Personally once I have taken a position in a company with an investment thesis, I would like to give it enough time so that the thesis plays out. If in between I find that the fundamental triggers are not playing out as expected, I would exit. In case of torrent, I had bet on big US launches and good domestic growth. Both have happened to a variable extent. US has been far better than my expectations while domestic is below par. But the big bang in US has taken care of problems in all other geographies put together. That gives it time to mend its other geographies and domestic business.
About switching, one has to take oneās own call. Element of surprise is not evident in ajanta and it would keep posting decent numbers (this is my guess). Whereas in case of torrent there could be some more surprises as listed in previous post. So atleast for myself I am sticking to my position in torrent pharma and would even add more if additional funds are at disposal.
I also hold a concentrated portfolio and often suffer from similar dilemma and when such situations occur the opportunistic bets are the first to go. Otherwise I tend to sit on the position as it is unless there is gross overvaluation which makes one company more attractive as compared to other.
Some observations post this correction I have made for myself and intend to follow whenever possible.
Sometimes some telltale signs of corrections are quite obvious. One has to keep an open mind to observe and act on them. Before the current sharp correction, during the ongoing index correction from 9000 nifty levels, small and midcaps had started going crazy and valuation given to them was bizarre.
Stock prices of companies that have held firm during the initial and middle phase of correction do end up correcting sharply during later phase of correction.
Learning to sit on cash raised from selling overvalued companies is essential. Once the sharp correction reaches its zenith, high quality companies also end up giving great entry points.
It is important to differentiate great companies and compounders from opportunistic bets and mediocre companies. Many cyclicals would started getting valued as great companies during the frothy phase of markets.
Booking profits in overvalued companies as well as on opportunistic bets that are basically mediocre companies is essential even if it means paying short term capital gain taxes. (sometimes one has to change strategies ā during roaring multi year bull markets, it sometimes makes sense even to ride the winners inspite of crazy valuations)
Weekly and monthly technical charts often provide clues to impending corrections in some stocks especially on candlestick charts. The index has been making lower tops and lower bottoms since it started correcting from 9000 plus levels and that process seems to be going on.
Most important than number is conviction. What do you believe will be a better stock in the long run. With a investment philosophy defined for yourself, with risk absorbing capacity, what will differ is only the CAGR of your cash over time between two companies.
I would stick with a company with stable and confident management I/o the month trading profit and surprises. From my own experience in life and shares, consistency pays better than sharp increments.
As always great post, Hitesh Bhai. I use a simple residual earnings model to calculate intrinsic value. I would like to know if there is any other better model or process. Moreover, can you recommend any books or material for valuation?
I dont use the indicators u mentioned. Broadly I follow monthly and weekly candlesticks and then if there is some pattern emerging look at daily charts.
Having said that, technical analysis remains an imperfect science and hence is only an adjuvant to proper fundamental analysis.
Thanks a lot hitesh for taking time to write during this tough time.
I found selling overvalued company (quality companies) very difficult. one of the reasons is that even after this correction, there is hardly any quality company (with secular growth) looking attractive. everything is priced for perfection or still overvalued. Can you tell me where to park money while sitting on cash?. do yo mean savings account? or some short term debt fund?. if fund, anything good that you suggest?.
Also, would appreciate if you could share your views on abbott india.
Hi hitesh,
Why is it so that pharma companies with US exposure has lumpy earnings and can you suggest any good article to understand business dynamics of pharma sector. I have read valuepickr article " http://www.valuepickr.com/resources/pharma-sector-faq/ ". It is useful, but i want to know more about business part from perspective of a small scale drug manufacturer. I have a lot of other questions related to pharma industry, will be great if you can share your email id.
@gautham1, Parking cash can be considered in liquid bees or nifty bees (not too sure about exact name but price usually is fixed around 1000 rs per unit. Returns are in form of dividends.
Other option could be to pick up parking space kind of companies like hdfc bank, page inds etc where too much volatility is not there in recent past. One also has to consider valuations here as Page at 16k plus was risky but I feel around 12k risk is less.
Finally one can just sit on plain cash and wait for opportune moment to deploy cash.
@bullbear, I dont track either granules or cadila pharma closely but having looked at the price cut in cadila post the USFDA issue intend to look at cadila.
@alpesh, You will have to do your own homework if u are to deploy a big amount of money. U cannot risk the amount on someoneās advice. If it is not possible to do homework, then mutual funds might be a better alternative it all one wants equity exposure.
@huriasahil, For more info about pharma sector u can start off by reading annual reports of good companies in pharma sector. Usually they give out a lot of details. And still if further queries are there, u can put up the questions in relevant threads. We have a lot of guys who excel in analysing pharma companies. So if they are asked proper questions they would oblige you.
-> i think its the only listed IT company, which is not into infrastructure and application business
-> they provide product development services to co. like IBM, Intel, Microsoft, etc
-> product development outsourcing (PDO) contributes 55%, Enterprise digital solutions is 25%, and balance 20% is from IP
-> these IPs are bought by them from the product companies. these IPs are generally in late growth stage and therefore of less interest to co. like IBM, intel. in a way, this IP buying business, strengthen its relation with product co.
-> Enterprise digital solution is currently, their biggest growth area, growing at more than 10% QonQ. in this they have relationship with digital platform co. like sales force, oracal. plus they add on some of their internally developed applications on these platforms.
-> so they enter a client with the assignment of implementing a saleforce or oracal platform, and after implementation, they also try to sell some of their own applications, tht can run on those platforms
-> business growth has been good up until, fy14, when their PDO business started to shake. and the reason for shaking was its clients viz microsoft, intel were struggling with their own products and therefore were doing limited outsourcing.
-> they shakyness of the PDO business has continued in fy16 and have destroyed market capitalisation. PDO business is 55% of the sales.
-> I wanted some advice as to when can be expect the PDO business to stabalise?? or is it going to continue to deteriorate???
things i like abt persistent are:
-> the promoter is 1st generation promoter, therefore he is expected to be most passionate abt his business.
-> anand deshpanday (promoter), he is some PHD in computer science, therefore expected to be a techno geekā¦which is good for business
-> co. has won several awards for high quality corporate governence
-> the co. operates in the technology sector, which has huge growth potential. technology is becomming all prevasive. even Nike says its not a shoe co. but a technology co,
-> it is a small co. with topline of USD300 million, and therefore multiplier could be exponential
2 documents uploaded (1) Kotak research on CASA scenario in India, and (2) current state of payment banking in USA.
based on these documents and several other research, i have drown certain conclusions on who would benifit the most from the technological and regulatory transformation hapenning in the banking sector.
