Yogesh's blue chip 10 Portfolio


(KKP_Investor) #316

Great idea to have the discipline of the levels for each of these stocks. I buy in a similar way and I also sell in a similar way. I come up with these levels based on TA methods (various charting OB and OS level creation) and it has worked well, although since TA is not an exact science, stocks do stretch beyond my sell price and go below my buy price, but it really allows me to create and maintain a discipline. For LT holdings where I do not have a sell level, I let them just ride in a zig zag pattern upwards without a mental or VTC target.

KKP


(aswin) #317

@Yogesh_s The indicator is now at 38% for largecap, 23% for midcap and just 10% for smallcap. Curious to know your take on the prevailing market scenario and whether/how you’re making adjustments to your portfolio.


(phreak) #318

For anyone still taking the temperature of the markets and interested in knowing where we are, it’s a good time to look again at Yogesh’s spreadsheet.

Percentage of stocks trading above 200 DMA in Nifty 100 is 34%, Midcap 100 is 22%, Smallcap 100 is 6%. Since all these have 100 stocks, the numbers actually correspond to the number of stocks above 200 DMA.

My observations

  1. Smallcaps - Only 6 staying above 200 DMA of which HEG and Graphite India are two which could go under in another session. Atul, KSCL, NIIT Tech and Cyient are the other 4.

  2. Midcaps - 22 Stocks above 200 DMA. 8 of these are barely above - as in under 5% above 200 DMA. In just a session that 22% could drop to 14% quite easily.

  3. Largecaps - Although 34 stocks are above 200 DMA, about 14 of them are barely above and this could drop down to 20% in a week.

Things are getting quite interesting and next few months could be a good stock picker’s market. Perhaps time to dust-off value investing principles and pick up some bargains.


A Brief summary of the Micro/Small/Midcap Carnage
(Mahendra243) #319

https://www.bloomberg.com/news/articles/2018-09-28/oil-poised-for-third-weekly-gain-as-traders-brace-for-100-crude

Can this be a risk for indian equity markets?


(Yogesh Sane) #320

It is linked in this post.

@aswin @phreakv6

I generally follow indicator for large caps as these stocks are liquid and less volatile than mid and small caps. However, small cap index is showing signs of capitulation. Good time to buy. Overall index may not bottom out for some more time but individual stocks may bottom out sooner (or might already have). Some investors prefer to wait to see a bottom forming while others jump in early to catch full upside. I have tried both. I think being a buyer in a falling market and a seller in a rising market suits my current line of thinking so I am jumping in now. Even if I run out of cash before market bottoms out, I will just sit tight.

Large caps are showing resilience mainly because global markets are strong and MF inflows are going into large caps. While nifty 50 is still barely above 200 DMA, 2/3rd constituent are below. This typically happens at the top of a bull market where index heavyweights keep pushing the index higher while rest of the pack begins to retreat. However, current situation does not feel like top of a bull market.

Bear markets last about 8 to 14 months (just a thumb rule I follow so I don’t jump in too early). Bear in small & mid caps started in Jan so we are in 9th month. Going by this thumb rule, we should be closer to the end than beginning. Since this indicator is generally correct towards end of bull and bear markets (than towards the start), we could be closer to a bottom in small caps and a bottom in mid does not look far away. Trouble is, large caps made a new high just few weeks ago so if large caps were to join the bear market these may not bottom out for several more months. If that were to become true, small and mid caps will not see a rally until large caps are correcting. Combine these two observations together, it is likely that small and mid caps will just bounce off bottom for some time while large caps adjust.

Some Small cap IT stocks have dipped below 200 DMA. Remaining are also mainly IT. IT is seeing a tail wind due to falling rupee. Falling rupee generally benefits IT companies for few quarters before customers starts asking for discounts. I will not be surprised to see IT stocks starts pricing this eventuality.

Every bull and bear market needs a sector leadership so investors have something to take cues from. Until now that was missing but financials and (interest rate sensitive ) consumer durables have taken a lead. I will watch Bajaj Finance, Maruti, etc to see if trouble on Dalal Street is spreading to main street.

I have attended several AGMs this year and have heard from few others who also have attended many AGMs this year. Feedback from them is that situation on the ground is not that bad. To me it sounds like analysts who do only desktop research are cooking up a storm in a tea cup. As long as it creates opportunities, I am not complaining.


(sushilkc) #321

@Yogesh_s Thanks for sharing your thoughts. Please can you elaborate a bit more on the statement "…Until now that was missing but financials and (interest rate sensitive ) consumer durables have taken a lead… " I mean what are the indicators that you see which give this impression


(pradip) #322

Yogesh, it will help to hear your views on my checklist. Thanks.


(PK) #323

Hello Phreak, and Yogesh,
Thanks for this doc, but can we add nifty 50 also in to this list on this doc.


#324

@Yogesh_s Are you still tracking PSP Projects and Salasar Tech? Both of these companies reported solid earnings. Your views will be helpful.

PSP Projects

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Salasar Tech

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(sarthak kumar) #325

Dear Yogesh ji,

Just wanted to ask if you have updated your blue chip portfolio.

Thanks


(Raj) #326

Hi Yogesh, as one of the keen followers of your views, can you please update your thinking on current market condition? What are some of the previously over valued stocks that has attracted your attention?


(Yogesh Sane) #327

Hi @santhozp
PSP has posted excellent numbers and balance sheet is also strong. Order book is stagnating but that is because they are working on a huge order from Surat Diamond Borse so they being selective in taking new orders. They recently won a Rs 375 Cr order indicating that they are qualified and capable of taking orders of this size. Investors are worried about its ability to replace its order pipeline once SDB order runs though so this recent win should help. Overall, valuation wise it remains fairly valued with good prospects.
Disc: Invested

Salasar has posted good growth but receivables have gone so much that it has to borrow money to fund it damaging its balance sheet. This has caused its PE ratio to drop to single digits and I don’t see it getting rerated anytime soon. Future returns will come from earnings growth which are likely to be robust. It is also entering into road construction which can further strain its already weak balance sheet. Overall, valuations are attractive, growth prospects are good but balance sheet needs to be watched.
Disc Invested.


#328

@Yogesh_s Thanks a lots for sharing your view.


(Yogesh Sane) #329

Portfolio for 2019

Category Company Weight Outlook for 2019
Defensive Bharat Petroleum Corporation Ltd 10% Valuations in line with fundamentals.
Enterprising Hero MotoCorp Ltd 10% Valuations in line with fundamentals.
Enterprising Indiabulls Housing Finance Ltd 14% Easing liquidity concerns in 2019 should rerate the stock.
Defensive Infosys Ltd 8% Growth to continue in 2019 while valuations stay elevated.
Defensive ITC Ltd 10% Not expecting much change in 2019. Slow steady growth to continue.
Defensive Power Grid Corporation of India Ltd 10% This is a value play. Slow growth to continue.
Defensive Sun Pharmaceuticals Industries Ltd 8% Expecting pharma to reach new normal and investors look beyond short term troubles.
Defensive Tata Consultancy Services Ltd 8% Growth to continue in 2019 while valuations stay elevated.
Defensive UPL Ltd 8% Good exection to continue. Lower rupee continue to benefit.
Enterprising Yes Bank Ltd 14% Once leadership issues are resolved, it will be back on investor’s radar.

Changes to 2018 portfolio.
Removals - Eicher Motors, Lupin & Aurobindo
Additions - Hero MotoCorp, BPCL & Sun Pharma.

Eicher Motors is seeing a slowdown in sales. Either it has saturated its market, new launches are not finding buyers or competition has caught up. Either way, growth may not meet lofty expectations. will take a look again next year.
Lupin & Aurobindo are removed as they are removed from Nifty 50.

Hero Motocorp is a value pick. Valuations have dropped as competition with Bajaj is likely to get worse as Bajaj is aggressively pushing sales. I think Hero should be able to defend its market share while lower stock price may prove to be a good entry point.

BPCL has dropped sharply in 2018 first due to rising oil prices and then due to govt’s decision to force ONGC & OMCs to absorb some of the pain. Now that oil prices are coming down and rupee unlikely to crash from these levels, further pressure on BPCLs profits is unlikely. With low margins, it is unlikely to absorb any more price hikes. Lower stock price present a good value.

Sun Pharma - troubles in pharma sector appear to be getting to a close however Sun has its own set of troubles to sort out. However, stock price has dropped to reasonable levels. Indian pharma companies continue to maintain their core franchise of providing quality drugs at affordable prices.

Portfolio performance - Portfolio has posted poor results (down 4% YTD in 2018) compared to 6% jump in Nifty 50. This is mainly due to sell off in Yes Bank and Indiabulls Housing which appears to be an overreaction so keeping those stocks in the portfolio and in fact raising their weights. Good returns from IT and Pharma has offset some losses in Financials.

Performance of tracking portfolios - This Nifty 10 portfolio is picked from 2 tracking portfolios Enterprising Portfolio and Defensive Portfolio as explained here. In 2018 (Upto Nov) defensive portfolio has done well going up 8% while enterprising portfolio has done bad going down 3%.

A year ago I decided to overweight defensive (explained here) as the consensus was for growth. However, all the 3 enterprising stocks (Yes Bank, Indiabulls Housing, and Eicher Motors) performed poorly this year wiping out gains from defensives. With benefit of hindsight, I should have reduced weights of enterprising stocks.

Rationale for next year’s portfolio - Consensus now appears to be caution so I am keeping a balance between enterprising and defensive stocks while maintaining preference for defensives. Financials are available are attractive valuations so I am increasing their weights in the portfolio.


An aggressive contrarian portfolio
(Yogesh Sane) #330

As the chart below shows market is currently trading slightly above long term trend line established since world came out of the 2008 financial crisis.


Source: BSE

Chart shows that since 2008, Sensex is growing at a CAGR 9% much lower than its post 1991 liberalization rate of 12%. This could be because earnings growth is poor or market is taking a slow approach after massive rally from 2003-2007. thanks to liquidity injection from US Fed, global markets have settled for a slower growth than a sharp pullback followed by normal growth.

Since we are trading slightly above trend line, I will be cautious in buying and will buy only on dips. Buying above trend line means your expected returns will below trend growth rate which is already low at 9%. This trend growth rate does not compensate for additional risk over fixed income securities. I will be cautious in building diversified portfolios as these are likely to produce average return with above average efforts and buying expensive stocks as valuations can shrink.

Small and mid caps have corrected much more than large caps and few are available at attractive valuations. List of stocks mentioned here hasn’t really changed and I continue to buy but only at new 2018 low.


#331

@Yogesh_s

I have been following your posts for quite some time. You are mostly crisp, to the point and if I am not wrong you don’t get into unnecessary crystal ball gazing. For newbies like us, esp me, who is bit averse to read books or lengthy research papers, your posts have been like a Kunji:grinning::grinning: Thanks for all the good work Yogesh.
Just to be specific I liked your 200 dma google sheet to measure market mood, small/mid cap list collection from VP and few more.

I have built my portfolio in large caps, mnc type companies where I don’t have to look deep into corporate governance and sustainability issues. Buy on dips should work fine. Incase you want to look & review my portfolio, please find the link.

I want to add few mid-caps/small caps, and I am sure they are beaten down, are value picks much more than large caps. But I don’t know why I always feel, small/mid-caps are only good for momentum play. Make hay till sun shines kind off. Esp. in India context, be it cyclical, project based or just a small cap, there is just no sustainability beyond may be 4-5-6 quarters. Don’t get me wrong, lets take few examples- how do you get conviction that a PSP, Salasar, Aarti Ind, Rain, Prakash will survive (meaningfully) after 4-5-6 quarters. Also i find little fundamental reasons why prices shoot up like a rocket at all, and why they crash like a falling meteorite. Looking at some of the price charts of small caps I don’t think there is any solid way of gaining conviction…Infact they are scary. Hard earned money will be get vanished :hushed::sleepy: Having said that, one who is very active with right set of software tools might make good money by momentum bets and stop losses. Value investing is better reserved for large or larger mid-caps at best, IMHO

Can you please share your thoughts & approach on the same.

Disc.
I dont have any exposure to small/micro caps. I have invested in small cap MF in lump-sum in Oct,2018, which I felt is a basket & safe approach, managed by expert fund managers.


(Tejas83) #332

Hi Yogesh,

Was removal from Nifty 50 the only reason for moving Aurobindo out of the portfolio? Do you forsee any headwinds or other fundamental issues with Auro?

Thanks,
Tejas


(Jiitt007) #333

Hi @Yogesh_s sir,I follow your almost all of your data crunched write up.I believe your focused portfolio will fetch best result but do you have similar portfolio of midcap & small cap based.Since just on earlier post you had disclose you have invested in PSP & salasar. If yes would like to request you to post that too also.


(Yogesh Sane) #334

AS you rightly said, investing in small and mid caps requires different set of skills than investing in large caps. The reason large caps are large because they solve a basic need of their customer and do so in an efficient manner. Their business model is proven and cannot be easily replaced. Of course all this is already in the price so as an investor we have to be good at valuation.

IMO, key to investing in small caps is to understand business risk as their business models are not proven. Business model of small caps is not proven even in established industries. e.g. a small bank can compete with a large one only if it has a niche but longevity of that niche is no proven.

Another thing to watch out for is length of runway. Often small caps turn out to be a one-trick-pony. i.e. they find a working solution that is also profitable and they make huge money but sooner or later they run out of opportunities and are not able to replicate that success in other markets, products etc.

Yet another point is management depth. Often smallcaps can be a one-person show. Sooner or later this person retires, looses touch with the market or simply becomes ineffective causing the the company to lose its momentum. Large caps generally have a second tier.

Smallcaps can be volatile because it is easy for investors to get optimistic about the opportunity because of the small size of the company relative to size of the opportunity and higher profitability. If you take high profitability and extend it for a long term, you can easily get high valuation. However, investors lose their optimism just as quickly as they built it because smallcaps can lose their earnings momentum quickly. That’s exactly what produces wild swings in their prices.

All large caps start out as small caps. Investing in a small cap and watching it grow into a large cap is the holy grail of investing. Reality is, majority of small caps die as small caps and only a handful cross the chasm to become large caps. I use a chart below to map out at what stage of the growth a company is so that I get a sense of the risks it faces and risks that we as investors face investing in them.


Growth Curve

Thanks to @deepinsight for providing basic framework for this chart. (Please note that I can be wrong in placing companies on this chart. If your beloved company is wrongly placed, excuse me for being ignorant, I mean no offence).

As this chart shows, all companies start out as small caps when they excel in an area often by being at the right time at the right place with right products or services led by a hardworking and passionate promoter with right ethics and skills. As they grow, they realize they they are saturating the market, unable to keep up with the changing market environments, promoter gets old and unable to create a succession, competition catches up, other mid or even large caps enter their markets etc. Most of these companies face a chasm that they have to cross by overcoming these challenges. Most small caps never make it to the other side of the chasm.

Those lucky few that successfully cross the chasm become strong businesses with high growth rates. Market by this time has already identified their potential and these businesses sell at a huge premium. These business can grow at high rate anywhere from few years to few decades.

Even fewer becomes large caps with mid to high growth rates which soon turn into cyclicals. In a down cycle, some of these companies go down so much they lose their capacity to fight back. Eventually they run out of fuel and head towards investor’s graveyard.

So there are risks in investing in large caps also but less than those of small caps but you generally get lower return.


(Yogesh Sane) #335

Yes, there is no other reason.