Thursday, May 9, 2019

India:A Dance with Democracy or a Brush with Fascism?

The Political Game➥

The jamboree culminates on 23rd may 2019.On one side a diffused upper crust leadership battling hard to prove their relevance. The incumbent - brash,politically incorrect,banking on the faceless masses who feel a sudden uplift in their Hindu identity,wanting to brandish religion as a sword that gives votes.

Both sides are corrupt. It is only the degree to which the differential lies.I do not find any party having a coherent policy to create jobs,manufacturing,infrastructure so I am not very positive on post election outcomes.

If I was to predict I would say that the BJP would be back for another 5 year tenure but with allies.I am a bit wary if the high decibel media backed BJP campaign can overcome the rural angst and whether the village folk can be Harry Potterized into believing that another 5 years to this Government will let them achieve all the things they did not even come close to doing since 2014. 

Trump's Tweets➽

If ever the adage that "the pen is mightier than the sword" was true then Don Trump has brought it to fruition. A simple tweet and a few hundred billions get wiped off the market cap!All said and done he does have the Chinese over a barrel as they stand to lose more than the USA in this trade war.The trade deficit with China was approximately $ 470 billion in 2018 and the Chinese will be hard pressed to manage getting away without paying a penalty

Oil Falls➴

The precipitous fall in Oil from $75 to $60 although helpful for import dependent countries like India will be negated in the long run by Iran sanctions,Libyan war and Venezuela bankruptcy and a big fall is not expected.With the USA no longer dependent on outside supplies it can afford to utilize that advantage in political muscling of Iran

Our Markets🔺

On the risk to reward front I am a firm believer that traders should either wait out the event of sell short term holdings as I see a 5-7% upside if all goes as per expection but a steep 20-25% correction over a period of time if even the slightest unthinkable happens on the political front.

A succession of indicators - low auto sales,low GDP(even after window dressing),almost nil manufacturing growth added to the likelihood of another El Nino. India cannot afford a third successive uncertain monsoon.

The markets I think will surprise many investors as the volatility will last the entire year. I also feel that the Indian markets will give those who have the gumption to back themselves a massive opportunity in value buying in 2019.

Nasdaq and Dow🔀

The US markets have been super performers price wise over the last one year.This year will be sideways so do not be tempted into investing simply by looking at One to Three year returns.Do the research and if ever there was a time for value buying,it is now.

Getting stuck in good stocks at high prices is the surest way to average portfolio returns.Like every year this year too has its own unique challenges and many crocodiles lie in wait so tread the water carefully.

Monday, February 18, 2019

In Disturbed Times......Do Nothing

The past eight months have not been kind to the equity investor.In fact,one investor showed me returns from his SiP portfolio that he has been running for eighteen months and the returns are negative.

In times of turmoil,eighteen months or two years are but a blink in the eye for markets and it becomes puzzling for those who see no returns to start comparing with Bank Fixed Deposits where they would have still got 7%  pre tax.That mistake is called IMPATIENCE.It has a huge cost.

Churning the portfolio is easy when the investor pressurizes his advisor to show action.Warren Buffet said that investing is like watching paint dry.But does the modern everyday investor care?They want returns and they want 'em every day!!

Hold on.Take a deep breath.Better yet,avoid looking at your stocks or Mutual Funds or whatever.Take a walk,go for a vacation,anything but brood over the red ink dripping all over your well crafted portfolio.As the saying goes its in bad times that we know our friends.

The current situation with the unfortunate attack on CRPF in Kashmir and war talk and Trump in fighting and China trade wars and the mother of all Election battles in India is a fantastic time to build an all weather portfolio.Do not look at returns for the next six months but focus on picking stocks and deploying the Systematic Investment Plan methodology for direct equity as well.

Expect the fruit over the next two years and it will be high alpha.Oil will vacillate between $ 50-70 and commodities will remain depressed on China demand pessimism.

As the years pass I become more and more convinced that success in equity markets is determined more by our emotional quotient(EQ) rather than Intelligence quotient(IQ).Loosing patience,chasing overnight success stories that never fructify,hearsay,rumours.It is far better to invest in low quality stocks(with the caveat that they should be backed by actual business) and to hold on for the long term than to expect 10 baggers in a year!

Contrary to what many think this is the best time to invest.No one will stop eating or going for entertainment be there a war or not.Having a billion strong population helps with the consumerism.These are but small pointers to where you should look to find your next Multibagger.

Let your advisor be a relatioship manager and NOT a sales manager.

Monday, December 24, 2018

Have The Communists won and all that...

President Trump's surrender to Vladimir Putin will rank as one of the greatest victories of the ex communist regime,off course nowadays all wear the 'free market' garb.Leaving Syria and Afghanistan bereft of US presence when the IS and taliban are yet to be completely defeated smacks of recklessness by the Americans and bodes ill for the future security of the west.

Russia,Iran and Turkey now form an axis that becomes a third front in the game played by Taliban/Islamic State - Saudi Arabia/UAE sunni front - Iran/Syria Shia front.I do not think these conflicts will get better in 2019.If anything they will get worse.

Oil has been such a surprise.From predictions of $100 per barrel to sub $60 was precipitate.India would celebrate if not for those in power focussing on power of a different kind.Lord Ram might win elections but it does not have the power to repair an economy facing lack of jobs,trouble in the agriculture sector,religious issues etc

Despite losing local elections 5-0,the Indian markets have been resilient.The next six months I fear are going to be a nightmare for traders but astute investors will find huge opportunity to build a portfolio that will generate above average returns over the next Three years.

PSU Banks will undergo consolidation and not all of them will come out smelling of roses.I do not understand so I will not go there.Information Tech is at the whims and fancies of The Donald and hence difficult to predict as is pharma.

The villians of 2018 - small and mid cap companies with a strong product suite and cash/risk management will spring to life(and their stock prices) and hold the best hopes of creating a good return on investment.

My theme for 2019 remains:-
Return of Capital instead of returns on Capital.

Liquidity is still tight.Businesses face their biggest challenge accessing capital.NBFCs will find space in the banking genre but their risk management has to be extraordinary.There are a couple.

I also feel the Real Estate sector,especially the affordable housing space will boom in 2019 in a lot of states.

Interesting to wait for Elections,for China - US trade standoff,wars in the middle east,oil,capital....many factors that were there last year except euphoria.

Tuesday, November 20, 2018

India Wakes To The 'Gig' Economy

U is for Uber
O for Ola
F for Flipkart
A is for Amazon

Once upon a time  a chaffeur  was paid Rs 3000 per month.Today its Rs 18,000.A quantum jump and this once upon a time was not in the previous century but just 4 or 5 years back.Almost unthinkable,now businessmen are rushing to buy 'luxury' cabs and register themselves for a commercial driving license.

One young man who used to work as an accountant in a sedate machinery & equipment manufacturing company now drives a can for Uber.

But after a 3 year honeymoon the startups that are now on their way to expanding their business have tightened the returns they offer and it being India there is a surfeit of people willing to jump in even with meager profits.

The frightening possibility is that this government with such a strong mandate for change has all but frittered it away in the 4 years with frivolous and sometimes downright stupid moves like DEMONETIZATION.This is the main reason for so much social unrest in the country, It is here to stay as the same power brokers who talked of progress,change, industry, are now bent on diverting public attention and wasting resources on building tall statues and temples!

Crude oil has given a respite but I do not see emerging markets being able to recapture the dynamic results of 2017.Traders need to become investors, Entrepreneurs need to sell 'pakoras'.

Where are we headed as a country. Lofty goals on paper in in vain speeches. All the sectors are in doldrums. Rupee depreciation versus US $ has not resulted in comensurate increase in exports because here again the issues are systemic.Bangladesh and Vietnam are moving ahead in textiles and food processing. Kenya is producing more tea.

Press freedom and critics are being silenced.Yet we are told on television that we the nation are making tremendous progress. Statistics can be interpreted any which way.

Yet again  Indians will have to find a way without any political leadership to find new industries to grow exports, create jobs for the millions pouring out of colleges yearly.car sales will be down, consumption down and profits down. Good businesses will survive.

Stock prices will stay flat. It is important to not expect big price changes in the short term from markets and from government policies....and thy shalt not be disappointed.

Apologies for the lecture!!

Thursday, June 28, 2018

The System is Failing

After my previous post(Leap of Faith),I am coming round to the view that the deep systemic issues in India cannot be papered over through various PR pronouncements and chest thumping on work accomplished.

Its a simple fact that this government has wasted Four years of a historic mandate running offshoot reforms like de-monetization etc and reworking social schemes launched by the previous party in power.

Nothing highlights this more than what is happening in Banking.Public sector Banks have lost almost 30% of their capitalization through non performing assets,bungling,conniving managements passing on the buck to the taxpayer.

What is more worrying is the rot seen in ICICI Bank which continues to face complaints of 'evergreening' loans i.e. giving fresh loans to payback older loans...ta da da.Was it peer pressure to come up with the quarterly numbers? or something deeper and darker?

Coming on the back of the famous Nirav Modi scam where just one branch of the bank crashed valuations by 50% is a pointer to shocking procedural and system lapses.Forget about stock value,it begets the question on how safe is investor money?

With president Trump playing games on the trade front,oil prices bubbling and some tar to the charisma of PM Modi....the rest of 2018 is set to be very interesting.

Will we see some value buying?

Is it time to shift from equities?

Which asset class will do better?

Gold is passe`.With interest rates turning(which I had predicted 1 year ago),long term Bonds are not looking investible.I think for the risk averse it is time to look at Liquid Funds for the next 6 months .

I am also concerned by the huge amounts of capital being raised by DHFL(Dewan Housing).With real estate still cold and higher rates,deploying such capital even in affordable housing will be difficult.

I  would caution investors to stay away from Corporate deposits,NCDs that I see advertised daily.Pick good sectors and invest with the leaders or a large cap fund and let the Fund Managers work for you!!

Tuesday, May 22, 2018

A Leap of Faith

The "Indiana Jones" fans amoungst the readers will realise where the header comes from!The wiles of ancient civilizations and the pitfalls of modern day stock market is pretty similar.

Taking off from my previous post that there are no longer any safe havens for investors and risk needs to be undertaken to achieve higher returns I would stress on the fact that sometimes we make assumptions on the available information to evaluate investing options.

The macro situation looks quite horrendous with crude oil above $80,unsettled political situation in the Middle East and the first vestiges of a united opposition to India's Modi coming together to batter the so called growth stocks in the mid and small cap space over the last One month.The Nifty may have fallen about 1.5% but the midcaps have seen a steep 20% correction on average some falling 50% or so.

This is the time when convictions are tested as the lack of buying interest presents a huge test for illiquid counters even though those businesses' future may be just as bright as it was six months back.

This is the time to take a leap of faith(off course with thorough research) and go with ideas that one feels will continue to grow at 15%+ YoY ROE with a strong EV/EBITA and products that show a minimum 5-8% sales growth YoY.

I think we all know the names of such stocks but its difficult to build the conviction to buy and watch the prices fall and buy again.

In my 20+ years in the financial markets I think psychology is still hugely underrated.Many,let me quantify by saying most investors walk away when they are so close to finding the edge.The difference between holding on to duds and selling winners is a very fine line.

I have been a fan of Mahindra & Mahindra and after holding on for targets and seeing the prices turn just 20% from targets I sold for the funds I manage to find it going higher even with the markets roiled.

There is just no easy way or a formula and I guess that is what makes markets what they are and why there are millions of traders,analysts,experts et all.

Again sticking to your area of expertise and not going into a bruising ego battle against the market is best way not to lose motivation or be frightened into pulling out investments when they fall.

Saturday, May 12, 2018

There Are No Safe Havens

Ten years ago in a throwback to simpler times it was easy to plan investments.Twenty years before that it was even simpler - Land and Gold.Or Land or Gold.

Its a different story today and its evolving rapidly.There is nothing called a safe haven anymore.If you have land in the wrong place its not going to appreciate in value.Gold no longer holds that same place.

Bitcoins move up and down faster than elevators at the Burj Khalifa !

PPF, NSC, Kisan Vikas Patra, Post office Schemes are all passe` as interest rates are way down and post inflaton the returns would be negative in real terms.

With Bond Yields at 7.75% and interest rates in no - man's land the wherewithall to create wealth through investments has become a bit of a misnomer.I see many clients still clinging onto Bank Fixed Deposits like the drowning non - swimmer does to the last vestiges of floating plantation on the surface of the water.They just do not know that they will drown - plantation and all !!

But the amount of due - diligence needed to whet companies and businesses is beyond most.Why would Walmart buy a cross....if it wasn't the urge to compete with Amazon.Why would Tatasteel buy Corus and still regret it after 10 years....after all they have the best brains to analyse?

Having said this it is sometimes easier to do what you understand or invest where you think you know the basic Macros.

Equities in the listed space have most financial information available online and especially companies where the products are known and can be categorized.Stick to the simple listed space for those who start out and you most certainly will achieve those financial goals that you have set for yourself.

"All the things that make a trader profitable are difficult to do.Buy initial strength,short initial weakness,buy breakouts,sell breakdowns short and let a winner run with a trailing stoploss and most importantly - cut a loser short and accept when you are wrong" 
quote by Steve Burns

In investing there are 2 important factors

- Believe that there are no safe havens

- Accept when you are wrong and take appropriate measures to deal with the situation

Only growth will generate value in the future.Bet on growth.Buy growth.No matter which business.No what which sector.Everyone knows the ratios....!!!!