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....!!!!

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.