Volatility. Over the past two weeks, it’s this one word that has the fund managers across the world running for cover. And like markets across the globe, Dalal Street has suffered its share of big zigzag movements that threaten to spoil the party for punters.
As portfolio managers for you, we would certainly not like to be clubbed with punters, whose leveraged positions serve to magnify their earnings (and losses).
We try not react to prices, fund flows, liquidity concerns and subprime horror stories as much as we do to fundamental changes that these or other factors may bring to the businesses that we have invested in. It must be said that all factors that went into the bull case for Indian equities over the past three years are still intact.
Here is our portfolio thought for the week: we are investors in businesses, so we will choose not to worry about the (temporary?) lack of punting firepower. The idea to take a roughly 70% exposure to begin with was merely to average out the entry into our model picks, so we’ll use some more cash this fortnight.
We’ll further tweak the rules this time, choosing alternate Wednesdays for transactions as well as NAV calculations. This time around, markets were closed on 15 August, so we have settled for Tuesday instead.
Here’s our action set for the SAFE WEALTH portfolio:
- RCOM looks like an even better bet than before with clear traction in subscriber addition and unbundling of the tower business. We’ll add another 51 shares of this India proxy, taking its weight to 7.5%
- We are doubling our holding in HDFC Bank to 54 shares, knowing that it’s a costly but brilliantly managed bank which will weather the NPA storms that are building up after three years of unbridled credit expansion.
- In our Capital Goods section, both Areva and Bhel have delivered over 20% return so far. But we think Bhel has a longer way to go purely on valuation grounds. So let’s add another 21 shares of Bhel.
- We also feel that it’s time to take a contra call on the automobiles sector. Our safe pick here (Maruti) is now a blue-blooded multinational. With earnings slated to grow at around 30% CAGR over the next two years, this is still a good time to double our Maruti exposure to 106 shares.
- Sun Pharma has earned negative returns, but our faith in their story is intact. So we will cautiously average out our buying into this company with a defensive purchase of 24 shares.
And here’s what we are going to do with the WEALTH ZOOM portfolio:
- Our investment in NIIT Tech is out of the money, but we have faith in the management’s ability to take this largely Europe-exposed business away from dollar-rupee worries into the rapid growth zone. Let’s add another 94 shares of NIIT Tech.
- In the construction space, Punj Lloyd’s recent order wins, forays into real estate and improved Q1 performance motivate us to buy 211 shares, taking its weight up to 10.9% in WEALTH ZOOM.
- Shringar Cinemas’ showing in the Q1 is beyond expectations. We’ve bought another 658 shares of this emerging star taking it to 7.5% of the portfolio.
- Again, Idea’s rollout delays in Mumbai are only a temporary setback to its rapidly growing business. We’ll double our holding here to 6% by buying 259 shares this fortnight.
- We’ve sold off Areva, as it falls under Capital Goods rather than Power, and we have (luckily enough) made around 23% profit on it as well. Suzlon has been reclassified as a Capital Goods stock from now on, and retained in the portfolio notwithstanding its recent poor showing. We feel the RE Power acquisition will finally pan out in its favour though things look difficult for now.
- The Shasun conundrum rattles us; why has it posted such a disappointing set of numbers in Q1? Down 25%, this is one item we are embarrassed by in the portfolio. Let’s hold on for another quarter or so, in the hope that it’s emerging CRAMS business finally gives it the margins we aspired for. We’ll hold on to our losses in Global Vectra and Gateway Distriparks in the same vein.
- In the health care sector we’ve added an item that has been a multibagger in the last few years but still holds out promise of outperformance. It’s Bangalore-based Opto Circuits, a company that started off by making optical sensors for patients and pulse oximeters and monitoring devices. In its second avatar, Opto has acquired Eurocor, a stent company in Germany.
A number of you have written for advice on your existing portfolios. For them (and all the others): SAFE WEALTH and WEALTH ZOOM are our constant, continuous and balanced portfolios that are meant to work for your low- and medium-risk investments in the stock market.