It’s rebooting time. After much agonising, we have decided to run the model portfolios interactively (see A Twist in the Portfolio Tale). Both portfolios thus stand liquidated, and what you see in these pages is what we sold on Wednesday, 17 December, at the closing BSE prices. We are now 100% cash in both portfolios, just like we were when we started (except, we are starting with less than Rs 10 lakh—a legacy of some instructive and often self-destructive actions over the past 17 months).
Remember the mandates for both portfolios: Safe Wealth aims for wealth preservation and conservative stock picking from the largecap and blue-chip universe, while Wealth Zoom looks for growth stories among the next rung of companies. Also, we need to avoid duplication of ideas across portfolios.
Here are my suggestions
TECHNOLOGY: A bleak outlook due to the first world slowdown. Looming recession threatens to upset the traditional wage arbitrage story. Satyam’s botched investment into Maytas has compounded perception woes about where the leading firms of the sector will park their surplus cash.
Safe Wealth: Infosys
Wealth Zoom: Bartronics, Tanla, Geodesic
CONSUMER: The Indian consumers are resilient compared to the other economies, but for how long? Expect a cutback in discretionary consumption while staples are headed for steady growth. Demographics favour new-age consumption categories like telecom and media. FMCG and telecom look adequately valued but media profitability is unclear.
Safe Wealth: Bharti, Nestle
Wealth Zoom: Glaxo Consumer, Reliance Communication
FINANCE: The interest rate cycle is reversing and the worst seems to be over. Loan growth may not be sustained and asset quality concerns might creep in as the economy slows down. The sector still looks cheap, particularly PSU banks.
Safe Wealth: SBI, HDFC
Wealth Zoom: ICICI Bank, LIC Housing Finance, Federal Bank
METALS: Commodity price contractions are taking a global toll on this battered sector. Most large companies have leveraged and have risky balance sheets (notable exceptions: SAIL, Hindustan Zinc) while smaller companies are suffering from perception pangs.
Safe Wealth: Tata Steel
Wealth Zoom: Jindal Steel, Hindustan Zinc
CONSTRUCTION: Falling real estate and cement prices are exerting a negative impact on construction companies. Also, fresh orders are shrinking while existing ones stretch out longer. Expect more pain as demand slowdown and leverage ill-effect work in tandem for at least two more quarters.
Safe Wealth: L&T, Grasim
Wealth Zoom: IVRCL, Punj Lloyd
ENERGY: Oil prices have crashed, bringing down refining margins in their wake. The entire sector is reeling from the sharp reversal but the regulated players are insulated from commercial pains.
Wealth Zoom: Sintex, Navabharat
CAPITAL GOODS: The sector has been severely hit as it was overowned in line with the capex theme that had been prominent in India over the last few years. The sector is under increasing selling pressure as hedge fund and FIIs beat a hasty exit. PE contraction is strongly visible. Sporadic selling occasionally provides decent entry points into some great companies.
Safe Wealth: Suzlon, Cummins
Wealth Zoom: Crompton Greaves, Thermax, Welspun Gujarat
HEALTHCARE: The sector has been a steady performer in otherwise difficult times. PE shrinkage, rather than earnings slowdown, has affected most stocks. The sector provides an apparent safe haven as the US and Europe grapple with rising pharma costs. Domestic and specialty firms continue to grow.
Safe Wealth: Ranbaxy, Sun Pharma
Wealth Zoom: Opto Circuits, Divis Labs, Glenmark
POWER: Project slippage, rising cost and low availability of funds has postponed growth benefits. Also, tightening norms and logistical (coal linkage) concerns add to the uncertainty. The sector looks poised for a derating.
Safe Wealth: Tata Power
Wealth Zoom: CESC
LOGISTICS: The crash in shipping rates globally has impacted Indian companies’ valuations strongly. Some recovery is visible, but medium-term prospects are very hazy. Infrastructure developers and fleet owners are both susceptible to rising interest rates and tighter funds availability.
Safe Wealth: GE Shipping
Wealth Zoom: Sical Logistics
CHEMICALS: Only fertilisers and agri-inputs seem poised for multi-year growth. Most other chemicals are in for troubled times as global and national capacity gluts threaten price outlook. Sugar is suffering from the recently administered cane price shock.
Safe Wealth: Tata Chemicals
Wealth Zoom: Castrol, Camson Bio
TEXTILES: A dog sector which was never in the reckoning. It has now been further hurt by the recession in the largest consuming country, the USA.
Stock Picks: None
There is no point in having two portfolios. If there is safety in numbers, there is also the very distinct possibility that the portfolio will just reflect the Sensex returns. In such a case, rather than racking our brains we might as well invest in an index fund and be done with it. So let us combine the two portfolios and make one portfolio with a maximum of 15 stocks.”
— Madhur Kotharay
Disclaimer: Model portfolios are based on the independent opinion of Dipen Sheth, head of the research team at Wealth Management Advisory Services. They do not reflect the opinion of the firm. They are for reference and information of readers. The firm is not soliciting any action based on the portfolios.
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