Would you consider Castrol, HUL, Asian Paints and a few more similar who may have given good returns could be currently highly priced and therefore capital could be stagnating?
Valiant - Due to recent merger of group company Abhilasha, promoter holding has changed. It will change again once another group company Amarjyot is merged with Valiant. This is not an issue. Regarding receivables, receivables are somewhat higher than desired but it has not resulted in debt pile up. Company hs debt free so receivables are not an issue.
NGL FineChem - Agree. NGL does not have best of the balance sheets but they have mentioned that they offer generous credit to buyers hence receivables are high. They also have high margins so these credit terms are recouped as margins. FY18 there is some improvement in receivables.
NOCIL - Share pledging isn’t an issue here. Company is almost debt free and paid down debt taken for previous expansion. 40% is OK for this type of business. What I generally see if all internal accruals are getting tied up in working capital and that is causing company to borrow money for capex. That’s not the case with NOCIL. Also margins are rising so company is not pushing sales with generous credit terms.
Your questions is not relevant to my comments that you have quoted but I will try to answer it anyway.
HUL and Asian Paints appear to be overvalued but market is pricing several years profits in the price. This is because of visibility of their sales well into the future. With their dominant position in a large and growing economy with low penetration of their products, investors are assured of steady profit growth for several years. Such stocks trade like bonds as their profits are as steady and assured as coupons on a bond. Such stocks are priced such that expected returns works out to be 8-10%, just above interest rates on long term bonds and their prices reflect changes in global interest rates.
Castrol is not as overvalued as others but much of the same arguments will apply to Castrol as well. All these companies have little substitutes so investors have priced in several years of growth in the price.
Thanks Yogesh. Understand what you are saying.
Increasing oil prices benefit Castrol profitability ?
Hi Yogesh - I have been learning the ropes of Investing, can you elaborate this point a bit more on how do we calculate whether the internal accruals are not getting tied up with WC, sorry for asking too much.
Although I don’t use technical analysis for picking stocks, I have been using a technical indicator to help me decide how much cash I should hold in my portfolio. This indicator is the % of stocks that are trading above 200 day moving average.
To calculate this indicator, I take 100 stocks from Nifty 100 index (nifty 50 + Nifty Next 50). For each stock, I calculate 200 day moving average (DMA) and compare it with current market price. The indicator is simply the number of stocks trading above their 200 DMA.
As markets rise, more and more investors turn optimistic and they push more and more stocks above 200 DMA. At the top of the bull market, this number is around 80. As market begins to correct, more and more investors turn bearish, they push more and more stocks below their 200 DMA. At the bottom of bear market, this number is usually around 20. This indicator is at 35% now and trending down.
I created a shareable version for VP.
Link to Google Speadsheet is below.
Note: Be patient. This sheet takes few minutes to open.
There are 3 sheets for Nifty 100, Nifty Midcap 100 and Nifty Smallcap 100. Nifty 100 sheet can be used for back-testing by changing the As On date.
This sheet uses GOOGLEFINANCE formula which has its own limitations like missing data and unadjusted prices. To that extent, results will be inaccurate but overall, results are fairly good.
As the indicator moves lower towards 20, I generally begin to deploy cash and as it moves beyond 70 or 75, I generally start selling if I have any overvalued stocks in my portfolio. This is a slow moving indicator, and it generally coincides with the bull-bear markets. As with any technical indicator, this is not accurate all the time. In some cases, indicator will top out or bottom out few days before the market does (which is good as it gives you some time to act) and other times it tops out or bottoms out much before the market (which is not optimum as this can be too early). But in either case, it is a good leading indicator and will act as a early warning.
Your views are invited especially how do you decide your asset allocation (if at all you manage that actively).
Do you use this indicator for any specific stock as well ? if so then how?
This cannot be used for individual stocks as this is a diffusion indicator. More appropriate for large diversified index of highly liquid stocks.
Calculate working capital for current year and subtract last year’s working capital to get incremental working capital and see if it less than cash profits. Usually it does.
Working capital = current assets - current liabilities.
I sometimes use
working capital = account receivables + inventories - accounts payable.
Thanks Yogesh for the details.
At times, I feel the like button does not (rather cannot) express the amount and extent of gratitude one feels on coming across such posts !
Thank you so much Yogesh
Agreed, the thought process some of the posts share are work of art. Gratitude and Salute Yogesh Ji for adding to the beauty of life.
You are marvelous not only at creativity but more in sharing with others. A big salute to you.
Truly educative on professional line of thinking. Articulating thoughts is an art. You have mastered it.
Sharing knowledge with people with similar interest but not trained in finance is truly egalitarian approach.
Enjoy reading your notes in virtual world. Hope to meet you some day.
Thank you so much for sharing your thoughts generously.
Thank you Yogesh for your generosity to share your knowledge. For new investors like me, it is really useful.
As the indicator moves lower towards 20, I generally begin to deploy cash
Since you are using the 200 MDA of the Nifty stocks would you deploy your cash in the stocks belonging to the Nifty - or is it just a signal to buy stocks on your watch list, irrespective of whether they belong to the Nifty or Nifty Next 50?
Also - what if the stocks on your watch list are trading above their 200 DMA at the time that your indicator is showing 20?
Trying to understand strategy - since I have only tested one - that of Mr A Basu Mallick - of trailing stop loss.
Thanking you for making me think!
Can you please guide in which thread is basumallick’s portfolio strategy?
Its under “The art of valuation”. Here is the link The ART of Valuation
You have been holding Yes bank for few years.
Many people(Even some popular investors) of are the view that Yes bank is cooking its NPA numbers. Because axis and icici have very high npa and their lending profile is similar to Yes bank.
I believe even you might have heard these arguments. I would just like to know your thought process.
Are you of the view that believe what company reports and ignore what people assume OR you have identified some data points which assures you that yes bank numbers are genuine?