As the new financial year is knocking our door, clouds of corrections are getting dispelled by each

passing day. Surely, the bull market is intact, but the velocity is dull. This is no worry in itself and
expected after the severe last fall. The market is precisely doing what it ought to do at this stage. It is
digesting the previous gains of more than 100%. It is essentially not cheap, or you may say a little bit
expensive, but far from being euphoric. It’s boring but logical. Let the market do its duty and let us
perform ours.

As a seasoned investor, we should manage our portfolio dynamically. Every Bull Run is characterized by
some sectors, which outperform other sectors. Somewhere down the line, these sectors hand over
leadership to others. (As I wrote in previous mails.)

Let us start by analyzing the present situation.

Inflation

Inflation is a serious threat today, and RBI has changed its accommodative policy to neutral one, by
raising CRR by 0.75% and recently repo rate by 0.25%. Definitely, the RBI is not in hurry, but is moving
steadily. The monetary policy changes take 3-6 months time in showing their desired effects. These
measures are negative for the equity markets in general, and for realty, banks and NBFC, in particular.
However, the negative impact of these on banks and NBFC will be neutralized by credit pickups. So, only
the realty is looking weak. So the prices of Unitech and DLF have cooled off.

Global Recovery

The global recovery was threatened in January, triggered by the Dubai crisis. Also, the unemployment
data of US was not showing any signs of recovery (read decrease). But this threat is loosing its
momentum with each passing day. Chances of ‘W’ shape recovery are very little. It is safe to assume that
the European Union will bail out its defaulting members, like it did for Greece.

Foreign inflows

The FII inflow remains strong, and as the effect the rupee is steadily appreciating. Appreciating rupee
reduces inflation also; hence it seems the RBI is letting the rupee to appreciate. This trend is likely to
continue. This rupee appreciation is negative for export sectors, e.g. IT, pharmaceuticals etc., but
positive for importers, e.g. those in the capital investment cycle, telecom.

Results

The results of Q3 were in line, and advance tax numbers suggest that it is safe to assume that the Q4
and hence yearly result will be equally good.

Monsoon and Expectation from the market

Although it is too early to comment on monsoon, some discussions will be beneficial. Last year, the
monsoon was a big failure, and chances of failure this time are very little. But public memory is short;
they are once bitten twice shy, esp. in near term. If the monsoon showers normal, which I expect, the
market will use this as an ‘excuse’ to propel into higher orbits, say from presently 5200/ 17000 to 6000/
20000 for Nifty and Sensex respectively. Notice the huge gap on the upper band i.e. from 5400/ 18000
to 6000/ 20000. This is because of technical nature. After 5450 on Nifty, the next resistance is at 6000,
technically speaking. So once the market breaks out 5500 or 5550 on closing basis, chances are that it
will shoot to more than 5900 in very little time. Hath kangan ko aarsi kya! Let’s wait for the second half
of 2010.

Let us shift focus to the individual sectors now.

Telecom- This sector was long time favorite of bulls, even the last fall did not break it. But ghar ko to
ghar ke hi chiraag se aag lagti hai! The tariff war and entry of new operators hammered it. There are 3
listed players, viz. Bharti, RCOM, and Idea, and I own them in that particular order. But the long term,
say 1-1.5 years from now, I am positive. So, it is one of few sectors, I am buying into. The Zain deal is
positive for Bharti, in medium to long term and I trust the management of Bharti, led by Sunil Mittal. So I
am accumulating Bharti. To manage risk, I am also buying RCOM and to certain extent Idea. Also, 3G
auction is going on and the rules are in favor of existing operators. If they do not bid excessively, it will
be positive for the sector. The rise in interest rate, due to RBI policy, will not have any major effect on
this sector.

Power- There was good amount of froth in the power sector. The last bear market washed them clean.
But the sector is appealing in long term. However, in short term, hike in interest rate will have negative
impact on this sector. I am neutral on the sector. I have Reliance Infra, Reliance Power, and Adani Power
in my portfolio. I did not change the sector’s allocation, but sold some RPower and bought into Reliance
Infra, as I think Reliance Infra is less risky than RPower. Adani Power is low risk medium return story.

Hotel- I wrote about them earlier also. They have rose as expected, and are no more in the buy zone.
They are not in sell zone either. So, I am neutral on them. I hold Hotel Leela and Indian Hotel, in that
order and will sell only if they rise too much, say caused by the ‘commonwealth games’ effect.

Infotech- I was selectively positive on the sector. And as they rose, and the rupee is expected to
appreciate, I am little bit negative. I have reduced the weigtage. I hold Tata Elxsi, OnMobile, Tulip and
Bartronics, in that order. Earlier, Tulip was first in my portfolio, but as telecom was threatened, and Tulip
was still holding high, giving me time to sell some, I sold it steadily. OnMobile and Bartronics did not
move much, but I continue to be positive on them. And Tata Elxsi, together with Tulip, gave good
returns (more than 3 times my average price.). I sold some Tata Elxsi to reduce the sector’s allocation,
and also for booking some decent profits. I will buy Tata Elxsi if it falls more than 15% from here, and will
sell more if it rises 15%.

Oil Upstream- When crude oil was below $45, I was very positive on this sector, so I bought RIL, because
it is one of the least risky. When the oil rose above $60, and I felt the rally in RIL was stagnating at 1700-
1800 (ex-bonus price, after bonus i.e. in today’s context 850-900), I steadily switched to Cairn, another
good company in oil exploration, at around 200-215. Now I hold Cairn much more, and RIL some what. I
am neutral on the sector at oil $80, and find both of them adequately priced. I may offload some Cairn
to book some profits, if it crosses 305, or I need some cash.
Banking- As the global financial sector crashed, the domestic sector, banks and NBFCs, followed. But the
Indian financial sector is well regulated and, there was absolutely no structural risk. I was convinced
about their potential and bought heavily in ICICI Bank, Yes Bank, Axis Bank and HDFC Bank, in that order.
All of them rewarded me handsomely, ranging from 2(HDFC Bank) to 5(Yes Bank) times. But in due
process, they became expensive and I felt uncomfortable. I started reducing with ICICI and HDFC Bank,
because ICICI is a historically low profit bank for shareholders, and HDFC Bank was too expensive. They
did not move much after I sold and finally I reduced Yes Bank and Axis Bank also. Now I own only Yes
and Axis, with heavily in favor of Yes, because I find it still promising in long term.

Healthcare- I did not own much in this sector, only Opto and Fortis, in that order. Opto is growing
midcap and a niche player in medical components. And fortis is ex-Ranbaxy group company. I am still
positive on them, but will not increase weitage, unless they fall, as they seem to be adequately priced.

NBFCs- They are similar to banks. I bought heavily into Reliance Capital, Religare, HDFC and IDFC. I also
added Future Capital later. The gains are mixed, 2 times for HDFC, 3 times for IDFC and RCAP, little for
Religare and little loss for Future Capital. I sold Future because I did not see its ‘future’ promising. IDFC
ran too much and HDFC’s fortunes are tied with the realty. So I sold both of them, also to reduce the
weitage on RCAP. Now I own only RCAP and Religare.

Capital Goods/ Infrastructure- I bought moderately into this sector, with L&T, Punj Lloyd, JP Associates.
Initialy, as I bought them at the start of fall, I went into losses. But as the sector looked positive in long
term, I averaged them. Finally they rose, and I reduced weitage on L&T and Punj. But in the last
correction they fell. And there is no sign of revival, so I sold Punj fully, also because it’s history is not
reliable, with reference to promoter and customer dealing. I am negative on the sector in near term,
due to interest rate hike. But if they fall too much, I will buy as long term is still positive.

Electronics- I liked Voltamp, so bought it. Further added Asian Electronics. The result was mixed as
Voltamp rewarded 2 times and Asian reduced to two-third! But as the proportion was in favor of
Voltamp, I made some profits. Also, as I have not sold Asian, the losses are notional, but I will sell it as I
feel difficulty in tracking it. I am neutral on the sector, and find Voltamp fully priced.

Entertainment- I am owning RELMEDIA, earlier Adlabs. But it has been beaten, so I am adding more. I
think 2-3 quarters are painful for the sector, but long term is positive. I will keep buying.

Agrichem- As, I wrote earlier, I thought this to be promising. I bought Nagarjuna Agrichem and Rallis, in
that order. I is too early to assess the result, one is little positive another is slight negative. I will continue
to buy them, as I sell other sectors.

Metals- I own Graphite, and am neutral on the sector in short and long term. However, I am positive in
medium term. I will not buy further, but will sell only in next half rally.

Real Estate- I am negative on this sector, as the recovery is fragile and threatened by the hike in the
interest rates. I wanted to exit from this sector, stocks are decreasing steadily. I will exit once I get sell
opportunity.
Please note that real estate along with power, were responsible for most of my losses in the last bear
market. But as the market fell, I bought them steadily, in due course my price of acquisition reduced.
Now, I have some profits on both of them. Nowadays, Telecom and Entertainment sectors are still in
red, but I hope they, along with Agrichem, will recover, and in fact believe they will give me some
‘meaningful’ gains in next half of this year of next year. On aggregate basis, profits are decent, and I
think more profits will follow in 2011 and 2012.

Nowadays I have started reading some bestselling books on investing. One “Value Investing and
Behavioral Finance” by Parag Parikh is nearing end. If you have read any, please let me know your
viewpoints on them.

Happy investing as always!

-Ayush

Hi,

Some water has definitely flown since my last mail (April 2010). The market, both domestic and global,
made multi-year highs. But the EU crisis, or rather threat to crisis, came as a speed breaker. People
started talking about double dip recession again, and the correction occurred. But it was just a blip and
they recovered equally fast. Now, as I write, they are at the striking distance of recent highs.

I followed the strategy, which I wrote in the last mail. I did not sell of aggregate basis, but sold some
bought some, i.e. shuffling.

Telecom: As the telecom operators bid aggressively, their stocks prices fell further. I used this to
increase my allocation. All of the telecom stocks are quoting still below my average price of acquisition,
but in percentage terms, they are only 5-7% lower. Essentially manageable situation!

Hotel: As Indian Hotel rose to 115, and Leela to 53, I sold around 25% to book profits and reduce risk. At
present price levels, i.e. Indian Hotel at 103, and Leela at 46, I am neutral on this sector.

Banks: I continue to hold Yes Bank and Axis Bank, and think they still, Yes in particular, have great
potential in long term.

Power: I am neutral at these levels, and sold 25% of Reliance Infra at 1190, and 40% of Adani Power at
120, to book profit and reduce risks. I do not find any stock to buy, Reliance Power included.

Infotech: Slight bearish. Sold 25% of Tata Elxsi at 342, some Tulips at 960. Looking to reduce Bartronics
at around 155-160 levels. However, bought OnMobile at 267 levels. OnMobile is in mobile VAS software
segment, and looks very promising from 3G development angle.

Oil Upstream: Positive on the sector, in particular on RIL, since the court case has been concluded and
the promoter brothers have settled their differences in a very encouraging manner.

Multiple logics make me bullish on RIL:

  Uncertainty regarding court case is over, and it went in RIL’s favor.

 It is venturing into new areas, in power, fertilizer and finance.

 Most importantly, its refinery business has better prospects in medium term, as the gross
refinery margin has shown recovery, which I think will be sustained.

 Lastly, it has underperformed in the last year.

 But, since Cairn is also looking very promising, I have bought RIL without selling Cairn, i.e.
increasing the allocation to the sector.

Electronics: Neutral. The previous strategy continues

Entertainment: Hold. As I have bought RELMEDIA in good quantity, I will not buy more unless it crashes
too much. Also I do not expect a turn around, before the next 1-2 quarter.

Agrichem: Hold. Similar story here. I have exhausted my sectoral allocation, so I am holding. But unlike
entertainment, if monsoon pours good showers, Rallis and Nagarjuna Agrichem can bounce somewhat.

Healthcare: Hold. Opto, like Yes Bank, is looking very promising in long term.

NBFC: Reduce on rallies. I exited Religare at 432, as I think it is expensive, and other opportunities (read
stocks) are more appealing.

Capital Goods: Hold. Hold for L&T and bought JP Associates as it fell.

Metals: Neutral at these levels. I only own Graphite from this sector. It is seen fluctuating, so I sold at
around 106, and bought the same at 92, making chota mota profits. I could repeat again, if opportunity
comes again.

Real Estate: Bearish. I exited Unitech at 84 and DLF at 325. And although they have fell after that, I do
not see them promising in medium term.

Sugar: They have been beaten down, so they are on my radar. I am in the process of strategizing my
purchase of this sector, with the horizon of 1.5-2 years. Most likely, I will buy Shree Renuka within next
month, add Triveni Engineering in 2-3 months, finally I will buy Bajaj Hindustan and/ or Balrampur Chini
if they collapse in the next quarter. But in any case I am not in hurry, huzur aahista, janaab aahista!
Staggered Buy!

And regarding my reading, I have read two more- ‘Fooled By Randomness’ and ‘The Scam’. The former
analyses the effect of chance, or some of you may say, luck factor, in qualitative manner. The later one
depicts the two stock market scams- Harshad Mehta 1993, and Ketan Parekh 2000. Both were quite
interesting ones.
The market has been in the trading range with Sensex/ Nifty between 15900/ 4700 and 18000/ 5400. I
am bullish and think they will beak this range in next 2-3 months, if the monsoon is good, Europe is
managed.

And lastly, its time revisit my macro resolution. I planned in September 2009, that I would repay all my
debts by Jun 2010. With Gods grace and the market’s support, I am on my way, from the peak of 2.38
lakhs, the debt has been reduced to a token amount of 5,000/-, which, in all probability, will be repaid
from this month’s salary. This is despite of the fact that some negative water has flown since then on
career front.

Some losses here, some gains there. This indeed is life!

Good luck, Happy Investing!

-Ayush

24th July 24, 2010

Hi,

The market has started making new highs, though the glitters are missing this time, sensing that it’s less
euphoria and more realism this time.
The market can easily slip 8-10% from this level, so some short term caution is warranted, but the 2 nd
half of calendar year 2010 looks more promising. Nevertheless it is an important milestone to review
the portfolio reshuffling exercise.

Let us analyze my portfolio as on today.

It consists of 29 stocks, down from 38 (a year earlier). My medium term aim is to reduce this number to
25 plus- minus 2. I will sell less promising and/ or more risky stocks and buy into pore promising ones.
Sugar and telecom are still promising, though I have already bought telecom. And regarding sugar, I
have started buying with Shree Renuka.
Sector wise report-

S.No. Percentage (As Rationale

Sector on tomorrows
price)
1 Telecom 15.23 It’s bitten down sector, so prices could not fall
further. In fact they have started moving up steadily.
Also, after consolidation, some sanity should return
on tariff front. Airtel looks most promising, followed
by Idea and RCOM.
2 Oil Upstream 12.06 If the global economy recovers, the prices of crude
oil will head towards $100 mark. This will trigger
increase in prices of these companies. Cairn looks
most promising, followed by RIL.
3 Infotech 10.05 E-governance has attained a critical mass, and could
accelerate going further, helped by the UID project.
OnMobile (telecom VAS player) looks most
promising. However, Tata Elxsi (Animation software),
although not a domestic player, too looks promising.
4 Hotel 9.77 It’s a domestic consumption play (premium and
business segment). Like agrichem, this too has
rewarded me in last one year, although the Sensex
did not move much. I have invested in Indian Hotels
and Hotel Leelaventures.
5 Power 9.56 Frankly speaking, power has not participated fully
during the last one year. I reduced the exposure.
Now, with interest rate increase, they may be muted
for few more quarters. I may add them if they
remain paused for 2 quarters. Tata Power and Adani
Power, though not glamorous, are consistent
performers.
6 Agrichem 9.34 See the comments of Rallis (below).
7 Banking 8.99 It’s domestic GDP and other consumption play. Yes
Bank and Axis Bank are my favorites.
8 Healthcare 7.51 See the Opto Circuits comments (below)
9 Capital Goods 5.26 The Indian economy is going in full swing, with
consumption demand going full throttle. Down the
line the increase in consumption will increase the
utilization to high levels, fueling investment
demands, i.e. fresh capacities addition’s need will be
felt in 1-2 quarter. This will be boom for Capital
Goods players, e.g. L&T and JP Associates. As the
L&T has run too much, I have reduced exposure, and
have increase in JP. But increase in interest rates
S.No. Percentage (As Rationale
Sector on tomorrows
price)
could be dampner.
10 Entertainment 4.42 This too is consumption play, but the sector is not in
good shape, with tussles between producers and
multiplex owners. Also Inox and RelianceMedia
(Adlabs) are in a bitter fight for Fame’s control. I
have exposure in RELMEDIA, its still in red and I think
it will take another 2-3 quarters to break even. Hold
is the mantra.
11 Electronics 3.65 Its also domestic consumption play, it’s also an
indirect play on power sector. Voltamp was my
favorite (see below).
10 NBFC 2.44 They could have been consumption play too, but
inflation and consequent interest rate hikes were
party spoiler. I sensed early and exited in staged
manner. Now I own only Reliance Capital.
13 Metals 1.05 It’s pure trading play. I have single exposure with
Graphite- 105 plus as sell zone and 92-100 as buy
zone.
14 Sugar 0.67 This too has been hammered due to fall in
international sugar prices earlier this year. I intend to
steadily increase exposure in the sector to 4th or 5th
position of the portfolio, by the end of this financial
year.

Top five holdings consist of 31.11% of the portfolio. The breakup is-

Stock Percentage Rationale

CAIRN 6.66% Its great company, in short term its price fluctuate with crude oil’s
future. However in medium term, its productions are going to be
started mainly in 2011 and 2012. Also, as India further gives
exploration licenses, its proven and possible oil reserves are
expected to increase substantially, that will be the long term
trigger.
BHARTIARTL 6.40% It is a proven success story of telecom. It can be regarded as
good company of bad (short to medium term) sector. It is a value
play. In short term it was oversold, so it bounced back from the
255-265 levels. The medium term will depend on the domestic
market. If further tariff wars are averted, profitability will be
maintained. In long term, its fate will depend on the turn around of
Zain acquisition, which I think reasonable to expect from an
efficient management team under leader like Sunil Mittal.
YESBANK 6.15% It is one of the youngest private banks. I am tracking it since its
inception, even when it was not listed. It is one of my most favorite
stocks. It is in exponential growth phase since its inception, and is
 expected to grow at such pace for another 3-4 years. It has
rewarded me handsomely, but it is still looking very promising. It
has doubled in the last year, without being expensive, as its profit
kept soaring quarter after quarter, i.e. its PE (price to earning)
ratio remained virtually same, at 18-20 range. A study in Outlook
Profit too supported my hypothesis that most of the profits from
good banks are realized in their initial years of operation (HDFC
Bank, Axis Bank and Yes Bank were analyzed). If it dips I will add
more to make in up to 8% of portfolio.
OPTOCIRCUIT 5.96% This company operates in the niche segment of medical devices
market (heart valves and some other like devices). This too in a
decent profit growth phase. Its growth is consistent and pays
dividends too. With the increase in prosperity, increases paying
capacities. But life style diseases too increase with the increase in
income. So companies like this will feel their market redefined in
the next 5-6 years. Short term and mid term are not relevant for
this company and I am looking for a pure long terms play.
RALLIS 5.93% This Tata group company operates in agriculture chemical
segment. Although food inflation is bad, it gives more power and
appeal for farmers to increase their investments in agriculture.
The proof of this is its increase in share prices in the last 6-8
months, from 500 ranges (bonus adjusted) to 1100 range now a
day. That two during which period the broad market (Sensex and
Nifty) is in trading range. With normal monsoon and high food
inflation, it has some more steam left. If its prices rise too fast, i.e.
ahead of fundamentals, I will reduce some exposure. If it rises
steadily I will keep the positions intact. I am positive in short term,
neutral in mid term and bullish in long term.
Total 31.11% This figure gives an insight into the degree of diversification of my
portfolio. Too little diversification could be risky; too much could
depress your return. Although you can not put an exact number,
30-35% concentration in top 5 companies is a practical band.
Also, you may notice that in the top five league of my portfolio, no
too companies are from the same sector. This cautious approach
will manage my sector specific risks.

Now let us visit top five stocks in which I have excessively reduced exposure, and in most cases,
completely exited altogether.

Stocks Percentage Rationale

DLF, Unitech and Nil From my analysis, I think that realty is in medium term down term.
OMxe Interest rates has started rising, and could continue to rise for 3-4
more quarters. Also, supply is high, as projects that were
launched in 2007-2008, and were stranded due to recession, has
been revised, amid with lower prices and hence margins. The
Indian realty sector typically follows 7 years cycle, and as the last
burst happened in 2008, next peak is speculated to happen only
in 2014-15. It gives me to press my exit from the sector. I may join
the party in 2011 or 2012, if the fundamental scenario changes
positively.
ICICI Bank, Nil ICICI Bank has a historic slow rate of growth. I bought it to reduce
HDFC, HDFC risk and as it was a smashed asset, the risk reward ratio was
Bank highly in favor of reward. As with the stock price rise, now
although risks are not high, the reward looks very small. In
contrast, HDFC and HDFC Banks has rewarded handsomely to
the shareholders historically, but they are very expensive, and I
find Yes Bank and Axis Bank more appealing.
PFC, IDFC, Nil Future Capital was a failure venture, as its CEO and its promoters
Religare, Future could not decide on the future business model. Religare is very
Capital, expensive, PFC is very slow moving, and IDFC is risky with wild
fluctuations in the stocks price. If IDFC crumbles I will add some
to the portfolio again.
GAIL, Petronet, Nil They are PSU stocks, so may be added in the risky weather, but
Power Grid, they are not expected to give decent returns, so may be discarded
NTPC, once the situations improve. Now things are better, I got rid of
them. Petronet was my favorites, but as RIL increases gas
supplies, Petronet’s regassification business could suffer. So not
much steam is left in its domain, however great company it may
br.
Voltamp and 2-3% each, They are good companies but their share prices have run too fast
Tulip down from and have paused since last 3-4 months. Tulip is facing serious
5-6% range competitions from telecom operators’ tariff war. Voltamp looks
better. I may add Voltamp, if it dips or pauses for another quarter.
Reliance Infra, Less than They have run too much and further rally is not expected as they
RPower and L&T 2%, down have become very expensive. If they rise further 20-30%, I will get
from 3-4% out of them, as other companies’ prospects look better
comparatively. I will only add if they fall 20-25%.