My 2016 top stock picks and 2015 portfolio performance

Hello readers,

How Indian markets performed in 2015 vis-à-vis world markets:

Before we get into 2016, let’s look back and see how the Indian markets performed in 2015 vis a vis the world markets. The Sensex was down by 5% with respect to 2014 closing levels (from 27500 levels to 26100). US equity market(S&P 500) had almost flat at 0.7% down . European stock markets had a mixed bag with German DAX rising at 9.6% growth but UK’s FTSE in negative zone(-5%), Japan(NIKKEI) was in positive zone (9%) after it dropped 8% in 2014. Shanghai(China)market went up by 9%. As we witnessed turbulence in almost all markets and economies, Indian markets also got impacted negatively with FIIs pulling out $5 Billion in last 6 months after market had risen to 30000 and markets dropped 13% from that peak levels . 2015 will be remembered as a year of turbulence and volatility in global markets as after a decent and optimistic start for the year , markets witnessed great turbulence due to various factors like Fed(US reserve bank) tapering its asset purchase program and starting to reduce the interest rates, Chinese economy slowing down , commodity melt down , oil prices dropping drastically to $35 level, devaluation of currencies of emerging markets , leading to FIIs pulling money from emerging markets like India. Had it not been for domestic investors who ploughed in record $15 Billion in Indian markets in 2015 , the market could have dropped much more.

How my 2015 model portfolio performed (Top 15 stock picks)

Pl refer to my blog (dated 6th January 2015) where I had mentioned my top 15 stock picks for 2015(model portfolio 2015).My model portfolio showed a drop of 2% versus 5% drop of Sensex gains(till 1st January 2016). So it beat the Sensex performance marginally .The 3 top gainers were Bajaj Finance(74%), Torrent pharma(29%),Aurobindo pharma(48%), Dewan housing (17%). The top disappointments were Kaveri seeds(-53%), NMDC(-38%). REC(-33%) and BOB(-30%) and Apollo tyres(-30 %) .Pl refer to my 2015 portfolio tracker on the Right hand side of the blog to get the details. My actual 2015 portfolio (with some changes along the year like buying new stocks like India Bull housing finance, Axis bank etc and buying more of strong stocks and less of weaker ones like Kaveri , NMDC and BOB.) went up by 2-3% while investing in safe and blue chip stocks.

2015 Portfolio results tracker, as per the data on 4th Jan 2015

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Lets see how my 2014 January model portfolio and 2013 January model portfolio performed in 2015, as per the portfolio tracker on the blog page today- 4th January 2016 (Viewed on the right of the blog page) . The 2014 January portfolio had gained 45%(from Jan 2014 till today)versus 23% of Sensex gains after Jan 2014(almost double the Sensex gains) , hence beat the Sensex with a good margin(alpha). The 2013 January portfolio had gained 67%(from Jan 2013 till today)versus 35% of Sensex gains after Jan 2013, hence beating the Sensex with a good margin(alpha). Pl refer to the portfolio trackers for 2014 and 2013 on the right hand side of the blog to get the details..

My forecast of the Indian markets :

I am a long term investor who focuses on long term trends and projections of the economy/ market and my favorite businesses/stocks. I would not dare to venture into the short term precise Sensex forecast as markets are very unpredictable in short term. This year , Global markets might be as volatile as 2015 , especially the first half of the year due to factors like Chinese economy slowdown leading to Chinese market crash, commodity meltdown , Fed increasing the interest rate further , rupee devaluation etc. These global factors will definitely have an impact on Indian markets. Domestic factors like ability of Indian government to pass certain key legislations like GST, its execution track record on reforms and key initiatives like Make in India and Digital India, restart of investment cycle and corporate earnings pickup will have an impact on the market levels. Government Infra spending on roads, railways, ports, defense etc and Budget for 2016-2017 will also play a significant impact . My hunch is that 2016 would see a better market performance due to delayed green shoots we can see in the Indian economy like controlled inflation(@5%) , better fiscal and current deficit, passenger car industry(barometer of consumption) showing a growth of 11% in December 2015, FDI (Foreign direct investment) showing a growth of 35-40% in last 15-18 months , especially after Make in India campaign and government gearing to show more reforms and execution after taking some hammering over its execution and reforms records. Besides FIIs would eventually come back to India after pulling back in 2015 as they don’t have too many stable and growing economies in the world.

I would like to repeat that India economy and the market have already started a strong and long term structural bull market in 2014(I had predicted the same in my multiple blogs in 2012 and 2013). There could be small and temporary corrections or fall in the market(like we had in 2nd half of 2015 when market came down from 30000 to 26000) but the long term trends should be a very positive one for many many years. As far as my long term Sensex prediction is concerned, I am predicting Indian market(Sensex) doubling up every 4 years for next 15-16 years which means Sensex multiplying 16 times in 16 years (reaching about 4,00,000 by end of 2030). This means that you can multiply your wealth 16 times in 16 years just by investing in Sensex EFT or index funds . If you do a bit of good stock picking , you can beat this rate and multiply your wealth by 20-30 times by 2030 . This kind of long term wealth creation opportunities can happen only in rare asset classes (like Indian blue chip equities ) in the world. The economic and investment cycles have bottomed and will show a sustained long term positive trend from now. The macro variables have improved a lot with CPI inflation at <5% , Fiscal and Current account deficits under good control, stable government showing positive signs of reforms, stable currency etc .

My 2016 Model Stock portfolio

In summary , the macroeconomic and global factors are uncertain and cloudy which could be creating further volatility . Hence 2016 is going to be a stock picker market and not general market where you can bet on Index and certain sectors in general .Hence the need to have a disciplined bottoms-up approach to research and pick the right business –quality businesses run by quality management with strong balance sheets, earning decent return of capital/ equity(ROE) and good long term growth outlook. As per my tradition in last few years, I am publishing my top 15 stock picks for 2016(model portfolio 2016) in which I am investing now .

My 2016 Portfolio of Top 15 business/ stock picks(stock related data as per 4th Jan 2016) :-

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The 2016 model portfolio is heavily loaded towards Banking & Finance(Axis Bank, Yes Bank , Dewan Housing Finance, India Bulls Housing Finance)- Mainly Private banks and Housing Finance , It also has Auto sector(MRF tyres, Tata Motors & Maruti ), Infrastructure/ Power sector(REC , Power Grid) , IT sector(HCL and Tech Mahindra) and Pharma stocks(Torrent and Dr.Reddy pharma) and Consumption(PC Jewelers & Bajaj Finance) . These sectors are either domestic interest sensitive and capital intensive sectors like B&F, Auto, Infra/ Power or are Global defensives like IT and Pharma . All these businesses are quality businesses with durable competitive advantage with excellent returns on capital(ROE), strong balance sheet, competent managements and stable growth records (in last 3 to 5 years) and yet available at under-valued or fair prices, providing a great “margin of safety” for value and long term investors . I have retained majority(8 out of 15)of 2015 stocks in 2016 portfolio while adding 7 new businesses/ stocks. The other thing you would notice is that all these companies are blue chip companies(mostly large caps and few mid caps with market capitalization of > 5000 Crore.). This is for reducing risks associated with small caps and smaller midcaps like corporate governance issues, non-transparency, share price rigging, share pledging by promoters, excessive volatility etc which can make you lose your capital permanently. This market is a long term structural bull rally and therefore any fall or correction would be temporary and should be treated as a good opportunity to invest in quality stocks or businesses for long term with a long term returns of 20-25% per year (on an average)

Wish you a very happy New Year again and Happy investing,

Cheers Amar

I am an IIM Bangalore Alumnus & NIT Allahabad Engineering graduate with 18 years of global experience into service and outsourcing industry. Value Investing has been one of my passions for last 8 years.

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