SANDIP SABHARWAL

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MONTHLY UPDATE AUGUST 2021

This was a mixed month for our products with some products doing well while others did not. This largely bore out of my cautious views on the markets.

The month of August, I must confess went completely contrary to my expectations where I had expected the markets to cool off given the high valuations and growing speculative excesses along with the huge money drain out from sub par IPO’s priced very aggressively. However the markets this month completely moved to the other side and we ended up having the best month of the year 2021 with the Nifty moving up by 7%. However the Midcap rally stalled with Midcaps underperforming. So what lies ahead is something we need to evaluate and strategize on.

One interesting factor that came out of various management commentaries has been that most companies are looking to do significant capital expenditure. This should now after more than a decade lead to a new private sector Capex Cycle. This will create opportunities in some underowned capital good stocks. This is a good opportunity space in the current elevated markets

India’s premium on valuations over the Emerging Markets basket has also gone upto 90% now which is the highest in history. Historically given the high valuations of consumer and technology stocks in India this premium has always existed but at 20-45%. Overall Indian Market valuations are also much higher than average.

But it is not that things are not happening in India. There are many companies and sectors that have been doing well. Technology sector stocks are benefiting from the significant wave of digital investments and a new cycle is on, metal and commodity stocks are benefiting from a huge surge in prices which are helping them deleverage the balance sheet, textile exporters are benefiting from restocking and good retail demand, capital goods and infrastructure companies are benefiting from low interest rates and a growing order booking cycle as both the government and private sector start a new investment cycle. Besides this the Make In India drive driven by incentives and a growing demand cycle is finally looking to play out after a long wait. New investment themes are getting introduced to investors through IPO’s which might be aggressively valued at this point of time but will see value at some stage and will be good investment bets. The private unlisted space is seeing huge Private Equity flows which is helping them grow and also creating employment opportunities. The challenge is that valuations and euphoria have overtaken the markets in the near term.

In conclusion I would be even more concerned on the stock markets in the near term. Remember every bull market sees deep corrections whenever froth builds up to unsustainable levels. We are at that point or very near to that. Except for reopening stocks, select capital goods and infrastructure stocks and specific stories within some industries the valuations are very high. There is a clear consensus today that markets cannot fall and many on the sidelines have now started to jump in as they have got frustrated waiting for a correction. Keeping some cash is the best strategy today, whether this strategy is right or wrong will be known over the next two months.

ONLY FOR TRADERS

Only For Traders did reasonably given the fact that I was negative on the markets and as such managing risks was the most important. We were still profitable for the month with a 1 lot profit of Rs 7700 which is not much but good in the context of trading in a market which moved completely contrary to the view. The exceptional performance continues for this year. Profits on a 2 lot basis are now running at Rs 567000 which is huge in the current market conditions. The ROI on a non annualized basis assuming a capital of Rs 10 Lakhs for 2 lots is running at 55% now. Yes we might be less exciting where we avoid high volatility stocks but we are delivering returns with low downside protection. We will get 3-5 very good months in a year 3-5 average months and 3-5 not very good months. The ROI of this product is running very high at this point of time

POWER ALPHA STOCKS

Power Alpha stocks saw no profit bookings as we recommended just one idea this month as valuations were running ahead and in our view downside risk was becoming greater. The good thing about this product is that the money comes back after profit booking and after times of strong profit booking and at elevated market levels we have the cash to redeploy. Overall opportunities will be good for this product as market volatility plays out and gives us opportunities to take more aggressive positions. The high ROI of this product continue, overall profits were around Rs 430000 for Calendar 2020 and are now at Rs 210000 for this year in the first 7 months on a Rs 8 Lakhs peak capital and Rs 6 lakhs average capital deployed. Overall opportunities will be good for this product even in the future and we will see to capture them. At peak capital the ROI was 56% and at Average capital 72% in 2020. In the first half of 2021 peak capital deployed was Rs 6 Lakhs and profits booked were Rs 210000 plus.

TARGET BLUECHIP PORTFOLIO

The Target Bluechip Portfolio had an decent month with a portfolio return of 3%. We underperformed the markets as we are holding substantial cash at this stage. We continue to maintain a good cash buffer which will hold us in good stead over the next two months if things move as I expect them to. Since inception returns are nearly 110% from the time the portfolio started off more than two years back a substantial outperformance of 80% which is very tough in a large cap product. This is an ideal portfolio for low-risk investors. We have used the momentum of the markets to book profits and generate some cash which will be redeployed appropriately.

TARGET MIDCAP PORTFOLIO

Target Midcap had an average month as many of our top performers gave up some gains. The portfolio was flat despite the midcap index moving up by around 2% The returns for this year since beginning have now reached 40% and we have outperformed most competing products. Overall, the portfolio gave 44% returns for 2020 which is exceptional. Since inception returns from end of 2019 are now 100% much above the indices. This portfolio has huge potential with some stocks having the potential to be multibaggers over the next few years. This portfolio is all about a journey which will do good over 2-3 years. Average valuations of our portfolio is half the midcap index and that of most momentum midcap mutual funds and PMSes. This is an ideal portfolio for long term investors who are willing to take the risk of short term underperformance.

PLATINUM PLAN

The Platinum Plan is our oldest Long Term Portfolio plan and saw negative returns this month with the portfolio declining by 3% as many of our small caps corrected. The YTD returns are now 33% and since inception returns are 417% with a CAGR of returns of over 26%. The portfolio has a good mix of largecaps and smaller midcaps which have good potential over the long run. The portfolio performance should pick up going forward. We used sharp upmoves in many stocks to book profits to redeploy later. This portfolio is a mix of Large Caps and Small Caps. This is an ideal medium risk portfolio.

WINNERS PLAN

Small and smaller sized midcaps started to outperform and this helped many of the holdings rally. The performance of our recommendations has been exceptional . Many of our recommendations have become multibaggers and we have booked profits in some of them. We generated many ideas over the last few months, some of which rallied, and some are still to perform in 2021. Many of the recommended stocks do have deep value however many PMS fund managers and other investors burnt by small cap investing might not come back fast. We need to adapt accordingly. However, given high operating leverage small caps will do well in 2021/22

POSITIONAL TRADING CALLS

This is the only product of ours which has seen some challenges with good months getting juxtaposed by months where we have got stuck in some positions thus reducing overall profitability. This month we gave two low risk calls but still did not make a profit. Overall it has not been satisfactory in the near term.. We hope to come back strongly and match up the performance of the other products going forward.

For more details write to us at info@asksandipsabharwal.com . You can also call us up at 7303163931/022-66666931 or visit www.asksandipsabharwal.com