As 2015 rolls to a close, here’s our report card on the performance of our stock and mutual fund recommendations. It has been a tough year for equities. The Sensex and the Nifty hit the yearly high in March 2015 and are down 15 per cent from this peak.
Indian companies struggled to grow both revenue and earnings. With investors chasing the ‘safe’ , the valuations of such stocks soared, making a ‘buy’ recommendation difficult. With reforms on a slow track and recovery in private investments still elusive, it was difficult to keep recommending stocks pegged to the domestic economic turnaround. The rout in commodity prices and global economic slowdown rendered yet another set of stocks unattractive.
In the first six months of 2015, our analysts gave 96 stock recommendations. Our hit rate in this period has been nothing to write home about, with 49 per cent of the calls managing to beat the benchmark (Nifty 500).
But if a reader had invested a fixed sum of money in all our buy recommendations, his return on December 21, 2015, would have been 1.63 per cent. This is better than the return of -8.2 per cent he would have made by investing similar sums in Nifty. An investor would have lost -5.24 per cent had he invested the money in the Nifty 500.
The performances of the calls given in 2014 have been better. Our hit rate in the 192 stock recommendations given between January and December 2014 was 54 per cent. But the buy calls given in this period have managed to deliver good returns.
If an investor had invested a fixed sum in all our 133 buy recommendations given in this period, his investment would have grown 32.4 per cent. Similar sums invested in Nifty would have returned 7.4 per cent and in CNX 500, the returns would have been 14.6 per cent.
The buys, sells and holds Our stance over the last two years has been that once the economy and investment cycle picks up, the fortunes of many companies will improve, translating into earnings expansion. Our analysts have, therefore, veered towards ‘buy’ calls over the last two years. In 2014, 133 out of 192 calls were ‘buy’ recommendations.
The hit rate of these buy calls (number of calls that outperformed the benchmark) was at 56 per cent. But there were many multi-bagger calls in this period that helped improve the overall returns. PC Jeweller, recommended in March 2014, is currently up 348 per cent.
Similarly, Granules India (326 per cent), Sadbhav Engineering (291 per cent) and Bajaj Finance (282 per cent) were our other top picks in 2014. Of the 133 buys, 17 stocks have gained more than 90 per cent as of end December 2015.
In 2015, while the overall performance of the buy calls was muted, some of our picks, such as Zensar Technology (69 per cent) and Bajaj Finance (51 per cent), did manage to record strong gains. A third of our buy calls managed more than 10 per cent returns in this period.
The ‘buy’ recommendations that did not work largely fall in commodities, real estate and agri-commodity sectors. We erred in mis-reading the structural decline in these sectors as a short-term pull-back. Stocks in the metals and mining sector, such as Hindalco and GMDC, from agri-inputs, such as Kaveri Seed and from real estate segment, such as Puravankara Projects, are some of the worst performers from our portfolio in 2014.
Our analysts, being an optimistic bunch, have not given too many sells. There are just 40 sells in 2014 and 14 in the first six months of 2015. But the hit rate of our sell calls has been 67 per cent in 2014 and 64 per cent in 2015. Some sell calls on public sector banks, such as Bank of India, Bank of Baroda and Punjab National bank, in 2015, have proved quite timely. Sell calls given on Shree Renuka Sugars, Adani Power and Cairn India in 2014 were others that worked well.
Our record with ‘hold’ calls has, however, not been great; thankfully there were very few of them. In 2014, there were 15 such calls and in the first six months of 2015, there are 10. Of the 25 calls, 23 recorded sharp gains or losses.
Mutual funds and IPOs
Our IPO track record has not been too good this year. Of the 17 issues that we covered, nine calls have worked while eight have not. This can be partially explained by our analysts not being too comfortable with the valuation which some of these issues commanded. Despite the run-up in some of these highly-valued issues, we continue to advise caution on these counters.
Of the 79 mutual fund recommendations made between January and October 2015, over 70 per cent of the calls have managed to outperform the Nifty 500 and 90 per cent have managed to beat the Nifty. We have also covered most of the tax-free bond issues made in 2015 and have recommended various fixed deposits, targeting the fixed income investors.
What next? The year 2016 is expected to be another challenging year for equity investors. We tried to expand the number of stocks in our coverage universe last year. We will continue this effort in 2016 as finding under-researched stocks that hold potential is the key to delivering better returns. ‘Hold’ recommendations appear to be giving scant value to readers and we will try to reduce the number of such calls. We will also continue to cover an array of fixed income products to cater to your diverse needs besides equity and mutual funds.