The harsh portfolio!

I have made some changes in the model portfolio today which are stated below.

  • Reduced weightage of cera sanitaryware from 3% to 2%. The sharp re-rating has come without the backing of earnings growth and I will sell the position at ~4000 if there are no changes in near term business profile.
  • Reduced position size in Kolte Patil from 5.5% to 4.5%. I am looking for 1 more bet on real estate preferably catering to the Hyderabad market as real estate cycle is clearly recovering. This will be my residential real estate basket (Ashiana, Kolte and 1 more accounting for 12-14% of portfolio) similar to my pharma basket that I have held since a couple of years
  • Reduced position size in Bajaj auto from 6% to 4%. Indian mid-segment motorcycle market is no longer a strong growth market and the last 10 years of sales data reflects this. Valuations are fair making it an apt time to reduce allocations.
  • Increased weightage in Suprajit Engineering from 2% to 4%. This position can be an easy doubler in the next 5-years as covered in a previous post, risk reward is more favourable compared to some other positions in the model portfolio.
  • Increased weightage in NESCO from 3% to 4%. This is an annuity business with growth and reasonable capital allocation, market has not valued it highly in this decade making it a good opportunity to accumulate more stocks. I am ideally looking to push the position size to the maximum of 6%. NESCO will be my REIT which reinvests earnings instead of paying it off to shareholders hence compounding capital.
  • Increased position size in Care ratings from 2% to 3% given that business seems to be coming back. The new CEO seems to have a clear strategy, this is a very good business going through a cyclical downtrend. When the CAPEX cycle revives I will not be surprised if Care gets traded at <1% dividend yield. This is another position where I can take up the size to 6% if business momentum comes back.

A lesson for future self
In the March 2020 drawdown, I bought a number of cyclical and commodity companies (Maithan, Nalco, INOX, Ashok Leyland, Avanti, etc.). In hindsight, it was a great call to buy very cheap cyclicals and returns have been frontended. The only thing that I did wrong was the smaller allocation, I should have bet bigger given valuations were favourable. Given this is my first year of dabbling into cyclicals, I will give myself a pass. The lesson for next time is to bet bigger when valuations are in my favour.

I have been studying a few companies that can enter the model portfolio (Glenmark, Eris Lifesciences). If anyone can provide any unique insights into these businesses that are not already covered in the VP thread, I will really appreciate it. The model portfolio is below.

Companies Weightage (cost basis)
HCL Technologies Ltd. 6.00%
InterGlobe Aviation Ltd. 6.00%
I T C Ltd. 6.00%
Larsen & Toubro Ltd. 6.00%
PI Industries Ltd. 6.00%
Power Grid Corporation of India Ltd. 6.00%
Ajanta Pharmaceuticals Ltd. 4.50%
Kolte-Patil Developers Ltd. 4.50%
NESCO Ltd. 4.00%
Bajaj Auto Ltd. 4.00%
Suprajit Engineering Ltd. 4.00%
Ashiana Housing Ltd. 3.50%
Housing Development Finance Corporation Ltd. 3.50%
Lupin Ltd. 3.50%
Manappuram Finance Ltd. 3.50%
HDFC Asset Management Company Ltd 3.00%
Reliance Nippon Asset Management Co 3.00%
CARE Ratings Ltd. 3.00%
Avanti Feeds Ltd. 2.00%
Biocon Ltd. 2.00%
Cera Sanitaryware Ltd 2.00%
Indian Energy Exchange Ltd. 2.00%
Infosys Ltd. 2.00%
National Aluminium Co. Ltd. 2.00%
NATCO Pharma Ltd. 2.00%
Wonderla Holidays Ltd. 2.00%
Ashok Leyland Ltd. 1.00%
Cadila Healthcare Ltd. 1.00%
Inox Leisure Ltd. 1.00%
Maithan Alloys Ltd. 1.00%
CASH 0.00%
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