Portfolio for 2019
Category | Company | Weight | Outlook for 2019 |
---|---|---|---|
Defensive | Bharat Petroleum Corporation Ltd | 10% | Valuations in line with fundamentals. |
Enterprising | Hero MotoCorp Ltd | 10% | Valuations in line with fundamentals. |
Enterprising | Indiabulls Housing Finance Ltd | 14% | Easing liquidity concerns in 2019 should rerate the stock. |
Defensive | Infosys Ltd | 8% | Growth to continue in 2019 while valuations stay elevated. |
Defensive | ITC Ltd | 10% | Not expecting much change in 2019. Slow steady growth to continue. |
Defensive | Power Grid Corporation of India Ltd | 10% | This is a value play. Slow growth to continue. |
Defensive | Sun Pharmaceuticals Industries Ltd | 8% | Expecting pharma to reach new normal and investors look beyond short term troubles. |
Defensive | Tata Consultancy Services Ltd | 8% | Growth to continue in 2019 while valuations stay elevated. |
Defensive | UPL Ltd | 8% | Good exection to continue. Lower rupee continue to benefit. |
Enterprising | Yes Bank Ltd | 14% | Once leadership issues are resolved, it will be back on investor’s radar. |
Changes to 2018 portfolio.
Removals - Eicher Motors, Lupin & Aurobindo
Additions - Hero MotoCorp, BPCL & Sun Pharma.
Eicher Motors is seeing a slowdown in sales. Either it has saturated its market, new launches are not finding buyers or competition has caught up. Either way, growth may not meet lofty expectations. will take a look again next year.
Lupin & Aurobindo are removed as they are removed from Nifty 50.
Hero Motocorp is a value pick. Valuations have dropped as competition with Bajaj is likely to get worse as Bajaj is aggressively pushing sales. I think Hero should be able to defend its market share while lower stock price may prove to be a good entry point.
BPCL has dropped sharply in 2018 first due to rising oil prices and then due to govt’s decision to force ONGC & OMCs to absorb some of the pain. Now that oil prices are coming down and rupee unlikely to crash from these levels, further pressure on BPCLs profits is unlikely. With low margins, it is unlikely to absorb any more price hikes. Lower stock price present a good value.
Sun Pharma - troubles in pharma sector appear to be getting to a close however Sun has its own set of troubles to sort out. However, stock price has dropped to reasonable levels. Indian pharma companies continue to maintain their core franchise of providing quality drugs at affordable prices.
Portfolio performance - Portfolio has posted poor results (down 4% YTD in 2018) compared to 6% jump in Nifty 50. This is mainly due to sell off in Yes Bank and Indiabulls Housing which appears to be an overreaction so keeping those stocks in the portfolio and in fact raising their weights. Good returns from IT and Pharma has offset some losses in Financials.
Performance of tracking portfolios - This Nifty 10 portfolio is picked from 2 tracking portfolios Enterprising Portfolio and Defensive Portfolio as explained here. In 2018 (Upto Nov) defensive portfolio has done well going up 8% while enterprising portfolio has done bad going down 3%.
A year ago I decided to overweight defensive (explained here) as the consensus was for growth. However, all the 3 enterprising stocks (Yes Bank, Indiabulls Housing, and Eicher Motors) performed poorly this year wiping out gains from defensives. With benefit of hindsight, I should have reduced weights of enterprising stocks.
Rationale for next year’s portfolio - Consensus now appears to be caution so I am keeping a balance between enterprising and defensive stocks while maintaining preference for defensives. Financials are available are attractive valuations so I am increasing their weights in the portfolio.