SANDIP SABHARWAL

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MONTHLY UPDATE NOVEMBER 2021

The month of November turned out to be a volatile month for the equity markets where the volatility got accelerated at the end of the month due to the emergence of the new Covid Variant in combination with stretched valuations. A potent combination.

Nifty ended down by 4% for the month and the Midcap Indices after rallying nearly 10% during the month ended down by 5%. The unlock trades got sold out at the end of the month despite the Covid numbers in India being down below the February 2021 levels when the bottom of numbers happened before the start of the second wave.

It makes no sense for me to talk about the new variant and its impact as little is known as I write. However the only good part is that countries are more ready, more wary, ready to act and scientifically we are much better off from the time when the last wave started. Vaccinations have also progressed very well and the scare should make many who were not going for their full vaccination after the first dose wake up and go to finish off their schedules.

While evaluating the markets we need to take into account various factors with the most important being valuations, inflation and economic growth. The Indian Markets have corrected for sure from the top and the economic growth has picked up. However even as we speak now the valuations are still stretched relative to the historic valuations also taking into account the fact that we might or are at the end of the monetary easing cycle. More importantly expectations of earnings growth are very high at this stage and in an inflationary environment where price hikes are aggressive. The theory that higher prices do not impact demand at all when overall wage growth is muted goes against all economic theories and is something we will need to watch out for.

The IPO market represents the biggest risk to the markets as most new issuances are coming at abnormal valuations, getting listed at obnoxious valuations and post listing there is a disproportionate flow of money into these newly listed companies who have no visibility of making profits even for the next five years. All these stories look very good when the going is good,however when the tide turns everyone is always looking for profitable franchises and that is the time the froth will come off. The losses in these companies when that happens can be substantial.

Global equity funds have got an inflow of nearly $ 900 billion this year till date which is more than what flowed in over the last 20 years combined. A large part of this money is trend following ETF money where on the upmove they do not look at prices and on the reversal also the selling can be as brutal. In this context even a 10% outflow i.e. $ 90 billion at a time when sentiments can be fragile can create a disproportionate downside. As such we need to be cautious still. Even psychologically evaluating the markets from the retail sentiments standpoint there is a general belief that markets cannot fall and buying on small dips has paid off since April 2020 and will continue going forward. This is a dangerous psychology for the markets for someone who takes a contrarian standpoint.

The positive parts are obviously we are in the best position vis a vis Covid since April 2020, government finances seem to be stable, forex reserves are strong and economic growth seems to be stabilizing if not accelerating. The Capital Expenditure cycle has picked up and infrastructure related investments including housing should be strong over the next two years. This definitely creates opportunities for patient investors.

At this stage I am looking at market levels of around 16000-16200 for fresh allocations into the markets. If the global sell off deepens and we get better levels to buy it will be great, however that is the base case assumption at this stage. Many ignored sectors and stocks are already looking cheap and might get cheaper over the next few weeks. Any correction will be blamed on “Omicron” however factually markets always fall under their own weight and rise when they become light. The headlines keep on changing. At the beginning of the month concerns were around tapering and inflation and it completely flipped by the end of November. In a recovering economy opportunities will always present themselves and we should be ready to capture them as they arise.

ASKSANDIPSABHARWAL.COM PRODUCT PERFORMANCES

This was a very good month for us across the board. Our top performing products continued to perform very well and a couple of products which had a small lag came back strongly. It was a good month for long term products, short term product as well as trading products. Our outperformance across products helped us build on the gains made during this year and increase the gap with competing products further.

TARGET MIDCAP PORTFOLIO

The Target Midcap Portfolio built up its performance and increased the gap with most most Midcap MF’s as well as PMS products during the month despite some of our reopening trades selling off in the last three days of the month. The portfolio returns were 0.75% for the month as the Midcap Index fell 3%. The year to date returns of Target Midcap are now 63% and since inception returns are 135%. We used the rally to also book profits and increase cash which we should get the opportunity to redeploy over the next few weeks. This is an excellent product for investors willing to take some risk for high returns over the next 2-3 years. We outperformed big time in 2020 and it has continued in 2021.

POWER ALPHA STOCKS

Power Alpha Stocks our short term investing plan continued with its exceptional performance during the month and during this year. It has far exceeded my expectations from the product for this year after an exceptional last year. We booked profits of nearly Rs 35000 this month. 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. We have kept a reasonable cash position in this product. The high ROI of this product continue, overall profits were around Rs 430000 for Calendar 2020 and are now at Rs 375000 for this year in the first 11 months on a Rs 6-8 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. The returns for this year on peak capital are now at 45% and around 58% on average capital deployed.

TARGET BLUECHIP PORTFOLIO

The Target Bluechip Portfolio had an excellent month with outperformance of nearly 4% and with this we are now at the targeted yearly outperformance target of 5%. The portfolio was flat for the month and up 27.25% for the year till date as against the Nifty returns of 21%. We deployed some of the cash as markets corrected, however we still have a reasonable amount of cash to deploy. Since inception returns have now reached 122% and CAGR of over 27% which is much better than all other competing large cap products. This is an excellent product for low risk investors.

PLATINUM PLAN

The Platinum Plan is our oldest Long Term Portfolio plan saw some of the small cap holdings sell off and the portfolio declined by 4% during the month similar to the Nifty. The YTD returns are now 40% and since inception returns are 432% 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. This portfolio is a mix of Large Caps and Small Caps. This is an ideal medium risk portfolio.

ONLY FOR TRADERS

Only for traders had a mixed month which ideally should have been much better as we took the right calls, however a couple of calls got exited at Stop Loss and then the reversal happened and we missed out. However this is part and parcel of trading. We made a profit of Rs 34000 on a 2 Lot trading basis. Overall 2021 performance continues to be very strong. Current year profits on two lots are above Rs 640000 which is a very high ROI. 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. In my view the payoffs will be very high sometime in the next two months when the view plays out right and we can realize full profits.

POSITIONAL TRADING CALLS

Positional Trading calls continued with its strong comeback with a very exceptional month with profits of Rs 157000 on a two lot basis. This was the second back to back month of very strong profits. The good thing in trading is that a period of 2-3 months of good performance can make up for a few subdued months. We hope that this performance will sustain. This has been one of our best products in the past however faced some challenging strategy issues. We hope to continue to do well going forward as in just two months we have been able to wipe off the underperformance of several months.

WINNERS PLAN

Small and smaller sized midcaps have had a mixed run but some of our picks have done exceptionally well and built up average returns since the beginning of the year to high levels. Many of our recommendations have become multibaggers and we have booked profits in some of them during the year. We generated many ideas over the last few months, some of which rallied, and some are still to perform in 2022. The current month was somewhat subdued for many small caps. 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 2022

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