My 2013 Forecast of Indian markets and Top 12 Stock picks

Hello readers,

 Wish you all a very happy and wealth generating New Year -2013.

 How Indian markets performed in 2012 vis-à-vis my 2012 Forecast:

Before we get into 2013, let’s look back and see how the Indian markets performed in 2012. The Sensex was up by 26% with respect to 2011 closing levels (from 15454 to 19426 levels). This was in line with my 2012 forecast (Pl refer my blog on 31st Dec 2011"My 2012 forecast and Top 10 stock picks) when I had predicted the Sensex to touch 20,000 by 2012 end. It almost touched and missed 20,000 by a mere 500 points (2.5%). The Indian Sensex did better than the world markets and US market(S&P 500 Index) and was one of the best performing markets, justifying my bullishness on Indian economy and market. The MSCI All-Country World Index of equities increased 16.9 percent in 2012 & S&P 500 Index increased by 13% in 2012, while Sensex increased by 26%.

How my 2012 portfolio performed(Top 10 stock picks) :

Pl refer to the same blog (dated 31^st Dec 2011) where I had mentioned my top 10 stock picks for 2012. In order to put my investment ideas to test, I invested in the same stocks in 2012 with great results (as shown below). My portfolio showed gains of 36% versus 26% of Sensex gains. I was more bullish on stocks like AXIS bank, BOB (Bank of Baroda), REC (Rural electricity Corp), BHEL, IDFC etc and hence put more money (higher weight) on them. The 4 top gainers were Axis bank (56%), IDFC (78%), REC (66%) and L&T(57%).The only 2 big disappointments were BHEL and GAIL . However, am still bullish on these 2 stocks and strongly think that market is being short sighted and not fully pricing their long term earnings potential and durable competitive advantages.  Hence I am going to hold them on for 2013 when they will show excellent gains.

2012 Portfolio results:

Company	Weight	Gain%
Axis	19%	56%	10.4%
BOB	15%	30%	4.6%
BHEL	14%	-3%	-0.4%
REC	13%	66%	8.7%
GAIL	10%	-6%	-0.6%
IDFC	9%	78%	7.2%
L&T	8%	57%	4.7%
Reliance	8%	18%	1.4%
Jain Irrigation	2%	-3%	-0.1%
Coromandel Int	2%	-14%	-0.3%
Total Gain%			36%

My 2013 forecast of the Indian markets:

Though I am a long term investor who focuses on long term trends and predictions of the economy/ market and the businesses, I would dare to venture into the medium term forecast again and predict that India economy and the markets are at the threshold of starting a big and long bull run.  The Sensex could be touching 24000 by Q2/Q3 of 2013 calendar year (16 X FY14 forward PE). This is about 25% gains from the current levels. This means that if we chose the right businesses/ companies (fundamentally strong businesses with competent management at attractive prices), we could potentially make 30-40% of returns in 2013. I am most bullish on interest rate sensitive sectors like Banking & Finance, Automobiles, capital goods/ infrastructure etc as they have been battered badly in recent times and will benefit from the Govt. policy reforms, investments and RBI impending actions on interest rate reduction .This market forecast might get battered only if we have sudden upheavals or catastrophic events like US fiscal cliff not getting resolved and US getting into recession or severe Euro sovereign default or Indian Govt falling etc. 

My 2013 Portfolio of Top12 business/ stock picks:-

I am going to retain many of the stock picks of 2012 while dropping 4 of them and adding 6 more new businesses/ stocks.

I am retaining BOB(Bank of Baroda), REC(Rural Electricity Corp), BHEL, GAIL , Jain Irrigation and Coromandel International while dropping Axis Bank, L&T, IDFC and Reliance. These 4 dropped businesses/ stocks are still great businesses/ companies but they are no longer available at great prices which can provide enough margin of safety and returns for me. In case they drop by 20-25% anytime, I will invest in them again. Apart from these businesses, I will add 6 more businesses as they are best in class in their sectors with great financials, business growth track records, excellent ROE, strong balance sheets with very competent management available at attractive prices. They are ICICI bank, M&M, Bajaj Finance, LIC Housing Finance, LUPIN (pharma) and Power Grid.

The final 2013 portfolio looks like the below

Businesses/Stocks                           Sector

1)   ICICI bank                                   Banking & Finance

2)   BOB                                            Banking & Finance

3)   Bajaj Finance                              Banking & Finance/Retail

4)   REC                                            Power

5)   Power Grid                                  Power

6)   BHEL                                          Capital Goods

7)   M&M                                           Auto

8)   GAIL                                            Energy

9)   LUPIN                                         Pharma

    10) LIC Housing Finance                 Construction/ Real estate

    11) Jain irrigation                             Agriculture

    12) Coromandel International          Agriculture/ Fertilizers

 

All these players are dominant or big players in their sectors with consistent growth and profit performance, robust business models, well managed companies by competent management teams & strong balance sheets with sustainable competitive advantages in their areas. And they are available at attractive prices now with respect to their intrinsic value & historic PE, providing a great "margin of safety" for the value investors.

Wish you a very happy New Year again and Happy investing,

Cheers

Amar