We thought to cover all the major stock market news and our views from now on weekly basis. We will share a comprehensive report with you all so that you can follow on our blog and gain insight through it.

Last week it was all about:

  1. GST
  2. Stock market’s quarterly and monthly returns and how our portfolio and professionals performed.

GST

The first thing I did before writing anything on the GST was to get on the Google and type ‘GST India’ to find out what others are talking about.

I found most of them covered GST as what will be cheap or expensive. But I think GST is not all about that. There are bunch of items that are now cheap, but not more than of 5% and similarly few are expensive but again, not more than 5%. In the end it is all even play. You won’t see inflation going up (other than short term) because of GST.

To me it is all about making economy as ‘white economy’. I see any economy running in combination of white and black, where white means you pay taxes from your business activities and black where you don’t pay any taxes. To explain this in simple terms, for example, you hired an electrician for his services and it cost you Rs 500 for his/her service. If electrician runs his business in white economy than his/her tax invoice of Rs 500 includes GST which you can claim easily as expense towards your business and claim that GST as credit (making it cheaper for you). But if he/she is operating in the black economy than it becomes hard to claim that as expense towards business.

GST will make white economy dominate and add more to country’s GDP. Whatever your belief is on the proportion of white and black economy, GST will from here on will dominate black economy. India’s GDP of US$2 trillion is seen or reported is all white economy. If you believe that this only represents say 30% – 40% of entire economy, then within a year or two it will double.

There are less than 2% of India’s population that pays income tax. I found on internet a good blog about all the statistics, you can click here to read. GST will change those numbers in the coming years. GST is non-event for stock market. Because stock market operates in the white economy. All the accounts are audited and reported continuously all around the year, still there are few industries who claim to have small connection to black economy, and we will see few jitters for the short term within those industries.

GST is also more in limelight because it will impact small individuals and businesses and their pockets. The Government wants to include these people in their tax net to grow its receipts and build the country. Time will tell us how GST is shaping Indian market. I am positive about it from capitalist point of view.

Stock market quarterly and monthly report card with our portfolio

The higher the price you pay, the lower your returns. This is fundamental truth of investing, a law, like gravity and an impost that cannot be escaped. If you are the investor in the stock market than let me throw some light on few statistics. On average period of time, there are not more than 20% of the stocks that trade within valuation zone. But that does not mean you should buy those 20% of stocks and add them in your portfolio. There are various reasons you should not because they are trading at cheap price, most important reason could be because market expects them to destroy further more value.

Not more than 5% of the stocks you will find are genuine to buy. This means one in 20 stocks are worth to invest with. So don’t go out and buy anything without any research. We have shared earlier in regards to how should you approach a stock market, you can click here and here to learn more about it.

Stock market quarterly and monthly returns

We track NIFTY 500 index very closely as it is our universe of selecting stocks for our portfolio. NIFTY 500 had given returns of 4.21% in its first quarter and first negative monthly return of -0.24% in the month of June 2017.

Below is the snapshot of quarterly and monthly performance of stock market indices, professionals and our portfolio:

Quarterly returns

NIFTY 500 4.21%
Valueoperations Portfolio -0.62%
Birla Sun life small and midcap fund (G) 4.30%
ICICI Prudential top 100 fund (G) 1.4%

 

June 2017 returns

NIFTY 500 -0.24%
Valueoperations Portfolio -2.49%
Birla Sun life small and midcap fund (G) -0.30%
ICICI Prudential top 100 fund (G) -0.50%

 

Here is how our portfolio looks now:

Stocks 1st April 2017 1st July 2017 Performance
Buy Price Holding Cost 31st June 17 Dividend received Current value + Income Returns
Indiabulls Housing Rs 998 253 Rs 252,494 Rs 1076.15 0 Rs 272,265.95 7.83%
Hind Zinc Rs 291.10 338 Rs 98,391.80 Rs 263.65 0 Rs 89,113.70 -9.43%
ONGC Rs 185.20 750 Rs 138,900 Rs 157.30 0 Rs 117,975 -15.06%
Kitex Garment Rs 286.43 882 Rs 252,631.26 Rs 275.15 0 Rs 242,682.30 -3.94%
Yes Bank Rs 1,400 36 Rs 50,400 Rs 1,463.50 0 Rs 52,686 4.54%
Lupin Ltd Rs 1,090 92 Rs 100,280 Rs 1,059.85 0 Rs 97,506.20 -2.77%
Tech Mahindra Rs 360 491 Rs 176,760 Rs 382 0 Rs 187,562 6.11%
Cash Rs 195,171
Total Rs 1,262,749.80 Rs 1,254,962.15 -0.62%
NIFTY 500 7995.05 8331.60 4.21%

 

So, what is going wrong with Valueoperations portfolio?

There was no value to invest anywhere other than Indiabulls Housing Finance when we started our portfolio in April 2017. We decided to go with investing in Hind Zinc and ONGC against our belief as they were looking cheap stocks at that time. Our conviction level on Hind zinc and ONGC was low as mentioned earlier while investing with them. You can read that post if you have missed out on it by clicking here.

So conviction plays very important role and if your conviction levels were not too high, we should have invested less then what we had invested in both the stocks. At this stage our portfolio is underperforming because we had lost almost close to 3% of our portfolio value so far by investing in both these stocks.

The plan now is to cut down the exposure as per our conviction level on both the stocks if we get the opportunity (we don’t like to book losses as we invested only for one quarter in these stocks).

Framework

This is the framework we are planning to work on from here on. By asking simple question, what we think about this business in the next 5 years? If we can answer this question than we stick to it and stay invested and keep close eye on its performance.

Indiabulls Housing Finance

We think this business can keep growing around 20% its top line until 2022 (5 years) until the dream of ‘house for everyone’ is accomplished. There are many players and a big competition in this segment. Until the banks’ balance sheets are not fixed, they will keep adding to their bottom line at healthy rates (at least for the next 18 month).

Hind Zinc

We cannot predict anything about it for the next 5 years as its top and bottom depends entirely on zinc demand and it’s on spot price movement. This by itself makes it unattractive to invest with. We invested in this on pure expectation of zinc demand and price to rise because of few major zinc mines will shut down for various reasons.

But in reality this is not happening yet. We have decided to cut down our exposure on it if we get opportunity.

ONGC

It is hard to predict oil and gas demand for the next 5 years as this industry is on edge of disruption by other sources of energy. Electric cars and driverless cars will cut down the demand of oil. We invested in ONGC for this year on the expectation of it producing more gas and oil this year. If price of oil and gas stabilise this year than growth in volumes should help to grow its top and bottom line at healthy rates.

Similar to Hind Zinc we will be cutting down our exposure if we get opportunity according to our conviction level.

Kitex Garment

In 5 years we look Kitex Garment to triple its revenue by selling more in USA and Canada market but also if they get an opportunity than should also look into European market for opportunity. They are second biggest manufacturer in the world in their industry and just 4 months ago they launched their own brand in USA. Partnering with big players in USA like Amazon and Walmart and many other retail chains will make it easy to grow its top line. Management skills will be tested on how efficiently they convert that top line into bottom line of this business.

A disruption due to the President Trump new policies had impacted its revenues and bottom line in the fourth quarter of 2017. But with more clarity now on the subject, it looks it will be not repeated.

Yes Bank

In the next 5 years we expect Yes Bank to double its balance sheet. It will be not easy because of the competition but we think with Government’s new policies and regulations there will be still a lot of demand for finance products in the coming years.

We wanted to invest in the private bank and Yes Bank was the only bank that was trading within our valuation zone and we got opportunity to invest little in this business.

Lupin Ltd

Majority of the pharma companies are trading at 52 week lows and fall in its stock price below Rs 1,100 was a good opportunity for us to invest. There will be stiff competition in the genetic market in USA and Europe. India is the third biggest supplier of pharmaceutical products in the developed countries. They are very highly regulated and industry depends on cheap raw material availability and highly skilled employees is the requirement and they both are available in India.

With the high competition in the market, Lupin like other companies are now looking to get into specialist market. To survive this competition pharma’s will have to keep launching new products (more ANDA’s) and Lupin is the second biggest company with pending approvals of ANDA’s from USFDA (regulator).

Tech Mahindra

Tech Mahindra looks the cheapest stock in the top 5 IT businesses in India. Our conviction level is low. Tech Mahindra is also struggling to grow its business and have invested heavily by acquiring other businesses around the world. They have recently invested in health care IT support business. It will be interesting to see how they perform in coming quarters.

We will be cutting down our exposure and book some profits in Tech Mahindra as per our conviction level.

Conclusion

In our next week’s post we will cover stocks which look cheap in the market and also companies which are expected to grow its earnings most in 2018. I will also be sharing few businesses that I am exploring to invest with.

Your feedback is most important to us to keep motivating us so please share your thoughts on this article. So if there is anything in your mind you want to tell us then please let us know.

Happy investing!!