DSIJ's Recommendations for 2011 - Performance review

Backed by the fantastic portfolio performance of 53% appreciation in ‘Where To Invest in 2010’, our research team moved into 2011 and brought out a list of 11 finely researched companies for ‘Where To Invest in 2011’.

However, the turnout of various events such as the European debt crisis, rampant inflation, rising interest rates, surging crude oil prices and a depreciating rupee took a toll, making 2011 an adverse year for the equity markets. The impact was so bad, that even the fundamentally strong counters were not spared the carnage. The end result was that almost all the fund managers saw their portfolio in the red. In fact, in the last one year, all equity mutual funds schemes have yielded negative results.
 
The scenario was equally challenging in the global markets, where equity was one of the worst performing asset classes. All of the stock indices in the world (barring a couple of them) are in the red, which gives enough idea of how investors lost big money in equity.

Due to the unfavourable global and Indian market sentiment, our portfolio of stocks recommended for 2011 is down by 23.25%. This is despite the fact that there was no problem in stock selection. All the counters recommended by us were fundamentally strong and continue to remain so, with good management bandwidth and strong historical performance. The weak sentiment impacted their stock market performance.
 
Further, our stock selection was broad-based across sectors like IT, Housing Finance, Textile, Auto Ancillaries, Power, Pharma and Aviation. The recommendations included strong stocks like L&T, HDFC, TCS and CESC, which were not only fundamentally strong but were also fancied by investors. Note that these companies also improved their financial numbers in the last one year, and yet, they were hammered down due to poor market sentiment.

What surprises us is the steep fall in L&T, which is down by 37% due to lack of government reforms, impacting business sentiment, which in turn reduced its new order inflow. Even a consistent player like CESC witnessed a deep cut of 35%, as the government could not push through FDI in retail. All the factors that have hurt the performance of these stocks are exogenous to the fundamentals of the companies recommended. Taking cues from this, it would be better for investors to go with the recommendations for 2012 in a staggered manner.