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Reliance Equities International launches it’s Model Equity Portfolio for India…Thinking is Defensive and unDynamic…very unReliance like…I would say it’s even flawed !

Just perused the Model Equity Portfolio for India that Reliance Equities International has launched.It’s been authored by their Head of Research

Excited to know what’s in it ! ?…more  so after I tell you that the Report is titled ‘Boom and Bust’ with the tagline ‘Resistance is Futile’ !?

Turned out to be a Dampener really…no Originality at all ! …very unReliance like ! if I can say so !

The Portfolio has got 36 scrips chosen with the following criteria

  • The benchmark is the Sensex
  • No one scrip should weigh more than 10% of the Portfolio
  • Those scrips that weigh individually more than 5% of the portfolio should not collectively weigh more than 40% of the Portfolio
  • Liquidity in the Scrip must be there and the threshold is an average weekly trading volume of 4 lakh shares in the scrip
  • Sector Allocation done on basis of current view which is Overweight on Energy,Materials,Consumer Discretionary and Healthcare and Underweight on Consumer Staples,Telecommunication and Utilities and Marketweight on Industrials,Information Technology and Financials 

These are my views on this Model Portfolio…I find the Investment Approach too Passive and Defensive and this is probably because the Thinking is UnDynamic…and even flawed…unless the objective is to only mirror the benchmark Sensex    

  • It’s got 28 Sensex Scrips out of the 30 possible….They do not like Ranbaxy and NTPC…So there are just 8 stocks in this Portfolio that are not part of the Sensex…These 8 stocks constitute 14% of the Portfolio with Cairn having a 4% weightage,three others with 2% each and the rest four with 1% each weightage
  • Top 5 Scrips have an aggregate 40 % weightage…Reliance Industries (10%),ICICI Bank (9%),ONGC and Larsen (8% each) and Infosys (5%)…this leaves it no room,as per it’s selection criteria, to buy into or increase weightage to over 5% in any other scrip,unless it reduces weightages in these Top 5 Scrips 
  • The Portfolio virtually mirrors the Sensex and thus should have a Beta of 1…It thus will move more or less the same proportion as the Sensex will…..Might as well have brought the Sensex itself !…It’s clearly a Defensive Approach and  the Strategy can be termed as Passive Investment and therefore the Thinking is clearly flawed….This Portfolio will never beat the Sensex !…even if it does,it would not be by any significant percentage as the 8 Non Sensex Scrips in it have just a 14% weightage….. so what’s the point of Benchmarking !
  • Even the Portfolio Sectoral Allocation more or less mirrors the Sensex Sectoral Allocation…even for the Overweights of Energy,Materials and Consumer Discretionary,the extra weightage in the Portfolio is insignificant from 1.3% to 3.4%
  • This June 12,2009 Report on Portfolio Strategy states the Benchmark is the Sensex but it fails to Show the Sensex level in the Portfolio…so it becomes easy to relate perfromance…I’m assuming they have taken the Closing Sensex of 15238 on Friday,June 12,2009 as the starting benchmark
  • The Report is titled ‘Boom and Bust’ with a tagline ‘Resistance is Futile’….I find this a bit too dramatic a Title with little corelation to this Model Portfolio launch,even after considering that they are positive about India’s Prospects  

Reliance Equities International sees an upside of 15%-30% upside from here in the next six months…18000 Sensex by December 2009…in the range of 16500-19000 definitely…ofcourse the risks have been spelt out

This target is based on FY 11 EPS growth of 17%-22% and a PE Multiple range of 17-19…that’s a Trailing PE of 22 on FY 09 EPS

The Current Sensex Level of 15238 (12/6/2009 closing) is 15.5 times of Projected FY 11 EPS 

So if this upside does happen,the Model Portfolio too will surge proportionately…the problem is that it will be a perfect proportion…so you will not be able to beat the benchmark…so as I stated earlier too, and I reiterate,might as well have just observed a Passive Investment Strategy and Invested in Units of the any Sensex  based Fund….because you’re not really going to be rewarded for any specific equity premium more than the market…. you’ll get what the market gets !…because the beta is One for this model portfolio

Building up your Portfolio on a specific scrip and bottoms up approach with more weightage of Non Sensex Scrips would have given the Portfolio a better thrust,without any significant compromise on Risk Taken…I’m not suggesting you chase Alphas…but atleast give your Portfolio a Chance to beat the Benchmark !

Cheers !



3 thoughts on “Reliance Equities International launches it’s Model Equity Portfolio for India…Thinking is Defensive and unDynamic…very unReliance like…I would say it’s even flawed !”

  1. Yes it all is true and aim to attract new investors which have to understand still market movements, i have also just started investment in market almost two year but have only lost the money only, now what i have understood that to invest at bottoms and drawout at gain and wait for again bottoms touching…………

    i am having two ulip’s and makes chageover to get gain but hardly achieves, i realise luck is also very important to get gains in share market. I want to earn money through share market but logicaly i am punching at mostly at wrong times, dear gouravji can we know by any means that when market will start crashing so that switchover or sellout cn be done.

  2. Hi Pankaj,

    You are a new Investor,barely two years old in stocks…and that to through ULIPs ….unfortunately you caught the 2008 decimation…don’t let it scare you…future looks very good,particularly the long term….Be Invested in good Equity for longer periods and you will most certainly make money…Therefore do look at declines to buy…After this clear Congress mandate,I do not see any major crash coming…I do not see October 2008 and March 2009 Lows being tested again…If you are unable to directly buy into good stocks,I suggest you route your investments through good Equity Schemes of Mutual Funds…Instead of Sectoral,you should prefer well Diversified and Balanced Schemes…and yes you are right,luck is required…but the harder you work,the more luck you’ll get !…also you should not miss the opportunities to buy when Lows exist and sell when Highs do !…For gauging this,Valuation is a better Indicator and parameter than just Price…you need to know atleast the basics

  3. dear gaurav
    i entered the market in 2006…and past 3 years have been spent reading and making mistakes..since i m not in loss..i take it as a positive…however i wish to build a portfolio of 10 lakhs…planning to buy around 3600 nifty…looking for some undervalued stocks with a potential to be multibaggers…colud u ps sugest? as per my analysis(non structured) gtl infra is a multibagger in making..could u have a look. sesagoa..i bought at 74..but due to indisciline n foolishness sold at 84 and saw the 3 fold rise rueing…at what level can i buy nd how much would u have bought incase u were making a 10 lakh portfoli.
    ps: accept my apologies for inconvenience caused…if any

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