For investors, 2013 was a hair-raising year, and it was not much better for their investment advisers either. Forecasts made at the beginning of the year of an improving economy, declining interest rates and double-digit profit growth for India Inc all went spectacularly wrong.
There was a stock market rally no doubt, but one that surprised everyone, with just a handful of stocks participating. The broader market suffered with the mid- and small-cap indices down 5-8 per cent.
Even as the market went through several mood swings, we tried to keep our eyes trained on fundamentals. An ultra-cautious stance hurt us with respect to some of our ‘Buy’ recommendations on stocks and mutual funds. But it helped our sell calls and bond market recommendations.
Looking back at
This average masks quite a few ‘buys’ that paid off handsomely. Our top performing stock in this period was dark horse Ceat, rated a buy in May 2012. It trebled from the buy price of Rs 98. Ipca Labs, Bayer CropScience, Zee Entertainment and Page Industries completed our ten-stock list of stocks that doubled during this period.
Investors would also have doubled their money on software stocks, such as Persistent Systems, HCL Technologies, Mindtree and Tech Mahindra, which we caught much before they became market darlings. Overall, 30 of our buy recommendations clocked a gain of 50 per cent-plus and 70 of them earned more than 25 per cent returns.
But this good show is partly overshadowed by the flops. About 30 stocks registered significant losses of 20 per cent or more from our buy prices.
Many of these were early 2012 calls on infrastructure companies and public sector banks, which were based on the misguided view that interest rates would decline. By early 2013, we were wiser and changed our stance on public sector banks; but the damage was done.
Our counsel to investors to avoid IPOs from Just Dial and Repco Home Finance due to stiff valuations backfired too, both stocks setting the markets on fire.
LaggardsWe are also disappointed with the fact that just half our buy calls beat the Nifty. This came about partly because of our contrarian choices. Even as a narrow set of stocks from the IT, FMCG and pharma sectors soared, fizzy valuations made us stick with a more diversified portfolio, from capital goods, metals, automobiles and other sectors.
Both the mid- and small-cap indices suffered reverses this year, but where we saw quality companies we still recommended them.
These calls have weighed on the portfolio so far, but we are confident about payoffs over the next year or so. Professional fund managers were in the same boat, with over three-fourths of the equity funds lagging the Nifty this year.
However, beating the markets is getting more difficult each year and we recommend that investors make a place for index funds in their portfolios.
Sells clickOur sell calls worked well, with 75 per cent of them hitting the bull’s eye. Our ‘avoid’ on VKS Projects IPO saved investors a packet, with the stock sinking 98 per cent below its offer price.
Jindal Saw, Tara Jewellers, Strides Arcolab, Welspun and Unitech too fell 50 per cent from the prices at which we asked investors to exit. Among the blue-chips, we turned cautious at just about the right time on SBI and a clutch of FMCG stocks. While SBI has declined 13 per cent since, Hindustan Unilever, Nestle and Gillette have fallen in a rising market.
Bonds were best
Given the dodgy fundamentals of India Inc, top-rated bonds and fixed deposits offered a better risk-reward equation than stocks for most of the year, we felt. We highlighted good debt opportunities throughout this period, from the 10.25 per cent fixed deposits from M&M Financial Services to the tax-free bonds offering 8.8-9 per cent.
Conservatism also dictated some good macro calls. Our counsel to stay away from long-term bond funds in July was also, in hindsight, spot on.
Asking investors to diversify into the US markets delivered too, with such funds clocking a 20 per cent gain from July. In August, amid pervasive gloom, we saw value in beaten down blue-chips from the old economy. The eight-stock portfolio is up 27 per cent till date. The ups and downs of the market this year have strengthened our conviction that direct investing is only for the hyper-active and the super-savvy.
Thus, we increased the number of mutual fund recommendations and covered more debt and balanced funds. These yielded good returns.
The equity fund portfolio averaged a 19.4 per cent gain, the balanced one 12 per cent and debt funds 11 per cent.