The Month Gone By During February 2020, the EAP-Nifty lost 37bps in Alpha vs. the Nifty50, while the underperformance since inception stood at 36bps. The positive contribution to our Alpha came from L&T (43bps, not in our portfolio), Kotak Bank (20bps, not in our portfolio) and ITC (19bps), while the drags were Ashok Leyland (-40bps), Grasim (-21bps) and Maruti (-19 bps). Our EAP-SMID has outperformed the benchmark (BSE400) by 464bps (745bps since inception).
Within our sector EAPs, outperformance was delivered by Speciality Chemicals (374bps) Telecom (270bps), Consumer Goods and Retail (204bps), BFSI-NBFC (114bps), Eng & Cap Goods (81bps), while underperformance was seen in Cement and Bldg Mat. (55bps).
Key changes in EAP Nifty We have replaced Nestle (recent downgrade note) with Havells (recent upgrade note) in our EAP. We have shifted weights from TCS and ONGC into the NBFC space because of the improvement in the funding situation for NBFCs. On a sectoral basis, the Auto sector continues to remain key OW by 561bps, whereas our key underweight sectors are Eng & Cap Goods (317bps) and IT Services (-182bps)
Our High-Conviction Large-Cap (UW) list sees the entry of TCS, replacing Wipro.
Our Small & Mid-Cap list sees the entry of Chola Investment, Shriram Transport Fin and the exit of Federal Bank.
High-Conviction List
Large-Caps (OW): Ashok Leyland, Bharti Airtel, Britannia, Grasim, ICICI Bank, Maruti Suzuki, NMDC, RIL and United Breweries.
Large-Caps (UW): ABB, PNB, TCS, Torrent, TVS, Vedanta and Yes Bank.
Small & Mid-Cap (Buys): City Union Bank, Chola Investment, Escorts, Gulf Oil Lubricants, Inox Leisure, Jubilant, Granules, JK Cement and Shriram Transport Fin.
Emkay Alpha Portfolios, or EAP, is our unique initiative of aligning our goals with that of our clients (Alpha), and driving accountability. Through this, we raise the ‘transparency’ bar in our client engagements, and hope that we generate positive Alpha. Whenever an analyst makes changes to our portfolios, we publish a note with the latest portfolio, and use the next day’s VWAP price for NAV calculations, making it as close to reality as possible. There are three types of such portfolios that finally get abstracted to our high-conviction list:
Sector EAPs: These 18 sector portfolios are the building blocks of our EAP initiative. Here, each of our Lead Analysts picks up the BSE200 weights of all stocks under her or his coverage, and assigns an active EAP weight (OW/EW/UW) in a few of them. The goal of each of the portfolios is to generate Alpha against an artificial neutral-weighted sector portfolio.
EAP-Nifty: This is our large-cap portfolio, which our Strategist constructs ‘bottom-up’, by looking at our individual sector portfolios and picking up the best active ideas, and then applying his sector tilts. The goal is to beat the Nifty50 index.
EAP-SMID: This is our pure small & mid-cap portfolio, which our SMID Lead Analyst constructs by selecting the top ideas from his direct coverage and augmenting it by picking SMID ideas from our research team. The goal is to beat the BSE400SMID index
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