Hi Himanshu
Abbot – everyone is running behind CRAMS/API, is this the reason that abbot is not performing from couple of months. Last quarter result was quiet good. What is your view on abbot.
I too hold abbot in my portfolio is similar weightage.
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Hi Sudheer, Thanks for posting.
Abbott India(in my limited view) has good Sales growth and has great EPS growth. It also has no debt and a ton of cash on the balance Sheet. They are launching new products regularly, and most importantly, cater to the domestic segment where health challenges are ever increasing I think. It is a great company to own long term as per me, very strong balance sheet and many people might say that the price has not risen due to a high PE(but there are counter arguments to this thesis).
A couple of months is too short a time frame to judge as per me. In fact, I think it is the only time you get a chance to add more to companies you feel will surive for long(being debt free being a factor) and wil grow. Hence I added a lot to Divis, which despite being a API player like you mentioned, did not grow a lot in the last 3 months as well. But too many people running after multiple small players of a segment or companies with high debt gives me discomfort, plus they might be looking to sell in the short term which I’m not. I don’t think everyone running behind one segment is the reason price of another type of Pharma company is stagnant. This is tough to predict. I mostly feel that MNC pharma Q2 results will not be as great as the domestic API players, and that might be a reason.
@Himanshu_Nigam Thanks for elaborating in detail.
What is your view on this.
In Pharma and Health care, I hold only following.
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Abbot --> its a sort of fmcg in pharma. Also many products are OTC (like pediasure, similac, etc). It is a secular by being FMCG in nature, so i dont need to keep pharma cycle in mind. While CRAMS/API are cyclical. As soon as this cycle is over, investors will again jump over stable pharma like abbot.
Also its largely retail play and USFDA has no role here as its purely India play. Its peers as per my understanding are sanofi, pfizer, but i choose abbot because of better sales and profit figures. -
Dr LAL --> Diagnostic has huge headroom to grow for at-least one decade as the sector is unorganised and India has a low penetration as well.
Many time I feel like adding adding Lauras, Divis, etc. But did-not jump as its cyclical and i don’t have any understanding when to come out also.
I only understand these two simple business.
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You are right, and for similar reasons it took me a long time and a lot of study before adding to Divis(and later Ipca). I would rather have a large established debt free company which I feel has more long term chances of stable growth than take more risk for faster growth(this leads me to be more stressed when price of such a firm starts falling).
I can’t comment on Dr. Lalpathlabs due to reasons pertaining to my job.
Hi Himanshu,
Interesting to find that my view is exactly identical to that of yours. The debt free nature, growing revenue and PAT, good cash flow, stable debtor days, fantastic ROCE/ROE and maximum possible promoter holding make this a decent business to hold for long term. I also added this as it did not move up in the last few months.
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I have a slightly different view on this.
Today markets are really volatile and and really confusing. Stock prices drop on good and rise on bad results. Evaluations are sky high and still people are jumping in , not giving heed to EPS relatability.
Many new people have entered and many of them will face losses(may turn to experts to manage their money). The growth despite being the highest market cap player has been pretty good . The huge under penetration in this business offers remarkable opportunity.
So from a long term view, are current valuations expensive and will this business tilt more towards active investing. These are two first points that I really focus on.
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Thank you for posting.
Even if the business does not tilt towards active investing, the sheer amount of competiton in the segment is daunting. Technology has enabled scrutinisation of performance of the funds like never before, and that is before buying/starting a SIP. Then platforms like zerodha and paytm make people monitor the performance weekly if not daily. Even experts are finding it tough to beat sensex and nifty these days. The huge underpenetration is correct but the next set of investors will be young and starting SIPs on their phones and not someone old who does not understand expense ratios or not compare MF performance before investing. I don’t know how many new investors arer starting SIPs in HDFC’s equity schemes.
And unlike insurance, bank branch network and other platforms are not selling HDFC MF schemes.
So this underperformance in equity which has repeated for a long time now, coupled with low returns from Debt funds due to low interst rates(Yes people look at returns in Debt funds too, as can be seen with the number of investors in Franklin) makes me not want to be the one to take the risk of holding this, as I’m an amateur. A 5% rise in one day today was good enough for me to exit 
Hi Himanshu,
I think it is a very good and concentrated portfolio.
My questions to you -
- How do you come up with the allocation percentages to your portfolio?
- What is your overall investing experience in years?
- During this uncertain time, life insurance as a business can be very shaky. Is there any change in your conviction during your investment period?
- As you are into financial sector, can you share your view on housing finance sector?
Thanks.
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Hi Southern_Cross, Thank you for posting.
- Let me answer this first, as I should have mentioned this in my first post. I am an amateur, and hence look for advise on what I’m doing. I had SIPs for the longest time, which are now primarily reduced to 3 categories - ELSS(Axis & Mirae), Index Funds(India and US), and PPFAS(recently started).
I have around 2.5 yrs of active investing experience as I felt during my MBA days that I’m not very good at finance(this improved when I started working as my job involves balance sheets day in and day out), and I wanted to settle things by having my own house first so that I can actively invest long term.
- My allocation percentages depend first on safety levels and hence started(and remain more with Banking, which is my job). Reliance’s huge run up has changed that, but I still didn’t give up the chance to add more when it fell( I have confidence as long as Mukesh Ambani is at the helm, and he is 63 only).
So the percentage depends on my safety comfort level. I might not be comfortable with Divis being the biggest holding(right now) irrespective of good results and I will be comfortable with Kotak being an even bigger holding even in case of some bad results. And in cases where I want to increase holding like Asian Paints/Pidilite, sometimes there is no opportunity as I don’t bet big and add only small amounts always.
- Since I’m an amateur I am more comfortable with averaging/ buying regularly than deciding the perfect price to buy(also because I make a monthly salary). I keep 10-15-20% in cash and keep deploying the rest.
- I buy whenever stocks I hold fall where I have no clue about net quarter’s results(like Reliance, Nestle, HDFC Life, Bajaj Finance, Tata Global etc.) I add larger amounts if some holding is going down a lot, which I did with Titan post Q1.
- In cases when I feel quarterly results will be good, and the stock is stagnant I buy more before the results, provided the stock has not run up a lot before the results(Kotak, HDFC, Divis, Bayercrop, Relaxo, Pidilite etc). Some might work(like Divis, because I saw other Q2 API results which gave me confidence to add more than usual), some might/might not(agrochemical results have been good, but let’s see with Bayer).
- If I expect the results to be bad, I wait for a fall(Titan after Q1). If Abbot had a lower allocation I would have added more recently, but added only a little bit. Maybe it will fall more post Q2.
- Sometimes a price runs up so much that even after good results there is a fall, in which case I refrain from buying before Q results. Hence I added a little in Ipca today.
- In some cases like Asian paints there is a rare chance to add so I wait for the market to fall where I add all, or add whenever there is a 5% or more drop.
This is weird logic but works for me. Plus I add very small amounts, so there is never any stress.
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I am pretty sure that this uncertain time will not be lasting very long, and this segment is helped a lot by the cross selling by banks and other platforms. I went to open a PPF account for my daughter and HDFC Bank was pitching HDFC Life’s products to me and not their own FD and PPF. Policybazar was talking to me about investment related products of HDFC Life. There can always be a change in my conviction, like in other cases as I don’t want to keep money stuck anywhere indefinitely, but current times do not give me any reason to feel the same, but give me more confidence that people might want to buy more term plans etc.
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I am not in the housing finance domain, but I feel low interest rates and jobs stablising are giving people more confidence to take on home loans. This is an amateur’s opinion who has no deep idea about the segment and hence is not invested there. However, as with banking(where PSUs stand no chance long term) HDFC will do well and gain market share as per me,.It is an amazing company and a holding company for other HDFC firms. If I did not own 3 lenders already I myself would have got HDFC.
Will be happy to hear any counter thoughts.
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Correct me if I’m wrong but I don’t think pediasure and similac are under the listed entity.
Hi Sarthak,
I am not sure. It can be part of unlisted abbot also.
It will be great if some one can clarify which part of business is under listed entity.
Pediasure and Similac comes under Abbott India Pvt Ltd. which is unlisted entity
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Hi Himanshu,
Thanks for the explanation. Liked your thought process.
Basically, I have nothing to counter but say that your stock picking and concentrated bets are quite mature. However, I would not have been secure with HDFC Life considering we don’t know how much could have been the mortality rate associated with Covid-19 earlier. Now, there seems to be not issue.
I have overall 3 years of investing experience (both MF/Equity) and am an amateur.
Now coming to your view about HDFC AMC. What are your views on how the savings in India will be channelized? Considering the fact that there are low rates in FDs, risky and low return Debt funds. The government is encouraging NPS and indirectly ETFs but my understanding is eventually government will look for benefit of both people and more tax to government.
Here in Australia where I live, the government has put some very good policy in terms of Superannuation( Similar to NPS). From 1991, in Australia, it is mandatory to put 9.5% of their income to Superannuation account. This and coupled with no recession for 3 decades made Australian citizens one of the richest citizens in the world now. There is a housing market bubble but that’s a different matter altogether. The FD interest rates in Australia are literally Nil but AU Super ( like our HDFC MF) has generated a CAGR of 8.5 in last 15 years. With the financial literacy everyone is aware of benefits of super and good life insurance cover also comes as default in these super once your super account crosses a threshold limit ( 6000 AUD per se) without paying extra.
In the Indian context, I think there are many people out there who still needs hand holding in terms of financial literacy. I personally think mutual fund industry will see secular growth like the IT sector…
Disclosure - HDFC AMC is my top holding in my portfolio. Added few more in last few weeks.
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Thanks for the reply Southern_cross.
However, not all things pan out as per my logic. Ex : Bayercrop’s okaish Q2 results, which was the most non established name in my portfolio, and the only holding I had thought of trying as a short term bet. Let’s see now I might keep holding at the same level/reduce/replace gradually with PI Industries.
I agree with your view on savings. However, I have seen HDFC Life might be good as well at capitalising on this with their annuity plans, savings plans, NPS etc. The annuity plans and NPS schemes come under HDFC Life and not HDFC AMC.
Now, my crude logic might be wrong but I have seen that while I do go through all balance sheets and annual reports, these itself are not enough. I’ve seen that there are great analysts who equate the fair value they should pay for a stock perfectly, but still make huge loss making errors(or wait for fair value while not calculating the time value of money lost in waiting). And while I want to have a Coffee Can portfolio, I am ready to exit and reduce my stress.
HDFC AMC might end up giving better returns than my remaining holdings over long term and improved results but the huge competition it faces from better return generating AMCs, 0 barriers to entry because of technology, plus competing with ETFs and Index funds logically does not give me comfort. There has been a long track record of underperformance and hence it is not a knee jerk reaction that I had. I just saw yesterday’s price as a good point to exit and sleep peacefully Everyone’s risk taking ability is different and I have seen that seen mine is very low.
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Indians in general does not like insurance as a product (what do I get as a return is the typical question? 
) Insurance companies will keep on innovating big time in the blended product space and unlike MF, insurance companies have a lock-in period and fund management fee is higher.
For example: Passive fund charges are ~0.1% Vs >1% for Active. Even if companies automate the Passive fund management, I would imagine the margin would still be low but potential for more absolute profit once the passive fund scale up.
In summary, I agree with your views - HDFC Life is doing pretty much what HDFC AMC would be doing but better margins. Probably a good idea to stick with HDFC Life.
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can you pls elaborate these two points. By technology if you mean paytm etc. become distributors…they would end up being just one more channel for already established AMC companies. I would never trust my money on any new tech start up posing as an AMC which I am sure they cannot. At most they can become enablers/distributors which in long run also AMC will show them who is the real boss.
Regarding ETF and Index funds - Pls correct me if wrong, these can and are also being purchased via AMCs like say HDFC ETF/Index funds - so here AMC will have less margins but probably more volume in due course. Moreover, investors will be investors and will keep chasing new things, new ideas, new themes, new momentum etc etc and a sharp management will keep positioning their AMC according to consumers.
Disc: Not a buy/sell recommendation. Invested in HDFC Life and AMC hence biased.
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Thanks for your post. By technology I meant that apps/platforms like Zerodha and Paytm etc. lets people Pause/Stop, compare and switch SIPs very easily. More channels and low penetration is good for the industry, but a how a poor performing AMC with high expense ratios will continue to keep holding on to their SIP AUMs/add new customers(assuming of a younger demographic) is what has not been making sense to me for a while. The barrier which stops a new/existing investor to opt for a low cost good performing MF(Axis, Mirae etc. today, maybe someone else tomorrow) is close to Nil. And there are a ton of AMCs with none having a competitive advantage over the other. Parag Parikh might be one which has been able to create a niche due to their philosophy.
Same with ETFs/Index funds. Every AMC can easily launch an Index Fund/ETF now(and has done so). I see no differentiating factor except tracking error and expense ratio. How can HDFC AMC better capitalise on this compared to any of the other AMCs.
The industry will do well and the penetration is low but HDFC AMC does not have a competetive advantage(which in this industry will increasingly be performance, expense ratio etc.). Also, HDFC Bank’s network is not helping AMC if I’m not wrong, and hence I mentioned the barriers to entry point.
Holding PSUs does not make sense to me too but I’m not an expert fund manager. The above points were those which I could not find an answer to and hence the reason for my decision. Someone with a higher risk appetite might end up making a killing holding this stock.
Thank you for the detailed post. I agree with most of the points, especially about debt funds.
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Yes, I am aware that HDFC Life has the annuity and NPS part from HDFC group and nothing to HDFC AMC. However, as I did not read much about life insurance as a sector, I did not buy anything pertaining to that sector.
In the below video, after 10 mins, the interviewer was exactly asking about why there are more outflows despite all time highs in NIFTY & Sensex
True, staying in our circle of competence and having a good sleep are very important. For example, I slashed my portfolio by 40% during March crash.
No investor can say with confidence that his particular stock will definitely beat others and at the most give a guesstimate… Investing is a game of possibilities. All I am doing is , spreading my bets across sectors and trying to allocate more to high conviction ones. For example, I added some more Laurus Labs shares after their recent Q2 FY21 results. I did not see any red flags, very good earnings outlook, all segments displayed growth but still the stock has fallen down. I hope it is for short term but I can never say that this stock cannot go down 
It is similar to applying for a job or getting a promotion, you never know how the competition fared with certainty till you see the result.
Regarding underperformance of mutual funds, I did study though. It is covered in the below post.
I think you are lucky. All my life, I have been a fan of crime fiction novels and movies, and so my natural behavior is to look for that excitement and I think in investing, you need patience. It took me sometime time to learn the lessons but overall returns have beat FDs so far.
Disclosure - I am biased about HDFC AMC and Laurus Labs as they are my top holdings
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As mentioned in the post. Exited Bayercrop as soon as the results were out and accepted the mistake I had made. Made a 7% loss As I had heard, you learn from your losses.
PS : I will gradually shift the funds to PI Industries(which I think in hindsight should have been the company I should have invested in) and the other holdings.
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