Buying the pessimism: Trying to catch the bottom

Good day to everyone at VP. This thread is inspired by the deep value style of investing, in which the idea is to buy at pessimism, look at companies that are overlooked, currently out of favor and are making new lows. A lot about this was covered by Mr @ndharmawat on youtube CFA society India “Buying the pessimism”. A wonderful presentation. This thought process has also been what Howard Marks as always been talking about in his books and Memos as well, primarily - “Mastering the market cycle”.
Even @jitenp has talked many times in his framework that it looks like best time to buy companies were when their operating profit margins were all of a sudden negative or much below the mean.
Lets go ahead.

Two cents on bottom:

  1. The bottom is made when the point of maximum pessimism is reached
  2. The news headlines are bad
  3. A stock may consolidate near bottom for a long time.
  4. Not everything that goes down, comes back up, though it happens most of the times (Reversion to mean)
  5. It is impossible to catch the exact bottom

So it is imperative that a smart investor must be attentive to cycles, and be continuosly look at -out of favor and overlooked opportunities. A patient behavior goes a long way in such type of investing.

I will now share few of the sectors/ and few companies where the pendulum has swung the opposite way, where I feel next reversion to mean opportunities may rise.

  1. Shrimp Industry.
    Shrimp industry is supposed to be the next big thing in terms of export for our country. The primary raw materials are Soya and wheat. After going through their best times from (2013-2018), things were reverting to mean from excessive optimism. Some of the companies such as Avanti, Waterbase became darlings of the market. When things were getting normal- the covid hit. The demand went south. Inventory kept piling. Many debt laiden players globally shut their shop. Post covid as demand started to come back, inflation prices soared phenomenally leading to further pain. Shrimp indusry is one such industry which started to go south post 2018 and has not recovered. Today the state is such that some of the companies in trailing twelve months have shown weakest margins, when compared to their long term as well as short term medians. Few companies where I am looking are Avanti feed, Waterbase, Coastal Corp, Apex Frozen

I will be writing on other sectors and companies, following this thread. Please add if anyone has other things to look at or comment on whatever has been said.

Disclosure: Invested in waterbase


What I think is that, in order to do bottom fishing, one has to have some experience in the market, the broader the better.

Because these businesses could be called be cyclical, and as such there could be many reasons for cycles to happen in these businesses, some regular, some new. So to be able to make profit, I think one has to be knowledgeable about what is happening at ground level, how is the end product moving, even channel checks could also be a requirement, along with a good understanding of the business. I don’t think one can simply go on the basis of margins or price fall alone.

Investors who have experience only in relatively secular businesses, or did not witness a 30% fall in the stock price due to the nature of the businesses, may view these kind of businesses with the same eye too, and if the price falls big, which is part of such businesses, they may get surprised. Also price not moving for a couple of years, nothing new is said by the management, this for some investors, could be frustrating.

And the more the layers in a business, the more attention it requires, shipping news, crude, competition from other countries, alternative products if any, raw material price, so on and so forth.

TA also comes into picture I guess both for taking a position and exiting. When there is a movement with good volumes across the board, maybe it means momentum has started.

Of course, one can learn this type of investing and make money too, no denying that, not everyone’s cup of tea I guess.

Just my thoughts and not invested in any of the companies, except for a beginner’s enthusiasm with Apex’s IPO.


An excellent write-up but the above sentence summarises the whole post.

But strangely we’re surprised by the timing-where is pessimism ?

We’re hardly 5% down from the top - market is bullish, stocks are making break-outs every other day.

2. The news headlines are bad

Difficult to judge because every news is a good news in a bull market and and every news is a bad news in a bear market.
There is a difference between a bad news and worst news.

So better to wait for the worst news to trickle in -only then the bottoms are made.EG - start of covid in Decemeber,2019 in China, Lehman Brothers crisis - and bottom is not made on the same day - it took 3-4 months after that for market.

We are far-far away as currently we have bad news, but worst-news are missing.

4. Not everything that goes down, comes back up, though it happens most of the times (Reversion to mean)
Correct - every new bull run has new heroes.


You are right. One must due as much due diligence is possible, but this can be a good starting point to mark down the pond where you want to fish. And then take your research ahead from here onwards.


The other candidates I am keenly looking at are few companies from auto sector. Lets talk about Force motors and maybe later PPAP Automotive.

Force motors: A company from Firodia group, frankly speaking the company has rich history, of copying things from the west, there are couple of videos on youtube, which tells you very nicely about the history of the company. The good thing I like about them is “If you want to fail, fail fast”. Company came out with SUV Force one, which did not receive quite good response and the shop was shut for it. Then they made Gurkha(old), which was okayish but then they stopped that too due to muted response. Then they launched new Gurkha SUV, which honestly I have received good reviews from people. Needless to say they do not have any competetive advantage, neither scale nor R and D. But they clearly are market leaders in terms of shared mobility vehicle like Tempo traveller, ambulance and are not afraid of throwing things against the wall at a small scale. Recently they came up with force urbania. Which what I have heard is a better version of tempo traveller. Many reviews video are there on youtube too.

On top of that they make engines for BMW and Mercedes in India, and have been doing that from a very long time now. Auto is a cyclical sector. The worst as we now see is behind these companies. The company was posting loss since last year, however recently showed profits in recent quarter, with cost of raw materials coming down as we go in high int rate scenario. I think coming quarters must be good and the stock price can also see a recovery.

The average OPM seems to be around 6-7 percent, in good times they go upto 9 percent and in bad times around 3 percent. Clearly the OPM have recovered from the low of 2 percent post covid and are now at 3 percent.

Last time they were 3 percent was in 2013, post which stock made a low and went up 15-18X within a span of 3-4 years.

Also another interesting data point is that its realisation per vehicle(TOTAL SALES/VEHICLES SOLD) has gone from 3lakh per vehicle to 15lakh per vehicle in last 10 years which is a very clear trend.

Lets see where things go from here on, I think the risk reward ratio is favourable here.


In case of Force, the issue of business cycle is accentuated by capital structure. If you compare the latest debt approx. 1000 cr with negligible in the period of 2013, the interest expense and debt repayment will depress earnings for medium term. It would be Interesting to see how market value the firm with depressing PAT yet good CFO if cycle turns positive.

In case of Shrimp, it’s very early to say we are around bottom. If you gather industry insights from different stakeholders, the overcapacity challenge is clear for Indian exporters. The overharvesting by shortening shrimp production cycle by farmer is a long term problem. One may want to understand the deterioration of shrimp in Gujarat in last decade.

Disclosure: No holding in above names.


About Shrimp industry, there are lots of webinars on youtube from ministry of fisheries and aquaculture. One clear thought prevailing is that many farmers which came in post 2018 good period, have thrown the towel. They have just stopped producing. Because of excess of inventory of covid times, poor demand scenario. The supply side has been severly hit. I think the botrom would be made, when China reopens, as China is a very big market for Indian aquaculture sector. Untill china reopens, many weak players will dissapear. And strong ones who survive will give phenomenal returns.
One thing I am sure of is the runway for Indian aquaculture industry is really long. And the problem being faced is short term. Maybe a year or two. Some Promoters are buying.

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First, you’re saying that the trigger is from China’s reopening. So, if I would be following shrimp industry, I would wait for signals about that reopening thing.
Second, promoter buying and selling may have variety of reasons. Unless we can conclude that promoter is buying because of strength of business, and we concur to that analysis, it doesn’t mean anything.

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Notes from my further reading on Shrimp Industry:

  1. The country earned USD 7.76 billion from its seafood exports in the last fiscal year and had targeted USD 8.8 billion which ends in March 2023. So we still have a quarter left to see if we are able to achieve the target. Vietnam has surpassed USD 10 billion (EUR 9.4 billion) in seafood exports thus far in 2022, reaching an all-time high for the country

  2. However, lower demand from the U.S. and the E.U. and obstacles in the Chinese market have made it unlikely that India will reach its goal, according to Seafood Exporters Association of India President Jagdish Fofandi.

  3. Currently the Shrimp industry is overstocked

  4. Demand is down by 30 to 35 percent, Global shrimp prices have fallen by 20 to 25 percent. This would have been OK if there was some movement of cargo. But the lack of demand makes the price drop much worse.

  5. We have a very strong competetion from Ecudor, So supply in Ecudor have to be monitored closely

  6. The difficulties have translated into lower shrimp-purchase prices in India, which has discouraged farmers from seeding their ponds, with many considering leaving their ponds fallow until April 2023.

  7. The association’s members have agreed to buy shrimp at the government’s fixed price, or INR 210 (USD 2.55) for one kilogram of 100-count shrimp and INR 380 (USD 4.61) for one kilogram of 30-count shrimp. Farmers need at least INR 300 per kilogram of 100-count shrimp to break even considering current RM costs.

  8. Vietnam took in USD 10.17 billion from its seafood exports between January and November 2022, a 27.4 percent year-over-year increase, meeting the country’s long-sought-after goal, first set in 2011.


Ecuador shrimp farming may become expensive as their govt plans to stop free Diesel to the industry.


National Peroxide Ltd. - A company of Wadia Group. NPL is the largest producer of hydrogen peroxide in India with an installed capacity of 150,000MTPA (50% w/w) at its fully integrated manufacturing site in Kalyan, Maharashtra. The company has a share of 40%-45% in the domestic market.

The capacity expansion was completed pre covid in 2020, unfortunately things went south after that. There was excess supply and no demand. The company had to shut down plants for couple of quarters.

Source: Credit Rating report

However as far as I could find the anti dumping duty has been removed in as per the hearing in September 2022

Source: Directorate general of trade remedies>> Anti dumping cases>>Hydrogen Peroxide originating in or exported from Bangladesh, Taiwan, Korea, Indonesia, Pakistan and Thailand

Apart from that the major raw material is hydrogen, which in turn is a derivative of natural gas, which in turn is a derivative of crude oil. With natural gas prices soaring through the roof post covid. The margins were hit terribly going through the all time low. But things are cyclical and as of today you can see the price is less than $4/mmtbu both in USA as well as MCX, they have almost halved. So I am hoping margins would improve further. With the same rationale I find MGL also interesting.

Talking about the debt, the company has reduced its debt substantially

The company is also planning to demerge its chemical business and investment business.

Source: credit rating

Lets see what has happened to the stock price:

Will the same cycle repeat? I dont know but I feel there is a reversion to mean that is pending here. The worst as much as I can see is behind. Downside looks limited. Lets see what is the upside.
Disclosure: Invested


This is a very good thread. I was also trying to understand what could be the possible segments that will get into a pessimism mode in the next 5-6 months given the global macro scenario.
The top sectors that come to my mind are

  1. IT services
  2. Industrial chemicals for export
  3. New age tech company, some of which might have some pricing power / network effect but are passing through pessimism.
  4. Apparels maybe.

I will try to go deeper into subsectors but its great to notice such thread has been created. :slight_smile:


Hello Gourab, welcome to this thread. It is always a good place to see where people are pessimistic about, because those are the places where you will get things cheap. So as and when these businesses starts doing well, you get two things 1, Earnings Growth and second PE rerating because of people going from pessimism to optimism. I have observed that people more often than not discard average companies in downturn, And when these average companies post average results post pessimistic times, people become overtly optimistic and write stories about these businesses. That is when people smart people cash out. So I actually love average businesses. And understand one thing that most of the businesses are just average. We must avoid extrapolating good results ( which maybe because of tailwinds) as “THE BEST COMPANY EVER” and similarly in a bad phase too.

  1. IT services yes, you listen to TV show and everyone tells you to avoid it. These people are only concerned about next couple of quarters, and whats in the price. Everyone knows that IT is going through slump, Its already in the price, We have to look what we are getting in terms of valuation. THese companies have corrected a lot and I feel some have come to juicy valuations, some look fair to me.

  2. Industrial Chemicals, yes you are right, people are pessimistic about this too. Maybe. I personally am interested in National Peroxide, cant say about others, but definitely some of their costs have come down in terms of freight, crude raw materials etc. I think they would give above average results by the end of next 3 years. However I think there is some more room for correction from here on

3.New Age tech companies: I dont understand their valuation. I think they all listed at the peak of Startup Bubble. The bubble has burst. In my opinion they would take a long time to go up before they correct even more. And I see some of them getting acquired too, if they dont work on generating profits.

  1. Apparels, I dont know, but US Home textile market is really very pessimistic. COtton prices have corrected, I think somewhere in next couple of years, textile industry will present us huge opportunity. I am keeping my eyes wide open for that.

Amara raja is also a victim of pessimism.
The lead acid battery is not going anywhere. in fact my opinion is that its application will increase.

  1. As we generate more solar energy, we will need to tore more of those energy to supply when the sun is down. In my opinion there is no better place to store that energy other than in large lead acid batteries. Lithium will be too expensive and would not make sense in areas where temperature rises greater than 40 degrees.
  2. They are also looking at the market, they have invested in startups tinkering with lithium ion battery manufacturing. If there are serious demand generated, we will see them putting up plants.



Priced to pessimism due to all time low order book. Can GE Power India turn the table?

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But there is zero terminal value for coal based power biz.

A lot of valuation in all stocks is attributed to terminal value. When terminal value is zero for lot of businesses, market will start discounting that.

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Another point is that renewable energy are not available all throughout the day. During evenings, cloudy days, rainy season, the energy production might be very low, this buffer can be covered by gas / coal fired plants.

I am also confident that we will not see an end to the coal consumption in our lifetime.

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