Would be good to see your portfolio thread when it comes 
Yes I think theoretically yield should improve with time as businesses you hold mature…but if their share prices also run up then yield at current value more or less remains same…I think if your stocks payout ratio increases then yield would increase inspite stock run ups…and that would happen in cases of real large caps…I mostly hold midcaps so maybe they haven’t reached that stage yet! Although I was surprised to see mere 0.8% yield for me inspite of holding around maybe 8% in ITC and some other FMCG as well…it could be because another approx 8-10% HDFC Life and Godrej consumer, Pidilite etc. Inspite of being FMCG and few more did not pay dividend last financial year…but still it would not have reached beyond maybe 1-1.2…an interesting thing you mentioned that I should track…
Last couple of months have been very interesting. It brought thoughts of profit booking, reshuffling, momentum investing etc. and rightly so as opportunities have been huge.
One strange thing I see is that since almost an year, it has been pretty easy to predict, specially the sector rotation with the economy closing/reopening etc. The starting few months of lockdown were tough but post that the sector rotation, those who played and are still playing - surprisingly it has been relatively easy to predict and ride the momentum. This brings few questions to my mind.
- Is it always so easy for momentum investing?
- Is it because of the Bull market that this prediction looks straightforward?
- Is it same in all Bull markets?
- Is it easier because of the special case of lockdowns and subsequent reopening, now happening second time.
Leaving aside the other parts of Real Estate, Power, Auto, under-owned sectors coming into forefront etc. , One example, couple months back, I was able to clearly see was Abbott India consolidating for a pretty long time and with economy opening up, domestic focused pharma would do well eventually. Although I was expecting 20-25 up-move but it almost did a 50% jump pretty soon. (Why I mentioned Abbott India was because unlike other sectors & stocks, this company is worth my “potential core”. It once was and I had replaced it with Nestle India because of better predictability in case of the later).
I did not earn a penny from it, and also from various other such moves I could see. I have no regrets as I was focusing on other “potential cores” in Retail & Consumer discretionary sectors and they did equally well (specially Retail so far).
Above such experiences leave me into a never ending dilemma - Whether to venture into Momentum investing or stick to Core and “Potential Core”. Although some companies in even momentum sectors may be worthy of being part of Potential cores like Abbott India in Domestic Pharma, Tata Power in Power, Godrej Properties in Real Estate etc.
But then capital is limited and fights for the picks always. Sooner or later, momentum always stays sustainably with the right company. Patience is the key. (Maybe these lines which I remind myself have refrained me from turning richer via Momentum Investing 
)
Disc: Not a buy/sell recommendation. Do not own above mentioned stocks - Abbott India, Tata Power or Godrej properties. Invested in Nestle India. Post only for Academic purposes.
I think this question of core vs satellite will also depend significantly on when exactly one began investing. For example, for me, Tata Power is doing well, and also, I see myself staying with it for a long time. Essentially it will constitute part of my core portfolio. Abbot India, it might have formed part of core if I had got in at 14k. Now, I will probably not buy in, and since it looks unlikely to ever go back to 14k, it will probably never end up as part of my portfolio - unless I start a secondary coffee can one. So basically, perspectives will also differ based on start time, I guess.
I would slightly differ in my thoughts here as for me the perspective would not change much with start time. For example, if I am able to overcome my uneasiness towards predictability/lumpiness of earnings (even on positive side) for Abbott India vs other stocks in my core portfolio, I would include it as part of my core even at 20% above today’s closing price. I would of course wait for a dip in that case from all time highs and stick to basics of buying on dips then.
Just for example, I bought Tata consumer at 100 rs few years back and was almost ready to get into buy on dips mode if it has fallen or will fall more sub 800, as that would be a greater than 10% fall from all time high and if that goes over to greater than 20%, I would add more - provided the first criteria of core bet is passed and the fall is nothing to do with core fundamentals.
But of course different investors would have different views and approach here and I respect your views as well as they are very practical.
Disc: Invested in Tata Consumer. Biased. Not a buy/sell recommendation. Above views personal & for academic purpose only and I can be completely wrong in my assessments
Don’t you think the classification of momentum sectors is in the eye of the beholder? While realty and power have the market’s eye right now, a lot of names in your portfolio could be called momentum plays already, even if you have no intention to sell. Tata Consumer has had a great run in the last year, Tata Elxsi has been one of the best performers, and the same can be said of the Larsen IT twins.
One can also argue that some of these still have value on the table. I’ve read your posts on comparing Tata Consumer’s market cap to HUL’s, and Tata Power is at an FY23 EV/EBITDA of around 10, despite the rally in the last week.
Have you considered moving a percentage of your portfolio into sector rotation plays, or potentially even through futures? A lot of financials / NBFCs are trading at a discount to historic valuations, and it’s likely that this sector would enjoy momentum after the Q2 results…
There are some names in the chemicals space that are still trading at 1x sales, and from management commentary / sector news, we should expect a weak/muted quarter in a lot of export related pharma names. Given how quickly sentiment changed in names like Neuland and Sequent last quarter, one may find a lot of buying opportunities across the board should the results be as soft as Q1.
Are there any names that would tempt you should this (anti)thesis play out in the next month?
While I agree that there will always be some momentum plays active in your core portfolio but I feel we cannot call these “momentum picks”. Thats because of the way invested capital is treated by them and intended to be treated by them. For example, the momentum in Tata Consumer happened after months & years of patience, perseverance and even frustration. A momentum investor or pick would not met out the same treatment to the invested capital. They enter at just the right time and leave with something on the table.
Similarly, had Tata Elxsi, LTTS & LTI been my momentum picks, I should exit now after having made 4-7X in an year or so. I should ideally rotate that capital to next set of momentum, but I am not doing that. Also, had overall IT/Tech sector been a momentum pick for me - then I should not have put largest allocation within that basket to Oracle Finance which is up merely 50-60% while others are 5X as I was well aware where the momentum was & is - in the services basket.
So while I do agree, these did show momentum, but the fact that capital enters them not always at the right time and neither does it exit to renter others for maximum alpha generation - I should not confuse these with momentum.
I still feel story of Tata consumer has just begun. Precisely thats why even though its almost 15% my portfolio, I feel I should allocate more if I get decent dip.
Anecdotally, I entered Tata Power at its lowest level in last year’s crash and sold it pretty early. This is what happens to me when I enter a sector I am not comfortable with 
I agree, it can be a gamechanger if the consumer side of the business builds well over time.
My biggest problem with Chemicals & Pharma is that I do not find a well known promoter, business house in most of them and I do not have ability to build conviction in lesser known promoters. Maybe I should have followed a small basket allocation approach but feel time for that is lost for now as most of them have now reached a compounder stage and I can find such compounders in my area of comfort as well.
There is only one company in Pharma & Chemical that I am keen to invest for long term and waiting for better opportunity. That is Sequent Scientific. Major reason is PE ownership and high PE! (Somehow, I like higher PE firms…just kidding )
Disc: Invested in above names & biased. Not a buy/sell recommendation.
I found two simple ways to use momentum to our advantage.
- Add to a position showing earnings growth. The portfolio will have earnings momentum with time.
- Add to a position increasing in size. The portfolio will have price momentum with time. If we don’t book profit, we will get the same effect.
Adding few more details here since I didn’t find any thread on Devyani international.
Please remove if it doesn’t add value to thread.
Declining Same Store Sales Growth (SSSG) [3]
Devyani’s SSSG has been declining for the past three FY’s. The core brands had 41% negative SSSG. The overall revenue of the company is increasing majorly due to the expansion of its store network.
Terms of the Franchise Agreement [10]
Each new store under the Core brands requires an Initial payment to the Franchisor, As per the Agreement, Devyani will pay 53,400 USD for opening a new KFC store and 26,700 USD for opening a Pizza Hut store and the company will pay 6.5% of its gross revenue as a royalty to YUM BRANDS and a flat 6% of its gross revenue as royalty to Costa coffee International. DIL collaborates with Yum for store selection, product innovation, and development, brand strategy and technology initiatives, etc. DIL pays a royalty of 6.3% to YUM for KFC and Pizza Hut while it has a 6% spend obligation on advertising, brand building, and marketing.
Till now, this though keep coming intermittently but I have not decided yet to play sector rotation. Ever since this sector rotation theme started, I have been focusing on gradually building my next set of core bets in Tech, Retail & Consumer Discretionary. I would keep close watch on how those bets eventually play out over next few months, years. That would provide me the answer of whether my strategy worked or not. If it doesn’t, then I would look at developing momentum investing skills…and its pretty long time…cant say in between if thought or strategy changes…I understand by then the current sector rotation opportunities maybe over but guess that’s the price I would need to pay to stick to my strategy and validate it to build further conviction. I think that should help over long term either ways…
So far, Retail has gained some momentum (Dmart, Trent, Spencer), Tech had been awesome (Along with IT, ABB Power Products also doing well) and some pockets of Consumer Discretionary/Durables also started to do well (United Spirits, Breweries, Voltas etc.) So, honestly I have nothing to complain currently by sticking to original style.
Having said above, I do have significant exposure to Insurance firms (almost 12-15%) and small exposure to HDFC Bank in financials
I have admired your way of getting best of both worlds. I am yet to practice this but guess thats the best way for me to venture into momentum investing whenever I begin.
Couple question -
- You mention when to Add…Momentum investing has critical aspect of exit at right time also…would you also exit the extra flab and what would be strategy around exit?
- What would be the ratio of the extra weight you “Add” to existing positions. Would it be a fund rotation from other “not in momentum” core bets that you would sell to get extra capital to add the “in momentum” core picks?
Disc: Invested in above names & Biased. Not a buy/sell recommendation.
41% negative SSSG over 3 FY YoY? Thats significant! Even if its overall 41%, still its doesn’t look good at all. I am aware that their Pizza hut strategy has been revamped recently to change formats from large dine ins to transition more towards takeaways/deliveries…maybe this transition led to initial drop in SSSG?
However for KFC, this should not happen…infact I would expect at least KFC to increase YoY…although for FY 20 and 21, decline can be expected for almost all QSRs because of the pandemic…
Do you have details on how does this decline compares with say a Jubilant, Burger King or even Starbucks?
Don’t have those details currently but the search is continuing.
Jubilant seems to be the best and most efficient way to play QSR with intelligent management too.
For burger king, I am worried that their 60% sales come from dine in.
Also as per their terms of Franchise Agreement
As per the Master Franchise and Development Agreement with BK AsiaPac (holder of rights of Burger King), the company is obligated to open at least 700 stores by 31st December 2025. If the company fails to do so, BK AsiaPac has the power to terminate the company’s development rights or the Master Franchise Development Agreement.[9]
Also, the company cannot have a debt to equity ratio of more than 2:1 at any time.
It’s known and management has it’s priorities right but still the sword keeps hanging.
For Starbucks, I have never tracked it but TATA has always been a sign of trust for me.
Disc: Invested in Burger king with small quantity. Was too late to build conviction in Jubilant to own the business.
Exit strategy is a work in progress. Please add your inputs.
Growth momentum exit plan
When two quarterly sales growth goes below 10% exit half the position. Fully exit if three quarters are below 10%.
Note: Profit growth may be better indicator but profit sometimes reduces due to exceptional reasons. Moreover new businesses are sometimes not profitable. A formula can be made with operating profit margin.
Price momentum exit plan
Exit when the allocation falls below 1%.
Exit the lowest allocated position when entering a new position after a fixed number of positions. Eg 10 for me, 25 for you.
Exit the lowest performing position on yearly basis.
Technical analysis based exit strategy give multiple exit and entry signal frequently.
ATR based stop loss on monthly chart
Parabolic SAR stop loss on monthly chart
Red candle in Heiken ashi monthly chart. Use doji for early signal.
Brace for Impact, Control FOMO, Stay focused… easy said than done
In hindsight, had I been or tried to be a momentum investor - I would have yet again made the mistake of selling just before the next leg of re-rating & growth…Infact, I would have sold IT long back and would have been in real estate or power/auto currently…
Initiated a very small tracking position in Sequent…finally…
Now, when it comes to tracing position, I have been initiating it in quite many names off late in last few months - TTML, Tejas, Nelco, HCL Tech, Birlasoft, Zomato, Sequent, Xchanging (in decreasing order of current conviction)…all insignificant positions in name of tracking…
Was thinking - Is this sign of FOMO?
I could have either bought my existing companies or kept that whatever little cash for corrections like today…
In recent midcap plunge, portfolio is down by 2.5% from recent high thanks to balance provided by IT & consumer durables/discretionary part.
- Being FMCG heavy - raw material inflation caution/threat has put some breaks in their steady (not multibagger) rise so far.
- IT should see some healthy correction - but I am convinced I have not bought them for momentum
- Consumer discretionary/durables - can give some more buying opportunities if fall further
- Retail - Already Dmart showing massive correction after equally massive rise. Lets see how others hold up in coming results
- QSR/Digital tech firms - Holding fine - shows that the new hands not willing to give up so easily. Wanted to add more to the leaders here. Need to think which position can be trimmed to do that if opportunity arises
- Tata Trio - Don’t know what to make of them - TTML, Nelco & Tejas - all three which are seeing major business overhaul or restructuring…Need to keep close watch and waiting for opportunities here with minor tracking positions. (may trim all other tracking positions to add more here if opportunity arises)
Disc: Invested & Biased. Not a buy/sell recommendation
I was re-reading random pages of Peter Lynch…something I often do during times of inner turmoil and I see above strategy is somewhat similar to what he used to practice as well…He had divided his picks first into broad segments of Stalwarts, Turnarounds etc. and used to play this rotation within his universe of similar subset…mostly he used to completely exit to buy the better opportunity rather than adding/subtracting to core…
So in a way his core were all heads - Stalwarts, turnarounds etc. - now individual stocks in that basket did not matter much to him…
Lynch would sell a stalwart at 50% quick profit and switch to next. He had special interest in cyclicals with profits made in chrysler and ford. He would follow inventory and buy in downturn and sell at upcycle. He preferred to hold fast growers for long duration till market saturation occurs.
Stalwarts in India are still growing at decent pace so we can hold them longer. He avoided slow growers. Cyclicals investing should be done by someone with internal knowledge of the industry according to him. He said that most retail investors lose money by investing at cyclical peak.
He has given sell criteria in One up on wall street for all the categories. They are mostly subjective in nature.
His said retail investors should have 5 to 10 stocks in portfolio mainly comprising of items or services one use frequently and follow them accordingly.
Its been roller-coaster months, sharp corrections, sector rotations blah blah…
As expected, inflation is hurting FMCG, consumer discretionary/durables etc.
Revenues have been rising fine in some of them (signifies that either companies have not resorted to sufficient price hikes or consumers have enough buying power), profits have been near stagnant…Markets have taken most of them just fine so far…Had I been the one deciding, I would have punished the stocks multiples even more…so market has been somewhat kind…
Few intriguing thoughts I keep having…
Inflation - No one knows for how long will it last and how strong it would become. Had read some articles where companies had to once face decades and decades of high inflation - Curious which sectors & companies would have been winners in those times!
IT super-cycle - What exactly is a supercycle? I never bought IT for any cycle leave alone a super cycle…What should I do in this case, I dont know…I still like IT names and have added few on dips in recent crash…I never expected IT to be cyclical (although I understand what this is all about) but I just like those businesses and do not want to be buying at the top of any cycle, leave alone a super cycle…Multiples of IT are high no doubt, but when I see their market cap, I see it miniscule to the potential some of them have and compared to various other companies and sectors…I maybe wrong here…will keep pondering…
Consumer Durables - Feel has been one of most neglected sectors and even worst business performers in terms of any positive business surprise by most of them…although small kitchen appliances one have thrown positive surprises but bigger appliances ones have been muted…no revenge buying, no pent up demand, no ecommerce boom, no platform selling, no ones self platform booming, no new innovating transformative product (although dishwashers, UV disinfectors did move a small needle in few months for some)…What’s the future of this sector? Valuations are neither toooo expensive nor cheap…Are they ever cheap??..Need to keep pondering…
QSR - Multiple listed players now…market leader Jubilant is mere approx 45K cr mcap company…scope is huge but these franshisee holders keep doing strange things like how BKI did equity dilution, indonesia buyouts just few months post IPO out of the blue…Jubilant opened around 50-80…I dont remember exact …dominoes stores this Q…thats a huge number meaning their is juice left in dominoes but they have a Popeye capex lined up…so I do not know what decisions they would make and when…and what decision would their parents/real owners of brand make and when…but do I have a choice??
New Age Digital - What a correction! Opportunity for some, I said so - for others…bottomline is no one knows much…Nykaa, Zomato, PB Fintech, paytm, Cartrade…list goes long now…
EV/Power Infra/Capex Cycle - Should have some opportunities here, but maybe I am 6 months too late…or a decade too early???..pondering…
Disc: Invested in sectors & some names cited above & biased. No buy/sell recommendation…just random thoughts…
Reading that felt like you stole every thought in my mind.
What is a cyclical sector ? If I judge the last two years , every sector seems to be cyclical and then one starts to ponder that he doesn’t want to get at the top of that cycle . Immediately, next day you read about the capex elephant that is running rampage everywhere. Are the valuations justified because earnings are going to come . Technology developments that are still years away seem like a grab or miss . Then you come across really learned people selling businesses because they found something else cheap or mgmt guidance dropped by 5%(VB) or some Turkey fiasco blah blah . Next day, you are reading in some book that one should look at the graph not in years but in decades to truly get multi-baggers. I guess, this is what stock market is. You earn experience by both doing something and not doing something.
Please delete if this looks like typical jargon.
This is a very valuable thought. I think out of the two, not doing something requires both more personality & maturity. Not to undermine those who do something in good control out of their investment style…
I think this noise will always be there and it is good that it is there for us to ponder on and keep the continuous learning process going…the trick would be to remain committed to our own investment style and plan…
Just for example my plan over sometime have been to gradually increase the - Retail, Technology & Consumer Durables/Discretionary part of my portfolio. These sectors were completely missing initially. I see them complimenting an already heavy FMCG portfolio. Also, these sectors are secular growth stories.
If we can get it right, we can even play EV & capex through Technology (I am not just limiting Technology to IT here).
The main issue here is that new opportunities (and hence risk) outside our plan will keep offering avenues. And these are genuine opportunities which we understand well which keep competing for our limited capital, time & energy.
Add to that, with the flurry of IPOs and new age businesses offering new kind of opportunities - the universe of investible stocks keep increasing - We need a solid plan to manage this in terms of allocation as well as sound elimination strategy right at the beginning…
EDIT: Another problem is what if the sector you bought into, suddenly becomes a part of a super cycle? It is a good news as well as not so good. Good for obvious reasons but not so Good as you do not get sufficient time to allocate and also are in a complete dilemma of whether to add on subsequent dips or not and also unaware of what to do about the stupendous rise in valuations in a short time as you are not predominantly a momentum investor and neither invested in these stocks for momentum… a Strong strategy needed here as well…thoughts welcome!
Tata elxsi and KPIT can be used for EV play. But what can be used for capex. Do you have anything in mind?
For EV within technology you have rightly mentioned KPIT and Tata Elxsi.
For capex, I see few firms as Technology firms which many see as Capital Goods and that is because their inherent strength lies in their superior R&D and innovative products - for example Hitachi Energy (erstwhile ABB Power Products - which was demerged from ABB at global level and acquired by Hitachi). This company is backbone of Powergrids in India and completely focused on Electrification. Its strength lies in the amalgamation of software platform (Lumada) of Hitachi and hardware strength of erstwhile ABB Power products…I see it as a strong technology play on both EV - electrification of India as well as capex. Same goes for ABB India. Unlike L&T for example whose strength lies in executing large scale projects…the strength of companies like ABB India (and even Siemens India) is in their Technology backgrounds & roots…
Disc: Invested in Hitachi Energy & biased, Tracking ABB India. Not a buy/sell recommendation. I can be completely wrong in my assessments