As we say goodbye to the final quarter of FY24, Teji Mandi reflects on market performance during the quarter and how our Flagship and Multiplier portfolios have fared.
Markets were bit volatile due to geo-political tensions, Lok Sabha elections, quarterly business updates, the inflation trajectory and potential interest rate cut. Despite this, markets were up close to 3% and our portfolios continued to outperform.
Over the last six months, domestic institutional investors have been supporting this market despite the foreign institutions selling. The macro economy trends also suggested resilience with Q4FY24 GDP coming at 7.8% vs the expectated 7%, pushing FY24 growth to 8.2% against the expectated 7.9%. This surplus growth was led by strong outputs in the manufacturing, electricity, and construction sectors.
Given the market conditions and their impact on our portfolios, let’s have a look at the Teji Mandi Flagship and Multiplier portfolios’ performance, strategies, entry and exit rationales and more!
Teji Mandi Portfolios Rebalancing
Our Flagship underwent one strategic rebalance, while the Multiplier underwent one, throughout the quarter. These adjustments display our agility in optimising holdings as per market dynamics.
Insights from Flagship Portfolio Exits
Our portfolio exits aren’t just actions; they represent meticulous analysis and strategic timing. Uncover some of the exited stocks from our portfolios and see how our thoughtful approach to investment decisions is reflected in every move we make.
Teji Mandi Flagship Portfolio Performance
Flagship Portfolio Exit Rationales:
Ashok Leyland
Return: 110.24%
Exit Rationale
All the positive updates for Ashok Leyland are priced in at the moment, and the stock price is likely to trade rangebound for a few quarters before bouncing back. Hence, we have booked a profit of 110% since buying at Rs 82.50.
2. Bank of Baroda
Return: 70.20%
Exit Rationale
1. Bank of Baroda’s net profit was Rs 4,579 crore, compared with a consensus estimate of Rs 4,267 crore, so on the profit side, the numbers were better than expected. This is because there is a decline in deposits on a sequential basis.
2. The Net Interest Income (NII), in terms of consensus estimates, was inline and came in at Rs 11,101.33 crore, an increase of 2%.
3. In terms of Asset quality, the GNPA is the lowest in three quarters. The Gross NPA has declined on a QoQ basis to 3.08% vs 3.32%, while the net NPA has come in at 0.70%, compared with 0.76% on a QoQ basis. It has been a decline on a YoY and QoQ basis. Hence, there is definitely an improvement in asset quality.
4. Coming to business momentum, deposits remain weak in Q3FY24. Deposits are 12,45,299.64 crores, up 8.4% YoY but down 0.35% QoQ.
5. In terms of key ratios, the credit-to-deposit ratio is at a 9-10 year high of 84.3%, while the cost-to-income ratio is at a five-quarter high of 49.57%.
6. Moreover, with evident loan growth pressure across the banking system from the current tight liquidity scenario, we believe that slower credit growth and deterioration of asset quality will impact the performance going ahead. Hence, we have booked a profit of 70% since our buying at Rs 161.90.
Insights from Flagship Portfolio Entries
While we exited the above stocks from our flagship portfolio, below are the new entries.
1. State Bank of India Entry Rationale
1. State Bank of India’s performance in Q3FY24 has been strong, with a net profit increase of over 20% in 9MFY24 to Rs 40,378 crore. Further, the net profit for Q3FY24 stands at Rs 9,164 crore after absorbing the additional liability to the tune of Rs 7,100 crore in a single quarter.
2. The bank’s return on assets (ROA) has improved compared to the previous year, and the return on equity (ROE) stands at 19.47%, showing consistent performance above 15% for the past six quarters.
3. Going forward, bank’s aspiration is to sustainably deliver an ROE of more than 15% through various business cycles. In the earnings call, management said the loan growth is expected to be around 14-15% based on the nominal GDP growth projection of 11% for FY25.
4. Given the stellar numbers and the potential growth trajectory intact, we have added the State Bank of India to our portfolio.
2. Pricol Entry Rationale
1. Pricol is one of India’s leading dashboard manufacturers headquartered in Coimbatore, South India. The company’s dual play on two-wheeler recovery and premiumisation products will help Pricol to grow in the coming quarters. With a customer-centric approach and pushing the boundaries on product and process technology and innovation, the company is recognised as a preferred partner to many leading automotive Original Equipment Manufacturers (OEMs) across the world.
2. Recent strategic technology partnerships with Sibros Technologies for end-to-end telematics solutions and BMS PowerSafe for Battery Management Systems reflect the company’s focus on the technology side, which is crucial and will go a long way in strengthening its position.
Teji Mandi Multiplier Portfolio Performance
Insights from Multiplier Portfolio Exits
Multiplier Portfolio Exit Rationales
1. Karur Vysya Bank
Return: 79.62%
Exit Rationale
With evident loan growth pressure across the banking system from the current tight liquidity scenario, we believe that slower credit growth and deterioration of asset quality will impact the bottom line performance of Karur Vysya Bank. Hence, we have booked a profit of 80% since our buying at Rs 181.60.
2. Zensar Technologies
Return: 9.21%
Exit Rationale
Zensar Technologies reported a muted quarter. The company’s revenue has fallen 3.8% QoQ and management, in their earnings call, said the furloughs during the quarter were deeper and wider than what they saw last year. Margins for the company too have fallen by around 140 bps sequentially driving a 7% decline in profitability to Rs 162 crore. We expect furloughs to continue impacting the Q4 quarter as well and hence, we exited the stock by booking a 10% profit since our buying at Rs 530.
Insights from Multiplier Portfolio Entries
While we exited the above stocks from our Multiplier portfolio, below are the new entries.
1. Kirloskar Oil Engines Entry Rationale
1. Kirloskar Oil Engines is a leader in the manufacturing of internal combustion engines, farm equipment and generator sets with a sizable presence in international markets. It also manufactures world-class engines for construction equipment. Through various strategic initiatives on the B2C side, management sees substantial improvement in profitability.
2. The company plans to expand its branch offices and employee base and remains optimistic about achieving its goal of doubling revenue in three years. With continued strength in domestic demand, the company is well-positioned.
2. Birlasoft Entry Rationale
1. Birlasoft reported a strong and well-rounded operating performance. The company has delivered robustly on each of the key fronts, whether it is growth, whether it’s margins, cash flows and deal wins during Q3.
2. Deal wins in Q3FY24 have also been very encouraging. Though it was a short quarter, Birlasoft was able to deliver total signings of a total contract value of $218 million.
3. Birlasoft’s sharp focus on disciplined execution and operational efficiency positions it well to navigate the current macroeconomic environment successfully. Hence, we have added the stock to our portfolio.
Closing Thoughts
The Indian equity markets seem to have already factored in much of the current conditions. With stability in the rupee, crude oil prices, and the current account deficit, we remain positive. While there may be some speed breakers ahead, it is important to remember that healthy corrections are beneficial in a bull market.
*Past performance is not indicative of future results. The figures provided are for historical reference only.
*The article is for information purposes only. This is not an investment advice.
*Disclaimer: https://tejimandi.com/disclaimer
