Journey and Portfolio of a goal-based NEEV investor

Date: 30th December 2023 (Q3 FY24 portfolio update)

A quick update on how Q3FY24 has performed and overall 2023 performance with a few general thoughts on what worked, what didn’t and how/what I expect going into 2024.

Right now, I am off to the hills with family and friends. Feel I needed this break more than ever at a personal level. On the investing front, 2023 has been a stellar year and I feel, we got very lucky given how 2022 ended and how 2023 started. And that’s concerning since every tom, dick and their uncle is bullish in 2024. More on that later…

General update on my portfolio:

• (asterisk) signifies <1 yr holding period.

Exits in Q3 FY24

1. DMART – 100% exit. Want to move into cash for other opportunities that might present better future growth prospects, either momentum or value basis e.g. INDIAMART, VBL, NH, TICL, TIPS etc. Although on a short-term basis, opportunity loss could be high.

Other reasons for selling:

• Sold 100% of the holding over the last 5 years and generated 40% absolute returns and 20% IRR
• Lack of growth triggers, although P/E remained >100
• Business hasn’t fundamentally changed, although margins (OPM) remain constant at 7-8% which might mean that although the business moat is intact but not helping in pricing
• Promoter still owns 75%, hence free-float remains low
• Reduced DOL (degree of operating leverage) – Current Year (CY): 0.38 vs Previous year (PY): 1.19
• PE remains very high (>100) but growth has slowdown which gives me discomfort of de-rating
• High valuation has very little room for disappointment
• Such high PE stocks are priced to perfection, wherein any negative news takes a toll

2. NAUKRI – 100% exit. Want to sell all high PE + low growth stocks + no visible sight of immediate (6-12 months) growth triggers. Although the company has given 16.7% XIRR over the holding period.

Other reasons for selling:

1. Low profitability growth
2. Low ROCE growth
3. No visible outlook from the VC portfolio after Zomato and PolicyBazar’s IPO
4. Such high PE stocks are priced to perfection, wherein any negative news takes a toll

Overall portfolio key metrics

Overall portfolio returns (via VRO tracker):

Portfolio churn rate:

I think this is one topic worth thinking about a lot more than it’s given credit for. Hope to share more thoughts on this. I have noticed that overall portfolio returns improve as the churn rate reduces (inversely proportional). Although I need to do more more research than falling into confirmation bias so soon!

Investments in Q3 FY24

1. MOST 100 ETF – Averaging NASDAQ as the belief is that the DXY index will move towards the 100 mark allowing risk-on mode. Although this is interest rate sensitive.

2. BANK BEES ETF – Averaging BANK INDEX since I believe it has bottomed out and should move up once Q3 results for banks post better results after the RBI’s circular on increasing risk weights.

3. TIPS LIMITED – The company continues to scale faster than expected.

• Management expects 30-40% growth in FY24
• Mgmt expects to spend around 30% of revenues on content acquisition
• New CEO (first time) who was added to mgmt team (gives a sense of trying to build a professionally run company, than a family-owned business)
• TIPS has been a holding from early 2021 onwards. I bought it as a part of my momentum portfolio (max 3y holding) but closely tracking it to see if there is long-term value in shifting it to my long-term portfolio (3+ yr holding).

4. INDIAMART – Even though, the company’s OPM and ROCE have reduced but reasons are clear and expected:

• OPM levels were all-time high but expected to settle around 30% OPM levels (mismatch of investor expectations)
• ROCE is low since the company is investing a lot in growth (ROCE will increase once investments have matured)

5. COAL INDIA – Play in India’s capex cycle with a high dividend yield. Bought at valuations (PE) within reasonable levels compared to 5y and 10y average. Realization/ton is still at elevated levels (Rs 1800) compared to 7y avg (Rs 1500)

6. NARAYANA HEALTH – This is a long-term investment for me as I believe that the best is yet to come for the company. The investment was made when the PE ratio was lower than its peers (25 while the 5y avg PE is 42 with the industry avg PE being at 37 while the company is growing revenues and margin at industry best levels)

Lessons from 2023

1. Focus on lower portfolio churn (started treating my portfolio as a bar of soap – the less I use, the more longevity it has)

2. Focus heavily on my personal NEEV framework to deeply understand current portcos and watchlist companies (revenue growth, OPM growth, reinvestment rate, promoter holding). Continue to track every quarter to keep myself updated.

3. Focus more on learning and less on doing. Doing very few things for a very long time could yield higher results in the mean reverting, probabilistic game called “equity investing”.

4. Concentrating my learnings on 4 parameters:

• Starting valuations should be low (entry point) i.e. ideally <20 or max 30
• Critical to understanding business’ competitive advantages (aka MOAT) – NEEV framework is helpful.
• Business should have immediate growth triggers (next 12 months).
• Only invest in companies where you understand its problem statement, solution and customers.
• Position sizing

Expectations from 2024

While predicting the future is a fool’s errand, but it helps if done to set expectations. Here’s how I see 2024 panning out:

• all signs point towards a bull run in 2024. personal view Is NIFTY 50 can touch 26,000 i.e. 21-22% higher than current levels since NIFTY50 PE is a tad under-valued from historical PE of around 26-28

• if the above scenario pans out, I intend to sit on cash focussing on doubling down on the existing portfolio and opportunistically DCA if needed on certain key themes

• will look to re-inter-market when NIFTY PE goes 18-22. although I doubt this scenario in the next 12 months, given all the macro factors are aligning towards goldilock scenario – majority BJP win, US fed cut interest rate (between 3-6 cuts expected), inflation falling.

• a few of the known risks can be commodity prices like crude surging > $100 (due to further escalation to MENA crisis), BJP not winning with a majority, US not able to achieve a “soft landing” and similar geo-political crisis increasing short-term volatility.

That’s it for now. Hope you have a fantastic and blessed 2024