Monthly Portfolio Note - May 2021
There’s an old adage in equity markers “Sell in May and go away”. Thankfully, I wasn’t listening to whosoever recommended that as it would have deprived me of the largest monthly absolute gains in my investing journey till date (saying that at the risk of markets cutting me to pieces on Monday - the last day of May).
I had predicted in August last year that I expect the mid/small caps to come roaring back after a painful 2.5 years but I couldn’t have ever imagined the velocity at which this will happen.
The rally over the past few months has been extremely broad based and something also highlighted in Samit Vartak’s latest memo. Referring to the same - 99% of the smallest BSE 500 companies (i.e. 401 to 500) have delivered positive returns in the 13 months till April 2021 and pretty confident the trend only increased in May 2021.
Market have been very kind and rewarding personally as well, it’s been an absolutely phenomenal month of gains equivalent to a full year’s salary of mine just 5 years back of 2016. Also already equaled the full year 2020 returns in just 5 months.
So what do we do now? Where do we go from here?
I’d like to use a cricketing analogy of attack and defence. Think of this as a Test match where we are still on the 1st day of the match with about 80 overs bowled in the day. However, if we rewind to start of play (Feb 2020) it’s an astounding come back where the first hour of play was disastrous on a green seaming wicket (read Covid and March 20 market crash) and 4-5 wickets were lost for very few runs.
Then with all 11 fielders in catching positions and lots of open gaps, the batsmen (central banks, governments, corporates) decided to go on a Rishabh Pant style all-out counter attack (interest rates, stimulus, corporate cost rationalization). And that attack has paid off handsomely with a very strong comeback in the last 4-4.5 hours of play.
Now with 80 overs gone and batting going strong, it’s time to think about the next day and not the next 10 overs. The new ball (commodity inflation, valuation, slow Covid 2.0 unlock) can do a lot of damage and clean-bowl the whole team if not played cautiously.
To sum up, I think it’s time to be slightly cautious about the future (next 3-6 months), closely evaluate Q1/Q2 earnings before deploying fresh money or even take some off. Majority of the cats and dogs are also selling at the price of horses in this market.
Exits
Chemcrux and Jubilant Ingrevia - Both were fancied sector based undervaluation plays for me and never core portfolio bets. The pace of returns of both has been astounding and almost feels like successfully doing a shoot and scoot operation. Chemcrux has given me 70% in 3 months and Ingrevia doubled in less than 2 months. Both have combined to literally wipe of my entire losses in IBHFL in just 3 months combined. Thanks a lot to @Chins for highlighting the environmental risks with regards to Ingrevia’s plants.
With regards to Chemcrux, I tried to highlight in the Feb post when VPers were selling their holdings cheap, that nothing really has changed for the business. And I stand by that today as well and this could very well be 2-4-8x from here. However, I realized that the environmental concerns and ESG as an investing filter will always be like an albatross around my neck. These 2 cyclones are all an impact of global warming, carbon emissions and not taking care of our environment. If ever India decides to go the way of China, these will be the hardest hit companies. Why take that risk when there are so many other fish in the pond especially when you’ve already been handsomely rewarded. So, I quit.
Reliance - Only sold for raising cash assuming it won’t go anywhere like the last 8-9 months and will look to enter again soon. But then days like today make you regret. Let’s see if we ever see those levels again.
3MIndia - I realized that doing blind Coffee Can Investing may reward you, however I can never develop the conviction to hold it during tough times. And this business is something I find very hard to track and monitor without any investor presentations, conference call, etc. Exited with 50%+ gains again.
Kajaria - Fabulous coffee can investment again, I didn’t want to get out of this, however needed the cash to get into other opportunities mentioned below and this seemed the most fairly/slightly overvalued business from a 1-2 year perspective. 2.8x returns in a year - keep searching Saurabh Mukherjea style and keep getting rewarded.
New Addition
Tips Industries - This caught my eye from @ankush12495 's blog post and seems like a terrific digital play to me piggybacking on India’s growth potential of smartphones, internet, social media and last but not the least music streaming.
I know the management here is not top notch and also seemed to have an eye on valuations of similar companies in USA (billion dollar valuations) in last con call but at 20-25x trailing earnings and 25-30% growth over the past few years, I find it a great bet for the next 3-4 years. As music streaming apps consolidate, there could be pressure on the licensing fees paid out to these music labels but feel we’re a few years away from that yet.
Britannia - Now this is strange! I barely exited in Feb and have re-entered here. If I refer back to my attack and defence methodology, this is a form of defence for me with the current run to the moon. I’m using this as a hiding spot in the market from some of the other sold positions (Chemcrux, Ingrevia, etc.) proceeds. And very confident of getting a peaceful 12% CAGR (10-10.5% growth and 1.5% yield) at current valuations over the next 10 yearsa after the heady run-up of last few months.
Ugro Capital - Very well covered thread on VP already. Taking a small punt on this given the highly unlevered balance sheet from a NBFC perspective and expected strong bounce back of financials over the next 2-3 years.
Increased allocations to IEX, Goldiam, Neuland after 3 down circuits, MAS Financial, Mindspace REIT
