I reported earlier that the logistics sector is red-hot at present and that all the savvy investors are making a bee-line for these stocks. Radhakishan Damani bought Gati & TCI, Ashish Chugh bought Sical Logistics, Sankaren Naren bought Gateway Distriparks, Prashant Jain bought Sanghvi Movers, Ramesh Damani bought Balmer Lawrie, etc.
It is no surprise that Parag Parikh has been bitten by the same bug. However, the only difference is that he has bought a logistics stock operating in another continent – United Parcel Service (UPS), which is listed on the New York Stock Exchange.
In August 2014, PPFAS invested nearly Rs. 20 crore in scooping up 3.46 lakhs shares of UPS. It constitutes 4.30% of the AUM.
The question as to why PPFAS prefers foreign stocks while the rest of the World prefers Indian stocks has been discussed here. You can read Parag Parikh’s rationale for the fascination with foreign stocks.
The question as to why UPS and not market leader Federal Express (FedEx) is not difficult to answer. UPS reported poor Quarterly results and was the victim of a savage sell-off. Parag Parikh probably dived into the stock at that time, seeing deep value in it.
The other interesting aspect is that while Parag Parikh declares that he buys stocks for the long-term (5 years), he is not averse to changing his mind in the short-term and dumping the stock. British American Tobacco (BAT) Plc, a favourite amongst value investors, is a victim of this mind-change and finds itself in the dog-house. All Rs. 17 crore worth of its stock were dumped unceremoniously. I am not sure what has changed about BAT in the short-term that warranted this drastic action. Like VST, it has also prospered over the years over the sticky demand for tobacco and sports an attractive dividend yield, despite the well-known risk factors of Government’s regulatory action.
Another stock that found itself on the chopping block is J&K Bank. After the scandal relating to its unreported NPAs, one would do well to distance oneself from the stock. Also, the tragic floods in J&K means that NPAs will soar and growth prospects will be subdued. However, here again, PPFAS has gone the halfway house and pared its holdings by about half instead of dumping the entire holding.
Another stock that could soon find itself on the chopping block soon is United Spirits. This stock was bought as a short-term punt to take advantage of the buy-back but has become an “investment” when that failed. It stands out like a sore thumb in a “value” portfolio with its “expensive” valuations. Worse, the company has become a BIFR case (technically) as its net worth has eroded by half owing to the massive write-off of Rs. 4359 crore for Whyte & Mackay. The stock has lost 17% in 3M. Of course, United Spirits does have its supporters. ICICI-Direct has put a buy on the stock on the basis that “With Diageo at the helm, USL will go through a significant transformation and shift from volume to value growth at a more rapid pace. Also, its strategy of premiumisation and de-leveraging of the balance sheet remains firmly in place”.
The other surprising aspect is that the PPFAS Mutual Fund has underperformed the CNX 500 (50.40% vs. 52.32%) on a 1 year basis though it has outperformed the Nifty (45.37%) and the Sensex (43.06%). If you look at the returns since inception, then the Fund has outperformed all Indices.