Rebalance Update – Wright Momentum

Wright Momentum has had a fantastic performance in the last quarter! To keep the performance going, we’ve rebalanced the portfolio keeping in mind recent market developments.

Have questions about the rebalance and the stocks that went in and out? Ask me live today at 4:00 pm! This AMA is exclusive for you – our Wright Research subscriber!

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Despite the fantastic run, the smallcase was hit with a correction last week as volatility following the US Fed rate hike crept in.

The RBI rate hike at the end of the week cooled off the sentiment, and we saw a bounce back.

What to watch out for the next month?

• With continuing volatility – there is a fear of further drawdown. But we are not deallocating yet.
• The dollar Index is Rising – so we need to pivot to sectors that export
• Consumer demand is a good bet. We need to bet on consumer stocks.

Let’s tackle these, one by one.

De-allocation Level

Our deallocation policy says we shift gradually to cash after the portfolio has hit a 10% drawdown. But as the portfolio hasn’t hit a 10% drawdown last week, we have not deallocated. The deallocation level given by the model is as follows:

So we are staying put and shifting to favourable sectors.

Rising Dollar Index

Investing in companies or businesses that receive most of their revenue from sources from the US can help you gain from a rising dollar.  A business that earns in dollars will see the earnings go up by default, given the rising US dollar.

The major sectors that gain when the dollar gets strong are – Technology and Pharma. This is because these two sectors are the biggest exporters of goods and services to the US. We can see the momentum formation in Pharma stocks as proof of this theory. But on the other hand, the technology stocks are still lagging as the US technology companies, the consumers of Indian IT services, are also going through a recessionary phase.

With the rising dollar, commodity prices are taking a hit. So betting on sectors that consume commodities – autos, cement, fertilisers- might also be interesting. As the RBI would raise rates to match the US rates to protect the domestic economy, the banking sector that gains from the rising rates is also an exciting buy.

Planning for the festive season?

The consumer space remains a more powerful theme given that the festive season is coming in. Consumer Discretionary, FMCG, Cement, and Autos are attractive. Discretionary and retail stocks have outperformed the index during the festive season in nine of the last 11 years, and the Medium-term outlook for these sectors looks strong. Stocks like Jubilant Foods, Nykaa, and Titan are attractive festive season buys.

Finally, the Rebalance

We are adding Bharat Electronics, a defence electronic company and Cipla a Healthcare stock in line with expectations of a strong dollar.

We are removing JSW Energy and Hindalco which have lost momentum due to the cool-off in commodity prices.

Here’s the sector mix this month. Autos, Technology (due to long-term holding in Tata Elxsi), Utilities (Adani stocks) and Banks are major allocations for this month. These sectors are relatively low beta and should give favourable returns in the next period while being cushioned from the volatility.

Did I answer all your queries?

I am sure not! So let’s connect today evening with a Live AMA – only for subscribers of Wright Momentum where we can discuss all your queries and concerns.