Top Stocks in Amit Shah's Portfolio

Recently, Home Minister Amit Shah filed his nomination papers for the 2024 Indian General Elections from Gandhinagar, Gujarat. In his affidavit before the Election Commission, he disclosed that he owns shares in about 180 companies.

This news became popular on social media soon enough. This is understandable. Many consider Amit Shah to be the second most powerful politician in the country behind only PM Narendra Modi himself.

A look at the full list of stocks and the specific investments made in them, reveals some interesting points. We'll cover them in the article and also cover some of his biggest holdings.

As per Fortune India, Amit Shah's portfolio comprises of 181 stocks with a value of Rs 174.3 million (m). His wife, Sonal Shah, also has investments in 79 stocks valued at Rs 200 m.

This would imply that both portfolios are highly diversified. However, there's more to it.

However, his top 5 holdings comprise about a third of his portfolio. These are the stocks: HUL, MRF, Colgate-Palmolive, P&G Hygiene and Healthcare, and ABB ltd. There is a clear tilt towards consumer staples here (i.e. FMCG stocks).

These companies have rock solid fundamentals and more importantly, they have pricing power. This companies can pass through increases in their raw material costs to consumers by increasing the prices of their products. This, in times of high inflation these are the companies that will continue to prosper.

On the other hand, Sonal Shah's top 5 holdings are more diverse: Canara Bank, Karur Vysya Bank, Gujarat Fluorochemicals, Lakshmi Machine Works, and Bharti Airtel.

Is Wide Diversification a Good Strategy?

The answer is both yes and no.

It's a good strategy to reduce risk. As long as you stick to fundamentally strong stocks adding more stocks to your portfolio is unlikely to be detrimental.

Also, in this case a large chuck of the portfolio is concentrated in a few stocks. Thus, it's not an equally diversified portfolio. There is a bias towards some sectors, industrials and consumer staples are clear standouts here.

This kind of concentration within diversified portfolios is not unusual. This approach provides the best of both worlds, concentration as well diversification. Many fund managers and HNWIs invest in this way in the stock market.

In fact, the great Peter Lynch, the famous mutual fund manager, used this strategy to great effect. He would focus a large part of his fund's corpus into a few stocks and put the remaining amount into more than 100 other stocks.

Now let's look at some of these stocks in more depth...

#1 HUL

Hindustan Unilever (HUL) is one of India's top FMCG companies.

The company has a diverse product portfolio including soaps and detergents, personal care products, and food and beverages.

The company's revenue grew 3% during the first nine months of the financial year through to December, down from 17% growth in the year-ago period. The net profit grew 4% to Rs 77 billion (bn) for the nine months ending December, compared to 14% growth in the year-ago period.

The consumer goods maker, meanwhile, spent Rs 48 bn on advertising and promotional costs in the April to December period, up from Rs 36 bn during the same time last financial year.

The company has long benefited from its entrenched on-the-ground supply chain that can fill up shelves at mom-and-pop stores, as well as supermarkets across the country.

However, the company is struggling to offer new premium products that create a market buzz. As its new-age competitors leverage targeted marketing strategies, including collaborations with social media influencers to promote their brands, HUL finds itself lagging in this aspect.

While over 80% of the company's product lines show either growth or sustained brand recognition, the pressure to maintain its dominant position in the Indian market remains formidable.

On the positive side, its premium beauty business unit established three years ago, demonstrated promise by generating over a billion rupees in annual recurring revenue.

For more details, check out HUL's factsheet and quarterly results.

#2 MRF

MRF is a market leader in the domestic tyre industry. It's the largest tyre manufacturing company in the country, with about 29% of the industry share.

The company manufactures tyres and has an established presence in all sub-segments, including two-wheeler, trucks and buses, passenger cars and jeeps, small commercial vehicles (SCVs) and light commercial vehicles (LCVs), farm, off-the-road (OTR) and aviation.

The company has a wide product portfolio and plans to expand it further through new product launches. It also manufactures sports goods, paints and coats, retreads, puzzles, games, and toys for kids through its brand Funskool.

The company has ten manufacturing facilities in India, producing over 74.5 million (m) tyres and 47.6 m tubes. It also has a well-established distribution network of more than 5,000 dealers and distributors across the country.

MRF also exports to several countries, including Bangladesh, the Philippines, Indonesia, the African continent, and the Middle East. It also plans to increase its exports by tapping new markets. It plans to invest around Rs 10-15 bn for this purpose, which it plans to fund entirely through internal accruals.

The company also pays consistent dividends to shareholders. Going forward, new product launches and expansion into new markets will drive its revenue and profit growth in the medium term.

Last year, the company's share price crossed Rs 100,000 per share and it became India's most expensive stock.

For more details, check out MRF's factsheet and quarterly results.

#3 Bharti Airtel

Bharti Airtel Limited is an Indian multinational telecommunications services corporation. It's India's second-largest network operator.

The company operates in four strategic business units mobile, telemedia, enterprise, and digital TV.

It offers an integrated suite of telecom solutions to its enterprise customers with long-distance connectivity, nationally and internationally. The company also offers Digital TV and IPTV Services.

The company also deploys, owns, and manages the passive infrastructure of telecom operations under its subsidiary Bharti Infratel.

Bharti Airtel has said that it will procure 23,000 MWh of renewable energy for its data centre subsidiary, Nxtra, by the fourth quarter of the FY 2023-24, to reduce its carbon footprint.

It will invest in renewable energy projects developed by Continuum Green India and Vibrant Energy Holdings Pte., which will supply power to six of Nxtra's Edge data centre facilities.

As India's digital economy expands to US$ 1 trillion by 2030, driven by telecom companies, to a large extent, Bharti Airtel is likely to emerge as a big winner.

The Sunil Bharti Mittal-led telecom company has the potential to ride the digital growth as it can bring much-needed investments for network expansion and enhancing coverage.

India's telecom market is gradually transforming into a duopoly, with Bharti Airtel and Reliance Jio as dominant players while other companies struggle financially or undergo mergers.

The market anticipates that Bharti Airtel will achieve an average revenue per user (ARPU) of Rs 257 by FY26. This implies a tariff increase of 20% and a 2% gain in market share, reaching 38% by 2026.

Going forward, Bharti Airtel sets to consolidate its position further. This includes expanding its offerings in 5G technology, digital services, as well as its customer base.

For more details, check out Bharti Airtel's factsheet and quarterly results.

#4 Gujarat Fluorochemicals

Gujarat Fluorochemicals is a part of the Inox group of companies and produces a wide range of chemicals to serve a variety of sectors.

Its chemical facility in Dahej, Gujarat, includes a caustic soda/chlorine plant, a chloromethane facility, and a captive power plant with a combined coal and gas capacity of around 90 megawatts. With cutting-edge plants in Dahej, Gujarat, it's also India's largest manufacturer of PTFE polymer.

Through INOX Leisure, it also runs a multiplex business. The company is further active in the global energy market through its subsidiary INOX Wind. Going forward, the company expects the business environment to pick up and normalise by the end of FY24.

Gujarat Fluorochemicals revenue has grown at a CAGR of 30% in the last three years, while net profit has grown at a CAGR of 87%. Besides this, the company has healthy return ratios with RoE and RoCE at 27.1% and 29.6%, respectively. Its debt-to-equity ratio also stands low at 0.27x.

In the long term, the strong focus of the governments on green hydrogen and hydrogen fuel cells is expected to boost the demand of PTFE and other fluoro-polymers.

Apart from this, the market for fluoropolymers is projected to grow with increasing demand for oil and gas, water treatment, electric appliances, electronics, healthcare, and chemicals as drivers of growth for the short term and medium term.

For more details, check out Gujarat Fluorochemicals' factsheet and quarterly results.

Happy investing.

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