Election Punts: If we get a strong government in 6 months

Hitesh,

Welcome to the discussion! Interesting theory on Adani’s.

Re: what we do best at ValuePickr

We must try our hand at broad-based investing. Not just remain specialists at picking up great businesses in infancy…which though will perhaps remain our bread-n-butter core competency.

It has been pointed out to me by Seniors - the next level for ValuePickr - is to be able to also make a case for broad themes in play, get better at identifying lead themes early, pay some attention to macros. In my limited experience of now some 8 years in markets, I have seen there are different themes at play at different stages of the market.

Our core-competency alone will not be sufficient for us to ensure big market-beating returns, we need to become more well-rounded investors - that’s a strong inside voice growing louder by the day :-).

Dhwanil,

Sure. Will be good to be in touch. You might be already connected with me at Linked In. If not please do, for access to contact details.

Feel free to call. And when we visit Mumbai next, we can do some Management Q&A together - will be great to do that with someone of your calibre.

-Donald

Hitesh has pointed out all fair topics. His views doesn’t look biased towards any party or towards any situation.

There are following possibilities

  1. BJP comes in power with NDA
  2. Congress comes in power with UPA
  3. Third front comes in power

in case of 3, market sentiment is sure to get bleed. If case 1 or 2 happens but with thin margins then also market will loose its mood. Remember Bajpai NDA for only 13 days :frowning:

Hitesh’s argument to keep sufficient cash is sensible idea. :slight_smile: If negative sentiment build up, then surely cash will be king. If positive sentiment build up, then why to worry for MISSED OPPORTUNITY? We can buy PSUs or Adanis or Jindal or Infra or Metal or Realty or any Xyz Turnarround story anytime post positive result. In this scenario we can accept 10 or 20% lesser profit but there will be hundreds of Turn around stories.

I think Risk / Reward ratio is something like - 75% risk and 25% Reward.

Again, in any situation - CASH will be King. Money hai to Honey hai.

Kunal

I agree fully with all your logic about possible outcomes and their impacts… What we can do now is be ready for whatever outcomes… Better keep a buy list handy in case markets go up post election results… If they go down, then there will be great opportunities to pick up our own favorites at lower prices.

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And yes cash will be king but deploying it wisely often is difficult. As Lynch says for managements, so it applies to investors… Bladder syndrome… More the cash , more the urge to piss it away…:slight_smile:

Hi All,

thou the topic is about PSU & election punts,

i would like to bring your attention to IDFC ( & other companies in such a position) who could do well regardless which party wins, We still are going to need better infra

my 2 bits

Kunal and market is expecting BJP with Modi at the top… Still have doubts whether its easy as it seems… But the opinion polls of Delhi/Raj/MP suggest BJP racing to top…

180-200 seats is the key for BJP according to me…Then they can dictate terms…** Or else coalition pressure may force BJP for a compromise NDA candidate…**

Congress again forming a gov with lose coalition… Markets may correct but will rally later …

Third front think its not possible… But as hitesh bhai has mentioned Indian electorate is known for surprises…

( Personally feel Congress has some wild cards in its kitty… Congress had won just 7 more seats than BJP in 2004)

Govt. Keeps finding innovative ways to suck cash out of PSU’s.

http://www.thehindubusinessline.com/companies/bhel-stake-sale-govt-may-take-the-crossholding-route/article5422188.ece

I think sugar sector is worth a look in the event of a strong government. The whole sector is in such a disarray whereas it holds good potential like direct production of ethanol which can help saving forex. Strong efficient sugar companies like Balrampur Chini Mills, Dalmia Bharat sugar and industries ltd. . They also have healthy balance sheets and in my opinion stand to gain a lot in the event of favourable policies. Whatever bad has to happen in the sector have happened and its a good case for contrarian investment.

You can see trailer of actual “Movie 2014” in this week, specially on Sunday 8th Dec. That will surely give some hint. But in past, I regretted after going for movies by just watching trailer (Bollywood movies).

terms… candidate… ** Congress 2004)

**

I just wanted to explore the possibilities:

Cong+Allies - Cong would need a minimum of 120-130 to even have a shot at forming the govt. Last time, Cong had done well in the South (barring Karnataka) and performance was okayish in UP. This time around, Cong will nearly be wiped out in TN, might win some in AP (depending on how the Telengana move unfolds), will face strong anti-incumbency in Kerala. If Yeddyurappa returns to BJP, might not do that well in Karnataka as well.

Gujarat, Rajasthan, Chattisgarh, MP etc can be ruled out. Congress’ presence is limited in Bihar, Orissa, WB etc.

So unless something drastic happens, I think Congress has negligible scope when it comes to a role in the next govt.

BJP+

BJP will have any chance of forming a govt only when BJP by itself crosses 180+…

At 180+, they will able to get necessary support from 2-3 big allies (potentially BJD/ADMK) and reach close to the half-way mark.

Given the trends, 180+ looks achievable.

BJP is expected to well in Gujarat/Rajasthan/MP/Chattisgarh…Would also do better than 2009 in Maharashtra/UP/Bihar

So a BJP-led govt is a real possibility

Third-Front

If BJP gets less than 180 and Congress does as badly as expected, it would mean regional players winning big. At BJP < 180, Prakash Karat & team will go out of their way to help a ‘secular’ Gov at the center. BJP + Cong at such low numbers would mean BJD,ADMK, SP/BSP, JDU etc winning big. Left will try and put something together

terms… candidate… ** Congress 2004)

**

Adding fuel in Fire

http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/capital-goods-infra-power-stocks-likely-to-benefit-if-narendra-modi-wins/articleshow/26813346.cms

< 180, Prakash Karat & team will go out of their way to help a ‘secular’ Gov at the center. BJP + Cong at such low numbers would mean BJD,ADMK, SP/BSP, JDU etc winning big. Left will try and put something together

Ramsaravana you have got into details/possibilities correctly…

Regarding 3rd front, i don’t think they can form the government on their own… They will fall short…

U.P will be the key…

( Will be happy to be surprised )

I think it is better to invest in Infra proxy stocks likes of Cera,kajaria,Astral,supreme etc…

We have forgot about external factors… Withdrawal of U.S stimulus ( even though slowly ) will have an impact, no matter who forms the government…

Feel we need more inputs/guidance from market veterans to play on macros/cyclical’s… Or we can coat-tail their investments…

To bet on the result of election does not seems to make much sense to me. Because of these reasons

1> It is impossible to predict the outcome of the result. There is a high chance of being wrong in this effort. Plus in order to make some money from it, you need to be more right than the rest, (being right is not enough here).

2> Even if you predict it correctly, still it will be very difficult to pin point which cos, sector is going to be benefited and which are not

3> There is an assumption that NaMo if come to power, will fix everything. I have no doubts on his relative capability, but have serious doubt on his absolute capability of meeting the unreasonable, crazy, and super high expectations

4> Plus, my hunch says that the ills of mismanagement of UPA2 is not going to be cleaned in 6month-1yr timeframe. It will require slow and steady adjustment, which will start lifting our gdp growth number in a slow and steady fashion.

For me, the age-old roe/roce/sales growth/eps growth/margin expansion approach with a sprinkle of macro themed play was, is , and will be the way to go for investing in stock market.

As they say, expect the best, but prepare for the worse.

Hi Donald,

Yes, we are connected on linkedin and will get your coordinates from there. Look forward to meet you in Mumbai/Bangalore whichever happens first as I keep on travelling to Bangalore.

Late to chip in…By the trend that’s been seen among the states in which polls have been conducted,people are willing to vote & the mandate is decisive.In my own naive way,I was of the view that whoever forms a government,it WILL be decisive/full majority.However,Delhi seems a Joker in the pack.Though,if we get full majority there(NDA/UPA),I am sure we will have the same kind of mandate at the centre too.Moreover,the stock markets have been sideways for 4-5 years now,its high time equities returned(in terms of Sensex/Nifty) Election results may act as a catalyst for that.Cyclicals & Adani group stocks have already rallied very strongly,even PSUs are making a comeback.So,its difficult to find ‘value’ in some sector as a whole.My punt would be the absolutely beaten down PSU: MTNL.Nothing expected at all here.A new government should try to fix the weakest links first.So,a small positive could translate into much higher stock price.Its more about HOW the market views the development rather than What impact it will really have.Its a punt,right? :slight_smile:

Good discussions!

Few months back, i was working on some PSU stocks as they were on free fall and the valuations were extra-ordinarily cheap. For eg: The best pick seemed to be NMDC as it was a market leader, with huge pile of cash on BS and almost 7% div yield. Since then the stock has performed well…its up about 30-40% however, I got lot of advice from friends and on some detailed work, I realised that most of the PSUs are highly in-efficient cos and not designed for long term investing. They are making money just because of the monopolistic position they got into due to rules and regulations. To quantify the same look at this data of NMDC:

Over last 10 years the profits have grown from 430 Cr to 6300 Cr. So one feels this is an excellent co but if one looks at volume data - then production of iron ore has increased just from 1.8 Cr tn to 2.7 Cr tn in 10 years.

Over last 6 years profits have grown from 2300 Cr to 6300 Cr but volumes of production of iron ore has remained flat at 2.73 Cr vs 2.62 Cr 7 years back!

So I agree with viewpoints of Dhwanil from the long term perspective.

Now, coming to Donald and hitesh’s perspective, yes, we shouldn’t completely ignore this space…there are bound to be winners as this space has been beaten out like anything for last 5-7 years. At some price everything has a value :slight_smile: But my thought process is that we should be doing bottoms up picking…i.e… look for cos which are already performing well (or turning around) in these bad times and are available at cheap valuations. Or cos which had a great track record but went through temporary problem. Just emergence of a new Govt won’t change fundamentals of any co.

Ayush

Super thought. Rather than finding highly unpredictable industry or cos, it’s meaningful to take risk by investing on “Only Quality proxy companies for Real Estate, Infra, Power, Metal, Auto

These cos can provide greater Hedge against risk.

Motilal Oswal wealth creator study for 2008-13 was being talked about by Ramdeo Agarwal today (am still to find the report). Was re-reading the earlier study released in Dec’12 and was thinking as follows:

Over 2007-12 ITC grew its sales and profit at CAGR of 16 and 17% whereas its price increased at 25% CAGR. Similar numbers for Nestle are 22, 24 and 38 (CAGR of sales, profit and price). Asian Paints - 21,28,33.

It is easy to guess that similar situation exists for pharma cos also where price CAGR exceeds profit and sales CAGR.

There are some cos. like Grasim (12,4,15 - Sales, Profit, Price CAGR) Bosch (16,19,20), Tata Power (32, -204, 15), LIC Hsg Fin (31, 27, 57) , Cummins (15,14,21), Eicher (23,41,52)- a mixed bag of companies from different sectors.

A good starting point to identify companies likely to benefit from the topic of this thread would companies whose Price CAGR has lagged Sales and Profit CAGRs. That is, the company has continued to grow, but the stock price hasnt kept pace.For eg

Tata motors - 39,46,14 (sales, profit, price)

Larsen - 26, 20, 10

Axis Bankk - 38, 45, 19

IDFC - 33, 25, 10

There are some other private banks, PSU Banks, IT cos, Utility cos (PFC types)etc. Infact even some consumption stocks (surprising) like Dabur (21,18,18 - no price outperformance), Godrej Consumer (39,33,27)

The better candidates would be where price CAGR has lagged profit and sales CAGR by large margins, which presents better chance of price catching up in economic revival.

link - page 40,41

http://www.motilaloswal.com/site/rreports/HTML/635216014860670480/index.htm