Its a puzzle how India will grow.
Sadly, Jaitley and Modi are extremely stupid and dont realise how much they are screwing the country.
Sadly, Jaitley and Modi are extremely stupid and dont realise how much they are screwing the country.
Whatever harm they could do they
have done.
Thats why our agriculture is static,
our manufacturing is static or contracting, our services are static, our small
enterprises have been rogered by the twin whammy of demonetization and GST.
If these two terrible twins had done
their job properly, Sensex would have been already at 60,000.
But India's situation is such that
even after all this harm, one can still look forward to some 6% growth at least
for next two years. That is 13% (compounded) growth after two years. That is
India going from 2.25 trillion GDP currently to 2.6 trillion GDP.
That is 350 billion dollars in
growth.
The situation is such that corporate
earnings are bound to grow much more that 13% - more like 50% growth (that too
on a lousy base) after 2 years in selected companies.
Modi had two years of bad monsoon,
converted third monsoon into a drought of money by demonetization - which hurt
small companies disproportionately and now GST which is again making life very
difficult for small companies.
Question comes - what will grow?
Not services because IT is matured.
Not exports because Pharma is in
trouble - not because of FDA but because of pricing pressure from increasing
competition as countries shift to generics. So margins will get squeezed.
Leather is in doldrums because of cow politics. Diamonds and gold is in trouble
because of the GST and black money crackdown and as dollar rises gold will
fall. Not textiles export because of GST.
Not manufacturing because we just
cannot compete with China which is a 11 trillion dollar behemoth - and while so
far wages have been rising in China, as situation becomes more competitive,
Chinese will be happy to drop their wage expectations. And their capacity is
enough for the world - adding more capacity in India will only crash the prices
of end products.
Agriculture is possible. So far, the
policies of this devlish duo have hurt 50,000 crores worth of cow based
economy. Milk, leather and beef industry has been eviscerated. In the short run
the small time money lenders have also been put out of business because of
demonetisation and black money crack down - and agriculture majorly runs on
small time money lenders.
But in future there is hope for the
sector. The GST, reforms of APMC and improved availability of organised credit
as well as insurance to the agri sector seems to be a big focus. It is also a
vote generating process and it seems like govt has some focus on this.
Investment led growth is still
waiting for the govt to deliver a major spending thrust. When it comes, that will
be a major boom.
Real estate has been majorly
destroyed by the govt, as regards the black money, demonetisation AADHAAR and
other measures. However another major push is needed in affordable housing -
although in the absence of job creation, consumption of affordable real estate
is difficult.
Where is this 350 billion of GDP
going to come from?
Has to be agri 30% = 100 billion
dollars, housing 30% = 100 billion dollars and infra 40% i.e. 150 billion
dollars approx.
Current India agriculture GDP is 500
billion from some sources, though 17% of 2.2 trillion is 370 billion.
Regardless, going to 600 billion is possible and likely - as efficiency of
markets increases the possibility of more money going to farmers instead of
middle men increases. It is however unprecedented in India's history - almost 25% growth in 2 years. Seems almost impossible and yet it is possible. A majority of this growth however might be related to better farmer realization and consumption led growth by the Indian farmer.
Currently Indian real estate
contributes 9% of the GDP so about 200 billion. A hundred billion increase in
two years represents a 50% growth in two years. The stage is set for it in the
form of lowering of interest rates. But whether the fish will bite is a
different question - will people buy? Will they take loans to build more new
constructions when every day the insolvency of builders is making headline news
is a big question. The traditional route of black money has been closed off.
Will people take loans to buy a house ?
To me the more likely possibility is
that farmers will take more loan to build pucca villlage houses - and buildings
of pucca houses in small towns - that seems possible. Whether they will repay
the loan after their habits are spoilt by recent loan waivers is another issue - but
for now, that is a big hope. To have 100 billion in housing in two years,
assuming a house takes two years to build - will take exactly 100 billion in
capital i.e. 6 lakh crores of Rupees. Mostly from HFC and private banks.
That equals the 4.8 plus 1,3 lakh
crore loan book size of HDFC and LICHF combined and probably represents a
25-50% jump in loan book size for real estate of all banks put together.
That leaves us with 150 billion i.e.
10 lakh crore worth of GDP from infra push = 5 lakh crores worth of expenditure
each year by the govt.
Will we see that? So far it has not
done. But if it is done, we are through.
The implications for the economy is
massive. What needs to be done is simple - but so far govt has not done. It has
destroyed instead.
It is not too late.
The companies benefitting from this are very concentrated and few. Housing finance. Private banks. Cement. Construction material. Farm consumption i.e. FMCG, construction, consumer durables like fridge TV. Motor cycles, cars, low end SUV.
IT companies are a changed business model. Pharma will face pricing pressure after the FDA headwinds. PSU banks are now dead, govt doesnt have capital to give them and in anyway needs 5 lakh crore per annum of excess expenditure. It seems likely that the future growth will be entirely by private banks expanding to double and triple their current size - PSUI firms might go the way of MTNL. Big realty firms also seem to have run out of wind, since affordable is small ticket and likely to be spread this and distributed in villages rather than big projects - which have already been created for next 5 years of consumption anyway as the stalled projects complete. Metals also seem rangebound.
That leaves private banks, housing finance companies, motorcycles and cars, cement and construction. Thats it. Very small list of companies
Govt led construction seems focussed on multiple small contracts to small unlisted forms rather than large listed firms - the subcontractors seem to be directly employed by govt.
FMCG seeing major onslaught by traditional products - which might increase if the majority of consumers are rural. So FMCG also out.
So large construction firms like L and T might also not grow enough over large base already. Smaller construction firms like J Kumar and GMR etc are all linked to congress and are in debt trap - govt might bypass them. Construction materials seems safer play.
So a focussed portfolio of less than 10 stocks should cover these. So the six private banks (ICICI, HDFC, Kotak, Axis, Yes, Indus) six cement companies, six of the largest of the housing finance lenders, auto( maruti, hero, TVS Bajaj) and other materials (tiles, sanitary ware, paint, adhesives, plywood).
With careful choice, should double in two years
(already done wel since Jan2015 btw when I first gave my model portfolio of shares and funds)
This is what I wrote in Jan 2015
Portfolio recommendations for 2015 to 2018 (4 year recommendation and 4 year hold)
Size of portfolio 1001. PPF 10 (NAV on 1.1.15 = 10) Currently 12.5
2. FMP 10 (NAV on 1.1.15 = 10) Currently 12.5
3. Direct equity 25
a. Pidilite industries 5 (price on 1.1.15 = 552) Currently 830 = 7.5
b. HDFC bank 5 (price on 1.1.15 =947) Currently 1761 = 9.3
c. Asian paints 5 (price on 1.1.15 =747) Currently 1135 = 7.5
d. Ramco cement 5 (price on 1.1.15 =342) Currently 660 = 9.6
e. LIC housing finance 5 (price on 1.1.15 =437) Currently 650 = 7.4
4. Funds 50a. Franklin bluechip 10 (NAV on 1.1.15 = 338) Currently 450 = 13.3
b. UTI opportunities 10 (NAV on 1.1.15 = 48) Currently 54 - switched when its NAV was 48 to Axis long term @NAV 30@1.1.17 Currently 38 = 12.6
c. BNP midcap 10 (NAV on 1.1.15 = 22.33) Currently33 = 14.7
d. Franklin smaller companies 10 (NAV on 1.1.15 = 36.69) Currently 54.5 = 14.8
e. Reliance pharma 5 (NAV on 1.1.15 = 126.6) Currently 124 - switched when its NAV was 127 or so hence equal weight to direct equity - Hero@3000@1.1.17 Currently 3870 = 6.45
f. Franklin infotech fund 5 (NAV on 1.1.15 = 110) Currently 117 - switched when its NAV was 110 so equal weight to direct equity - Maruti @4700@1.1.17 Currently 7600 = 8.1
5. Birla global real estate fund 5 (NAV on 1.1.15 = 17.53) Currently 117 - switched when its NAV was 17.5 so equal weight to direct equity - Kotak@690 @1.1.17 Currently 977 = 7.1
Rationale
This is a selected stock+ sector fund + fund type of portfolio (not a stock only or high risk stock with fund or fund only portfolio). It is meant for safe, non monitored and risk free investment. There are 2 semi FMCG vs construction related stocks i.e. Asian paints and Pidilite. There are 2 banks (HDFC and LICHF) and one cement. The aim is concentrated risk on high growth. Only 3 best sectors selected (2 players from 2 sectors meant to minimize company specific risk). IT and Pharma sectors are covered by sector funds instead of specific stocks to minimize risk. There are 2 small and midcap funds to maximize gain and one multicap and one large cap fund to capture overall economic performance. Birla REIT can be replaced by a fund (Value discovery) if don’t want dollar denominated hedge. I have posted the NAV on 1.1.15 and we can compare this with levels on 31.12.15 and in each subsequent year with yearly course corrections if needed (stocks selected do not need course correction, being safe bluechips and funds selected are anyway a 4 year hold). I re-emphasize – this is a risk averse portfolio for prudent investment and not meant for higher risk appetite.
These are also meant to be used for SIP (into funds) and systematic equity plans for a drip into the stocks, to gain from price falls which might come. However I will not be analyzing the SIP and SEP performances since not worth the effort.
So the direct equity vastly outperformed the funds selected - I sold the funds about a year ago and bought a number of shares but writing only the ones kept as part of model portfolio for yearly comparison.
So this concentrated portfolio of stocks and funds should deliver good returns is my opinion (I personally have many other stocks and funds, including all of these but bought at varying points of time and at varying prices, just putting down the model portfolio for yearly comparisons only - these are also not the portfolio weightage in my personal portfolio, this is just model portfolio)
Portfolio value after 2 and seven months = 143 (using 10% for PPF and FMP for ease of calculation)
Compounding return = 14.8 %
Sensex on 1.1.15 was 27900 and is currently 31596 giving a compounding return of 5%
LETS ANALYSE THE FUND PERFORMANCE ALSO. 10 Rupees INVESTED IN 1.1.15 HAS BECOME BY 24.8.17
1. Franklin Bluechip 12.81 LARGE keep
2. BNP Mid Cap 14.54 MIDCAP keep
3. Franklin Smaller Companies 14.8 MID AND SMALL keep
4. Axis Long Term 13.34 LARGE tax discard
5. HDFC Mid Cap Opportunity 14.49 MIDCAP keep
6. ICICI Pru Value Discovery 12.46 DIVERSIFIED discard
7. BSL Pure value 14.77 MID AND SMALL keep
8. Franklin Prima 14.14 MID AND SMALL discard
9. Franklin Prima Plus 13.15 LARGE keep
10. HDFC Equity 12.46 LARGE discard
11. ICICI Pru Long Term 12.17 LARGE tax discard
12. HDFC Prucence 12.9 LARGE bal discard
13. HDFC Balanced 13.41 LARGE bal discard
14. Kotak Select focus 14.19 LARGE keep
15. SBI Bluechip 13.72 LARGE discard
16. Most focussed multicap 17.19 MULTICAP keep
17. ABSL Top 100 13.1 LARGE keep
18. BSL Equity 14.7 DIVERSIFIED keep
19. Mirae asset emerging bluechip 16.5 MID AND SMALL keep
20. Mirae india opportunity 14.16 DIVERSIFIED keep
21. ICICI Pru bluechip 13.09 LARGE discard
22. Franklin high growth companies 12.9 DIVERSIFIED discard
In view of lower interest rates in FMP maturing and more aggressive risk seeming justified currently, I am switching out from PPF and FMP at present prices to direct equity - maintaining total value of portfolio at 143 as attained from previous allocations. So current allocations are as follows
24.8.17 Nifty 9857 Value of portfolio = 143
Stocks ~ 60%
Pidilite industries 20@ 830
HDFC bank 9.3@1761
Asian paints 7.5 @ 1135
Ramco cement 22.1@660
LIC housing finance 7.4@650
Hero motors 6.45@3870
Maruti 8.1@7600
Kotak bank 7.1@ 977
Equity Funds ~ 40%
Kotak Select Focus LARGE 13.3@31.49
Most focussed Multicap MULTICAP 12.6@26.61
BNP midcap MIDCAP 14.7@33
Mirae Asset Emerging Bluechip MID AND SMALL 14.8@46.26
The companies benefitting from this are very concentrated and few. Housing finance. Private banks. Cement. Construction material. Farm consumption i.e. FMCG, construction, consumer durables like fridge TV. Motor cycles, cars, low end SUV.
IT companies are a changed business model. Pharma will face pricing pressure after the FDA headwinds. PSU banks are now dead, govt doesnt have capital to give them and in anyway needs 5 lakh crore per annum of excess expenditure. It seems likely that the future growth will be entirely by private banks expanding to double and triple their current size - PSUI firms might go the way of MTNL. Big realty firms also seem to have run out of wind, since affordable is small ticket and likely to be spread this and distributed in villages rather than big projects - which have already been created for next 5 years of consumption anyway as the stalled projects complete. Metals also seem rangebound.
That leaves private banks, housing finance companies, motorcycles and cars, cement and construction. Thats it. Very small list of companies
Govt led construction seems focussed on multiple small contracts to small unlisted forms rather than large listed firms - the subcontractors seem to be directly employed by govt.
FMCG seeing major onslaught by traditional products - which might increase if the majority of consumers are rural. So FMCG also out.
So large construction firms like L and T might also not grow enough over large base already. Smaller construction firms like J Kumar and GMR etc are all linked to congress and are in debt trap - govt might bypass them. Construction materials seems safer play.
So a focussed portfolio of less than 10 stocks should cover these. So the six private banks (ICICI, HDFC, Kotak, Axis, Yes, Indus) six cement companies, six of the largest of the housing finance lenders, auto( maruti, hero, TVS Bajaj) and other materials (tiles, sanitary ware, paint, adhesives, plywood).
With careful choice, should double in two years
(already done wel since Jan2015 btw when I first gave my model portfolio of shares and funds)
This is what I wrote in Jan 2015
Portfolio recommendations for 2015 to 2018 (4 year recommendation and 4 year hold)
Size of portfolio 1001. PPF 10 (NAV on 1.1.15 = 10) Currently 12.5
2. FMP 10 (NAV on 1.1.15 = 10) Currently 12.5
3. Direct equity 25
a. Pidilite industries 5 (price on 1.1.15 = 552) Currently 830 = 7.5
b. HDFC bank 5 (price on 1.1.15 =947) Currently 1761 = 9.3
c. Asian paints 5 (price on 1.1.15 =747) Currently 1135 = 7.5
d. Ramco cement 5 (price on 1.1.15 =342) Currently 660 = 9.6
e. LIC housing finance 5 (price on 1.1.15 =437) Currently 650 = 7.4
4. Funds 50a. Franklin bluechip 10 (NAV on 1.1.15 = 338) Currently 450 = 13.3
b. UTI opportunities 10 (NAV on 1.1.15 = 48) Currently 54 - switched when its NAV was 48 to Axis long term @NAV 30@1.1.17 Currently 38 = 12.6
c. BNP midcap 10 (NAV on 1.1.15 = 22.33) Currently33 = 14.7
d. Franklin smaller companies 10 (NAV on 1.1.15 = 36.69) Currently 54.5 = 14.8
e. Reliance pharma 5 (NAV on 1.1.15 = 126.6) Currently 124 - switched when its NAV was 127 or so hence equal weight to direct equity - Hero@3000@1.1.17 Currently 3870 = 6.45
f. Franklin infotech fund 5 (NAV on 1.1.15 = 110) Currently 117 - switched when its NAV was 110 so equal weight to direct equity - Maruti @4700@1.1.17 Currently 7600 = 8.1
5. Birla global real estate fund 5 (NAV on 1.1.15 = 17.53) Currently 117 - switched when its NAV was 17.5 so equal weight to direct equity - Kotak@690 @1.1.17 Currently 977 = 7.1
Rationale
This is a selected stock+ sector fund + fund type of portfolio (not a stock only or high risk stock with fund or fund only portfolio). It is meant for safe, non monitored and risk free investment. There are 2 semi FMCG vs construction related stocks i.e. Asian paints and Pidilite. There are 2 banks (HDFC and LICHF) and one cement. The aim is concentrated risk on high growth. Only 3 best sectors selected (2 players from 2 sectors meant to minimize company specific risk). IT and Pharma sectors are covered by sector funds instead of specific stocks to minimize risk. There are 2 small and midcap funds to maximize gain and one multicap and one large cap fund to capture overall economic performance. Birla REIT can be replaced by a fund (Value discovery) if don’t want dollar denominated hedge. I have posted the NAV on 1.1.15 and we can compare this with levels on 31.12.15 and in each subsequent year with yearly course corrections if needed (stocks selected do not need course correction, being safe bluechips and funds selected are anyway a 4 year hold). I re-emphasize – this is a risk averse portfolio for prudent investment and not meant for higher risk appetite.
These are also meant to be used for SIP (into funds) and systematic equity plans for a drip into the stocks, to gain from price falls which might come. However I will not be analyzing the SIP and SEP performances since not worth the effort.
So the direct equity vastly outperformed the funds selected - I sold the funds about a year ago and bought a number of shares but writing only the ones kept as part of model portfolio for yearly comparison.
So this concentrated portfolio of stocks and funds should deliver good returns is my opinion (I personally have many other stocks and funds, including all of these but bought at varying points of time and at varying prices, just putting down the model portfolio for yearly comparisons only - these are also not the portfolio weightage in my personal portfolio, this is just model portfolio)
Portfolio value after 2 and seven months = 143 (using 10% for PPF and FMP for ease of calculation)
Compounding return = 14.8 %
Sensex on 1.1.15 was 27900 and is currently 31596 giving a compounding return of 5%
LETS ANALYSE THE FUND PERFORMANCE ALSO. 10 Rupees INVESTED IN 1.1.15 HAS BECOME BY 24.8.17
1. Franklin Bluechip 12.81 LARGE keep
2. BNP Mid Cap 14.54 MIDCAP keep
3. Franklin Smaller Companies 14.8 MID AND SMALL keep
4. Axis Long Term 13.34 LARGE tax discard
5. HDFC Mid Cap Opportunity 14.49 MIDCAP keep
6. ICICI Pru Value Discovery 12.46 DIVERSIFIED discard
7. BSL Pure value 14.77 MID AND SMALL keep
8. Franklin Prima 14.14 MID AND SMALL discard
9. Franklin Prima Plus 13.15 LARGE keep
10. HDFC Equity 12.46 LARGE discard
11. ICICI Pru Long Term 12.17 LARGE tax discard
12. HDFC Prucence 12.9 LARGE bal discard
13. HDFC Balanced 13.41 LARGE bal discard
14. Kotak Select focus 14.19 LARGE keep
15. SBI Bluechip 13.72 LARGE discard
16. Most focussed multicap 17.19 MULTICAP keep
17. ABSL Top 100 13.1 LARGE keep
18. BSL Equity 14.7 DIVERSIFIED keep
19. Mirae asset emerging bluechip 16.5 MID AND SMALL keep
20. Mirae india opportunity 14.16 DIVERSIFIED keep
21. ICICI Pru bluechip 13.09 LARGE discard
22. Franklin high growth companies 12.9 DIVERSIFIED discard
In view of lower interest rates in FMP maturing and more aggressive risk seeming justified currently, I am switching out from PPF and FMP at present prices to direct equity - maintaining total value of portfolio at 143 as attained from previous allocations. So current allocations are as follows
24.8.17 Nifty 9857 Value of portfolio = 143
Stocks ~ 60%
Pidilite industries 20@ 830
HDFC bank 9.3@1761
Asian paints 7.5 @ 1135
Ramco cement 22.1@660
LIC housing finance 7.4@650
Hero motors 6.45@3870
Maruti 8.1@7600
Kotak bank 7.1@ 977
Equity Funds ~ 40%
Kotak Select Focus LARGE 13.3@31.49
Most focussed Multicap MULTICAP 12.6@26.61
BNP midcap MIDCAP 14.7@33
Mirae Asset Emerging Bluechip MID AND SMALL 14.8@46.26
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