As an investor who has been eyeing Tata Investment since many years but not bought a single stock yet, although my top two holdings are same as those of Tata Investment - Tata Consumer & Trent…
My Learning are -
In case of companies with solid & ethical promoters & management, I should not think much when I have an initial idea and take the plunge.
Be ready for positive surprises from such promoters & management for long term investors
I missed the strength of unlisted entities TIC holds.
We cannot value all companies much, as what we know is very little. We can take entry & exit decisions based on individual risk appetite & portfolio strategy.
There is no guarantee of anything in markets - be it how much stock falls and how much it rises and also when…
Not sure if this answer applicable to all but I was able to hold this stock from Rs 400 just for dividend. As I look for dividend, I never sold this and hence was able to resist temptation of profit booking or attempt to sell at higher level and buy once it falls.
Stock moved some 40% based on news of Tata getting into semiconductor business which is about 14000 crores market cap gain. So it seems market is already valuing that business in the range of 2-3 lakh crore which is just perplexing to me.
There is absolutely nothing wrong you did. Rationality requires that you sell your stock at unjustifiable valuations and move that money to other stock with better margin of safety.
If stock corrected 30-40% from high valuations you will be patting yourself on the back. It’s impossible in the market to make right calls 100% of times and no one has ever been able to do it.
What you should feel good about is that you didn’t lose your capital and you made significant gains which most of the people take any day.
As someone who put TIC in watchlist @ 1300 levels and never bought a single stock. Here are my learnings.
Trend is our friend. Sometimes it helps to not be so value oriented - buy at low valuations, sell at high valuations.
Float matters. Nothing much here, pretty basic. TIC promoters will never ever sell a single share and maintain the 73% stake. So the number of shares in supply is limited and if like last couple years, huge demand is there, brace yourselves.
A lot of what has happened over the last 2 years is “monkey see, monkey do”. Sometimes it pays to be a rational monkey. I was waiting for the stock to go below 1200 to buy (it never did).
I need to learn TA also to avoid loss of potential profits.
I bought it at some 1200 in 2021 and sold after 60% gain. Do I regret it? Yes. Do I lose my sleep over it? No.
Given the modest allocation when I bought, even with 6x appreciation, my absolute return won’t have been life-changing.
But those cash rich companies like TCS or Titan will not just simply increase dividends. They are not PSU companies or for that matter Vedanta.
Dividend is a capital allocation decision and one of the qualities well-managed companies is their ability to allocate capital where it generates the best return. And also such decisions are approved by the board.
So if ROCE of Titan is say 20+ why would it lend money to a group company when cost of capital is 12%?
What you are saying is ideally correct. But it hardly happens in real life. If parent company needs capital then they will ask subsidiaries to throw out dividend. Especially companies like TCS where they don’t need lot of capital to grow business. Tatas are no exception and they have done that in the past. But it is okay to do so as it is not unethical.
Apparently Tata are doing something different. They are selling their holding in Tata stocks to fund their diversification. I think it’s a much better approach than increasing dividend payout.
This stake sell seems to be related to reducing debt on Tata Sons to avoid Listing norms.
Dividend approach is always better. You have money available on company balance sheet which you might not need for same business. Take example of TCS. It is asset light business and doesn’t require lot of capital to grow so what wiil you achieve by keeping money on TCS balance sheet.
I won’t be sure if dividend payment is a better approach. If they are selling stocks to reduce debt why not do the same to raise money for new venture? Or why don’t they increase dividend payout to pay off their debt? It’s the same thing.
The reason is capital allocation.
Let me expand on this with an example.
Let’s say, taking a highly simplified example, you are getting 100 INR in profits from your company, out of which you pay yourself and your shareholders 10 INR in dividends and remaining 90 you put in different investment if you don’t have any other use for that money. Your treasury should be able to generate 15-17% return in a good market cycle. If market cycle is bad you will perhaps do a buyback.
Now you have got another venture planned for which you need money and you decide to double your dividend payout. Cost of capital for that extra dividend is 15-17% which your treasury was generating. So question is why would you do that unless your cost of debt is more or you are sure your new venture will generate 20% in ROCE adjusting for delayed cash flows from new venture?
Plus when interest rates are bound to fall, increasing dividend payout to fund diversification will be a poor capital allocation. On the other hand selling stocks to raise money is not a capital allocation decision.
If Vedanta does it (and they do) it’s fine as their corporate governance is shady. Tata too might have done all kind of things before Chandra took over but I don’t think they have done it post his taking reins.
Stock has corrected 40% in just two weeks. Clearly stock was played with and operator action looks evident. There is no other way to explain 80% move in 2 weeks and 40% fall in two weeks.
There is a reason. It went up in anticipation of Tata Sons Listing (defying all Holdco discount norms) and when the listing plans didn’t fructify, reversed its trend.
