A Brief summary of the Micro/Small/Midcap Carnage


(phreak) #573

If there is a trend, it looks like big ticket spending is slowing down while small ticket spending is rising up among the Indian consumer. House and car (and also jewellery) for which people have to take up large debt (except jewellery maybe) are trending down while mobile phones, apparel, fmcg, travel (going by hotel occupancy rates, domestic passenger growth in flights) are trending up. I suspect this might just be the new normal going forward as the current generation prefers to rent than own. The happiness of owning things is replaced by the fleeting yet robust happiness of renting/consuming where the large EMI outgo is replaced by smaller but repeat pleasures, without responsibility.

Does this mean economy is slowing down considerably?

CV (Ashok Leyland up 17%, Tata Motors up 22%) and Tractor (Escorts up 29% and M&M up 17%) sales for October indicate otherwise though passenger car segment is trending down. A bulk of sales in the last few years for passenger cars must have come from ola/uber fleets when there was a considerable euhoria among ola/uber drivers - this correlates with Maruti Dzire sales in the period well. Now the current capacity should be sufficient going forward and that cycle may have peaked last year, going by the avg driver monthly earnings which has come down considerably indicating oversupply. Even the cars purchased are sitting idle at home for most people as congestion makes them unusable and everyone has a two-wheeler to supplement for such scenarios. Metro constructions should only lower passenger car demand for the foreseeable future IMHO.

Housing sales is the backbone of the economy and I don’t think real sales will pick up dramatically unless prices become reasonable/affordable. I have a very negative view towards RE sector barring a few players who are almost debt free and showing sales and holding large land parcels. This is the bigger problem and there can be no real economic growth unless this sector is fixed by letting a few entities go bust. This will of course affect the rest of the economy even which is small-ticket consumption driven and also the markets but this will be a step in the right direction.

These are trends emerging and a rising rate scenario will make these more pronounced going forward I think.


(Devaki Nandan Tripathy) #574

Diwali sales happen almost weeks leading to Diwali culminating at Dhan Teras. No one plans to buy anything on Diwali as almost everyone is busy on festivities. So view is almost always clear by Diwali itself.

CV sales are up due to increased Govt infrastructure spending in last couple of years based on higher Govt revenues riding on low interests, higher global growth and benign crude. Let’s see how the infra spend holds when the tables turn. As far as tractor and other agro equipments are concerned, it’s not a reliable indicator as, as such a substantial number of farmers have no intention of paying back and intend to wait till next farm loan waiver. :grinning:

If passenger car sales are down due to Ola/Uber bubble burst, why are two wheeler sales are down by 15-35%? Does it not indicate rural distress?


(phreak) #575

Not sure where those numbers are from but what I saw indicated the contrary for October.

Hero Motor Corp recorded 16% growth. Honda 12%. RE 3% (they had production issues I think), TVS Motors 26%. Bajaj Auto 32% and recorded highest ever monthly sales. Suzuki 34% growth. All YoY growth.


(Devaki Nandan Tripathy) #576

Found this chart for October 18 car sales. Trying to find similar breakup for two wheeler sales which will clear the air about this confusion.


#577

Ford and Fiat are dying brands in India. We should not read too much into these. Maruti, Huyndai, Honda, M&M and Tata should be reasonable indicators.


(donbox5) #578

The image enclosed by @devaki.tripathy does include auto sales by all manufactures, please just click to expand it or have a look at the same at http://www.autopunditz.com/news/indian-car-sales-figures-october-2018/


#579

Thanks. Looks like flat to low single digit growth. Few reasons I can think of

  1. NBFC financing issues due to liquidity crunch.
  2. Strong growth in urban segments earlier would have led to much higher base now. Urban middle class has lot of investment stuck in RE.
  3. Growth seems to be shifting to rural India with government focus. Tractor sales indicate that.

(Rajkamalpol) #580

On a slightly different note not related to investment that is a tragedy as we will only have the Indian brands plus a little bit of Honda and Hyundai.

That to car lovers with not a load of money is sad for Maruti undoubtedly sells some of the worst cars in the world.

Note: On a side note if the per capita income of India were to rise rapidly Maruti will have the biggest problem as they have very limited knowledge of making real cars (above 15 Lakhs or so).

@Mods - Please remove if required.


(pkk123) #581

Nothing much to read in slowing car sales growth. Its a worldwide trend. https://www.team-bhp.com/forum/international-automotive-scene/201799-car-sales-slowing-down-worldwide.html

There are several reasons that come to mind:
#1 High fuel prices. in 2013 also auto sales had fallen when oil went up.
#2 People waiting to buy electric cars. I am one of them. Driving a 10 year old car but don’t want to buy another petrol/diesel car.
#3 Reduced need. Wifey always wanted a car. Last few years because of Uber she now says she has no need for one.
#4 Doorstep delivery. We get supplies from amazon, milkbasket and food delivered from zomato.

I used to love driving but now it seems like a chore. I guess that’s how most people in cities feel about driving now.


(pkk123) #582

It is the first time in India smartphone market when all top brands strengthen its quarterly performance. The India smartphone shipments in Q3 2018 grew 24% Q-o-Q and 5% Y-o-Y , indicating a sizeable number of mobile phone users in India are upgrading to smartphones.


(Chirag) #583

I have been thinking of writing this for more than a month. But the reason I delayed it was because I wanted to live through what I planned on sharing. And now that I have followed my thought process for more than 2 months, I am penning it down.

Let me start with some points that we already know. But it is good to be reminded of them anyway:

  • Corrections are part of the market cycle.
  • If there is bull phase then there will be a bear phase.
  • The way we feel happy during bull phase, it is normal to feel sad during the bear phase.
  • A stock is hardly ever perfectly priced — it is either over valued or undervalued.
  • When the stock is over valued we will be surrounded by news and views yelling why the company is so great and why the stock should go even higher. And when the stock is under valued we will be surrounded by news and views yelling why the company sucks and why the stock should go even lower.
  • Eventually all PE of all stocks will reverse to mean, either via time correction (with EPS catching up) or with price correction (with price falling).
  • Sector rotation is real.
  • Companies with honest managements will definitely bounce back both on earnings and stock price front.
  • If you have fresh money to invest then look at companies that you always wanted to buy during the bull run but found them expensive.
  • Remember: If is better go buy great company at a fair price than buying fair company at a great price.
  • While buying always buy in SIP mode. No one can buy a stock at its bottom all the time.
  • If you are too scared to invest in a company’s stock directly than invest in ETFs like JUNIORBEES an NIFTYBEES.
  • Remember the fun fact that, stock market is the only place where people want to buy things when they are expensive and not when they are cheap!
  • You will make more money only when you buy when stock are cheap. But stock don’t trade cheap without the accompanying fear and negative news flow.
  • Make sure you are having a balanced portfolio. Al least 5-6 sectors and 2-3 companies in each sector across market cap.
  • And finally, if you believe that India will grow at 7-8 percent with an inflation of 4-5 percent then you are bound to get 13 percent plus returns from all above average companies! So, if you believe in the Indian growth story then you have to stay invested in Indian equities.

So, what helps me get through such times:

  • Go through all your holdings and ask the following question for each company: I had bought this company with such-n-such premise, has anything except the stock price changed on that fundamental front?
  • Sleep through the crisis: While it is not possible to literally sleep off for 2-3 months, you can do the next best thing:- Stop seeing news and reading newspapers. Stop visiting investment forums. Unsubscribe from investment related WhatsApp groups. Stop logging into your portfolio. Stop checking the stock price of the companies that you hold. Stop discussing stock with family and friends. Basically act as if you are not invested in the markets at all.
  • Don’t take an emotional impulsive decision based on something that you read or heard from a market pandit or a friend: There is a chance you will get swayed by all the negativity on the news/views front and the stock price front and will end up making a stupid emotional mistake if you try to make sense of the situation by listening to experts. Believe me when I say experts have to say what they say as that is their job. They have to act like one to be invited on the shows. But it is very likely that most of them are not much better than an average investor. You will hear people justifying the market move by using various parameters like, price of oil, inflation, INR-USD rate, asset liability mismatch, credit shortage, rate hikes, rate cuts, Indian elections, geo-political climate etc etc etc. Eventually if experts see a hole they will find a peg to hammer it in! So stop trying to analyze the move. Just make sure the companies that you are holding are performing as per your expectations.

(sarmams) #586

Excellent Post!! I think, majority of us have been going through these times for the last few quarters and I firmly believe, if nothing else going through these times will strengthen our resolve, ponder over our mistakes honestly and appropriately position oversells for the next up swing. I guess, one great learning for me in these times is not to be a preening duck during bull run. This would catch the attention of one’s friends/relatives. And, I have noticed that with half baked knowledge about stocks/investing, they start punting on all and sundry. At the end of the day, when they notice that most of their stocks are in red/going to incur permanent losses, they vow to themselves not to return to stock market again in their life time. During bull market, investing appears to most as one of the most easiest ways of “minting” money on a daily basis (where as its the time when one should remain extra cautious and lie low). During tough times, investing is the most shunned away activity and you hardly hear about it from any one around you (and exactly the time, when one should go all out).


(Devaki Nandan Tripathy) #587

I think the conundrum is solved by analysis of the sales data. Manufacturers book sale when they bill to the dealers and this data shows MoM and YoY figures, whereas the ET article as well as the articles below talk about secondary sale by the dealers to the customer. If the news reports are right, much of September/October sale may now be lying as dealer inventory.

I think that clears the mismatch between company sales data and news article figures.

and


#588

Agree with you, I have entered the market when the tide was lifting all boats and I have seen profits, my PF was almost green. Like you said, it all looked easy. When the tide started turning, I could the overpay resulting in losses. But I am lucky to have seen rising and falling in less than a year, the losses taught me lessons, they still do. I understood that if you have done your research well, you should be buying when they fall and not shut the door, so learning bit by bit, day by day.


(Growth_without Debt) #589

(Chirag) #590

The sub-head line reads: “sanctioned home loans are not being disbursed”. Now this is definitely a very serious issue!

But when you read the article, not a single NBFC that has failed on sanctioned disbursement has been named! Not one! Article use words like “various players”, “they”, “them”. This type of reporting goes against the very basics of journalistic ethics and amounts to fear mongering!

I would like to know if any of the top 10-15 HFCs (HDFC, SBI, LICHF, HUDCO, ICICI, PNBHF, CANFIN, GICHF, IndiaBulsl, Repco), has failed to disburse a sanctioned loan.

This Is the very thing, I am trying to avoid. This is what I wrote in my detailed comment 3 days back and this TOI article is a prime example on why news/views should be avoided!


(David ) #592

Final conclusion looks scary

(vikas kukreja) #593

Interesting viewpoints, however, I have a different view.
Generally speaking, CV industry lags passenger cars industry by 3-6 months. Hence low car sales might be early indicators for CV demand going down in future. Also, we need to remember, passenger car sales growth was strong last year and hence growing on high base might be tough. While Metro, Ola/Uber do impact car sales, my view is their impact is not very significant (<20%). The dip has to do with the combined impact of the car price increases this year due to a substantial increase in raw material (steel), Insurance regulation change and higher oil prices. Going forward I see a benign situation for passenger cars, hence better demand as steel and oil prices take a breather. However, the same factors that impacted passenger cars might impact CV industry and they might feel the heat in near future.
Disc: Ex-Maruti employee and currently working in CE (Construction Equipment) industry


(s) #594

There has been a aggressive push by Tata motors in terms of new models & aggressive pricing. Resiprocal response by competitor sucking out future demand. Demand is never infinite.As most of the demand has to be created by marketing & some demand is created by low interest. credit cycle turning making that factor negative. More over Indian automobile sector has been in a relentless boom for over decade being reflected in maruti, mahindra. Bajaj & Hero honda… Need to see what have the manufacturers got in their pocket to entice or expand export portfolio


(Changu Mangu) #595

Thank you for sharing. Mr Raamdeo has hit the ball out of the park. The above 2.5 hour video is mandatory watching for anyone investing. All those things that many of us felt intuitively but maybe did not understand very well are clearly explained. And he is being highly rational. Delight to watch and learn from.