For me hunting ground would not include commodities. Slowing China is a bigger force than anything else and I would like to go with exporters which can maintain pricing power to benefit from Fx tailwind. China has already started loosening regulation. Just check coal production which is bouncing and they have to support their own currency.
Select Pharma - No holding as of now but looking at few API players
Domestic stories - continue to own Delta, Saregama, Repro unaffected by macro and not leveraged either. Waiting for Dmart to fall further
Select IT - yet to find one which can maintain pricing power. Bias toward Midcap
Other exports - own Sterlite Tech. and still looking for others.
Fast growing/recovering banks – Still evaluating. May be Bandhan and AU small Fin banks on correction
NBFCs - Continue to own Edel, Manappuram and added Muthoot Capital in correction. All these will gain marketshare and thrive in the medium term. I am very confident that they can maintain 20% RoE and investors will return eventually. Banks can’t encroach most of their businesses.
SMEs - evaluated few but won’t add as of now.
Raised cash during Jan- March upto 40% of PF. Have started deploying slowly.
As usual, I will stay away from pure commodity HFCs, highly valued domestic consumption and other leveraged businesses.
One thing I am sure that I will not go down the quality ladder irrespective of valuation.
Also, stay away from theme stocks i.e. business that have yet to prove though I have one too (i.e. Repro)
What I think is problem was plenty of money of sip and all chasing few good scripts. Problem is excess. I had seen few years back where all portfolio in the world had Infosys . And hence a time came where after certain stretched valuation their was no new apatite for Infosys. Same has happened this time. Everyone where running after only few good scripts. So they were going up like anything.
Now it’s reversing. So when selling comes even by one or two players all are scared as their are no new buyers and no apatite in lower price as all have the sscripts already in their portfolio.
I too agree. In these tough times , if some stocks are not correcting , what should one interpret with that. Will they rise fast once market rebounds. I am tracking Gujrat Alkali , Valiant and Deepak Nitrite which are holding their levels strongly.
Hitesh, I have a different view than some of the things you have opined -
ILFS issue is the only credible one as of now. The ILFS issue is due to problems the company faced with infrastructure sector, not the real estate sector. Supertech issue was a speculation. A brokerage selling DHFL papers was speculated beyond reason.
This sounds like speculation. Is there any issue with Indiabulls housing known in public domain?
All the great investors have made making big money because of their contrarian calls . Just because NBFC sector is going through a phase of uncertainty is not a good enough reason to avoid the sector altogether.
This again sounds like timing the market. How will an investor know when the bottom has been hit?
I was looking at Insider trades from July to Oct to determine which are the promoters Buying or Cashing out in these tough times. I took the data for buy or sell above 15 lakh and only Market purchase or sell and Rights issue.
We can look at buyers for starting our shopping list in these times when market is offering so many buying opportunities. I would request members to provide info about the companies they track if they see names in buyers or sellers
Among the ones I track, I see following names among buyers:
Welspun Enterprises ( Though net buy looks less because there was a sell/buy transaction between promoters as well)
Pls do consider the market cap while comparing the net buy value.
Great to hear some contrary views. Makes me think things again.
Coming to the issues plaguing NBFCs, since you feel IFLS is the only credible issue, you need to consider the fact that fund raising for a lot of NBFCs is getting tough and interest rates paid to get funds are going higher. And if and when lending rates go higher demand is likely to shrink. Growth rates of these companies are unlikely to match those in the past and that could cause PE Contraction part or most of which might have already happened.
About IB Housing, I cant quote anything in public domain as of now. If and when things turn ugly we can take it forward. But one thing I have noticed is that such severe price cuts dont happen without reason. If it were mere panic prices would have already bounced back strongly.
Regarding all great investors making contrarian calls and making big bucks, one cannot be a contrarian for the sake of being contrarian. One needs to be a contrarian and be right to make money. Whether that time for NBFCs is now or later would need to be seen. And I am not at all arguing to avoid the sector altogether. I like and have bought bajaj finance in recent meltdown. Problem is when to latch on to the sector. At present some of the stocks in the sector appear to me to be falling knives. Maybe some day it will unfurl a lot of winners but I would like to atleast see these stocks stop falling before taking a call on them.
Regarding market timing, I think one has 3 approaches to take while facing situations like the current one. Buy on the way down. Or buy on the way up. Or buy when stocks stop falling and move sideways for some time. One has to pick an approach according to what suits one’s temperament. I would avoid buying on the way down as I am usually not too sure how low prices can go. Except in some cases where I have clear visibility of earnings and minimal variables affecting the business atleast for next 2-3 years. And moving from one sector to another according to me is not market timing. Its sector switching.
While all the greats have preached great things about investing, one needs to evolve one’s own investment philosophy and temperament. And some times one has to change views if facts change. e.g Warren Buffett buying into things like Apple, IBM and so on inspite of him publicly acknowledging about his lack of expertise in buying outside his circle of competence.
The risks I see for Indian markets are rupee depreciation, crude price rise (both of which have manifested and I dont konw how far this will go on), political scenario with impending elections in states in December and central elections in May. Plus FIIs pulling out money continuously due to reasons best suited to them. The latter has partially been mitigated by pouring of domestic MF money but one has to imagine a scenario if and when domestic MF start facing redemptions.
I can see some relative strength in sectors like pharma, speciality chemicals, select IT companies etc. How these too fare going forward needs to be seen.
I think next few months can be a good time to carefully study good companies and the tailwinds affecting them and buy in a staggered manner.
Hiteshji has correctly summed up the present state of the market. Pessimism is deepening and the mandarins in the finance ministry and the RBI are not articulating clearly as to how they are going to tackle the tightening liquidity and other economic challenges India is facing. When great economist like Manmohan Singh or Reghuram Rajan were at the helm, the perception was that, come what may, they were capable of managing the challenges. The perception about the finance ministry and the RBI at present is not helping the situation. The blunders like demonetisation etc have only enforced the view how clueless and arbitary are the political masters in handling economic challenges. The market may go up or down but the Goverment/ RBI should promptly take action to contain economic disruption and ensure that things are not allowed to drift.
The market has definitely drifted into a bear phase. Those who bought thinking that it is a bull market correction like me are trapped. Every bounce is being sold into.Once the small/midcaps were correcting, investors took refuge in large caps. Then came the sell-off in NBFCs. Now the investors will flock to the few bellwethers which are standing tall and they too shall come under selling pressure before long. Disappointment, despair and disgust shall follow. Many investors who joined late in the market shall leave in disgust. Now the dreaded question is how deep this correction will go on and how long it will take to recover. In the long run, all this does not matter. In my view, this market will stabilise only after many supports are taken out and many new lows are hit. These are my personal views formed while recollecting the emotions experienced by me during the drawdowns like the tech crash and 2008 one. During those days, I would think the market had corrected so much that further corrections would not happen. I would go out and buy and at the end of the day see that my portfolio was tanking equivalent of the value of the new purchase. Presently my experience is same though I am holding back from substantial purchase. If the views expressed by me are not proper on this forum, the moderators may delete the same.
As rightly put by Hitesh: Surprise, denial, and disgust are what sums up a bear phase. As I had written earlier this is our LEHMAN moment. The index constitutes 40% by weight as financials. Every industry is connected to these financials. The contagion effect is evident to some extent and it may get worse before it gets better. The bottom line of many companies is not hit as much as sentiment is now with skeletons rolling out of many cupboards. Mark Minervini in his tweet a few days back has said he is on 100% cash now. If the US now catches the bear flu there will be few places left to hide.
Somedays back, phreak attached a very useful graph if investor behaviour in Bull and bear cycle. I can correlate that with our market now. Jan 18 was euphoric, Feb Apr period, thank god i bought this stock at goid price, Apr to June, it will recover, Lot if correction happened, lets buy more. July August, 18, am i investing in right stock? Why its going down despite 9 months. Sept - Oct 18, this is clear bear market, i will sit on cash only, will not invest ir waste my money in stock market, lets look at FD or NCD market. It coukd have been better to spend money on family outings. Nov -Dec 18, lets sell off my holdings and save my Capital as 2019 elections are near, Market will further tank and i will loose my investment.
Jan 19- Feb 19, thank god i quitted market on time, Midi lost election, sensex will go to 20000.
Mar-May 19, what is happening? Why market is rising, rupee is depriciated, political instablity, this is false rise, market wil come down for sure.
June 19 - Oct 19, its all operator driven market, useless, i will never invest again as it will come down.
I hope we are in last leg of this sharp and deep correction.
The urge depends upon your equity allocation vis a vis your networth . If the equity allocation is small and your monthly cashflows are not dependent upon equity returns … One should not sell unless he feel he has made terrible mistake in analysing the company …
However if equity allocation to your networth is high + you are dependent upon returns on equity for monthly cashflows things become different …
With this base I will explain my case … In 2008 - my equity allocation vis a vis networth was low . I was in primarily in fixed income … so I used 2008/2009 to build equity portfolio and I could hold my urge to sell as losses in absolute terms were less ( though % wise it looked big )
In 2013 - My allocation had increased but still i was luckly I had stocks which did not fall much so I sold FMCG stocks and bought mid caps which were very cheap … I had detailed in BULL in BEAR Market thread .
But now my equity allocation in 2018 was high 70% but my dividend income more than takes care of my annual expenses . So I used interest income to invest in beaten down stocks plus small rotation across stocks ( on relative valuation ) + reducing fixed income allocation ( planned to be reduced to 20% from current 27% ) .
Plan of shifting from Fixed income to equity at daily level of X / 180 days … 180 is approx no of days from Sept to May 2019 and X is total amount of cash to be shifted from fixed income to equity
Hitesh Bhai I’m new to the markets but have a few things to say here
1} If we are comparing the current corrections to the ones in 2000 and 2008 and comparing today’s housing finance theme to IT of 2000 and RE of 2008 , the key difference I feel is the lack of gross overvaluation before the crash . The stocks which fell the most I.e dhfl and indiabulls were not trading at extreme highs to begin with in the 1st place
2} For somebody who is new to the markets and with my limited understanding of value investing , if I see a company with 6 % dividend yield ,14 % earnings yield , 20 % growth and 30% roe , I’m bound to get excited at 7 pe . Hearing some concalls tells me management seems OK . How then should I identify if there is something fishy in this company (indiabulls ) and not get carried away by the apparently OK looking management and great numbers and bet my hard earned money .
Quality companies generating 10% growth still above 50x cashflow earning and we r thinking we r in bear markets . If this is bear market then we ve not even reached half way . We need minimum 30% correction from here in quality names to call it bear market. Mid n small caps were super inflated n with rising interest rate n crude , the luck factor of margin growth is out (had blogged a post analysing data of 2000+ companies 5 months ago) .Reality hitting . Bear market type correction is far far away. We don’t get bear market valuation when companies growing in single to lower double digit trade 5x growth rate valuations .
Your post has left a deep impact on my thoughts.
I have been reading this forum for some time now although I created an account only few months back. Your mental toughness to stick with your core view in the last few months must be lauded.
Coincidentally, today was also the day I had a conversation with one mentor I keep looking up to. He also shared a similarly impactful story.
Back in 2003-2008 he said many investors in his circle had turned multibaggers. Some had newspaper articles written about them, some came on TV as experts and some were considered as Gurus on Internet.In my own experience, a close relative closed down his family business and started a trading terminal with large capex. You might
Be wondering why I am telling you this… he said.
Well it turned out, post the crash of 2008-09 and subsequent relatively lower growth / change in status of some sectors in 2011-13, many of them lost out on sizeable chunk of their multibagger earnings.
He said it is as much important to make wealth as it is to retain it. Growing your portfolio 2x Nifty CAGR is great in a bull market. But what about ensuring that it doesn’t fall 2x Nifty CAGR in a bear market.
Bear markets (and corrections) are a painful reality check on ones conviction and beliefs.
People will find all sorts of logic to win their conviction argument, but sometimes we forget the simplest of the truths.
Even Ben Graham in early 20th century wrote about how a defensive (not active) investor must shift towards debt instruments when the valuation multiples cross their average.
Currently the fall in Nifty Standalone PE brings it to only 24-25. Still much above historical average.
People forget that small cap index which has fallen by a third in 2018, had risen by more than 50% in 2017.
But instead of keeping this thought, we (atleast me) get tempted so easily when a watchlist stock falls by 20%.
I think I’m going to rely more on these basic logics from now onwards.
On the topic of timing the most important question to be answered is - when markets start falling and continue to fall, at what level do you start deploying money?
After some amount of thinking, here is what I am doing (this obviously takes into account my own temperament, my own historical behavior and my investing philosophy in general) -
There will always be a level below which stocks start signaling an attractive risk reward ratio (as per your own framework whatever it is). Irrespective of how bad the near term market prognosis looks like, from these levels you have a good chance of making above average returns over the medium term - which I define as 3-5 years time. Once my set of stocks dip below these levels, I will start buying
I am more comfortable buying on the way down, I can do this because I am a natural optimist. How I hedge my optimism is by ensuring I do not run out of ammunition (cash) too soon
All my selling is always on the way up because once I see that the risk reward ratio has inverted, it makes sense to take money off the table
At an overall asset allocation framework, I am comfortable running with 60% equity. In corrections like this one, a 10% fall in the market anyway brings down your equity allocation which is a simple signal to buy and bring the allocation back to 60%. Sounds very simple but is pretty damn tough to execute. On the way back up whenever it is, it then becomes important to sell whenever the equity allocation crosses say 70% - what I sell I will need to decide at that point of time, but sell I will. The consistency in execution is the key here more than anything else.
This is an attempt to combine principles of asset allocation and bottom up stock picking, let me see how well I can execute this during this correction and the subsequent rise whenever it comes. For the time being I do have some cash which I am deploying in stages based on some logical trigger levels I have defined.
OK, I will bite. But before I proceed please take my disclaimer: I am a novice. What I think and then sometimes write here, is something that I have felt (might be wrong) can help me, a novice swimming with sharks. I am not an excel ninja that Microsoft would envy, nor a guy with a PHD so powerful that I could develop a microprocessor. Nor am I a sophisticated investor who can see the future of enterprises. So then who am I. I am just slightly above the regular retail investor who is clueless. So I am a slightly better informed retail investor. This will help you understand who I am, and who most investors are; clueless to many things. We are not stock market or excel experts.
So here is what I shared with a friend, I will share with you.
In the last 2 1/2 years, I have learned that the stock market is 50% mathematics and 50% psychology. And if anything you have to spend time to learn a fair bit of both.
So sir, this novice will answer your questions; although you ignored many points and choose selectively I will stick to the ones you picked on. Fair.
Sir. I will wait for the Market PE to cool down :). I may miss one of the worlds best opportunities in the above stock specific situation you mentioned, but when the index PE reaches 17 (it always reaches there) I will have not one but fifty choices. Please remember I am not a ninja sir. I am a family man. I have to preserve capital. I will wait sir.
Sir, you have engaged me. So I have to answer. Sir, as you rightly said and posted the article from the States, active funds don’t beat the index after fees. I will get returns only after fees so if I am in the states, it is obviously better to buy index funds.
On the article of India, you really have no clue mate. First and foremost, the funds are formed in incubation. For example, the fund house will launch 10 funds internally with a corpus of 1 crore each. They will let then run for a few years. At this time no money is taken from outside. After the end of the period, whatever fund outperformed the market is started to be sold with CAGR returns of those last few years (where it was not open for subscription, but date of start of fund is kept as original so it is a dates fund). The others, the funds which lost money are quietly closed down and no one knows they even existed. Then the initial high CAGR keeps the fund going for a few years. If they get lucky the fund actually performs for the real retail investors for a few years after being open to subscription.
And here’s the funny thing, do you know what is done to loss making funds once they are open to public (the time is coming soon for this to be done again) they are merged with another performing fund in the name of simplification and the dead body of the dead fund is buried and never heard of again. That sir, is how it works. Having said that, there are many many honest funds and fund managers in India. I don’t want the name the bad apples, but I also don’t want to name the good apples. One can easily find them.
Ok, here’s the last one from Mr. Lynch. But I would recommend you read the entire 4 pages on the PE ratio starting from “More on the PE”. This one is just to clarify.
So back to my original point, me not being a sophisticated investor, I will for real deployment for when as I said above exist 50 things to point and shoot at, rather than when there is only one thing to shoot at since everything else is expensive.
And I will tell you sir, with your good knowledge of excel that is where people like you will prosper most, because you know how to calculate future earnings etc and will not end up picking junk. That is where your excel is not worthless. But in a frothy market like today, it is useless because everything goes down together to when the market is overvalued.
Asian Paints has started the game today in blue chips, lets see where it leads. As per Mr. Lynch, the blue chips are still in Wonderland. Page, Asian, HUL, Nestle etc etc.
Sir, thank you for the PPFAS article. That is why in my first post to you I said, an investor can take a call to not sell out and should keep holding their previous old investments. I just said for a novice like myself avoid fresh investments after index crosses 22 PE Standalone.
When people say markets cant be timed (By timing, I assume people mean selling everything and moving to cash), they just mean that they haven’t been able to time the markets. It is a very, very useful base rate though. That doesn’t mean that you shouldn’t try and find it for yourself. If you have been successful, that doesn’t mean that you will be able to do it the next time as well or the time after that. Conditional probability makes base rates brutal as you increase number of the events.
However, I feel increasing/decreasing allocations from 80:20 to 20:80 of the equity portion of net-worth can very much be done by following a variety of indicators from historic valuations both of the index and individual stocks, technicals, fund-flow, long-term trend-lines (this alone gives a very, very good idea) and to a lesser extent, rates and currencies. Avoiding endowment effects and selling is not easy though and requires a healthy dose of skepticism.