1. MULTIPLE ‐STRATEGY
TREND RATED
AUTOMATIC TRADING SYSTEM
Portfolio Management Services (PMS)
Performance Update
31 March 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 and Outlook
The
Th corrective phase of November 2010-February 2011, made a b tt
ti h fN b 2010 F b 2011 d bottom i th l t week of F b
in the last k f February.
March 2011 witnessed a sharp rally in most indices on the back of short squeeze and significant FII flows.
Interest rate sensitive sectors (Banking, Auto & Real Estate) which had fallen the sharpest in the correction
were the first and fastest to rally from the lows
FII’s driven liquidity had dried up during the corrective phase. Surprisingly FII’s poured in over $ billion
$2
during March 2011 (largely through ETF funds) driving up the index and large caps stocks sharply.
Participation from the broader markets came in only towards the end of the month
Going forward, the stocks from the broad markets offer the best opportunity as they catch up with the
larger cap peers on back of valuations having corrected significantly and some degree of clarity on
earnings growth closer to the earnings season
We did manage to limit the downside, which is always a huge challenge when markets correct sharply
across the board. Selectively, we did bottom fishing at lower levels to p
y g participate in the eventual upside
p p
Fall from Fall YTD Gains from Fall from Fall YTD Gains from
Index Index
Peak 2011 the Lows Peak 2011 the Lows
Nifty -7.58% -4.90% 11.63% Sensex -7.43% -5.19% 11.35%
Bank Nifty -11.78%
-11 78% -0.73%
-0 73% 16.19%
16 19% BSE Auto -10.81%
-10 81% -9.23%
-9 23% 13.15%
13 15%
S&P 500 -11.00% -6.37% 11.10% BSE Capital Goods -20.76% -14.15% 6.90%
CNX Mid Cap -17.81% -9.22% 10.36% BSE FMCG -5.20% -2.39% 12.62%
CNX IT -5.27% -4.58% 6.36% BSE Metals -10.02% -8.15% 6.06%
CNX Realty -41.06%
41 06% -17.54%
17 54% 14.34%
14 34% BSE Oil & Gas -8.42%
8 42% -3.40%
3 40% 12.05%
12 05%
4. Portfolio Update and Outlook (Cont’d)
Dilemma during the corrective phase in the markets:
Dil d i th ti h i th k t
Sell the portfolio and stay liquid and 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 started the month of March with ~20% cash levels. We added little to our existing positions and more or
less stayed put. Thi was after having d l
l t d t This ft h i deployed significant cash b l
d i ifi t h balances i F b
in February at lower levels. Th
tl l l The
significant cash balances (30+% at the peak) helped us limit the large downsides as well as helped us
in bottom fishing at lower levels
Our conviction in the Technology sector (Infosys & TCS), and Capital Goods Sectors (BHEL), reiterated
several times earlier helped us in the upside participation as they being index heavy weights were among
earlier,
the fast gainers in the rally during March
Selectively Mid-Caps continue to be an attractive space as individual performances are likely to shine in the
medium-long term. We added marginally to our mid-cap holdings where risk return scenario is favourable. Mid-
caps have yet to participate in a meaningful manner but we hold a very high degree of conviction in them and will
stay put
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
7. Compared to Top 20 Mutual Funds as of 31 March 2011
Ranked on 1 year returns
Performance
Rank Scheme Name
1 Year %
1 BRICS Growth 23.07
2 ICICI Prudential Focused Blue chip Equity Fund - IP I - Growth
Blue-chip 19.97
19 97
3 HDFC Equity Fund - Growth 19.89
4 Reliance Quant Plus Fund - Ret - Growth 19.70
5 Quantum Long-Term Equity Fund - Growth 19.03
6 Escorts High Yield Equity Plan - Growth 19.03
7 HDFC Long Term Equity Fund - Growth 18.48
8 HDFC Growth Fund - Growth 18.04
9 Fidelity Equity Fund - Growth 18.02
10 Fidelity India Growth Fund - Growth 17.88
11 ING Dividend Yield Fund - Growth 17.46
12 Canara Robeco FORCE Fund - Ret - Growth 17.36
13 HDFC Top 200 - Growth 17.15
14 IDFC Strategic Sector (50-50) Equity Fund - Plan B - Growth 16.70
15 UTI Master Value Fund - Growth 16.55
16 Birla Sun Life Dividend Yield Pl s - Gro th
S n Di idend Plus Growth 16.33
16 33
17 UTI Dividend Yield Fund - Growth 16.03
18 Reliance NRI Equity Fund - Growth 15.91
19 Kotak Lifestyle Fund - Growth 15.72
20 ICICI Prudential Dynamic Plan - FII Growth 15.67
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
125
profits
Opportunistically ride the momentum 120
for a part of the portfolio (<15%) 115
Remain adequately liquid at all times 110
105
Adequate liquidity helps : 100
Protect against volatility 95
Provides enough courage and 90
conviction to buy into p
y panics 85
1‐Oct‐09
1‐Feb‐10
1‐Aug‐10
1‐Sep‐10
1‐Oct‐10
1‐Feb‐11
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
1‐Mar‐11
Current cash/liquid balances at ~17% of
the Portfolio 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 fall in NAV during the corrective phase was in line with the Indices (in spite of having several
high beta stocks in the portfolio, banking, mid-caps etc.). Large cash balances helped limit the
downside)
Rise in NAV lower than Large Cap Indices, (Stocks from broad markets, Mid-caps etc. lagged in
upside participation. They are expected to catch up in the coming weeks)
1 Oct. 2009 ─ 25 May 2010 ─ 5 Nov. 2010 ─ 31 5 Nov. 2010 - 10 10 Feb 2011 –
Date
25 May 2010 5 Nov. 2010 March 2011 Feb.2011 31 March 2011
Range bound Rally across the Fall from the Rise from the
Market Scenario Peak to Trough
market board Peak Low s
Low’s
BRICS Growth 15.70% 36.73% -11.31% -17.76% 7.84%
Nifty -5.44% 31.32% -7.58% -17.21% 11.63%
Sensex -6.50% 31.10% -7.43% -16.86% 11.35%
S&P 500 -2.84% 29.86% -10.98% -19.87% 11.10%
CNX Mid-Cap 10.32% 31.54% -17.29% -24.66% 10.36%
Bank Nifty -0.10% 49.90% -11.78% -24.08% 16.19%
10. How did we do during periods of Volatility
How much a portfolio falls during a 12 Biggest Falls between Oct.-’09 – Mar.-’11
correction / sharp downturn is as
important as how much it gains in a Points Points % Fall -
% Fall - % Fall -
Date Fall - Fall - BRICS
bull market Nifty Sensex
Nifty Sensex Growth
Protecting capital is often more 24-Feb-2011 -174.65 -3.21% -545.92 -3.00% -2.01%
important during periods of volatility
27-Jan-2010 -159.65 -3.19% -490.64 -2.92% -2.29%
Downside protection equally
contributes to superior returns over a
p 03-Nov-2009 -147.80 -3.14% -491.34 -3.09% -0.36%
period of time
19-May-2010 -146.55 -2.89% -467.27 -2.77% -0.84%
We have managed to fall less than
the indices during each of the sharp 25-May-2010 -137.20 -2.78% -447.07 -2.71% -1.62%
falls / panics since our inception 05 Feb 2010
05-Feb-2010 -126 70
126.70 -2 61%
2.61% -434 02
434.02 -2 68%
2.68% -0 47%
0.47%
Large liquidity during periods of 27-Oct-2009 -124.20 -2.50% -387.10 -2.31% -0.65%
volatility & a low beta portfolio helped.
21-Jan-2010 -127.55 -2.44% -423.35 -2.42% -1.32%
CNX 10-Jan-2011
10 J 2011 -141.75
141 75 -2.40%
2 40% -467.69
467 69 -2.38%
2 38% -1.92%
1 92%
Against Nifty Sensex
Midcap
07-Jan-2011 -143.65 -2.38% -492.93 -2.44% -1.48%
Beta * 0.5341 0.5341 0.5365
04-Feb-2011 -131.00 -2.37% -441.16 -2.39% -1.18%
*Beta measures the volatility of the
y
portfolio relative to the index 09-Dec-2010 -137.20 -2.32% -454.12 -2.31% -2.18%
11. Portfolio Breakup
Market Cap Breakup Sectoral Allocation
Oil & Gas
11.69%
Automobiles
Cash 6.62%
17.15% Infrastructure Banking &
& Capital Finance
Goods 6.65%
18.79%
Branded
Large Cap
Garments &
49.65%
Retail
Small Cap 13.34%
23.74% Information
Technology
12.57%
Consumer Cash 17.15%
Mid C
Cap Goods
G d
9.46% 13.19%
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
1.00 liquid balances by
buying on declines
0.90
0 90
0.80 Turnover increased as
we partly booked
profits at higher levels
0.70
0.60
0.50
0.40
0.30
0.20
0.10
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 Feb-11 Mar-11
13. Market Outlook
Global macro economic scenario and higher commodity prices likely to pose risks and have repercussions on
India. However, risks now seem to be receding. Commodities are nearing peak, if not peaked out already
Domestic concerns (macro economic issues, inflation on the back of rising commodity prices etc.) progressively
easing off. Focus back on corporate performances and earnings growth and outlook
Continued high inflation could result in further tightening of liquidity. Although there is still some way to go before
the interest rate cycle peaks out later this year, higher cost of capital (on back of higher interest rates)
already factored in
Global liquidity (driver for FII flows) have resumed in March 2011 after a brief withdrawal during December 2010
2010-
February2011 when FII’s were net sellers
Valuations have corrected significantly in the last four-five months, they are now beginning to look reasonable and
cheap when seen in light of growth outlook. Earnings could surprise on the positive side especially for non-index
(mid cap)
(mid-cap) companies
As long as earnings don’t disappoint going forward, its going to be a market of buying opportunities on declines.
However, one would have to be careful about earnings slowing down due to:
Increasing interest rates and tight liquidity, making capital raising both difficult and expensive
Higher commodity prices across the board, pressure already beginning to be felt
Little flexibility in revising the end product prices, thus putting pressure on margins
If any the above three factors play out, earnings estimates for FY12 could be revised down especially for
sectors/stocks that are sensitive to interest rates and commodities cycle
14. Market Outlook (cont’d)
The 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 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. Individual performances will have a wide variance compared to the peer
group as well I di
ll Indices
Stocks/Sectors to avoid are those where growth is dependent on fresh issue of capital (both debt and
equity). Tight liquidity and inability to raise capital effectively could have serious implications on growth.
Focus on Free Cash-flows
Pockets of opportunities are where growth is steady and sustainable, 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 as returns may not come fast and
easy
15. Our Strategy
“Time” in the markets is more important than “Timing” the markets
Superior long-term sustainable returns are not made by timing the markets in terms of selling at the
p
peaks. They are a result of purchase prices that are attractive in terms of valuations with adequate
y p p q
Margin of Safety
Our strategy going ahead would continue to be, bottom up stock picking and be extremely selective:
Buy
B on declines
d li
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
q y q
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 Consumer Goods, Paints, Branded Garments, etc.