| Unit | Price on May 5, 2020 (Rs) | Price on August 5, 2020 ( Rs) | Quarterly Return (%) | Annualised Return (%) |
| MRF | 57550 | 61519 | 7 | 28 |
| Bajaj Auto | 2425 | 3009 | 24 | 98 |
| Maruti Suzuki | 4831 | 6526 | 35 | 142 |
| Hero Motor Corp | 1966 | 2696 | 37 | 151 |
| RIL | 1447 | 2126 | 47 | 190 |
| IOC | 79 | 87 | 10 | 41 |
| ONGC | 78 | 77 | -1 | -5 |
| Coal India | 138 | 128 | -7 | -29 |
| ICICI Prudential Life | 375 | 462 | 23 | 94 |
| Federal Bank | 43 | 52 | 21 | 85 |
| IDFC First Bank | 21 | 27 | 29 | 116 |
| Sun TV | 378 | 395 | 4 | 18 |
| Avanti Feeds | 395 | 478 | 21 | 85 |
| Infosys | 681 | 945 | 39 | 157 |
| ITC | 174 | 193 | 11 | 44 |
| NIFTY 50 | 9205 | 11102 | 21 | 84 |
The call that it was time to invest given the fear and chaos seems to have been validated with
- NIFTY rising by 21% (84% annualized)
- 13 out of the 15 stocks in the hypothetical portfolio are up by 18% to 190% (annualized).
- 9 out of 15 stocks mirroring or outperforming NIFTY
| Sl.No | Premise | Result | Remarks |
| 1 | Low Oil price – Low Inflation – Low interest rate- Low Corporate taxes will drive business prospects | By now it has become the “intelligence of the crowd” | |
| 2 | Policy Response & Response to policies will be a major driver | Validated
| RBI Monetary policy on August 6, 2020 – Sensex surges 362 points |
| 3 | Normal monsoon, Good Rabi crop, Early rural revival and Aversion to shared mobility will increase demand for 2 wheelers and entry level cars | Played out | All 4 auto stocks in the model portfolio performed with Hero leading the pack with 37 % appreciation |
| 4 | Value Realisation initiative on Jio to drive RIL prospects | On dot | RIL up by 47% |
| 5 | Zero leverage was the primary rationale for choosing Infy, ITC, Sun TV and Avanti feeds | Yes | All 4 stocks are in the money |
| 6 | PSEs being value picks | Wrong | The only 2 stocks with negative returns are from this bucket. |
NIFTY increasing by 21% in a quarter is unlikely to repeat. The Market & Economy disconnect is beyond the comprehension of many. Markets and the Economy may align in the medium term. But in the short term, global liquidity is driving the markets. India’s Political leadership and business leaders have all done very well to mitigate the adverse impact of CV-19 corroborated by a recovery rate of 69% and Mortality rate of less than 2.5 %. Yet it may be too early or even naïve to interpret that ‘CV-19 may be a contagion but not a killer decease’. Several businesses are facing disruptions because of sudden local lockdowns. Multiplexes, Gyms, Hotels, Resorts employing millions are yet to open.
It is not going to be a ‘bed of roses’ and downside risk is imminent.
Financial sector has to face the test post the moratorium. RBI swinging into action with “Rule based restructuring’ lends some comfort. BFSI units like Axis, HDFC, IndusInd, ICICI and Kotak are reinforcing their capital base to combat the new NPA cycle which may follow once the moratorium and restructuring are behind us. With sharp decline in realizable value of underlying securities, “Loss given Default’ gives way for “Probability of Default” to be the dominant ‘factor at play’.
If so, do we have to revisit the Dominant logic or Investment hypotheses or Sector allocation? Perhaps not.
Whilst no major overhauling or churning may be required w.r.t a reasonably strong portfolio like the one we simulated, strict monitoring is called for.
In sum, one may choose to continue to stay invested with the warranted caution. In any case
- Stick to the Leaders
- Avoid concentration risk
- Focus on Free Cash flows given low visibility on earnings
- Shun leveraged units
- Stagger the investment
- Prepare for a longer holding period
What do you say?
DISCLAIMER
- This is a mere discussion paper for academic purpose and not a recommendation to buy or sell any securities
- The author is not a certified investment counsellor
- The author may have exposure to stocks discussed above and he may buy/sell them at any time of his choice
- Readers have to consult their Investment Counsellors and independently validate
