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Pravin Palande
I look at markets as numbers because numbers don't lie

Forbes India Portfolio delivers 27% returns over last year

While Forbes India’s Investment Special gives you the big picture, we don’t forget the small stuff: Stuff that is valuable and can help you preserve and enhance your capital. So, last year we created two stock portfolio: One for those who need stability, and the other for those who like a bit of adrenalin.

The Capital Preservation Portfolio (CPP) last year was a list of 15 companies with strong fundamentals for those seeking stability; and the Cheap, Cheerful and Contrarian Portfolio (CCCP)—for the adrenaline seeker—had companies that had hit rock bottom prices in 2011.

Now it has been almost a year, and we decided to look at the performance of these two portfolios to see if they have performed to our expectation. The simple answer is yes. The CPP has given a return of 25 percent and the CCCP portfolio has returned 27 percent over the past one year.

We decided to look at these portfolios in detail, and are giving you a lowdown on how both portfolios performed against their respective benchmark.

CPP:  This comprises large cap companies with some exceptions. Our basic rule was to look at companies that have been profitable throughout the past decade and have managed to protect shareholder wealth. If an investor had invested Rs 1,000 in each of these 15 companies, by the end of 11 years she would have made Rs 2.9 lakh or 32 percent annually. That is more than twice the number when compared to the BSE Sensex, which delivered 14 percent during the same period.

Over the past year, the CPP returned 25 percent, Outperforming the Sensex. Two of the companies we had strongly recommended—Infosys and Hero Motorcorp—failed to perform. But we believe in the management of these companies and we expect them to start scaling in the year to come.

What we got right
The smartest of fund managers were betting on FMCG for the past two years. We got this theme right with four companies: Godrej Consumers returned 84 percent over the past year, VST 71 percent, Asian Paints 66 percent and P&G 35 percent. Castrol India delivered a return of 39% after a bonus issues of 1:1 shares.

All these stocks are trading at high valuations but, again, we would like to believe they still have the steam to deliver for the coming year. Most of the professional fund managers will stay away from these companies. This is a portfolio for the super long-term investor, and even with high valuations they remain attractive.

Capital preservation portfolio

Capital preservation portfolio

 

CCCP: This portfolio is for the investor who likes to go against the market. These are companies that had hit rock bottom on the bourses at the end of last year. The only way forward for them was up. While the Forbes India portfolio is a defensive play, with the guidance of our consulting editor, Sanjoy Bhattacharya, we decided to go on the offensive. This portfolio is more intuitive and more cheerful. These companies are well managed and their fundamentals are intact. But they were ignored by the markets. These companies were available at cheap valuations.

The CCCP has delivered 27 percent over the past one year, while the BSE 200 index returned 29 percent. What is interesting to note is that, in general, the large cap funds have given around 17 percent on an average over the same period.

What really worked for us is the fact that stocks like Shriram Transport and Berger Paints, which were generally ignored by the market earlier, were back into action and moved up by 60 percent over the past one year. Will these stocks go up further?

Although these stocks still have some serious growth left in them, we would like to look at some other alternatives as well.

Gujarat Gas IL&FS Investment (one of the few private equity companies listed in the market) and Ador Fontech were the companies that failed to perform. Will they do well in the future? We believe they will.

 

cheap, cheerful and contrarian portfolio

cheap, cheerful and contrarian portfolio

 

What next?
We are now looking at a theme for investing in 2013. We believe the year might be a difficult one in which to invest in equity markets. To understand investing for the future we had some of the biggest fund managers in our office who shared their views with us.

So, look out for our Investment Special available from January 11, 2013, where you will have Prashant Jain of HDFC MF,S Naren of ICICI Prudential MF, Kenneth Andrade of IDFC, and Ajit Dayal of Quantum MF discussing investments for the year. The discussion was moderated by Ramesh Damani. We will carry excerpts from the conversations in our magazine, and the full versions online.

Also, expect a brand new theme for the Forbes India portfolios for 2013. Again, we will have a conservative portfolio for the weak at heart and the contrarian portfolio for those who are in the habit of bungee jumping.

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K A PRASANNA
MANTRA FOR REVIVING THE PRIMARY MARKETS In the last one year benchmark indices have gone up by nearly 20%. In the normal circumstances primary markets too should be buzzing with IPOs. However only 2 IPOs have hit the market in the last one year. Then what ails our primary markets? Lack of confidence among the retail investors firstly on the issuers and then on the lead managers. Between 2009 and 2011 around 130 companies entered the primary markets. At least 20% of them were fraud IPOs in one way or the other. The market regulator SEBI has banned some promoters, merchant bankers other inter intermediaries who were involved in defrauding the public during 2009-11. Primary markets investors have burnt their fingers investing in the IPOs that came during that period. Therefore inspite of secondary market going up by 20% in the last one year not much activity are seen in the primary market. For revival for primary markets SEBI has to keep this mind while according permission to to IPOs to tap the market. 1. Permit only those companies which have clean track record. Weed out corruption at clearance level. 2. Put some break on pricing. Do not give issuers and merchant bankers a free hand. Both are greedy. 3. SEBI should direct the issuers / lead managers to keep in mind the erstwhile CCI formula while fixing the premium. Quality IPOs, attractively priced, leaving something on the table for retail investors can hit the market any time, even if the Sensex is down by 2000 points. The mantra is quality IPOs and attractive pricing. Hope SEBI will do some thing right on this front.

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velamuri syama sundar
the article is well written by you and comment of srinivasan. a lot well worthy companies are languishing at their lows............among the capital goods companies you have limited yurself... when the supply mismatch is more than 30%.....it seems we must give more than 45% weight to the inaction of the political bosses......
Congratulations. Things were so bleak at the beginning of this year after the U.S. rating downgrade and a deepening of the euro debt crisis – not to speak of the rupee’s devaluation and the looming economic slowdown -- that it would have been difficult to make any prediction at all. Now, in hindsight, it was a fantastic year. But to make such recommendations at the beginning of the year is a classic achievement. For all the scare about the debt crisis and the fiscal cliff, both Europe and the U.S. have performed hugely. Emerging markets have rebounded late in the year. India is at a sniffing distance of its record high. But unlike Forbes India, most money managers around the world actually missed the rally. Trading volumes have plummeted in each and every market across the world. It is funny that the rise of algorithmic trading across the world has coincided with a precipitous fall in volumes. Champions of high-frequency trading have argued in its favour on the grounds that it brings liquidity. But data proves otherwise. This clearly shows that computers can’t trade on their own; they need a human trigger to multiply volumes. When human traders stay away, algo trading is ineffective. Surprisingly, and going against the traditional wisdom that low volumes will lead to huge price swings, volatility is actually at the lowest since the financial crisis. There seems to be a fine balance between bulls and bears with a slight advantage to bulls. By any reckoning, an explosion in volatility is overdue, but it is anybody’s guess as to when it will happen. For the coming year, I remain hopeful that global markets will rally again. There is a huge amount of cash around the world waiting to be deployed. There is a huge crowd of money managers who missed the 2012 rally that want to come in. While Europe has made some progress in tackling its problems, the reason why markets will ignore the debt crisis in the new year is that they are just tired of it. They have priced in every worst-case scenario. There can’t be any surprise any more from Europe. In the U.S., the bipartisan wrangling over the fiscal cliff is unlikely to lead to a permanent solution by the end of this month. They will probably go in for a truce and a temporary solution. But that’s OK. Just like the European Central Bank has compensated for the inaction of euro zone countries, the Federal Reserve is compensating for the fiscal impasse. One may argue that it is a time bomb that has been reset to a later date. That’s true. But that does give you more time to think how to defuse the bomb. As for India, its reputation is at the lowest since economic reforms began in 1991. For years, businessmen were smugly telling us that India’s reforms were irreversible and that we had crossed a bridge that we would never go back to. Politicians have proved them wrong. They have reset the clock to 1984 in most cases. Reform measures have been withdrawn, changed or abandoned. The infrastructure crisis has worsened to a level not seen before. Even the current euphoria over foreign direct investment in the retail sector is to be seen in this context. The BJP has already said it will roll back the move if it is voted in. Whether they mean it or not, a global retailer will take that into account before making an investment decision. All told, I think it is time that we gave this “capital preservation” theme a nice, long holiday. This past year has shown that it was not the time to protect your capital, but to play with it. Not many realized it until it was too late. So, advising people to safeguard their capital actually went against their interest. This year may be the time for individual investors to turn the corner. They must enthusiastically review their retirement plans, set targets for children’s education and the acquisition of property and generally draw a plot to enrich themselves. The new year will throw up plenty of opportunities for that. 2012 was the year we exorcised the ghost of the 2008 financial crisis. 2013 will be the year we start a new epoch. Tighten your seat belt and get ready for an exhilarating ride. But also keep your weather eye open for the next crisis in the making.
In the CPP table I think you have the Price column dates mixed up...
Thanks Arindam. Our columns had indeed got mixed up, we have corrected it yesterday. Appreciate for alerting us on the error.
I guess, there is some confusion regarding Castrol's performance. It has performed pretty well but have you considered its price relative to bonus issued in the ratio of 1:1 in July 2012?
Thanks for pointing out the Castrol Bonus. We have adjusted the bonus and now the returns on the CPP portfolio are 25%. We regret the error.
 
 
Pravin Palande
The financial markets generate a lot of number on a per second basis. There are people who have made it a profession to convert this information into trends, buy-sell signals, charts and pivot tables. Over the last 18 years of financial journalism, I have realised that every number has a story to tell. And these numbers as a trend normally never lie. Im forever looking for these trends.
 
 
 
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May 02, 2014 09:44 am by K A PRASANNA
MANTRA FOR REVIVING THE PRIMARY MARKETS In the last one year benchmark indices have gone up by nearly 20%. In the normal circumstances primary markets too should be buzzing with IPOs. However only 2 IPOs have hit the market in the last one year. Then what ails our primary markets? Lack of confiden...
January 02, 2013 10:29 am by Today in Tech: Antivirus, Predictions, Resolutions & Internet’s Birthday | Forbes India Blog
[...] predictions is a favourite year end activity. We did ours: 7 Business Calls We Got Right  & Forbes India Portfolio delivers 27% returns over last year. They are for 2012. Things get more interesting if the time span is 10 years. In 2003, Wired [...]
January 02, 2013 04:56 am by velamuri syama sundar
the article is well written by you and comment of srinivasan. a lot well worthy companies are languishing at their lows............among the capital goods companies you have limited yurself... when the supply mismatch is more than 30%.....it seems we must give more than 45% weight to the inaction of...
December 13, 2012 13:10 pm by S. Srinivasan
Congratulations. Things were so bleak at the beginning of this year after the U.S. rating downgrade and a deepening of the euro debt crisis – not to speak of the rupee’s devaluation and the looming economic slowdown -- that it would have been difficult to make any prediction at all. Now, in hind...
December 13, 2012 09:24 am by Forbes India
Thanks Arindam. Our columns had indeed got mixed up, we have corrected it yesterday. Appreciate for alerting us on the error.