Akshada's portfolio: Views are welcome

Q&A: Questions & Answers Portfolio Q&A
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Hi everyone,

I’ve started to invest pre elections and these are my investments:

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I’ve bought patiently on dips and my portfolio is 2% down ytd.

Rationale behind each:

Vinati Organics- I like that company is the leader in their products and that it takes a long time to formulate something. I like the management as well as the growth rate, which was present even before the Chinese Chemical sector problem.

Maruti:- I believe that Auto’s are getting a bad rap and rightfully so, the numbers have fallen to a low of 2017. However auto is a very tough sector to implement regulations. Even when the changes happened in America Ford, GM and Chrysler all went through a very bad phase. When it comes to the EV story, I believe it is far away, and when it comes Maruti will be ready. A 50% market share company won’t give up so easily.

Minda Industries: Minda has created a lot of weath for its shareholders and is a very well managed company. It is a leader in Switches, Lights, Alloy wheels and a lot of other segments. It is in both 4 and 2 wheeler segments. Minda has been one of those companies who has given positive revenue growths in grim market scenarios.

Dabur- Steady FMCG compounder, and at the time of buying was near its 52 week low and valuation wise as well as a good company was at attractive valuations.

GodrejCP- Same story as Dabur. Difference between them however is of distribution and products. I like them both. Valuation gives much comfort in this.

VIP- I like the story due to a few factors:- Their continued market share, shift from unorganised to organised, Decent valuation and growth, however would like to buy cheaper. I like that it is one of the niches who has the potential to gain from the trade war.

Deepak Ntr- Acetone and phenol plant was the main attraction. I expect the growth from that would lead the company to better profitability. Also, the board of directors is a group of very interesting people. I like the bargaining power it has over the govt, however it can be a double edged sword as govt may have too much of intervention.

I am still siting on 55% cash

Other companies I am tracking, GMMPfaudler, APLApollo, Natco Pharma, Maithan Alloys, Edelweiss, United Spirits, ION Exchange and Godrej Properties.

I was holding RBL Bank, but its journey from 52 week high to low was too quick and that worries me.

If market crashes and only then I’ll proceed to buy Bajaj Finance, HDFC Bank, Asian Paints, Pidilite and Nestle.

I invite all views/suggesstions/criticisms.

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I like the list that you plan to buy if the market crashes!

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Any critique on the list I already have or am tracking?

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I think Vinati is expensive at this price simply because i think the margin is at peak! Rest i do not track much!

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@Akshada_Deo

Sectoral concentration seems to be high in case of your portfolio.

Maruti and Minda together account for 30% weightage to your PF. For a sector facing strong headwinds it seems high.

Chemicals also at 30% seems high. (deepak and vinati together 30%). Problem with chemicals space is that things can change very quickly depending upon fluctuations in prices of raw materials or end products. Better look at stable players with wider portfolios like PI Inds, Atul Ltd, etc.

Dabur, Godrej CP, VIP seem good. I think in such a concentrated portfolio there should be a place for a stalwart like HDFC Bank or some other strong financial name.

At a company level, all companies seem good and management quality/business quality seems okay.

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Nice picks Akshada.
I track Maruti and VIP closely among them.

What’s the rationale behind low number of picks?
i.e. What are your thoughts are on having 15 stocks with 6-7% each vs. 6-7 stocks with 15% allocation each?

Currently in the process of building my first portfolio too, however unable to allocate more than 7% to a single stock. So interested in getting your views too…

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30% is excluding cash. I am sitting on 55% cash right now. So according to that, both Chemical as well as Auto will go down to 15% each.

I did own Bajaj finance when it went down to 2000 levels, but the sudden run up made me exit it according to the rules of the portfolio.

I will add the bluest blue chips if market corrects further.

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It’ll depend on your comfort level. We are bound to make mistakes while creating a portfolio.

I would like to do bold allocations however, if i go wrong in only 2 of them, my margin of error goes to zero and it’ll take a long time to recover the losses.

Hence the rule of maximum allocation of 7% in 12(+/-2) stocks.

Low number of picks is because I have been tracking these companies for a long time now. I like to sit with my research for some time before allocation of the portfolio. Which is why my watch-list is pretty wide as I haven’t spent as much time with the research as I would like.

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Yeah, valuation doesn’t provide a lot of comfort when it comes to Vinati.

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Deepak Nitrite made fortune in Performance Products and not in phenolics this quarter…just to note…

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Reading your rationale and picks you do not seem a new investor at all but rather a savvy and opportunistic one. If you can share more details about past portfolio or journey as investor it would be helpful. Among your picks i like Godrej and dabur. I like your rationale for maruti as well. Btw if i am not wrong Ford and gm were almost bankrupt at one point of time? What was their challenge in US at that time and what made their come back? Thanks

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Yes, you are right.

It is the opportunity size I am looking in the coming 2-3 years.

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Thank you for the compliment, but I am a rather new investor. I am 21 years old, and this portfolio is a second attempt. I started making it in April 2018, but it was very bad timing and the chaos in the market was unknown to me to that extent.

I have been actively following the market since I was 18, but have indirect experience of the bad side of the market and the trader mindset that can burn you severely from the experiences of my father.

In late 1970s early 80s, the Iranian Sheikh at that time was overthrown, which lead to a massive spike in oil prices. American cars were not very fuel efficient as Americans liked their cars big. This is when the entry of Toyota and Honda killed the car market for everyone as no one had a car that could compete with them at their prices. A lot of plants shut down, a lot of losses as well. The law at that time didn’t allow them to have a combined r&d so that they could come to a solution. If you think antitrust is hammering now, at that time it was even worse. Along with gas, inflation rate was very high and hence the interest rates as well and borrowing became a very tough job. At that point in time hourly wage rate was $20. This soon caught up to them.

It took them 3-4 years but the industry recovered and from 1985 the car market was growing like never before.

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Thanks so what i understand is it was more of a price war and need of some r&d and new product launches at needed price points by existing players kind of scenario. Hmm well at first thought the current challenge of auto in India looks more structural than this as demand itself is reduced and technological disruption awaits in terms of EV. EV will take significant time to emerge but the mindshare and slowly investment share it would take would be big. Demand issue is more cyclical and maybe liquidity linked somewhat as well. Add to that the ride sharing apps seem to postpone new buys as well. With better public transport, this aspect would also affect demand in tier 1 and 2 cities. Need to think more…this is one sector i am trying to understand and feel lot of gap still in my understanding…

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This is what I think is happening in the Auto sector:

It is a natural slowdown of a sector, however there are always catalysts to this.

EV’s are only very successful as of now in California and China. This is because it is the Tech companies that are funding the direction along with subsides for EV in China, and Environmental credits in California. They are yet to be profitable in their own setting. But these won’t have the same structural growth as traditional Autos and will rather do what the Tech companies did, 10 years of losses and the next year will be a boom exceptional gain.

Another reason for slowdown isn’t that uber is good enough for a metro resident. However, uber has delayed the timeline of the need to buy a car. IT companies offer transport services and hence it feels as if the need is gone. I believe it is only purely delayed.

Also family planning becomes a big part of buying a car. A delayed family planning due to career orientation also leads to a delay in time to buy a car.

Growth of second hand cars has been going unnoticed for a while. 10 years ago, the engines were not as efficient as they are today. Hence second hand car buying wasn’t as popular as it is today.

These are the things which have delayed the purchase cycle, and the industry did not prepare for this.
Along with this the bad NBFC credit cycle is just another flame in the fire.

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All these happened in the last 1 year? Untill 2018, we were at all time high sales growth. Suddenly in 6 months to 1 year, IT companies started giving transportation, family planning was delayed, Uber changed transportation? In fact Uber has increased prices and stopped promotions in the last few months.

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No, this is a gradual progression which has happened. This is why the slowdown will take time to reverse. The sales growth was fueled by growth in tier 2 and 3 cities.

Uber had a pact with Maruti and hyundai to fund new cars from them. which is why you’ll see a high number of WagonR for Uber/Ola in economy segment and Desire/Xcent in the upper segment.

High incentives attract more users. Demand got fueled and incentives gone.

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This is a very interesting point. US has a huge second hand as well as rental market. New companies will emerge here…cars 24 zoomcar etc…not aware of their financials but they must be growing well.

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This is precisely why i do not understand auto so far, maybe the inventory pile up on expectations of same demand an year back is backfiring more than actual reduction of demand? Or all these factors created the ripple effect in last 1 year…with both urban and rural headwinds along with liquidity issue…

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As we have seen, debt can fuel both good and bad companies. Once availability of debt evaporated, the bad goes bust and the good stays. This is what is happening. Liquidity thinning away brought all the underlying problems out.