index and add upward running stocks to it. It does sound safe.


It trades at the price of 1 gram of gold (Most cases). Every unit of this ETF is backed by  99.5% pure 1 gram gold. If you want to make money out of rising gold and can’t take the risk of the commodity markets then invest in the gold etf.

Advantages of GOLD ETF:

  • No storage cost, no risk of loss due to theft, natural disaster or other matters out of our hands.
  • A very small amount required to make monthly investment. As low as the price of 1 gram of gold.
  • It can be bought and sold at the cost of an equity share during the market hours and has good liquidity.
  • As Indians would never want to sell gold they hold unless they are bankrupt, ETF removes this psychological barrier

Create your own ETF Portfolio

Best ETF in India

ETFs to invest in

The allocation range is what we follow in our Model ETF Portfolio. You can get access to our Model ETF Portfolio for free! To request access to the Model ETF Portfolio, provide your details to our team.

How many stocks do we own in our portfolio: Live Portfolio

Take a free trial of our research reports: Free Trial Form

Do subscribe to our telegram channel: Click here.

ETF Investing in India – Part 1

Exchange Traded Funds (ETF) have been generating a lot of curiosity in the investor community in the past few years. ETF Investing in India is still at a nascent stage, however volumes have been picking up.

ETF Investing in India

Indian markets have seen lack of liquidity in ETFs due to lack of both interest and awareness from the investor community. But in FY 17 and FY18, the Government’s push on the CPSE and Bharat 22 ETFs has made investors consider investing in ETFs.

1. What is an ETF?

An ETF is a unit which tracks a particular index, fund or a commodity. It is similar to an underlying of a that index, fund or commodity. As the name suggests, an ETF is traded on the stock exchange.

Eg: NIFTYBEES is an ETF which tracks NIFTY and is usually 1/10th of the the NIFTY INDEX. Suppose NIFTY is at 10700, NIFTYBEES will trade approximately around 1070, but due to accumulation of dividend, the price of NiftyBees will be higher. Because it is traded on the stock exchange, the demand-supply impacts the price.

ETF Investing India

ETF – Another investment avenue

2. How do I buy an ETF?

ETFs trade like equity shares on the stock exchange. Unlike mutual fund investments, ETF investments require a demat account.

3. Can I trade an ETF for intraday?

Yes, as an ETF is just like an equity share, you can trade it at intraday brokerage charges as well. However, ETFs are not for trading but are for investing.

4. What is the cost of ETF Investing in India?

Apart from the normal brokerage costs, ETF’s generally have an expense ratio similar to that of the mutual funds. This cost ranges from 0.5%-1.25% per annum. Although, the cost in India is pretty high compared to what it is in other developed countries (0.2%-0.3%), it is expected to come down. Due to low liquidity, the ETFs have wide bid-ask spreads which results in a high impact cost. The Short-term capital gains tax and the Long-term capital gains tax is the same for ETF and equity shares.

In this blog post, we have covered the basics of ETF Investing in India. So, to know the ETFs that you can invest in, read the second part of the blog here: ETF Investing in India – Part 2.


How many stocks do we own in our portfolio: Live Portfolio

Take a free trial of our research reports: Free Trial Form

Do subscribe to our telegram channel: Click here.