Q4FY20 – Portfolio Performance

The Nifty Total Returns Index (TRI) has posted a 25% return for FY20 basis while the midcap and smallcap TRI are down by 35% and -46% respectively. Our portfolio is down -20% on a YTD basis.

Alphamultiple Performance Review

FY20 Returns

Portfolio Performance

Our portfolio has not escaped the market carnage. From the portfolio peak in January 2018, our portfolio is down by -30%. Ours is a predominantly small-midcap portfolio and it has fallen less than the TRI of the largecap, midcap and smallcap.

Alphamultiple portfolio review

5 quarter performance

For Q4FY20, the Alphamultiple portfolio fell by -20.59% which is much less than the Nifty, Midcap and Smallcap. We had a high cash allocation in our portfolio and we have utilized some portion of it in the recent market correction. While this is a great time to increase allocation to equities, one has to be careful because the stocks that did well in the previous bull market may not do well in the next one.

Our focus will be on high ROCE generating businesses that are generating cash flows from their business and have the opportunity to grow. The sweet spot would be the Rs 1,000 Crore to Rs 10,000 Crore market cap companies here.

Markets at fair vaulations

While the earnings growth is depressed and the FY21 EPS set to get a huge dent, the PE ratio will appear distorted. We have discussed this earlier on our blog (Read: April 2020 Market Valuations). This is a very good opportunity to invest in equities and we are confident that over the next 3 years the Indian markets will deliver 12%+ CAGR.

If you are doing your SIPs for the last 3-5 years and are sitting on negative to NIL returns, it would make sense to continue them for another 2-3 years. You will most probably see very good returns. We have back tested data January 1995 onwards and have observed that 17% of the instances have negative returns on SIPs for 5+ years. However, if these are continued for 2+ years, then the returns move up significantly.

Don’t try to time the markets

Historically, during depressed markets the PE ratio of the Nifty has fallen as low as 10-12. In the current scenario a PE of 12 would mean levels of ~ 5,500 on the Nifty. Everything is possible in the markets but getting the bottom right is not possible. So focus on reading reports, analyzing fundamentals instead of worrying about the market bottom. Also, invest in a phased manner. Don’t rush to deploy your cash at once.

We will come out of this bear market and look back at this period as a golden opportunity to have made investments in equities.

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