A Brief summary of the Micro/Small/Midcap Carnage


(Deepak Venkatesh) #510

Hey Shailesh

RBI regularly cancels NBFC licenses you can look them up on RBI site. It could be that they are cancelling more post Aug 18. I think they cancelled 40-50 NBFC in CY17, ~120 in CY16 and so on. Lets not start writing in Caps and calling it a bomb.

You can check out notification section for all cancelled year wise.

Rgds


(Shailesh) #511

Kindly share any link or statistic if you have for last 5 years , so we can understand gravity of this issue .

The press release is void of any info why they are cancelling the licence and what will be collateral impact on agencies who financed them . For me this was a disturbing piece of info …


(sarmams) #512

In simple terms to my mind, this cancellation act can be termed as regular cleansing act by RBI…only, during times like these, such acts gain prominence and are looked into with a cautious eye. And we tend to link it up with other (negative) events in the market to derive a non existant reasoning. If we see the list, not a single entity looks prominent to me. For me, nothing unusual about these releases or for that matter, SEBI investigating unusual trading activity in some stocks during times like these.


(yourraj) #514

This melt down is really scary and the first in my investment journey .
if one is interested than one can find the List of NBFC whose registration cancelled RBI as on 11 sept 2018
https://www.rbi.org.in/Scripts/BS_NBFCList.aspx

No Gayaan bani but I know one thing" That THIS WILL BE OVER and NOTHING is Permanent "


(Gagan) #517

Dear All, Appreciate your thoughts on the scenarios for the next 2-3 years:

Current Scenario as I understood:

US Economy doing well --> Tightening Liquidity in US–> Yields rising–> Dollar Squeeze–> All Emerging Markets currencies depreciating against USD–> Capital Outflow --> EM Equity in correction/bear phase.

India specific: in addition to above India is more vulnerable due to Oil rising + Election & policy uncertainty.

2017: it was exceptional due to the huge flux of liquidity from Demonization, which caused rally despite FPI continuous selling.

Possible Scenario for the next 2-3 years: as per Ray Dalio :slight_smile:
Ray Dalio:

Domestic and foreign demand for U.S. debt won’t keep up with the nation’s borrowing needs, and the Federal Reserve ultimately will need to print money to fund the deficit rather than raise interest rates. That will result in a steep depreciation of the dollar, said Mr. Dalio. The greenback could fall as much as 30%, he said.

https://moneyweek.com/495559/ray-dalio-beware-a-dollar-slump.

USA: Tight liquidity–> Slow growth–> Money printing to balance Credit/debt–> Inflation = Dollar Depriciation—> Capital Inflows for EM…? --> EM Equity Bull Market…?

Mainly I am concerned, will the inverse relation will also hold true that Dollar Depreciation --> Capital Inflows for EM or India?

In an optimistic scenario: As I am optimistic and I think in long-term India’s growth & fundamentals will improve, as EV(Electric Vehicle) Revolution can take care of Oil pain as 65% of Global Oil Consumption is for Vehicles which can be electrified, and scarcity of growth across the globe can give India equity premium as well with FPI capital inflow.

In Most likely scenario: India keep doing what it has always done, disappointing both optimistic & pessimistic, and have just enough reform & growth to have further hope.

In Pessimistic scenario: India again misses EV revolution and AI + Robotics makes China & US much more efficient & competitive, India gets Jobless moderate growth, last standing consumption theme also fades away.

Investment Approach:
Currently I am invested 55:45, earlier it was 45:40 also 15%PF short on(credit linked stocks- Auto, Finance, Real Estate), recently moved 10% more to equity also added some Gold ETF, and plan to invest only income from debt PF till US growth is good, also I intend to go up to 80-90% allocation to Indian equities (Demoestic stories mainly) whenever there is a crash or US growth slows and inflation=Dollar depreciation starts, which in turn could start capital flows back to EM and India.

Just want to have other member views on the approach & scenarios, if this makes sense or i am just thinking too much? :slight_smile:


(Shailesh) #521

I liked the way you are thinking … but my experience in last 15 odd years in market indicates it is never the same …

Still we can think what can happen in 2019 …

US growth peaks on account of interest rate hikes
US Stock Market declines , but money can move into US fixed income esp if US treasury rate come closer to 3.5%/ 4% …
Dollars continue to be strong as imports decline on account of China tariffs … at least of a year .

China slows down on account of US tariff .
China tries to ease so Yaun depreciates more than rupee and other asian currencies
Chinese exports are more competitive
Chinese oil demand reduces leading to lower oil prices

India post election may have less than majority Govt
Fiscal loosening may happen … leading to inc in Fiscal defict & inflation & rate increases
Fixed income will become more attractive and people may shift money from equity to debt ??
In equity companies with large cash balances will earn higher other incomes and ones with debt will have servicing issues …
Rupee will be weak to dollar but may tag along other currencies


(vaibhav) #522

My projection for USA for longer term is -

  1. gdp growth rate = 0%,
  2. Inflation = 1-2% due to govt borrowing (accumulated fiscal deficits)
  3. real interest rate = 0% which means interest rates fixed by FED to be in the range 1-2% (equal to the inflation)
  4. US Stock market earnings yield = 3-4%. Which means long term PE ratio (cape ratio) of s&p, dow to be between 25 and 33… Low PE ratio era is history.

(JOSE ABRAHAM) #523

All the hypothesis stated by you may unfold. But the truth is market factors in all the negatives well in advance. Hence be nimble enough to get in before the tide turns to take full benefit. Staggered investment over the next few months or years is definitely a better idea. Because nobody knows the bottom and sentiments can take U-turn if FII selling subsides. A lot of domestic money is sitting on the sidelines to be deployed when the market turns. Leverage among the retail is low this time and more retail money is coming through SIP. With the large caps like Asian paints, Pidilite, D-mart etc which were defying correction having started to give in and the pace at which they are falling the bottom may be hit sooner than expected.


(Abhishek) #524

Dear Mr. Changu a.k.a Value Student,

What beautiful posts! I too am just like you - a novice slightly more informed than an average retail investor. Since the last 2 years my thought process has developed just like yours - which is to recognize that. I have been telling several of my colleagues as well as friends since mid 2017/early 2018 that the time for novice investors like myself is over and if one is to make money over the long term from here it is the job of “professionals/excel gurus/DCF champions.” Only important thing is - “professionals” are looking to make 25% CAGR, ill be happy with 18% CAGR even if that means losing out on some opportunities.

The last stock I bought was in November 2016 right after demonitization. After that, until June 2018, I didnt buy a single stock. Every time “the market” and by corollary, my stocks went up, I sold a little bit more. I sold out of most of the crap in my portfolio but found it much more difficult to liquidate the HDFC Banks/P&G’s/JubilantFoods /Ajanta’s of my portfolio and was left hanging with them when the market crashed. Fortunately however, by June 18, as a result of more selling and no buying (and flow of salary income) I was sitting on 45-50% cash not because I attempted to “TIME” the market but simply because with my limited knowledge and limited time (I have a day job), I just couldnt get myself to hunt for the needle in the haystack - that 1 undervalued stock amongst hundreds which are “richly” priced.

To find undervalued stocks with this kind of “market” valuation (as peter lynch says - if 1 stock is expensive there is a good likelihood others are expensive too!) there were 2 ways you could do it:

  1. Have some insight/foresight that others (including many of the highly informed) didnt have and realize that paying 80 times trailing earnings is actually cheap because this stock is priced to grow at 20% for the next 7-10 years but is more likely to grow at 25% instead - A WHOLE 5% MORE!

  2. Have some amazing scuttlebutt skills/idea sourcing skills whereby you could see a turnaround just around the corner (something not even remotely reflected in the numbers yet) and thereby make gains from that

For everyone who couldnt do the above two (or some other genius way of finding undervalued stocks), it was better to not let the FOMO feelings take over. A lot of the stocks that I didnt buy after November 2016 are much more expensive today (in terms of absolute price) than they were then but most of them are cheaper or as cheap in terms of valuation metrics and I feel much more confident deploying capital today!

Going against the grain of lessons taught by “professionals” to other “professionals” I feel it is important to even start trimming even celebrated names like P&G when they reach 85 times earning with high single digit growth or low teen growth or Ajanta Pharma when they reach 40 times earning with headwinds on the foreground as opposed to riding the momentum hoping that they will only time correct and the fact that it is impossible to “time” individual stocks and the market.

No matter what kind of an expert you think you are, always remember that when ideas are scarce, it is time to excercise caution instead of finding the needle in the haystack even though you might have the actually have the ability to find it! Investing is as much about managing risk against reward as much as it is generating the incremental alpha year after year every year. I feel it is ok to under perform and take sub - optimal decisions sometimes with the view to keep risk in check.

Would be interesting to hear the views of @dineshssairam since he has been such a staunch opposer of this view!

This is what makes this forum so great!


(vaibhav) #532

100-year log chart of SnP 500 -

downside may not be as much as some fear…fair value as per the trend line seems to be arnd 2200…(to an extent, it depends on how one draws the trend line :grinning:)

edit: have drawn trend line on 100 yr log chart of dow jones index as well…fair value as per trendline there is also arnd 20 percent below CMP…


(PKumar) #533

Thanks. This is useful.
One query - do you have anything similiar for India indices ? Also so you think there is good co-relation between US & Indian indices ?
Just want to understand if US market behaviour can be employed to predict Indian market. More like an early warning system :slight_smile:


(s) #534

Some sweetness added to the timing the market viewpoints


(Hitesh Patel) #536

I think it might be a good idea and a prudent policy to keep arguments to civilised levels. Before rebutting someone with a torrent of answers and arguments think hard whether you are adding any value to other guys reading the discussions on the forum.

A lot was written about Warren Buffett’s intentions in closing down his funds in 1969. His utterances and writings can be interpreted and misinterpreted in multiple ways but it takes us nowhere and it wont add value in any form.

So lets keep up the level of the discussion on this forum and try to add value.


(paraa) #538

A few points which i feel would add quality with respect to this thread are
i)Discussions with data about past similar corrections and inferences from them to navigate the current correction
ii)State on the current correction and opinions moving forward
iii)Technical indications for gauging the direction of the market


(sachin50) #539

"Why is a Guy with a system always welcome in as casino"?
This is an old Las Vegas saying that applies equally well to financial markets. Having a system gives people a sense of security - nothing can go wrong. Every time one walks into Mandlay bay or Bellagio in Vegas, he is reminded that all these fabulous structures were paid for by people who thought they could beat the blackjack tables. The owners of Luxor borrowed $550 M over 20 years to build their place, they were able to pay it off in less than three. Tell them at the front desk that you have a system, and you will most likely get a presidential suite and a private table.

Every trader has different dominant personality traits that he uses to absorb information and relate to the world around him.

From : Mastering the Trade by John F Carter.

For the sake of self pride or whatever, one can keep debating / arguing , but does it really helping anyone.


(Anupam) #541

Mark Mobius has applied to SEBI for permission for Mobius fund investment in India. Recently see him very bullish in bear market. Few links


(Anupam) #542

(Multiplier777) #544

Many landmines will be discovered in the micro/small cap space once the tide of the bull market has turned. One such name appears to be Tiaan Ayurvedic and Herbs Ltd (though I am willing to be corrected). Key point to note is how the promoters have gradually sold out and reduced their shareholding to an abysmal 8.6%.

There will be many such cases worth discussing and lessons learnt for life (not that I invested in this).

TIAAN Ayurvedic and Herbs Ltd

  • Till 2016, a finance company. Name changed from Rachana Capital to Tiaan Ayurvedic & Herbs Ltd

  • Entered the Ayurvedic sector

  • Started trading with no manufacturing operations

  • FY2017 sales Rs 53 lakhs

  • FY2018 sales Rs 10 crore

  • Preferential allotment of shares at Rs 18.69/share (July 2018)

  • Stock price moves up from Rs 7.4 on April 3rd, 2018 to Rs 163.85 on October 24th, 2018 (YES, increase of 22 times in 6 ½ months)

  • Announcement of launch of Tiaan brand of ayurvedic products on October 22, 2018. Market Cap reaches Rs 84 crore.

  • Stock price turns south from October 24th.

  • Check the promoter holding; promoters continuously lowering their shareholding

    • September 2017 (33%)
    • December 2017 (26%)
    • March 2018 (24%)
    • June 2018 (14%)
    • September 2018 (8.6%)

Tiaan Brand October 22, 2018.pdf (364.7 KB)
Tiaan Pref Allotment July 2018.pdf (558.6 KB)
Tiaan March 2018.pdf (2.6 MB)


(Dinesh Sairam) #545

Stupendous thought process by the Professor! Although the post isn’t strictly related to the Indian markets, the key takeaway for me was the way in which an investor should conduct himself during a market downturn.


#546

I do what the Professor says, although not so precisely. Just like a change of scenery helps, a pause and a look from some distance helps assess the picture. Nice share, thank you Dinesh.