Yes. That’s one sector where I have increased my allocation. Steel/Mining.
Hi Jiten, good presentation, very informative.
Few questions - Is the cement cyclical still on or is it late to take a position.
I believe steel/mining isnt too late from current positions in the stocks discussed above.
Your inputs would be much helpful.
Cement, I think still has to play out. I am having atleast 2-3 years view
on cement.
Thanks Jiten, is that hold good for Steel/Mining as well
I hold both and am positive for both of them, more on JKIL for long term.
Jiten do you feel that the paper cycle has come to end I felt with demand picking up the real top is still to happen what do you feel kindly give your view
Paper, I have exited completely. I believe best of the cycle is behind us.
1 Like
Hi Jiten,
I understand your style and have been following you for a long while now. Appreciate your thinking and approach a d happy that it’s working well for you. I have two questions which I would request your thoughts on :
-
In your overall investing experience how much success can you attribute to this cyclical timing and how much to market boom (be it liquidity or general market up tick). As in current state, general market is buoyant
-
I recently went through a Macquarie report on commodities, link below. Based on this at what stage do you generally pick your stocks? I see your timing on steel is in near equilibrium state where prices and supply demand are stable. In such a case, when demand picks up its positive. Aluminium is a classic example. As we see now inventories are at low levels and all commodities including the raw materials are benefitting. My concern was on Iron ore and manganese. Do you feel raw materials generally follow the same trend as commodity. Here we can see iron ore and Manganese prices have stabilised at low levels. What’s your supply side outlook?
Thanks a lot for your thought!
Discl invested in SAIL Prakash NMDC and Rain on the commodity side
3 Likes
Yes bro, but I am confused as to which cycle should we invest for stock specific gains. . Any thoughts? What I understand is eventually a commodity should move to far right area where supply is tight and demand is strong. Aluminium is one such example and we are seeing stock prices / business performance playing out too. Jiten has rightly picked up Steel, Manganese and Iron ore which can potentially move to that space. Copper is one too but stocks are already priced in. Oil appears to likely migrate too but then supply side is always open 
2 Likes
I think commodities in the “Prices stabilise at low level” and “Stocks Drawing Limited New Supply” have bottomed out and have started their upward move and are good buys. This is where Manganese and Steel are so they are definitely great buys.
Aluminium and Lead have moved in the last 2 years from “Stocks Drawing Limited new supply” to “Supply constraint” which is where the patient investor can reap benefits. I think its worth holding the commodity until the “Price peaking” segment. This is where Ferro Chrome is at present.
4 Likes
Though not specifically mentioned in Jiten’s original presentation, one cyclical play which I would like to suggest is companies in the capital markets/ stock broking/ wealth management sector. I feel, the cycle has started turning positive for this sector, as is evident from the recent results of the companies like Motilal Oswal, Emkay, Arihant Capital Markets, Geojit, IIFL, EDELWEISS etc.
I feel, return expectations can be especially higher for the well-established stock broking companies like Emkay or Arihant Capital Markets which are microcaps, but have quality management, strong network and in-depth understanding of the business.
These stocks have run up significantly recently, but I feel still available at reasonable valuations. Especially, a company like Arihant Capital Markets, which has almost doubled its profit in FY17 and having a low book value and zero debt is available for a P/E of around 15 (without considering Q1 results, which is yet to be published).
I feel, the cycle is going to stay positive for these companies for the next many quarters. As the big bull Rakesh says, tsunami of money from Indian households has just started pouring into stock market, aided by demonetization and interest rates reduction. Also, Morgan Stanley is predicting that USD 425-825 billion in the next 10 years to flow into markets.
Disc: Invested in Emkay, Arihant Capital Markets and Edelweiss
4 Likes
On that note does AB Capital, the new listed financial arm of the Aditya Birla group seen as a good buy?
Hi Pandi, I haven’t done much research on AB Capital as yet, hence I am not sure if it is rightly priced right now or not. I would wait for some more time to understand that stock in a better way. However, my initial impression has been that, AB capital derives significant portion of its revenues from non capital market activities like Insurance, lending etc. On that sense, this company may be compared more with Edelweiss or IIFL, than companies like Arihant Capital Markets or Emkay.
Though I am currently invested in Edelweiss, my particular interest right now is on companies which derive their maximum portion of income from capital market activities. That’s where the cyclical play has really kicked in. I feel, these companies are likely to give you maximum returns over the next few quarters/years.
Also, let me explain in detail, why I believe the companies which derive their maximum portion of income from stock broking activities (Arihant Capital Markets or Emkay) specifically are likely to grow at higher rates of profits over the next many quarters or years, as compared to other companies in the capital markets sector or other NBFCs or Housing Finance Companies.
Stock broking business by its nature is such that, as the volumes increase, the topline (sales revenue) increases, but the bottomline (profit) increases in a disproportionately higher way. As per my judgement, this is due to the reason that, the business (due to its very nature) is able to handle more volume with less increase in the resources (employees, computer software etc.) and thereby lesser increase in cost. Hence, we have a non-linear relationship between volume and the cost.
As we get into more and more deeper into the ongoing bull market (I assume a multi-year bull market here), more and more money pour into equity market, hence volumes for these companies will increase proportionately. However, their profits will increase in a disproportionate way, as explained above.
Let me substantiate the above hypothesis with one more fact. As you know, ROCE is the primary measure of how efficiently a company utilizes its all available capital to generate additional profits. Arihant Capital Market`s ROCE as of Mar-17 was around 28 (it was just around 9 in 2004, when market condition was not favorable). However, during the earlier capital market boom time in 2008, Arihant’s ROCE had even gone above 50. I think, companies like Arihant will keep on improving their ROCE significantly from now onwards due to the reason explained above.
4 Likes
Thanks madhavikkuti for the detailed analysis on the capital market uptrend and the potential impact on the stocks.
Kalyani steels seems like a good play. Low debt to equity, best of the net margins in industry.
Please share your view on it.
Was away for some time, so could not answer earlier.
Lot of the market companies are cyclical/commodity. I have about 60% of my pf in these companies. All returns, I always attribute to the best teacher, Mr Market.
I generally like to start adding at extreme distress. When there is max pessimism. And then add more on slight hint of turnaround.
5 Likes
Not at these valuations. I hold from demerger and would like to add much lower only.
And to add. exit early.
Hi Jiten,
Do you track SKM Egg exports. any views from you. thanks …
regards
Raghu