33.9% YoY and 46.2% YTD Gain from model portfolio of blue-chip stocks
For some reason, I was under the misconception that a portfolio of large-cap and blue-chip stocks will never be able to outperform and deliver mega gains.
However, the wizards at Sharekhan have proved that sensible stock selection of blue-chip stocks can outperform and deliver mega gains. We have to compliment them for this.
Consistent outperformance (absolute returns; not annualised) (%)
|(%)||6 months||1 year||3 years||5 years|
|Sharekhan Top Picks||27.2||33.9||114.6||275.8|
|CNX MIDCAP 100||10.9||18.9||61.2||158.6|
As one can see, the model portfolio has consistently outperformed the Indices.
On a YoY basis, the model portfolio has delivered a hefty gain of 33.9% while the Sensex delivered only 11.4%. The CNX Midap 100 Index delivered 18.9%.
The performance on a YTD CY2017 basis is even more impressive with a 46.2% return as compared to a return of 19.1% in the Sensex and 27.4% in the CNX Midcap 100 Index.
|Absolute returns (Top Picks Vs Benchmark indices)||(%)|
|Period||Sharekhan(Top Picks)||Sensex||Nifty||CNX Midcap 100|
Outperformance vis-à-vis mutual funds
The astonishing aspect is that Sharekhan’s model portfolio has also outperformed most mutual funds at least on a YoY basis.
Prima facie, an actively managed mutual fund with highly-paid managers is expected to do better than a passive model portfolio.
Top Ranked Mutual Funds As on Quarter ended June 2017
|Large Cap||1 yr Return
|AUM (Rs. cr.)
|ABSL Top 100 (G)||15.0||2,262.79|
|ABSL Top 100 – Direct (G)||16.4||572.59|
|Kotak Select Focus Fund – Direct (G)||19.5||2,550.98|
|Kotak Select Focus Fund – Regular (G)||18.1||8,040.18|
|SBI Blue Chip Fund (G)||12.2||10,099.40|
|SBI Blue Chip Fund – Direct (G)||13.5||3,480.61|
|Small & Mid Cap||1 yr Return (%)||AUM (Rs. cr.)
|L&T Emerging Businesses Fund-DP (G)||39.7||124.46|
|L&T Emerging Businesses Fund-RP (G)||38.7||831.38|
|L&T Midcap Fund (G)||32.5||817.52|
|L&T Midcap Fund -Direct (G)||33.6||83.92|
|Mirae Emerging Bluechip Fund (G)||26.2||3,306.87|
|Mirae Emerging Bluechip -Direct (G)||27.2||514.41|
|Diversified Equity||1 yr Return
|AUM (Rs. cr.)
|ABSL India GenNext (G)||16.8||506.14|
|ABSL India GenNext-Direct (G)||18.2||64.29|
|Motilal Focused Multicap 35 -DP (G)||30.1||2,613.75|
|Motilal Focused Multicap 35 -RP (G)||28.9||4,029.32|
|Principal Emerging Bluechip(G)||23.5||876.14|
|Principal Emer-Bluechip -Direct (G)||24.8||123.85|
|Sundaram Rural India Fund (G)||20.5||1,044.14|
|Sundaram Rural India -Direct (G)||21.6||89.15|
|Tata Equity P/E Fund – Direct (G)||28.6||79.76|
|Tata Equity P/E Fund (G)||27.6||1,108.88|
However the reality is different with some worthies having even underperformed the Indices.
This raises the moot question why investors should continue to invest through mutual funds.
It is notable that mutual funds pay hefty salaries running into tens of crore to its fund managers (see Warren Buffett’s Warning Falls On Deaf Ears As Mutual Fund Managers Take Home More Salary Than Mukesh Ambani & Other Corporate Hot Shots Despite Poor Performance).
Investors who are willing to DIY by cloning the model portfolio will not only save those hefty costs but may also outperform most mutual funds.
Latest constitution of the Model Portfolio
In the latest portfolio for September 2017, Sharekhan has bid adieu to L&T Finance Holdings, the blue-chip mid-cap stock, on the logic that after a stellar 56% in just three months, the potential for incremental gain is bleak in the short term.
It is worth recalling that AM Naik, the visionary CEO of L&T, had solemnly assured investors in October 2016 that he is taking steps to improve L&T Finance’s ROE and set it on a high growth trajectory (see Get Ready For Mega Bucks From Top-Quality Blue-Chip NBFC Stock: L&T Chief).
Harsh Mariwala, the visionary billionaire founder of Marico, offered the same assurance to us in December 2016 that the NBFC is “going through a major shift towards value creation” and hinted that we should aggressively tuck into the stock without any hesitation.
— CNBC-TV18 (@CNBCTV18Live) December 30, 2016
No doubt, both visionaries have fulfilled their promises.
LIC Housing, the blue chip PSU stock, has been ushered into the portfolio to fill the void left by L&T Finance’s ouster.
Sharekhan has described LIC Housing as a “quality housing finance company” and opined that the risk-reward ratio favours investment in the stock.
The present model portfolio is as follows:
|Stock||CMP (Rs)||Price Target (Rs)||Upside (%)|
|LIC Housing Finance||674||825||22|
|Power Grid Corp||218||240||10|
** Under review
There is no doubt that each of the twelve stocks in the portfolio is a blue-chip fail-safe stock.
There are six large-cap stocks and six mid-cap stocks.
There is also a perfect balance between the various sectors.
Commentary on stocks
Sharekhan has also provided a detailed commentary on each stock in which the rationale for recommending the stock is explained in detail.
From our perspective, the commentary on two stocks is very important.
The first is CESC, which has announced a demerger proposal under which business will be split into four verticals, namely power distribution, power generation, retail and IT outsourcing.
Sharekhan has opined that the restructuring is beneficial for minority shareholders because it will unlock value in the cash flow-rich power distribution business and enable CESC to sell or bring in a strategic partner into the loss- making retail subsidiary (Spencer’s), which is on a recovery path.
According to Jwalit Vyas of ETIG, the demerger will lead to re-rating and a potential upside of 30%.
An indirect way to play CESC is by tucking into the shares of STEL Holdings, its parent company.
According to Nigel D’Souza of CNBC TV18, STEL Holdings is deeply undervalued in relation to the value of the assets held by it.
Stel Holding in CESC valued more dan its MCap
*Holds 1.88% in CESC valued at 234cr
— Nigel D'Souza (@Nigel__DSouza) August 28, 2017
The second is Godrej Industries, which has announced an IPO of Godrej Agrovet.
Experts have opined that the IPO will unlock value and result in a re-rating of Godrej Agrovet.
Varinder Bansal of CNBC TV18 has produced data to prove that Godrej Industries is also undervalued even in the present context.
Prima facie, the strategy of piling on to fail-safe blue-chip stocks is a sensible strategy especially at this stage of the market. Sharekhan’s model portfolio provides us with a ready-made platter of high quality stocks to choose from!