baskets review - hdfc securities review...baskets review : nov-2020 • this basket is actually...

Baskets Review : Nov-2020

November 2020

Baskets Review


askets offer a single-click option for investors to start (and grow) a professionally

curated and diversified strategy to create long term wealth. The 22-odd baskets available on our platform span a broad range of strategies and themes. Each basket contains multiple stocks/ETFs, mitigating company-specific risks.

Here’s a quick update on the top three hits and misses from our baskets. Also, note our two new Diwali baskets comprising our top picks (large and mid cap) for the new Samvat.

Finally, refer to our ‘Baskets at a glance’ table in this report to see churn, risk and performance data for all our 22 baskets at one go…

Happy investing!

B


Top 3 Baskets 1) L&T Pack

• The L&T pack has outperformed all other packs in the past six months.

• During the COVID peak, businesses and individuals quickly adopted new digital ways of working. IT adoption jumped.

• Of the basket constituents, L&T Infotech, L&T Tech and Mindtree have done exceptionally well given the ‘work from anywhere’ tailwinds in IT services.

• L&T Finance underperformed, due to tighter credit conditions, exacerbated by challenges in the NBFC sector.

• The parent L&T, which had been underperforming for the past few quarters, has picked up lately.

2) Double Earnings Pack

• This comprises 10 cos across the market cap spectrum whose earnings can double in three years (FY19 to FY22).


• The Corona outbreak did hit their prospects initially. However, they revived remarkably from short-term setbacks to deliver superior earnings growth.

• Our faith in them stands renewed. They are on track to double average earnings over FY19-22.

3) Wonder Women

• As more women join the workforce and grow incomes, their consumption and investment habits drive disproportionate tailwinds for certain companies. This theme provides the pillars for our Wonder Women basket.

• We booked profits in some constituents of this basket in Oct-20 and replaced them with agile and leaner candidates.

• These changes helped the basket to continue outdoing its benchmark.


Underperforming Baskets Insurance and AMC Pack

• This basket comprises top insurance and AMC companies in equal weights.

• AMCs underperformed amidst volatile markets, concerns of redemption in funds, and slower earnings growth.

• COVID-led business disruption and the loss of lives and livelihoods have hit macro growth. Investors are cautious on insurance companies, leading to their underperformance.

• Insurance/AMCs offer secular growth opportunities as financialization of savings rises. This basket is well poised for the future.

All Weather Investing

• All Weather Investing is a basket of ETFs that offers exposure to three asset classes - Equity, Gold and Debt.

• Equity markets recovered sharply after the March crash. Naturally, this diversified basket underperformed.


• This basket is actually designed for stability – it neither sinks your investment ship nor does it climb to dizzy heights. Note that it hugely outperformed the equity index over Jan-Mar 2020, protecting capital and ensuring steady growth in a difficult time.

• The 25% Gold allocation at the beginning of the fiscal was bumped up to 40% in June. Gold’s underperformance in the past two quarters has hurt. Liquid funds (30% allocation) have also moderated, delivering ~4% in the trailing six months.

Low Risk – Smart Beta

• This basket picks less-volatile stocks and derives portfolio weighting using volatility, instead of equal- or market-cap weighting.

• It attempts to offer better risk-reward than equity Indices and works best for passive, long-term investors.


• Since high-beta growth stocks have run up in the Covid rebound, this basket has underperformed.

• The allocation to stocks like Alkem Labs, GSK Pharma, and HUL has contributed to its underperformance.

Overhauled Basket Fallen Angels

• This basket has underperformed its benchmark a tad in the past six months, appreciating 22.1% against 24.2% gain in its benchmark.

• We want to make it more relevant to current times by overhauling its constituents. The stocks in this basket had posted massive cracks in the market downswing.

• PSUs, stressed financials, and ITC have impacted its performance. These stocks have not bounced back to the extent we had hoped for.

• We retain faith in ITC. On the other hand, Infosys and Hero Motocorp are near all-time highs. In keeping with the ‘Fallen Angels’ theme, we are


replacing them with Godrej Inds and Exide Inds.

• Godrej Group’s flagship company Godrej Industries is in the business of chemicals and holds a stake in group cos like Godrej Consumer Products (23.8%), Godrej Properties (53.60%) and Godrej Agrovet (58%).

• India’s leading battery producer Exide is one of the largest in South Asia. It has a wholly owned subsidiary in life insurance - ING Vysya Life Insurance.

• NTPC and Petronet have performed poorly recently, so we’ll replace them with two public sector enterprises – NMDC and SBI.

• Hindustan Zinc rewarded investors with a huge dividend and its stock has appreciated to our desired target. We are replacing it with a new Fallen Angel: Edelweiss Financial Services.

• Edelweiss offers a range of products and services to a diversified client base. It is recovering smartly from issues in its wholesale lending and distressed assets business.


New Baskets We have ushered in Samvat 2077 with two new baskets this Diwali. These should be held with a one year perspective.

Samvat 2077 : Large Cap

• This diversified basket has five large caps, with strong earnings growth and visibility plus stable cash flows.

• These are selected from liquid stocks within the top 100 by market cap. They span industries like Telecom, Pharma, Banking, IT and Alcobev.

• Detailed reports on all the stocks are available at hdfcsec.com, our website.

Samvat 2077 : Mid Cap

• This basket comprises five mid-caps (from cos ranked 101-250 in market cap). These businesses hold the potential to become large caps in future.


• Again, we have diversified the basket with Pharma, NBFC, IT, Gas Transmission and Alcobev.

• As always, check hdfcsec.com for detailed reports on these stocks.

Market Outlook

Our markets have shot up over the past six months, given incessant foreign inflows and a swifter-than-expected economic recovery.

While we remain constructive, we do not expect similar returns over the next six months.

Conservative investors can book profits gradually while aggressive investors can continue to hold for the long term.


Baskets – Ready reckoner:

Basket Name Churn Category

Risk - category Benchmark

6 Month Basket

Returns

6 Month Benchmark

Returns

1 Year Basket

Returns

1 Year Benchmark

Returns

3 Year basket

Returns

3 Year Index

Returns L&T Pack Very low Aggressive NIMI150 44.58 31.20 19.39 6.08 50.13 -3.15

Double Earning Pack Medium Aggressive NIFTY500 41.29 26.13 14.96* -0.68 39.08 4.68

Pharma Tracker Medium Aggressive NIFTY100 33.57 24.27 76.48 -2.12 55.60 9.39

Samvat 2077 : Mid Cap Very Low Aggresive NIMI150 33.49* 31.20 34.27* 6.08 94.86 -3.15

Dividend Aristocrats Very Low Moderate NIFTY100 33.32 24.27 7.02 -2.12 41.98 9.39

Wonder Women Medium Moderate NIFTY500 30.13 26.13 1.00* -0.68 68.13 4.68

Bajaj Pack Very low Aggressive NIFTY100 30.10 24.27 -26.93 -2.12 23.54 9.39

Hrithik Pack Very low Aggressive NIFTY100 30.05 24.27 6.41* -2.12 50.81 9.39

Defensive Stocks Medium Moderate NIFTY100 27.18 24.27 14.88* -2.12 61.52 9.39

Shubh Aarambh Medium Moderate NIFTY100 25.46 24.27 3.00 -2.12 35.70 9.39

Smart Beta Low Moderate NIFTY100 23.63 24.27 4.97* -2.12 26.50 9.39

Rising Rural Demand Medium Aggressive NIFTY500 22.93 26.13 1.76 -0.68 -10.02 4.68


Baskets Review : Nov-2020 Quality Smart Beta Very Low Moderate NIFTY100 22.30 24.27 3.48 -2.12 19.89 9.39

Fallen Angels Medium Aggressive NIFTY100 22.14 24.27 -13.44* -2.12 -24.20 9.39

Platinum ETF Very low Moderate NIFTY100 21.17 24.27 -7.21 -2.12 0.31 9.39

Banking Pack Very low Aggressive NIFTY100 19.87 24.27 -18.88 -2.12 12.76 9.39

ICICI Pack Very low Moderate NIFTY100 16.37 24.27 -0.73 -2.12 39.80 9.39

Low Risk Smart Beta Medium Moderate NIFTY100 15.37 24.27 7.96 -2.12 32.36 9.39

Samvat 2077 : Large Cap Very Low Moderate NIFTY100 13.51* 24.27 6.96* -2.12 15.71 9.39

HDFC Pack Very low Moderate NIFTY100 11.68 24.27 -11.52 -2.12 42.93 9.39

All Weather Investing Medium Moderate NIFTY100 10.02 24.27 10.74 -2.12 27.55 9.39

Insurance & AMC Pack Very low Moderate NIFTY100 5.04 24.27 -25.72 -2.12 N/A 9.39

*Based on Historical returns

Explanation of Churn categories: VERY LOW churn - Basket constituents are changed once a year. LOW churn - Basket constituents are changed once in 6 months. MEDIUM churn - Basket constituents are changed once a quarter.


Baskets Review : Nov-2020 Disclaimer:

This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments.

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