Abhilasha's Portfolio

Q&A: Questions & Answers Portfolio Q&A
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Hello everyone, this is my first post and topic here. I hope it will be an value additive contribution for both this forum and myself. Please feel free to provide your feedback on my portfolio building strategy.

To share about my portfolio, that I have built over the past 4-5 years, I follow a core and satellite approach, the core part is all discretionary picks that I follow and understand to the best of my ability while in the satellite portfolio I follow a momentum trading system. The cost discretionary part usually contributes 25-50% of the portfolio, the satellite momentum trading strategy forms 10%-40% and cash & equivalents can vary from 10% to 25% depending on the market regime.

I understand the pro and cons of concentration and diversification and please do not go by the number of stocks in the portfolio to assume I am over-diversified. One can be concentrated in a few stocks even with a significant number of stocks in the portfolio.

For the core discretionary part of the portfolio I try to follow a sector allocation approach for most part, with some discretion in weights if I am confident about my research. I do give importance to valuations while buying, in my limited experience selling a performing company on valuation grounds has not been fruitful. I usually follow a reverse DCF to understand what the markets are pricing in the stock.

Here are the broad weights I assign to the sectors, these weights are to be calculated further on the 50% of total portfolio which forms the core.

Automotive - 3%
Banks - 20%
NBFCs - 20%
Tires - 4%
Exchange - 10%
Financial Services - 5%
Insurance (Life + General) - 10%
CRA - 4%
Chemicals - 5%
AMCs - 5%
FMCG - 3%
Diagnostic - 6%
Logistics - 5%

Here are the discretionary picks currently in the portfolio -

TCI Express Ltd
Aavas Financiers Ltd
Computer Age Management Services Ltd
Metropolis Healthcare Ltd
Dr. Lal PathLabs Ltd
Thyrocare Technologies Ltd
HDFC Asset Management Company Ltd
Nippon Life India Asset Management Ltd
ICICI Lombard General Insurance Co Ltd
Sbi Life Insurance Company Ltd
HDFC Life Insurance Company Ltd
Icici Prudential Life Insurance Comp Ltd
Kotak Mahindra Bank Ltd Fully Paid Ord. Shrs
Bajaj Finance Ltd
Bajaj Holdings And Investment Ltd
Bajaj Finserv Ltd
Oriental Carbon and Chemicals Ltd
Central Depository Services (India) Ltd
ITC Ltd
SBI Cards and Payment Services Ltd
Cholamandalam Investment and Fin Co Ltd
Muthoot Finance Ltd
Manappuram Finance Ltd
Indian Energy Exchange Ltd
Ashok Leyland Ltd
ICRA Ltd
CRISIL Ltd.
Multi Commodity Exchange of India Ltd.
Balkrishna Industries Limited
Fine Organic Industries Ltd
Vinati Organics Ltd
Galaxy Surfactants Ltd
CreditAccess Grameen Ltd
Bandhan Bank Ltd
AU Small Finance Bank Ltd
Ujjivan Small Finance Bank Ltd
BSE Ltd

For cash & equivalents (C&E) I use the following instruments to store my idle capital. LIQUIDBEES is owned only to a certain amount which I would be likely deploying in a given day immediately. Initially I used to store all my idle capital in LIQUIDBEES but due to recent regulatory changes the returns have dropped significantly and I have started using HDFC corporate bond fund and HDFC low duration to hold my excess excess capital which I can put into the markets with a few days.

Nippon India ETF Liquid BEES
HDFC Corporate Bond Fund -Direct Plan - Growth Option
HDFC Low Duration Direct Plan Growth Option

I know my portfolio is lacking pharmaceuticals and IT stocks. The reason is, I do not yet have a circle of competence big enough to understand the ins and outs of these sectors. However, the momentum part of the portfolio has significant amounts of investments into these sectors and other sectors which are missing from the portfolio from time to time.

So I am somewhat, covered in an all rounded sector exposure.

I have been lucky to have avoided the stock tips phase of the market in 2017. I can proudly say I have built this portfolio on my own hard work and understanding.

Please feel free to comment, criticize my thought process, blind spots. It will help my greatly improve myself.

Thank you.

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Hi Abhilasha, you have good stocks in your portfolio but most of them seems protective in nature, for sure your portfolio is over diversified. You have given 45% of your pie chart to banks and financial sector which has a slow momentum though you can play with these stock in safer side but can’t multiply your money in short term.I manage my portfolio with a diversification of (60-30-10) rule where 60percent compramise of companies for positional buy 30 percent for long term (5 to 10 years) which I expect to give multi bagger returns the rest 10 percent has microcap companies which can prove to be multibagger. All of the companies are fundamentally strong. Big giants have slow moment you cannot expect reliance to give 10 times return in 5 years but there are emerging companies with emerging sector that can give you multifold returns. One of the sectore I had identified last year is the gas sector where I already have 8 fold return , the IEX that you hold is a good company in this sector so is Adani has (Adani Has is expected to go 10 times from here as Gas is future fuel) the next sector is mobile advertisement no need to say about you. Affle is one of those companies that I have is already 5 times. You need to give a thought to sector analysis. Over diversification is a result of FOMO rest depend on the size of your portfolio if the portfolio is 50Lac + than 40 companies are justified. Feel free to correct me if you disagree .

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Hi Ravi,

Thank you for your inputs. Like I said, the core discretionary part of the portfolio only forms upto 50% of the total portfolio and thus all the sectoral weights I have shared are actually halved when we consider them in terms of the total portfolio.

I am happy to see you have made good money on your gas bets. I will try to study the sector. I do have exposure to all adani stocks and some gas stocks in the momentum part of the portfolio. These have been a few baggers for me.

The momentum non-discretionary part of the portfolio is for short term gains while the core discretionary part is for long term compounding.

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I have gone through the portfolio and your allocation to Banks/FinanceSector/AMC etc contribute nearly 55%. I fell its very high allocation.

Other than that stock selection is decent. Try to reduce the number of stocks

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Hi Dragon,

Thank you for your valuable inputs. The financial industry is what I understand the best as I have worked in it. Also the weights are shown as part of core discretionary portfolio which itself is 50% of the total portfolio. So those sector weights in term of the total portfolio are actually halved.

Yes as I study the sectors more in depth, hopefully I will be able to identify the winners and reduce the number of stocks in one sector. Currently I am applying a basket approach to sectors where identifying the winner is still not clear.

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Before I can make a meaningful comment on the portfolio, it would be useful to understand your portfolio goals.
Are you very active in terms of investing (more than 10 hours/week)?
How much is your risk appetite - are you looking for significant alpha with potentially higher risk?
What is the typical duration for which you prefer to hold your core portfolio?

At a very high level, these are pretty solid set of stocks and apparently there is a basket-based approach. However, I don’t see unique kind of stocks that necessitate direct investing as opposed to mutual funds?

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Three worries:

Too many Stocks

I just have 1 question, which is based on 1 fundamental tenet which i believe in:
Tenet:

Question: How do you track 40-45 companies? I set up google alerts for all my PF companies, read all their concalls, their investor presentations, their annual reports and also watch all management interviews. Without this die diligence, in my humble understanding, one should not focus on direct equity and prefer mutual funds or ETFs.

Imagine a scenario:
Bandhan bank falls 10% ends the day with a LC. What does one do? One googles why bandhan is falling. You wont get the answer. Because it is being sold live during the concall by the institutions due to weak management commentary. I have seen this happen. Both positive and negative. One of three things will happen in my humble opinion:

  1. Either one has to make the time to track discretionary picks to understand change in fundamentals.
  2. Or one has to invest in MF
  3. if one does not do either of above, it has high probability of ending badly.

Buying more businesses (diversification) definitely helps. Maybe one of the 40 would go down. That is ok. The rest would do well. Which is fair enough. But one has to be confident of beating Mutual funds despite this flaw in our strategy for one to run discretionary PF.

Long story short, i dont understand how one can track 40 companies closely. If you do manage to, please do share. Would be happy to learn :smiley:

Buying price and valuations

Coming to the companies, the buying price becomes very important. Most are very good businesses, but if bought at wrong valuations can result in underperformance. We would only realize after 10 years that we ended up doing worse than bank FD. Opportunity cost is huge considering good MF can compound at 15-18%.

BFSI concentration

banks + nbfcs+financial sercices + insurance + AMC is 60% of your PF. I would say this is very strong sector concentration for BFSI. Would suggest some sectoral diversification. Chemicals has good tailwinds. Can consider increasing.

Disc: None of this is investment advice, purely sharing my thoughts as an educational suggestion. Please consult financial advisor before taking that decisions.

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Thank you for responding Akshat, you ask some valid questions which I will try to answer.

In terms of activity the momentum trading part takes 5 minutes to rank and approximately 30 minutes to rebalance and record once a month. As for the core part I put in a few hours over the weekend to study the market, industries, and companies.

My goal is to essentially get 15% compounding till my retirement. I have around 50% of my total net worth invested in equities and debt with equity asset class forming 75% currently.

Core portfolio stocks are meant to be held for the next 3 decades unless there is some negative change to the investing thesis.

Yes mutual funds would be an easier option, but I love being in the markets and DIY is kind of my thing.

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Hi Sahil, Thank you for dropping by and replying in such detail. I will try and do the same.

In my experience, tracking 30-40 companies is easier than researching them from scratch. This portfolio has been built over the years and I have added approximately 10 companies each year.

Like I have replied in the thread I work in the BFSI sector and thus have industry knowledge on what is happening in which sub-sector. So for most of the picks the research is part of my job.

Yes BFSI is 60% of the core portfolio but it is 30% of the total portfolio.

Yes I am aware of the valuations, I do consider reverse DCF during the purchase decision. I usually wait for a market downturn to pick up new stocks in the portfolio. I have a buy list ready for such times. I have painfully learned to not sell solely due to valuations till the business growth is present.

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Can you share the weightage of the individual stocks in the portfolio, please? And also which are core, which are momentum etc?

I understand while picking momentum you maybe agnostic towards sector, but Banks, NBFCs aren’t really rallying, do you have a part of the core?

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Can you share your views on AU small finance bank?

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Yes mutual funds would be an easier option, but I love being in the markets and DIY is kind of my >thing.
I was in a similar boat till a few years back. So, I fully understand - for some of us, this is also a hobby.

Just like everyone else, I would suggest reducing the number of stocks given the amount of time you can spent on investing. Instead, one option that I have finally moved towards is a mix of mutual funds and DIY investing. Here are some core principles I follow

  1. If there is a sector, where the uncertainty is very high and a basket-based approach is needed, I go for a mutual fund. I implemented this sometime back, when I sold all my pharma stocks and moved the allocation to a top performing pharma fund (with low direct expense ratio).
  2. For any investments outside India, I again go for a mutual fund as tracking the macro economics of other countries is just beyond my bandwidth.
  3. I prefer to stick to fewer sectors for my own investments - I do not try to cover a lot of sectors. That is again left for my mutual fund part of the portfolio. I pick sectors I understand well due to my work OR where I have a strong consumer sense. It is perfectly find to miss out on some alpha sectors and I have made peace with that.
  4. Momentum investing is restricted to cyclicals. You get much better bang for the buck (or effort). For example, Sugar is catching everyone’s fancy today and was a minimum 2X multiplier- though in my own view that rally is near its end and the risk-reward ratio is not favorable anymore.

With that background, let me offer stock specific comments.

  1. In insurance sector, you have kept all the big names. That is really playing safe - it does not even give you the thrill of DIY and unlikely to beat mutual fund returns. You can choose to either prune OR move to MF.
  2. The small bank portfolio is a reasonable one - it is quite possible there is one multi-bagger in that lot.
  3. Ashok Leyland - in my experience, betting on commercial vehicle loans gives higher returns than on the auto companies as such.
  4. MCX/CAMS/ICRA/CRISIL/IEX/BSE - All solid and safe bets. Likely to return close to your target.
  5. ITC - this one is a bet that can go either way. Definitely has the potential to outperform.
  6. Chemicals - This is one sector where again you have picks that are likely to outperform. However, if you are confident on the sector, you may want to go deeper into smaller companies.
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Hi VUR,

All the stocks mentioned in the thread are in core discretionary. I have provided the weights of the sectors. Will not be possible to share the individual weights.

The momentum portfolio is a trading strategy and the stocks keep changing every month. For this month these are the stocks in the momentum strategy. They are all equal-weighted.

Adani Total Gas Ltd
Intellect Design Arena Ltd
Adani Enterprises Ltd
Balaji Amines Limited
IndiaMART InterMESH Ltd
Prince Pipes and Fittings Ltd
JSW Steel Limited Fully Paid Ord. Shrs
Adani Transmission Ltd
Tata Elxsi Limited
Jindal Steel & Power Limited
Hindustan Copper Ltd.
Persistent Systems Limited
Supreme Petrochem Ltd.
Dixon Technologies (India) Ltd
Laurus Labs Ltd
Alkyl Amines Chemicals Ltd
Poly Medicure Ltd.
Vaibhav Global Ltd
Tata Steel Limited Fully Paid Ord. Shrs
Affle (India) Ltd
Linde India Ltd
Deepak Nitrite Ltd.
Steel Authority of India Limited
Sequent Scientific Limited
Tube Investments of India Ltd
Capri Global Capital Ltd
Suven Pharmaceuticals Ltd
Grasim Industries Ltd
Prism Johnson Ltd
Tata Power Company Limited

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Bang on Akshat, Bang on on every point.

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There is still a lot to track. 40 conference calls, 40 investor presentations, possibly those of competitors. Please ask yourself if you truly do all the due diligence one should when owning direct equity. Not at all tryng to say that you should not own direct equity, only the following:
You must have some level of conviction in each stock which reflects in PF weight. Ask yourself what value bottom 10 or 20 stocks add. Wouldnt PF be better if bottom 20 were deleted? Much easier to track 20 companies than 40 companies. That would be my noob suggestion.

I work in the IT sector. My understanding here is good. Still would be risky to put 60% of net worth into IT sector. Let me explain why. Already my salary is exposed to or risked by IT sector (yours for BFSI). Why compound or increase that risk by having my assets reside in the same sector as well? It only doubles up my risk. Salary (+ Future salary) + 60% of equity PF all exposed to BFSI sounds like a risky proposition. Position sizing cannot just depend on how well i know a sector.

What about incremental capital addition? Like salary or profits that you get every year/month?

I dont know if i can agree with that tbh one can find many examples where expectations run ahead of fundamentals resulting in a crash. Do read about the US Nifty fifty bubble:

Something similar has been building up in India. Quality ke naam pe people are ready to pay 100 P/E to a business growing at 10-12%. Risky to deploy incremental capital at such high valuations IMHO.

Closer home, see the P/E, earnings and price of Poly medicure. Detailed post here:
Poly Medicure - at an inflection point! - #413 by sahil_vi

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I will echo what others have mentioned. It’s just too many stocks where one will pull up and the other will bring it down. There won’t be any meaningful return. You will make the same or better returns if you put it in a multi cap fund. The picks don’t matter much as i see the portfolio has a structural problem. I suggest you go over portfolio construction thread and read about different approaches to building portfolio.

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Hi Kalpesh,

AUSFB is a business that I would normally avoid in banking space due to its geographical concentration of loan book. Same can be said for Bandhan and Credit Access Grameen.

But barring Bandhan, which I have reduced allocation to recently at 400, the other two have taken the geographical approach to expand their loan books as prudently as humanly possible in the small ticket finance space. One can probably say they are playing well due to home advantage in sports parlance.

That being said, I used to think the same about Bandhan until the COVID stress started showing. I am usually very mindful of geographic concentration due to the AP crisis, various floods, natural disasters and state level politics like in Assam right now.

The COVID stress for AUSFB has just been revealed in the recent Q4 quarterly result, the impact of the 2nd wave will further show in Q1FY22 now. The good part is that the stress is manageable for now and the NPAs are not life threatening yet to the bank.

The promoter is very detailed and forward looking in the conference calls, and talks about playing defensively like in test cricket match and trying to build a century surviving organization. All that is well and good, but the as per the RBI guidelines, IIRC the promoter has about a decade to run the bank after which they will have to appoint someone in his stead.

This is just a broad, shallow description of the bank, and a more nuanced research is needed to dwell further, which I have but I want to keep it short here. There is valuation also to consider here, which is very difficult to justify in the current stress scenario.

Please do not consider this as a buy or sell recommendation.

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I understand your point on value addition of research and pareto principle. Will try to cut down on stocks.

BFSI is not 60% of my net worth. It is ~60% of the core portfolio which is 50% of my total invested portfolio which is a further 50% of my net worth.

Usually after a down turn in markets I am left with very little idle capital. I keep adding more capital from my salary into debt funds each month like a SIP. And wait out for the next cyclical valuation downturn in the markets. Till the time I slowly build my buy list of old and new stocks.

Yes I am aware of NIFTY FIFTY in the US. That is why I don’t have super expensive FMCG stocks and PIDILITE type stocks in the portfolio. Valuations with growth is good to keep.

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I think individual company allocation would matter in long term, it would be better if you track and mention individual allocation rather than sector level, because over long term RIL vs ONGC or an HDFC bank vs Yes Bank can have very different trajectories…

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It is 60% of equity PF. This PF is risked by BFSI. By keeping overall allocation to PF low, risk is reduced, but so is reward. Most people keep ~100-(their age) in investment PF. I personally am near that number as well. Would also suggest reviewing your allocation to your investment PF.

Momentum trading would of course work well in the bull market. Real test comes in bear markets. I personally dont know how these strategies perform in bear markets. One has to work carefully to ensure that there are stock and PF level stop losses and exit strategies. Please make sure you have those too, for your momentum trading part.

There is significant opportunity cost here. If one could have compounded at 15% and assuming bull markets last 6 years, PF becomes 2.3 times in 6 years. Covid fall was only 35%, so even with that fall, net net you end up buying at a price in such a way that a lot of compounding of capital did not happen.

The life insurance companies have not had any good profit growth to speak of (low double digits), and trade at high valuations.

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