Strategizing Amidst Flux: Building a long term Portfolio Based on Current Market Conditions

Disclaimer: This blog shows a mock stock portfolio and charts for education or showcase for potential employer only, not for investment advice. The portfolio and charts are based on the blogger’s personal research and reflect the real past returns of the portfolio. However, the portfolio and charts may not suit your financial goals or risk appetite, and past performance is not indicative of future results. You should research and consult a qualified investment adviser before investing. The blogger is not responsible for any losses or damages from relying on the portfolio and charts. The blogger has no affiliation or endorsement with any company, organization, or entity on the blog. The portfolio and charts may change without notice, and the blogger can modify, delete, or update them anytime.

Investment in securities market are subject to market risks. Read all the related documents carefully before investing.

If you've read my previous post then you know that I've made a dummy portfolio on google finance in March 2023 with an expiry date of 6 months. There are still some undervalued firms as well as those with high growth potential in it. As compared with mutual funds it performed exceptionally well but when compared with other PMS funds then its performance was a bit satisfactory. It also have some serious drawbacks which i described in my post.

You can read about past portfolio here.

Now start with another portfolio which is made with a long-term perspective in mind. Again, I won't name any particular company due to SEBI restrictions but if you want to know you can contact me on my LinkedIn.

Here's the sectoral composition of this portfolio:

This portfolio consists of 21 companies from 15 different sectors. There are some sectors occupying very less percentage which you can in this above chart, then you can conclude that there is only one firm representing that sector. The strategy i employed while forming this portfolio is that:

1. First and most important, Industry should have a very high future prospect.

2. Company have to perform better on some selected indicators.

3. Portfolio should be Equi-weighted, i.e., very firm have around equal weight in portfolio in the range of INR 6000 - 7000 (+/-) 1000.

4. Each firm should hold a maximum of 5% and each industry a maximum of 10% in a portfolio. I've breached first principle as one stock in gems and jewelry category is occupying around 6% but that firm's strong financial health and market position deserves it. In case of Metals sector occupying around 13.7%, there is a firm in it which have a business in both Metals and renewable energy sector and I'm more bullish about renewable sector's growth in its portfolio but since its main business is in metals, it is included in metals sector.

After All being said about strategy, Let's analyze one by one:

1. Renewable and Oil and gas

Both of these belong to energy category and since energy sector is increasing due to heavy energy consumption projections in India by World Energy Outlook (Read about it here) along with the prospects of higher growth in Renewable energy sector (Read about it here) provided a solid reason to invest in this sector. Renewable energy sector is going to increase with higher pace, still oil and gas dependance is not going to fall in near future. Yes, renewable energy is increasing with faster pace with nations taking it seriously and making some serious investments in this sector including India, still for many other non-energy uses of oil and petroleum products will take a very long time to get replaced or maybe never get replaced (Read about it here). That's the reason for me a bit more bullish on Energy sector. As i said in the begining, in the metals sector there is a firm which is also active in Renewable energy then with that you an conclude that Energy sector contains a good amount of space in this portfolio.

2. Auto Manufacturing and Metals sector

There is a high degree of correlation between these sectors as in the metal sector there are three firms, one have higher share in automobile sector, other two are in construction and partially in renewable sector, signifying a low but sure level of correlation. Why these two sectors? Indian automotive sector is expected to growth at a CAGR of 11.6% and India is expected to become the third largest automotive market by volume (Read about it here). Also, EV focused schemes and consumer preferences about EV provides a solid ground to bet on this sector for medium to long term.

Metals on the other hand, provides a promising future growth potential with India's strong domestic market growth as well as various incentives provided by Government of India in Infrastructure sector to boost domestic demand (Read more here, and here) providing a reasonable ground to invest or get invested in metals sector. 

3. Pharma, Chemicals and Textiles

These three sectors also form a correlated group with chemicals in the center. Pharma sector also have an extremely high growth potential in India (Check report) with strong growth potential and projected to witness astonishing growth in near future (Read CNBC). Due to above mentioned restrictions as per portfolio strategy, i just included one pharma/biotech stock with highest growth potential as per my research but there are other few firms too which also have a huge potential to grow and provide a sustainably higher return in the upcoming future. 

Indian textile sector is a net exporter and projected to attract $120B of FDI and with China, which has 42% of total export share (2016 report), facing serious economic issues domestically, resulted in an opportunity for Indian firms to grab (Read). Indian Textiles sector, employing 45M people and despite facing challenges of stiff competition from other developing economies, is projected to grow with a CAGR of 7% over the next few years due to policy support by government and global market conditions providing strong growth opportunity (Read more).

Chemicals sector being the backbone of these two sectors, expected to grow with an average rate of 11 - 12% till 2027 and with 7-10% during 2027 - 40, tripling in size (Read full McKinsey Report). Specialty chemicals is projected to contribute a huge share in this growth specially in polymers/textiles and dyes and pigment segment (Read KPMG report from page 16). 

All these factors strongly suggest that these sectors are poised for significant expansion, presenting a remarkable opportunity for long-term Investment. 

4. IT services and Software Industry

The IT industry accounted for 7.4% of India’s GDP in FY22, and it is expected to contribute 10% to India’s GDP by 2025. According to National Association of Software and Service Companies (Nasscom), the Indian IT industry’s revenue touched US$ 227 billion in FY22, a 15.5% YoY growth and is estimated to have touched US$ 245 billion in FY23 (Read more at ibef). Also, Indian IT services industry have always been flourishing due to cost advantage and rapid growth in innovation hence this sector would provide a stable growth. In IT services sector, I've added just one firm which i according to my indicators consists of a superior financial stability and growth capabilities.

5. Electronics and manufacturing sector

Electronics and electronic manufacturing sector have a huge potential in India coupled with Government's PLI Scheme specially targeted towards increasing electronic manufacturing in India as well as crucial investments in Indian states by companies like Foxconn (Read) and Nvidia (Read). Investment by global firms ensures expansion of these sectors and PLI Scheme and make in India initiative by Indian government to reduce their import dependence tells that Indian firms are also going to surf this wave. 

Due to China plus one strategy, major firms are looking for an alternate destination to expand their manufacturing bases to diversify supply chain and India emerged as a favorable destination fueled by policies directed to attract this opportunity. Hence there is a very strong reason to invest in these sectors as they are expected to grow exponentially in coming future then provide a decent return after that.

6. Financial services and Gems & jewelry sector

Gems and Jewelry sector is expected to grow at an average CAGR of 8.41% showing robust growth through 2029. The market growth is driven by factors such as changing lifestyle, rising disposable income, product innovation, technological advancements, and growing urbanization (Read more). After screening firms in this sector, I picked the one with highest growth potential and currently trading around 50-60% lower than its fair price. 

Financial services sector in India has been growing at a rapid pace in recent years, and it is expected to continue to do so in the future. The UPI wave is not showing any sign of slowing down and with better financial literacy in millennials and GenZ, financial inclusion is happening at a rapid pace. Hence, there is a very strong growth potential in this sector making it a lucrative investment destination (Check for more).

7. Transport Infrastructure

The infrastructure sector in India is anticipated to expand at a compound annual growth rate (CAGR) of almost 7% during the forecast period. The India Infrastructure Sector Market size is expected to grow from USD 186.24 billion in 2023 to USD 294.12 billion by 2028, at a CAGR of 9.57% during the forecast period (2023-2028). This indicates that the future growth potential of the transport infrastructure sector in India is promising, with significant investments being made in the sector to improve the country’s transportation network and infrastructure (Read Mordor Intelligence report).

Category wise composition:

Portfolio contains:

2 Large cap stocks having 10.91% weight of Large cap with extremely high growth potential. 

5 Midcap stocks having 22.24% of overall weightage with 3 Midcaps with great potential in watchlist (not included in portfolio) to include in near future with good entry point.

14 Small cap stocks having 66.85% weightage in overall portfolio. It contains 1 stock which need close vigil to continue or exit from it after 6-8 months and 2 stocks in watchlist with good potential but not having entry point on this date. 

Issues with this portfolio:

1. This is also a portfolio with greater share of small and mid-cap stocks hence it contains high risk. Remember, High risk translate into high reward but only when the risk are taken in companies with high growth potential. In this post and in previous post, I talked about the sectors and the reasoning behind investing in them but even in high growth sector you may find many companies with bad financial position which leads to loss for their shareholders even when the industry as a whole was flourishing. Hence, careful examination of the company is necessary before making real investment.

2. This portfolio is constructed on the basis of sectors in news and the sectors which are "expected" to provide high returns in the future. It's not necessary that today looks lucrative will remain same in the future. We are living in a time of high chaos. New technology is emerging everyday and disrupting existing industries, hence it's important to keep a close eye on the sectors you're invested in and do proper up and downsizing in industries based on market conditions.

3. Companies that are today showing signs of superior financial health, may or may not be bankrupt tomorrow. History is filled with name of such firms. Hence, periodic rebalancing of portfolio is necessary to remain higher side of risk-return tradeoff so that you're not investing in firms which are close to shut down. It is always suggested to make investment decision based on the recommendations of a professional financial advisor.

4. Fair value and future prospects of the companies are calculated on the basis of detailed analysis of only publicly accessible data and financial ratios, not on the basis of their financial statements, hence it adds another layer of risk.  

5. Expected life of this portfolio is around 2-3 years, meaning, I can leave this as it is for next 3 years and watch it grow, but after that time, it will need some trimming (Rebalancing) or as per market conditions. 

Ending Note:

Even though this portfolio have above-mentioned issues still it requires very little to no rebalancing in coming future (for next 1 - 1.5 years) based on current market conditions and company's health. Also, since i only included these mentioned sectors, it doesn't mean that they are only growing sectors. Other sectors like FMCG sector have a expected growth projections of CAGR 27.9% till 2029 due to growing demand and stable market conditions (Read MMR report). Also, Indian Petrochem sector (which i didn't included) is expected to grow at a CAGR of 9 - 10 % over the course of next 20 years (Read Report). There are many different sectors which also have similar or higher growth prospects but i selected only few of them based on my research and also didn't include them because they would have increased sector wise correlation in portfolio and hence risk. 

Will Upload details about my other mock portfolios later.

Thank you for reading. 🙏

Author's LinkedIn Profile: LinkedIn

Follow FinGlimpse on Twitter

Follow FinGlimpse on Instagram