Sensible buying

It's getting increasingly difficult to focus on the “India” story. As your portfolio manager, one has to survive a daily diet of Prakash Karat (chief Left Front spoilsport), M Damodaran (no-nonsense Securities and Exchange Board of India bureaucrat who’s current mission is to iron participatory notes), Mark Mobius (emerging-market fund manager with an opinion that swings market moods) and, of course, the consequently volatile Sensex.

On the sidelines, you have the strength of the rupee, oil prices, political turmoil in Pakistan and an increasingly tired United States that doesn’t look like a great proxy for global consumption anymore.

The mandate, of course, remains unchanged: avoid risks in Safe Wealth, and earn some stock picking stripes with Wealth Zoom. In a little over four months, we’ve struggled with Wealth Zoom (up 19.8% since launch) and have done moderately well with Safe Wealth (up 29.4%). What now?

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We are still not in a mood to buy big time for Safe Wealth, with the Sensex P/E at around 19-20 times on 2008-9 earnings basis. Yes, the India story rings true and the big corporate stories are panning out just fine, but 31.4% cash (in Safe Wealth) is lower than last fortnight and should come in handy during a fall, whenever it comes.

We have bought, not one or two, but five new stocks forWealth Zoom. While we continue to be cautious on Safe Wealth, it looks like a good idea to buy two stocks: Sterlite and Britannia. The first named is India’s star non-ferrous metals story. With expanding capacities in zinc, aluminium and copper promising multiyear triggers, this is a stock to accumulate for the long term.

Britannia gets coverage for all the wrong reasons. A public spat between theWadias and Danone, an alleged loss of market share and a managerial sluggishness were all reasons to avoid this stock. But all this seems to be changing; Britannia’s latest financial performance indicates resumption of its pricing power by tripling its net profit before tax while topline has grown just around 20%! At under 20 times annualised earnings, this is a sure item for Safe Wealth.

In Wealth Zoom, we have exited Powergrid because we think it is more than fully valued. And our rule of transacting every Wednesday evening does not permit trailing stop losses to enable us to ride the upward momentum here. Punj Lloyd has delivered terrific returns to us on the back of an expanding order book and margins in its overseas businesses We think it’s time to book partial profits and have sold 100 out of the 211 shares we owned.

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Among the new buys, Alpha Geo stands out for sheer performance. This highly talented provider of oilfield surveying services delivered a stunning monsoon quarter show by upping revenues from Rs 43 lakh to over Rs 20 crore. And this, in a business with over 55% EBIDTA margin.

Chowgule Steamship owns a now increasingly profitable fleet of ships that is focusing more and more on the dry bulk business, a segment that is seeing skyrocketing rates courtesy the increased global trade in iron ore and coal. At under five times 2007-8 consolidated earnings, this seems like a sitter at Rs 64.50.

Sujana Towers is one of the demerged parts of the erstwhile Sujana Metal, which is now purely focused on the towers business. Having announced a capacity expansion, this company is riding the demand in galvanised tower business powered by the telecom and power industries. Promoters have recently announced a preferential issue for themselves at Rs 140 per share. Expect action on this stock.

We have finally bought the first item to be suggested by you. Bartronics enters Wealth Zoom on the insistence of Girisha KM from Lucknow. The company has invested in a smart card production capacity that promises to change the economics of the business.

Finally, SKF India (high-pedigree bearings multinational) seems like a Safe Wealth stock but we have bought it for Wealth Zoom in view of its mid-cap status (market-cap less than $600 million) and perception problems related to a new subsidiary that the parent company proposes to set up in India. The latest quarterly results (Rs 43 crore net profit) more than make up for this blip.

At a time when I am getting restless about the risk we are exposed to, I’ve chosen to buy a clutch of new stocks in Wealth Zoom and have resisted the temptation to buy in a big way for Safe Wealth. Tell us whether this makes sense to you.