Akash Prakash of Amansa Capital manages a portfolio worth a mammoth Rs. 4200 crore (when I last valued it in November 2014). When you are managing funds of that magnitude, you cannot be impulsive in your buying or selling decisions. Instead, you have to carefully evaluate the pros and cons of what you are doing and what benefit you will derive from that.
Akash Prakash, in his interview in Gurus of Chaos, makes his investment strategy clear that he does not buy “any random stock that looks cheap”. Instead, he subjects a stock to a rigorous analysis on all parameters such as management capability, financial performance, extent of competition, business prospects etc, etc.
Also, after Akash Prakash buys a stock, he hangs on to it even if it begins to look terribly expensive. A prime example is Eicher Motors of which Amansa holds stock worth Rs. 586 crore. At a P/E of 77x, Eicher is definitely “not cheap” but Akash has no intention of selling the stock if you go by what he said in Gurus of Chaos.
A few days ago, we saw Amansa buy Balkrishna Industries stock worth Rs. 108 crore.
On Friday, 27th March 2015, Amansa Capital sold 10461056 shares of City Union Bank (CUB) at Rs. 99.99 each, realizing Rs. 104 crore.
There are a couple of theories that we can forumulate to explain Akash Prakash’s decision to jettison CUB:
(i) Reducing exposure to the financial sector:
Experts are predicting that bank and NBFC stocks may face some heavy weather going forward. We saw that the last rate cut by the RBI actually met with some selling. The Bank Nifty is down 5.40% over the past month. No rate cut is expected now till December 2015.
Saurabh Mukherjea of Ambit Capital has sent a clear warning of this in his latest interview. He says:
“Given the way the economy is shaping up, given that the capex cycle really is not coming through over the next year, my concern on financials is growing and hence there is a reasonable possibility that we will cut back on financials going forward.”
Amansa Capital already has Rs. 950 crore in Bank and NBFC stocks, spread over Federal Bank, Karur Vysya, Cholamandalam and SKS MicroFinance. This constitutes 22% of the overall portfolio.
(ii) CUB is overvalued and it is a shift to a cheaper Auto/ Auto ancillary:
The second theory is that Akash Prakash has shifted from a bank stock quoting at a stiff P/BV of 2.84 to a tyre company, Balkrishna Industries, quoting at a reasonable P/E of 12.40x. The fact that the amounts involved are the same (about Rs. 104 crore) supports this theory.
(iii) Loss of confidence in City Union Bank:
The third theory is that some news/ rumor of an impending NPA has spooked Akash Prakash and he has decided to play it safe by jettisoning CUB.
Are there any other reasons why Akash Prakash may have sold CUB? My best guess is that he has only indulged in a bit of portfolio balancing so as to reduce weightage to the financial sector.