Saturday, May 1, 2021

Divergent. Covid & Markets

 It is with great sadness, having lost a few relatives and friends' to this covid onslaught that I say that this Government has displayed zero foresight, planning and  empathy for the citizens of the country. Death from disease is common but dying from lack of oxygen or dearth of treatment is absolutely callous.

We are close to loosing almost a decade to lost growth, infrastructure development and industrial development. Our cities look almost the same as they did a decade back with decrepit bridges, a few new metro trains and slightly better roads.

Yet the stock markets are near all time highs and show no sign of remorse or fear. A dangerous situation and contradictory in nature. How long can we keep building in the growth potential and cling to the fact that nothing much is happening in the economy.
The move on various sector indexes has been sharp and volatile. Metals have moved globally and stocks like Tata Steel and SAIL have gone above long term trends in some cases most after 2007-2008 period. Every decade in India seems to the time when infrastructure would become world class and we would be rid of ramshackle amenities more in keeping with our aspirations. Pipe dream.

The swarming liquidity in the global system has been primarily responsible for the stock price climb be it the Dow Jones or Nasdaq or our very own NSE and BSE. I would pause and remember the wise worlds of Warren Buffet because sooner or later that is what is going to happen although in the short term the move especially in the small cap stocks will be going up.
Domestic economy is moving towards stagflation i.e. high inflation(7%) and low growth. With joblessness and not much business for the small and medium sector which forms the backbone of our broader economy, we are faced with the devil's alternative - loose fiscal policy for growth or tighter controls to control inflation?

The divergence is expected to continue on the back of a normal monsoon, fall in covid infection numbers or better managed vaccination.

My message over the past year has been simple. Buy value. Buy stocks of companies where you feel:-
  • The product is invaluable to daily living and even if prices rise it has to be in use
  • It is available in both online and offline form i.e. can be delivered even if there is a lockdown in place
  • Life saving products - pharmaceuticals, medical equipment 

This pandemic has changed consumer preferences more in One year than in the last 50 and some far reaching impacts will I presume be beyond predictions. Stick to what is immediately visible.

Our portfolio has given 63% in the last financial year and that has been due to calculated risks in Autos, textiles, financials and select metal stocks. I expect the rally in Metals to continue further with some beaten down counters coming up with better results.

We look at investing in unfashionable stocks that can become fashionable. Bottoms up Approach👍

Stay safe and stay well.

Friday, March 19, 2021

One Flew Over The Cuckoo's Nest

 Let me be clear that the headline has nothing to do with the movie that got Jack Nicholson his Oscar! It is all to do with the markets as they are.

And they are - all over the place. Naturally I get asked what to do? I do not predict(rather cannot) as I am not Nostradamus. Yet it seems clear that the Indian markets are trying very hard to recognise that 'some' green shoots in the economy are visible.

The situation is really bad but it's in such times that stocks react to future positives - bit too much if you start discounting FY23 results!!So being realistic is a very necessary attribute. A lot of stocks have moved up. let me illustrate

Stock A was priced at Rs 300 last year. It then fell to 200 and subsequently went back up to 300. How much as it gained or lost? A lot of investors seem to think that the stock is overpriced just because you are seeing the leg 200-300↗ and not the ⬇ 300 - 200 hence doing smart research is imperative.

New stories are being spun about the rising from the ashes of corporate mis governance, outright fraud and such others of companies that are not investment worthy. But what can one do when those suffering FOMO are lapping up the stories. Seen it happen in every bull market and does not look like 2021 will be any exception except feeling sympathetic towards those who get trapped in such useless companies at prices that they may never reach again. Yes Bank anyone?

These are the Cuckoos nest!!

As mentioned earlier too this is the time to de stress, gym, yoga or whatever your choice runs to. If you are invested in a good thematic firm then hold tight or have the courage to look for good businesses and deploy only 20% of your capital.

Another Cuckoo's Nest is the string of IPOs which have been oversubscribed at astronomical rates as if there will not be another opportunity to purchase the very same same stocks.

👉Check.....are funds being raised for new projects, expansions etc

Or it is to give original investors an exit? Which means it is an OFS(Offer for Sale)

➜Are you subscribing because a marquee investor is mentioned as holding a stake?

Was the company registered 10 years back as XYZ Oils Ltd and have come out with an IPO as XYZ Oils Fintech Ltd. ?(Yes its common practise to add the name of the "Hot" sector before listing application!!)

All old, boring scams that resurface every time the bulls roam Dalal Street. Read the Red Herring Prospectus(RHP) a boring document full of useless verbiage but important if you want to know what one is getting into.

Indian Market View: If the Nifty can hold 14500 then look for an immediate bounce back to near all time highs for the market. For long term investors the level of 13,800 is very important. For traders it is good all the time as long as you do not get stuck with one worldview!!

Be flexible and yes Research is very Important. Happy Investing & Happy Holi !!!!🔆

Wednesday, February 17, 2021

It Is Like Looking Down from Everest For Investors!

For equity investors across the US and India is like staring down from the peak of Mount Everest. A steep up move from mid 2020 has left many gasping - some because they never believed and either sold off too soon and others who waited for the markets to correct before buying. 

Don't be this?

It's natural to face disappointments in the market sometimes but this rise and rise has been extraordinary and unprecedented. The big learning from this is NEVER SAY NEVER AGAIN!

The fear of missing out(FOMO) is driving investors but like always this will end badly. When and how I do not know but like a Bollywood movie the climax is clear.

The best strategy in these times is to

STEP 1 invest in identified stories that you strongly believe in.

STEP 2 invest only 10% of your allotted capital at any one particular time

STEP 3 stay invested and stay patient

STEP 4 when (the question now is when and not If) markets correct do not panic

STEP 5 invest another tranche. R E P E A T

To give a milestones is difficult but for Indian investors investing 10% of capital at every 200 point fall in the nifty will lead to a fantastic average buy rate(ABR) akin to what a plethora of advertisements ask to to do when you start a Mutual Fund SiP.

Finally after more than Six years in power the government is moving to shore up the economy by spending on infrastructure. For a consumer driven economy like ours it is imperative that we kickstart growth by ploughing in capital. The big question as always remains whether there will be action or just words that are buried in administrative files.

We have in our Portfolio generated 63% CAGR over the Covid period no thanks in small measure to not doing much, remaining invested and not panicking. It's worked for us and no reason it will not for you!

This is also a good time to restructure your portfolio and estimate what will be the focus theme for the coming period and what has not worked. Most investors are loath to exit from loss making investments but this is a good time to re position and introspect.

The message as always is to keep investing a part of your surplus in Equities as no other avenue can match up to equities as a wealth creator.

Thursday, December 3, 2020

A Land On Fire

Today I digress from the usual theme of investing and wealth creation to talk of a land on fire. If an inhabitant of 16-17th Century A D turned up in modern India, I feel they would feel perfectly at ease with the current mood of the country. 

An autocratic power authority that brooks no divergent view like a Mughal Emperor. Everything and anything from judiciary to institutions as an extended arm.

The Treasury centralized with vassal states begging for funds not too different from how the British subjugated the smaller principalities.

A country rife with casteism and bigotry, Although I would say the minority religion with their mullah dependent inflexible outlook is more to blame for giving rise to a "Hindu' right wing that is becoming and sounding more and more like the mad mullahs of middle east.

“Everyone thinks of changing the world, but no one thinks of changing himself.”  Leo Tolstoy.

 And so it is.....blaming everyone and sundry and countless articles saying that there is no hope. I never thought it would be so difficult to let go of religious dogma but that is what it is.

👤Hardly a day goes without some incidence or the other and news that sounds like quakery to me is taken seriously, Sometimes I wonder if the problem lies with me? Instead of being concerned with the lack of economic activity read jobs, ceding hundreds of kilometres of Indian land to a belligerent enemy, crimes against women, woeful education system and many other such 'serious' issues what did the public focus on ....death of a filmstar?

The Indian Caesar who turned national television into a giant Coloseum to feed a few victims to the media lions was brilliant public relations but a sad statement on the Indian mind from a long term perspective.

Also worrying is the the concentration of political and economic power in the hands of a very very small family of unethical businessmen.

I fear for the future of the Indian middleclass. There will be the poor and the very rich!

I fear for the future of education. There will be Ayurveda hakims doing surgery and drinking cow piss! God help the experts! P.S. Nothing wrong with Ayurveda and cow piss!!

I fear for those looking for jobs. Only jobs will be as delivery agents of Amazon,Flipkart etc

I fear most for the state of our mind. The 24 hours of lies and fake news on most Indian TV channels will bankrupt the youth or at best make them unable to distinguish between truth and fiction!

Will the country continue to fool the West as a land of promise or in the next few years the Investors will wake up and desert en masse?

While the glut of liquidity injected by Central Banks all over the world into their economies makes everything look rosy it is difficult to estimate what the future holds. Till then markets will continue to rock but the key question is till when is till then??

Looking Glass: Nifty will top out around 13400. January 2021 will be looking out for a major fall in markets. Opportunity? Only for the brave!!

Tuesday, September 22, 2020

Test of Conviction

Conviction. A very common term in the English language. A word with a very focussed meaning." Belief in your words and actions".

Important for the Investor. Important for the Government.

For an investor, the true test of conviction happens when the markets fall as they have over the past couple of days. If you back yourself and put your money and see it lose 10% or 20% in a week is a priceless lesson. Pun intended !!

What is the logic that makes people invest in a 100 PE stock? Other than the fact that someone else they know is doing so.

F Fear

O Of

M Missing

O Out

Hence, truly speaking do not buy a stock or any product for that matter where your belief systems are ringing an rrrrrrrrr.......alarummmmm.

Yet its a common enough phenomenon and I too am guilty of doing so on numerous occasions. Solution - I do not have one or better yet read Prof Daniel Kahnemann's "Thinking Fast and Slow".

Better yet. Understand the dynamics and try to train your mind to avoid the 'herd' and the panic. Yes you will miss out on many opportunities. The beauty of this market is that 20 days a month you can look for fresh ones.

Deepak Nitrite looks deserving of 1K+ price. I have clients who have held it from Rs 40 when I had not even heard the name. The valuations are deserved unlike a lot of names in the 'Chemicals" space that have run up simply because they have the word - chemical attached to their name.

A market correction on the DOW or NASDAG or NSE or BSE is a good indicator of the long stayers and those that were just there for the good times. Use the moment.

A lot of brouhaha over the Agriculture Reforms Bill. My problem with this Government is that the intent is there but there is no follow through and Six long years is quite a long time for experimentation. They also have a lot of advisors with impressive ivy league degrees but no real ground level experience. An Economic Advisor who is waiting for the death knell before coming out with a rescue plan.

Governments across the world are trying to help and stimulate the business community. The Indian government on the obverse is expecting the Corporate world to come to its rescue.

Will there be War with China ?

There might be a short sharp conflict because I am very surprised with Xi's China. their aggression and martial displays means that either the think tank has concluded that they are too important to the world commerce that Europe and maybe a post Trump America will play along as they did with Hitler's Germany or. And it is a big or,, Xi Xinping is in far far greater trouble internally than is known and he will go to any extent if if it's starting a war - to cling on to power.

After all the BJP government did drop a bomb on Pakistan just before elections in 2018 and that swung a lot of votes even though there has been no material difference on the number of terrorists that are sent in by Pakistan.

 Like in or not we are living in autocratic times, see USA or Philipines, South America etc . Most people have given up thinking for themselves or we would not give weightage to a temple over the state of the economy or the tragic death of a filmstar over the thousands of migrants trudging through dusty roads of India, hungry with small children.

Maybe democracy is dumb. Whatever be the case, the markets will continue to offer value in select pockets. Do not believe that loudmouth on TV or that celeb analyst in the pink sheets. Do your own thinking.

Trust me. It works!

Friday, May 15, 2020

Corona Tales

The misery of fellow Indians walking, cycling, limping, dragging themselves thousands of kilometres across the country just to reach home splashed in gory vivid detail across the News channels does not make for comfort viewing.

Nor the so called 'magic walls' on TV channels that are updating deaths by the minute. Add to that a ponderous government bent on creating a circus in declaring assistance - the mantra seems to be to offer a loan to all and sundry.

Economics was my subject once and I shudder to even put a cost or the domino affect it will have in the coming months of Circa 2020.It seems to be a problem of demand sinkage. The RBI and Government are treating it as a supply side issue? The trust factor to lend to a business has been missing since early 2019 when the IL&FS crisis happened but the powers that be are yet to wake up.

Where is the focus to create jobs?Reach the bottom of the pyramid?Yes India is a vast complex country but rating agencies(especially our international friends) are not the ones that should dictate policy especially at a time when superpowers like the USA are shuddering and reacting without fear of fiscal stress.
Miserable for the daily wagers, miserable for small businesses and do not even talk of the Middle class which will probably be taxed out of existence.Already transport fares are set to rise by anywhere from 30 - 100%. Income is expected down at 25 - 100%. GDP forecast down. So Costs higher,even though crude prices are at decade lows!This will affect the entire supply chain as goods in India are mostly transported by Road rather than railway.

A lot of businesses will perish. Even those that survive will be scarred. However what will be will be. I have this feeling that if we can look  beyond the short term a whole new world awaits. This long incarceration has taught us the value of social mixing even the soot and dust!

I feel that once the virus comes under control we the huge masses will unleash the pent up demand be it cinema theatres, fine dining or travel.It is about getting through between now and then that is the key.
I am a Contrarian
Automobiles will see buying
Farm Tech will be used more
E Commerce will gain further market share
Local Tourism will buzz

The Corona virus has touched us all to closely to remind us of our mortality and the transcience of Life.But do not underestimate the human race.

Thank God its Friday. Thank God I am alive to see it !!

P.S. that is my sketch of a Barn Owl. A harbinger of good luck here in the East

Monday, March 23, 2020

The Most Important Element In Investing? Part Deux

Carrying on from my previous post in February.Psychology was the most important element number One. Not IQ, not intelligence, not anything. Let us call it EQ.

Which brings me to the second element. Courage or Conviction. As we speak the nifty has gone to 7700 levels and some stocks like Mahindra&Mahindra are at a decade low some are at four or five year lows in terms of price.

The Corona virus pandemic started innocuously enough in Wuhan, China has engulfed the entire world. A billion people in India including myself are in lockdown. The bazaars having hoards of people looking to stock up. The TV full of doom, deaths and sundry.Social media abuzz with conspiracy theories.

Segregate yourself. Your mind and the person you are. The investor and the human being. It is natural to fear for the future - family, friends and the economy.

As an investor its important to find those businesses that will overcome the huge cost that a shutdown has entailed and bounce back.
             POSITIVE      ⇄   BUSINESS CYCLE  ⇆   NEGATIVE

The technique is pretty cut and dried bt what makes the real difference is the ability to jump in when everyone is jumping out! A quote from Charlie Munger-

You buy, how much quantity(versus how much you could), the ability to not let the stock prices going down 20% from your buy rate is what COURAGE of CONVICTION is. I know many clients whom I advised to buy in 2008 and in the short term their fear was borne out as markets fell. Just ONE year later they were ruing the missed opportunity and promising themselves and me that they would not make the same mistake the next time a so called 'Black Swan" opportunity came along.

I wish to remind them that that opportunity has come 12 years later. Will you make the same mistake?

It's so tough when there this so much negativity and so tough to think Two or Four years into the future when your friends and experts, Gurus are stampeding to exit.

At the end of the day KNOW THYSELF is the dictum.If direct equity makes you uncomfortable use Mutual Funds. For everything use %age of your Capital to invest on every dip. DO NOT INVEST YOUR ENTIRE CAPITAL IN ONE GO NO MATTER HOW TEMPTING THE VALUATIONS!

My looking glass says the Nifty can go down to 6000 levels if the panic does not stop. Predictions are pointless.

Process.                                               CCP !!