Prime Stocks performance review 2023

2023 has been one of those years that didn’t give you time to contemplate and invest. The opportunities just zoomed by. And if you’re going to measure us by the rocketing returns of the penny stock multi baggers, we will happily admit defeat 😊 In such instances, there is nothing to think. Like veteran fund manager Sameer Arora put in his tweet: “you don’t need to make stories every day for every stock. Just chill, relax and enjoy!”

But then, we have a job to do beyond that. And we did navigate these markets the best we could by trying to fast track the calls for the year 2023, ahead of the sharp rally in the second half of 2023. That is why 9 of the 12 new calls made in 2023 were given in the first half of 2023. Yes, we had to hurry up and the table below will tell you why.

Much of the returns, especially in the mid and small-cap space, besides the bellwether index, came in the second half of 2023. The State election results appear to have further fueled the rally in the last couple of months. The market move augured well for us not only in terms of timely buy calls but also providing some book profit opportunities in the second half.

Performance of fresh BUY calls issued in 2023

In this Prime Stocks performance review, let’s first summarise the BUY calls issued in 2023 and the average outperformance (or otherwise) of those calls. For this review, December 14, 2023, was taken as the cut off for the calendar year for measuring returns. We did not take the IPO calls we gave as we did not wish to record the listing gains as a performance measure 😊.

Please note that the returns (absolute) are from the date of each call and the index returns (Nifty 50) are for each call. The average of such returns is given in the table above. Here are the key points:

• 9 in 12 calls (or 75%) we gave this year outperformed the index by an average 17.7%.
• L&T Technology Services, Tega Industries, and Aarti Drugs were among the top performing calls given in 2023, delivering outperformance (over Nifty 50) in the range of 23% to 40%. More details on the outperformers in the Hits and Misses section further down.
• One stock just kept pace with the index while 3 calls underperformed. The underperforming ones are Nuvoco Vistas, Asahi India Glass, and Marico. Of these, Nuvoco is less than 3 months old. We continue to have a BUY on 2 of these 3 calls (barring Asahi, which is a Hold).
• We have not gone down the market cap curve or the quality curve by much; the average market capitalisation of Prime Stocks will mostly be towards the large-cap or midcap/emerging large cap segments. We therefore may have missed outperforming high-risk stocks, but given the market scenario, that is a decision we consciously made.

We think these calls delivered very well, considering that none of them were particularly available at cheap valuations but we did believe there was upside left.

The above classification includes only those fresh calls made in 2023. There are other calls that remain a BUY from previous years – including Axis Bank, Carborundum Universal and Dalmia Bharat that delivered well in 2023 as well or gave you steady income like India Grid Trust.

Please note that the performance of each stock and index is available at all times in the Prime Stocks page. Also, please refer to the Prime Stocks list for the latest recommendations. This is only an appraisal report.

Hits and misses

As you may be aware, Prime Stocks has a list of stocks that are BUY, HOLD, SELL and more recently BOOK Profit (a new call category). There are a few things you need to know about this Prime Stocks Call classification.

• Many of you ask us whether you can buy a stock well after we issue the call. A stock that is on our Buy list will remain a buy even after the call is issued – if we believe that the upside potential is decent to enter.
• If a stock is moved to Hold, it implies that the upside may be limited for those who enter afresh but there is potential for growth for existing investors (who would already have seen some returns). Sometimes, we move a stock to a hold when some uncertainties crop up that warrants caution for fresh investments.
• Stocks that are a Sell move out of our active monitoring. A sell may be issued either if our thesis has entirely played out or our thesis is entirely proved wrong 😊
• A Book profit call means that you continue to hold positions in the stock (considering its sound fundamentals) but after sweeping off profits that may have come by, oftentimes in a short span.

So, in the below section of Hits and Misses, you will have calls issued in earlier years that are still a Buy or Hold AND the stocks we gave a buy on in 2023 and/or recommended a book profit in the same year.

Hits

If you hold some of our early calls, you will understand the power of a Buy and Hold in fundamentally sound companies – be it Bajaj Holdings or IRCTC. Then there were some dark horse bets like Tega Industries that paid off well while there was delayed gratification in others like Carborundum Universal.

In fact, in 2023, we have been a bit proactive in giving ‘book profit’ calls even in fundamentally sound stocks as we wanted the excesses to be liquidated as profits before they dissipate. Tega Industries and Aarti Drugs were such calls.

In the below illustrations, let us look at how some of our contrarian calls worked, how patience paid (even if this year was all about haste paying off!) and sometimes how the narrative turned broader than what we started out with, resulting in higher returns!

#1 Investing amid pessimism

We recommended L&T Technology Services (LTTS), an ER&D focused player in January 2023 amid broader pessimism in the IT sector and concerns of US slowdown pursuant to hawkish stance by the US Fed. But evidence showed that US industrial stocks were outperforming and there was no slowdown in sectors other than hi-tech (Nasdaq 100 stocks) for the IT sector. 

Despite a marginal guidance cut in the previous quarter (Q3FY24) due to the worsening external environment, LTTS management held on to a 20% growth guidance at a time when larger players revised it to negative on the lower end of guidance. Its peers like Tata Elxsi and KPIT also did well due to continued traction in the ER&D space compared to the broader IT sector. The result of a buy call, in times of pessimism, can be seen in the table above.

#2 Patience pays off

After our recommendation of Equitas Small Finance Bank (Equitas SFB) in October 2021, the market downturn followed and then in May 2022 a corporate development in the form of its CEO resignation took the stock deeper into red from our recommended price.

The recovery slowly took place and stabilized as the CEO decided to stay back and the SFB went ahead for a further 3-year term for him and this was approved by the RBI. Meanwhile, the bank also continued to deliver robust performance with profits doubling in FY23 over FY22 and is further on course to deliver 50% growth in FY24 on a high base of FY23. At the beginning of 2023, the stock was at the same price as our average buy price and delivered nearly 100% gains during 2023 as investor confidence led to valuation re-rating. 

#3 When the narrative broadened

When we recommended Bharat Forge, it was transitioning from a forging company to a product and technology company with greater focus on defence. We also provided an update in January 2023 after the company shared more details about its defence business in an analyst meeting.

During the course of the year, Bharat Forge also won sizable orders for its defence products from overseas markets while domestic orders are yet to be given by Government (this will materialise as product trials are successfully completed) other than for small batches and prototypes. The rally that we have seen in the last few months was on the back of the market accepting its defence story well. 

Misses

While our 2023 calls panned out quite well and we remain positive on the few that haven’t delivered yet, some of our older calls still pose a challenge. We are not talking of stocks such as Infosys or Galaxy Surfactants that were once outperformers but slipped due to industry sentiments. We are talking of stocks that have questioned our very thesis at times. The table below has such calls that generated losses.

We had to move out of stocks such as Advances Enzymes, where although there was poor market sentiment, we expected the stock to show more resilience. Then there were tricky ones such as Honeywell Automation, where we are holding it merely because we expected this market to provide some upside to exit. Frankly, it is a lesson for us to not pick stocks (although a largecap), where information sharing by the company, especially an MNC, is little to nothing or when it is unclear whether the listed entity or the parent’s unlisted arm is the beneficiary of any positive development in the sector.

Then there are calls like Greaves Cotton, where we had to make a tough choice. While we cannot rule out a positive move for the stock as explained in our last report, to us it was a case of locking your money when there were other opportunities. So, we left it to you to take the chance but decided to give an exit.

In insurance calls like ICICI Lombard General Insurance, we did not show the same patience we had with a few other calls. The stock did move above our buy price, but started to rally about 2-3 months after we issued an exit! We don’t think we had any way of anticipating this rally – both in insurance and AMC stocks - as market sentiment turned favourable without any significant change in fundamentals. So, we can only say we were unlucky with this one 😊

Of the stocks mentioned above, you will notice that we still have a Buy on Aditya Birla Fashion Retail. Brimming with multiple business segments that are already profitable, besides a bunch of acquired businesses that were/are in losses, ABFRL’s story (as we see it) is a case of a shift in strategy (from the time of our call) from robust cash flows to that of aggressive expansion/investment led growth. We believe the focus may be getting back to profitability and cash flows in FY24 & FY25. We wish to watch the March-24 quarter for the trajectory of the loss-making divisions to see how our thesis will pan out.

Our approach in 2023

We are believers of being fearful when others are greedy. This led to us to issue ‘book profit’ calls to ensure you lock in on profits. This is a new category of call where we do not issue a sell and instead ask you to simply take out some profits if our thesis on the company still remains intact, save for steep valuations at that juncture.

But at the same time, we did try and actively enter the turnaround stories in chemical and pharma space with almost 3 calls this year, besides playing the pessimism in IT with LTTS. And even while we missed the insurance bus, we caught the positive sentiment in the AMC space reasonably well.

We are overall happy with our calls this year. However, it is quite possible that a fresher retail investor who entered the market this year would have also done well with their own stock picking. This is typically the trait of a bull market. It can make you feel like its easy to make money in the market. But in these times, it becomes necessary to have your feet firmly on the ground with articles such as this: 5 signs of a brewing market bubble.

We will come up with our market outlook for 2024 later in January. Trouble or not, we will endeavor to find the right opportunities to build long-term wealth. We request you to stay tuned with all our stock updates to ensure you keep pace with the market, where it matters.

As the curtains close in 2023, our sincere thanks to all of you for your support and for being patient with us. We are hopeful that your patience will pay off handsomely.

Happy 2024 and Happy Investing!

Disclosures and Disclaimers

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (hereinafter referred to as the Regulations).

1. PrimeInvestor Financial Research Pvt Ltd is a SEBI-Registered Research Analyst having SEBI registration number INH200008653. PrimeInvestor Financial Research Pvt Ltd, the research entity, is engaged in providing research services and information on personal financial products. This Research Report (called Report) is prepared and distributed by PrimeInvestor Financial Research Pvt Ltd with brand name PrimeInvestor.

2. PrimeInvestor Financial Research Pvt Ltd, its partners, employees, directors or agents, do not have any material adverse disciplinary history as on the date of publication of this report. 

3.  PrimeInvestor Financial Research Pvt Ltd has not received any compensation from the subject companies in the past twelve months. PrimeInvestor Financial Research Pvt Ltd has not been engaged in market making activity for the subject companies.

4. In the last 12-month period ending on the last day of the month immediately preceding the date of publication of this research report, PrimeInvestor Financial Research Pvt Ltd has not received compensation or other benefits from the subject companies of this research report or any other third-party in connection with this report.

General disclosures & disclaimers