Model Portfolio (29 October 2016) Generate a 20%+CAGR over next three years

This is a custom model portfolio that I have built heavily geared towards mid and small cap stocks. I have planned to invest a substantial part of my savings into this portfolio.

  1. Atul @ 2309
  2. Carborundum Universal @ 281.85
  3. Cholamandalam Investment and Finance @ 1185.40
  4. Eicher Motors @ 24020
  5. Equitas @ 178.60
  6. Federal Bank @ 81.95
  7. Finolex Cables @ 440.55
  8. Force Motors @ 4583.7
  9. HPCL @ 466.40
  10. Indusind Bank @ 1199.8
  11. Kansai Nerolac @ 379.10
  12. Kotak Mahindra Bank @ 819.35
  13. KPR Mill @ 1184.9
  14. MM Financial @ 361.9
  15. Navin Fluorine @ 2593.25
  16. Ramco Cements @ 615.05
  17. Shree Cements @ 16719.25
  18. SRF @ 1820.95
  19. Tube Investments @ 623.90
  20. Voltas @ 386.7

My question is, if this is a portfolio that will generate 20%+ CAGR returns over the next two to three years. Although I’m wondering if this may be a big ask considering elevated valuations. However, I’ve tried to pick stocks that I am comfortable with holding for the long term and have understood the underlying business models somewhat. Moreover, regarding portfolio allocation I have given exactly 5% weightage to each of the stocks listed above in order to reduce stock specific risk.

A good portfolio with all the winners. But remember, if all the past winners can generate 20% in all market conditions, then stock investing will be a child’s play! That will not happen. What is the PE and P/BV of this portfolio? Kindly try to do some math.

I am in favour of Core and Satellite type of portfolio. Core consists of well known winners and Satellite will be the beaten down and contra bets.

One other point, Pharma and IT are completely missed in your MODEL portfolio. These sector are bottoming out. Is it a informed decision to ignore IT & Pharma?


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Which theme are focussing on…does it lack focus?

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I don’t really understand the IT Sector much, and hence haven’t really included any of them here. Regarding Pharma, it’s true that the sector has been hit by USFDA issues recently and many front-line names are actually beginning to look attractive Sun Pharma, Lupin etc.

I felt these stocks may take longer to overcome their FDA issues. This is one of the reasons why I haven’t included Sun Pharma or Lupin in the model portfolio.

The portfolio covers several broad themes geared towards construction, consumer discretionary and financials such as,

Basic Materials (Building Materials, Chemicals)
Consumer Cyclicals (Eicher Motors, Force Motors, Tube Investments)
Industrials (Engg and Cons: Voltas)
Technology (Electronic Components: Finolex Cables)
Financials (NBFCs Opportunistic Bets, and Banks)
Federal Bank: I believe if the bank delivers excellent results going forward. Also capitalizing on the economic turnaround coupled with falling interest rates. The stock has a good potential to re-rate and we may have a potential multi-bagger in the making. It is currently quite cheap though trading at roughly 1.75 Times Price to Book.

Kotak Mahindra and IndusInd, I believe may compound at a good rate going forward. They are well capitalized and well managed banks and have steadily grown profits in excess of 20% over the last five years, although it may be priced in into the current price, I feel there is still plenty of room for growth.

20% cagr over 3 years implies a return of around 72% in three years…if you are a small investor, then why do you need so many stocls…you can invest in 3-4 of your best picks…or you can even invrst whole of your corpus in 2-3 stocks dealing with a single theme…such a scheme should take you to your goal with relative ease.

The only advantage of retail investors is that we need not diversifyour portfolio excessively…why forego that advantage.


Good that you have conviction to hold these stocks and hope you did some homework. I feel these are too many stocks which you need to track, which is not feasible for retail investor

I have different opinion about selecting only 2 to 5 stocks model. Even Warren buffet mentioned several times, all you need to do is selecting only 20 stock in your life time. but if you look at his portfolio over 50 years span, he selected so many stocks. in fact some year, he selected more than 5 stock. you may say company and retail investors are different but I have a different argument. Owning number of stock for retail investor is highly debatable. probably I will open new thread.

The reason for diversification is primarily protect oneself from company specific issues, some of which may be well beyond our control. Imagine a Welspun like event, or even something like say Lupin which was going good, and suddenly an USFDA issue brought the stock from 2000 odd levels to 1400 levels. This could impact a lot of the returns built by the other stocks in the portfolio.

At a 5% allocation, the maximum I’d probably lose maybe 5%, in reality probably 2.5% (a 50% drop from the purchase price) after which one may take a call on the future prospects of the stock. Even if a few decisions went wrong you may still be able to rectify it without taking a major hit to your portfolio

How have you calculated?

Most of the companies seem good, however one needs to keep in mind the entry point needs to be equally focused as well. Without going much into valuations, my thoughts would be as below.

  1. Good to see some diversity in terms of number of companies. Google alerts helps a lot in tracking news. I hope you are using the same. I currently hold 150 plus companies which I am very much comfortable in tracking, however I am trying to bring the number below 100. Though I do not recommend such diversity to anyone. However knowing the history of Indian government and indian management, one should definitely have more than 10 stocks in the portfolio (Nestle, coal mine allocation, unclear tax laws. land row etc)

  2. I believe you should include Pharma as well as construction/reality stocks in your portfolio. Both them sectors are a necessary if any economy has to develop. Spends in both sector will only increase with time if india walks on the development path.

Pharma - Aurobindo Pharma/Granules/Aarti Drugs, Albert David, Sanofi India, Advanced Enzyme, Alembic Pharma, Claris Lifesciences, Strides Arcolab and Suven Life sciences are the companies which I hold.

Construction/Reality - L&T (Infra + defence play), Godrej Properties, Anant Raj, HCC, Jkumar Infra, KNR, Reliance Infra (Infra + defence), DS Kulkarni are some of the stocks I hold in this sector.

  1. I believe it will help to allocate at least 5% in stocks which we believe can give multi-bagger returns in 3-5 years. We should have at least 5 such stocks which can be dark horses and can give the much needed boost to the portfolio.

Happy Investing.

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The calculation is as follows…100* 1.2* 1.2* 1.2 =172.8…thus at CAGR of 20% …rupees 100 becomes 172.8 rupees in 3 years…it means a total return of 72.8% in three years…


@bbbhutra: If the initial investment capital is high then a person can allocate 5 % to an individual stock but if the investment capital is low or it is a sort of SIP then it will be very difficult for somebody to get high returns using such diversification. What are your thoughts on such a case?

@bbbhutra - What is your rationale in being invested in Suven? Though after sometime in 2016 AR there is a stable outlook provided for CRAMS and speciality chemicals biz. Also I am unsure of how to factor in the success of SUVN 502 which seems to have a success probability of < 2% (from clinical trail 2 to final approval)

I have not seen the stock move over the last couple of years which has been an opportunity cost and I brought it at high valuations of around 260. Your thoughts please.

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Well i meant 5% capital allocation overall in such potential multi bagger and just one particular stock.

One can keep adjusting the allocation up or down depending whether the person is increasing or decreasing his allocation to equities. The ratio depends on one risk capacity and what kind of return one excepts from the market.

I have currently allocated around 10% of my portfolio in such stocks where i feel the potential is there to give me 3-5X returns in the next 3 years. I have allocated 35% to high quality stocks and around 55% to good quality stocks which has the potential to be future leaders in the next 5-10 years.

Suven Lifesciences forms 00.33% of my portfolio. It has shown good growth over the last fews years and currently is in consolidation phase. They have few drugs in the pipeline which might acts as a growth potential in the future.

For every 100 candidates initiated for clinical development the world over, only one on average succeeds to fruition. Hence the risk always exists for its failure. However three of their NCE
candidates moved into advanced stages in the molecule development lifecycle, making their prospective monetisation an increasing possibility.

Flagship candidate SUVN 502 initiated phase 2A study in USA under US-IND and expected completion by last quarter of 2017.

SUVN-G3031 completed Phase 1 trials in USA under US-IND successfully, undergoing long-term toxicology studies prior to entering Phase 2 trials.

SUVN-D4010 completed Phase 1 clinical trials in USA under US-IND and will enter into long-term toxicological studies to move into Phase 2 clinical trial.

Our SUVN-911 candidate is in preparation for entering into Phase 1 clinical trials. The successful monetisation of even a single molecule has the potential to significantly advance business

I have invested very little and might look to increase exposure around 150 level. For me Pharma is a buy n forget kind of investment since lots of patience is required in this space. Having said that Suven is a very small company and hence I normally don’t increase my exposure in such stocks beyond 1%.


Federal bank is a compounder for next 3-5 years

Disc: Invested