Annual Review 2023 & Way Ahead For 2024

Wishing everyone a very happy & prosperous 2024 !!!

The end of the calendar year is a perfect time to ZOOM OUT, reflect and prepare for next year.

We started 2023 with backdrop of low returns from 2022.In last year annual review, I wrote "Just be there on the pitch for some time & runs will come".

Here we are after one year with spectacular returns from whole Indian market.

Nifty 50 index +19%

Nifty Midcap 100 index   +47%

Nifty Smallcap 100 index  +56%

Individual stocks did far better than indices and generated some significant returns.

Overall, it was a dream run for Indian market & investors in 2023.

Indian economy is doing very well. I strongly believe, India is strongly positioned for growth & wonderful wealth creation in the coming decade.

Revisiting Last Year Annual Review:

In last year’s annual review, I discussed about few more interest rate hikes coming, Inflation settling down, A big capex cycle, Friend shoring & Time to Regain the Lost Glory & so on.

Luckily, all the things went in right direction, FED & RBI announced few interest rate hikes and then paused. Commodity & retail Inflation settled down a bit.

Biggest government led CAPEX has cycle started in India & because of which we saw very good growth in Manufacturing, Capital goods & Defence sector.

This capex triggered biggest bull run in Manufacturing, defence, PSU & Capital good sector.

Friend shoring started working in favour of India. Many big companies have started expanding their business in India.

This is just a start. we are going to make it very big in coming years.

State election happened in November and result came in favour of existing government so most likely we are going to have same government in 2024.

Market loves stability and since State election result, market is flying like anything.

Big Thanks to DII & Indian retail investors who stand strong & helped Indian market to absorb most of the shocks & big FII outflow at the start of the year.

After state election results, FII started deploying large sums of money in Indian market & ended year on strong note with highest inflow for this year in the month of December.

This year was DREAM run for India where all kind of positive triggers were in favour of India & almost everyone made money from Indian stock market.

Last year, I wrote many times about buying pessimism & we added good stocks and mutual funds when there was lot of pessimism around the market.

We have benefited significantly by acting on one of my favourite quote "When whole world is pessimistic, be little more optimistic" because only "Optimist can buy the pessimism.”

Learning From 2023:

1) Only Optimist can buy the pessimism:

Last year, I wrote about sectors which we can use to buy the pessimism (Pharma, IT and Speciality chemical) because of bottoming of margins and here we are after one year most of the stocks from these sectors have started performing well from the bottom & hitting 52 week high.

Also, we bought NAVI Nasdaq 100 FOF because US market was at Peak of pessimism. Fund has generated 50+% CAGR in last 1 year.

Good news & Good prices never come together. When pessimism is around, we need to assess the situation and take call because if we wait for things to settle then we might need to pay extra price for clarity.

2) Every new bull market creates new leaders:

Biggest wealth creators of 2023 were from Railways, PSU & Defence sector. Due to my biases, I avoided the whole sector & missed opportunities. This was learning for me. Every new bull market creates new stock market leaders. We need to be agile enough to expect that and position portfolio accordingly.

3) Technical analysis works:

Technical analysis can help you immensely in finding interesting new ideas, new bull market leaders & plan exits.

4) “When the facts change, I change my mind - what do you do, sir?” ― John Maynard Keynes.

In investing, we should “never say never.” Whenever facts change, we need to be agile enough to understand the current situation and revisit the stock and take decision accordingly. Previously, I used completely ignore certain set of stocks from tracking list but over the years, I observed that whenever turnaround happens in any sector or stock then lots of opportunities arise.

5) Tracking results & concalls:  

In last few years, I started tracking earning numbers and concalls of multiple stocks and it helped me in identifying tailwinds and headwinds from multiple sectors. We should track earnings numbers of various sectors & associated stocks that will give us idea about overall sector headwind & tailwind. Also, this helps you to position your portfolio accordingly.

6) First few sectors hitting 52 week high:

Whenever, Bear market or sideways market ends, always keep eye on first few sectors which are making new 52 week high because those will be the sectors which will be providing new bull market leaders.

7) Build A Process:

We should build a process around selection or rejection of stocks. We can not simply keep buying any kind of stocks and wait for them to perform. We need to have certain framework in place which can guide us to make entry and exit from the stock.

8) Exit Framework:

Most important thing I learned over last 1-1.5 years is keeping exit framework ready. There can be N numbers of ways to exit like over valuation, Sector headwind, business headwind, technical exit & so on.

Way Ahead For 2024:

1) Be Humble & have reasonable expectation:

We have made more than expected returns this year & valuations are not comfortable now in some part of the market. There were lots of low hanging fruits available in month of March-April last year but now that is not the case. We need to do much more digging to find good opportunities.

We need to keep reasonable expectation from the market for this year because most of the times reason behind our disappointment is unreasonable expectation.

2) Madness of Crowd - IPO, SME & Smallcap Euphoria:

Those who can not learn from the history are doomed to repeat it.

IPO Euphoria, SME & Small cap bull market stories, Hope based Target prices, QIP at top of the bull market, Stocks moving without any fundamental earnings, People extrapolating returns for next 5-10-15 years, New participants buying stocks at the top of the valuations, New participants buying Penny stocks & so on. These are pretty common things in every bull market.

Currently, Greeter fool theory working in IPO, SME & Small cap segment where one can make money by buying overvalued stocks and selling them for a profit later, because it will always be possible to find someone who is willing to pay more higher price.

This kind of trend is unsustainable & sooner of later, these kinds of things reverse back to mean.

3) Interesting opportunities available in Large caps & selective Mid caps:

India is well placed & multiple positive factors are in favour of India. Indian market will continue to do well in coming time. We only need to be selective. We might not see broad base rally this year.

This year, most likely FII money will come into Large cap and selective mid cap stocks. Large cap stocks have not participated in 2023 rally and available at reasonable valuation. Interesting opportunities available in Large caps.

4) Valuation Matters:

We have seen one way rally in many small and mid cap stocks & valuations are not comfortable now. Now, it’s time to be cautious specifically in IPO, SME & smallcap segment. We need to revisit the valuation and ensure whether valuations have run ahead of fundamentals or not.

Time to keep exit framework ready and don’t consider each and every bull market story as long-term story.

6) Interest rate peaking out:

It looks like we are near interest rate peak and we might see bottoming out of interest rate this year.

Keep eye on Banking, Auto & Auto ancillary, Speciality chemical, IT, Pharma, Manufacturing & export-oriented sectors.

7) Good time to check portfolio Diversification:

Its a good time to check if your portfolio is well diversified or not. Don’t keep portfolio full of small, Mid & SME stocks.

Try to diversify portfolio across large, mid & small caps with reasonable valuations.

9) "All I want to know is where I’m going to die, so I’ll never go there." - Charlie Munger

Most of us have made good money in 2023 & now its the time to preserve that profit in 2024.

To preserve those gains, we need to be aware about sector & stocks which are high on Euphoria & trading at uncomfortable valuation.

We sometimes get carried away by bull market & stories floating around it & enter into the stocks at unreasonable valuations.

I will be staying away from hot sectors trading at extra hot valuations.

Sectors to watch out:

1) Banking

2) Speciality Chemicals

3) Real Estate & Building Materials

4) Pharma

5) IT

6) Auto & auto ancillary

7) Manufacturing & It's Proxy

I will keep holding 15-20 stocks in long term portfolio with below combination:

Long Term Portfolio = Compounders + Megatrends + Variant Perception

I am so grateful to have you share this long term investing journey with me in 2023 & look forward to continuing our connection in 2024.

Best wishes for a healthy & joyful 2024.

Disclosure: I am not SEBI registered. The information provided here is for education purpose only. Hence, always check with your financial advisor before acting on any contents of this newsletter.