Last fortnight’s question (“Cash or Carry?”) has been emphatically answered by the market. Looks like the decision to largely stay invested has paid off handsomely. Scaling 18000 looks like just another conquest for the Sensex. And there’s no stopping the momentum. However, the breadth of the rally has been relatively narrow, and confined to select frontline stocks.
This has worked to the advantage of Safe Wealth, and we have now achieved over 29% net return in the four months since we started this portfolio. And this, without investing in some of the darlings of the current rally: Reliance Energy, IFCI, Tata Power.
On the other hand, our mid-cap portfolio Wealth Zoom hasn’t quite turned out to be the stock picker’s pride that we thought it would. We are running a moderately positive book here but the deep gashes in a couple of our picks have dented the overall performance. We think a correction is overdue, now that valuations are getting a little tight and any correction will drag down the entire market, never mind that many of our stocks did not participate in the uptick.
|Click to view the performance of our Safe Wealth portfolio|
Therefore, at this juncture, we prefer to be safe rather than sorry and are booking profits selectively. This increases churn in both portfolios. Churn is something we are normally allergic to. But the near-vertical rise in the Sensex is something that worries us, especially after a fortuitous fortnight where we rode the momentum.
No new purchases in our Safe Wealth portfolio. Our selling here is across the board and we are up to over 40% cash. Remember that we have to do justice to our brand name—“Safe”. For all of you who think that we have no business selling, let me ask you: how many of you are willing to sell me put options on the stocks I have sold?
With 25% return, Reliance Communications has done rather well. We have reduced its weight by selling 32 shares, a fifth of our holding in this stock.
Likewise, we have sold 15 of our 54 shares in HDFC Bank, another recent mover which we have patiently held. This one has given us 31%, so the profit booking is equally justified.
|Click to view the performance of our Wealth Zoom portfolio|
The difficult decision is the part disposal of NTPC (up 46% since we bought it), easily the most stable business in our entire portfolio. This company is mandated to earn 14% post-tax return “forever”, generates enough surplus to grow 10% organically and is counted among the best places to work in the country. We’ve sold 100 of our 500 shares in this counter, still keeping it at 7% plus weight in the portfolio.
With 70% appreciation in four months, we think it is required that we sell 21 of our 42 shares in Bhel. Safety first, is what comes to mind, even as leading brokerages issue buy reports on this great company (but perhaps fully valued stock).
With cement capacities slated to come up over the next four quarters and vulnerability to government squeezing from time to time, we think it’s time to sell half our stock of Grasim considering we’ve earned 54% on it so far.
And the brilliant Maruti, now called Suzuki Motor India, has delivered all of 53% return in the period since we started this portfolio. Easing of interest rates and launch of new models have boosted stock performance ahead of visible results. We have chosen to sell half our holdings even as the world begins to sit up and take notice.
Not wanting to catch up with Mukesh Ambani’s notional wealth, we’ve sold 12 of our remaining 28 shares in Reliance, taking it down to only 3.2% of our portfolio now.
Tisco is where I most fear the risk of selling early; still, prudence demands that we book profits on 12 of our 30 shares at a 44% gain. Stand by for this management to prove me wrong with their second quarter numbers.
Finally, Jindal Steel has left me speechless with a 120% appreciation, which I can attribute only to good luck in retrospect. We’ve retained just one of the three shares we held till last fortnight.
GE Shipping, Areva and Power Finance are the other three counters where we have booked partial profits, in the hope that we can reenter them at cheaper levels in a few weeks from now.
We’ll carry our notes on the changes to Wealth Zoom in the next issue. Look around for smaller, lesser known companies that are trying to do big things, and recommend them to me. I will personally speak with their managements and include them in Wealth Zoom, like I have done for Powergrid and Electrotherm this fortnight. After some profit booking, of course.