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Citadelle Stock Insight

Alpha Edge February, 2016 - The Known Unknown

We are happy to notice a flicker on the needle as we sight a slight rebound in the earnings profile of companies that have declared results so far. However this delayed evidence seem to be of little consequence to a market that may have waited enough and is now looking at global cues. Only time will tell whether the known unknowns of Chinese Yuan devaluation & dollar strengthening, the path of Fed rate hikes, rebound in global growth etc., will stabilise enough to let us refocus on the green shoots in India. 

Domestically we are optimistic of growth becoming better, but not enough to let fiscal slippages be in control. And this may cause further debt issuance by RBI keeping floor on yields not withstanding any rate cuts that may or may not happen. The near lack of sympathetic movement despite 125 bps rate cut by RBII in 2015 is a case in point. 

In this light, we fear that a fiscal slippage if evident post budget, coupled with signs of stress on the currency front due to any risk-off events in the near term, may put to rest our recent alignment with duration. An outside chance is developing where yields may indeed cross 8.00% and force all of us to relook at accrual strategies, abandoning duration despite the multi-year wait of advisors hoping it would pay off. We pray that global markets remain calm in 2016 and allow the scope for local bond yields to drift lower as is the current possibility. 

In the same breath were there to be global turmoil or market weakening from current levels, local markets may go down in sympathy to even lower levels of 6500 +/- 200 points if it doesn’t stop at 7000 levels which is a very good medium term support. We are looking to trim mid-cap exposure based on a likelihood of the above turmoil. 

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Alpha Edge January, 2016 - Why the delay?

At the outset my team and I wish you a Happy New year and hope that you had a great time with your family and friends on 31st. 
I personally request you to download and read this month`s Alpha Edge to prepare well for what looks to be a roller coaster year for you and your clients. Hope we are able to guide you as well as in 2015 through our model portfolios. 
In this month’s edition we have covered the following key areas.

1. The reasons why the earning recovery is taking time. Knowing the causes may help you understand the root of the delay and the risks to markets and to client portfolios were it to take time. In light of recent developments from China and their competitive devaluation in response to it, we may have to reset how we think the year may unfold. Yes we concerned that 7600 which we forecast back in our June note, may not hold and much longer if this quarter earnings are not good and that is likely. In which case, Equities can drift lower from here, probably to 7000 +/- 200 points. Further on, if US markets correct deeper in response to their changing earnings momentum, we too will be affected. Levels around 6500 +/- 200 points is not out of question in such an extreme case. 
2. With respect to Debt Funds, we are worried that were there to be global turmoil that sucks the currency into the mess, local secondary market yields may not correct significantly in line with the token rate cuts that incrementally may or may not happen. So much, for our expectations that we are going to benefit from rate cuts that we are wished for, for over four years 
3. A revised bottoms up stock selection methodology that identifies the most fundamentally sound companies among the top 1000, by force ranking them on multiple financial parameters. This passive methodology, which we call as Citadelle Stock Insight, had it been implemented in letter and spirit over the last four years, would have generated 85% more CAGR than Nifty in the last 4 years. This a clear proof that portfolio of quality stocks will eventually lead to great performance and CSI helps to retain your faith in your portfolio. By end of January when you have access to the full CSI score cards, you can actually look at the underlying of your mutual funds in a whole new light. Sample Citadelle Stock Insight Equity score cards enclosed in this note. 

Model Portfolio of Stocks - revised

Model Portfolio of Funds - revised

Our Model Equity portfolio, Growth Opportunities Portfolio has outperformed the broad benchmark by ~13% in CY 2015.

Request you to pass it on whosoever can benefit from it.


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Alpha Edge December, 2015 - End of fear?

This note marks the last edition for this calendar year and we are happy to share that our cautious stance at the beginning of the year has played out. 

The key calls we took this year were a mix of contrarian and consensus.

Contrarian calls     
January  Oil price collapse will not lead into a great earnings expansion  - Played out 
March  Valuations are not supported by EPS growth implying both Time & Price correction  - Played out 
March  Liquid Funds to outperform Nifty / equities for atleast 6 months  - Played out 
June  Modi’s reforms will take many years to show its impact and markets will realise this  - Played out 
June  Nifty levels to touch 7600 +/- 200 points  - Played out 
August  Fed will not hike rates in September  - Played out 
November  Fed will not hike rates this calendar year (we were right for 11 months 1 week)  - Likely to go wrong  
Consensus Calls     
September  We are bullish on duration, to play out post Fed hike  - Likely to play out 
July  Economy to bottom out and start reviving – IIP numbers, etc., showing +ve signs  - Playing out 
June  Bullish on RBI rate cuts but after more clarity on Fed rate hike  - Yet to play out 



Our Model Equity portfolio, Citadelle Growth Opportunities portfolio has outperformed the broad benchmark so far by ~13%. We are hopeful that our maiden year will end well given the overall bearish trend. 
Request you to watch out for our January edition where we cover our broad asset allocation calls across asset classes for the year 2016.

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Alpha Edge November, 2015 - On tenterhooks, but..

The markets seem to be on tenterhooks thanks to the investor’s belief that Fed rate hike & Bihar elections will hold sway over markets for far too long. As we narrated in our August – Alpha Edge {In two minds}, Fed rate hike almost always portended a rally to new highs in almost all instances over the last forty years. Secondly, contrary to people’s perception, Bihar elections - even if overwhelmingly favourable to NDA, will remain as mere sentiment influencer in the short term. It will take upto 2018 and sustained assembly level majority, for NDA to rule the Rajya Sabha. We think that in case of either a win or a loss to NDA, the belligerence of Opposition shall only escalate. It will therefore boil down to skilful floor management, for any progress on the legislative logjams. May be Modiji should see ‘House of Cards’ and master a thing or two.

Domestically, we are getting incrementally positive from a medium term perspective after many quarters of being cautious, as you know. What do we see that others don’t? A confluence of events like better IIP, lower inflation, lowering interest rates etc., all a harbinger of better times than worse, if the past were to rhyme with the future. We once again are taking a contrarian position from a medium term perspective, just as we were alone and sceptical in Jan – Mar of this year. 

Yes! We are on tenterhooks like most others but for different set of reasons. We wish to see if the narrowing window of opportunity – that the ground up situation is getting better, coincides with investors good humour till date. If it does, it shall be a buying opportunity that investors who have been cautious so far, will look back and enjoy buying into. 

Happy staying invested for now! 

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