The markets have been volatile, and some pockets have taken a heavy beating, especially mid caps, small caps and internet stocks. In this scenario, we take the opportunity to rebalance the Disruptors portfolio earlier than scheduled.
😨 Performance for Disruptors
Disruptors has been the worst-performing portfolio from our pack. Since January 1, 2022, the portfolio has been down 17% as of today (March 3, 2022). This has underperformed against both the Nifty 50 (-3.5%) and Equity Multi Cap (-4.3%).
This has been primarily because the portfolio’s composition is heavily skewed towards what’s been worst affected:
Mid caps and small caps together form 64% of the portfolio.
Internet stocks constitute to 22% of the portfolio. Most of these internet stocks have halved in value over the last few months.
♻️ Changes in Disruptors in March 2022
We are exiting Gujarat Gas, Greenpanel Industries and EPL.
Rising natural gas prices
Increasing use of EVs in the segments that have been operating on gas
Invested in a better alternative, Stylam Industries instead
Heavy dependence on crude
Rising crude prices likely to hit profitability
We are adding Xpro India, Acrysil, Stylam Industries, Jubilant Ingrevia and Laurus Labs.
1. Makes dielectric films, which are used in capacitors. Capacitors are one of the most fundamental components in electronics. India's increasing usage and manufacture of electronic components.
2. It is the lone manufacturer in India, and still serves only a third of the demand. Massive share gains likely in the future.
1. Manufacturers sinks, dishwashers and bath products. It is one of the only 4 Schock technology license holders; and the only composite quartz sink manufacturer in Asia.
2. Supply agreement with IKEA and pick-up in the real-estate/housing markets should add to growth in the future.
1. In laminates, it is the fastest-growing company in India, and largest exporter too. Growing market + comprehensive marketing strategies = Disruptive growth.
2. The government’s focus on import substitution will help since current acrylic panel demand is fully serviced by imports.
1. Globally integrated life sciences company; provides innovative solutions in pharma, nutrition, agro-chemicals and industrial.
2. Moving up the value chain - will lead to premium pricing and better margins.
1. Aggressively diversifying from anti-HIV APIs by moving into niche APIs and formulations.
2. Like the company because it targets which are innovative and niche, where it has a competitive edge and an ability to better manage supply chains.
📱 Maintaining exposure to internet stocks
We are maintaining exposure to internet stocks despite them eroding in value. We continue to hold on to Zomato, CarTrade and Policybazaar to the same extent as earlier. Why?
The three companies fit very well into the theme of the portfolio. We see all three of them disrupting their respective industries, and successfully.
Over the long run, we see these companies maintaining (or bettering) their dominance in their respective markets.
These companies may not be profitable at the moment, but they have managed to change customer habits for good. Profitability now is just a function of time, scale, and pricing.
We see a high probability for valuations to command a premium compared to the market. Higher valuations will be justified by disruption, high-growth, capturing of new markets, market leadership, and steep profitability expansion.
Whilst valuations have seen massive erosion over the last few months, we see this as a buying opportunity, especially when the companies are fundamentally strong, and have promising prospects.
We also attribute a large part of the fall in stock prices in these companies as part of the global trend of movement towards safer assets. Globally, fears of inflation and geopolitical stress have triggered a flight to safety, and the impact of that can also be seen on internet stocks in the US. We see this as a temporary movement, caused by overpowering factors, which will see resolution over time.
We are hence sticking around with our decisions on internet stocks despite them losing a large chunk of their value in recent times.