Portfolio Picks – a Review :: HDFC Sec

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We had in June 2014 built a portfolio of 15 stocks to participate in the expected upmove in the markets. DIYSIP was suggested in these stocks if the investor wanted to stagger the purchases. In the intervening period the markets have seen a lot of turmoil (both local and global). Indian economy is taking their own time to pick up steam while Indian politics is throwing up some anticipated and some not-so-anticipated challenges. Some stocks among the portfolio have done really well. This includes Dr Reddys, Grasim, IDFC, ICICI Bank, L&T, SBI, Titan, Wipro and Zee Tele. Some others have struggled (including Reliance, ONGC, Tata Steel, ITC, M&M, Hero Motocorp). As we had stated “Investors must understand that every business will have cycles, challenges, phases of growth and slowdown, challenges due to market conditions or its internal dynamics. Regulatory intervention, changing market dynamics, competitive action, sudden movement of raw material, finished goods, currency, interest rates all may have some role to play and you must watch the stock through all that.” The underperformers have suffered due to any or more of the above. We think that the markets could consolidate/correct from these high levels before making the next upmove. Cyclicals as an asset class has yet to perform even after 10 months of new Govt coming in. Market breadth continues to be weak over the last few months. In the near term, even SIP investment may not be of help as some stocks may remain in a range/ down for an extended period. Ahead of the Q4 results we think that the signals from varied sectors are not too encouraging and this could mean that valuations may seem high for quite some time (though there could be exceptions). Corporate earnings are yet to show momentum; Fears of impact of US fed rate hikes abound; unseasonal rains in India in Feb/March could hurt agri production and rural spending; Banks continue to be hurt by NPA issues despite rate cuts etc. We feel that the next few months could be the period of selective stock picking. The markets could keep throwing up individual ideas at intervals. However the speed of individual stock moves (in an era when too much of smart money is chasing a few stocks) means that individual stock moves will be sharp and swift followed by long period of sideways move/underperformance. In view of the above we are suspending the portfolio in its current form and constituents for the time being till we have more clarity in terms of earnings momentum and/or better entry levels. Existing Investors can either continue to hold them or selectively trim the portfolio by exiting the underperformers. In the meanwhile investors wanting to continue investment via SIP route can look at Nifty BeES or Junior BeES. They could also look at stock ideas being generated by us from time to time.