The market turned distinctly weak in August 2018. All the major indices fell, with the Bank Nifty falling by more than 3%. Continued FPI selling, tepid results, GST related disruptions and continued geopolitical tension was somehow contributory to the relatively tepid movement.
Except for the SBI Small and Midcap Fund, all the other benchmarks, as well as my own investment performance had a negative performance for the month.
While my investment performance continues to trail the SBI Small and Midcap Fund (this stands to reason: Small and Midcap Stocks have outperformed the Large Caps, and while portfolio is geared towards Small and Midcap Stocks, I have several large caps, like Reliance, ITC, L&T, ICICI Bank in my porfolio. Naturally, my portfolio performance is a cross between the Small Cap Performance and Large Cap Performance), it does outperform all other benchmarks.
The performance of the PMS schemes is particularly distressful. I would imagine that PMS managers should outperform my own investment performance, or those of MF managers (who charge much less). But in fact, PMS schemes have clearly underperfomed this year. Now, it may be that some manager did outperform, it does not appear so for the average of all managers. And those who do outperform, don’t seem to do it consistently over a long period.
My portfolio continues to underperform a bit because of the drag from IDFC, IDFC Bank and EClerx, which are in my top five holdings. On the other hand, outperformance by Bajaj Finserv, HPCL, amongst other stocks, allows be to clock in respectable performance.
July 2017 was a great month for my trading performance. Here is a table which shows the trading returns over the last nine months.
As can be seen, my trading activity gave a return of 59% in July 2016 alone. This was in conjunction with a rise in the bank nifty of 8.15%. However, as I kept withdrawing capital from trading and deploying it in debt, I am not clear as to what the trading capital showed be considered. In any case, trading activity for me is a business which created income, not a wealth generating activity. Hopefully, wealth will get generated through my debt, equity and real estate portfolio. So I am far more interested in the absolute returns from my trading activity.
This month, I also started trading commodities in earnest. The total capital set aside for commodities is still a fraction of the total for the Bank Nifty. Hopefully, over a period of time, this shall rise.
Currently, I am trading Crude/Natural Gas, Gold/Silver, Zinc/Copper. I feel that trading a basket of instruments shall improve the stability of my trading performance. However, I am still not confident of increasing the position size of the commodity basket. Over a period of time, I shall slowly increase this.
Below is my trading equity curve till July 2017.
What about drawdown? Well, in July 2016, there were several days where the trading equity was at the maximum, and there was no drawdown at all.
Here is the drawdown:
All in all, a very satisfying performance in trading activity in July 2017.
Again, after a haitus, I present my trading perfonmance and investment performance.
Here is a graph of my performance, both for trading and investment, in comparison with various benchmarks. The benchmarks I have included are the performance of the HDFC Top 200 and SBI Small and Midcap Funds, and two PMS’s I have invested in, the MOSL Value Strategy, and the Centrum Deep Value Strategy, in addition with 3 indexes.
As can be seen, the trading has had a great last few months. However, there is a caveat here. In my base calculation for capital employed (i.e., the 1000 figure in November), for trading, I have only included the actual capital employed in my brokerage accounts, and not the shares pledged as margin, or the reserve cash I hold. Still, all in all, a creditable performance.
My investment performance in the last seven months is also not bad, second only to the HDFC Top 200 Fund. I otherwise beat both the PMS’s and the indexes handily.
What risk did I take to get these stellar trading returns? Quite a bit. Please see below:
As can be seen, there is a deep drawdown in the months of October and November 2016. This corresponded to three external events, Brexit, Trump Election and Demonetization. Such deep drawdowns are what keeps one afraid of trading in futures. I have since changed strategies (more in another post), and hopefully, I can avoid such sharp drawdowns in the future.
I am trying to maintain the discipline of disclosing my portfolio over the weekend after expiry in every month.
Notable purchases during the month include a significant increase in my holdings in IDFC and Oberoi Realty, and an increase in my holdings in Idea Cellular and an initial position in Tata Global Beverages. I also bought a reasonable amount of Sabero Organics as a special situations play. Amongst small caps, I created small positions in Morganite Crucible and Mazda Engineering. I trimmed my holdings in JP Infra and in Alkyl Amines.
I have too diversified a portfolio. Over a period, it will only became like the Nifty Junior. I am therefore trying to increase the concentration in my portfolio, and for the moment, two stocks, IDFC and Oberoi Realty are in my focus. I intend to increase my holdings further. I will give an investment thesis on both next week.
I am also increasing my exposure to Idea Cellular, though at a slower clip than the above two. The reason is simple, telecom stocks have got back pricing power, and the eminent entry of Reliance Jio, to my mind, is an overblown fear. Reliance has not demonstrated that when it comes to engaging the consumer that it is better than competitors. This is true for its previous telecom foray, as it is true for its retail foray. I have little doubt that they will be a serious player in the telecom space, but existing telecom players are not going to roll over and die. Idea’s balance sheet is the best amongst Bharti, RCom and Idea, and it is executing its plan well. This can be a FCF business of high proportions.
Sabero Organics was bought mainly from the point of view of merger with Coromandel International. The merger should not happen within a month or so, and buying Sabero today means buying Coromandel at a 7% or so discount.
Overall Gain %
% of Portfolio
Sun Pharma Adv
Tata Inv Corp
Munjal Auto Ind
PTC India Fin
This constitutes 79% of my total portfolio. I am disclosing those stocks which constitute more than 1% of my portfolio. IDFC has gone up from 3.4% to 4.05%, even without any price increase. Oberoi Realty has gone up from 2.4% to 3.4%. I fully intend to have both of these at 10% within the next 2 months.