Model portfolio specifically designed for novice investors
Legendary investors have two common characterises.
The first is that they are humble to the core, with no pretensions about their wealth or ability to effortlessly pick multibagger stocks.
The second is that they have a soft corner for novice investors and take every opportunity to mother them and put them on the right path.
Sanjoy Bhattacharyya, the doyen amongst value investors, is no exception to this rule. He is humility personified and is also very fond of novice investors like you and me.
Old timers will recollect the golden days in the past when Sanjoy Bhattacharyya would personally hand-pick top-quality mid-cap stocks and prepare a model portfolio for us (see Sanjoy Bhattacharyya Model Portfolio Of 15 Top Stocks).
When I last checked the model portfolio a couple of years ago, it had given massive gains of 121% in just a couple of months after the recommendation. I have not computed the gains as of date but it is certain that it will run into four or five digits. Such is the potency of the stocks recommended by Sanjoy Bhattacharyya.
Ocean Dial Fund makes gain of 37%
The Ocean Dial Gateway to India fund has done the sensible thing of appointing Sanjoy Bhattacharyya as its principal advisor. The benefits of this are evident from the fact that the Fund has netted handsome gains of 37% in British pound terms which is equivalent to 15% in U.S dollar terms.
This return heavily out-performs the return of 11% given by the Sensex in the same period.
(Image Credit: Barron’s. Click for larger image)
India is “head and shoulders” above the competition and is best investment destination in the World
David Cornell, the CIO of Ocean Dial Fund, made it clear that India stands “head and shoulders above many other emerging markets” and is the best investment destination in the World for deep pocketed foreign investors.
He explained that 50% of India’s population is under the age of 25 and income per capita is going to rise for the next 25 to 30 years. He also emphasized that India has immense entrepreneurial talent both onshore and offshore.
Indians are running behemoth global companies
The proof that Indians have the wherewithal to be World leaders comes from the fact that Indians are already running global behemoth companies like Pepsi Cola, Microsoft, Deutsche Bank, large parts of Wall Street and Silicon Valley, David Cornell said.
Other countries are “one trick ponies” in comparison to India
David Cornell left no room for doubt about his bullishness for India.
He explained that Countries like China, South Korea, Brazil, and Russia and Taiwan are dominant in one or two things like oil, tech, manufacturing, commodities etc but are not broad-based.
“They’re one-trick ponies”, he said in a contemptuous tone.
In contrast, the Indian corporate sector is globally competitive in petrochemicals, IT, pharmaceuticals – there’s an extremely broad range of high quality companies and sectors, he said.
“India is English-speaking and it’s a democracy – it’s got a lot of things going for it that other emerging markets don’t have”, Cornell added.
NAMO will change corrupt “Fabian-socialist model”
David Cornell made it explicit that he is an unabashed admirer of NAMO and his policies.
“India’s failed to live up to its potential for 40 years. But Narendra Modi’s government is now sweeping away 70 years of a Fabian-socialist model that stole from the rich and gave hand-outs to the poor in exchange for votes. It was a corrupt model designed to keep the incumbents in power”, he said.
It is worth noting that a similar sentiment has been expressed by other global investment leaders like Prem Watsa, Bruce Flatt, Jamie Dimon, etc (see NAMO Has Made India Into A Shining Star With Unlimited Opportunity)
Investment process of the Ocean Dial Fund to find multibagger stocks
David Cornell gave a detailed explanation of the manner in which the Ocean Dial Fund screens stocks so as to identify the winning ones:
(i) Look at 10 years of historical data to identify the management quality, which is most important part of the investment process;
(ii) Look for companies that are able to generate sufficient cash on their own to grow and don’t rely on excess debt or shareholder equity to grow;
(iii) Look for high returns on equity coupled with a capital allocation policy that is indicative of quality management;
(iv) Look for companies that are growing without relying on too much equity dilution or debt because these can “blow up the balance sheet”;
(v) Look for companies that pay tax because this shows that they respect the law and also shows that have real cash;
(vi) Look for companies that pay dividends because dividends demonstrate a company’s ability to pay cash back to its shareholders.
Top Five stock picks of Sanjoy Bhattacharyya and David Cornell
Now, in a rare treat for novice investors, Sanjoy Bhattacharyya and David Cornell have explained in-depth the merits of their favourite stocks and why these stocks have the potential to deliver mega gains in the foreseeable future:
Essel Propack: moat coupled with low-cost labor, high growth and margins and reasonable valuations
Essel Propack is number two globally in the production of laminate tubes for toothpaste. It’s a classic example of an Indian company that’s best in class in a very niche industry, but it sells to all the big toothpaste manufacturers, like Unilever and Proctor and Gamble. It operates facilities next to those guys so that it can provide them with the products they need when they need it. It’s technologically got the skills to prevent the competition from coming in and building better laminate tubes than they do. What’s exciting about it is that it’s now diversifying away from toothpaste into cosmetics and food packaging, where the margins are higher. These are both core products for its existing customers. They’ve got this moat around their business from a customer relationship perspective and it benefits from low-cost labor. We’re going to see better growth and margins because of this. It trades at 15 times earnings, compared to the market which is on about 19.
Infosys: Alteration in DNA will lead to second innings
Infosys is going to have a second wind. CEO Vishal Sikka is altering its DNA from a company that became very large and well-known internationally for application development on legacy systems to becoming a solutions provider for the entire enterprise. That’s an area Indian companies so far haven’t been taken seriously in. It’s about going into a company and understanding its total I.T. needs. It’s a work in progress but we’re reasonably confident that among the larger I.T. companies, Infosys has a good chance at doing this. Sikka joined from SAP and he was the first non-founder to run Infosys. He’s done interesting things like recruit people from global organizations and focused on automation and using tools to increase productivity in code-writing and software development.
eClerx Services: Great company with best management and niche services
eClerx Services is an I.T. services provider which is more of a niche proposition than Infosys. It provides very specific products for specific areas of financial services. It does background analysis of trading patterns and habits within big U.S. investment banks. What’s interesting is that Lehman Brothers was its largest customer at about 50% of revenue. So everyone thought eClerx was dead and buried when Lehman went bust in 2008 because it was such a high dependency on a single customer, but since then it’s actually been able to grow its revenue base by seven times. The fact that it survived the loss of its most important customer says a lot about the quality of its management and services. It’s a great company that doesn’t compete directly with Infosys and it’s at a different stage in its journey. For Infosys it’s very hard to move the growth needle now because it’s such a big machine, whereas eClerx is still sub USD1 billion.
AIA Engineering: Will be in the top five in the global industry with huge multiplier effect on profits
AIA Engineering makes chrome-casted parts for the cement industry in India. Their skill is handling chromite ore, which you mine from the ground like you would iron ore. But chromite is a much tougher ore to handle because it’s harder, and you make castings using it. In India AIA sells primarily to cement plants – you grind the clinker before you put it in the furnace to produce cement. They’ve got a 95% market share for these cement consumables. What they’ve done in the last couple of years that’s very interesting is that they’ve become a supplier of chrome-casted parts to the global mining industry. They’ve gone to Vale in Brazil, the South African and Canadian mining companies, who they can bring advantages in terms of cost, but also reliability. These miners might already have equipment from Komatsu, Caterpillar or 20 different guys, so AIA customizes these chrome-casted parts to the kinds of equipment they already have. That’s a very serious bid to break into the mining industry. Depending on the level of success they achieve in this area it will become another Indian company that’s in the top five in its industry globally.
AIA has had to make serious amounts of capex to be able to deal with these global mining companies. These miners themselves are under serious pressure so they’re asking for a lot of discounts and customization. Mining as an industry is very sluggish. It will probably take another two or three years to transform AIA’s bottom line as the global mining industry picks up again. The big bet is by that time AIA will have scale and penetration in a large number of clients across different continents. Once they’ve done that it should have a huge multiplier effect on their profits.
Federal Bank: Will prosper in flight of capital from PSU Banks to private banks
Federal Bank is a regional bank. It has a huge deposit base among Indians working the Persian Gulf, who mostly hail from the Indian state of Kerala, where this bank is based.
Investors are very concerned about the huge holes in the balance sheets of state-owned banks. For the last 65 years they’ve been abused by crooked Indian politicians doing favors for industrialists through the banking system. People aren’t sure what the government’s commitment is to helping these banks to get back on their feet by means of recapitalization and giving them support to go out and recover these old loans.
Obviously investors can’t neglect banks because in India they’re fundamental in economic growth – everything passes through them. Despite private sector banks being hideously overpriced, most people think it’s better to be in these rather than take the risk of owning a state-owned bank. Also, banking is about 30% of the index and most investors are closet-indexers.
The bullishness of the two stalwarts about India being the best investment destination in the World is very reassuring to us. It confirms the advice offered by the other experts that we have to stay invested and use every opportunity to load up on top-quality stocks at bargain basement prices.
Just a technical comment, myself from engineering field – actually “Clinker” is the final product (u can say that), which is produced after going through Kiln and then cooling. Clinker is grind by chrome balls (supplied by AIA Engg.) and mixed with fly ash to make cement.
Yes Bank is attractive at current levels with long term vision. After JLR sales data in US, Tata Motors became much stronger than earlier as numbers are already in support and management is expecting same rally in coming quarters as well. Volume pick up is strong enough for the stock. Numbers are undervalued as well. Valuation is looking much attractive. Gujarat Heavy Chemicals Ltd is again an undervalued stock with better future scope. HDFC is stable and considering the current government reforms, growth could be intact.
All of the suggested stocks have run up a lot… need a breather to enter.
Essel Propack : Already at higher end of value. Not much upside left.
Infosys : Not really hopeful for now.
eClerx Services : Already at higher end of value.
AIA Engineering : Is also at higher end of value but is also showing aggressive growth. Looks like have a huge potential ahead
Federal Bank : Do have good potential.
Sanjoy Bhattacharyya’s Ocean Dial Gateway to India fund has entered into Balrampur Chini Mills. I feel it’s a diff sugar stock and going to go perform very well in the years to come irrespective of the sugar cycles.