These five stocks make up for half of Nomura's model portfolio

The stock market index on a display screen at the Bombay Stock Exchange (BSE) building in Mumbai. After touching the 40,000-mark in morning trade, the BSE Sensex turned choppy after Finance Minster Nirmala Sitharaman rose to present her maiden Budget.Photo) (PTI7_5_2019_000223B)(
  • Global investment firm Nomura's model portfolio is heavily skewed towards blue chip stocks.
  • Four stocks -- Reliance Industries, HDFC Bank, ICICI Bank, Axis Bank, L&T and HCL Tech-- make up for nearly 50% of all the investments.
  • There is also added emphasis on companies focussed on infrastructure construction.
Investing in stock markets can tricky in these volatile times. Sentiment is swaying from one extreme to another driven by changes at home -- the ₹1.45 trillion sweeping tax cuts announced by Finance Minister Nirmala Sitharaman-- and evolving global risks like the risk of Donald Trump's impeachment, the US-China trade war, a possible spike in oil prices to name a few.

Small investors can take cues from the likes of global investment firm Nomura's model portfolio, as of September 20, while planning their investments. The portfolio and the allocation shared below also spells out the estimated earnings growth in the next two years.
Sector/StockPortfolio weightageEarnings growth estimate FY19-21
Automobiles3.40%-13%
Mahindra & Mahindra2.20%18%
Minda Industries1.20%
Materials1.30%48%
Ultratech Cement1.30%
Consumption9.10%
Financials34.80%
ICICI Bank10.80%140%
Axis Bank7%69%
ICICI Prudential Life Insurance2.50%19%
State Bank of India (SBI)3.50%
HDFC Bank11%20%
Infrastructure/Industrials13.10%
Larsen & Toubro6.50%17%
Concor2%2%
KNR Constructions2.20%10%
AIA Engineering1.50%18%
VA Tech Wabag0.90%34%
IT Services12.60%
HCL Technologies5.20%9%
Mphasis3.70%9%
Tech Mahindra3.70%3%
Oil & Gas14.20%
GAIL3.20%9%
Indraprastha Gas1%21%
Reliance Industries10%20%
Healthcare6.60%
Dr Reddy's Labs3.20%2%
Lupin1.30%41%
Glenmark Pharma1.10%11%
Apollo Hospitals1%59%
Metals & Mining0
Power/Utilities4.30%
Telecom0
Others0.70%

Interestingly, while there are 23 stocks in the portfolio, the allocation prescribed is heavily skewed towards a handful of stocks -- namely Reliance Industries, HDFC Bank, ICICI Bank, Axis Bank, L&T and HCL Tech-- which make for nearly 50% of the allocation-- showing the sharp difference in the prospects of Indian companies.

In terms of sectors, the highest allocation is to companies focussed on infrastructure construction. This may be a bet on government's willingness to spend more of taxpayers' money to boost economic growth.

The zero weightage given to telecom may reflect the battered prospects of the sector amidst intense competition, piled up debt, and the imminent pressure of having to bid for 5G spectrum when the auction opens up in the coming weeks.

Some stocks like ICICI Bank and Axis Bank are expected to more than double their profits in the next couple but that is largely due to the low-base effect in the last financial, which was marred by rising bad loans and provisions. The return to normalcy may look better when compared to the performance last year.

The three IT stocks -- HCL Tech, Mphasis, and Tech Mahindra-- are expected to give the highest return on equity, above 20% each, according to the estimates in the model portfolio of stocks.

This model portfolio may give one a perspective on how to invest their surplus profitably.

SEE ALSO:
Indian companies have to forego these exemptions to enjoy the $6 billion benefit from lower taxes

Family savings in India face the threat of more interest rate cuts

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