Equirus Model Portfolio (EMP) gave return of 1.05% since its last version published in Mar’18 and outperformed BSE500/Nifty50 by 166bps/192bps driven primarily by strong performance of stocks like Exide Industries, KEI, Jyothy Labs, Ashoka Buildcon, Teamlease and MSIL. Since launch in Aug’16, EMP has given absolute return of 70.2% v/s 25.4%/19.8% by BSE500/Nifty50, an outperformance of 44.8%/50.4%. Our portfolio remains fairly diversified and is based on bottom up stock picking.
The changes to portfolio are:
1) Adding Marico: Marico is likely to post strong volume growth during FY19 given the higher copra prices leading to strong volume growth in Parachtue rigids while Saffola volumes are expected to recover owing to favorable base during FY18. Besides that earnings in international business are likely to gain momentum during FY19. Given the recent correction in Copra prices we expect Marico to post strong earnings growth starting 2HFY19 onwards. At our Mar'19 TP of Rs.361 the stock would trade at 41x its FY20 expected EPS of Rs.8.8.
2) Removing Cadila Healthcare: Cadila is likely to see pressure owing to competition in its high value gLialda, delay in Exelon Patch and Prevacid ODT. Ergo, compensation for gLialda loss would be tough for company.
We had highlighted in our earlier versions about our negative stance on mid and small cap stocks in general due to valuation discomfort and we have seen significant correction in some of those. While in our portfolio as well mid and small caps form large proportion, those are based on bottom up stock picking, where we see high growth opportunities. We expect markets to remain volatile for some time and don’t expect any sharp up move due to increasing crude prices, bond yields and also as market will watch closely state elections in 2018 to gauge results of 2019 general elections.
Segment view: Large Caps (Neutral), Mid and Small Caps (Negative), Overall Market (Neutral).
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