Sahil's Portfolio

sahil_vi · December 30, 2020, 6:10am

I did check out the link but could not find an XIRR in that post. Maybe I am missing something.

I think automation is certainly possible since we have a complete tradebook including account pay-ins. Only trades which touch a certain whitelist of stock should count towards the PF returns. Im just too lazy to automate all of this (another way to put this is that I think i have better use for my time). The other thing is, what we feel/go through in real life is not XIRR IMO it is the total returns.
The pro for XIRR is it gives a % number which we can then compared to benchmark indices etc. But in reality IMO what we experience is the total returns. the XIRR number would be even larger in my case since a lot of capital was deployed very late (<6 months ago), but i also feel that we might be conflating 2 things here:

Judging the stock picking skills
Tracking how much wealth we are creating.

For 1. I would prefer to track companies fundamentals growth (sales, EPS CAGR), valuation gaps.
For 2. I would prefer to track total returns since that is the number that I experience in my real life. If i put in X lakh rupees and take out Y lakhs rupees, the Y-X is the wealth I created which is what I probably care about the most.

I did try to track XIRR at some point but it was quite cumbersome, this is because i do keep buying more and more stocks in small quantities every week, sometimes multiple times a week. For someone that buys stocks once a quarter, XIRR is much easier IMO. Please do share your XIRR excel whenever you can. I will give it a second shot. The best thing would be a utility where i could upload a bunch of zerodha excel sheets to and which would spit out the XIRR number. Maybe ill try pestering zerodha to do this for me.

Thanks for the kind words. I have read a bit about Deepak nitrite. A lot of their margin expansions come from cyclical shortage of commodity chemicals and hence the margins could deflate in the near time when the cycle turns. It is definitely a very growth minded management. I do have a bias towards small companies. A company with >20-30% market share IMO does not even have the optionality for the high growth minded investor to hold it for 10 years for consistent high compounding. Profitable (high ROCE) Companies with small but growing market share are the true wealth multipliers IMO (in the range of returns I am looking for). Deepak is already a 1B$+ market cap company. What kind of a growth runway does it have, I do not know. I’m always looking for the smallest most profitable (in the future, not the past) player. Deepak does not fit the bill there. Admittedly I have not studied it as closely as many other companies I track. I would like to study it more closely (and correct for any knowledge/perception gaps).

greengoblin · December 30, 2020, 6:37am

Hi Sahil,
Do you follow companies overseas (US markets preferably)? I ask this, because I am assuming like me (who holds MSFT and AMZN stocks in good amount that dwarf my holding in Indian equity), you have Google stocks.
What’s your strategy in this? Do you follow Google ARs and ConCalls and size your PF? Or you prefer to keep accumulating it passively through bonuses and ESOPs?

I’m sorry if I asked something personal you don’t to share. I have been accumulating MSFT and AMZN shares through bonuses/ESOPs, and I never track it, simply because of the high faith and trust in Nadella and Bezos.

sahil_vi · December 30, 2020, 6:43am

I do not hold google stock for a lot of time. I keep selling from time to time. As of right now I’ve sold >90% of the stock I’ve been granted over last many years. My life is already quite dependent on Google (Job, salary, salary increments, future equity). I do not have any direct exposure to US stocks. IMO it is a kind of a fad to own foreign stocks. Right here in India, we have the largest wealth creation that can possibly take place. While it would make sense to own a few innovator companies like Lonza, Thermofisher but those are extremely overpriced.

IMO this is not a good strategy. This can lead to financial ruin. Any company, howsoever innovative can have blindspots. You are already “long” the company which employees you by continuing to be employed by it. Why compound the position by continuing to hold lot of stocks too? Besides, IMO all tech stocks are overvalued (by varying amounts). A correction is due in FANGMAN. The correction might coincide with any weakness in earnings IMO.

greengoblin · December 30, 2020, 7:02am

Can’t agree more on this. That’s the reason I have stayed away from stocks abroad, apart from the ones where I didn’t have any choice.

One of the facts that I can correlate with this is that, most of the FANGMAN companies have surpassed trillion dollar valuation. Growth of runway from here onwards seems to be slow (going by crocodile in the pond analogy). Apple (and may be Netflix) can be exception as it hasn’t penetrated Indian market well. Do you see any other reasons?

sahil_vi · December 31, 2020, 6:41am

Look at the valuations of Apple. They’ve been moving in cycles, as do perceptions. The best time to buy Apple is at 2x revenues. Second best time is at 3x revenues. It is trading at 8x revenues right now. It is not clear that this valuation change is supported by any tangible change in fundamentals.

The reason it is almost impossible to reason this way about these for these mega tech companies is that when they grow too large for a pond, they create a new (larger) pond.
Have you seen the list of subsidiaries for alphabet?

They create markets where none exist. I’ve been practicing ML research and applications for about 6 years now. Google’s is next to none. One of the greatest biology breakthroughs of 2020, was the protein folding solution that Deepmind created. Some of the best minds of CS/ML/AI are now working for Google. That is an intangible which is very difficult to value. We created ML algorithms to optimize the power consumption in our data centers that saved us 30% in power costs.
Alphabet subsidiary Calico is working to solve Aging. What is that market worth? $10B? $100B? $1T? I do not know. It surely is worth a lot.
Waymo is solving self driving. They’re going to hail in a world where humans do not need to drive. Admittedly not the only ones trying to do that, but by my estimation, they’re miles ahead of everyone else (except maybe Tesla but that is debatable).
Loon is creating floating balloons that provide the internet.
Google even has a private equity subsidiary that invests in start-ups.
Despite all these intangibles and reasonable valuations, I continue to sell my GOOG because a large fraction of my future net worth is anyway dependent on google performing well. My future equity, salary, promotions are all tied to google doing well as a company. In addition to that, holding a large fraction of my present net worth in Google stock just does not make much sense.

Frankly, I don’t think these tech giants can be modelled very accurately by anyone anymore. They undergo cycles of pessimism and optimism where the valuations inflate and deflate. IMO the best time to enter is at a point of maximum (or near maximum) pessimism. Definitely in Apple this is the point of globally maximum optimism. Not saying that valuations have to crash. If the valuations sustain until FY24 and apple iCar is a successful launch with $100B of sales in FY25 then valuations might be justified. When the market starts pricing in lots of optionals as if they are a given, that is when I feel valuations are stretched.
Everyone can look at the valuation charts of their own choosing and make up their minds on which of the FANGMAN are clearly overvalued:

Rafi_Syed · January 9, 2021, 4:11pm

Hi Sahil

I am still reading your excellent research, analysis and mental model. IDFC being the highest in your PF. Here are the few counter arguments.

Retail Loans

High street banks (banks that has physical presence ) - I don’t think this kind of model is needed going forward

Let me highlight few here, more or less all the banks now offering service to open accounts online by using the smart phone, technologies are matured and one can do digital KYC with face recognition and all

Most of the banks are selling (hard sell) various products to the customers who visits the branch (it is not easy to to sell a product to a customer over the phone , this is really difficult in small towns )

In this digital age the customer has more awareness and they go to aggregator sites and find a cheap loan deal on these sites. Interestingly unlike before it’s not only banks who are ready to give personal loans, car loans and education loans , there are many other digital lenders like from PAYTM to small players in the market

Business Loans

Same is the case with business loans

Unlike before businesses has access to loans in very customer friendly way starting from
PE firms
Digital lenders ( example : https://www.niyogin.com/unsecured-business-loans )

Below are the ways where banks make money and all these sources are disrupted in my opinion

Collecting deposits ( if one wants to deposit they can go and find a better rate , better than bank FD at the click of a button and they can sell it whenver they want unlike locking periods by FD example : https://goldenpi.com/

Loans (Disruptions from small finance banks to large lenders like Muthoot etc )
Other products like Life , General Insurance and Mutual Funds
Business loans
Agri Loans
Loans against assets

Let me give an example in UK many banks are reducing the number of physical branches month after month, the only thing the customer will miss is to deposit cash, they tied up with post office, so customer can walk in to post office and deposit cash in any of these major banks. The same is already happening in India where many banks have now setup CSC points for such services. It will not be far where they are going to have aggregators for CSC services where you can walk in and do basic banking of any of the bank accounts.

Curious to know your thoughts.

-Rafi

sahil_vi · January 16, 2021, 4:34am

Hi Rafi,

thanks for your questions.

Would suggest you to please provide evidence for these kind of statements. As far as my understanding goes, this was not true at least few months ago. For example HDFC Bank did not have this.

All of these top down arguments suffer from 1 problem: they are not backed by data. Hence, they can very well be false. These are narratives at best and what I have discovered about the nature of reality, is that CNBC TV18 (or any other business news channel) does not decide how reality turns out. Understanding the nature of reality requires a lot of hard work and a lot of scuttlebutt (and a lot of research report reading). The strata of customers you’re talking about, would certainly NOT get online loans. A lot of them do not even have a credit history. How could any institution lend to them without a physical verification of their business, and projecting their cash flows. Lending to the underbanked and unbanked is a high touch sort of business, it is very difficult to automate. I would suggest you to read about MFI industry, VP has a lot of good threads. Has some very good insights on why its difficult for things to be digitized for this strata of people.

Please see this:

Besides, it is not that easy to compete with a bank which has access to very low cost funds. Incremental CASA to IDFCF is at 7% RoI and would become even lower over time. Cost of equity is generally 12% and hence you see interest rate charged by the very company you quoted to be 19%. For that set of customers (which is small IMO) who do compare loan rates, it is not likely for them to go for Niyogin but rather IDFCF bank which has much lower interest rates.

This example has nothing to do with the reality in which we live. India is so far behind the west in financial inclusion that it is not right to compare the two situation. Its an apples to Karela comparison. India has a long way to go before we become like UK. Our country is very diverse. Hence you can find pockets of places which are more like the UK (say posh areas of metro cities) but the vast majority of Indians do not think, act, or associate with Westerners.

Lastly, I would suggest reading through the IDFCF bank thread if you do that a lot of these questions would get answered. In fact there is a specific set posts about VV addressing a Fintech forum about how FinTech will actually help existing banks, not compete with them. This is also visible in the way that IDFCF has tied up with many leading FinTech companies.

The fundamental core competency of a bank is underwriting risks. The data and wisdom gained by IDFCF (through IDFC and CapF) over a decade and more of underwriting risk for cashflow based borrowing is not something any tom dick and harry can compete with easily. In fact a lot of these digital loan companies tie up with IDFCF so the relationship is that of collaborators not competitors.

Rafi_Syed · January 16, 2021, 7:40am

Thanks Sahil , always joy to learn from you.

Here is one link to open an account with Kotak with Digital KYC

Kotak 811 launches India’s first zero-contact, video KYC savings account.

ICICI direct thought so that with the kind of expertise that they no one can beat them. Their dominance is history now with the entry of discount brokers

pulkitsapra97 · January 19, 2021, 3:58pm

Hey Sahil!
I like your stock collection! Hope you have a long way ahead with these great picks!
Was just wondering that your portfolio doesn’t have any exposure to IT sector? Is this due to high valuations or there is some other reason?

sahil_vi · January 19, 2021, 4:02pm

This has come to my notice too. The irony is also not lost to me, since I work in the IT sector (Google). My key reasons for not owning any IT company is:
My area of interest is smallcap and midcap in general. In that universe I’m not sure what competitive advantages any IT service provider has. They are easily substituted. Hence, I don’t find certainty in earnings. This could very well be my own bias at work and reading any IT companies could change my view.

If anyone thinks any Indian midcap or smallcap IT company has a differentiated business model and is growing at 15-20%+ per annum for 3-4 years, please do let me know I’ll be happy to read more about it.

Rafi_Syed · January 19, 2021, 4:06pm

Another beautiful cover drive from Sahil (let us celebrate the great win today ) , I think Tata Elxsi and Xelpmoc Design and Tech Ltd falls under this category . We are yet to see some fintechs like Visa, Mastercard or Software Stacks like Twilio , Etsy, Cloudflare, Docusign, Autodesk, Zoom etc… from India or still they are unseen to me

sahil_vi · January 19, 2021, 4:11pm

Thanks! Can you please describe in a para or two why these companies are interesting and why anyone should read about them?

Truly historic win for india!!! I had stopped watching cricket for many many years but started again with this test match and I got my money’s worth. What a wonderful chase, a what a wonderful innings from Rishabh Pant, what a wonderful knock from pujara, GABBA fortress breached at last.

Go india

Worldlywiseinvestors · January 19, 2021, 4:18pm

Worth covering LTI, Ltts and Tata Elxi

ganesh_bastwadkar · January 19, 2021, 5:59pm

Please look at Sasken Technology

Aneesmohamed · January 20, 2021, 2:51am

@Rafi_Syed @sahil_vi …like u r doubtful on IT investment, Im also doubtful in the sector Im working, PSB s!!..comparing to the total business in the >100 yr old PSB in which Im working , IDFC s total business is only 7 % of it now ,but Im afraid of investing in my firm atleast for a year due to one reason, ie, asset quality and restructuring of loans…if the present paying capacity of borrowers doesnt improve, gross NPA might get doubled in PSBs by Sep21 Quarter…IDFC seems to sabotage the savings account share in the market atleast from the youth who love aggregators and are tech savvy, but they are still far from the old HNIs who still prefer Old Banks for parking their money… although the govt. is consistently pushing strongly for digitisation, its taking some time in the sector to reach through the people…

Sun_P · January 20, 2021, 2:58am

Be very cautious regarding this company and its (lack of) products. If you spend time on the annual reports, might bring up red flags. These days AI/Blockchain/ML have become ill-used buzzwords.

Deven · January 20, 2021, 6:09am

Hope you have invested in GOOGL?

Like you am in IT (Own business) and have 55% PF in 5 IT co including top 3. Am not as young as U hence most co in my PF is large cap. This may be differentiator but we may both right being different.
Just few data point

TCS Mkt cap, revenue and profit higher than whole pharma sector.
TCS and most large cap gave 2.5 x in last 3 yrs. What more one need.
TCS grown 10% while HCL 17% in last 5 yrs. - mid cap may be in range or higher.
Profit growth is below 10%, but here is the catch. If you consider cashflow (instead of NP), cash flow is additional 10-30% growth than NP, hence in double digit.

All front - revenue / profit, size and growth are better than respective FMCG, e.g. Infy Vs HUL.

With change due to covid they will be beneficial of higher offshore which is profitable and higher digitalisation.

Also for us easy to track the sector, just example I added them more in mid December after good result from Accenture.

My long post is with self interest - U to consider imp sector - research and share mid cap.

Looking for your views mainly counter one…
Disc: Invested and views as biased. Not recommendation for Buy.

bhaskarbora67 · January 21, 2021, 8:11am

Gud portfolio
Have some unique small caps
Can give very good return

Gaurav_Bhandari · January 28, 2021, 12:40pm

@sahil_vi very detailed analysis. Just had a couple of queries:

You said that you had added Amara raja, but couldnt find it in your portfolio. Did you exit it?
For dividend stocks, why didnt you choose REC…it has a pretty good dividend yield.

Thanks.

sahil_vi · February 2, 2021, 4:45pm

I was researching it but i think the battery space can be very easily disrupted with EVs coming. I really do not know who will be on right side of the disruption. Battery prices will fall. Need for lead batteries will fall.

Would suggest checking this out: https://www.youtube.com/watch?v=wT1fBFbBzjg
It is not sustainable.