The harsh portfolio!

I bought Ajanta a couple of years back because they were doing a large CAPEX to fuel US growth and were trading at reasonable valuations (plus debt free balance sheet, improving IPM rankings, reasonable ROCEs). Their US expansion is going well so far with strong growth.

Operating leverage is still to play out because of the low current capacity utilization. As long as book value keeps compounding, there will be stock returns (when? I don’t know!)

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Good question, I decide asset allocation at an overall portfolio level as I invest in Indian + global equities. Currently, the equity allocation (including global stocks) is in mid-70s i.e. I have 70-75% of my current networth in stocks. I don’t change this allocation everyday, the last major reshuffle was in the beginning of 2020 when I increased my equity allocation. The timing could have been a bit better (given how large the March fall was). Incrementally, I bought more stocks in February-March, and increased my equity allocation by around 5% in March. All this shows how bad my market timing is!

What I am sharing on this thread is my Indian discretionary equity portfolio. Also, given that I have a job (luckily!), cash keeps on building every month which automatically reduces my equity allocation.


I have read your posts and see good knowledge and understanding in all of them. Specially was impressed by your discussions in Insurance thread. I feel with your knowledge, you can allocate more percentage to high conviction ideas and reduce the number of stocks. If you feel risk in that, then identify what really went bad for you earlier and then create a strong and sure filter for such stocks no matter the opportunity cost. Capital protection should be the first criteria to begin with when you trim and chose your winners. I think in the long run it can help you.
Finally, surprised to see no Insurance stocks in portfolio although you have good understanding of the business. Maybe thats the reason for their absence? :slight_smile:
(Pls note above are just my thoughts and I maybe wrong in my assessment)

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Thanks for your nice words. I maintain a journal of my past mistakes, once I make enough mistakes that there is some statistical significance, I will write a detailed post.

About more concentrated portfolio, I know the charm of having that, but I am not skilled enough. A bit of context, I have a family business which I ran for sometime which made me realise the true unknowns in businesses (even if they are relatively matured). While running a business if I did not know how the next week/year will turn out, how can being a passive owner make me better at seeing the future? Base rates for success for concentrated portfolio is much lower (look at this lecture on ergodicity in financial markets). I don’t want to be someone who gives “gyaan”, just want to clearly communicate my limitations. We see only examples of people who are successful in running a concentrated portfolio, however the base rates are much much lower. Plus having 20-30 stocks is by no stretch less concentrated. The 6% rule is kind of arbitrarily set, but I have found that it works for me.

I do own insurance stocks but just not in India. As you might have seen in the thread, I do not understand valuations of Indian insurance companies. No global insurance company (even with similar growth rates) trade at these multiples. Maybe India is different and its okay if I dont participate in this, these are plenty of other things to do :slight_smile:


Hey Harsh,

I have been following this thread for some time, i understand your diversification strategy, even though i’m not a fan of portfolios with more than 13 stocks. The higher the no of companies individual returns will not lead to portfolio returns.

Now let me ask you about three stocks in your portfolio.

  1. CARE ratings - Why are you keeping on to this business, as they have lost all the reputation in the industry. Yes it was a 3 player industry and CARE was the second to CRISIL but noting that there are moral and ethical issues with the working of the company why you want to stick on to this businesss. Link Link 1 Link 2 If you are interested in rating agencies why not go for CRISIL the market leader a S&P Company.

  2. Inox Leisure - The theatres will not be opening any time soon, forget this year, and even afterwards if the multiplexes are open no one is sure if someone will go. Countries are thinking of reintroducing the lockdown. Plus will this business sustain this prolonged period of lack of business or they will file insolvency. Thats the biggest worry.

  3. Reliance Nippon Asset Management - Even though the price may look cheap it can become a value trap. Check below, so why not stick with the leader. i.e HDFC AMC

AMC Stocks Returns Since IPO:-



Market Share as on 31-03-2020 HDFC AMC 13.68% NIPPON AMC 7.58%

Market Share as on 31-03-2017 HDFC AMC 12.96% NIPPON AMC 11.52%


Thanks for your time and your questions, I have tried to answer them below.

Really? I guess you haven’t seen the folios of Peter Lynch, John Templeton, and Warren Buffett (in 1950-1960).

CARE: Remember Amtek Auto issue of 2016 (link)? At that time, would you have said the same about Crisil? Anyway, this is a business hazard that comes wrapped with the business model. The more important question that you should be asking is the probability of abandonment of the Internal Rating Based (IRB) Credit risk Approach which was the main driver for rating revenue growth for CARE (the RBI paper for suggestions is on this post). My bet on CARE is that they will be successful in diversifying their revenue base by gaining market share in Risk assessment and training solutions business. Will they be successful? I don’t know, but that’s my bet. And I size my bets appropriately.

INOX: Will multiplexes ever open again? If not, I am going to lose my money. If yes, the shift towards multi-screen theatres will continue and PVR and INOX will continue gaining market share. Good prices and good news seldom come together (although I have to say that INOX price is still not very cheap, that’s why the smaller allocation). About bankruptcy, companies go bankrupt when they can’t pay creditors. INOX has a strong balance sheet as they did equity raise last year.

Nippon: Value trap is when there is no growth. If an AMC simply keeps its AUM, revenues will grow at 8-10% because of inherent equity compounding. The problem with Nippon is not in its equity portfolio but in the debt one where they have kept losing market share (detailed post here). Actually, Nippon is the industry leader in B-30 cities which gives them the permission to charge additional expense ratio. Also, in some businesses the inherent economics is very good and the profit pool is not limited to only one player. AMC is one such business where if a certain scale is reached, everyone makes money. There are few such businesses and when I get one at reasonable prices I latch onto them. About comparison with HDFC AMC, I will buy it at a certain price. I dont chase prices, if they get to my level I take them. If not, I have enough other things to do. Also for context, even HDFC is losing market share to SBI. Thats part of business cycle, but the overall pie is growing and as long as that continues compounding will continue.


I would suggest IRCTC against Indigo. Some reasons -
1 - To sustain that low cost operating capex for airlines is no joke whilst rising fuel and maintenance costs.
2 - They don’t have a consistent rise in earnings. Some years they make more earnings than the previous ones but mostly they don’t.
3 - If I understand consumer mentality, most people just don’t want to pay a premium for flights. We always check for the lowest cost we can get from an airline and as I said I doubt Indigo can always guarantee that in future.
4 - Earnings of IRCTC which is a ticketing platform generates more consistently rising earnings than railways themselves.
5 - IRCTC has obviously a better monopolistic position compared to airlines which have to compete against each other.

I guess you missed the valuation aspect completely. I will prefer buying companies like Mastercard and Visa at >10 times revenues because they have a much larger growth opportunity.

For Indigo, its a very simple thesis. There is one Indian airline who can survive no revenues for a year, Spicejet will have to dilute equity, others don’t have enough cash balances (need equity support from promoters). The latest June numbers clearly show that Indigo has gained market share (50%+ now). If one more Indian airline goes bankrupt, it will be great news for competitors (look at what happened to spicejet and indigo margins when jet went belly up in March 2019).

I do acknowledge that the next few quarters will be bad for airlines given the lack of demand, there will probably be competitive pricing once the government removes its pricing regime. There will be cash losses for Indigo, but they are likely to survive COVID with an unrestricted cash balance of $1bn+. My only hope is Indians will continue flying, if that happens odds are stacked in my favor.


As far as the valuation of the business is concerned what about the extremely huge amount of the debt that Indigo have taken upon themselves which they will have to repay with their earnings produced by their already high capex business going forward. Cash reserves will definitely take a hit short term while the debt will rise steadily as per their interest rates. They haven’t had steady earnings growth in past 10 years or so. I do see the future of airlines going 30 years into the future. But as far as the value goes, I am rather comfortable in holding IRCTC than Indigo for my lifetime. Not at current valuations though.

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@harsh.beria93i have a slightly different approach on this topic

Part I agree and something I also follow while selecting stocks:

  • People should not only look at PE while selecting stocks, in fact, PE can be misleading… a simple way to think about this is why is something trading at LOW PE, its because maybe people in market don’t think growth will happen while say if any company is set to grow by 30% for say many yrs to come then even 100 PE is fine. If you buy a 100 PE thing which is set to grow by 30% for the next 2 years,It’s not a 100PE stock buy a 60 PE-based on the next 2yr years earnings(market would always discount future earnings). Higher the growth rate thus higher the Pe. Any company which grows at 30-35% consistently would actually get more than 3high PE
  1. Another factor important is what is the stock available for trade-in the market i.e. stock with high promoter holding and low public holding will often trade at high PE as compared to one which does have high public holding since even a small demand can push the price much faster on those stock as compared to stocks with the low public holding

hence my experience tells me that most lethal stocks are those infact which has high promoter holding and also high future growth prospect irrespective of P/E its trading
from this point, no doubt Indigo is attractive as it has promoter holding 74% and high growth prospect

Now 2nd point which i don’t agree

Indigo is not the only way to play in this segment. I agree that the Indigo business model is the only workable model we have seen in Indian market and only model which can probably survive in long term but when I think of airline, do people really care which airline ticket they buy if a ticket is really available cheap? its a valid point in your post that probably down the line it is the only biggest player in India that will remain so make sense to buy this but then my point is why no buy related sector which has a “pure” monopoly rather a one which is fighting for monopoly. This is the reason why I preferred BLS international when i invested in this sector over Indigo. This company has a natural monopoly as compared to Indigo although one area is passport service while other areas are flying etc.

This also like Indigo has high promoter holding of 74% and high growth prospects as it has natural monopoly. SO main question comes why not play in something which has natural monopoly.

I am not saying that I am thinking is correct :slight_smile: but want to learn from your experience on what you think about this approach?


It has never made sense to me as to why anyone would buy an asset over 15 or 20 PE. I will explain why. Let us consider reverse of that ratio for a moment.

Earning per share / Price that you pay per share.

Now consider an example. Asian Paints(P.E - 70) .

Their earnings have almost tripled per share over past 10 years. That is an annual cagr of approximately 12% every year. I don’t want to doubt that now for they are know for their quality management. So, for every share you buy this year at 1700 rupees they earn 22.3 rupees on that. If you think asian paints will grow more faster you might say that it may grow at 17% per year. Let me assume a simple dcf model. The base figure of 23 rupees growing at 17%(unrealistic) for next 10 years. We know that this is in geometric progression.

All the money you can take out after 10 years is 23*(1.17^9-1)/(1.17-1) = 420 Rupees.

Similarly, let us assume a growth rate of 11%(unrealistic) for 10 years after that. After 10 years our EPS becomes 130.
Basically all the money you can take out 10 years after that is 130*(1.11^9-1)/(1.11-1) = 1840 Rupees.

Total money worth after 20 years is approximately 2200. And the EPS becomes 520 after 20 years.

Discount that amount back at 7%(long term interest rates).

2200/(1.07^20) gives a value of 570 rupees. Even at those huge unrealistic growth rates I might not be willing to pay more than 570 - 600 rupees per share for asian paints.

Now if the argument is that the people will only buy good brand names at any valuations because of the herd mentality or mass speculation, then my theory is flawed. That is to say for an unrealistic eps of 520 per share after 20 years, stock will be valued at 20000 for a 40 times PE ratio. That is basically 10 percent cagr over 20 years from now. Because buying it at 50+ PE means that you are sure that they will trade at that multiples in future for your lifetime and many years after that. Thats speculation to me.

Thoughts, Insights and Criticisms?


If Indians have to travel by air , airlines have to be there in India and as it appears today,Indigo has the best chance to survive &is one of the few in the world today.I can’t say what Govt will do to ensure that at least few airlines survive .However the downside would depend upon the longevity of the lockdown &opening up of travel, people willing to travel for leisure etc etc.

BLS is not a monopoly business but it used to be distant second in processing of visas. Since then , a no of countries have made the processing easier and direct. In addition, they had opened a no. of centres in Punjab for Aadhar, PAN card related centres there where a huge amount was stuck up with the govt. I don’t HV the latest info whether they recovered some or lost.
An airlines business being capital intensive and requiring operational efficiency, flexibility and financial muscle is v difficult to set up and Indigo has been fairly successful in it except this Covid period.

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I will recommend you to first read the financial statement of Indigo before commenting, the borrowing number that you probably saw on screener is not financial borrowing. These are lease liabilities. In the new accounting rules (IND AS 116), companies have to state leases that are more than 12 months on their balance sheet. Its not financial leverage! Company is net debt free (their borrowing is 2’434.3 cr. and their cash balance is 20’376.9 cr. as of FY20).

And thank you the questioning, however I will really appreciate if you do a first level due diligence before making a comment. That way the conversation is useful for both of us.


Lease liabilities are themselves an obligation in long run which they eventually have to pay. And cash reserves they have to maintain to be deployed in difficult times or bad years with higher operating capex. While I am not arguing about its future prospects, its a risky business. Other players are also getting into scene of affordable pricing. I just don’t have a knack for business that compete primarily on pricing.

I don’t have any firm opinions on P/E, the idea for me is to try and understand what growth assumptions are captured in the current market price. If I have a different opinion (eg: higher growth rates or higher longevity), I express it by buying the stock. Thats all there is to investing.

About BLS, I haven’t looked at it and am not qualified to comment on their business model. On the face, it seems to be a capital light business. However, margins are all over the place. I need to understand the underlying business dynamics to better understand their business levers. Thanks for pointing it out.

About your point about float, a low float aggravates stock price on the upside and on the downside. There is nothing more to it.

About alternatives to Indigo, I looked at VIP as an alternative in 2018. The reason for choosing Indigo over VIP was the competitive intensity in bagpack businesses. Also, their prices were clearly capturing future growth.

Now about moats, low cost advantage due to benefits of scale is a big moat. Indigo has that. However, airline business is a pure commodity kind of a business, where growth will go to the lowest ticket price provider. This game goes on for a while until someone goes bankrupt (eg: Jet in 2019), and then the encumbants benefit for a short time. This is a classical commodity cycle. So I try and buy commodities when they are in a downcycle and hope and pray (everyday!!!) that cycle turns. Because when cycle turns, the amount of operating leverage offered by these companies is really awesome and market starts extrapolating it in the future. That’s when I try to sell. Lets see if it works out with Indigo!


Btw P/E ratios do not inherently have high growth assumptions. You can think of P/E as an “area under the curve” where the X-axis is time and Y-axis is some combination of earnings growth and earnings growth derivative.

A company that will grow at 12% pa for 200 years is certainly ok to give a P/E of 70 to. In some cases the “high management quality” or high “industry quality” (retail and FMCG and such) is another way to incorporate the “trust” in the longevity of growth. Think 10% CAGR for 30 years instead of 17% for 10 years.

The difficulty with high P/E companies is that they don’t have much room for messing up. Even if HUL grows at 10% PA for 20 years, I think it can maintain the high PE for the next 10-15 years. The reason the probability of their messing up is low is due to the high quality management as well as the high quality industry (apart from and in addition to high quality of the company). Just my 2 cents.


If something doesn’t make sense to you, don’t do it. There are many ways that work in investing, find yours and stick to it. I am sure your calculations about Asian Paints are correct. I dont have asian paints in my portfolio, maybe you should ask someone who knows more about the business than I. In this business cycle, I have largely stayed away from consumers as I don’t understand their valuations. But then I don’t understand a lot of things, so its fine!

I guess there is some confusion about valuations, honestly its not the hardest part of investing (its probably the simplest part). If you need a lesson 101 of how assets are valued (eg: bonds, stocks, or anything that produces cash), look at this lecture from Samit Vartak. Thinking from a bond perspective gives a lot of insights into valuations and also tells us why P/E is not a useful heuristics. What matters is book value, return on equity, reinvestment rate and cost of capital. These variables capture the science part of valuations, everything else is more related to business understanding and luck!


How is P/E an integral(area under the curve)??? It’s a simple ratio. To get into calculus there is no correlation what so ever between the growth and change in PE all over the world. If there was even after a company stops growing it should have traded at the same PE multiples it traded before at its peak. It’s purely based on investor’s sentiment. While I don’t know if such P/Es will sustain, I might speculate that 10 percent CAGR may be possible. Buy how is that good when you might have some other businesses with predictable economics for next 10-20 years at lower PE multiples?

Oh yes!!! Luck. Couldn’t agree more. One thing that cannot be valued but that will completely define an investment. Daniel Kahneman in his noble prize winning thesis has give it such an importance that ironically, it seems that the sheer success of his thesis has also been based on luck.

Just a thought…how about playing it via travel insurance… although it comes into picture only in international travel and not a significant part of only listed private general insurance company…