Themes for 2025

 Here’s wishing everyone a great 2025.

After the euphoria of 2023, markets, more precisely the indices, appear to have settled in a range which it appears is difficult to break. Add to it, the quarterly earnings of corporate India are not supportive of breaking this range either. If anything, the common verdict seems to be that the indices are trading at or above their fair value and globally there are better options available, not the least the big Daddy US, now that Mr. Trump is all set to rule in a few weeks time. This however is not true of the broader market i.e. the midcaps and small caps. They are only going in 1 direction i.e. up. Albeit, there has been an occasional dip, but that is very much needed and is par for the course.

So most people made a good amount of money/returns in 2024 which saw 2 budgets, though mini ones, a general election, several state elections and the much awaited US presidential election bringing Trump back to power. Given this situation, what does 2025 hold for us? Are the FIIs likely to return to their old ways of big-time buying? What is China going to do after making noises in the last few weeks (they have apparently decided to change their monetary policy stance after 14 years this time amidst Trump openly declaring his anti-China stance)? One can expect more such moves from China and its impact on metals, chemicals (and hence pharma and allied sectors) will need to be keenly watched. These are some of the key questions, the answers to which will provide the triggers for Indian markets, either way. While I still feel that the Indian markets have largely ended their dependency on foreign fund flows, due to incessant SIP inflows (the equity allocation in Indian households was 2.5% 10 years back and is now 5%), as I had mentioned in the 2024 blog, these are at best a counter to the FII withdrawal. The FII money is still needed to provide the liquidity which is what drives the Indian markets with the valuations being what they are. As they say Markets are slaves of Earnings. So till such time, the earnings start looking up meaningfully and consistently. market is likely to be range bound, not falling due to the local flows, but not gaining either due to lack of liquidity and any positive fundamental triggers. Hence the stage is set for a stock picker’s market this year with not much expected from the indices. The only exception to this rule is the IPO market which continues its unwavering march as if there is no tomorrow. But then again, one needs to be extremely lucky to get any allotment at all given the record oversubscription numbers of the most average of issues. And there is no sign of this ebbing anytime soon.

With a new govt. now settling down to the business of governance, this year’s budget will be keenly watched more so since not much was expected in last year’s temporary/partial pre and post election budgets. While the general expectation is the govt’s continued push towards infrastructure, it remains to be seen how the private sector responds to it. One thing which is likely to provide tailwind to this is the expected rate cut in Q4. That should provide some relief to the corporate sector to borrow more at lower rates for capex. How much of it actually happens is the moot question.

I think it will be prudent to focus on sectors and stocks this year which have a clear runway for growth domestically to mitigate the global risks. Some of these which have become obvious are the Power/energy sector, both conventional and renewable, domestic financial sector reforms and digital India, leading to newer requirements for fulfilment, niche plays on favourable sectors (Digital India, Domestic financials, Insurance, Real Estate, Liquor, Mining, Data centres) etc. It will also be useful to identify companies with a moat from the favourable sectors and themes mentioned above as the theory of rising tide lifting all boats is now at an end. The tide is certainly ebbing and it will certainly require astute skill to row one’s boat carefully thru turbulent seas (as has been witnessed quite a few times in the last few days and weeks).

So this year my selection will be on the above lines, though not exclusive to it. Let’s take a look:

Protean eGov Technologies

This is an NSE-promoted company involved in what is popularly known as Digital Public Infrastructure (DPI). Basically this involves creating the public infrastructure for digital activities such as PAN cards, Aadhar-enablement and the like. By its very nature, it comes with a moat which is very difficult for any new player to overcome. The expertise and experience that they possess in this space is unmatched currently and is likely to stay for some time to come. Add to it the govt’s blessings and you have a complete monopoly stock. In that respect it is quite similar to some of the other listed PSU like BSE & CDSL. Nobody can think of matching these companies, let alone surpass them, for many years to come. In other words, all these stocks can be considered as Digital India stocks. As far as Protean is considered, it undoubtedly is a potential multibagger on the lines of MCX, BSE & CDSL.

This started in 1995 under the name of NSDL e-Governance Infrastructure Ltd. The company’s vision is very clearly spelled out to be a globally trusted provider of impactful technology solutions that promote ease of living. And to do this, the company is doing 4 things:

1. Tax modernization – Automation of tax collection, processing, monitoring through tech platform and serving as a Registrar for PAN cards (which are essential for financial transactions)
2. Social security & welfare – Paperless digital on-boarding for individuals. It has a reliable tech stack for seamless payments and also serves as a CRA/repository for NPS & Atal Pension Yojana.
3. Digital Ecosystem VidyaSarthi – Online platform for education finance
4. Digital Identity Services – eKYC, eSign, Aadhar authentication, GST services.

This is a debt free company with a pan India network offering annuity-based services and a strong track record. Going forward there are plans to implement a 5G network for mobile devices which in turn will aid the growth of IoT & Big Data Analytics.

The company has a stake in ONDC. Recently. Qcomm platforms like Ola have partnered with ONDC for food delivery services on a chargeable basis. ONDC is currently growing at 25-30% monthly and targeting international markets like Africa & South Asia. It has also entered Agriculture & Education finance business. These are nascent business w/o much fancy currently but with a huge potential in countries like India.

With multiple growth drivers mentioned above and govt’s other  digital initiatives (remembers the recent PAN 2.0  roll-out which will be driven by Protean?), this has all the potential to be a 10K candidate from the current 2K over the next few years.

eMudhra

Carrying forward the DPI theme further, a company not often talked about in this space which will enable digitisation and Digital India theme in the coming years is eMudhra. This again is a true monopoly stock with no listed peer as yet.

eMudhra is a trust service provider offering secure digital signature and PKI solutions for authentication, online transactions, and document signing. By far its most popular offering is the DSC, Digital Signature Certificate, which is finding increasing acceptance among SME/MSME businesses amid the encouragement provided by govt. in the last budget. These DSC are widely used in ITR filings, e-Tenders, MCA filings and the like. eMudra acts as a certifying authority pan India with the largest market share of 35%. It plays a pivotal role in the paperless transformation journey of organizations across sectors. Margin-lucrative export business and enterprise solutions business constitutes 65% currently. This gives it the strength to have strong EBITDA margins of over 30% and this will only go up as these businesses pick up in the coming years from countries like USA, Europe, South Africa and SE Asia (it has started services in Kenya and Indonesia some time back). Cybersecurity is another strong area for the company not only in India but internationally as well.

 MediAssist

This is a play on the Insurance sector and is a monopoly of sorts in the listed space. So by dfault, it enjoys a premium. And post COVID, with people realising the importance of health insurance, MediAssist certainly has strong tailwinds going for it.

MediAssist is in the Claim processing business and is currently the only listed TPA.

The current trend in the healthcare industry is to go for Cashless claims procedure wherein the patient doesn’t have to pay anything upfront but the insurer pays the advance to the hospital and the key player involved here to facilitate all this is the TPA.

MediAssist is the largest Claim-processing company enjoying a 19% marketshare and processes claims worth ₹10,600 crores. This company is more focused on group insurance wherein the corporate outsources the entire claims processing of its employees to MediAssist which then handles all the related paperwork and liaises between all the 3 stakeholders – the corporate employer, the employee and the patient undergoing hospitalization/treatment and filing a claim. MediAssist has a stranglehold in this space with excellent relations with more than 10,000 large corporate employers with its efficient service. After all, it is the corporate who decides who to outsource the claims processing to. No wonder it is able to get 94% of its contracts renewed annually. This also mitigates a core business risk of being in the B2B business.

Considering the current state of healthcare and consequently health insurance in our country, it is highly likely that players like MediAssist will have steady cashflows and revenues for many years to come. And the tailwind is that govt. wants to increase healthcare penetration and has an aim to have healthcare for all by 2047. That’s why not only the govt. but the regulator IRDAI is also making things easier for health insurance penetration esp. in the hinterland. The company has a strong technology platform which is scalable and adding new insurers to increase business is not a challenge.

With more and more people opting for preventive tests and diagnostics now, claims processing is on a strong footing. This is currently a small cap company with a market cap of ~40000 Cr. Its valuation is also on the higher side, but with monopoly status, it is probably justified till some other player in the same space gets listed for a comparison. This is similar to what monopoly companies  like Gillette and Blue Dart enjoy, a higher than normal discounting due to lack of listed peers and get what is called a scarcity premium. In this case, post COVID, health insurance has become somewhat of a necessity for everybody rather than the luxury it used to be a few years back. Add to it the other ailments like cardiac and lifestyle related, and you will see that there is a long runway for companies like MediAssist to prosper. This is a classical compounder over the next many years, given the above factors and should certainly be a portfolio stock for most portfolios.

Sheela Foam (SF)

“Sleep is the best meditation” Dalai Lama once said, and rightly so. Sheela Foam is again a unique company and the only one listed in this space catering directly to this area. It is a dual play – a direct play on consumption and an indirect one on real estate, as every new house will require among other necessities, beds and mattresses, if nothing else.

77% of SF’s revenue comes from India, 13% from Australia and 10% from Spain. It has 2 major brands – Sleepwell and Kurl-on which it acquired recently. Sleepwell has a 30% share in organized mattress market in India and 40% in Australia which is one of the fastest growing markets. SF also holds a 40% share in Furlenco which is an online furniture rental company whose user base has nearly doubled YoY.

SF is valued a just 3x Marketcap/Sales with a DER of just 0.5, so debt is well under control.

Slowly, people are realising the value of sound sleep and are willing to pay a premium for it. This has created a huge TAM (Total Addressable Market) for SF. With strong brands in place across price points, SF has got everything going for it.

Tata Power (TP)

With Power sector being the talk of the town, not to mention the govt., how can one ignore this? And what better stock in this sector than Tata Power? Like Raymond’s complete man, TP is a complete power company covering the entire power ecosystem,

It is one of the top power producers in the country today with plants across India. And apart from conventional power, it is into renewable big time. Though not much talked about, it has made significant strides here as well. It may be a matter of time before it decides to unlock value in this area given the favourable market conditions which are likely to remain so for the next couple of years at least. Tailwinds for TP includes the govt’s vision of 500 GW of renewable power by 2030.

TP has an equally strong T&D business with not only B2B but also a good amount of B2C business. So TAM for its renewable power is also huge and you can trust it to leverage it.A classic example of this can be the solar rooftop business where it has made good strides.

Another untapped and promising area for TP is of EV charging stations. The bonus for this is the pricing power TP is likely to enjoy. This is primarily becoz EV buyers are well-heeled ones and r unlikely to cut corners in such matters

TP’s target for clean and green energy is > 20GW by 2030 accounting for 70% of its total. Of this they have already achieved > 5.5 GW while > 3.7 GW is under construction.

And the best part is that among its peers it is quoting at very attractive valuations of less than 40 PE at a sub-400 price. You may not get a better price for it, come 2025 and return of FIIs.

Let’s now pause a bit to see how my last year’s picks did.

Stock	Price (31-Dec-23)	Price (31-Dec-24)	Difference	%
Nippon India ETF PSU Bank BeES	63.42	72.67	9.25	14.59%
Shriram Finance	2052.20	2889.15	836.95	40.78%
L&T	3527.05	3607.65	80.60	2.29%
Camlin Fine Sciences	135.85	130.99	-4.86	-3.58%
Dreamfolks Services	540.85	390.60	-150.25	-27.78%
Praveg	731.15	723.70	-7.45	-1.02%
Total	7050.52	7814.76	764.24	10.84%

This time the performance has been nothing to write home about though it did beat the index returns of ~8% quite comfortably, though far below the returns of > 20% in SMID indices. The big letdowns were the small caps Dreamfolks (a proxy for the aviation story) and Praveg (tourism). While Dreamfolks as a company continues to do well, it is still at a nascent stage and has a steep learning curve ahead to cope up with govt. regulations on one side, passenger expectations on the other and at the same time managing its financials to ensure a strong topline and decent enough bottom-line. Praveg was expected to ride the Ayodhya spiritual story due to the new Ram temple inauguration early this year. It only flattered to deceive. Dreamfolks at least has a new concept around it (airport lounges and moving on to other travel experiences). The same may not be true of Praveg, unless it gets its act together. Last year’s pick ITC took a much expected break in 2024, but is likely to pick up steam again after the hotels demerger. There may also be a few other value unlocking moves by it in the next few years, even if not immediate. It needs to catch its breath after the breathtaking run over the last 2 years.

The big meltdown in 2024 was the Railways and Defence, the 2 sectors that were rocking in 2023 and produced many a multibagger. But as always, market caught up with their earnings and valuations and brought them down as fast as they had moved up. However, after multifold returns over the year, a 30-40% crack should not move the needle much and the portfolio will still be quite a way in green, even if not as much as much as the previous year. Add to it the dividends and bonuses offered by a lot of companies, and there is very little room to complain.

The sectors mentioned earlier, Digital India, Domestic financials, Insurance, Real Estate, Liquor, Mining, Data centres will continue to do well and a lot of companies from these sectors which have not run up yet will continue to surprise on the upside. Of these I would bet on Digital India, Data centers and Water related stocks to do well this year, and some of the leading choices from these sectors pick themselves up.

Also watch out for some big IPOs from corporates like Tatas and few others, as well as new age listings like Swiggy in 2024 and Zomato the year before.

 Here’s wishing all investors a very profitable 2025.

Diwali Dhamaka 2024

 

Here’s wishing everyone a great Diwali and a prosperous new year ahead.

With the benchmark indices going nowhere post reaching the ATH peak, it is time to sit back and take stock. By all counts, from traders, analysts et al, Indian markets are trading above their fair value and there are better options globally, and even in Asia. Nifty 50 index is trading at ~24x PE, which is in line with its 5-year average, but a tad higher than the 10-year average of 23.4x, as per Bloomberg data. The Nifty Midcap 100 index at 47x PE, too, is far away from its five-year average of 36.4x and 10-year average of 32.4x, data shows. In P/E terms, the Nifty 50, data shows, is trading at around 89% premium to the MSCI EM index, above its historical average of around 50%. Stable macros, broad-based earnings growth and robust banking/corporate sector health, analysts said, are driving this premium. That said, geopolitics, US elections and crude price remain key risks, especially post the recent escalation in the conflict in West Asia. Any shift in government’s fiscal priorities post state elections, can also emerge as a medium-term risk. While it is true that prospects of Indian markets look way better than most, at least on paper, as they say, proof of the pudding is in eating it. These are just notional and once the results are out, the reality will be there for all to see. The concern is that India will not be able to sustain the premium valuation it has held since 2021. And Q2 results have given a preview of things to come.

The good thing though is that Indian retail investors have matured big time as is seen by the steady stream of SIP flows over the last few years irrespective of the market trend. That is indeed a heartening prospect as DIIs, who actually use these flows, can act as a counter to the FIIs and in fact have actually been doing so for the last few years, and this trend looks unlikely to stop. (FII) have pulled nearly $7 billion from Indian stocks in October alone.

The other noticeable thing which has happened is the returns the precious metals Gold and Silver have given over the last few months. The gains in bullion (and Silver) have been on multiple levers including geo-political tension and hopes of more rate cuts by the US Federal Reserve, this year.
They have rubbed shoulders with equity returns, and in fact surpassed them. In 2024 so far, Gold has delivered returns of ~21% while silver has ~23% vs 12% yielded by the Sensex. And with the festive fervour having already started and peaking in the next few weeks, the party is likely to continue. So it makes eminent sense to have both of these in your portfolio for the next year or so, at the minimum, a point I have been making for more than the last 6 months. And there are a variety of instruments today which give you the flexibility to do that, the way you want to. For investors, looking for a lazy way out, you have the Multi-asset schemes which various AMCs have floated, which would serve the purpose very well, if one doesn’t want to spend own efforts in this area.

The major global events which are on the horizon now are the US prez. elections and the probable Fed rate cuts in the next 2 months. And adding spice to this heady mixture will be the state elections in India in some of the key states like Maharashtra & Jharkhand over the next 2 months. It remains to be seen when our very own RBI follows suits of the western world and kick-starts the rate cut cycle.

So this time, I will be leaning more towards stock picking than a top down sector approach as I usually do. As I have seen, there are sectors lie BFS which have headwinds while individual stocks have tailwind and that is where this theory plays out well. The stocks on my radar this time are likely to be the ones which have deep value within and could go the Raymond way as you will see in the later part. The thing is that these things are right there in front of everybody, but nobody has really noticed them from that angle. So here are the stocks I am betting on this year.

 

Edelweiss Financial Services (EFS)

EFS has a set of rich businesses which the market has completely ignored, a la ITC. By its own admission, here is the break-up:

 

And its current Mcap is only ~10500 Cr. It is quoting pretty much like a holding company, at a massive discounteven though it has an active participation in all its businesses, unlike a holding company which is usually a passive investor. It has openly declared that value unlocking will happen over a period of time. AMC & Insurance arms may be the first off the block considering market flavour.

 

 

So this can be an ideal SIP candidate to accumulate over the next few months taking advantage of the current market volatility. And to top it all, it is headed by a market & finance veteran Rasesh Shah, an IIM-A alumnus who I would rate in the same league as IDFC First Bank’s CEO Vaidyanathan, another from the same institute and who has earned his stripes over the years. I won’t be surprised if ESL doubles over the next couple of years with these tailwinds and steered by such able leadership.

S H Kelkar & Company (Keva)

There are a lot of daily use FMCG products like soaps, shampoos, detergents etc which require fragrances of various kinds. S. H. Kelkar & Company (also known as Keva) is one such company which provides this smell or fragrance to the makers of these products. And it has been doing this for the last 50 years. This being a very selective and customized business, the customers tend to take time to gain confidence in the company and contracting is usually a long drawn process. But once Keva gets the fragrance and quality right, the client is theirs for life. The clients are unlikely to shift to another vendor in a hurry once the chemical set-up is achieved, resulting in long-term supply contracts with most FMCG companies needing their products.

Keva is one of India’s largest fragrance companies. Such is their popularity that some of the fragrances they developed decade ago are still market leaders. They have a reach over 90 countries, and their sensorial offerings span a large variety of flavours, fragrances and aroma ingredients. To address this global market, they have set up 7 Creative Development Centres across 3 continents. These serve more than 4000 local and MNC clients with ease. We’ve also achieved significant backward integration capabilities in our fragrances division through 6 manufacturing plants. Keva manufactures both fragrances and the aroma ingredients that go into them. This allows them substantial flexibility in effectively responding to changes in demand. This has enabled them to have a steady growth rate of 12-15% over the last several years.

The major risk factor for Keva is that this is a B2B business and is impacted by the rise in inputs costs which can’t be easily passed on to the clients. This has the effect of impacting operating margins for a few quarters before the cycle eventually turns.

Currently it is quoting at very attractive valuations. This being a stable quality business, has all the potential to grow and scale up in double digits for several years. While the SMID stocks are quoting at huge multiples and have gone up upwards of 3x, this has gone up less than 2x, and is quoting at around 36 PE which makes it a value play. It has a great long term potential and if one were to think of long term, this would be a prime pick at current levels. This being in the fragrances and food additives business, can be considered as a direct play on the Consumption theme. Add to it the China+1 strategy which is fast catching up in the western world, and the growth story is further reinforced. Keva will surely be able to capture a larger global market and has the potential to be a mutli-bagger.

Losing ground in the current correction to below 300, this provides a great opportunity to add such a niche stock to one’s portfolio.

Arihant Superstructures (AS)

I consider this as a proxy play on the new airport coming in Navi Mumbai. This is a mid-sized player in MMR. Its focus is on the MMR micro markets of Badlapur, Shilphata, Taloja, Kalyan etc. which are in close proximity to the upcoming airport as well as the prime pockets like Vashi, Kharghar and the upcoming Panvel. It also has 20% of its projects coming in from Jodhpur, another upcoming real estate pocket in Rajasthan. Panvel constitutes another 20% of its projects. It thus boasts of a blend of luxurious as well as affordable housing projects across these areas, with these 2 lucrative pockets constituting 40% of its strength. It has a launch pipeline of close to 1000 Cr. in the current financial year.

The current airport in Mumbai has a capacity of 50 million passengers/year while the upcoming Navi Mumbai airport boasts of a capacity of 20 million passengers/year. As with any such major landmark, this too has the potential to create a mini- Navi Mumbai once the airport becomes operational in 2025. For those of you who are not aware, you just have to look at how the property prices have mushroomed at the Maharashtra-Goa border of Sawantwadi and neighbouring areas, most of the land there being cornered by politicians of both sides. And guess the reason? The swanky new airport in Goa (its second, the first one being run by the defence establishment) at Mopa just across this border. And thanks to this, these areas have moved up from being sleepy villages they were not too far back to buzzing towns of economic activity. This is what a major landmark like airport has the potential of creating. The same fate now awaits the hitherto neglected area at the far end of what we currently know as Navi Mumbai, though after such a long time, it has become somewhat of a misnomer, Navi meaning ‘new’ in Marathi. Already, the signs of awakening are visible. The big boys of India Inc are already here with purchases of huge land banks. Reliance is setting up an industrial park in this area close to its existing DAKC, Adani’s Data centres are coming up at Taloja, new sea ports are coming up at Dighi in the same area and many such huge infrastructure projects are in the works. This obviously will give rise to prime real estate in the whole area and this could well be the next Powai.

AS is already here with 37 projects of which 21 are low inventory, ready-to-move ones, which usually sell like hot cakes. AS is also into the much sought after affordable housing. They are known for being customer-friendly with no transfer pricing and lock-ins. However the icing on the cake is the Arihant‘s luxury villas project called as Arihant World Villas spread over 76 acres, just 30 min away from the new airport. The plan is to have 362 villas with a gross development potential of ₹1000 Cr. for the discerning few. Needless to say, 5* amenities like Golfing, Spa resort, Clubs, Riverside promenades, Mall etc are all planned for a complete well heeled experience. Along with this, 2 big 5* 200+ room hotels managed by Indian Hotels (Taj), are also proposed. Market cap of the company is just ~₹1400 Cr. And all this when it has shown a 5-year PAT CAGR of 40%.And the stock price too has delivered a CAGR of 20% in this period. The thing to note is that all of this has happened prior to the airport being started. So considering all of the above factors, this looks like a big re-rating candidate. Even after the current run-up, even if it takes a pause for a while, with the opening of the airport in a year’s time, I am sure smart hands will start accumulating soon, if not done already.

Indigo Paints (IP)

This is the smallest paints company among the listed ones with a MCap of less than 10K Cr. while most of the others are upwards of 20K Cr. with only Akzo Nobel slightly below this. And yet IP is half the size of the smallest of the established players. Yet, it is holding its own among strong competition from the larger players and few of the big houses entering it recently – Birla Opus, JSW Paints etc.

IP was incorporated in year 2000 and manufactures and sell decorative paints. MS Dhoni is its brand ambassador which fits in quite well with its image as a cool brand. It is the 1^st company in India to introduce category creator products like metallic emulsions, tile coating emulsions etc. in the decorative paints segment. The company has a market share of 80-90% in some of its differentiated products. Its product basket comprises of emulsions, enamels, wood coatings, cement paints and putties, premiere distempers etc. They have a distribution network in 28 states with 18000 active dealers, 7000 tinting machines and 53 depots in India. The company also has 5 manufacturing sites.

Its sales have nearly doubled in 3 years, and OPM has gone up from 13 to 22%, a no mean feat in a competitive environment. ROCE has consistently been above 20% over the last few years. And as is the trend, public holding has been decreasing over the last few years while institutional holding is increasing, so much so that the public holds just 17% currently. It is therefore safe to conclude that it is in strong hands.

Given the state of the economy, govt’s push for housing and infrastructure, paint industry despite multiple players has string tailwinds which will benefit a smaller, agile player like IP much more than the biggies. This has been consolidating over the last 2 years and has gone nowhere. It therefore looks like an opportune time to board this and play with patience over the next few years to really get the compounding benefit. Add to it the ever present option of consolidation or sell-out to one of the biggies with deep pockets, gains can still be made.

India Glycols

This company has a Distillery business where Ethanol is manufactured, a Liquor business and finally, the Speciality chemicals business. All 3 r not only going great guns at present, but their future looks equally bright. Speciality chemicals sector has taken a beating in the last 2 years and can now be considered to have bottomed out. We all know how close Ethanol is to Gadkari’s heart and Liquor is an evergreen business, especially the IMFL one. You just have to look at Associated Alcohols in the last 1 year or so to understand what I mean.

Having said the above, I believe that there is a great scope for value unlocking here as all the 3 businesses is strong in their own right. And as has often been seen, SOTP is usually way higher than the individual parts together. So even though it has doubled over the last year, there r enough tailwinds for it to go higher. And this will unravel over the next few months/years.

Since last Diwali which was celebrated on November 12, 2023, the headline Nifty index so far has risen by a sharp over 26%. Nifty Midcap 100 index also reportedly gained 39% during the review period, with the recent debutant IREDA leading with gains of as much as 232%.

During the period under study, Nifty Smallcap index also buzzed and gained 37%. And as we are set to usher in a new Samvat 2081 this Diwali, here's a look at how our portfolio has performed.

	2023	2024	Difference	Gain/Loss
SEPC	24.25	26.15	1.90	7.84%
Orient Green Power	17.45	19.04	1.59	9.11%
Raymond*	1880.88	1635.85	-245.03	-13.03%
Raymond Lifestyle	8.02	1768.88	1760.86	21962.97%
TNPL	286.00	178.30	-107.70	-37.66%
Federal Mogul Goetze	358.60	396.45	37.85	10.55%
Total	2575.20	4024.67	1449.47	56.29%

 ^*Since Raymond underwent a demerger with Raymond Lifestyle, the demerged entity has also been considered for comparison in 2024 since the whole of Raymond (including this entity) was considered in 2023.

Apart from the underperforming TNPL, rest of the stocks performed well in line with expectations. 2 of the 5 are from Infra (SEPC) & Power sectors (OGP) which are potential multibaggers in the next few years. Even the underperformer TNPL holds a lot of promise which should emerge in the years to come and I would not write it off just yet. To be fair, most of the gains in the current portfolio were driven by Raymond, and this only shows how badly the market had underestimated its deep potential over the years. I have written on it in depth last year and the story has certainly played out to script. As I have said, Raymond is not done yet and there is still steam left. 2 of its businesses are ripe for demerger and it will be a matter of time when it happens. It is more a question of when rather than if. This is exactly the kind of value unlocking story one should look out for. 2 of the current year’s stocks (ESL & India Glycols) are exactly these, and could go the Raymond way if one has the patience to hold them thru ups and downs (which would certainly come due to unforeseen events).

This year was highly satisfactory with an overall return of ~56%, well above the Small cap index returns of 37%, the category to which all of them belong and way better than the returns of other indices, as expected.  Of course, there are a host of other stocks on both sides, ones which gave 2x, 3x returns and ones which lost a lot of ground, mostly among large caps like IndusInd Bank which lost close to 30%, most of it in the last few days since its results. And the other set of stocks which took a beating was the Defence and Railways pack which has retreated anywhere from 20-40% from their peaks. However, there is nothing to feel sad about for them as they have gone up by 400-500% (or more in some cases) in just 2 years and so a loss of 40% should not worry one unduly. Even after retreating so much from their highs, one would still be sitting on multibagger returns in most of these stocks.

The current picks are again a bet on India’s Infra & Consumption story which should play out in the coming years, once the current volatility subsides. The risks obviously are more geopolitical than local, the major worry being the spill over of the geopolitical issues on us primarily in oil which have the potential to cascade and spoil the local party. Only time will tell how it all pans out. Considering that all of them are small caps, you may certainly expect volatility in the coming quarters and year but also steady compounding (probably market-beating) over a longer timeframe with this lot.

Though Banking stocks have taken a beating for some time now, and are not likely to recover in a hurry, it is the rest of the FS space that merits an attention for 2 reasons – 1) Banks have lending issues, be it the cost of funds or the quality of borrowers 2) rest of the FS space is under penetrated. Look at Insurance. There is still a long runway for these stocks as people, especially youngsters, become more educated about insurance, and govt. makes some types of insurance mandatory or easily accessible for these firms to market it. 3) Equity investing as a cult is still to make a mark in India, even though the no. of people and demat accounts have doubled and tripled in the last 4 years. There is still a vast population who haven’t dabbled in direct equities yet, for various reasons. And this is a huge market.

The last thing that I want to leave you with is that though equities as an asset class are considered as inflation-beating over the long term, which is certainly true, we are at the cusp of debt asset class resurgence as well. It is only a matter of time, a quarter or two, when RBI will start the rate cut cycle and this will lead to double-digit inflation beating returns in debt as well. Already, market pundits have sounded a note of caution on expectations from equity markets this year due to all the things mentioned above. It is time to rebalance the portfolio with a generous slice of debt and leave the equity class as-is w/o being too adventurous. One should ideally try to lock into the high yields of NCDs/FDs etc which are available now (even considering the tax angle) and also consider long duration and Gilt debt mutual funds which will start giving the expected double digit returns over the next 2-3 years, depending on when the rate cut cycle starts.

 

HAPPY MUHURAT TRADING!!