Author: Naveen

  • Seven years as shareholder of ITC

    Seven years as shareholder of ITC

    When I first invested in ITC, I was just testing the waters of equity investing. Over time, I realized that ITC is a rather polarizing stock. On one side, there are the die-hard fans who swear by it, and on the other, there are the critics who never miss a chance to poke fun at it. And, to be honest, some of those jokes are pretty clever. Don’t believe me? Just Google ‘ITC meme’ and get ready for a good laugh.

    In the early years, my investments in ITC were quite small. It wasn’t until the stock began performing well that I significantly increased my investment. Looking back, I realize I should have done the opposite!

    The dividends remain strong, though they’ve dipped slightly compared to the initial years. Currently, I’m outperforming the Nifty 50’s XIRR by just 1%.

    ITC’s announcement of demerging its hotels business hasn’t had any noticeable impact yet, either positive or negative. We’ll have to wait and see what happens when the demerger actually takes place.

    Investment through the years

    Returns

    Profit

    XIRR


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  • Limiting factor in India’s equity investing

    So if I want higher returns, now this is where it flips away from being me and it’s no longer my characteristic, but I do want higher returns for higher risk, then you choose which instrument has actually given you those higher risk. And I think by and large, this has become a function of size and manager affluence. So the size question would be that as you grow bigger and bigger in size, the number of companies that you can buy into in India becomes smaller and smaller.

    So now the biggest Indian mutual fund is nearly 80,000 crores.

    Oh, they hit 80,000 crores?

    70 plus thousand crores. So at that rate, at the 80,000 crore rate, even if I have 100 companies, I don’t think he has 100 companies, he has 50 or 60 companies. But you’re still buying more, nearly a thousand crores per company.

    Now the number of companies that you can afford to buy a thousand crores for is now countable in the total number of companies you actually have. The 100th company in India today has a 1 lakh crore market cap. That means if you bought 100 companies with a thousand crores each then the 100th company you would own 1% off.

    So effectively, you’re owning more and more percentage of… So what this happens is you just have to spread yourself too thin. You can’t meaningfully take large bets.

    And until Indian market cap of Indian companies reaches a much higher degree, you’re limited by the growth of… The size of the mutual fund is greater than the growth of market cap of all the companies. So in the sense that that becomes your limiting factor.

    — Capitalmind Podcast: Mutual Funds, PMS, or AIF: Choosing the Right Investment Vehicle for Your Needs

  • Historical stock composition of Nifty 50 and Nifty Next 50

    I was trying to understand the historical stock composition of indices like Nifty50. I tried searching the data on the internet but couldn’t find anything. After posting my query on multiple forums, I got a direction from my query on Money StackExchange.

    NSE provides the historical stock composition on Nifty 50 and Nifty Next 50 indices on Nifty Indices by selecting “Archive of Daily/Monthly Reports → Market Capitalisation, Weightage, Beta for Nifty 50 and Nifty Next 50”. However, the data is shared month-wise and not consolidated. I wrote some quick and dirty utilities to scrape off data and consolidated it in a Google Sheet.

    In the ‘Nifty 50’ and ‘Nifty Next 50’ worksheets, you can see when a stock entered and exited the index (e.g., Axis Bank joined the Nifty 50 in March 2009). The ‘Nifty 50 Data’ and ‘Nifty Next 50 Data’ worksheets contain the raw data downloaded from the website.

    NSE Index Data Google Sheet

  • Seven years as shareholder of VIP Industries

    Seven years as shareholder of VIP Industries

    Seven years ago, when I first invested in VIP Industries, I had no idea what kind of journey I was embarking on. Although VIP Industries represents less than 2% of my direct equity portfolio— even less when considering mutual funds—it has taught me valuable lessons about investing.

    First, volatility. We’ve all heard countless times that stocks are volatile, but nothing prepared me for how true that would be with VIP Industries during the Covid pandemic. In just one month, my investment went from a 170% profit to a 20% loss.

    Second, beginner’s luck versus long-term reality. When you start investing, you often experience beginner’s luck, where your investments outperform your expectations. VIP Industries was no exception, delivering impressive returns for the first two and a half years. Even the post-Covid recovery was remarkable, with an XIRR of 40%. But then, reality sets in—a reality where the former Managing Director leaves for a primary competitor, causing a shift in the industry.

    Investment through the years

    Returns

    Profit percent

    XIRR


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  • Forecasting

    Wow!

    Every forecast takes a number from today and multiplies it by a story about tomorrow.

    A Number From Today and A Story About Tomorrow

  • Five years with Franklin India Prima Fund

    Five years with Franklin India Prima Fund

    Five years ago I decided to start investing in mid cap mutual fund. There were quite a few of them available for me to choose. Thus, I employed a complex pseudo-random selection algorithm, predominantly utilized by juveniles who, in a display of basic decision-making, chant a seemingly nonsensical yet rhythmically precise incantation. This chant, rich in assonance and consonance, serves as a pretext for arbitrarily designating a mutual fund as the best one, and is often accompanied by the unspoken implication that the outcome is somehow imbued with a semblance of extensive research, despite the process being fundamentally whimsical and capricious.

    My algorithm pointed to Franklin India Prima Fund which was one of the oldest with the fund starting way back in 1993. Initially I used to invest only lumpsum amount as when I had surplus. But starting Aug-2021 I decided to start an SIP in the fund. During the market crash of COVID-19, I continuously invested in the fund accumulating units at a lower price.

    While the XIRR of 32% appears impressive, a comparison with the Nifty Midcap 50 returns reveals that the fund has consistently underperformed since I began investing in it.

    Investment through the years

    Returns

    Profit

    XIRR

    How does Franklin India Prima Fund stack up against its competitors?

    In the above sections I have demonstrated my investment pattern in the Franklin India Prima Fund and compared its performance against the Nifty Midcap 50 over a period of 5 years. But how does it fare against its competitors? Let’s find out.

    I analysed CRISIL’s Mutual Fund Ranking and compared my returns to each of the mid-cap mutual funds. Here’s how I conducted my calculations:

    • I included only those funds that were established before my first investment in the Franklin India Prima Fund. Therefore, you won’t find fund ITI Mid Cap Fund in the list, as it was launched after my first investment in the Franklin India Prima Fund.
    • For the competitor funds, I used the same investment amount and dates as those for my investment in Franklin India Prima Fund. This approach allowed me to answer the question, “What if I had invested in ABC Midcap Fund?”

    The table below illustrates the profit percentages I would have earned from the Franklin India Prima Fund and its competitors. It’s clear that I would have been significantly better off investing in the Motilal Oswal Midcap Fund. However, this doesn’t capture the journey each fund took to reach their current positions.

    Fund Profit Percent (as of 01-Aug-2024) CRISIL MF Ranking (as of 30-Jun-2024)
    Aditya Birla Sun Life Midcap Fund 89.9% 4
    Axis Midcap Fund 82.8% 3
    Baroda BNP Paribas Mid Cap Fund 99.1% 3
    DSP Midcap Fund 79.1% 5
    Edelweiss Mid Cap Fund 116.7% 2
    Franklin India Prima Fund 93.4% 3
    HDFC Mid-Cap Opportunities Fund 111.7% 2
    HSBC Mid Cap Fund 98.8% 3
    ICICI Prudential MidCap Fund 100.5% 2
    Invesco India Mid Cap Fund 101.4% 3
    Kotak Emerging Equity Fund 103.7% 3
    LIC MF Midcap Fund 94.4% 2
    Mahindra Manulife Mid Cap Fund 118.3% 1
    Motilal Oswal Midcap Fund 136.9% 1
    Nippon India Growth Fund 113.5% 2
    PGIM India Midcap Opportunities Fund 88.8% 5
    SBI Magnum Midcap Fund 95.8% 3
    Sundaram Mid Cap 99.9% 3
    Tata Mid Cap Growth Fund 100.5% 3
    UTI Mid Cap Fund 91.5% 4

    The below line chart demonstrates the performance of various mid cap mutual funds over the past five years. Notably, the PGIM India Midcap Opportunities Fund outperformed all other mid cap funds—that too by a significant margin—until April 2023. However, the fund’s performance has declined since then.

    Another effective way to analyze mid cap mutual fund performance is through a bar chart race. The below visualization highlights the dominance of the PGIM India Midcap Opportunities Fund until April 2023. Since then, several other funds have overtaken it. As for the Franklin India Prima Fund, it has consistently ranked among the bottom five!


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  • Seven years as shareholder of Pidilite Industries

    Seven years as shareholder of Pidilite Industries

    Pidilite remains a key investment in my portfolio. However, after nearly six years of outperforming the index, my luck ran out in October 2023. Both the Nifty Next 50 and Nifty 500 surpassed my returns from Pidilite. Although Pidilite’s XIRR of 18.4% is impressive, it pales in comparison to the Nifty Next 50’s 30.1% XIRR. Additionally, the dividends yield at cost remain meager at less than one percent.

    Investment through the years

    Returns

    Profit

    XIRR


    Related reading:

  • Seven years as shareholder of Marico

    Seven years as shareholder of Marico

    In the seventh year of my investment journey with Marico, beating index continues to be an elusive dream. And with the recent run up in the Nifty Next 50 index since last one year, I think it might be even more elusive now.

    While Marico’s XIRR at 17% looks good, the XIRR of 22.9% and 28% of Nifty 500 and Nifty Next 50 index respectively looks better. And with LTCG revised to 12.5%, any additional return will mean more post-tax return.

    Investment through the years

    Returns

    Profit Percent

    XIRR


    Related reading:

  • Nine years as shareholder of HDFC Bank

    Nine years as shareholder of HDFC Bank

    It has been nine years since I started investing in HDFC Bank, and I still can’t call myself a long-term investor. Why? Because in the fiscal year 2023-24, I invested more than I had in the previous eight fiscal years. Why such a significant increase? Well, my earnings were higher, and HDFC Bank was going through a slump. I decided to take a risk by investing during that slump.

    Consider this: My investment during the first five fiscal years amounts to less than 10% of my entire investment in HDFC Bank. If—and that’s a big if—my earnings increase in the future, this percentage will decrease further.

    After outperforming Nifty 50 and Nifty 500 during the initial years, my returns have taken a nosedive primarily due to the merger of HDFC and HDFC Bank. The merger seems to have added a lot of concerns for HDFC Bank. Concerns which I simply can’t wrap my head around because they are too technical for me.

    Investment through the years

    Returns

    Profit Percent

    XIRR


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