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Are markets down? Yes. Are markets going to stay down? Probably for the short term. But will they stay down forever? No way.

In times like this we want stocks to invest, and we’ve been looking around for stocks with strength. What we’ve got for you today is a “portfolio” which is also a long list. The idea is:

• Some of these stocks have done very well in the last year or so

• They have been beaten up in the recent drama

• But we think that they will continue their upward trends going forward

• They have well traded volumes (average 2 cr.+ per day)

We took a quick look at the fundamentals of these stocks too and they all seem to have reasonable (in some cases, excellent) fundamentals.

We took care to avoid certain sectors we think are going to be impacted heavily – some NBFCs, Cement, Real estate etc. were culled from the list.

Here’s the set: (Click for larger image)


Some stocks here have very high P/E ratios, as you would have noticed. That’s also because their growth story has been strong. Stocks like PI Industries with P/E of 27 show growth of over 50% on earnings. Sundaram Fasteners too, after a long period of underperformance, has been showing good growth in profit and a smart move on charts.

Some will hurt. Bajaj Finance is a part of the list above, and it will be hit by the note-withdrawal. Yet, we think that white good demand will increase over the year and then the stock will recover. Maruti will hurt too in the near term as demand is sluggish due to the lack of cash. But again, it’s the largest auto player in the country and the recovery cycle will help it more than others.

Over time, these stocks which moved very well in the last year, are the most likely to continue their run after some period of misery.

The Portfolio Idea

We think the portfolio will do well over the next year or so. This replaces the Monsoon portfolio as a themed portfolio, but has about 30 stocks for diversification. But we do expect more downside in the markets, so how would we buy?

The basket, if equally weighted, will cost about 140,000 rupees. Two things can further be done:

  1. Buy only a select set of stocks from this basket. This portfolio gives you a set to choose from. (Or you can buy the whole basket, which is what we are tracking)
  2. Buy stocks in this set over two months, once every fortnight. The idea is to balance out investments over the coming volatility. This means you would have four separate buys, and the total amount invested would be Rs. 5.6 lakh or so.
  3. Buy part of these stocks now, another set of stocks in two weeks, yet another set in four weeks and so on. This does create price risk but is better for smaller investment amounts.

What do we expect to see? Stocks that will beat the market. We need a few of these stocks to perform, and just a few stocks doing well can create a big impact on a portfolio. Some of these stocks will lag and many will fall as much as 50%. We take the portfolio approach and are confident that the remaining stocks will make up for it and more.

We don’t encourage rebalancing these stocks. If some are doing well, you should buy more of those, and let the laggards fall in their overall weightage. The idea is to chase the winners and let go of the losers.

And why 30 stocks? Because we really don’t know which ones will do the best, and we believe that any investor will find it difficult to deal with a single stock that loses 10-20% in a short while. At a 3% portfolio allocation, you won’t hurt that much. Of course, you can dig in further and cull this list to about 20 stocks instead.

You will find the stocks here: The Strong Stock Portfolio.

Do message us in #stock-fundamentals or #trading-room for further questions.

Now, tell them about it: