Category Archives: Uncategorized

A huge change

dear readers,

i avoided giving a fancy title as when you feel huge by a thought 💭 you don’t need to overcoat it.

on friday, india unleashed what I think is perhaps the biggest single day reform in several decades.

It is not just about the tax cuts, it signals a clear breakdown of the dark clouds surrounding a belief that the govt won’t do anything to boost corporates and is focused only on one segment of India which is the rural market.

while people debate on the impact of the tax cut in terms of fiscal deficit and govt spending, history bears testimony to the fact that countries have seen huge growth in profits and have unleashed huge capex through revival of animal spirits. Usa 🇺🇸 saw its biggest rally recently on a similar move. In fact far from monetary easing this is an extremely prudent and progressive move by the finance minister and well worth it.

the move has a huge impact on many fronts. Most leading banks now see a surge in profitability and hence with impending rate cuts would be able to benefit by passing more benefits to consumers, in a recent interview, Mr Aditya puri, signalled good times and hinted at giving customers more benefits by cash back, discounts from manufacturers. With more profits, he as a proxy to private banks can stimulate more discounted deals and not impact his profits. We all know Indian consumer loves discounts (except in the stock markets where he behaves without similar rationality).

the much plagued auto sector is in for a bonanza. While history suggests autos go through such cycles, the immediate impact of this move is auto plants being set up now will attract 15 pct taxes in perpetuity. In basic economics there is a concept of economies of scale and in marketing the power to attract and pass benefits with more in pockets. I am not a believer that better deals and discounts from autos will not address their problems. Already there profitability even at 22 pct is significantly better than one day before. Many cos are resorting to interesting models based on literal lease of vehicles rather than outright buy and from what I hear from few companies the response is encouraging.

the govt move also signals a friendly approach to capital markets. In case you missed it, please go through the opening statements made by FM where markets were addressed. Even in terms of tweaking surcharge not to apply for capital gains where stt is paid there was a look in. This Is perhaps the first salvo by the govt to get capital market friendly and thus a mindset change. A good capital market feel can be a huge catalyst to both attract investments, retain preference for equity over other investment classes, capital raising by listed and yet to be listed companies and to trigger better realisations in disinvestment, an area of concern for the govt. in addition, by doing nothing more than the announcement, on a status quo  basis, the pe of the market has been reduced by a whopping 13 odd percent.

the govt move is also likely to attract huge fdi. There are many plus points here. One is fdi merely by consistency. A lower codified tax structure brings in certainty of a rate that was missing. The lower rate adds competitiveness to production and hence changes the blueprints of returns on that. All this in an environment when leading companies in the world, particularly USA based companies are re considering china. As we speak, our PM is in USA and there is a further possibility that India 🇮🇳 will strike a deal with USA 🇺🇸 as it appears to be placed well to becoming the next big manufacturing base for Asia.

india is a highly inter connected country. Solving one problem such as liquidity for one participant solves problems for many. On Friday, we saw a whopping newly rs 2 billion inflow into a private bank. Ease of liquidity is a big positive as it fuels a lot on the side of both consumption and capital expenditure. Liquidity is itself a function of mood. If I feel good about my future, I spend more or invest more. If I feel worried, I hold back all decisions. In recent months we saw a lot of holding back. Even when consumption benefits, it places a lot of orders to expand production, distribution, ad campaigns,  outsourcing and employment.

i don’t think it was debated that the slowdown in India was temporary. Even the biggest pessimist spoke of few quarters of impact till things resolved. What the govt has done is to fast forward India to a state there the few months have been reduced. India saw a few upgrades on Friday post closing itself and could well see more.

One should also not ignore that when investments are made they are made with the mindset of a friendly environment. No one cares is not a temperament to invest either for businesses, institutions or individuals. The addressing of we may not be perceived to care to we surely care is perhaps one of the biggest catalyst for a better India.

I don’t personally think the market move on Friday was a surprise, a one off or as some call it short covering. I feel the months ahead will be positive, promising, exciting. It’s again a great time to over weight equity. I will be surprised if in the next few months the rally doesn’t broad base. About 65 pct of the nifty gains came from a handful of stocks. Like I said india is too interconnected through consumption. India bounced back to consume post demonetisation and surely will bounce back soon post this Great reform.

the best part is this is just the beginning. An attitude change never stops at the first reform. I think we have finally unleashed a new INDIA.

Disc- view is personal. Am not a Sebi Regd advisor. Pl seek the views of your advisor and do things commensurate to your risk profile and temperament. No spell check done. Views are most welcome.

 

 

 

 

Advertisements

Mid overs

Dear Friends,

its been a long time since I interacted through the blog, though I have continuously interacted on twitter and wherever I spoke at conferences. Much of the lower interaction has been to do with the state of the markets, the run up to elections prior to May which often leads to policy freeze, the lack of an annual budget till July all of which impact both sentiment and corporate action. Much of the corporate sector has been in a no man’s land and there has been a stress in terms of liquidity , eveident most in declining auto sales and credit outflow. To add to that the stress of ILFS, Anil Ambani companies, Dewan housing, Jet airways, aggressive write offs by Yes bank (more in line with what they should have done for some years per RBI), a now overvalued consumer sector in valuations, a one sided 12 odd scrip rally in the likes of TCS, HDFC BANK, KOTAK BANK, RELIANCE, INFOSYS, HINDUSTAN UNILEVER etc and nothing great across most of corporate INDIA has stressed markets.

Indeed most companies are way off their lows, with a fall of anywhere between 40-70 percent across many companies, particularly in mid and small caps. The results of corporate INDIA have been in a state of 5 years of subdued or inadequate growth and much of the nifty earning growth has come from superficial earning caused by less than historic write off of NPA by the likes of state bank, axis bank, Icici bank. Software and consumer have been sectors that have shown growth but even there there is a biopolar makrnet with large IT shining, mid and small IT struggling (barring few exceptions) and in counsumer too there are both winners and losers.

 

chemicals too have been a biopolar sector contrary to the illusion of outperformance. On one side there have been companies like atul limited and srf that shone on specialised chemicals and move away from general with a china support while many fancied chemical stocks are also at new lows. Many of the heroes of the mid cap bull market are sitting in a state of sentimental sulk with an indecisive bet on what lies ahead.

same story across footwear (2 leaders many losers), cement, hotels (eih, Indian hotels have marginally outperformed , rest have been bullied).

I have not seen such disparity in the market in many years. Some of it seems justified in premium with so many skeletons coming from some companies, including in terms of governance specially in small caps. But all of it is surely not justified. At least to me.

we are over several excesses. Including in the 2016-2017 barrage of multibagger chases, investor conferences, paid advisories giving recos on unheard of companies, social media and tv going all out on pushing companies and a state of over confidence and get rich easy.

this has reflected in more sanguine valuations, clean up on governance, hiccups of gst and demon setting in. Fear seems to be paramount in market now and the premium for the best ha she come too severe. No one wants to buy anything but 12 odd companies quite reflected in a overdo of their ownership across several mutual funds and portfolios.

it has become more fashionable to sell outs and short stocks than to search for basics- cash flows, business longetivity and most importantly valuations. Indeed, many companies with no debt or pledge and decent cash flows are also being punished in this tired state of the markets.

this is a good time to reflect on mistakes. Both of omission and commission. It doesn’t matter where your stock hasn’t fallen what matters is whether it is priced cheap relative to its potential. Price anchoring is a mistake to avoid and value mapping is a screen to adopt. It is impossible to believe that Indian markets will be lead by 12 scrips or that other companies will not have the zeal to come out of this stagnant growth phase.

There is a huge role that needs to be played by the government. It has come to power with absolute majority and a claim of benefit to all. It is a bet to make that no govt in the world can ever ignore corporate profits and economic growth. Already deliberations have started to kick start the economy and while I won’t bet on time, I will bet it’s impossible that after 5 years too growth will elude india.

I have read two interesting pieces in the papers today. One by Uday Kotak who says the nbfc liquidity is not a permanent risk and the second by S naren of Icici who says the market Fears are greater than the substance of the problem. Earlier Aditya puri of Hdfc bank has echoed the same views and Nirmal Jain and Mr shah of edelweiss have also asserted that.

To me it appears that there has been a showdown but also a sentiment burn out. What started from over valuation and exuberance and was messed up with reclassification of holdings post Sebi directives has lead to too much of energy loss and belief in most parts of the markets.

Bruised portfolios don’t have the confidence to do what they should-buy when there is pessimism and disbelief. The Indian economy is not shutting down and even against govt grows sheer,y driven by a huge consuming and saving population. We haVe some rock star companies with decades of growth and no where d,one to saturation of market shares.

the best thing to do is to keep at your sip. If you do direct equity, nibble now at many mid caps (I prefer them over unknown small caps), look for history of wealth creation and valid too crowded trades both on the buy and sell side.

these are mid overs after a buoyant start, loss of wickets but of a champion team called corporate INDIA.

more to follow.

cheers

disc- not Sebi registered. Views are personal.

 

The year in perspective Part 2

Hi,

making the most of a light period at work and just before I take my winter break, here’s part 2.

rarely do you have a year in the market when you feel bad about stock corrections but good about he impact that could have brought to your way ahead. Corrections are a friend of an investor and afford some rare opportunities when you are able to assess things at attractive prices big outside i.e. In the market and within your own portfolio. There are two currencies that work for me.

One is infusion of fresh money and the other if you don’t have fresh money to infuse is using existing stocks as currency to buy what you perceive as better.

today mr porinju, a fund manager in mid and small caps posted if you are an investor in mid or small caps and they correct you should not change course. He equated his example to a local train ticket vs a rajdhani. My own assessment and with due respect is anyone will go for a rajdhani is the ticket of the train falls in line. In other words, value is a guiding factor not price. Hence the debate on a large or mid or small cap is meaningless in isolation to potential gains.

of course it is possible that a small or mid cap does better than a large cap and so is vice versa as 2018 demonstrated. While I continue personally to be a mid cap investor I won’t shy from buying beaten down large caps if I feel the growth will compensate for my purchase.

this example is best explained by the recent trillion dollar market cap of Apple and by Bezos becoming he world’s richest man. Who wouldn’t like to own Apple, Amazon or Disney if the price is attractive to growth.

2018 has given us lots of time to strengthen the portfolio. When you have benefit of several quarters of time to assess the results of comonaies with no price upmove, the ability to phase out and keep adding is at its best. It’s like picking mangoes from a tree at leesure with no fear of missing the right ones in a sense of rush.

periods of downturn are also interesting to observe what managements of companies do to keep their competitive advantage alive, in a sense a moat is truly tested in such environment together with management competence vs in bouyancy when the wave carries all to the shores.

a lot of money in 2018 was accordingly made in highest quality managements in the organized sector that used their skills to the best to adjust for demon, GST, inventory, packaging to deliver more at same cost (economies of scale), buy outs (depressed stock prices) or acquisitions of cheaper assets. Or capex. Many of them should be better placed to ride 2019.

i think there is a lot of adaptation also at work. Cos like Abb took to automation in a big way, while others organized retail network to enhance distribution efficiencies. There were cos like motherson that worked to reduce client dependency, geographical dependency and product dependency to move towards a better future. Many cos increased client satisfaction and others like Bata and Britannia moved up value chain by enhanced product offerings.

I think india has some really smart entrepreneurs who can drive cos to a larger scale. Oyo, Ola were examples from the unlisted space and there are many in the listed space too.

investing is always a journey and pit stops are necessary to keep the car in the race.

 

more to follow….

 

ps: no spell check, article authored in a state of mobility. Not a professional advisor, views are personal. (So is my dream of returns). Co names are illustrative and not advisory. I may or may not own the cos named from time to time.

Cheers

The year in perspective

hello friends,

as we move towards a new year and the customary new year resolutions start making their way atleast in mind, it pays to look back and learn from what 2018 was meant to teach us. While it is true that life is lived by looking ahead, the past carries good learnings.

in a fantastic book called Atomic Habits, James Clear makes a case for small incremental changes being a huge catalyst in big change. James illustrates that a 1 pct improvement every day can add to 37x improvement in a year while a 1 pct fallback every day can end a person at zero by the year end. Compound interest at play.

malcolm gladwell had made a case for a diff between bravery and courage. Courage is inherent and bravery in inculcated with experience, sometimes of fear.

James Clear also speaks about how to make a change impactful  one should examine Outcome, process and Identity. He emphasizes that when someone assumes an identity to work towards, the results are atomic.

2018 was characterized with a greater onsite of disruptive innovation. FAANG continued to lead in this but were characterized with a lot of yearly volatility for their investors. 2018 also saw unprecedented and perhaps explained valuation surge for many unlisted cos with some valuations surging by billions of US $.

Within this universe of surges and volatility, global markets, oil, currencies and of course stocks saw one of the most volatile years in recent times. The story in india was no different. We started 2018 on a high and soon there was a melt down in mid and small caps all across. While it seemed large cap was immune, the fact was very selective large caps showed immunity while most met a fate similar to small and mid caps.

the index does not reflect the true picture of markets where investors found their portfolio returns on the negative. Some survived as they always do while others relatively newer to markets wound up with losses and a good bye to markets. Overlooking the cardinal rule of history that markets do well over time and that volatility and ups and downs are inherent to the process of wealth creation. This is where the analogy to bravery and courage sets in with a debate- is being brave smart? Just as being brave needs you to know something that the opponent may not know- whether about your own strength or some game plan- investing is about looking ahead and being comfortable with capital, patience, temperament and balancing expectation.

When we started 2018, some of us had moderate to low expectation of returns from the market, essentially more to do with excellent returns in 2016 and 2017.

to that extent the reaction of the market didn’t disappoint as much as it could have with much higher expectations. Having said that, one needs to understand the difference between losing money and a drawdown in the portfolio.

One deals with a permanent loss of capital while one is like stocking an inventory where today there may be no buyers at appropriate prices but tomorrow holds a promise of higher prices. Looking at such inventory of stocks in your virtual shop one should also examine if the stocks themselves have limited shelf life being from a dec,inning industry or trend or something that has a longer shelf life.

low capital had enabled many small and mid cap cos to grow faster either by capex or acquisitions and there small increments in orders or margins (cost of borrowing vs return on capital) caused better and faster returns. With oil at the lower mark in 2017 input costs were als favorable. The environment of under ownership in 2016/17 also aided. If you see the past few years any announcement of a large buyer of equity in any mid or small cap would inevitably cause a price surge but no value change. Things changed later particularly when liquidity dried up and cost of borrowing increased. In the first case, large buyers found themselves struggling with liquidity to exit pressing down many scrips while in the later category, the profitability was impacted. GST also brought some issues with benchmarking performance particularly with some issues on inventory management and input credits. Thankfully GST is now more set into the system and most of the transition issues could be done with.

 

what I particularly liked about 2018 was the crowds got most of it wrong. I am not saying I wasn’t part for crowd at times but market displayed a wisdom against initial votes. Being contrarian paid in 2018 better than in earlier years.

pharma, one of the most hated sectors in 2017 saw a smart return. You either made money on pharma stocks or in true sense they played defensive to any major portfolio erosion and brought in stability with reasonable returns. I personally think most of the USFDA issues have strengthened a lot of our pharma cos. Some of them have interested R&D in the pipeline and are towards the end of a dark time wise tunnel of spending and moving towards the light of monetization. I personally feel, capital has been invested and gestation is ending and returns should follow in many R&D initiatives. I also think the domestic market will grow faster with an onset of several health issues particularly triggered by lifestyle and air and water borne contamination and newer viruses. The organization  of pharma through better channels will also favorably impact sales and profits and if counterfeiting is tackled as a consequence, the profit surge can be huge in years ahead.

 

another sector that stood out in 2018 and about which I had written in Twitter several times was consumption. The impact of move to organized from unorganized post GST played out well. Recent announcements of consolidation in the sector as displayed by leading maganements either through buy backs or brand acquisition or development of better networks should keep the sector efficient while volume pick up with better capital allocation and economies of scale should support the profitability. Valuations however have caught up well and keeping growth high is now pegged vs stock market expectation as reflected in their market caps.

 

finance a much talked about sector in 2018 continued to shine. Private banks are near highs and most made highs in 2018 and continued to outperform market. In between a controversy of liquidity gave a phenomenal opportunity to own some of india’s best positioned consumer nbfcs. Thus even in a year of declining returns, opportunity to buy good stocks in panic has paid well and added some cheer to the portfolios. The analogy is akin to what in my view will happen to many established cos in the mid cap sector. I am not so sure still about small caps as I personally feel many were “marketed” as “multibaggers” with no real moats or dynamic managements or business models. Exhuberance here has paid a price.

there will be a huge change in the use of technology, safety in vehicles. The majors are well versed with this and many are on path to making due changes. Some of these by immision norms, some by safety, some by technology and iOT, automatic and  robotics and some by pure luxury. Meanwhile the sector is beaten out and has a good history of being more of a consumption theme with time. Many cos in the sector are now also defensive with excellent dividend payouts and to me look as good to seriously look at.

I was happy to get mid IT right as an investment theme in 2018 and almost all ideas in that sector outperformed handsomely. I did get large IT wrong but I take that as a good learning that one should always cast a wider outlook even against initial apprehensions unless apprehensions start proving correct.

Infra has been one of the worst themes to invest in from a stock market perspective and nothing changed there. Thankfully was isolated from that sector barring a goofed up investment in some steel pipe and valued added metal products that cater to infra. Priced paid.

Telecom continued its struggle with spectrum and nothing is still looking up there. In fact prices could still get cheaper with more services being offered at the same basket.

there was huge volatility even in the mood of investors. 2018 started on a buoyant note then came lots of fear and finally disinterest has set in. This was reflected in many ways:

1. Some TV channels moved from ideas to day trading and anchors claimed victories even in 1-2 percent moves;

2. Investment blogs saw extended subscriptions or non renewals

3. Investor meets reduced and where a fee was charged turnout was more for trading and how to recoup loss and not make mistakes than invest

4. Stock recos by broking houses saw moderate price targets

5. Influential fund managers in mid caps and small caps lost their charm to impact stocks to circuits by naming them on TV or media

6. Twitter saw more Buffett and munger quotes from the same investors who had multi bagger ideas in 2017. Some even turned more philosophical about life

7. There was lesser interest in all blogs on investing, characterized by tiredness of markets and waiting

8. Every stock with negative news was punished with a tag on governance fitted in. Nbfc were recent examples.

As we move into 2019, to me it appears that the Economy is transmitting well from a demon and GST impact towards a more organized, better governed, more transparent economy. If the govt bites the bullet to rationalize GSt rates and keeps up with its stand not to subsidize the economy but improve its value add, 2019 could end up as a good year for business, economy and hence markets. I don’t think US is headed to any recession and feel trade war will too be settled soon with some balancing.

 

In my next blog post will update on a few positives for companies/sectors/market.

Cheers.

Caveat: not an advisor, not Sebi registered. Opinion is personal and could be wrong.

 

 

 

Happy Diwali -the first thoughts

dear friends,

what a year 2018 has been for investing. Starting with an upsurge where investing was just about buying anything and seeing it go up to the current state in October when:

a) you have more predictions on nifty levels on the downside than upside

b) your broker is stunned that you have a buy order and his first sentence is we will need the payment today as our terminals have huge pressure (this situation is better now than it was in September)

c) investors celebrate both the closure of the market at 3.30 and all holidays

d) you love stocks in your portfolio that fell the least not those that had highest potential

e) you find solace in the fact that hardly anything has been spared beyond large IT, pharma and consumer and thus as a rare first investor returns are more or less aligned to a substantial melt down

f) whatsapp groups (I am on none) only talk of negatives and social media investors turn philosophical with endless quotes of Buffett, Graham, Howard Marks.

g) there is endless fascination with nbfc fall and business models overlooking that beyond a dewan housing almost all others have fallen in line with mid and small caps where they belong

h) the same sectors that looked bad in January look like the most delightful ice cream sundaes. I remember how I was trolled in dec 2017 and January for recommending pharma and mid IT

i) there is greater belief in selling before the next seller and least conviction in buying particularly in mid and small caps

j) a leading tv channel finds more viewership in getting only technical analyst and day predictions than making any case for value investing

k) your broker instead of telling you what looks good through research of his broking house wants you to tell him how the market looks and himself has lost all sense

l) there is least interest in magazines and broking house coverage of Diwali dhamakas Patakas or picks

m) the fortune of investing is now only taken to be dollar, crude and fii activity

n) it is already assumed that elections could be rough and would impact markets

o) the most credible business leaders are not in focus while investing contrary to several notions that quality of management is one of the critical guiding factors in investing. Any promoter speaking well of his company is equally being doubted

p) At a recent investor carnival, there was more interest in trading momentum and short term than what I thought was the very purpose of the carnival with some long term investor speakers even opting out

 

if I notionally step out of this gloom debate above and try and think what positives could there be to attract investing I think I get my answers in simplicity. Most gloom is usually in prices and the same scrips that looked like revered jewels 💎 in July or earlier now look like touch me not.

i think 💭 another leading fact is all is being tainted (not painted) alike.

Yet history goes against being overtly negative. Distress times make assets cheap and smarter money pops in to make better gains. Historically currency 💴 depreciations of the magnitude of 15 percent odd have been followed with huge rallies in succeeding year as scrips become cheap not only in price terms but also currency terms.

there are many positives that are bound to play out sooner than later. Many banks have seen stability or reduction in npa, defaulters are selectively coming back to back and the recent example of Essar would in by assessment be just one example of many to follow. I personally think it is impossible that the nbfc shakeout doesn’t create very strong nbfc leaders who gain from the weaker players- the sector is critical to SME, MSME and post demonetization is a liquid for the economy. Bank head said themselves say there are no npa’ with nbfc and the function in an efficient model to break a large chunk of capital into smaller parts to cater to funding utilities that banks cannot micro manage. Even otherwise nbfc are themselves the largest customers of banks. I find it impossible to believe that aspirations of people to own 🏡 houses, 🚗 cars, motorcycles 🏍 or to buy clothes will be reduced as if the entire earning power of 🇮🇳 india will come to a stand still. Recent commentaries from many leaders indicates that the current impasse in the economy is better than demonitization and things should get back soon.

i recall in December I think it was 26th post demonization on 9th November I had visited malls instead of my annual winter break and tweeted things were looking up. I personally took the call to invest more and go against the fears. Needless to say the rewards were much to my satisfaction. What followed thereafter was a huge rally and all of demonization worries were buried. The search went from choking economy to digital economy and several companies that catered to it. PayTM was one unlisted example that excelled in this. Slowly the momentum spread like butter on a hot toast to other sectors and india was looked upon as a huge growth story. Senses and nifty targets flew in and every person in town had a success story to say in his portfolio. It was believed across social media and investor conferences that multi baggers are routine things and anything less is not worthy. No wonder excesses cropped in till they were against reset with GST. 

Again post GST and a reset in market, the debate started and I too was a believer- buy organized sector and sell others. The play caught momentum and soon was a to be taken for granted story.

Suddenly nothing is being believed. Even giants in paint 🎨 sector that have record of giving you more than market gains even if you bought them at highs every year are disbelieved. As if we won’t paint our homes, cars will come paint less or when dented will remain so, white goods will no longer be painted- I think ppl think even white is not a color 🙃

There will be no home improvement, RERA is a fantastic progression and should see the noticeable credible builders excel. I think the confidence of end users in apartments or homes will rise if defaults come down and much of this will inure to benefit companies that cater to this. I personally feel real estate prices may not rise like the past given speculation was largely led by accumulation with low initial payments and a cash led grey market.

such is the mood or sentiment that even when say a Christian Lagarde says currency wars “could” slowdown global growth and india stands apart, the same “could” is taken as “should”. Corporate America is going through one of its highest growths and I do not believe the US will end up as an isolated country with no trading partners. While the USA market may cool off given yields money is something that always flows in pursuit of opportunities. Some will go to emerging markets which have been under weight for a while, some in private equity- I see more of flipkart, paytm kind of deals happening, some in acquisitions- don’t forget in GDP india is a high growth country and much of india’s assets have become cheap just by currency and liquidity pangs. News of acquisitions has a reset mechanism for the companies in the sector concerned. One should not lose sight that Indians have lost the opportunity to own fantastic businesses like paytm, ola, flipkart and have allowed the opportunity to go to foreign ownership. Fair enough. Every asset will find some buyers.

at a personal level ask yourself do you really think you can’t make 💰 money owning stocks and see your own history. Where was the return the best? In times of investing in drawdowns. Almost everything is on sale and there’s is hardly any reported promoter selling. In fact many companies are doing capex even now and open t acquiring assets.

I will not be concluding this write up on such a sober thought process given we are entering festivities. Pl treat this as part 1 of my write up.

part 2 will follow close to Diwali.

Regards.

 

(no spell check done. Not an investor advisor. Views are personal)

 

Monsoon and its thoughts on investing

As I look out of the window,  a beautiful gush of rain passes. Water is literally awakening to its moment of fun as nature welcomes the joy of abundance, change, freshness with bright blushes of green.  The air turns crispy with an aura of freshness, as if Delhi had no polluted past. With this sudden change, there is that sudden desire to have a freshly brewed cup of  for aromatic spicy tea.

As the rain continues, the rain and the green effect draw constant pause. My clear window looks like a work of art inviting me to think along with it.

Its wonderful that management gurus talk of Blue oceans and Blue sky strategies. The effect is akin to that witnessed by Street kids Who innocently play along just making the most of the moment.  All of the heat and dust and air masks and pollution have been forgotten and we breathe as if another upswing has come.

Is life in the financial markets a series of dust and pain? Followed by moments of changing seasons, each with its uniqueness.

The last few months have been quite off for markets. Partly due to some average to poor to even confusing inventory, raw material impacted results (dust) as corporate india still reaches out for capex pick up, export incentives, tax reliefs, ease of liquidity and benefits beyond rural necessities  etc. And partly due to exhuberance across many mid, small caps and even some pockets of large caps and including in metal infra and cement stocks, (heat). Some of the dust was almost sure but got masked in hope theory particularly in psu banks where the write offs got more severe. Thankfully the largest psu bank is itself showing more positive now than negative.

As the storm kept up, every now and then one could see cracks, damages or wreckages. this is where history of returns and temperament truly matter. If you have made even a 2x return in market (which is what any average investor would have surely made in the last 1-2 or even 3 years) and you get knocked down 20-25 percent,  it is only expected. I would think some of this was also due to excessive liquidity sucked up on the basis of “assured returns” not neccessarily the job of fund managers but marketeers who have incentive or other commissions.  Frankly their only senses of good and bad is how a fund has delivered in the last month or two and who could promptly advise you to keep switching if the trend changed,

the fall or correction as I would call it also has its other side You. Do you have the financial capability to bear the storm knowing it will pass and that you constructed a house well with your savings and will be able to plough funds for necessary repairs or even replacements. Or is your investment so stretched that given an impact, you wouldn’t know what to repair.

I will add to the factor of dust and heat, the sudden factor of governance, flagged off by auditors including in companies audited by them for multiple years, As a proposal to the Ministry of Law and Sebi I think an auditor should not be allowed to resign and hand over till the grounds are shared with the shareholders.

just as a sneeze catches on, seems india is sneezing to several fears of governance. Some founded, most just being used as an excuse to tame down excesses.

The retain investor sits in this muddle, confused. Some have given up on buying once again and as history repeats taking the market as a gambler’s den. Yet the market sits with its own partner in history to suggest how it has created unparalleled wealth for a person who found a good company, added his positions over time with the co’s growth and sometimes even played the role of an opportunist who even once in his life heard “buy when others are needy (sell when they are greedy).

I studied in this rain, the statistics of my blog posts. My posts early this year on why market returns could be moderate had the least likes. My take on buying consumption stories due to the positives of gst or pharma were most passé. I was told when large IT was underperforming how cna mid IT do well, The guy suffers from a bias of his position. Btw any opinion in this world is biased including well being from a parent or your perfect lover. Also max money is made when consensus is against not for.

So what have we now.

we have crossed a phase of corporate scares, inventory adjustments and reached a reason not to own companies as dollar to rs has surged and fiis will sell. Or trade wars will hit india. Wait a second, fiis still own the best selling banks and did not sell. Oil surge has in the past suggested that even when oil hit 120 we came back with a bang and the mkt delivered its best returns. Auditors fear signing reports- so finally the true color and weight of promoter credibility should set in. I think cos that get thrashed for improper disclosures should get that treatment and be barred from any capital market access for some years.

meanwhile we learn from life that only the tough survive. You discover one good co from another when things like this happen. Some benefits that percolate to rural and semi rural also benefit a vast no of companies.

 

one of the nuggets culprits if mkt exhuberance is benchmarking. You are not selling surf excel to see why your neighbors shirt is brighter than yours. He current mood of outperformance centric around a few very good cos otherwise has left them in a spot where they are still great companies but at very rich valuations. The market expectations factoring in their growth are now out of sync. These possibly include some finance cos several times (even 3-5 times historic value) every one now wants to own them which is not my problem as I am not a bookkeeper or a messiah nor can ever be. The problem to me is that in this fear people have stopped believing that the market has more than 10-12 cos.

all mid caps are now bad. in fact interestingly most sme cos have outperformed the fall.

all mid cpa managements suddenly do t know what to do. A pe of 15 is now too expensive for mid cap but that of 60-70 is ok for few outperformers.

 

i would like to believe personally this is a great time to buy several companies. I wish I was setting up a fund at this stage. It’s not necc that I will make money in a month or two but I sense a lot of money is to be made in many companies that will migrate from mid to relatively large cap.

I heard a great point in an interview made by Shankar sharma recently. He said india grows at 5 percent in consumption no matter what.

I see ample room for growth for companies in two wheelers, home improvement inc roofing, tyres, speciality chemicals, food, retail, car batteries, depositories and what not. The mkt penetration is too low to write off the growth.

 

my cup of tea just got over. The rain has stopped. My thoughts inspire me to think what next.

more thoughts soon. love nature, be happy, make the most of your life. That’s your best return. Stay away from people who are negative or just argumentative but skirt facts for they just can’t accept you for ego. Love those who are even remotely kind.

As I was recouping from a fever last 3-4 days, Amit Arora, who I think is a saint in a human soul sent me a book to read. Embrace such people as they are your true friends for life,

I also wish to thank KJB Mathews who is a guy always smiling and who every reason  to only sends me organic mangoes from his plantation but also guides me how to wait for them to turn ripe. He is due to get married very shortly and I wish him the best.

a word of thank you also to Ayesha Faredi at ET Now. Ayesha is always smiling no matter where the market is hoping her viewers are all doing well.

standard caveat: I am not sebi registered nor an advisor on finance. My views (and mistakes) are personal. Just that I find few who forgive me and send me kindness and love no matter what. To them I shall always be ever so grateful. My only assurance to you is I wish for you to do financially well and it’s more than anything to bump into some of you who lovingly thank me for Twitter or just about even the smallest thing.

Ps: pl ignore typos. And see you soon

Take on me, take me on

hi and a very good Sunday morning. Started the day with a fantastic TED talk india by the eminent chef, Vikaas Khanna. In this talk, vikaas spells out his journey with lots of determination against odds that keep propping from time to time.

he makes a wonderful statement when he says:

ek beej ko dabna padta hai zameen ke neechey ek pedd ban ne ke liye

inspiring.

which brings me to the purpose of this blog. Time and again I have emphasized and shared with all of you that investing is a journey, the outcome of which can be immensely rewarding.

In January and towards end December including in the Jean post, I had expressed reservations on returns in the market for 2018. Even as a person with hopefully an open mind scouting for ideas to add or enhance in the portfolio, much of the like stocks seemed witherky fairly valued or did not leave much comfort for meaningful returns ahead. Yet I took the choice of being invested and not on cash as the approach to this is essentially a part of how you assess your horizon. To me, a knock off of 10 or even 15 pct in stocks that you own is just a breather unless there is something radically wrong in the working of the company or the sector to which it belongs.

as it turned out to be, some stocks made new highs such as Venky, some are almost stagnant like HEG, some very marginally down like tyre stocks and some perhaps in line or even slightly more with markets. Now presuppose you were in December or early January and had to take a call on what to sell or reduce. No matter what one says in hindsight no person has a clue to say I know x co will hit a new high, y will be more or less same levels, z will be down and by how much. To know this you need to know the future and not discover it. What if in your prudence you had sold off the gainer, reduced the non event stocks and kept the ones that lost out. I can assure you your portfolio would have looked worse and your confidence in decision making could have been somewhat impacted.

a great learning in life from my work, interactions as also from investing is a winner is one who believes he can win. To keep his mojo alive he sets his sight on a goal and relentlessly pursues his path. Occasionally tired and sometimes even slowed by rest, he moves on and on for his knows at the end of winning lie ovations, accolades and then new shores.

i don’t think with the recent correction in some stocks there is any concern. If in December end and January I felt the stocks were good though their expected annualized return had reduced for 2018, I stand to think now I have that narrow return plus the corrected percentage to make up a far more interesting return for 2018. If I further analyze, we are almost 9 months to the end of 2018 and the returns ahead annualized for 9 months look good to me.

the current fiascos in public sector lending are nothing new. It was rather silly in the first place to believe old habits will die fast when they were recapitalized. More sensible people today are prodding govt to consider privatising some psu banks, a move I will be supportive off. There are many ways to check undue monopoly and the state ownership of these NPA laden corporations make little sense. Besides with no owner of the banks other than govt who never involves in day to day functioning the existence of them takes away an entrepreneurial spirit. The latter is a huge catalyst in shaping economies and creating new business models and leading in disruptive innovation. One of the reasons why we see huge new businesses emerge from USA and china is this spirit of a new generation enterprenuer like Steve jobs was or mark zuckerberg is or Elon musk or jack ma are becoming.

I also see no impact other than favorable on private banks like Kotak, Indus ind, and some new generation banks tha emerged recently from the pvt stable.

while I have not added to my holdings in banks, the correction has drawn my attention to several emerging leaders in consumption, technology, manufacturing. I have not changed my stand on pharma though have not added there as barring Lupin none of the pharma stocks even fell in line with market. In fact some of them rose vs market fall.

It never disturbs me when on social media like twitter I have a few comments from people telling me market is headed to new lows. These guys claim to be investors but in effect are only coin tossers. A true investor looks for opportunities and knows the scalability of them. He may have time and lack of fresh capital against him in phases but he knows that you can lose far lesser than make. And if he knows investing is a process of transfer of wealth from the impatient and sketchy to the patient and willing he just keeps at it. In fact the biggest flaw in thinking is about this thing called market. In analogy, you can’t say the entire world is going to see problem. Some will and in that problem some will see opportunity and in a constant changing world, money will move towards he who dares and keeps moving towards his journey. As they say, pessimist neither win wars nor did a pessimist discover the secrets of the stars or sailed to uncharteted land or opened a new doorway to the human spirit.

True it’s not just about being optimistic but also realistic. Here’s where the swing towards the cos you own sets in. Since January I have interacted with few, seen results of many and even attended Ceo forum with leaders like mr Biyani, uday Kotak, mr subhash Chandra, mr Mariwala, Mr. Anand mahindra etc talk. I don’t see pessimism, I hear lots of change has happened for good in transmitting from unorganized sector to organized. I hear gst collections post March with a lot of uncertainty in processing of forms clearing and thus a move towards a new india. I hear lots of good coming from Rera. In my professional capacity I hear far more talk of technology, better productivity, embracing more IP (the biggest wealth creator) and other positives.

To sum up for now, I see a continuity of the bull run. Given the corrections, my expectations of the market return stand significantly improved. a lot of muck in india including tax evading out of shape entrepreneurs who have run to Dubai, UK or other places and defaulting companies being cleaned up is in place. The balance sheets of few cos look healthy with capex done and gst inventory issues sorted. I see the possibility of a new high for markets in 2018.

 

disclaimer: views expressed are personal. Pl treat them as only a view point. I am neither a professional nor a regd advisor. But I have no vested interest in this view as I have not recommended any stocks. My intent is to see a happy educated and self made lot of investors. Nothing satisfies more when some of them I have never met walk up to thank me or take a selfie. We are one nation of investors in the right direction towards our own empowerment. Cheers

 

Ps… no proof reading, typos are too small a part of a passionate life on a blog though they matter the most in a professional set up.

Learning from 2017 and this bull market rally (part 2)

hi,

in continuation of my intent to share learning experiences, this is part 2 of the article posted just a few days back.

this learning comes from an international giant. A market leader that has a subsidiary listed in india. The Indian subsidiary was languishing for many years. I identified the co very early and felt there was a huge disconnect of the past and the potential. My mind was skewed between a poor past performance and a forward looking “vision” that suggested an aggressive USA management that could not possibly just keep “sitting”. I went to check on availability of the goods made by this co in the market and while they were selling, I did not find “aggression” in selling. There was advertising but it seemed the products were “shadowed” by another co in the same sector. I thought to myself be that as it may, there were only 2 sizable players in a market that held huge potential.

discussions with close investor friends suggested it was a sleeping stock and not worth more. Sometimes we are plagued in thinking about things that seem too obvious but are not so for multiple reasons. One such thought was technology and smart devices are disrupting the sector to which this co belongs. Hence it will have a bleak future. Almost analogous to the current hype on electric cars as if for the next several years the automobile industry with all its vision and expansion doesn’t know it but we do. (Toyota and maruti just tied up for e vehicles batteries and thus we have it)

I refered to “are not so for multiple reasons” above. We all suffer from several syndromes. One is recency effect of seeing a part of the picture but not looking enough. Two we assume too fast. Pl recall some years back how rumors of “ganeshji” (I love him) and other gods drinking milk spread all over india and everyone made a bee line to the temples with sachets of milk. Third is we think we know more than managements and their research skills. Sometimes market rewards or portfolio gains make us think we are larger or smarter than we actually are. The forth point is we forget history has a “things return to basics”. Johnnie walker does an ad on this. Being a fashion brand consultant, I see it all the time. In clothes, in hairstyles accessories etc etc

so here we have it. Impacted by all the factors above and ignoring a larger picture. Missed the stock and was literally sitting on the sidelines deliberating too much. This brings me to another learning. Given a conviction from within (vs a hearsay) do some indulgence and buy. There is a huge latent power that guides you then to discover answers you seek. By being a non participant you have no teeth in the game and hence remain more skeptical than a discoverer.

 

i missed another 7 bagger. That too until now. The clouds are smiling above me and I am grounded only with wisdom. Well being an optimist, making the most of what I have.

 

cheers and thank you to all those who replied, tweeted or posted their comments. Learning is always sharing.

 

Soon more….

Learnings from 2017 and this bull market rally

dear friends,

I am delighted that we are at new highs. The articles written last few years and the persistence to only remain bullish including in the article “don’t be a cry baby, be a buy baby” have left a lot to smile. Money has an amazing feeling of confidence and independence but is not always loyal. The best part for me to do with stocks is not just the returns but the learnings that come with it which I factor as fee for education and building experience.

I am more than happy on several fronts.

A) for having remained fully invested (and I do mean 100 percent) in equity for the last few years. Even today the position is the same- except my expectation of reruns in 2018 are more moderate than they were last few years.

b) for having outperformed the market with lots of gratitude to God and Lady Luck and not just an appropriate skill. The conviction to be in several small and mid caps and not in large caps (barring isolated examples like hdfc bank) has made all of the difference to the returns. They say every bull market has a new leader. This market showed leadership in a segment of mid and small caps and not a sector run. More to do with cost of capital to these cos and their small bases where even one sizable order altered their financials and somewhat to do with a very large participation by retail vs fii. There is generally a perception (although not correct) that stocks that look cheap in price are cheap and will reward more and hence optically sub 1000 rs shares are better than those above. Like I said this is optical and one of my core investments is today one of the most optically priced stock but which even today is reasonably valued vs its earnings, brand value, growth, capex and replacement value. The last factor being important in a world characterized by sudden deaths or take over or obsolescence of cos and hence the need for stability in business survival and growth.

c) the third factor has come at a cost to me. I love opportunity costs. Even if I out do markets I constantly analyze my errors, mistakes, oversights etc as it leaves good trail in the mind to look at patterns and avoid similar mistakes in the future. May I add, mistakes will always be made and you can only try to improve and minimize them. This article tries to focus on some.

While one side of my thought process loves the fact that I took a positive and more than rewarding look at identifying opportunities to own and invest in several sectors and leaders in those sectors ahead of their subsequent recognition such as tires, specialized chemicals, electrodes, consumption and of late hospitality (I wrote more on Twitter towards later part of 2017 how the hotel industry is shaping up well) and finally pharma (all have already outdone market except one pharma stock, which I think is not bad), the other side of thinking takes a look at several misses-

i identified a small cap stock in packaging at a phenomenally early stage. Not only identified I bought a decent starting qty into it. Just to elaborate in several small caps you may see opportunity and an indication of improving financials but you can’t fully bet till the story actually starts playing out more consistently as management bandwidth and their ability not to get “carried away” takes time to mature. As I usually do in some cases, I discussed the idea with few of those who fall in my circle of well wishers and who have a very open mind and a great history of understanding cos. The result of the discussion was most unfavorable. I usually don’t get impacted by this as sometimes I attribute this to the lack of information about cos and precise why they are being discussed and not so obvious. But here I got carried away God knows why and sold off my position. The stock went up 26 times thereafter and was big guru in teaching me this:

“There is no right view in the market (including your own). The view is right on some assumptions only. Don’t dismiss assumptions on basis other than peculiar to that co including the lure of another idea. No one is an expert on everything and no one will ever be. Each person has a circle of his likes and thus is already biased. For ex historically a sector may have caused a loss or a wash out but today the facts may not be same. Usually history is a great teacher but new history may be created a few years later. Today there is more truth to this as business models and corporate governance standards are getting better”

Another error I made was again wine respect to a stock where I even crossed 1 pct holding in the co or nearabouts. I saw the co in a segment that was niche and where I felt the opportunity was huge. The stock languished for 2 years and did nothing. No change in results, no large orders and obviously no stock price movement. In a sense it dragged a part of the portfolio return commensurate to its weightage. I assumed 2 years of nothing was being fair in terms of a holding period and sold out. Somewhere in my mind the trap of opportunity cost being high here and nothing changing played out. As they say the decisive moment in a stock can come anytime, the stock immediately saw a turn. And the story played out in one of the highest up moves amongst stock returns last few months. This left me with a learning and a question to myself: how long will I hold a stock that looks convincing in a backdrop of a rising market. Will I hold it for 2/3/4 years even if it underperforms even if “eventually” it may not only catch up but overtake market returns by far. I don’t have an answer and my deliberation continues.

I can pacify myself and feel happy that even with such errors the p/f beat the market well but the truth within is why these errors were made and what can I learn from them. Did I need the money when I sold these stocks? No. Then why did I sell them? Is comparative return a true guiding factor of a decision even after 2 years or is there more to it in temperament and time. As part of early days, we used to read “our favour te holding period is forever” but that’s not true even for Buffett as IBM and many other examples recently showed. In a tweet, mr samir Arora re-stated this as “our favorite holding period is forever as long as we have good companies with good managements” (which fact is a discovery with time and may errors can be attributed initially). There is nothing to suggest that IBM doesn’t have an excellent management and is an outstanding co. Hence to me it appears “our favourite holding period is as long as we have returns”. Here lies the patience card- until when will you sit till you discover these returns.

My third learning has been e phenomenal difference in returns by not buying for short spurts, buying on tv flashes or selling based on them, not being part of any whatsapp group and doing your best to remain confined to your pool of thoughts. Take a thought- the stock market has so many listed companies in all segments. You need a handful and will do well if they outperform. You cannot yourself know which one of your favs will run the marathon with higher speed and end up as your best return. But you expect another pool of thoughts in other sectors or companies to display characteristics of more certainty and authority.

well I intend to write more on the learnings and am closing this post with these initial thoughts. Which I may add brings a new learning to share- penning thoughts or even articulating them say at talks is a huge huge advantage to an investor. It opens new horizons, sets the mind to explore more angles and if nothing makes you a better thinker and if God be, a better prepared investor.

 

cheers and do send your valuable feedback either here or on my Twitter handle @safiranand.

Shall update part 2 soon and try and share learnings along a wonderful journey.

 

(please excuse any typos. This is an article typed in a flow and not as a stop, read, review, edit mode).

the last sunset of 2017 will give way to the first sunrise of 2018

dearest friends,

a very happy new year eve to you. with some nostalgia, I saw the sun setting for the last time in 2017 a few minutes back. Usually I get emotional when I see somebody knowing I may not see them soon enough.

 

The sunset had the same effect. While I know the sun will rise tomorrow morning with a new sunshine and much new energy, excitement and resolutions and lots of greetings amongst family and friends, the fact that we won’t see 2017 again had some impact.

as an optimist, I don’t compare years and leave much positive to look forward to, yet, 2017 has been a remarkable year in many respect. Profession apart, 2017 for me was a year of several discoveries.

some in stocks, some in people, some in friends made within people and a completely different approach to many things. It’s truly been a new year.

2017 for investors was one of those rare years where you were rewarded by highest conviction even against results and traditional valuation norms.

I personally feel, at the risk of perhaps disappointing some, including the thermal bull within me, 2018 is likely to be a tough to moderate year for stock picking.

 

I don’t think the rally will be as broad based as it was in 2017 across most mid and small caps. Frankly I will be happy with a 12 percent or 1 percent pa rise in markets and hence the challenge of outperformance will be more than in the past based on hard work, out of box thinking  and now less on momentum.

i see blogs struggling with new ideas, Broking research reports focusing on few years ahead as a basis to justify buy decisions and a general catch up of assumed earnings in current valuations.

Let me clarify before I am assumed to be sounding negative. I am almost fully invested and am not intending to sell and sit out. However it concerns me when the toss of a coin and a guess on an outcome that turns right is taken to be skill and not luck. I think the market is now trying to catch a lot of left overs, some of which may be well deserved but not all. Just because a co in a sector has done outstandingly well, to assume that every co in the sector is headed to good times is like assuming just because one student in a class is doing well all others are assumed to be doing well too.

With such a liquidity gush, some of which will continue, I am glad I am not running a large fund that not only needs to invest but now live up to benchmarking and justify positive returns to keep new money investors not turning against. It’s easier to manage when things are languishing (as they were last few years) or general market caps of some companies were way too ripe for large moves with some catalyst be it in orders or some value unlocking or debt structuring or capex expenses coming to an end.

Today the market claims to have too many positive views. The views have some degree of complacency (mine included). Everyone wants to set up a fund, leave his job and manage his or family funds, set up advisory services and thinks that the initial draw of gold in the mine is an assistance than more sheen awaits in a greater measure.

we are also meeting distruption of business models in a bigger and unprecedented way. Such times of disruption create great opportunities and great new set of outliers. But to identify them commensurate to their valuation today is not as easy as it was in 2015/2016/2017.

the market will always have some winners. Lesser money chasing such winners meant a longer run. Today with multiple social media forms, conferences, investor meets, investor paid registration events, subscriptions etc too much money instantly chases a new or relatively newer idea. The intensity impacts the longitivity of return.

You can run a marathon at a maintained or slow speed but are more likely to get tired fast if you start off with a dash or sprint.

I use this simple example to assess my view on the market: throughout 2015/2016/2017 I have remained largely bullish (save for just 2 months of demonitisation and economic reset) with many ideas at any point to invest and a craving for more funds to be available. Even with demon, had on 27/12 tweeted that things are looking up and immediately put investing in top gear. The reason was in my dashboard I had many companies looking fab.

as of today, I don’t see so many ideas. I don’t see too obvious an idea.

I think 2018 will mark volatility as a catalyst to to find value. It will be more of prepare today for a chance by judgement errors of few. To know where there is error or the judgement is right will depend on your own preparedness.

I don’t see a secular investor return in 2018. I see a more sophisticated investor in 2018 with a more moderated return expectation. The good news is you must have made a reasonably good corpus last few years so even if that compounds at a more moderate rate in 2018 you will in absolute terms do well.

to me 2018 is a year to get wiser. To be more selective. Thinking, fast and slow at work at its best. The highest return may not be made either by the guy fully invested nor by the guy sitting wholly or partly in cash. It will be made by out of box thinking and more tapered expectations.

To me a 20 pct move in 2018 will give room for a celebration.

With all my wishes for lots of good luck and happiness.

Cheers

(my standard caveat: article written in one go. I don’t proof read what comes from the heart. Typos show genuineness of my flow. Feedback always welcome).

%d bloggers like this: