Caution: Lots of Graphs ahead. 🙂
Its been one full year since I started tracking PSU Bank stocks using a 10 stock portfolio. The catalyst for putting this portfolio in place was a feeling that PSU Banking space seemed relatively cheap (in November 2013) when compared to historical averages. I further hypothesized (or rather speculated) that over a period of next 5 years, this space would give better returns than broader markets.
And this speculative thought led to this portfolio and its quarterly tracking.
Portfolio Composition & Weightages
The portfolio which started off as an equally weighted one with all stocks sharing 10% of initial capital has moved a bit in last one year. It has now tilted more towards large caps due to better performance of larger banks than smaller ones over the last one year.
Overall Portfolio Returns
So how has the portfolio fared in first year of its 5 year journey? To be honest, the results have been better than what I expected a year back. But that is not only because of low starting valuations or my stock picking skills. It is actually because of sudden rebirth of the Indian Bull Market. The portfolio has returned more than 42% (excluding dividends) and 45% (including dividends) in last one year. This is much higher than market returns of 35.8% in the same period.
Individual Stock Performances
But not all stocks have performed equally well. If we were to look closely at next graph, we will find that larger banks have performed much better than smaller ones. Four of the five large banks have given returns higher than market returns of 35.8%, whereas only one among the smaller ones has beaten market in last one year.
Quarterly Portfolio Performance
On a quarterly basis, the portfolio has been quite volatile. Though it wins the annual race comfortably, it should be noted that in 3 of the last 4 quarters, broader indices have beaten this portfolio!! It was only because of a jaw dropping 2nd quarter performance, that annual returns of the portfolio could beat the overall markets.
This also shows that if someone was brave enough to go out and buy these banking stocks in February 2014, when they had come crashing down, the current returns would have been much higher the 45%.
It’s been rightly said that you need to show some Courage in Crisis (and take Cash-backed decisions) to make money in stock markets. But its tough to time the markets for average investors like. Period.
You can read more about the quarterly portfolio performance using links below:
Portfolio Update – 1stQuarter – Feb 2014
Portfolio Update – 2ndQuarter – May 2014
Portfolio Update – 3rd Quarter – Aug 2014
Dividend Income from Portfolio
Apart from market beating capital appreciation, these stocks have also given dividends which are in line with expectations from PSU stocks. The ten stocks have cumulatively earned dividends of Rs 3173 on original investment of Rs 1 Lac. This gives a dividend yield of 3.17% to this portfolio – Decent by historical standards.
I know a lot of investors do not like stocks paying dividends as it means that company does not know what to do with its cash. But I personally prefer dividend paying companies. But this does not mean that I own all these shares in my personal or family portfolio. 🙂
So what should be the expectation for next 4 years? If one expects this portfolio to give similar returns (45%) for next four years too, then that would be wrong and over-optimistic. Under normal circumstances & assuming that common sense will prevail, maintaining a 45% rate for a portfolio of 10 stocks for five years is not possible – Assuming that we are not Warren Buffett. 🙂
But out there in markets, there are people who are ready to throw targets like 40,000 and 1,00,000 for Sensex over next few years at your face. They believe that we are getting ready for mother of all bull runs and its possible to earn 45% kind of return year after year.
My First Advice is to ignore them.
My Second Advice is to ignore my advice too. 🙂
Its your money and you have earned it the hard way. Don’t just depend on other people’s advice to take decisions about your money.
Hi Dev, do you think that these PSU have no more pain left in terms of NPA. I still feel that a lot more NPA's has been hidden in their books and it is just a matter of time this comes out causing a correcting in stock price. Your thoughts…