Scorecard: Our hits and misses of 2017

As we put together our report card for the year 2017, it’s clear that in terms of returns delivered by our stock recommendations, it was among the best years in recent times. But with the market in a broad-based rally, beating benchmark indices became an uphill task.

We have considered the performance of the stock calls given in the period between January 2016 and June 2017 for this assessment, since the recommendations are targeted at long-term investors. Recent calls have been excluded for the same reason.

Investors in India’s stock market have had a good time since the beginning of 2016. As global commodity prices began recovering, led by crude oil, growth also picked up, aiding stocks. The positive sentiment towards global equity helped Indian stocks power ahead despite the setback caused by demonetisation and GST roll-out.

Some would say that this was a period when rationality took a back-seat as stock prices kept moving higher despite slowing earnings, especially in small-cap stocks.

There is froth in many pockets with price earning multiple of the Nifty midcap index now at 48 times while the Nifty smallcap index sports a PE of 184. Needless to say, stock picking was not easy in this environment as chasing stocks with bubble-like valuations meant taking on excessive risk.

We gave out a total of 226 stock calls in 2016 and the first half of 2017. The number of stock calls were scaled back intentionally in the later part of 2017 as the Nifty valuation moved beyond our comfort zone.

Our track record in beating the benchmark was not too good; a little above the half-way mark; partly due to the stellar rally in benchmark indices in this period. But the returns delivered by our stock recommendations in this period, have been quite good.

Had an investor bet money on all our buy calls, he would have gained 41.9 per cent. Similar sums invested in Nifty 50 or Nifty 500 would have delivered 25 and 31 per cent respectively.

We veered towards ‘buy’ recommendations as the market direction was quite clearly upward. About 70 per cent, or 157 of our stock recommendations, were ‘buys’. The hit ratio, or the ability to beat the benchmark, was only 50 per cent. But these recommendations have delivered average returns of 40 per cent till date.

Of these, 22 stocks delivered returns of more than 100 per cent, with Minda Industries, Lumax Industries, Sundaram Fasteners and Indraprastha Gas notching up an over 200 per cent return. One-third of our buy recommendations delivered more than 50 per cent returns.

Our buy calls in pharma, however, did not work well. Of the 34 buy recommendations that delivered losses, 19 belonged to this sector.

The learning here is to avoid playing the contrarian and chasing beaten down stocks.

We gave only 12 sell recommendation in the one-and-a-half years under consideration. Half of these calls have under-performed the benchmark.

Some of the sell recommendations such as Tree House Education, Gati and Interglobe Aviation worked well.

Our track record in hold calls was decent. We gave hold recommendations where the fundamental prospects of the company were good but valuations too expensive to justify a ‘buy’ call. We gave 29 ‘hold’ calls of which 19 delivered gains. There were, however, a few pharma and capital goods stocks where we should have given a sell instead of a hold.

The primary market has generated a lot of interest over the last two years and we covered most of the prominent offers made in this period.

The hit ratio of our primary market calls — at 70 per cent in this period — was slightly below earlier years.

This was mainly due to heightened speculative activity in the primary market taking stock prices up soon after listing, despite poor fundamentals. We will continue to tread with caution in this segment in the coming year as well.

Our hit ratio, proportion of mutual fund calls that outperformed Nifty 50 was decent, at 68 per cent. With valuations soaring, we consciously stuck to funds with large-cap orientation and balanced funds in the equity category. Such funds, that prefer playing it safe, underperformed this year.

In the debt category, our recommendations were mainly in short-term debt funds, in line with our view on interest rates.

Besides these, we have covered a bevy of insurance products, provided advice on rejigging loan and fixed deposit portfolios based on interest rate expectations, covered small savings and retirement products and a wide swathe of personal taxation topics that can benefit retail investors.

The commodity section covered topics of interest to farmers and the agri-business while our technical calls serve equity, commodity and currency traders.

It’s clear that 2018 will be a difficult year for equity and mutual fund investors. We will continue our conservative approach to stock and fund calls, to contain downsides and sustain long-term returns.

We plan to bolster our insurance coverage in the coming year and also begin columns specifically targeted at women and senior citizens.

Also watch out for the digital avatar of Portfolio, with enhanced offering.

Wishing all the readers of Portfolio, a very Happy New Year!

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