Chugging along

Hey friends and well wishers,

 

as another month draws to a conclusion, I find myself back in the ring ready to write another monthly review of my views on markets and stocks. In a sense, I am somewhat blank with the markets now in good stream and thankfully the discovery and re-rating on several mid caps and large cap stocks.

 

Many of my friends or readers seem more than a little surprised with the market moves in the last several months. Of course they are delighted at the returns that they made but equally concerned about whether they should sell and take profits home.  Some are simply holding not because they want to sell but because they want to remain invested and cannot find alternative investing ideas. This actually constitutes a paradoxical thinking where I say I should cut food as I am or need to be on a diet but at the same time wonder what dessert I can have for dinner.

 

i also do not understand the anxiety or worry, as each may have his own. In a recent book that I was reading I came across the historical examples of differences between relative and absolute facts. 

 

Relatively our markets have have done well. We see portfolios, nifty, sensex etc rising and thus get somewhat in a sense of disbelief that this will be. Too good to be true is being assumed, even in a situation of the lowest equity allocation is history by the indian public. 

 

In absolute terms however a different picture emerges. Our markets have in fact not done as well as is assumed. In July itself, barring Russia, we were the worst performing Asian market. Russia perhaps beat us in the last runner in the race due to a rather grim political and socio economical situation, quite contrasted with the situation in india.

 

let us try and go with a simple economic fact. If we take stock as a product or good, demand has to be more than supply to cause up word price movements. Demand could come from fiis, diis, LIC, HNI’s or retail. It can also come from promoters themselves buying their own stocks. The later though increases demand side mathematics is actually a welcome sign as usually managements buy into their stocks on value and knowing better than anybody else why the value is at a discount or is mispriced relative to any external buyer. It is for this precise reason that they need to followstrict  disclosures.

 

the fiis, while have been extremely local to our country, remain at a disadvantage to domestic investors. The disadvantage emanates from the fact that the fii usually has a larger kitty of money and to make an impact on its portfolio needs to buy enough to make a mark. This concept f enough makes it rather centric on larger cap companies or mid cap cos with adequate free float. Now if a co has an available free float and is mopped up, usually the reverse also applies. That is the fii to off load needs a similar stimulus. In a market characterized by several thousands of listed companies, with most indulging in either cyclical, low margin, no moat businesses or in hands of managements that lack teeth, the choice to own is not as wide as is perceived to be by the sheer no of names of listed companies. In some reports, I have ready effectively some 200/300 companies in all categories constitute a basket to pick from.

 

let us assume that of these 200/300 cos many do not have sellers due to promoter holdings or non willing ness of sellers. That means while a co is good and should be added to an investment portfolio, it gets disqualified as a buy by the sheer liquidity in the counter unless someone offers a premium for a block. 

 

A retail investor suffers no such block. He is free to buy a good co cheap and does not have to worry on its demand supply or market capitalization in the initiation of investment stage, if a company does well, the stock gets covered in top gainers by market cap or absolute or relative returns and that usually triggers an interest of bigger buyers to meet the managements, seek blocks or QIP or similar. Conceptually this means higher demand inevitably sets in and triggers a price move.

 

In the last several days, there have been very few companies that saw supply from promoters. The noticeable exceptions could be a few companies in the private sector like a bharti infratel or companies in PSU’s where the govt is obligated to sell to meet disinvestment targets. I have not been a fan of owning psu stocks for other reasons that I learnt from some wise men. 

 

The supply in stocks has not come from fii’s as one they may not own many mid cap or small cap cos to generate enough interest to sell and do always keep moping up more and more in companies where the fii limits are opened. The fiis as a basket also have very recently upgraded india to buy or neutral and re adjusted some of their allocations to india by increasing weightage. In such a situation, it seems rather difficult to apprehend that they will sell unless cardinal issues crop up either nationally or internationally. The later is a bet with no known factors and thus more of a game of chance than skill. With no control on its probability or timing, it’s best to leave the same out. The former is a situation characterized by a new govt which is taking a slow but visible path to improving several indecisions. The bigger role is being played by the overall improving investment sentiment of corporates themselves. 

 

The retail has hardly anything to sell. 

 

With the demand and supply situation so placed, it appears that the markets are now placed to a path of discovery. Discoveries are not necessarily a function of PE in stocks but also a change of investment climate and of course of macro positions. We have a situation of fdi being allowed in defense. Today there was an announcement of fdi in railways and rail infrastructure. The govt is keen to allow fm Channels to carry news, some high ticket inquiries into psu banks etc are underway. Another set of discovery happens when confidence changes. Just before mr modi’s govt came to power there was so much talk on where the dollar would be with predictions or rs at 45 to 55. The irony of such guesses made many a few to skip buying IT companies until a TCS or infosys turned and gave better indications of order intake. Suddenly the sector reacted upwards. The same trend was seen in automobiles with rather positive management commentaries despite no change in interest rates. Tvs motors, Eicher motors, hero or even Tata motors were examples. 

 

Discovery is also made when you find a company that is low key. Lying low due to its size, media shy promoters, working hard, increasing cash flows, improving margins and expanding capacities. The first reward a promoter gets is dividend and there are companies that make a new mark on dividend announcements with fruits ranging from their first dividend to enhanced dividend payouts. Much of this comes from increased cash flows and not capitalizing of some entry or extra ordinary cash from asset sales. In such companies demand for shares remains low due to inability of people to react to their low key mature, lack of analyst coverage and shy managements not driven by a desire to be on cnbc with an eye on the ticker. Such companies also see moderate supply as many investors like momentum rather than being seated in patient corridors. Usually an investor likes to make quick gains in lesser time than being told of the possibility of far bigger gains but in a slower take off process. 

 

In identifying such ideas, one needs to also look at the size of opportunity before the company. The credentials such as education or experience of managements and sometimes a give away is the presence of a a few good customers with stricter quality norms as that endorses technological excellence of the product of the co and thus an inbuilt moat.

 

my focus currently is on identification of such companies. To identify them, buy them and hold them till the discovery of the companies reaches a level of high coverage, glamour, over zealous analysts and the kind of statistics cnbc’s web site shows by suggesting no of buy calls vs sell calls, that too of the very domestic public that is so underinvested.

 

the effort has given some clear winners. La opala, Relaxo, atul auto, Astra poly, bharat forge, Krbl, Wimplast, bata, Hindustan composites, next media, kitex, Hester bio, cera ceramics, Kajaria, ajanta pharma, auro pharma etc etc to name a few. 

I am continuing to read on many such companies. It gives me happiness to learn that my efforts have not only financially rewarded but also own over many friends and even fans who out of their sheer love and admiration keep me going. It has also brought into limelight some disbelievers. Some rather insane thinkers who ask me if I own the stock that I write here. If I know that something is good and is going up year after year why would I close my eyes to its ownership? Even otherwise if I assume I don’t have the capital to own it, the point is many scrips have done between 2x to 10 plus x in this time and how did it matter? My advise to those who fall in this camp is enjoy life. Take it easy. 

 

I also hear stories of how can I person own 40 odd companies? I am me. Every investor is different and should do what he knows best and works for him. If I can do better than the markets or other returns, how does it matter? This is like saying a guy reaches his destination first by traveling to the airport in one car, then taking a flight and then another car or taxi. How can he reach? Returns are a function of absolute facts or relative gains and not one view vs the other. 

 

I have identified some new ideas but this time decided on sharing the same only with those who were true learners, well wishers, students, critiques with opposing but constructive views, knowledge builders or sharers and of course with believers. 

 

Do wrote in your views/comments/ grudges everything except fast food take over orders. And enjoy investing as a passion as much as I do. I would respond to as many emails as I can or posts and thank you as always for the encouragement. 

 

My final standard disclosure: I am not an investment consultant or a person writing a blog to entice investments. Please consult far more qualified consultants. The views expressed in the entire blog are personal. 

 

Cheers.

 

 

 

 

Advertisements

26 thoughts on “Chugging along

  1. pramod says:

    Thanks for you up all shares recommended by you are performing well.I am taking a decision to buy a share depends on your recomendations and my study also.so thanks for your recommends and your writing.

  2. pramod says:

    Hi sir I was waiting for your blog updation with new ideas but…….

  3. Ebrahim says:

    please share your new picks with us…i m eagerly awaiting your new picks..thanx

  4. Siva says:

    Hi Safir,
    Great write up. I came to know about your blog recently and gone through all the articles and missed very good oppurtunities that came from you. Could you please let me know the stocks that i can take exposure now?
    Thanks,
    Siva

  5. aman1jan says:

    Nice chief. 

    Sent from Samsung Mobile

  6. maulik says:

    Thanks Safir, I have been just following you for a while though I have not been investing myself for various reasons. I found it very useful to learn from you. Will you please share the knowledge about the PSU companies which you have got from a wise man? Also, do share the next list so that this time I don’t miss the bus (needless to say I have to do my homework on that)… Thanks for sharing your wisdom.

  7. Manher Desai says:

    Your reading in stock market is unmatched. We all have learned and earned decent from you. Keep guiding us as all students are not same in classroom

  8. C.A. Navneet Kumar says:

    Hi Safir,
    I have been investing with some insights provided by you

    Could you please let me know the stocks that i can take exposure now/ which stocks to add/ own in the portfolio

  9. Manher Desai says:

    Dear Safirbhai, When two managements are fighting for control of the company what is the best strategy for small investor.
    Example is WENDT INDIA. Due to tussle between 3M and Murgappa company is not doing any expansion and no growth is seen for last 3 2 years
    Till issue gets resolved what as investor we should do?
    I am holding small qty in my long term portfolio

  10. anwar says:

    Hi Safir
    I am a big fan of yours and a regular follower of your tweets. I got a lot of visions and benefits from your blog and tweets. Can you share your valuable views with me.
    Thanking you
    Anwar

  11. Jagan says:

    Awesome, very insightful post…keep guiding us Safirbhai 🙂

  12. pragnesh says:

    i am just follow you from last 2 months and i am waiting for you stock updates so please share with me new stock ideas so i can take my study further in this stocks

  13. rewa6278 says:

    i am fully agree with you. i have learned a lot from you. though i have technical skill to read the company, i always prefer to listen others like you.

  14. Nishchint Sharma says:

    Safir ji

    Another insightful blog. Thanks .. in addition to sharing your pick scrips, please keep writing & sharing more on how or why to choose these scrips.. small investors are learning a lot about the process.
    Thanks & Regards 🙂

  15. Kushal Choksi says:

    HI Safir

    I am a recent follower of your blog and very impressed with your style of analysis.

    Your article below says you have identified some new ideas and rightly so don’t want to share on the blog because of some immature comments made by short terms traders and people without the knowhow/experience of capital markets.

    I would be grateful if you could share your new ideas s a response to this email.

    Thanks

  16. excellent write up … iam an ardent fan.,. please ignore any negative comments u get from others …You have an exceptional track record .

    as somebody rightly said

    When we judge or criticize another person, it says nothing about that person; it merely says something about our own need to be critical.

  17. Always enriching,frank & candid ..would like to know your process,points,criteria,financial ratio or any other thing which helps you in finding gems.By the way want to know about your latest picks as market is down and it seems good time to accumulate.Thanks.

  18. Ronak H Raichura says:

    Hello Safirji,

    I am new to your fanlist – came to know from some of the other blogs i follow… Point taken on the demand and the supply of stocks – but one has observed that it is futile to fight the markets. for e.g. today when nifty fell 1% – u do see stocks correct by 3 to 5% as well. My question to you is

    (a) How do you hedge yourself in a scenario where stocks correct simply because of the broader mkt correction.

    (b) Nifty has seen a sharp upmove from 6000 levels to 7800 on the upside and may be it is taking a breather or may be its headed down? Do you have a strategy to benefit from the downside move.

    (c) Do you have a method where you decide to completely exit equities – if so pls throw some light on the same

    Regards Ronak.

  19. Vivek Jain says:

    Its always a pleasure to read your blog to learn about different factors to consider while investing….While you write a disclaimer always, Persons like me firmly believe that you are much more loved and respected than so called “more qualified consultants” in your disclaimer

  20. Hitesh Gupta says:

    Hi Sir,
    I am following you since october 2013. I had learned many things from your blogs, what i like most is when you share new ideas then you have a strong reason to buy a stock. I respect you for the ideas i got from you till now. I ask you to share your new ideas with me so that i can do my homework on those stocks also.
    Regards
    Hitesh

  21. nina says:

    excellent in every aspect …………………………………………………

  22. peush says:

    Dear safir

    Nice to read your blogs since last about a year or so. Right now i am learning to study the numbers with deeper understandings with people like you and some other experts. I need your advice on analysis of M & M Finance. Holding since last about 5 yrs purchased at 172/- before split. It is a multibagger for me but off late reacted. you too cautioned but i did’t sell as my purchase cost is too low. I am a very long term investor and do not react easily.
    however lost some short term opportunities in this sudden market surge. No regrets as i am quite OK with 20% YOY portfolio growth.

    warm regards,

    peush

  23. Rajarshi says:

    Safir Bhai , great post as usual.I firmly concur with your view regarding buying it & pharma companies when all this $ depreciation talk was going around..the point that talks about companies with good dividend payout, along with ethical promoters/management and sustaining cash flows..Request your to kindly share the list of stocks which you hav identified..I would also do my own research and contribute in building a strong conviction..I am following you on twitter with rishi_d2003 and used to interact with you in valuepickr and twitter.
    Regards,
    Rajarshi

  24. pruthvi says:

    what is your view on force motors.
    Can it become another eicher?
    Is it worth investment at CMP?

  25. deep275 says:

    looking for your new picks

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: