We are starting a monthly newsletter to be published along with each rebalance as Wright completes 1 year! In this newsletter we will try to understand the rationale for the rebalance looking at an overview of:
- Market Trends
- Overview of the Economy
- Factors — out building blocks!
- And finally, our Portfolio!
So let’s get started.
Broad Market Indices
Looking at the broad market indices — Nifty 50, Midcaps, Smallcaps, Government Securities, Gold and Nasdaq in the past 4 months, the smallcap index has the biggest run and is leading mid caps which in turn are leading large caps.
In the last month, Gold has picked up pace due to fears of consolidation.
Among major sectors, Pharma has had the biggest run followed by Autos. In the past month IT has really picked up pace. Banks & PSE are lagging behind.
The economic indicators give a clue about the times to come. While COVID-19 cases & deaths are rapidly rising and widespread lockdown is still in place, India’s trade balance has gone in surplus for the first time since 2002 with imports shrinking faster than exports. Based on the latest data, inflation has been high due to food inflation. The industrial activity is picking up after lockdown, even though manufacturing is worst hit.
Looking at Nifty PE ratios, the PE has sharply come up to 30 after a sharp decline in March. The dividend yield has also come down after sharp rise in March.
Equity factors are the building blocks of our portfolios (read more about factorshere). We saw that the Growth factor has had the steepest run in the recovery since April followed by short term momentum & low volatility factors.
In the last month again growth & short term momentum factors have dominated. The Size factor (low vs high) is also on the rise as seen by the smallcap run, but we condition our other factor for size as size is a dominant factor in India.
Our portfolio allocations are moving towards high growth and high short term momentum stocks in the larger universe that includes smallcaps. We are replacing the Nifty ETF allocation with Gold.
The notable additions are: Persistent Systems, Syngene, Adani Greens & Gold ETF. Notable removals are: NBCC, Nifty ETF, LIC Gilt ETF
Not disclosing the exact portfolio here, but the sector and style allocations look like:
We took note of the fact that the turnover is taxing for smaller portfolios with depository charges burdening the costs, we have been contingent on this and have kept the turnover controlled.