Portfolio Composition at the end of June, 2014

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.

Stock Latest Price Inv. Price Overall Gain % % of Portfolio
IDFC 128.35 112.35 14.24 4.05%
ILandFS 23.4 13.81 69.46 3.50%
Selan Explore 594.5 317.72 87.11 3.46%
Oberoi Realty 259.1 204.00 27.01 3.36%
Larsen 1667.3 949.93 75.52 2.48%
Cummins 639.3 406.70 57.19 2.47%
IRB Infra 224.6 81.35 176.09 2.44%
Balkrishna Ind 735.9 232.34 216.74 2.43%
Sesa Sterlite 289.35 150.99 91.63 2.32%
Mayur Uniquoter 374.5 111.03 237.29 2.25%
Clariant 861.05 617.20 39.51 2.12%
NMDC 178.95 121.65 47.1 1.96%
Kaveri Seed 721.2 296.64 143.12 1.96%
EID Parry 209.4 141.47 48.02 1.93%
Bharat Forge 608.25 272.25 123.42 1.87%
Hind Zinc 163.9 121.00 35.45 1.76%
Ajanta Pharma 1522.6 1007.73 51.09 1.65%
Sun Pharma Adv 160.25 121.93 31.43 1.61%
MPS 345.45 128.66 168.49 1.59%
eClerx Services 1159.8 866.27 33.88 1.56%
Indian Hotels 102.3 53.51 91.16 1.56%
Tata Inv Corp 547.15 404.99 35.1 1.55%
NTPC 152.25 130.22 16.92 1.55%
Sobha Developer 511.55 288.64 77.23 1.51%
Munjal Auto Ind 78.5 33.99 130.93 1.48%
Oriental Carbon 269.9 113.21 138.42 1.46%
Syndicate Bank 157.85 69.59 126.83 1.29%
ITC 319.75 304.43 5.03 1.28%
PI Industries 329 144.63 127.48 1.28%
ILandFS Trans 206.8 134.39 53.88 1.28%
Reliance 1012.1 756.12 33.85 1.27%
PTC India Fin 31.55 13.93 126.5 1.27%
ICICI Bank 1384.65 933.81 48.28 1.26%
Tata Steel 518.9 274.05 89.35 1.23%
Grindwell Norto 408.25 231.16 76.61 1.20%
Muthoot Cap 156.75 94.02 66.72 1.20%
Bajaj Electric 336.5 209.83 60.37 1.19%
TCS 2399.55 1771.20 35.48 1.19%
VST Tillers 1766.55 421.86 318.76 1.17%
Banco Products 115.4 56.16 105.48 1.09%
Poly Medicure 503.35 278.36 80.83 1.08%
RS Software 276.4 206.52 33.84 1.07%
Sasken Comm 220.45 180.30 22.27 1.07%

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.

Portfolio Changes in May

In May, my largest purchase was Ajanta Pharma. Ajanta Pharma has been a favourite of the www.ValuePickr.com forum, because this was one stock which has had remarkable operational performance. I could never purchase Ajanta earlier, even though everyone at ValuePickr has it as one of their top picks. I used to think of it as expensive, so I gave it a miss, in favour of stocks like Avanti Feeds, Kaveri Seeds, PolyMedicure, Mayur Uniquoters, and VST Tillers, also from the ValuePickr stable. But the recent Pharma underperformance in the stock market, and Ajanta’s continued operational outperformance, meant that Ajanta again looked cheap, after its results in May, around a level of 1050. So now, this has the some decent weight in my portfolio. I expect gains to be muted, till Pharma becomes a market darling again. But it is in stocks which are not market darlings where bargains are to be found.

I also added more of RS Software, simply because there is great value in the stock. Currently, again, in line with the IT trend, it is not going anywhere. But I am patient. I also added some EClerx, because of a price drop. This is a company which I like very much, and I will keep adding, as the price keeps falling as the dollar keeps falling. I don’t think the market has even understood that EClerx performance this year will be unaffected by the dollar-rupee equation, since the entire revenue is hedged at higher dollar rates. It is next year, that performance will be adversely affected.

I also added some quantity of Akzo Nobel. I wish I had a chance to invest more, but the price ran up. Makers of Dulux paints, it will be a key beneficiary if the Auto and Housing sectors revive. I think this is a great company, and along with Clariant and Cummins, it will remain the core of my MNC portfolio.

I added some Munjal Showa, Muthoot Capital, Poddar Pigments and Kesar Terminals, all with dramatic gains after I purchased the stocks. All of them represent great value, and as the market runs out of value, I expect that all of them will see a dramatic PE rerating.
What about sells? I finally sold out of MCX, at a small profit. I still think it could potentially give a great return, but the uncertainties in terms of stake divestment and regulatory overhang are simply too high. Not worth it for a relatively risk averse investor, especially when the markets have some many other stocks going up.

I also sold out of Igarashi Motors, with a nearly 100% return. I still think this is a great company, but it is too export dependent, and performance will suffer with the dollar falling. I will return to it some other time.

I also sold some NTPC (bad call, it rose sharply after I sold), and BKT and Cummins. I sold small portions of my total holdings in all 3. NTPC, because in this market, it is not worth holding on to an annuity stock. I intend to get rid of it completely. BKT, because of dollar rupee concerns for a pure exporter, and Cummins-well, selling Cummins was a mistake. The only saving grace is that I sold a small portion of my portfolio holding.

I also sold JB Chemicals (invested in Ajanta instead) and Alkyl Amines Chemicals. Alkyl Amines Chemicals will suffer due to alcohol prices going up in this year. I also sold Balaji Amines because of the same reason. I also sold GMM Pfaudler, because I did not like certain related party transactions they carried out. Maybe it was a mistake to sell.

Investment Performance in May 2014

Here is a graph showing my investment performance in May 2014. This investment performance should be seen in the context of the hedging that I had carried out, to protect myself on the downside in the case that the election results would be unfavourable to the markets. This is despite my being reasonably certain of the results. However, sometimes one believes what one wants to believe, and I think it was prudent to, when faced with an event that could cause a catastrophe in the markets, protect one self on the downside. What I did is that I purchased Mayend out of the money put options, with strike prices 5% to 10% lower than the Nifty and the Bank Nifty on the date of purchase. Why the Bank Nifty? Well, I have mostly small and midcaps in my portfolio, and in the case of an unfavourable result, the likelihood that my stocks would perform worse than the Nifty was a given. On the other hand, the Bank Nifty moves more closely to my portfolio, so I preferred to hedge with the Bank Nifty. I wish it was possible to trade in Midcap Nifty options, but those options are not enabled.

The portfolio performance below includes the cost of the options, which of course, given the sharp market upmove, expired without any value.

Portfolio performance cannot be assessed without understanding the risk the portfolio carries. This was one key takeaway for me from the book by Howard Marks, The Most Important Thing. In this case, the risk that I carried on May 16, 2014 (Election Results Day) was much lower than most other investors, who were not similarly hedged. Hence, if I had a lower performance than my benchmarks, I would not (or should not) have been unhappy.

With the caveat above, I present the graph below with my performance for the month.

As you can see, I had a blowout month. I far outperformed the Nifty, and the Kotak Classic Fund. I did much better than the SBI Magnum Midcap Fund.

This is also understood in the table below:

Returns My Portfolio Kotak Classic SBI Midcap Nifty
Last Month 21% 9% 11% 10%
Last 3 Months 38% 17% 17% 18%
Since Nov, 2013 55% 21% 39% 20%

Since November 2013, I have returned 55% on my portfolio. The SBI Midcap Fund returned 39%, while the Nifty returned 20%. In May alone, I outperformed all 3 of my benchmarks by at least 10%, inspite of my portfolio being hedged.

Reasons to be proud. Whether this result is due to luck in the timing or particular choice of stocks, or some small ability, we will see in the long run.

Investment Performance in April 2014

From this month, I also want to present this graph in a tabular form, to make it easier to understand. This is available below.

April was not such a great month. I only marginally outperformed the NIFTY, and probably underperformed the SBI Midcap fund, but not by much. This also brings the annualized portfolio performance into poor light, down from the over 100% run rate from the previous month.

Some of my top holdings underperformed severely last month. Cummins, Selan, IDFC, Larsen, Oberoi, Mayur, MPS, Sesa Sterlite and NTPC all fell last month, and these constitute 7 of my top holdings. I also exited Just Dial (at a loss), and MCX, though my holdings were rather small. Stocks which performed well last month included PTC India Financial Services (PFS), Clariant and Jaypee Infra.

All in all, a disappointing month. Depending on election results, we will see how the future plays out.

Returns My Portfolio Kotak Classic SBI Midcap Nifty
Last Month 1% 1% 1% 0%
Last 3 Months 23% 9% 13% 12%
Since Nov, 2013 29% 12% 26% 9%

Portfolio Composition, May 2014

As promised, the top stocks in my portfolio, at the beginning of the month. I have already published this for two prior months, and here is the portfolio as on May 02, 2014.

Notable additions during the month have been an increased exposure to IDFC. After a fairly stellar run in the middle of April due to the announcement of the new bank license, IDFC has been weak. I have taken advantage of this weakness to buy more. For me, IDFC represents an investment for 5 years, at least. Hopefully, over that period, it will become a multibagger. Right now, it is weak because a) It lends mostly to Infrastructure, and infrastructure has been a dog. People are afraid of NPA’s and rightfully so. But IDFC seems to have managed its NPA situation really well, even in a difficult environment. b) There is fear that the short term costs of IDFC transiting to a bank (increased SLR, CRR requirements, and increased expenses on opening branches) may put a lid on profitability and c) Uncertainty over the path to convert to a bank, and the likely FII dilution as a result.

For me, all of these are short term things, and ignores a) the phenomenal performance of IDFC NBFC relative to PSU banks in terms of NPA’s  b) the excellent performance of IDFC PE Fund, IDFC AMC and other subsidiaries. and c) the increased long term profitability resulting from an ability to get CASA deposits.

My largest purchase is the month has been another AMC, IL & FS Investment Managers. I really like the Fund Management business. Once you get a fund going, you have a fixed income for several years, and in addition, you might just get additional income from Carry. IL & FS has a great track record, gives excellent dividends, and I think this will continue, especially if the Indian Investment Climate improves.

Another stock which has underperformed in the last month in Oberoi Realty. While all realty stocks have done poorly, Oberoi has done badly too. I expect the May 10 results to be poor (probably the last set of poor results), and if so, I will buy into the price dip.

This month, I also bought Clariant Chemicals, adding to my earlier position. I think that my initial purchase of Clariant was sound (around 580 levels). I am not sure my current purchases are sound. I will put up a detailed note on Clariant once the March results are out. However, I am holding on, since I expect a dividend of 350 to 400 Rs., and I could use the tax free income, and subsequent stripping loss.

This month, I added to RS Software and Munjal Showa, though the positions are still too modest to show up here. I will keep adding to these positions.

Stock Latest Price Inv. Price Overall Gain % % of Portfolio
Selan Explore 497.6 315.5 57.71 3.9
Cummins 524.45 404.1 29.78 3.7
IDFC 110.55 107.3 2.99 3.6
Balkrishna Ind 528.3 231.2 128.48 3.0
Larsen 1,263.55 949.9 33.01 2.5
ILandFS 13.7 13.6 0.64 2.5
Kaveri Seed 656.35 296.6 121.26 2.4
Oberoi Realty 208.05 177.6 17.14 2.4
Mayur Uniquoter 288.6 111.0 159.92 2.3
Sun Pharma Adv 170.45 121.9 39.8 2.3
Clariant 705 615.9 14.47 2.3
NMDC 152.2 121.7 25.11 2.3
MPS 363.75 123.4 194.85 2.2
NTPC 114.45 131.6 -13.02 2.1
Sesa Sterlite 180.55 151.0 19.57 2.0
Hind Zinc 126.1 121.0 4.21 1.8
Tata Inv Corp 477.1 405.0 17.81 1.8
Jaypee Infra 24.85 18.6 33.48 1.7
EID Parry 152.35 139.7 9.09 1.7
ITC 340.25 301.0 13.05 1.7
IRB Infra 115.8 81.3 42.35 1.7
Bharat Forge 406 272.3 49.13 1.7
eClerx Services 1,239.80 757.3 63.71 1.6
Reliance 928.1 756.1 22.74 1.6
ICICI Bank 1,252.40 933.8 34.12 1.5
Sobha Developer 377.3 288.6 30.72 1.5
TCS 2,208.45 1771.2 24.69 1.5
Indian Hotels 70.95 53.3 33.2 1.4
Poly Medicure 481.25 278.4 72.89 1.4
Bajaj Electric 287.75 209.8 37.13 1.4
Munjal Auto Ind 52.95 34.0 55.77 1.4
PI Industries 249.65 144.6 72.61 1.3

Portfolio Composition, April 2014

As is usual, I intend to post a partial snapshot of my portfolio every month. Below is a list of my top portfolio stocks as on April 9, 2014.

My top holdings continue to be Selan Exploration and Cummins. I added a small quantity of Selan during a market drop in the month. IDFC, which was a loser till last month, has now become positive, and because I bought a small quantity last month, and because of the capital appreciation (finally, it has a bank license), it has jumped up the ranking of overall holdings to third place.

I have shown around 67% of my portfolio this month, as opposed to last month. This is because several of my top holdings have appreciated. New companies which have made it into the list include IRB Infra, Jaypee Infra (where I made fresh purchases), Sobha Developer, Bajaj Electric and Munjal Auto and Tata Steel, all of which have come into the list because of capital appreciation.

I had excellent performance this month in PSU Banks, IDFC, IRB Infra, Mayur Uniquoters, EID Parry, Selan, Cummins, Balkrishna Industries, and lots of other cyclicals. Disappointing was mostly the defensives, IT (MPS, Eclerx, TCS), Pharma (Unichem, Ajanta), NTPC (which I intend to sell of soon), Clariant (which I intend to build on) and FMCG. Luckily my exposure to these sectors is limited.


Investment Performance for the March 2014 Settlement

This post is a little late. I had promised that I would put up my investment performance on the day after every settlement on the stock exchange. This time, I am posting it a little late. I was abroad, and my computer did not work.

However, late as it might be, I have got reasons to be pleased with my performance in March. In the previous month, my annualized return was nearly 40% in the previous analysis period. On March 27, 2014 my portfolio NAV rose to 1233 (from 1000 on November 8, 2013, and 1114 on 26th February, 2014). Hence the absolute return is 23.3% in a little under 5 months, and the annualized return is 56%, higher than the 40% earlier. And I have achieved this from a 100 stock portfolio, not a highly concentrated one. The last months return was 10.68%, which annualized is nearly 130%.

Of course, the NaMo effect was in full play in March, and most portfolio’s have done well. However, as the chart below indicates, the portfolio handsomely beat the sensex, nifty, midcap and small cap indices.

In the previous month analysis, I had suggested that I was disappointed that my return was behind the return obtained by SBI Magnum Midcap Fund, though I had beaten the Kotak Classic Fund, a diversified large cap fund. I am happy to report that this month, I have finally beaten the SBI Midcap fund too. In March alone, the SBI Midcap Fund returned only 4.6%, much below the 10.68% my portfolio achieved.

Here is a chart showing the comparative performance:



As you can see, the Assets under Management (AUM) has had the highest growth, since I have been investing fresh money. And my overall performance has now just crossed the overall performance of the SBI Midcap Fund.

All in all, a satisfactory performance.

Portfolio Composition: March 2014

Let me share something I am ashamed off. My portfolio has more than 50 stocks. It is such a large group of stocks, more like a mutual fund, that it is likely to give only mutual fund like returns.

On another occasion, I will discuss the theme of Concentration and Diversification. At the moment, let me state that my objective is bring down the number of stocks to less than 20, with the top 10 constituting 60% of the portfolio. However, there are lots of constraints in achieving this-my tolerance for risk, the fact that I may have to pay short term tax if I sell things with less than a year’s holding, and the fact that some of my stock is pledged. Hopefully, after July 2014, I will have less of these constraints. I also have to curb my enthusiasm for various stock stories.

Anyway, this is my current portfolio, along with the purchase prices, and the approximate average holding periods:

As you can see, the average age of the portfolio is only 6 months. And these 25 odd stocks also constitute only 60% of my portfolio, by value!! Tells you that my investing journey is still nascent. And I am in desperate need for trimming a whole bunch of stocks. Also, most of the best performances are from MPS, Kaveri Seed, Mayur Uniquoters, PI Industries. These are all ValuePickr stocks. The biggest loser is NTPC. I kind of got blindsided with the new CERC norms. However, it pays decent dividends, so I have kept it. Perhaps before March end, as part of tax planning, it will go. The other negative figure is in IDFC and in Hindustan Zinc. IDFC is a stock which I am accumulating, to test the theory that you buy stocks of good companies when they are down because of some extraordinary set of events (Infra Slowdown, Gas Shortage, and FII limit revision due to Bank License Application), and I hope it will rebound very well in the future. Hindustan Zinc, in my opinion, is simply undervalued. It gets confused with Vedanta group debt woes, and the constant tussle with the GOI regarding sale of its stake. At some point, in the next year, I think both of these will get resolved. So, I intend to hold on to both IDFC and Hindustan Zinc.

The table below has the average purchase price, the gain/loss in percentage,(as on March 4, 2014) the value of the stock as a percentage of the whole portfolio, and the average holding period. The return for IDFC is wrong-it is not zero, but -5.5%.

Investment Performance from November 2013 to February 2014

How has been my investment performance? Every month, on the day after expiry, I will post my current investment performance in the form of this graph.

Just a brief explanation of the above.

I started monitoring my portfolio rigidly from November 8, 2013. On that day, I also started monitoring the performance of the Nifty, a top ranking Midcap Fund, and a top ranking diversified fund. Look towards the bottom of this post to find a summary of my performance.

What I did was the following:

a) Creating a Normalized Assets under Management

I took my total portfolio, on the starting date, and normalized it to a starting position of a 1000, by choosing an arbitrary divider. (For example, if my total portfolio was Rs. 21000, then my divider was 21). This represents my total assets under management (AUM), normalized. On every day, the total portfolio is divided by the same arbitrary divider to get the normalized AUM. (For example, if the portfolio would grow to Rs. 42000, then the normalized AUM would become (42000/21) 2000.

b) Calculating an initial NAV

I assumed an NAV of Rs. 1000 on the starting date, and divided the total portfolio value to get the number of units on the starting date. Sticking to our prior example, for a total portfolio size of Rs. 21000, the number of units would be 21.

c) Accounting for buying and selling

On each day I did some selling or buying of stocks, I calculated the net purchase or sale. This figure would be +ve for net purchases, or -ve for net sales. I then divided this by the previous day’s NAV to find out the net change in the units. For example, if on November 9, 2013, I bought a 1000 Rs. worth of stock, then the number of units would increase from 21 to 22. If I sold a net of Rs.2000 worth of stock, then the number of units would decrease by 2 to 19.

d) Finding the daily NAV

On each day, I used Moneycontrol to give me my portfolio value, after accounting for buying and selling. This portfolio value was divided by the number of units, to arrive at that day’s NAV. For example, if on November 9, 2013, I had purchased a 1000 Rs. worth of stock, which would have increased the number of units to 22, and the total portfolio value at EoD of November 9, 2013 was 23000, then my NAV would be Rs. 23000/22, or Rs. 1045.

e) Accounting for Dividends

Actually, when I note that I used Moneycontrol to arrive at my total portfolio value, this is not entirely true. My total portfolio value on any day has been accounted for by adding the total portfolio value of my stocks and the total amount of dividends received by me after November 8, 2013. This means that dividends flow directly to increase the NAV, and not the number of units.

This makes sense to me. Presumably, everytime a dividend is received, the price of the stock goes down by that extent, meaning that the portfolio value of stocks is decreased to that extent. This would result in a false reduction of the NAV, which gets accounted for by the way I have handled dividends above.

6) Normalizing the values for the Nifty, and two funds- SBI Midcap Fund, and Kotak Classic Fund.
On November 8, 2013, I normalized the value of the NIFTY to 1000, and also the NAV of the two funds to a starting point of 1000.

Why did I normalize? So that it is easier to visualize these values in a graph like the one above. If each of the starting values are a 1000, then it is easy to compare performances. And I don’t end up revealing the total assets under my management. I think that my performance should be measured without reference to the actual amount of money made/lost. A young person without lots of savings might find my portfolio impressive, merely because of its size. Others may find it insignificant. Does not really matter, as what matters is the percentage return.

Summary of Performance from November to February

From November 8, 2013, to Feb 26, 2014 (approximately 3.5 months), my NAV increased from Rs. 1000 to Rs. 1114, a percentage increase of 11.4%, or an annualized increase of 39%. The Nifty in the meantime rose by 1.6%, while the Midcap Nifty and Small Cap Nifty (not presented in the graph above), rose by 1.4% and 7% respectively.

Seems impressive. Not so fast. Had I instead invested all my money in the SBI Magnum Midcap Fund, I would have returned 17% during the same period. Great performance by this fund. The Kotak Classic fund, which is more invested in front line stocks, did much worse, increasing by only 3.3% during this time.

I am still learning. I hope in a few months, that I can start beating all the funds. In the future, every month, along with the graph above, I shall also give a table of rolling returns.