Mudit's Portfolio (Stage Analysis + Relative Strength)

Hi friends, After long time , being a silent reader and contributor to few topics, I thought of sharing my portfolio and the strategy behind it.
What I have done is , I shortlisted 12 stocks out of Nifty 50 stocks, excluding those stocks which are cyclical, PSU, high debt like Adani etc. Then selected 10 stocks from Nifty Next 50 on similar criteria. Frankly I could find in total 22 stocks out of these nifty 100 stocks worthwhile to invest. Then using soic course and valuepickr i shortlisted 8 stocks with high growth and from midcap category. So in total i constituted 30 stocks index of my own. Now going forward, i would be tracking those 8 stocks in more depth, while 22 stocks i will be just listening to concalls and management interviews to get the bigger picture and overall direction of the company. I would be glad to know your views about this. I would be explaining the rationale behind the stocks …but more or less , its same with Valuepickr threads.

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Banking and Finance :
Banks : 1) HDFC Bank 2) ICICI Bank 3) Kotak Bank
I would like to restrict myself to the top 3 banks of India. As it is , Banks are Leveraged entities, so better to restrict to the top players with best management. I dont like new and small players in this segment for obvious reasons

In NBFC-
I have diversified into three different NBFC categories

  1. Bajaj Finance -for consumer finance leader
  2. Muthoot Finance- For gold finance leader
  3. Chola Finance- For Commercial Vehicle segment leader.
    all players are expert in their own segment and market leaders…

[—to be continued…]

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You want to be present in many different sectors, okay. The PF consists of many prominent sectors, and all well known names, which are covered by the analysts and here in VP.

I am not aware of the managements of few of companies above, so I cannot say anything regarding this aspect, but it appears that is not a concern, for the biggest names at least. And as these businesses will exist for many more years, except for the intermittent periods, sales more or less will increase. As far as returns are concerned, your return expectation of 15% is very likely to be achieved from the above PF, of course, you may remove and add some names, even sectors as time progresses. And since you have a plan as to how to go about analyzing your stocks, reading the reports, listening to management etc, and as you have chosen 2 names from many sectors, it is manageable time wise, as more or less all companies behave the same in a sector, with a few exceptions.

So I guess the only thing that remains is the valuations that you have bought these at, and if the businesses will continue to grow meeting the expectations of the investors, for the valuations to sustain, providing you with the returns that you expected. As even rock solid businesses go into sleeping mode for years, and if the allocation to such stocks is high, we may get the feeling of missing out on other opportunities if the capital is limited, so one solution is gradually build a position.

Except for Dmart, I don’t follow any other businesses of your PF, so I cannot pinpoint any negatives, if there are any. So looks like a sound PF, a solid PF, chosen as per your line of thinking and perspective, and it appears to be a low churn PF too, for the most part.

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Good to see your thread after reading your inputs in other threads!

Portfolio looks good to begin with. Strategy also looks sound to begin with. It should provide good capital protection while you keep learning & evolving.

However, I feel that if one is into direct stock picking then the need to even look at any index for selecting one’s universe of stocks should not eventually arise…it could even be the other way round…a stock we chose may be from well known promoters and leader in its segment but today not a part of any index and eventually becomes one…

Not saying that anything not right in your strategy, its perfectly great provided - You chose it knowing that its the best for you risk as well as competency vise…

Now, regarding above picks, among the names I know something about and at very high level - I see almost 20% allocation to BFSI out of which 50% is with NBFC. Almost 20% allocation to mostly large cap IT & approx. 12% to Pharma…

Top 2 names - Bajaj & Divis seem little risky to me as one being an NBFC and other a disruptive, complex pharma player…

20% allocation to IT is something most retail investors would dream of, if they had taken at right levels a decade back…myself trying to increase IT allocation since couple years and one thing I have realized is these are highly volatile, prone to huge disruptions but are protected so far by excellent promoters, top notch management & corporate governance in most Indian companies…so 20% of your IT portfolio looks good for retirement (very long term) if volatility can be forgotton…This brings to another thought…if target and sector is more for retirement then is it not better to focus more on midcap names rather than large caps…just a thought to ponder on…

6% allocation to FMCG looks very less compared to other sectors…

10% allocation to top banks looks good, cannot say same about the 10% allocation to NBFCs (however there are always exceptions and so far Bajaj finance has been a blockbuster of an exception)

Almost 12% allocation to top notch Paints & Adhesive Chemical looks good as well

Disc: Invested in some names hence biased. Not eligible for any recommendation.

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Thanks a lot for the feedback. As for valuation…I will be purchasing the stocks every month from my income. Currently i am able to save around 60% of my income, which i will be predominantly putting it here. First objective is to.make it equal weighted PF, so those stocks which are having lesser weight and not too high on valuation, they will be filled first on monthly basis. I will be in accumulation phase mainly for next few years atleast.
@ChaitanyaC

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Thanks for the feedback. You inspired me to start the thread.

  1. Even if i have chosen names from Nifty 100 Universe, but I am not rigid about the stocks remaining in index. If tomorrow some stocks get out of index, but performing good bussinesswise, then i will stick to them. I will not sell out just because they are out of index. My main criteria is to renain invested in good businesses for very long time. If they happen to also in indexes, i get more comfort from liquidity and flows of funds into index stocks.
  2. Agree about NBFC being more weightage than banks …I will be increasing bank weightage soon to balance this.
  3. Pharma is a tricky sector. If you ask me personally, i would avoid it altogether. But wanted to keep my personal bias aside and hence invested in pharma. Out of that i chose API segment being more robust compared to branded generics and less prone to USFDA observations and warning. Hence Divis.
    Abbott India is india centric pharma company…its actuality FMCG company , covered in pharma clothes. So no US market risk. Laurus labs is not from index . Thats my personal bet , by studying on valuepickr and other forums.
  4. For IT, I am.more comfortable with Large caps…still just started tracking position in Tata Elxsi…will increase its weightage gradually.
  5. I m not.finding good FMCG companies. Nestle is good., HUL is no-option stock…other than that earlier i used to have brittania, but its performance has deteriorated. If I want to increase FMCG weightage, i need more companies to add, which are as good as Nestle. I cant increase weight of Nestle and HUL as i want to.keep my index equal weighted.
  6. currently to.compensate low weightage in FMCG, i have added 2 stocks from FMEG, polycab and Havells.

My main intention is to have Index-like portfolio with very low churn and still avoid the duds in index. I dont want to do deep research and find out some unicorn. I am satisfied with avearge large cap index returns with the excitement of listening to concalls and being aware of businesses and companies and economy in general. It gives me some avenue to read and increase my knowledge and be aware of indian business enviornment, which otherwise i will lose if i invest in Index funds and forget it.

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Along with above Portfolio of stocks i also have following Mutual Funds Investments

  1. UTI Nifty Index Fund
  2. UTI Nifty Next 50 Index fund
  3. Parag Parekh Flexicap fund
  4. SBI Focused equity Fund
  5. SBI small Cap Fund
  6. Nippon India Small Cap fund

Some funds I contribute by regular investment and in some, SIP is going on.

Rationale

  1. 2 index funds ( UTI)
  2. 2 small cap funds (SBI and Nippon)
  3. 2 Flexicap Funds ( SBI and PPFAS)
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How is the valuation of Tata Elxsi? It has run up quite a lot.
How’s it compared to LTTS and KPIT?

Note: M&M just overtook Tata motors as second highly valued auto co.

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Tata elxsi is far better than LTTS and Kpit. I amnstill studying the company. Valuation is very high…thats why i am purchasing only when there is some dip…selective buying…in will construct my position in a year or more time. Not in a hurry.

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What basis you have decided Tata Elxsi is better than LTTS? There is no comparison in Tata Elxsi and LTTS. LTTS is far bigger moat and expertise than Tata Elxsi. Only IT stock which i like is LTTS due to its niche domain and vast moat.

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Your portfolio looks Index fund to me, just my personal opinion however as you clearly set your return expectation of 15% with Highest safety of margin than stock selection looks excellent as all stocks have proven business model and dominating positions in their own domain. With this kind of portfolio ni need to do more research on knowing the stock as everyone knows about it which limits the upside. Average PE of your portfolio is a bit on higher side.

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Your MF portfolio looks quite good…but your stocks portfolio may give similar returns to your MF portfolio …so what is the main rationale behind your investment into stocks …

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The main rationale behind maintaining stock portfolio as against MF portfolio is , to exploit the advantages we have over fund managers and fund houses and avoid the disadvantages.
Just to give you some thought -

  1. i can buy anytime even when no one is buying but Fund manager is restricted by fund flows
  2. I can sell anytime even when everybody is buying. Fund managers have to honour the redemption pressure.
  3. i can keep invested for months and years even if portfolio returns are negative and wait for considerable time for upturn…but fund managers are compelled to take rash decisions every week and month to show the performance . They are under lots of pressure of performance. I have no pressure as i am.earning through my active profession, so even if i lose 100% of my portfolio, still i can sleep peacfully with full stomach.
  4. I can take advantages of peculiar situation in these index stocks periodically by investing in them at some weak points, individually. I wont be able to do that under MFs. Its under the control of Fund managers.
  5. the only point where they score over me is, they have a system and team.of stock analysts who are doing research for 24 hours as active profession. I can be no match for their power.
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I have not studied LTTS in detail at all. The cursory look at business performance gave me the feeling that its business is lumpy and not secular. But I can be completely wrong. Tata Elxsi, i have just started studying…so i will reserve my opinion. Anyways i am heavily invested in IT sector, so I want to avoid other names for the sake of it. So kindly ignore my comment on LTTS and if I have hurt your feelings towards LTTS unknowingly, i seek your pardon

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Your observation is right. My intention is to create my personalised Index. If it appears as Index, I can be sure I have been successful in my endeavor.

This is “sectorial leaders portfolio” which looks really solid. Even tough there are 30 stocks (read maximum allocation is 6%), will certainly beat Nifty with the help of some excellent growth oriented stocks.
Thanks for sharing your portfolio and more importantly thought process.

Disclosure: I have many of your picks in my portfolio like Divis, Asian Paints, HDFC Bank, Pidilite, LTI, Deepak nitrite, Berger Paints, Polycab, Astral.

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What’s your views on Indian FMCG firms like Tata Consumer, Marico, Dabur, Godrej Consumer? For many, I see FMCG is HUL only in India and some may consider Nestle also apart from HUL…would be good to know your views on home grown FMCG players above.

Also, why no Insurance? You are from Insurance background. Can you mention your views on Life Insurance and General insurance firms like HDFC Life, SBI Life and ICICI Lombard, Star health?

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One of the important criteria for selecting the stocks out of nifty 100 is also their ROE and ROCE as it indicates management’s efficiency of capital allocation.

  1. In case of Tata consumer, I find that ROE, ROCE is about 6% to 9% as against HUL’s 24 % and Nestle’s 113 and 117%. This criteria must have eliminated Tata consumer.

  2. in case of Godrej consumer, last 10 yrs profit CAGR is 12% while 5 years its just 7% while 3 years its negative 3%. Since i beleive , stocks returns follow earnings over long period of time, if I am expecting 15% stock returns, then my selected stocks should have minimum 15% earnings growth also. I have made Pidilite as exception to this rule. Even if it has 10 years profit CAGR of 14% and 5 years profit CAGR of 7%, i couldnot muster courage to not include it.

  3. Dabur and Marico are not part of Nifty 50, but they are part of Nifty Next 50 and after you pointed out, they appear to be attractive companies with meeting most of my screening criteria. Thanks for pointing me in their direction. I will study them and may be when i will decide to sell any 2 stocks from my current PF, these 2 will be seriously considered as strong contenders.

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Great set of companies and well diversified PF. The PF construction speaks volume about your experience, study and selection process.

I am not qualified to comment on individual stocks but based on my experience I may suggest the following:

  1. Keep monitoring your stock PF performance periodically for a longer period of time and keep your journal up-to-date.

  2. Compare your stock PF performance vis-a-vis Index and MF PF for out-performance/ under-performance.

  3. Check the redundancy of companies from same sector over long period and take decisions to prune if adding no value to overall PF. There is absolutely no need to keep many from same sector just because of FOMO or due to ornamental beautification.

  4. Study to include at least one stock from emerging and futuristic sector.

  5. If it is the Retirement-Nest PF then keep checking the Top-10 contribution both in value and % because it will give broader idea how long the nest will last based on your expenditure. Will share more inputs on this later.

Congratulations for starting your thread and putting it beautifully. I hold most of your PF companies in my PF as well. Keep sharing your PF performance whenever time and scenarios permits.

Happy investing!
VK

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Thanks for your valuable suggestions. I will surely keep in mind.