Dear Advisory Client,
The month of February has been an eventful month for the markets and your portfolio has seen the effects of many of the events. The month started off with the Union Budget 2018 followed by RBI policy. The effect of the two events was a sharp rise in 10 year government bond yields, which filtered into all other fixed income securities. US Fed maintained rates but minutes of the meeting was hawkish enough to send 10 year US treasury yields sharply higher.
Globally equity markets fell on rising bond yields and Indian equities too followed. The fall in Sensex and Nifty was accompanied by sharp falls in stocks that had run up too fast in the last few months. The markets were ripe for a correction and that correction came about in February.
Indian markets were further roiled by the PNB scam, which was followed by two other smaller loan defaults affecting PSU banks. Corporate results continued to come in mixed, though results and guidance of your portfolio stocks were as per our expectations.
We continue to monitor your portfolios constantly and rest assured we will flag off any issues that could affect your portfolios and will advise accordingly.
We have extensively covered all the events described above, which I am sure you must have consumed.
We had our first client interaction session on the “Ugly Truth of Investing in Bull Markets” at Sofitel in Mumbai. The session was highly interactive with learning from both sides. The presentation and videos will be sent to you.
You may be wondering why we did not ask you to book profits aggressively in the price run up of your portfolio stocks prior to the correction. The reason is that we believe that this is a short term correction, which is good for the market as it weeds out over leveraged positions and takes strong stocks out of weak hands. It will always be difficult to time the exact peak to sell and the exact bottom to buy if corrections are short. We did advise our new clients to buy into the corrections as we are comfortable with the stocks that we have recommended.
Profit booking should be done if either valuations or markets reach levels of unsustainability and corrections can be sharp and long, turning a bull market into a bear market.
A few stocks in your portfolio have not performed over a one year period, does this concern us? As in a cricket or football team, not all 11 players will play their best in a tournament or series. However, that does not mean that all weak performers will be benched as selectors and the captain would prefer to keep them for gaining experience or learning, given their belief in their potential. However if the belief in a player’s potential changes, the player is then benched or removed from the team.
Similar is with stocks in a portfolio. Underperformers may take their time to perform and as long as we have conviction in their long term outlook, the stocks will stay in the portfolio and if this conviction changes, the stocks will then be taken out of the portfolio.