The portfolio was up 0.65% Dollar terms for the month of June, 2017, compared to the investible Indian index, Nifty 50, which was down -1.34%.
Nothing much could be said about why the portfolio was up this month apart from the classification that the active share of the portfolio against the benchmark is extremely high (there is little or negligible commonality between portfolio holdings and benchmark composition) and therefore there may be numerous times when relative returns may or may not make much sense unless there is a bear market ongoing. Stock specific risk will be, at most times, the primary risk factor that the strategy wishes to carry. I do not see much more ways to outperform the investible alternative over the long term.
There have been absolutely no changes to the portfolio over the month of June. No buy or sell (even partial ones) decisions have been made whatsoever. I could not find any valid reasons to make any changes to the portfolio and without it, it will only be my trigger happy fingers doing the talking.
More than three and half years into performance history, the strategy has managed to outperform the investible alternative by 6.7% annually as of June, 2017 end. I must confess that I had hoped for a better result when I started out. I would have been more happy with a ~10% annualised out-performance. Hopefully, the lack of relative returns be covered in the coming years with better stock selection and avoidance of stupid mistakes and actions. Without some pretty glaring mistakes, I would have had atleast 20% more returns by now (just taking into account my committed errors).
The Goods and Services Tax (or better known as GST) came into effect on the 30th of June, 2017. Without being a tax expert, my understanding suggests that there would be nominal impact on the organised sector in India (including all public listed companies). Fears of unfair price increase of products due to increased taxes are simply not true most probably. However, the unorganized sector will have to operate under the tax jurisdiction now and hence it can be assumed that GDP may have an upward impact somewhat (first from increased tax revenues and second from more recognition of economic activity previously operating in the untraceable cash market). Lower corruption from tax officials and ease of logistics would probably take India's 'Ease of doing business' indicator a notch higher.
Atleast I am glad that India does not have a legislative situation where laws and bills circulate within lawmakers in a top secret hush hush manner. "It's a great bill, this GST, and it will be very good for the country and it will do great things for USA... err India".
Indian equity markets have become a hot bed for IPOs in 2017. Listing day returns of ~75% (CDSL IPO) and ~115% (Avenue Supermarts IPO) have been touched till now. Even though as a policy, KGS does not and will not invest in IPOs (what is good now will be good later as well and we like to place our bets knowing our odds), I have had a chance to look at the red herring prospectuses of some of the recent IPOs that have come to the market.
My initial impression is that, firstly there is an enormous game being played by institutional investors with payoff structures on the listing day (out of the hands of retail investors). Some of the issue prices have been structured in such a way that listing day create lot of hotness and buyer liquidity enabling big IPO players to exit in a smooth manner. Some blame also needs to go to the retail investors trying to play the IPO game as a one day hunting expedition. As more IPOs enter the Indian market in 2017, these issues are likely to become a gambling market in itself (many retail investors rarely study the fundamentals of a company before investing, with IPOs, many absolutely won't bother about the business behind it). Subscription multiples is the main qualifying criteria for them. It's similar to 100 retail purchase managers running toward a warehouse with a disguised sale on, where each person sees the other running towards the door and no one bothers what they are buying.
Jaw dropping valuations of recent IPOs (one trades at 5x the multiple of comparable stocks) however may not mean that there is enough buyer liquidity for the entire system in India implying an indication of extreme froth. The IPO phenomenon probably is a different liquidity provider altogether as data suggests that longer time frame returns of IPOs in 2016 and the recent past have been mediocre (the suckers win while the sucked lose eventually, and rightly so).
Changing the vantage point, it may also be true that we are in the midst of an prolonged ensuing bull market and those companies which consider IPOs this year also run the risk of lower than possible equity fund raising (in case the business in question in not that sound enough to begin with). In any case, fundamental quality will likely determine both the fate of promoters/ owners and also their shareholders over the long term because market optimism may cover a mediocre businesses's naked butt for a while but when its time to kick, that same butt will hurt more.
It is strange how instant glory always finds precedence among mortal beings over long term enduring fame.