Technical Analysis of Indian Equities by Nooresh

Diversified Random Portfolio beats the Benchmarks Yet Again.

We have been doing Random Portfolio exercises for the last few years. We started looking at this interesting topic almost 3 years back and could make a template with the help of my friend Prashant Krish and now my team mate Harsh Doshi does the iterations for the last 1 year or so.

Every time we have a fantastic year we do this exercise to tone down the emotions which come along with a great year.

Random Portfolio Selection Filter

•The only filter was stock should be above 20 rs and listed on NSE. ( to remove unusual big movers or duds )

•25 stocks selected randomly ( rand function) with an equal weightage of 4%.

•Time Period – Last 6 months and Year to Date.

•No shuffling of stocks. Just buy and hold.

•No brokerage applied.

We created 5 random portfolios on the above selection criteria.

Recommend reading the Previous posts on this Topic.

1) Best time for Advisors to show Performance Reports/CAGR to sell their services – Part 1.( Oct 2014)

2) Best Time for Advisory Services to show Alpha 🙂 & sell Services/Equity Related Products ( August 2016 )

3) Now is the Best Time for Successful Investors to give Gyaan on Investing.

4) Doubled your Money in Last 3 Years ? Skill or Luck ?

The calendar year started on a good base after a drop from 8950 to 8200 in the last 3-4 months of 2016 which was a flat year with Nifty barely managing a 5% return in CY 2016.

Apart from it being a great year there was not a single correction of more than 5% in the Nifty all through the year.

Nifty up 28.5%
Sensex up 28%
BSE Small-Cap Index up 59.5%
BSE Midcap Index up 47%
S&P BSE 500 Index up 36%
S&P BSE 100 Index up 31%
Nifty Midcap 100 up 47%

Nifty Small 100 up 57%

Lets look at returns of Random Portfolio for CY 2017.  ( Also have added Fy18 )

1st Iteration

  1/2/2017 12/29/2017  
Portfolio Initial Equity End Equity %  Returns
Random Portfolio 1 1000000 1417911 41.79%
Random Portfolio 2 1000000 1512804 51.28%
Random Portfolio 3 1000000 1580712 58.07%
Random Portfolio 4 1000000 1681879 68.19%
Random Portfolio 5 1000000 1450591 45.06%
Average Returns (%)   52.9%  
www.nooreshtech.co.in       

 

Click to Download - Excel Sheet   - Random Portfolio 1 -

2nd Iteration

  1/2/2017 12/29/2017  
Portfolio Initial Equity End Equity %  Returns
Random Portfolio 1 1000000 1646863 64.69%
Random Portfolio 2 1000000 1613824 61.38%
Random Portfolio 3 1000000 1400716 40.07%
Random Portfolio 4 1000000 1748309 74.83%
Random Portfolio 5 1000000 1598099 59.81%
Average Returns (%)   60.2%  
www.nooreshtech.co.in       

 

Click to Download – Excel Sheet – Random Portfolio 2 

NSE all stocks Performance

We also did an exercise on the Returns in all the liquid stocks listed on NSE in calendar year 2017.

  • There were almost 1683 stocks listed in Equity Segment as on 1st January.
  • Out of these 182 had no trade data for many days. So we excluded them.
  • Not included the new listings. May have missed a few demerger calculations.
  • Final list of 1501 stocks.

Another big myth is that there are 5000 plus listed companies in India. The reality is 2500-3100 stocks get traded on BSE and 1500-1800 on NSE which are also mostly listed on BSE. So the real liquid universe is between 1500-2500 stocks half of the assumed number.

www.nooreshtech.co.in 
% Returns No. of Scrips % of total population
Above 400% 20 1.33
100 to 400% 289 19.25
50 to 100% 327 21.79
10 to 50% 474 31.58
Upto 10% 121 8.06
0 to -10% 76 5.06
-10 to -50% 167 11.13
-50 to -100% 27 1.80
Grand Total 1501 100.00
www.nooreshtech.co.in 

 

Click to Download – Excel Sheet – NSE All Returns

  • 42% of the stocks gave a return of 50% or more.
  • 19% of the stocks gave a return of 100-400%. ( 1 out of 5 stocks doubled this year )
  • 82% of the stocks gave a positive return.

Conclusion

  • A diversified random portfolio would have given a return of 52-60% which is much higher than the Nifty/Sensex/BSE 500/Midcap etc and almost close to the BSE Smallcap/Nifty Smallcap even though the universe is almost all listed stocks.
  • A little more concentrated portfolio would have given much more higher returns.
  • A constant learning through all these exercises is that Selection is very important in a Concentrated Portfolio but in a Diversified Portfolio the Asset Allocation and timing plays the real tool. Consider if you had deployed more cash in Demonetization – Nov/Dec 2016 would it really matter what stocks you selected ?
  • In such times it becomes easy for advisers, analysts, pms and mutual funds to show how superior their returns are to the benchmark – Nifty. If 42% of the stocks went more than 50% there is a good chance every smallcap/midcap pf made that sort of return as there will definitely be some outliers which went up 100% ( 1 out of 5 stocks doubled up )
  • The above exercise clearly tells us to be thankful to the market for being so kind in giving returns irrespective of whether it was luck or skill.

Wish you a Healthy and Wealthy New Year

Nooresh Merani

Article by Nooresh Merani

Nooresh has written 2697 articles.

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{ 2 comments… add one }
  • Jatin January 1, 2018, 23:09

    Simply superb. Honest confession by a professional. I salute your genuine approach.

    Reply
  • Neal January 10, 2018, 13:22

    Excellent analysis

    Reply

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