Reshuffle portfolios every 5 years for big return

Mumbai: While equities are considered to be a long-term wealth maximising asset class, a new study has shown that investors will be able to generate superlative profits in the long run only if they keep reshuffling their portfolio at frequent intervals.

A study done by Centrum Wealth on the performance of various stocks over a period of 20 years revealed that stocks, which have given spectacular returns in a specific 5-year period, have failed to maintain their performance over the subsequent 5-year period.

This trend was more visible in cyclical or seasonal sectors as the euphoria gradually fades with investors finding something more lucrative to bet on.

“Everyone gets a fair chance at the stock market. What goes up may not stay there forever and what is at the bottom may not struggle forever. “The stars of yesteryear usually do give up their sheen and make way for rising stars,” said Sweta Chawla and Siddhartha Khemka of Centrum Wealth Research adding that the number of consistent outperformers over the entire 20-year period is very small.

The shares of Infosys, which gave a 4,137 per cent return in 1996-2001, cooled off to 250 per cent in 01-06, 95 per cent in 06-11 and eventually 76 per cent in the 11-16 period.

Similarly realty major Unitech, which was the top performer of 2001-2006 with a whopping 49,254 per cent gain, collapsed 72 per cent in the subsequent 5 year period.

Aban Offshore, BEML, Gujarat Flurochemicals and Vedanta, the top performers from the 2001-2006 period suffered the same fate. However, the study also revealed that consistent performers have never given outsized return or under-performed sharply.  

Stocks, which gave returns in the range of 100-500 per cent turned out to be more consistent in the subsequent 5-year periods too. For instance, Sun Pharma, which was up 492 per cent during 1996-2001, gave a 525 per cent return in 2001-2006, 264 per cent in 2006-2011 and 144 per cent in 2011-2016.
Similarly, Asian Paints, which was up 306 per cent in 2001-2006, was up 515 per cent in 2006-2011 and 217 per cent in 2011-2016.

Sectors like pharma, financials, consumer, auto and auto ancillary stories have largely remained consistent performers year after year. However, the study observed that they have neither given out-sized returns in any period nor have they seen sharp under-performance in any period.