1. MULTIPLE ‐STRATEGY
TREND RATED
AUTOMATIC TRADING SYSTEM
Portfolio Management Services (PMS)
Performance Update
31 January 2011
Vivek Mavani – Vice President and Senior Portfolio Manager
2. BRICS Growth Synopsis
BRICS Growth is a Long only Diversified Equity Product aimed at generating Absolute Returns
The Objective is :
To generate Steady & Consistent returns over medium to long term
Maintain Low Volatility
Margin of Safety
g y
The Focus is therefore on Stock Picking with a Buy and Hold philosophy
Invest in high quality and high growth companies at reasonable valuations and hold them
over a period of time. (Not trade in & out frequently)
Our conservative approach to managing investments, (especially during periods of volatility) is
reflected in our superior performance.
3. Market Update – Perpective
The
Th corrective phase of November and December continued into January albeit with greater f
ti h fN b dD b ti di t J lb it ith t ferocity. Whil
it While
Sensex & Nifty corrected by ~11% in January, (~13% from the peak), individual stocks corrected ~15-45%
from the peak
Excess global liquidity drove the markets in 2009 and 2010 that came into the Indian markets (via the
FII’s), saw sharp withdrawals in January 2011. With FII’s as sellers across the board and very limited
buying interest on the domestic investors (both Institutional and non-institutional), it was a sharp correction
The accompanying table shows the correction of various indices in January as well as their correction from
the peak in October-November 2010
Index Fall from Peak Fall in January Index Fall from Peak Fall in January
Nifty -12.78% -10.25% Sensex -12.75% -10.64%
Bank Nifty -19.80% -9.75% BSE Auto -14.61% -13.10%
S&P 500 -14.86%
14 86% -10.45%
10 45% BSE Capital Goods -19.01%
19 01% -12.25%
12 25%
CNX Mid Cap -18.50% -10.55% BSE FMCG -10.08% -8.63%
CNX IT -20.49% -12.00% BSE Metals -8.69% -8.41%
CNX Realty -44.68% -22.69% BSE Oil & Gas -15.21% -10.56%
Although the sharp erosion in stock prices (individual stocks having corrected by 15-45%) makes it look
like a bear market, the fall so far is a correction and not the beginning of a bear market, not as yet
Limiting the downside in the portfolio in such a scenario is always a huge challenge (unless one was totally
out of the market.) Nevertheless, we managed to limit the downside to a large extent
) , g g
4. Portfolio Update and Outlook (Cont’d)
Dilemma during the corrective phase in the markets:
Sell the portfolio and stay liquid. Attempt to re-enter at lower levels
Stay put holding the portfolio and see a temporary erosion in value
We did both selectively. During the month:
We largely exited from the Banking sector, (Axis Bank, ICICI Bank & Power Finance Corporation). If
we had continued to hold them, (was ~20% of December 2010-end), the portfolio would have
,( ), p
declined much more since all of them are currently significantly lower than our selling price. Thus we
have managed to limit the downside to that extent
We stayed put in stocks/sectors where we continue to have a high degree of conviction, namely
Technology sector (Infosys & TCS), Auto (Bajaj Auto) and Capital Goods Sectors (BHEL). Although
they have also corrected sharply, we would stay invested at least for now, as we feel these would
bounce back fast when markets stabilise
We also reduced our Mid-cap exposure by booking profits. However, selectively mid-caps will continue to
be an attractive space as individual performances are likely to shine amidst range bound markets
Markets in 2011 are more likely to test Conviction & Patience. Stock picking is likely to be the key in
generating superior returns
However, Credo of Sticking to Quality will always remain and will never be compromised
, g Q y y p
5. Absolute Performance – 31 January 2011
Since
Weekly Monthly Quarterly Half Yearly Annual
Inception
p
BRICS Growth -3.80% -9.47% -11.69% 3.25% 28.36% 36.70%
NIFTY -4.13% -10.25% -8.50% 2.58% 12.78% 8.31%
SENSEX -4.30% -10.64% -8.51% 2.57% 12.04% 6.96%
S&P CNX 500 -4.41% -10.45% -11.03% -1.13% 6.46% 7.42%
S&P CNX MIDCAP -4.36%
4 36% -10.55%
10 55% -15.36%
15 36% -5.86%
5 86% 10.01%
10 01% 18.28%
18 28%
Inception Date: 1 October, 2009 Portfolio returns are audited and Actual Returns to Investors After
deducting fees (including performance fees) & other expenses
g ( gp ) p
7. Compared to Top 20 Mutual Funds as of 31 Jan. 2011
Ranked on 1 year returns
Performance
Rank Scheme Name
6 Months % 1 Year %
1 BRICS Growth 3.25 28.36
2 Canara Robeco FORCE Fund - IP - Growth 1.54
1 54 25.04
25 04
3 HDFC Equity Fund - Growth 4.18 23.65
4 Escorts High Yield Equity Plan - Growth 4.71 23.39
5 Templeton India Equity Income Fund - Growth 11.04 23.13
6 Reliance Equity Opportunities Fund - Growth 0.49 22.98
7 Tata Dividend Yield Fund - Growth 3.75 22.21
8 Quantum Long-Term Equity Fund - Growth 4.45 22.11
9 Religare Mid N Small Cap Fund - Growth -2.94 21.40
10 HDFC Mid-Cap Opportunities Fund - Growth -0.05 21.23
11 ICICI Prudential Focused Bluechip Equity Fund - IP I - Growth 5.16 21.08
12 Birla Sun Life Dividend Yield Plus - Growth -0.87 20.78
13 UTI Dividend Yield Fund - Growth 4.66 20.47
14 Reliance Quant Plus Fund - Ret - Growth 7.78 20.19
15 Kotak Lifestyle Fund - Growth -1.22 20.16
16 Canara R b
C Robeco E Emerging E iti - G
i Equities Growth th -1.75
1 75 20.14
20 14
17 Sahara Wealth Plus Fund - VP - Growth -0.10 20.13
18 ICICI Prudential Focused Bluechip Equity Fund - Ret - Growth 4.75 20.08
19 ING Dividend Yield Fund - Growth -0.04 20.00
20 HDFC Top 200 - Growth 3.31 19.68
The comparison includes 250 Diversified Equity Funds across all Fund Houses
8. BRICS Growth NAV Trend
Performance has been a result of our: BRICS Growth NAV v/s Indices (normalised)
Stock Picking
160
Low churn in the portfolio, and
155
Conservative attitude (not taking
150
excessive risks)
145
140
Our Strategy has been to :
135
Buy during panics/declines
130
Use sharp rallies to partially book profits
125
Opportunistically ride the momentum for
a part of the portfolio (<15%) 120
Remain adequately liquid at all times 115
110
Adequate liquidity h l :
Ad t li idit helps 105
Protect against volatility 100
Provides enough courage and conviction 95
to buy into panics 90
85
1‐Oct‐09
1‐Feb‐10
1‐Aug‐10
1‐Sep‐10
1‐Oct‐10
1‐Nov‐09
1‐Dec‐09
1‐Jan‐10
1‐Mar‐10
1‐Apr‐10
1‐May‐10
1‐Jun‐10
1‐Jul‐10
1‐Nov‐10
1‐Dec‐10
1‐Jan‐11
Current cash/liquid balances ~ 29.21% of the
Portfolio as of January-end 2011
BRICS Growth Nifty Sensex
S&P 500 CNX Midcap
9. BRICS Growth Outperformance Trend
BRICS Growth has delivered absolute & consistent returns across different market phases
Significant out-performance in a range bound volatile market, (Stock Picking was the Key)
Kept pace even during the sharp rally (Buy and Hold, Profit booking at higher levels)
The f ll in
Th fall i NAV d i th corrective phase was i li with th I di
during the ti h in line ith the Indices (i spite of having
(in it f h i
~20% exposure to Banking & Financial Services and ~30% in mid & small caps)
1 October 2009 ─ 25 May 2010 ─ 5 November 2010 ─
Date
25 May 2010 5 November 2010 31 January 2011
Range bound Sharp rally across
Market Scenario Fall from the Peak
Market the board
BRICS Growth 15.70% 36.73% -13.59%
Nifty -5.44% 31.32% -12.78%
Sensex -6.50% 31.10% -12.75%
S&P 500 -2.84% 29.86% -14.86%
CNX Mid-Cap 10.32% 31.54% -18.50%
y
Bank Nifty -0.10% 49.90% -19.80%
10. How did we do during periods of Volatility – 12 Biggest Falls between Oct.-’09 – Jan.-’11
How much a portfolio falls during a Points Points % Fall -
correction / sharp downturn is as % Fall - % Fall -
Date Fall - Fall - BRICS
important as how much it gains in a Nifty Sensex
Nifty Sensex Growth
bull market
27-Jan-2010 -159.65 -3.19% -490.64 -2.92% -2.29%
Protecting capital is often more
03-Nov-2009 -147.80 -3.14% -491.34 -3.09% -0.36%
important during periods of volatility
19-May-2010 -146.55 -2.89% -467.27 -2.77% -0.84%
Downside protection equally
contributes to superior returns over a
p 25-May-2010 -137.20
-137 20 -2.78%
-2 78% -447.07
-447 07 -2.71%
-2 71% -1.62%
-1 62%
period of time
05-Feb-2010 -126.70 -2.61% -434.02 -2.68% -0.47%
We have managed to fall less than
the indices during each of the sharp 27-Oct-2009 -124.20 -2.50% -387.10 -2.31% -0.65%
falls / panics since our inception
21-Jan-2010
21 J 2010 -127.55
127 55 -2.44%
2 44% -423.35
423 35 -2.42%
2 42% -1.32%
1 32%
Large liquidity during periods of
volatility & a low beta portfolio helped. 10-Jan-2011 -141.75 -2.40% -467.69 -2.38% -1.92%
7-Jan-2011 -143.65 -2.38% -492.93 -2.44% -1.48%
CNX
Against Nifty Sensex 09-Dec-2010 -137.2 -2.32% -454.18 -2.31% -2.18%
Midcap
Beta * 0.4985 0.4992 0.5001 01-Jun-2010 -116.10 -2.28% -372.60 -2.20% -1.24%
16-Nov-2010 -132.90 -2.17% -444.55 -2.19% -1.44%
*Beta measures the volatility of the
y
portfolio relative to the index
11. Portfolio Breakup
Market Cap Breakup Sectoral Allocation
Automobiles
Oil & Gas 6%
11% Banking &
Cash Finance 6%
29.21%
Infrastructure
Branded
& Capital
Garments &
Goods 13%
Large Cap Retail 12%
47.78%
Information
Technology
13%
Small Cap
15.75% Cash 29%
FMCG 10%
Mid Cap
7.26%
Large Cap. More than Rs 5,000 crores
Mid-Cap. Rs 1,000 - 5,000 crores
Small Cap. Less than Rs 1,000 crores
12. Low Portfolio Turnover (Buy & Hold at work)
Portfolio Turnover Re-deployed part of
liquid balances by
1.00 buying on declines
0.90
0 90
Increased
Turnover increased as the Cash
0.80 we partly booked levels
profits at higher levels
0.70
0.60
0 60
times
0.50
0.40
0.30
0 30
0.20
0.10
0.00
0 00
Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11
Portfolio Turnover
13. Market Outlook
Global
Gl b l macro economic risks, I fl ti and hi h commodity prices will continue t weigh on th markets.
i i k Inflation d higher dit i ill ti to i h the k t
Will definitely have repercussions on India
Concerns on macro economic front, (Inflation, fiscal deficits, higher commodity prices etc.) necessitates
tightening liquidity and higher interest rate cycle going forward. We feel that there is a long way to go on the
interest rate cycle. This could threaten to slowdown the “India Growth Story.”
Excess global liquidity was the primary reason for the sharp rallies across all emerging markets in 2009 and
2010. However, we are already seeing the impact of marginal withdrawal of liquidity as foreign fund flows
reversed in January 2011
Although Valuations have corrected significantly in the last three months, they are reasonable but still not
cheap when seen in light of growth outlook going forward. Earnings estimates for FY12 are likely to be
revised down post the current results season
We had anticipated (
(and mentioned in our previous updates) about sharp declines in stock prices if
) f
corporate earnings disappoint. Several large and prominent corporates actually disappointed on
earnings or growth outlook going forward
Where the earnings were in line, the earnings growth going forward raises concerns on back of :
Increasing interest rates and tight liquidity, making capital raising both difficult and expensive
Higher commodity prices across the board, (cost pressures are already beginning to be felt)
Little flexibility in increasing the end product prices thus putting pressure on margins
prices,
14. Market Outlook (cont’d)
Key Investment Theme in 2011
Focus on stocks/sectors where growth in sales and earnings is not sensitive to:
Interest rates (both for themselves as well as their end customers)
They have reasonable pricing power to pass on higher costs as a result of higher commodity
prices, and thus protect margins
Valuations v/s growth favour bottom up stock picking across the spectrum (large and mid-cap), rather than
top-down approach. I di id l performances could h
t d h Individual f ld have a wide variance among th peer group
id i the
Stocks/Sectors to avoid are those where growth is dependent on fresh issue of capital (both debt and
equity) as tight liquidity would make fund raising both difficult and expensive. This will have serious
implications on growth
Pockets of opportunities are still available in stocks/sectors where growth is steady, are adequately funded
and valuations leave room for upside
It is quite possible, that in 2011 will see indices in a broad range but individual stocks could give excellent
returns. St k picking will be the key
t Stock i ki ill b th k
It is a good time to build a high quality long term portfolio by Buying on Declines
However, Markets in 2011 are likely to Test Conviction & Patience
15. Our Strategy
“Time” in the
“Ti ” i th markets i more i
k t is important th “Ti i ” th markets
t t than “Timing” the k t
Superior long-term sustainable returns are not made by timing the markets in terms of selling at
the peaks. They are a result of purchase prices that are attractive in terms of valuations with
adequate Margin of Safety
Our strategy going ahead would continue to be, bottom up stock picking and be extremely
selective:
Buy on declines
Use sharp rallies to partially book profits
Opportunistically ride the momentum for only a small part of the portfolio
Remain adequately liquid at all times
The sectors that we are bullish and continue to be over weight are:
Technology (Software Services),
Capital Goods and Infrastructure Construction
Oil and Gas including Gas Transportation & Distribution,
Domestic Consumption themes like FMCG, Paints, Branded Garments, etc.