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Buying safety, selling risks

Buying safety, selling risks

Reinforcing beliefs in blue chips, more shares of two Sensex heavyweights are accumulated, while some underperformers are sold.

Wealth Zoom is up 43.3% since inception (nearly six months ago), while Safe Wealth is up 37.4%. Not bad for a rookie, moonlighting columnist who is perhaps manipulating the editorial team of MONEY TODAY to further his portfolio management services business, eh?

BOUGHT
Wealth Zoom: Apollo Tyres, Bartronics, Sical Logistics, Ratnamani Metal
Safe Wealth: ICICI Bank, Reliance Industries, Tata Steel
SOLD
Wealth Zoom: Global Vectra, Shasun Chemicals, Dishman Pharma

My conscience has caught up with me (finally) , as I get request after request asking for details of the services that my firm provides.

Here’s my disclaimer: I do run a business of managing other people’s money, and sure we have recently earned good returns on our clients’ wealth. In fact, better than what our (significantly modified) model portfolios are churning out on these pages. But remember that the market is being very, very kind to us. Even to the studious and cautious ones like yours truly.

So, is the bull market reaching a plateau? India is costlier than the “region”, at over 23 times earnings and visibly slower profit growth over the next few years. Yes, we have had a bull run for four straight years but isn’t it time that the averages catch up with us?

Click to see details of the Wealth Zoom portfolio

Look at the number of bear factors that your fund manager has to weigh before going aggressively long on Indian equities: prospects of a general elections, crude oil prices, the rising rupee, slowing economic reforms, rising commodity prices, China’s explicit efforts to cool down, a looming US recession and, of course, my undying pessimism on the standard of governance in India.

In both our model portfolios, we are still maintaining relatively large oodles of cash and prefer to view the uptick over the past fortnight as froth that will soon fizzle out, giving us a chance to buy some good shares at cheaper prices. To partly accommodate the counter view, we have bought (or added) shares that we believe in, and have mercilessly eliminated the lemons from our mid-cap bouquet Wealth Zoom.

In Safe Wealth (our frontline blue-chip portfolio), I have accumulated three of our existing stocks, and reduced cash to 14.3% of total corpus. Guess I’ll no more be accused of cowardice by some of my more aggressive readers. I must confess that this new found faith in frontline stocks has more to do with time averaging evergreen picks than timing.

Click to see details of the Safe Wealth portfolio

ICICI Bank continues to be my personal banking favourite over the next few years. This all-in-one financial conglomerate is much more than an excellent retail bank, and packs in the fastest growing private insurance business in the country. Add to this an asset management company, institutional brokerage, retail and online brokerage and an aggressive overseas arm and what have you? A real bargain of a bank for just over two times adjusted book value after factoring out the associate businesses.

Reliance Industries is one stock where I am not ashamed to inflict self-punishment. I’m buying it back into the portfolio at a significant premium to my last selling price. If I’m long on India, how can I not assign a higher weight to Reliance Industries than the piffling 3.3% that I had reduced it to last fortnight? We have doubled our holding to 32 shares as a result.

Finally, a word on India’s most respected steelmaker: Tata Steel. With all the brouhaha about resource ownership, I fear capability is being pushed into the background. Also, don’t forget that Tata Steel owns some of the best iron ore assets in the country. Then again, its dependence on overseas imported coking coal is being addressed via deals in faraway Mozambique, and perhaps even Australia and South Africa. I have a feeling that Ratan Tata’s team will do the Indian rope trick by turning around the six times bigger Corus over the next few years.

Onto Wealth Zoom, where the recent uptick in performance has worked wonders on my clay feet. Let’s book our losses in Global Vectra, Shasun Chemicals and Dishman Pharmaceuticals & Chemicals in humility and raise more cash for the portfolio. These are stock picks where my grandiose dreams and much touted stock picking capability have gone terribly wrong. There’s probably not much point hanging on with false hopes after yet another quarter of sub-par financial performance from most of these worthies.

We have added another 200 shares of Bartronics India this fortnight, giving it the second highest weight in the portfolio after Opto Circuits. Perhaps this is risky given the lack of visibility in the smart cards business where Bartronics is placing heavy bets. But management quality and size of the opportunity give me the confidence that this is a stock to be overweight on.

Ditto for Apollo Tyres, which we are adding this time at a 40% premium to our original purchase price. Aggressive expansions across two continents by the best cost manager in the industry inspire us to repose additional faith. A recent fall in rubber prices gives more comfort. Even today, we have bought Apollo Tyres for less than 10 times its foreseeable earnings. Are there any growing and capable tyre companies cheaper than this?

Finally, Sical Logistics and Ratnamani Metal, the two new inclusions in this fortnight’s changes to the Wealth Zoom portfolio are somewhat lesser known names in their respective industries (port services, and saw pipes and stainless steel tubes). I have some deep value reasons for buying these two companies and will outline my rationale in detail in the next issue. Meanwhile, can you mail or blog me your vetoes against these stocks?

Disclaimer: Model portfolios are based on the independent opinion of Dipen Sheth, head of the research team at Wealth Management Advisory Services Ltd. 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.