The current month was another strong month for the markets with both the large cap and mid cap indices rising by 5-6%. The rise of the markets continued despite outflows from foreign investors and muted buying from domestic institutions. The retail participation in the markets has continued to grow which is also reflected in the performance of the broader markets where small caps have started outperforming. Indian markets infact outperformed most emerging markets as well as developed market equities as the Dow Jones Index rose by 2% and the Nasdaq was infact down for the month.
Last month I had written about the need to be a bit cautious on the markets driven by my view on the impact of the second covid wave on domestic consumption as well as the negative impact of rising inflation at a time when the economic shutdown has been very severe. As such we have seen a scenario where the Indian Economy today is one of the most impacted by the scourge of Covid today in the world and the Indian Markets have been one of the best performers despite high valuations.
There are several areas of concern in the markets today which includes very highly valued Consumer Stocks many of which are trading at Price to Earnings ratios of 90-110 times and includes fancied stocks like Page Industries, Pidilite, Asian Paints, Jubilant Foodworks, Titan etc among the well know consumer stocks which have a substantial MOAT. However we also see cyclical fancied stocks in industries like Chemicals also trading at abnormal valuations that are unsustainable. However on the other hand we also have several capital goods, infrastructure, financial etc stocks that are still trading below potential. In the midcap side of the market there are some companies that are doing exceptionally well due to both macro and micro aspects playing out and in a low interest rate environment we will always find good investment opportunities. Export oriented companies, some commodity companies etc could also provide opportunities. The issue many exporters might face however is the strength of the Indian Rupee which has been very surprising. As such exporters which have China as competition will still do well as the Yuan has appreciated more than the INR. However technology companies could see a margin squeeze.
Most analysts continue to have very high earnings growth projections for many companies despite the managements of these companies actually coming out and giving a cautious outlook. It fact its quite surprising to me that many times I attend conference calls of companies where they come out with a cautious outlook and the next day analysts come out with excessively bullish reports. However time will prove how things play out.
The other big event of the month was a big sell off in Cyptocurrencies with falls from the top ranging between 50-80%. The real challenge for these will come when the US Fed actually indicates that it is concerned about inflation and rates start moving up. Gold on the other hand started an upmove this month which I think should go significantly higher over the next 2-3 years.
As I write the markets are trading at all time highs and valuations are around 20% higher than historical valuations. The results season has been good, however that’s the dichotomy that investors are facing today. Good results driven by a low base of last year as well as an almost complete normalcy in the previous quarter followed by a severe economic shutdown and very high input cost inflation. Many companies in the consumer durable and non durable segments have indicated that they have raised prices by 12-15% in the last 5 months itself driven by huge increases in prices of steel, copper, edible oil prices etc. The difference between the first and second waves as all of us know has been that this time the impact on people, deaths, expenditure on treatments, job losses etc is higher. On top of that we also have a scenario that the RBI and Government do not have the firepower to help the economy this time. Government spending went up sharply last year and interest rates went down sharply. None of these is likely this time and will not come as a support for the economy. Higher inflation however might lead to good GST collections once the economy opens up.
The markets right now are on a huge momentum, however looking at the valuations and growth paradigm it is tough to see how the overall markets can give a very high return on a sustainable basis from here on. In this situation we need to look for specific opportunities of companies that have something going for them which will always exist in the stock markets unless we are in a severe bear market where everything falls.
In conclusion I will still be cautious on the markets in the near term.
This was an exceptional month for us in terms of our product performances where we did very well across the board. Our long term products built on their performances, Power Alpha Stocks saw strong profit bookings and Only for Traders saw its huge winning run continue. Our small cap Winners Plan has see huge multibagger returns across a number of our recommendations.
ONLY FOR TRADERS
Only For Traders continued its exceptional performance for this year. Profits on a 2 lot basis are now running at Rs 450000 which is huge in the current market conditions. Yes we might be less exciting where we avoid high volatility stocks but we are delivering returns with low downside protection. The product had an over Rs 100000 profit this month. In the last 7 months there have now been 5 one lakh plus profit months. We will get 3-5 very good months in a year 3-5 average months and 3-5 not very good months. The ROI of this product is running very high at this point of time
POWER ALPHA STOCKS
Power Alpha Stocks had another good month where we could do 4 profit bookings of a total of Rs 49000. The good thing about this product is that the money comes back after profit booking and after times of strong profit booking and at elevated market levels we have the cash to redeploy. Overall opportunities will be good for this product as market volatility plays out and gives us opportunities to take more aggressive positions. The high ROI of this product continues. However overall profits were around Rs 430000 for 2020. Overall opportunities will be good for this product even in the future and we will see to capture them. At peak capital the ROI was 56% and at Average capital 72% in 2020.
TARGET BLUECHIP PORTFOLIO
The Target Bluechip Portfolio had a good month with absolute returns of 4% We continue to maintain a good cash buffer which will hold us in good stead over the next two months if things move as I expect them to. Since inception returns are nearly 90% from the time the portfolio started off more than two years back a substantial outperformance. This is an ideal portfolio for low-risk investors. We have used the momentum of the markets to book profits and generate some cash which will be redeployed appropriately. The outperformance over the last two years has been more than 100%.
TARGET MIDCAP PORTFOLIO
Target Midcap had an excellent month with returns of 16% for the month with the Midcap Index moving just 6%. Stock selection is working well. The returns for this year since beginning have now reached 30% and we have outperformed all competing products. Overall, the portfolio gave 44% returns for 2020 which is exceptional. Since inception returns from end of 2019 are now 88% much above the indices. This portfolio has huge potential with some stocks having the potential to be multibaggers over the next few years. This portfolio is all about a journey which will do good over 2-3 years. Average valuations of our portfolio is half the midcap index and that of most momentum midcap mutual funds and PMSes. This is an ideal portfolio for long term investors who are willing to take the risk of short term underperformance.
The Platinum Plan is our oldest Long Term Portfolio plan and did exceptionally well during the month with returns of around 12% . The YTD returns are now 30% and since inception returns are 390% with a CAGR of returns of over 25%. The portfolio has a good mix of largecaps and smaller midcaps which have good potential over the long run. The portfolio performance should pick up going forward. We used sharp upmoves in many stocks to book profits to redeploy later. This portfolio is a mix of Large Caps and Small Caps. This is an ideal medium risk portfolio.
Small and smaller sized midcaps started to outperform and this helped many of the holdings rally. Many of our recommendations have become multibaggers and we have booked profits in some of them. We generated many ideas over the last few months, some of which rallied, and some are still to perform in 2021. Many of the recommended stocks do have deep value however many PMS fund managers and other investors burnt by small cap investing might not come back fast. We need to adapt accordingly. However, given high operating leverage small caps will do well in 2021/22
POSITIONAL TRADING CALLS
This is the only product of ours which has seen some challenges with good months getting juxtaposed by months where we have got stuck in some positions thus reducing overall profitability. This month was a loss making month for us which undid the good work of the previous months. Overall it has not been satisfactory in the near term. The overall loss in two trades was nearly Rs 100000. We hope to come back strongly and match up the performance of the other products going forward.
Plan charges are moving up from the 1st of July BY 15%