Our Hits and Misses of 2016

Yet another year draws to a close and it’s time to bring out our report card, to help assess our performance and to identify areas for improvement. Here, we will take stock of the recommendations given for stocks (both primary and secondary market) as well as mutual funds.

Since our stock recommendations are given with a two to three-year horizon, we consider the performance of the calls given from January 2015 to June 2016 for this analysis. The most recent calls have been excluded since they do not have sufficient window to showcase how they are faring.

An analyst friend once said in jest that he can always show stellar returns from his client portfolios by tinkering with the time-period of reporting. Unfortunately, we do not have this leeway. The Nifty was extremely volatile in our reporting period, first hitting its life-time high of 9,119, then plunging to 6,869 and finally ending flat.

Finding safe stocks that can deliver well has not been easy in this period. While revenue and earnings of companies are improving and domestic factors such as monsoon, declining interest rates and Pay Commission pay-outs appeared conducive, a series of global events delivered a sharp setback to equities.

In the period between January 2015 and June 2016, 246 recommendations were given for stocks trading in the secondary market. Since we adopted a positive stance on domestic equity, 192 of these recommendations were to ‘buy’ the stock. There were 26 ‘sells’ and 28 ‘hold’ recommendations. But since there wasn’t too much value in large-caps, we have mainly veered towards mid-cap stocks.

Our aggregate hit-rate, comparing the performance of the secondary market calls to the CNX 500’s performance, was not too good at 56 per cent. However, if an investor had invested a fixed sum in all our buy calls in this period, his capital would have increased 12 per cent. This is superior to the return a similar investment would have given in the Nifty, at -0.61 per cent or in the CNX 500, of 2.32 per cent.

Some stock calls such as Lumax Industries and Bajaj Finance that delivered over 100 per return helped bump-up the returns of the overall portfolio. 50 of the stock calls, or more than a fourth, have delivered more than 30 per cent returns.

There were six stocks that lost more than 40 per cent from their recommended price in this period. About 10 per cent of the stocks recommended for purchase lost over 20 per cent.

We will henceforth adopt a system of tracking the losers more closely in the coming year to give follow-up calls to help the reader.

Our ‘sell’ calls have performed better than our buy calls, with hit rate of around 61 per cent. Sell calls on banks such as Bank of India, Bank of Baroda and Punjab National Bank were timely. Similarly, calls to exit over-priced consumer stocks such as Nestle and Agrotech Foods also paid off.

Our ‘hold’ calls have put up the worst show, with hit rate of 35 per cent. We have considered hold calls that moved more than 10 per cent up or down as those that have not worked. We will make an effort to veer away from ‘holds’ in the coming year.

2016 was a year in which investors made big gains in the IPO market. We covered 23 IPOs this year in which the hit rate was 74 per cent with 17 of these calls working in the investors’ favour. Our calls to invest in the IPOs of Advanced Enzyme Technology, Mahanagar Gas, RBL Bank, Ujjivan Financial Services and Equitas Holdings would have given returns of over 40 per cent to readers.

Similarly, calls to avoid offers of HPL Electric & Power, Precision Camshafts and Varun Beverages would have helped avoid losses.

Mutual fund returns were on the whole rather tepid in 2016 but our mutual fund track record in 2016 was also good with 75 per cent of the funds recommended managing to better the return of Nifty and 67 per cent doing better than the CNX 500.

It’s obvious that 2017 will be far from smooth for equity markets with the ongoing demonetisation set to impact fourth-quarter earnings. It’s certain to be a stock-picker’s market.

We will try to widen our stock call base and dig deeper to come up with stocks that deliver well.

Our commodity offering was refurbished in 2016 to offer interactive query column, class-room and fundamental calls on agri and non-agri commodities.

We will attempt to improve our coverage and recommendations in the real estate sector in the coming year. Also, a column addressing the legal issues faced by investors is planned in 2017.

Warm wishes for a very happy New Year.

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