It was a dramatic 2016 for stock market investor. NIFTY 50 had given a returns of 3.01% and NIFTY 500, 3.84%. Nobody thought at the start of 2016 that market will end in positive territory by the end of the year. In the first 2 months indices were down by 15%, and then we witnessed 7 long months bull rally. BREXIT and Trumps victory in USA presidential election was a big shock to global investors.

But then when we look closely to the stock market, NIFTY COMMODITIES had posted solid returns of 24.74%, NIFTY METAL 45.20% and NIFTY ENERGY 19.66%. Similarly, the worst performer were one of the best businesses from NIFTY PHARMA (-14.18%), NIFTY IT (-7.25%) and NIFTY CONSUMPTION (-2.47%).

We found that the best quality businesses that we follow were the worst performer in relation to their returns. The cyclical businesses outperformed and posted solid returns, though many names within them are exposed to high debts and are generating lower profits.

Many investors in search of returns invested their money in small and midcap good businesses. But soon when they found metal and commodity stocks short term future prospects attractive in the second quarter, they started dumping good quality businesses and invested in the high debt businesses, resulting drop in the stock price of high quality businesses.

There was a very low probability for metal, commodity and energy sector to outperform in 2016. Nobody thought they will give these kind of returns. But they did. It is impossible to predict returns from the stock market in the short term. Imagine we play a game, where you pay me Rs 300 every time you throw a die, and I repay you in multiples of Rs 100 multiply by the number comes on a die. This time it turned out into six! And you would expect it to come every time when you throw dice. But unfortunately the probability of that to turn six was only 16.67% and is 16.67% in the future.

Let us look at how market behaved in the month of December and as well as our 3 portfolios:

NIFTY 500 -1.66%
Portfolio 1 -1.91%
Portfolio 2 -3.89%
Portfolio 3 -4.05%

 

So market continued to slip down in the month of December after 6.6% drop in the month of November 2016. All the 3 portfolios underperformed against market returns in the month of December 2016.

If we look into the stocks of our portfolios, Axis Bank reported lower profits in the second quarter due to the NPA’s issue, which means its 2017 financial year profits will decline against its 2016. Similarly Kitex Garment too reported not so good 2nd quarter results but is expected to report 20% growth in its revenue in the second half of 2017 financial year. Indiabulls Housing stock price declined because of lower growth in its loan book (below 10%) which could impact its earnings. TCS, as we know already, is expecting lower earnings growth in 2017 financial results, resulting in weak stock price.

Third and fourth quarter results of all these companies will dictate their stock price performance. Here is the summary of all the three portfolios.

Portfolio 1

Name Quantity Purchase Price Current Price Total money invested Current position Standing
Axis Bank 511 INR 391.10 INR 449.95 INR 199,852.10 INR 229,924.45 15.05%
Kitex garment 552 INR 430.10 INR 406.45 INR 237,415.20 INR 224,360.40 -5.50%
Castrol 533 INR 375.00 INR 380.65 INR 199,875.00 INR 202,886.45 1.51%
TCS 90 INR 2,226.60 INR 2,365.55 INR 200,394.00 INR 212,899.50 6.24%
coal India 660 INR 302.85 INR 300.00 INR 199,881.00 INR 198,000.00 -0.94%
cash INR 19,758.30
Total INR 999,997.10 INR 1,087,829.10 8.78%
NSE 500 INR 5,833.40 INR 6,982.80 19.70%

 

Portfolio 2

Name Quantity Purchase Price Current Price Total money invested Current position Standing
Axis Bank 515 INR 428.38 INR 449.95 INR 220,615.70 INR 231,724.25 5.04%
Kitex Garment 485 INR 430.10 INR 406.45 INR 208,598.50 INR 197,128.25 -5.50%
Indiabulls housing 298 INR 686.44 INR 650.25 INR 204,559.12 INR 193,774.50 -5.27%
TCS 105 INR 2,316.45 INR 2,365.55 INR 243,227.25 INR 248,382.75 2.12%
coal India 773 INR 306.24 INR 300.00 INR 236,723.52 INR 231,900.00 -2.04%
cash INR 5,161.65
Total INR 999,997.10 INR 1,108,071.40 10.81%
NSE 500 INR 5,833.40 INR 6,982.80 19.70%

 

Portfolio 3

Name Quantity Purchase Price Current Price Total money invested Current Position Standing
Axis Bank 459 INR 432.58 INR 449.95 INR 198,554.22 INR 206,527.05 4.02%
Indiabulls housing Finance 288 INR 686.77 INR 650.25 INR 197,789.76 INR 187,272.00 -5.32%
Coal India 712 INR 305.55 INR 300.00 INR 217,551.60 INR 213,600.00 -1.82%
TCS 97 INR 2,320.04 INR 2,365.55 INR 225,043.88 INR 229,458.35 1.96%
Kitex Garment 546 INR 410.20 INR 406.45 INR 223,969.20 INR 221,921.70 -0.91%
cash INR 584.40
Total INR 999,433.00 INR 1,059,363.50 6.00%
NSE 500 INR 5,833.40 INR 6,982.80 19.70%

 

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we tell you to take professional advice before going ahead with our views.