Many analyst have missed out on one big news flow.Bankimg NPAs covered from every other industry or rather all the industries except Real Estate.
I fail to understand that an industry which has huge supply & when there is huge demand deficit from investors & even to some extent even from end users.
Pre & Post demonetisation builders have actually sold out their project in all the demon adjustments. Yet there is not a single NPA in the public domain. How is this possiible. ?is there something huge wave of bad loan coming.from this sector ??
To get some historical context here, the maximum drawdown from the peak in the past 6 years for the NIFTY SML100 is approx 31% which happened through Jan 2013 (the scams breakout followed by the mini macro environment tsunami created by the the Fed Taper tantrum from May onward and the RBI induced butchery of the yield curve in July 2013)
Over the past week we have seen completely opposite movement of the NIFTY50 and the NIFTY SML100, on Thu when the NIFTY 50 was up 1% the small cap fell by 1.5%
The next week will be pretty interesting. If the RBI comes out with a more than expected hawkish commentary, the NIFTY50 may react and one needs to see how much hammering the small cap index takes.
Time to have some cash handy and ready for deployment if needed. Going by the F&O prices traders expect the NIFTY50 to be range bound within 10300 on the downside and 10800 on the upside. Once again note I am not trying to predict anything here, I am just inferring from things from the price movements - there is a very big difference between the two
During this correction we need most of the weak hands to exit the small cap space and leave only the serious investors behind. This has already happened to some extent but we need something that puts the fear of God into people who just hopped onto the small cap bandwagon without being mentally ready for the risks!
After a mega “Mutual funds Sahi hai” campaign, fund houses have great amount of cash flowing in. I believe small cap/midcap fund will be a priority to a novice investor for starting SIP due to historic returns demostrated in last few bull years and the fund houses are waiting to enter at a reasonable valuations.The following popular open ended funds - have significant cash holdings/ invested in cash instruments
- L&T Emerging Business Fund - 11.12%
- HDFC Small Cap Fund - 6.66%
- Axis Midcap Fund - 6.85%
(Source - Moneycontrol)
So I dont see any panic levels in Small/Midcaps/Micro. They are returning to true reasonable valuations .
I posted a note on the my thoughts & perspective on market especially small caps. Refer below link for same
Kenneth Andrade finds that valuations now allow for building portfolio for nest 2019-20. As per him , there are business which can growth with capital infusion in next few years and he is bit comfortable finding bets in small/midcaps.
On a lighter note, a dialogue delivered by Matthew Mcconaughey in the movie ‘Wolf of Wall Street’ could be relieving.
Number one rule of Wall Street-Nobody… and I don’t care if you’re Warren Buffet or if you’re Jimmy Buffet. Nobody knows if a stock is going to go up, down, sideways or in circles. Least of all, stockbrokers, right?
In this apparently steep correction where the notional gains of quite a few investors got battered, the unpredictability of the market is, in a way, relieving. Why?
When a lot of seasoned investors discuss an impending, inevitable steep market correction, I derive solace from this dialogue. The market could go up. It could go down. Hardly anyone knows. It’s futile to worry about things we have no control over.
I lost money in Vikas Ecotech. Losing in Sanwaria.
Himalaya Foods is like Sanwaria. Result wise, it has also not published result in time. Growth is not coming in paper. But no one published red flags like Sanwaria.
Dhunseri petro is also giving me loss but here promotors are not selling anything but added two quarters back. Here problem is many kind of business plan. But it has money unlike Himalaya and Sanwaria.
Others are just fine.
Very well documented @phreakv6. One can also add
- Allcargo Logistics
- Indo Count
- Deep Industries
- LEEL etc in that list
In my humble opinion, it’s still a high tide in the waters as far as liquidity is concerned and the only in the last 2-3 months, signs of drying up are becoming visible. If it does, then stock picking will become more difficult for the investors (In last 2-3 almost every pick made money in the market) which may turn many retail investors away from the market, dampening sentiment.
I would not under estimate the impact of sentiment, even in the background of improving macros. One can take the example of China where valuations in 2015 were so high that till today Shanghai Composite has not recovered from 2015 inspite of economic growth. (Index has moved -36% in last 3 years).
Having said that I feel there are definitely few stories among the BSE 500 companies, where one can still see a good growth of 20% or more in the Value of the business, and one can always stick with such companies for good shareholding returns. What I would avoid buying or sell, if I had are
- Sections of FMCG where there has been insignificant volume growth,
- Stocks whose earnings only grew because they benefited from margin expansion due to crude prices last few years,
- Rate sensitivitie businesses like Real Estate, Construction material stocks
- B or C category NBFCs
Disc- I have 50% of Investments in Cash and have not bought anything in last 3 months
Good n sage points. Are u still invested in your old favorite Garware wall Ropes? Whats your take on it n at what price can one buy it?
Frankly, I think Chinese stock market performance is often beyond a person’s ability of comprehension. Between 2009 and 2014, major stock markets had recovered/were on the path of recovery from the debilitating financial crisis. While, the Chinese stock market was at the same levels despite the economy growing well.
I may be totally wrong in my interpretation. But, I feel that Indian stock markets are more integrated with other prominent markets compared to Chinese stock markets. We tend to, by and large, move in tandem with other markets.
There’s a lot of activity on WhatsApp groups and other social media portals announcing the commencement of a bearish market. It may or may not be. I just don’t know.
But, I must be honest- Seeing erosion in profits as well as the principal amount is weakening. One of the worst feelings ever. And, it’ll probably worsen. But, I’m hopeful that with the support of fellow Valuepickr members we’ll be able to gather the strength to survive this bull market correction/ initial phase of bear market.
As is rightly said, what can’t be cured must be endured.
On a lighter note(or maybe not!) after this small cap correction I can completely understand why my father stopped investing after the 2008 financial crisis. Those must have been heart wrenching days.
Now I will truly follow Mr. Buffett and Index like he insists is best for most.
Ok. Since I am feeling a little bit for those who are even mildly suffering right now during the drop in mid and small cap prices, Here is a post with examples from the book “The Intelligent Investor” on what to do as explained by the legendary Benjamin Graham. I am just pasting small parts of it here so you can be introduced to the book that made Warren Buffett a billionaire. I am sure if you told someone, can you read 500 pages and it can make you a millionaire at least, they would read it right? What about you?
First, I barely know anything and I am truly a novice at this game. But sharing what I read cannot hurt, and may even help so why not. Here it is.
My interpretation: Do not buy or pay for growth. A certain amount of growth should be an essence of a business anyway. Buy it with a margin of safety.
My interpretation: If your margin of safety is large enough, you do not even need to predict the future course of the business, you can be rest assured that you may not lose much if business does not grow as expected.
My interpretation: To buy under the concept of margin of safety, we will have to wait for infrequent times when these opportunities present themselves, but the results from these operations of patience and action when presented with such opportunities should provide ideal results.
My interpretation: Here Benjamin is saying, if you have identified the difference between a good company and a not so good company… good being for example HDFC Bank, HUL, ITC, Nestle and the likes, simply equal amount weighted SIP into them for a number of years, and security analysis then does not require deep study nor deep insight into companies.
The danger in in either a. buying in large quantities (bulk investments) even good companies when stock markets are relatively high, or buying easily replaceable small cap businesses in bull markets which all seem to have a moat when a bull is running.
My interpretation: Don’t project bright futures and don’t buy into small enterprises especially in bull markets. You might have pain but escape after a spanking for a few years in established and large businesses, but if you are in low quality securities in a bull market, you may not recover.
Continued… next page
My interpretation: Basically here, Graham does give credence to growth investing as a strategy but even then insists on a margin of safety for small enterprises, for example a company growing at 50% and available at 5 PE. If the company falters, you may not lose much.
My interpretation: The same small enterprise which may have been bid up like crazy in a bull market and then crashes in price may be a good investment at a moderate 5 odd PE if still growing at 40-50%.
Continued… next page
My interpretation: To sum it up, Graham says clearly, how he finds it amazing that even business people who would not pay such valuations in their private business affairs get caught up and pay high valuations in the stock market. He says, treat each investment as if you are investing in a business.
The second and more positive page explains that when these low prices do come around, then be courageous and not fearful and let me be clear, don’t decide by looking at the stock price Like right now. What has fallen 40 percent can fall another 40% dudes… and missuses.
In short, last year no one would have bothered with this book. My point for highlighting some points here is: Please spend the 300 or 400 Rupees to buy this book. Read it and try to understand it. Even if a small player, you are probably playing with lacs. Take some time off and read this book. Stock markets will not run away and then come back to invest. We all want to make money, very few want to put in the work required for it. There are great ways in the book with which to identify bargain stocks. You will not believe it, but there are some such large caps even now in the Indian stock market. This book if fully read, will make valuations for you much easier; since you need only an approximation of value and not a precise number, you can, and will do better.
Let your investment fundamentals not be that liquidity will come via sip’s so stocks will go up. That does not end well.
Great points. I’ll focus only on quality of earnings.
What some of us have ignored so far is that we’ve seen a consistently low inflation environment for the past few years; at the same time, we’ve seen a falling interest rate regime. Stocks across the board generally command higher PE ratios in such environments. The moment inflation goes higher or even appears to do so, then investors are generally less willing to pay even for the same level of earnings. Inflationary pressures cause investors to raise their expectations on returns. If I were willing to pay X for a stock in a 5% inflation environment, then hypothetically I won’t X in a 6% inflation environment, but would look at to get the stock at X * 0.9 or even lesser. Quality of earnings is considered higher in a low inflation environment, with low raw material costs, as was the case in several sectors since crude oil and commodity prices crashed in late 2015. I believe the reversal of this is one of the hidden factors behind the current turmoil.
From the point of view of an economic cycle, the market is shifting from a period with good economic news and good financial news to one with good economic news (the growth story for the economy is intact) but with possibly worsening financial news in the future.
Key here is to find out any small/Mid-cap which are quality names and have fallen sharply and are now at reasonable valuation…
What one thing I am not reading is that valuations of midcaps were absurd. Companies were trading at 60x. Carnage is when stocks start trading at 5-6x like in 2013, not now. Cera (I hold) is still more than 25x I think.
I was looking at 2013 as a comparison as well. Back then small cap index fell 30% between Jan and Aug, it was the pre-election year, political uncertainty was high, crude was at a high, as was our trade deficit and Rupee was weak as well. So quite a lot of similarities. Small cap index has now corrected 24% from the top and its June. I don’t know if we will be at 5-6x though at 30% correction.
The political uncertainty is yet to be priced in. If Modi doesn’t win, for sure another good 15% will be corrected.
To be sure most of just got lucky and then became value investors. I remember buying IRB when it was at 4x PE and Cera at 12x thinking it should trade at 18x. And it went to 40x PE and we all became value investors. But the bottomline is earnings have been a no-show for last three years and we are running out of excuses. Demon / GST. You cannot be valued at 60x like consumer electronics companies and grow at 10%.
and this time it would be difficult for him to win. In 2004 also , everyone was assuming Vajpayee’s victory but results surprised and congress come into power. Elections are highly unpredictable.