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% |