Great time to make fundamently strong blue chip portfolio

Demonetization will impact fancied Micro Finance Companies adversely in the short to medium term.
NPA's could see uptick.

With GST likely to become a reality over the next six months, a combination of this move of demonetization and introduction of new currency notes will lead to a huge increase in the formal economy and be a death knell for the black economy. The entire cycle of the parallel economy and the loopholes that fed the parallel economy will now come to an end. This move will lead to several things

1. Will slow down the economy in the short run- As cash crunch hits the system given the fact that India is still largely a cash economy given the huge rural population it will impact consumption, transactions, investments etc essentially the entire cycle in the rural economy. Many short term traders and shopkeepers etc will also see disruption in their business. The onus here is on the RBI i.e. the speed at which they can bring in new 500 and 2000 notes into the system
2. Tax revenues/Bank Deposits will increase – Tax revenues of the government will increase as most people come into the formal income net. The potential is huge given that hardly a few percentage point of Indians pay taxes. This can potentially lead to much lower marginal tax rates for honest taxpayers (like us) over the next few years. Bank Deposits are likely to see a huge jump up in the near term which will moderate over the next few months as people again withdraw money and get cash in hand however a significant amount will be sticky. This will improve system liquidity and lead to lower interest rates going forward. As lot of black money gets sucked out i.e. becomes junk it will also reduce inflationary pressures in the economy.
3. Growth will be higher in the long run- This move will lead to higher growth in the long term as interest rates will be lower than base case, government tax revenues will be higher and there could be higher investment in infrastructure. A combination of GST and Demonetization will boost economic growth by 1-2% per annum over the long run after the initial blip this quarter.
4. Real Estate Sector- Price of real estate in India will remain here or lower for at least 5-10 years into the futures. Prices will moderate however rentals might move up as more people prefer to rent.

MARKET OUTLOOK

After the Brexit and Trump bogey the next bogey to be faced by the markets will be FED Hike fears. Investors need to look beyond this. FED is hiking due to improvement in employment and the economy and is positive for equities. The FED funds rate even after this hike will be just 0.62% on an average. We will be concerned only after the rate crosses 2.5% which is a few years away.

At a 7900-8000 level of the markets they would correct 50% of the move which started after the February panic bottom. I believe that these levels will hold in the markets. In today’s panic reaction we saw the Nifty move to 8000 levels before bouncing back substantially. We could see a retest plus minus 1 percentage point going forward. After February this is going to be the opportunity to build up a strong portfolio again. There is no need to be fearful today. Everyone is fearful this will be the time to buy for long term gains.

 

Good analysis

100% Agreed. I bought some stock today

 

@Srouta Mukherjee which stocks you bought today? I think earlier you were housefull with stocks and no money

Your choices JBChem and CAPF are shining my portfolio, thanks!

 

I bought bit of stocks like CAPF (Good result), DHFL (old favourite), Cera & Kajaria (good stocks), Granules (no connection with black money). I sold Vaibhav Global stock at heavy loss (70 % loss) for money to buy stock. I hope VG does not shoot up after sale

 

I missed L&T Fin because stock shot up while I was thinking about buy

 

CAPF: 18.96 Forward EPS, At 628 stock is trading at PE of 33.1
Cash & cash equivalents at 2227.78 crores !!!

DHFL : 27.89 Forward EPS, At 281 stock is trading at PE of 10.07
Cash & cash equivalents at 11465.55 crores !!!

DHFL operates in Housing finance, CAPF - General Finance...

 

Stock is very expensive but ROE is high.

Stock is cheap but ROE is low. I have not studied in detail. Also L&T Fin Roe is going up because restructuring is there.

 

DHFL is trading at meagre 1.1 price to book value...(Book value 184).

If you compare price to book value of peers, Gruh 9.14 pbv, Repco 4.14, HDFC trading at 3.44 pbv, CAN FIN HOMES 3.38, Indiabulls Housing trading at 3.24, LIC housing finance trading at 2.46 pbv.
It is cheapest price to book value scrip in entire private NBFC space !!!

Also company has consistently delivered.

Compounded Sales Growth:
10 Years:
43.92%
5 Years:
43.27%
3 Years:
34.31%
TTM:
22.29%

Compounded Profit Growth:
10 Years:
36.26%
5 Years:
32.72%
3 Years:
26.57%
TTM:
17.37%

Return on Equity:
10 Years:
16.5%
5 Years:
16.35%
3 Years:
15.76%
TTM:
15.15%

Having said that, I feel NBFC and Micro finance will feel demonetization pain for the next 1-2 quarters which will reflect in their books.
One should be cautious in investing in MFCs/NBFCs.

Should start adding in SIP with 20-30% correction !!!

 

Added small quantity of L& T fin holding.

 

Added small quantity of Maruti ,already in portfolio ,but very small quantity.It is among few large cap stocks which may grow for atleast for next two to three years and I expect 15℅ CAGR return from it.

 

Dont worry sir , i want to give one suggestion sir , if you want to buy a stock for long term with full confidence , at that time if just missed that price , apply one strategy , if you want to buy 100 shares at low price , but stock is going up day by day immediately buy 20 shares at high price and hold it for long term , with remaining money buy when ever correction comes slowly infuse 20 shares step by step .....

 

Added small quantity of Mahindra Holiday.

 

wonderla is a bluechip in making.

 

Added small quantity of Asian paints and RBL bank , which may give steady CAGR 15℅ return for next five years or even more.

 

Added small quantity of Federal Bank ,already in my portfolio and has almost doubled already from my buying price .It looks stock will now perform for next few years and I expect it to again double in next three years.

 

Add small quantity of ITC ,already my portfolio stock .It seems FMCG business will start giving boost to bottom line from next year.I expect it to give 15% CAGR for next 5 years

 

Better to go for mid-cap like Bajaj Corp IMHO because ciggarette is dying business with huge tax liability.

 

Excellent choice I am also thinking of buying Federal Bank for portfolio. It has done superb in past.

 

Strategy is sensible. I am implementing it.

 

ITC is investing its Tobacco profits to create one of the biggest FMCG company of India with size and scale of HUL.Its FMCG business will grow to one Lakh Crore .It is also moving into health care soon.