Wednesday, April 11, 2018

Work Through The Volatility...

The primary measure of Volatility is Standard deviation.To use jargon it measures how much the price of a stock has differed from its mean over a period of time.

Well,we are not in a finance class neither am I teaching Portfolio Theory!

I keep meeting clients who are seriously apprehensive with the ups and downs in stock prices and sometimes decisions are taken in haste.When it affects your return or wealth creation it becomes a critical decision that can have a long term affect on your wealth.

This post is meant for Indian Investors who have seen the NSE and BSE climb to historic levels and then fall by 8-10%.

This post is meant especially for those who invested in Mid, Small and Microcap stocks.

So here it goes......if a story is too good to be true.It really is!There is a stock that moved froma low of Rs 21 in August 2013 to a high of Rs 505 in 2017.There are many such.Then it promptly fell to Rs 130.

What is important here is where on the time scale did you invest? 2013 or 2017? It is critical to understand the product suite,the management,the vision and philosophy through which a company is run and to have the belief to BUY.Once bought you need believe to HOLD.When prices go up and down by 50% it really affects you at a mental level before it does financially.

My Theorem is simple:

A.Buy risk only with what one can afford,never on leverage

B.Have the mental strength to BOOK LOSS if you are sure that the story as you understood it        has changed over a period of time.

I keep meeting investment Gurus who advocate holding long term irrespective of situations.I digress completely.Every business has a shelf life and profits need to be taken off the table.A very important example is Reliance Industries that was bought by investors in the range of Rs 2000 but then for the next SEVEN years it stayed way below those levels and many got tired and sold off and some who are still holding are finally in profit.If they had but booked profit then they could have deployed their capital in other growth ideas?

The Indian market macros are good and even Trump's tweets and the Russo - China axis's response has a time tested ring to it.The situation will worsen only if Trump cannot pullback or he really starts believing that the US Army are invincible !!

I feel that the markets will in the coming years decouple from the political landscape and elections in Karnataka will be a chance to buy on dips as I see the Nifty being close to 11,000 by June 2018 end.

The consumer space emerging from the shadows of demonetization and GST is likely to grow 20%+ and even good balance sheets in the infrastructure space will be rewarded by investors.

So I am changing my stance in the short term to Buy on DIPS.

Monday, March 12, 2018

Indexes Rise But Prices Fall

There is divergence in what the Government says and what people are feeling on the ground(at least those whom I am talking to).Its like the weather where some feel oppressive while others are merely uncomfortable.

There is definitely within the BJP government a section of policy makers who feel that the simple formula of rhetoric,some public pro-poor measures and blaming all ills on previous governments(non BJP) going back some 60 years is the surefire way to win elections.

The farmers are agitated and with reason,till date no support system in place to insure against crop failure,lack of proper education facilities,lack of irrigation,no scientific support to the majority of them and a general apathy makes migration and living on city foothpaths seem a better alternative?

Taxes - no country has a more complex or multitudinous number of taxes than India.Those who pay tax are over burdened with a plethora of cess etc that is suffocating,those who do not pay still get away and you have shams like India's leading billionaire actor pretending to be a farmer to avoid paying taxes!

GDP numbers have grown but probably in sale of combs because employment generation is at an all time low.The textile and agricultural segment that used to provide opportunities can no longer be depended upon.

There are hardly any original ideas,the much fetted 'entrepreneurs' like Ola or Flipkart are mere copycats.I am very pessimistic about the new crop of IIT and IIM graduates.Just 1 in a 100 things of doing good for those at the bottom of the pyramid.

How long will the goodwill between Trump and little rocket man last?Trade wars?Syria?Russia?

Many variables but I feel that the Indian markets are looking at internal conditions and rebalancing accourdingly and there is still a lot of pain left.Nifty can easily fall to 9700 but truth be told I think its real value is close to 8700 right now if we remove private sector banks,Reliance and the I T pack.The mid and small cap pack has lost approximately 30% in price terms and liquidity has dried a sure sign of investor fatigue.

GST remains a work - in - progress.Where are the other structural reforms?The index may merely be down 8% ,it does not give atrue picture as most non index stocks have lost 30-35% of their value and I do not mean the PNBs of the world.

Wait and watch how the situation unfolds and I would only look at investing on the long side sometime in the month of April 2018.Not before.

Tuesday, February 20, 2018

Profligacy of Government is a Taxpayer's Burden?

It all started as a co-incidence.

The elevation of Jerome Powell and Prime Minister Modi's Indian Budget presentation.The markets - both Indian and the Dow were at record highs.There was not a single cloud on the horizon.Stocks were jumping 3-4% on a daily basis.Some doubled in a mere 3 months.

Investors found it unbelievable.Thing is,just when they started to believe and put their money where their heart said,the markets started to tank.

Offcourse,it has not been as spectacularly bad as the infamous "Black Monday" of the fateful October 1987 but the jitters are obvious.

The application of Longterm Capital Gains Tax on stocks held over one financial year at 10% has affected sentiment.We are now probably the most highly taxed market in the world?

Every Finance Minister has found it convenient to add the dreaded word "cess" to every annual budget.The hike seen as nominal when added to the various taxes  costs a whopper.

In these 3 years so many expectations have been belied.Other than some necessary reforms the policies or (mis)policies of the previous government continue in some form or the other.

Yes the Public Relations have been spectacular.That is one of the few positives.presenting India to the world as a destination has been worked upon.

The roads still in shambles,the infrastructure pathetic,agricultural practises still 18th Century,the dependence on the Monsoon undiminished.Profligacy of the Government has become a cross to be borne by the taxpaying public.

The emergence of the Punjab National Bank that is equivalent to one third of their capitalization has been a shocker.Yet the government and the leaders slumber on in their belief that they are doing a fantastic job.

The RBI is counting demonetized currency even after a year,the audits are sloppy and a premier institution's reputation lies in tatters.Commentators who till last month were predicting this to be India's decade.....century.....are at best silent and at worst being vocally negative.

The truth lies somewhere in between.

Systems need to be overhauled.More so attitudes.The Rulers and the ruled equation needs a new formula,afterall the demography is skewed in favour of youth!
Indian leadership?

Amidst the gloom & doom,I have 6 Reasons to feel upbeat and hopeful for the future :-

1.Corporate India is shrugging off demonetization and GST and volumes are up

2.Crude oil(which we import for 80% of our needs) is attracting fresh investments and likely to              remain in a band of $60 - $80

3.There are no alternatives to equity so the populance will shrug off the LTCG tax and focus more         on returns

4.This market correction globally would have blown off some of the froth,mind you I say some of         rather than all of it as I see the time correction continuing till mid April 2018 at least

5.The need to overhaul infrastucture globally will be very positive for commodities and the sole             factor of China growing exponentially or not would not matter as much

6.All these 'scams' are good for the system as some long delayed measures have to be implemented       and can no longer to swept off and hidden as the public demand grows for creating a safer and             more risk averse structure

It is important not to get stampeded into thinking that all is lost as there is always hope.The macro fundamentals of the Indian economy remain on keel.Remain invested,avoid greed and try to rationalise whatever good or bad news comes on the grapevine !!

Isn't it darkest just before dawn ?

Monday, January 1, 2018

Lessons for 2018

Another year fades into memory.New words that entered our lexicon - 'demonetization' and "GST" seem like known devils that may yet cause strife.

The highlight offcourse has been the cow saving brigade and only years later will be come to know if indelible scars have been left in Indian citizens of different faiths?How can a Government that calls itself progressive and for reforms hark back to a baser and more parochial view is beyond me.

The ordinary citizens are more affected by jobs,food prices,infrastructure as the results in the Gujarat elections points too and going forward that will remain the main issue and not a temple to Ram.

The Indian equity markets have remained robust and a time and price correction is much required as the Nifty PE ratio continues to close in of 25X kind of valuations.

Will corporate earnings catch up in January 2018?Although expectations are positive,I do not see it moving above the 15% range on average.

We need roads,we need ports,most of all we need an organised market mechanism,affordable storage chains to minimise wastage and keep perishable food prices from spiking.60+ years and counting yet that is yet to happen.

Corporate taxes still too high in India.No sign of investments kickstarting new entrepreneurs and lack of imagination in implementing "Make in India" has really not created any buzz even after 3 years of majoritarian government.

The opportunity in the infrastructure,road-ports and cold storage sectors is vast.The turnaround in airlines looks here to stay even with ATF inching up.

The new shift in power in Saudi Arabia will keep the prince interested in having crude prices on the higher side to fund his deficit.

I think value buyers will find plenty to think about as well as fund managers will find that they are having to work harder to eke out benchmark beating returns in 2018.

Just hope that Kim Jr's missiles do not malfunction and land over Japan.
Just hope that The Donald doesn't get bored and looks to start a war in the middle east
Just hope the Inran backed Houthis do not come into possession of ICBM.

Domestically any hike in "Long term Capital gains Tax " or change in tenure from 1 year to 3 years will lead to a short sharp negative reaction......but the kind of returns that the markets have generated will mean that investors will have no other option than to invest.

Happy investing in 2018.