@Donald : I Genuinely believe in the power of Surprise. This triggers the biggest re rating in a stock.
Market despite its efficient nature tends to react very strongly to surprises (Positive or Negative)
It is also a fact that despite multiple analysts tracking many stocks, some obvious things miss the eye of market participants.
Let me try to answer my self in multiple parts
How I observed Bata, IRCTC or Jubilant Food Works
I try to follow local advertisements, read non market stuff and follow non market influencers and do regular market rounds with observant eye. When I observe change, I take a note of it and try to guess what the impact could be
- In case of Bata - it was very clear from observation that Bata shops were changing. If you took a walk down the road, you would have observed changing interiors etc. All one had to do was walk into the store, speak to staff and judge what is happening. Then you go back to Announcements and Annual Reports of Company and check why this change is happening.
After that I made a thesis that change is ok, but this change has to be announced and has to be visible to customers. The day I saw the Kriti Sanon ad of Bata I was clear that change is visible and company wants to announce from rooftop.
Market will be surprised by the numbers and suddenly a forgotten stock will come into limelight, leading to rerating over and above earning growth. Obviously I did a lot of number crunching , set my expectations on numbers and margins and kept doing scuttle butt across stores to remove biases. Twitter helped a lot here
- Jubilant Food Works
On a visit to Dominos, I was surprised that menu was revamped and company had stopped giving discounts of all kinds. Started speaking to staff and they mentioned management has withdrawn all promotional schemes because “accha sales hai” and “naya strategy hai”
After that tried checking across analyst community and other people to judge what was expectations - and most people expected loss of sales due to resurgence of Zomato and Swiggy, whereas store after store (went to 20+ stores and also asked friends and family across India to go) kept saying sales is strong. Lot of home delivery happening even without discounts.
Market was surprised when earnings came in
Same thing when I could judge the impact of new ticketing charges.
Why Shree Cement or ICICI or CRISIL
Market maybe looking and could be right in short term about say credit losses at ICICI, but there is a bigger change happening. How many will trust a Yes or IndusInd or CSB to keep their money. The big will keep getting huge. Management has changed a lot from Chanda Kochar tenure and ICICI in its latest analyst day presentation mentioned how they are transforming (also visible as a customer)
Shree will surprise everyone with their actions and balance sheet strength. These are phenomenal guys who planned for such contingencies and invested in capabilities because they have been in this situation in past. The latest QIP will help them and we could see lot of aggression from this guy. I have personally been following this company since long and this is the exact time I waited for…A slip up in market to allow me to get the company at a favorable price. The other players will lose their competitive intensity, but this guy will be able to move ahead due to his relationships and deep pockets. That will create a goodwill which will help him to come out fastest from crisis and surprise markets.
Crisil is another natural beneficiary of loss of credibility of other players. There could be temporary issues due to lower outsourcing in KPO segment but in longer run the cost benefit they offer to foreign clients will be even more.
Why not a Bata or Marico or HDFC AMC
Where will be the new surprise on Bata. It will perform equally in this market like other players. Remember this is a low entry barrier business and low product differentiation. Customer can postpone his purchases or purchase a cheaper alternative. His Balance Sheet will allow him to tide up, but wont throw surprises.
HDFC AMC has to be watched - but as of now my expectations are that AMC growth will taper down. There can be corporate actions but by and large this is a strong group and on hawk watch. On first hint of stability in earnings this will be a stock to backup.
The stable cash cows will remain that but the more luxurious new launches will lose money. Stock still isnt as cheap as say a ITC. Same reason why I skipped a HUL.
In case of ITC, the dividend yield is just too lucrative and the capital allocation thing I have already answered in the ITC post (as a narrative fallacy). What more the company has announced a dividend policy of 85% payout thus indicating that less money will be put into further capex
One must remember that ITC other biz dont burn cash. They throw whatever small profits they can so profit wont be better off if they close these biz