Hello sir,
market is in correction mode and i want to buy now in SIP mode. Following are on my buying list:
Pharma/Api: Hikal, Aarti Drugs, Dishman Carbgen
Chem/Agrochem: PI Inds, Transpek, Vinati, Orient Carbon
Others: Apl Apollo, balkrishna Inds, Havells, Mayur Uniquoters,shemaro, Borosil glass, Jindal Steel,
Need your view sir…
(I know list is very long and i am demanding very much from you…pardon for that sir)
That is a really well thought out model for buying in such conditions. To further reduce risk, I plan to buy in 4 tranches of 25% on each time when the stocks are showing strength.
But how to know when to sell using Techo-Funda methods?
I know that there is an argument for protecting your profits. I Believe it is highly risky as you will never get back your entry price (Example BajajFin for 1000).
Hello Hitesh - I was a bit surprised at this comment on ITC. I personally did invest in ITC several years ago and exited after I figured that their ability to utilize the tobacco cash to create sustainable portfolio is circumspect. In my view, the way ITC throws capital in grand projects (ITC Bharat e.g.) and new FMCG categories (e.g. Fabelle) without any serious consideration to ROI is long term concern for the stock. For example, after all these years of investment, they don’t even have 5 products that are #1 or #2 in the market (Arshirvad, Bingo, Sunfeast, Classmate …?) . ITC seems to be run like a corporate oligopoly that doesn’t always generate best returns for shareholders and therefore I exited after considerable wait.
Would be great to hear your investment thesis on this stock.
As you say API/CRAMS space is indeed looking quite interesting with the Chinese disruption. Problem is we dont know how long Chinese facilities will be out and when they will make a comeback. In such a scenario the focus has to be on niche players or on lowest cost producers or ideally a combination of both.
I think the list should include companies like aargi drugs, hika, neuland, shilpa, and some other such companies. Even companies in the veterinary api space like ngl fine chem seem to be doing well post their expansion.
Pure play export focussed companies in the pharma space should benefit a lot due to the USD appreciation. Unichem looks lnteresting. Post the sale of domestic business it is left with only exports business and is nearly a net cash bargain with around 1400 crores in balance sheet and market cap of same amount. Plus manufacturing facilities for exports come free. The company has been making net losses since past few quarters but I think a strong dollar should bode well for the company.
Your list seems to be a good list to work with. I like hikal, aarti drugs, pi inds, transpek, vinati, apl apollo, mayur and dont have much idea about the others as I dont track them. I used to own hikal but exited during the recent run up to around 180-185 levels. Hikal remains a good company but needs to show a good track record going forward to make it to the greats list.
ITC as you mentioned hasnt had a good capital allocation track record. But some of their business segments are likely to have strong tailwinds going ahead. e.g paper, hotels etc.
Cigarette is likely to be the cash generator inspite of high taxes.
The FMCG business needs to start performing in a profitable manner as its been a business with mediocre profitability since a long time.
But I feel all the concerns you mentioned seem to be priced in at the price of around 270-300. How it behaves going forward needs to be seen but since I wanted some kind of parking space for surplus funds and I liked the techno funda picture I had parked funds there. If I were to get a mouth watering opportunity I would sell out of ITC and switch but currently I am watching stocks in my watchlist to take a call. First I want the to see markets stabilise at some level as currently it seems to be in a downward spiral without any respite.
Regarding exit strategies I think I am often poor at selling. I still end up selling winners too early and holding on to losers too long. Its a work in progress for me.
In case of companies which I know are not that great, I often sell out once I see a lot of froth and fanfare in the stock price. e.g recently I sold out of Hikal when it ran up from 140 to 180-185 with no obvious reasons barring the entry of Ashish Kacholia. I was too early to exit Bajaj Finance when I exited around 2450 and had to see the stock go up to 2990 but now it seems to be a good place to get in around 1900-2100 and have started accumulating again.
I have seen some guys do quite well following the nifty PE range in their exits . e.g you can go through dhinakaran portfolio. http://forum.valuepickr.com/t/dhinakaran-portfolio/2695
Similarly I think @bheeshma practises the stop loss of I think 7% below his buy price which could work well for someone well versed in the method.
I am still trying to fine tune my exit strategies. But when I feel overall markets are weakening, I often pull the plug and sell a lot of stuff from my PF where I dont get comfort from price behaviour or from fundamentals.
Hi @hitesh2710 bhai
Slight correction, stop loss is not 7% but 15%. However, there has been a change here - I also average down 2 or 3 times if i feel earnings momentum is intact. If earnings momentum is not there, there is no choice but to exit. As long co is growing earnings at a fast clip , i suffer through the corrections. Sometimes however cos price becomes so high that the implied growth rate is an impossible number to achieve in which case the course of action is clear.
Unlike seasoned investors like yourself who have developed a sixth sense about charts, I have no talent here or the temperament so stop loss works for me coupled with implied growth rates in the stock price. That’s the strategy for now and has kept me from being obliterated in the violent market fall.
Thanks!
Bheeshma
For novices like me this is exactly the sort of information which is most useful. The “when to sell” strategies. It is comforting to know that everyone is going through a painful period and we need strategies to decrease that pain since we cannot avoid it altogether. Thank you. Like the 15% stop loss
There cannot be one strategy … One has to see what work for one over period of time .
I have problem of buying when prices trend up , but I can buy falling knives -
In 2013 … Many stocks that I bought in Jan / Mar 2013 were 30% to 50% down by Sept 2013 . But most of them like HPCL , Gabriel , Sono koyo , NIIT , Sundaram Fasteners etc were 5 - 20 baggers .
In 2015 / 2016 I had similar experience with Metals stocks . For example Mr Birla had subscribed to Hindalco at 150 Rs so I thought Rs 120 was good price to enter … But stock fell to Rs 66 . I kept on averaging down . It was successful
Yes there are failures - but often I have seen when market is pessimistic … If you 25 - 30 good companies with avg allocation of 5% -10% , there is good probability that you will do better than most mutual funds …
I use my own tool / software which gives me BUY and SELL prices .
Good thought.can u share which companies u r looking at and the price levels in current market?What’s your view on crude and currency?Only point we need to note is demonetization etc were local issues and the current ones are beyond our control.
You may visit Portfolio Analysis - Shailesh for the same .
My view on currency - It weakens once every 3/ 5 years on account of our higher inflation and interest rate vs US and other developed markets , but long term impact of stock market is not much .
Also if you are earning and spending in Rs - it should not matter to you .
If you are NRI then to get dollar adjusted alpha vis a vis US market you need to keep watch on currency .
My view on Crude : Long term I am bearish … This is based on thesis that in long term
And Amazon is jumping into EV charger market with Tesla Competitor, Audi E Tron collaboration.
Oil will peak around 2025-30 as battery costs falling fast.
Hello Bheeshma,
Can you please elaborate on the implied growth rate strategy-will be very useful to understand. Being LT investor, one has to go thru this pain of 20+ correction in the portfolio.
Hitesh bhai - At 7 times book, doesn’t Bajaj Finance look too pricey? I know it is one company which has delivered consistently time and again, but valuation wise I still can’t get myself to even consider it. Just wanted to understand what gives you the conviction to buy at these levels? 
The idea is to look at the price of the stock and reverse calculate the growth rate that is required to justify that price.
The second step is to look at the capital invested in the business and compare it with the addressable market size. If the capital invested is small compared to the size, then there is scope for continued growth by investing more capital.
If the current growth rate is greater than implied growth rate then there is a case for considering it as an investment candidate.
There are many resources on the internet that you can Google to get info on how to arrive at implied growth rate. The key is to not to second guess but wait patiently for the co to produce earnings growth and then if the stock price is not pricing in that growth you have a good chance of upside. You would be surprised at how often market doesn’t price in growth as quickly as it should.
This is a general framework and one can tweak it here and there to suit the palate. The downside to this framework is that if you are wrong about the growth assessment it will be painful, hence the stop loss post averaging down a few times.
Just something to add to prespective - go to ratestar.in and look at P/B and P/E chart over last 10 years of the overpriced stocks in the market. It will look like a game of cat and mouse , where there will be steep cuts when growth is factored in every year , but the P/B or P/E starts to tend higher again with price moving. P/E , P/B can contract or expand but growing above 20% for 7-10 years is going to give 5-10 bagger in 7-10 years even when stock is bought at high P/B. Also once you enter a stock at a cheap P/B , you can’t keep selling and buying again every-time P/B becomes insane and sane.
Hi Hiteshji,
I haven’t seen you commenting on the casino industry and online gaming market in India so far. I just wanted to know your views on the industry in general and Delta Corp in particular.
Thanks.
hello,
Hitesh bhai can answer better.
2 cents into how I think Banks/NBFC should be valued.
Below is what Buffet says:
"P/B is the wrong model to value Financials. This is where P/B of 7 is misleading.
You need to look at the yields banks earning on an implied growth. Banks earn on assets but the ratio of assets to equity, the leverage they have determines what they earn on equity. A good ROE determines management quality. The raw material in banks is money and the NBFC or bank which gets money at lowest cost would end up having bigger spreads. This differentiates Bajaj finance from other NBFC.
Book value is not key to valuing banks. Earnings are key to valuing banks. Now, it translates to book value to some extent because you’re required to hold a certain amount of tangible equity compared to the assets you have."
Bajaj Fin has High return on assets and that ensures high P/BV. Only looking at P/BV is misleading.
Kotak Bank has 5 years ROA at 2.10% and P/BV at 4.19 and ROE at 13.74% (avg 5 years)
HDFC Bank has 5 years ROA at 1.98% and P/BV at 4.96 and ROE at 18.60% (avg 5 years)
Bajaj Finance has 5 years ROA at 3.47% and P/BV at 7.21 and ROE at 20.70% (avg 5 years)
Because Bajaj Finance Generates higher ROA than most of other NBFC and even banks and convert that into better ROE (good mgmt quality) it has higher P/BV. Kotak has lower ROE at 13.74% and lower ROA than Bajaj finance therefore has lower P/BV than Bajaj Finance. HDFC bank with a lower ROA than Kotak but better ROE (again Mgmt Quality) has a higher P/BV assigned by markets. In the longer run, cost of funds, NPA situations, ROE and Higher yields matter. This is where Bajaj finance is the leader. Do not look at P/BV in isolation. Wrong valuation model and so is P/E.
Disc: Not invested in Bajaj Finance and any of other names mentioned above.
Agree with most of the things that you have said. Just wanted to point out that for Banks/NBFCs ROE is also a function of leverage. When 2 banks have similar ROAs the one with higher leverage will have a higher RoE. Among the stocks that you have mentioned Bajaj Finance has the highest RoE with the lowest leverage which is impressive although they cater to different category of customers
