Model Portfolio Of Top Stocks Held By The Best Mutual Funds

The salient features of the Model Portfolio are these:

(i) Only Diversified Mutual Funds with the “CRISIL Fund Rank 1” title meaning “Very Good performance in the category (Top 10 percentile of the universe)” are selected;

(ii) The stock which is the topmost holding of that fund is selected;

(iii) The Portfolio has stocks from different sectors. The chosen stocks will have leadership position in their sectors with top-quality management.

(iv) The Portfolio has large-cap and mid-cap stocks.

HDFC Bank needs no introduction. When you buy a stock like HDFC Bank, you should never pay attention to mundane things like PE ratio or P/BV ratio. Why, because if you do, you will never buy the stock. HDFC Bank has always been “expensive” for as long as one can remember. Yet, if you had just closed your eyes and bought the HDFC Bank stock 10 years ago, you would be gaping at a 16 bagger in your portfolio.

ING Vysya Bank is one of the new-age Banks which was identified by Ashish Tater in August 2012 when it was quoting at Rs. 391. At the CMP of Rs. 481, investors who heeded Ashish Tater’s advice are already looking at a 23% return. For latecomers, there’s still an opportunity because (i) it is trading at a steep discount to the large banks like HDFC Bank, Yes Bank, Axis Bank and ICICI, (ii) it has an expected growth rate of 25% in FY 2013, good asset base and good balance sheet, (iii) there is hardly any floating stock available for retail investors because the promoters hold about 43% of the equity while large institutions hold a large chunk.

ICICI Bank has become everybody’s favourite stock thanks to its severe underperformance in the recent past. Even Samir Arora declared that he was bullish on the stock. Ajay Srivastava of Dimensions Consulting said the same thing a short while ago. ICICI Bank’s traction in business expansion, improvement in margin, reduction in credit cost and decrease in leverage (with expansion in balance-sheet size) is expected to yield higher return ratios going forward. Its credit book is expected to expand in high teens (20% CAGR during FY12-14E) driven by SME, retail & working capital requirements and it is expected to record NIM of 2.8-2.9% on the back of higher yield on investments, reduction in losses on securitized book, traction in overseas business and stability in CASA deposit share.

Page Industries is another stock that you will never buy if you worry about PE ratios. This is another stock like HDFC Bank that you should buy by closing your eyes. If you had done that 10 years ago, you would have a 10 bagger in your hands. If you had bought it 5 years ago, you would have a 7 bagger in your portfolio. If you buy it now, you may have a 10 bagger in your hands after 10 years.

Cairn India scores because it is one of the biggest private exploration and production companies in India. It has recoverable oil reserves and resources of more than 1 billion barrels, which includes proven plus probable (2P) gross reserves and resources of 636 million barrels of oil equivalent (Mn boe) with a further 308 Mn boe or more of enhanced oil recovery (EOR) potential. This is 25-30 years of production. Cairn’s valuations at 5.1x EV/EBIDTA and 6.3x P/E on FY14E earnings are quite reasonable.

Bajaj Auto is Shankar Sharma’s favourite stock and has given fabulous returns to its investors. A top quality management, a top quality product, a strong brand name, high ROEs and low debt. Bajaj Auto has all the makings of a portfolio stock. The stock has been a bit under the weather owing to the high interest regime and that is why this is the perfect time to swoop down on the stock and buy truck loads of it.

Ipca Labs is one of the better managed mid-cap pharma companies. It has shown consistent improvement in profitability along with strong growth in business. Both of its key business segments viz. the international formulation business and domestic formulation business are likely to do well over next couple of years. One can expect strong earnings CAGR of 34% over FY12-14 led by robust topline growth of 17% over the same period. Its valuations at 15.1xFY13E & 11.7xFY14E earnings are at a significant discount to large cap and some of the mid-cap companies in the sector.

The great India consumption story theme is the best place to park your money because with an ever-increasing population of affluent consumers, these stocks have strong earnings visibility. What better way to play the sector than with Blue Chip heavy-weight favourites ITC and HUL. These stocks have seen many recessions and lived to tell the tale. These old war horses can be trusted to be around for another 25 years at least.