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Year-end portfolio disclosure (Valuation & Rebalances)

Market Overview:

Fueled by a strong economic recovery and a steady FII inflow, Indian equity markets breached all-time high in the last quarter of 2020, with Nifty 50 mounting 14K as the year came to a close. Though heavyweights like Reliance, Bajaj Finance, TCS and Infosys led the rally in the initial stage, it was carried forward by banks, metals and automobile stocks in the later phase with strong signal of a steep V-shaped recovery in overall demand and multiple pharmaceuticals coming out with successful vaccine trials.

Sectoral Performance:

  • Pharmaceuticals: With global giants working on a COVID-19 vaccine, the Pharmaceutical sector was always in the limelight. Cipla has been intricately associated with asthma and nasal advancement APIs since 2016, so it was our first choice among all the pharma stocks, followed by Wockhardt and Strides Pharma, 2 highly favored and attractively priced stocks even after the initial market recovery from sub-8,000 to 10,500 levels.
  • Technology: With US economy re-opening, Indian IT sector, which is highly dependent on the US manufacturing and healthcare outsourcing market for their revenues, sprung to life, with rallies led by Tech Mahindra & Wipro. The reviving job market in India laid the perfect pitch for staffing (HR) organizations like Naukri (Info Edge) and Quess Corp to increase revenues and subsequently, stock prices.
  • Financials: Support came for all sizes in this sector. Prominent ones like HDFC, HDFC Life, ICICI Bank & Bandhan Bank rallied 15-45% in the last 3 months. Low NPA risk, release of provision contingency, support from RBI and SEBI’s nod for easier FPOs boosted the sentiment in this sector. Small finance banks and NBFCs like AU SF Bank, Ujjivan Fin. Services & JM Financial carried forward the positive sentiment.
  • Chemicals, Construction, Automobiles: With urban infrastructure projects on the rise, demand for PV (passenger vehicles) amidst social distancing norms and farm bill/produce management, these sectors showed steady recovery with evergreen names like Asian Paints, Larsen and M&M leading the rally.
  • Telecom & FMCG: These sectors played a role of volatility hedge/buffer in our portfolio and have perfectly delivered as per our expectations. However, we expect stocks like Bharti Airtel & Vodafone Idea (new addition in Dec, 2020) to perform strongly in H1 2021. Though Reliance has been consolidating in the 1,900 – 2,100 levels, upside till 2,500 can be seen within the coming 4-6 months.

Stocks in Focus:

The stock performances were in line with our sectoral overviews for the last quarter of 2020. Wockhardt was the leader with a 89% rally over our entry price of 288.10. Quess Corp, HDFC and Strides Pharma performed exceptionally with gains between 40 – 50% each in the last 3 months. UPL reacted sharply to a Whistleblower news, which saw it correct by 15% in a single day. However, we used this dip to accumulate more UPL stocks at an attractive valuation. Considering the highly discounted P/E and P/B of UPL compared to its peers like Bayer Cropsciences, PI Industries etc. and strong fundamentals (F-score of 9), we believe it to be a good bet for the next 6 months.

Portfolio Changes (after 3-month lock-in till 9th Dec, 2020):

Portfolio Switches
In OutIncreasedDecreased
Vodafone IdeaInfo Edge India Ltd.ICICI Bank Ltd.AU Small Finance Bank
Chemcon Spl. ChemicalsStrides Pharma Science Ltd.Bharti Airtel Ltd.Wockhardt Ltd.
Shree Cements Ltd.UPLQuess Corp
Bandhan Bank Ltd.Wipro Ltd.HDFC Life Insurance Co. Ltd.
JM Financial Ltd.
Cipla Ltd.

Fund Performance:

The SG Consultants (SGC) Smart Returns Fund was incorporated on 9th September, 2020 at a NAV of 100. Over the last 3 months, it has given consistent returns and closes the year with a NAV of 133.33 (33.3% absolute returns or 108.6% annualized return).

Portfolio composition (as of 1st Jan, 2021):

StockSectorWeightage (%)
AU Small Finance BankFinancials2.48%
ITC Ltd.FMCG3.84%
ICICI Bank Ltd.Financials6.52%
Bharti Airtel Ltd.Telecommunications11.13%
Aarti IndustriesChemicals2.77%
Reliance IndustriesChemicals/Telecommunications4.06%
Cadila HealthcarePharmaceuticals2.95%
Wockhardt Ltd.Pharmaceuticals1.11%
Quess CorpTechnology1.45%
HDFC Life Insurance Co. Ltd.Financials2.24%
Larsen & Toubro Ltd.Construction3.89%
Tech Mahindra Ltd.Technology3.77%
Mahindra & Mahindra Ltd.Automobiles4.93%
Asian Paints Ltd.Chemicals5.29%
Yes Bank Ltd.Financials3.85%
Ujjivan Financial Services Ltd.Financials2.87%
Wipro Ltd.Technology12.41%
Vodafone IdeaTelecommunications8.91%
Chemcon Spl. ChemicalsChemicals4.15%

Seed Capital Breakup:

Stock ValueCash BalanceTotal
As of Incorporation (9/9/20)239934.901250241185
As of present date (1/1/21)318020.953557.80321579

Market Outlook for Q1 2021 (Jan-Mar):

With Nifty already closing above 14,000 on 1st Jan, 2021, we believe the upward momentum to continue for sometime. With US yields still low and European markets underperforming for the last 2 years, emerging markets like India will continue to attract further FII inflows. Near-term support lies at 13,600 levels with immediate resistance at 14,300. However, the rally may be dampened by the recently discovered mutant COVID-19 strain and how it may lead to further lockdown or economic slowdown. For now, investors should look for relatively undervalued firms (P/B below 1.25 or P/E below 14) with sound fundamentals (F-score above 7) to ride the rally and slog through any short-term volatility or profit booking in the coming weeks.