I am a long term listener in ValuePickr and this is the first time I am asking a question. Reading this forum had helped me immensely over the years. I am hoping someone can provide me some guidance on my portfolio below.
Please refer below for my portfolio holdings
Dewan housing 24%
Indiabulls Housing 21%
Yes bank 15%
Capital first 8%
JM financial 3%
Infy 6% (holding for buyback, like cash in my portfolio).
I invested most of my funds only over the last year and my portfolio is up 17% so far.
As you can see 80% of portfolio is financial and 15% bank on top. Also 100% of my portfolio is large caps.
Reason for the allocation is probably because I am more comfortable valuing financials.
What do you think of my portfolio? Should I diversify? If yes what sectors considering blue chips like IT and Pharma are going nowhere.
Should I invest in small caps? If yes, can you please provide some suggestions?
Your portfolio is fine and has lot of compounding left… but as you know investing has also a behavioural part to get good returns… develop the conviction to hold your own stock… you can pick good companies but how you hold them will differentiate average returns from great returns…
Your portfolio is tilted in favour of financial, which I can understand considering you are CA and well versed in the valuation of the financial well.
For last few years, the Indian market has been primarily driven by Financial – Private Bank and NBFC, and it is not surprising that your portfolio has more weight to them.
The market does take turns, and sector rotation is a reality. For last few year Pharma was hot sector, this year it is probably the worst. Today’s hot sector is Financial; it may be different next year. When this happens, many companies in earlier cycle fail to deliver returns, hence having too much weight on one sector, and considering this is the hottest sector in India, is bit risk and worth reconsidering it.
I think it is good that you have exposure to large caps, so the market turn may not dampen your portfolio much.
You would be wondering why I am such concern for the downturn, which is a valid question. If the downturn does not happen, then above stocks may very well give you the decent return.
Since you have stated investing recently, the first question, I would ask before investing in any stock – “What worst could happen?”- And if you can answer this question for each of the above stock then great.
I would not advise going into the small cap at this time unless you know the stock very well.
In my opinion, it is worth considering some of the best return stocks in last few decades in your portfolio like – Asian Paints, ITC, Nestle. They may not multiply your returns, but they can protect the downside with reasonably strong upside potential.
Thanks for the feedback. I am looking to hold these stocks at least for 5 years except for Yes Bank where I will reduce holding once it reaches 100k cr and increase in a smaller stock for better returns. I am also looking for that one small cap which could provide multiple returns to complete my portfolio. I was looking at Satin. But their NNPA is scary. I am also conscious of holding only financials currently.
Thanks for your reply. Although I am a CA, I am a Tax Accountant. So as such I am not very good at analysing things such as inventory turnover, inventory days etc like some of our senior boarders do which makes me envy them. So i tend to keep it simple like P/E, P/B, free cash flow, ROE and D/E (not relevant for financials). Matrix’s that excite me the most are P/E and growth visibility (at least 20% for the next 5 years). Probably that is the only reason I am having only financials in my portfolio which I am very aware and would love to change. I love Asian paints, ITC and Nestle, but I could never buy them at such exorbitant PEs (Buffett principle). I only had stocks less than 15 PE which stretched to 20PE now as I could not find value stocks at 15 anymore. As far as I know only IT and Pharma has some stocks at that PE now. I am also wary of all time high valuations and the need to diversify my portfolio ASAP. Do you have any suggestions at less than 20PE and growing at a decent pace (size doesn’t matter).
I also considered the question what worst could happen and that’s why I sold Satin as it probably could go belly up! Other stocks I think are relatively stronger for the worst case scenario with high credit ratings.
Given that you already know that your portfolio is heavily skewed towards financials, I have two observations:
Your financials portfolio is heavily skewed towards companies that only have an asset base (loans) but no liability franchise (deposits). Ex of Yes Bank & JM, the rest are all lenders – this is not prudent in my view since asset driven financial enterprises are much more vulnerable to credit quality downturns, and their enterprise value can erode at a much faster pace when the cycle turns. Remember, building a liability franchise, i.e., making people trust you enough to deposit their money is very tough but creates big competitive advantages in the long term (that’s why most lenders want to become banks). Therefore, I would definitely ask you to consider financials with a liability franchise (banks, insurance companies) since they are more likely to compound better than pure play lenders. AMCs can also be part of the list but their valuations are nauseating right now. In general, most financials are richly valued, so I would be very careful here.
If you want to diversify - the best way is bottom up research based on your circle of competence. There are two broad areas which might be worth investigating: 1) export oriented sectors like IT, Pharma, Textile, etc – basically anything ex of auto components and specialty chemicals. 2) within the domestic oriented ones, you can research the supply/input side of the agri sector, or the media sector. Note that I am not saying that researching each one of these sectors will result in ‘multibagger’ ideas, but some of them might have steady compounders which are getting overlooked because of transient sectoral issues. You should research based on your strength areas and then choose the sector and stocks you are comfortable with.
I hope this helps.
Discloser: I am not an investment advisor, and the above is not investment advice but just my thoughts, which can be biased because of my holdings.
Thanks Ankit. Points taken on both perspective. I will try to reduce exposure to other financials and increase exposure to Ujjivan, Equitas and Yes Bank which are deposit taking. I will also diversify into IT and Pharma. What’s your take on L&T Infotech and Glenmark as both are reasonably valued currently. Do you have any picks in relation to domestic consumption in Agri?
Entry point is as important as good selections of the stock. As buffet says, price is what you pay, value is what you get. My advise would be to mention the cost price of the stocks as well, in that way, people can suggest you better.
Given that currently, you do not even know the proper definition of what a large cap is (only Yes Bank and Infy are large caps in your portfolio) and given that you have made your equity portfolio in just one sector, thereby increasing sectoral risk tremendously, I will advise immediately selling of up to 90% of your equity portfolio and investment of the same in debt or equity mutual funds. Once you learn the ropes of investing in the next few years, you should try to do more of direct investing by taking out money from your MFs. Also, your portfolio will likely see a massive fall in a bear market given that almost all of your stocks have extremely high beta. So pls cut down immediately for investments in Mutual funds.
Thanks for the reply. I mentioned large caps as that’s how sharekhan classified them. I already have pension fund in mutual fund structure. Debt never interested me. What money I had put in equity although high, I can manage the risk at the moment. But point take n on high allocation in financial. I will definitely move to IT, Infra, Pharma, Agro. I am just looking to get the best stock in each of these sectors to invest. Any suggestion will be very helpful
Thanks Gary. I am wary of my allocation as well. I have been tracking financial for a while and was comfortable when bought. But looking to diversify ASAP. What’s your take on IRB. Do you have any better suggestion in Infra?
My advise would be to exit Infosys because nowdays big themes in IT are Cloud, Big data technologies and Machine learning where i think infosys is laggging. I am an IT guy and into Big data technologies.
Most of your portfolio is skewed towards Financials which has ran up already. I would suggest to invest in airlines companies such as Spice jet or Indigo and insurance companies like HDFC lif insurance ipo.
Thanks Kris. I am holding infy only for the buyback. I would love to hold one of recent insurance listings. Don’t you think it’s over priced. How do you value iPo stocks with very little historical information and analysts coverage? Also airline and telecoms have been biggest underperformers over the last 5 years. What’s your conviction to hold airline stocks considering that oil is also at lows which may not hold at this level?
As the demand of electric vehicles increases, which ofcourse will take some time, oil consumption will be reduced, hence the oil prices. Airlines theme is a long term story like 5- 10 years. Since most of the population in india is under 35 and middle class people started spending nowadays, do you think people will travel through rail or Airlines. Another reason is the way Spicejet CEO Ajay singh has turnaround the company is commendable.
IPO’s are expensive but there are exceptions where you should buy on the listing day like Dmart where management is great, business has long term growth. HDFC Life insurance falls under same category where we dont need to talk about management.
a) For people who are not willing to devote significant time to learning equity investments, it makes no sense to waste their time on equity investing like a hobby. No matter whichever is your career, it is much better to enjoy your spare time in activities like playing golf with seniors for networking and career advancement in your field (which can rapidly increase your salary levels and savings), reading books which are relevant to your chosen stream of work, spending quality time with your friends and family, doing exercise and taking good care of your health etc. Some time here and there is not going to materially change your returns profile. Hence for such people there are essentially two options - a) choose an index fund and just invest like SIP for the retirement or b) chose a high integrity, brilliant manager who has stakes in your success.
Financially also it makes much more sense to be fully devoted to your career advancement (again networking and reading books etc) rather than using it for personal finance decision. This is an age where if you are really good in anything, sky is the limit and the money one can made in his job is much more than few % points of equity investments.
Some people do like the speculative aspect of equity investing - they should understand that this is a serious business and there are many other activities which are much more fun (and cheap hobby).
Bottomline is, we live in a world of specialization with tough competition, if you are not going to devote significant amounts of time to learning a particular field - chances of you doing well over the long run is very low. This is the reason more than 90% of the retail investors consistently lose money by buying high beta stocks near the top of the market and then selling in panic.
b) Randomly listening to people whose credentials you are unaware of on an online forum, is not going to help you in the long run. For instance, you are looking for stock ideas right now. Please be aware that managing portfolio is not just about ideas - portfolio sizing, risk management rules, position sizing & weightages and timing of entry/exit are all very important aspects which a tyro can miscalculate thereby paying a heavy price. For this again, one needs to spend learning a lot of time.
Bottomline is that the recent bull market may have sown the seeds of enthusiasm in the hearts of many, but only a few devoted and the skilled ones are going to beat the market in the very long run. As such, be careful with your hard earned money as well as your prime time (which should be used for career building and quality family/health related time) and unless there is a real special reason to do so - leave it to the professionals (hire an excellent manager) or the market (get into index funds).
This is my advice to you after looking at your portfolio and the quality of your questions. Dont mean to be rude here, but I think this should help you in the long run.
Just wanted to know your thoughts on PNB housing finance; a company showing good growth for last 5 years. As a CA and good insight of evaluating financials, what made you to leave PNBHF. I know the PE is high, however stocks with consistent good growth are trading at a high PE in all sectors like financials, FMCG, pharma etc. History has shown that, PE or P/B is not the only criteria and Growth stocks with High PE have multiplied many times investors money over a period of time.
Disclosure: My investments in financial sector are DHFL, PNBHF, Capital First, Yes Bank and a very small holding in RBL bank ( from IPO). My exposure to Banking and Financial services is 28% of my overall portfolio which is comparable to weightage of the same sector in BSE Sensex which is 27.10%. I am not in finance profession.