ValuePickr Forum

Hitesh portfolio

Hiteshji,
Any thoughts on package doled out to Kodak for manufacturing Generics in US? Will it hamper Indian companies if the package gets extended to others companies as well?

Hello Hitesh sir. We are 4 months past the big secular crash, and after initial days of predictions so as to which sector of the market / new trend would emerge after covid - It seems to be that pharmaceuticals especially the API/ CDMO are leading the bull run.

Many of these names such as Aarti Drugs, Granules, Laurus, Syngene, Divis are up anywhere between 50-300% since the march lows.

Management of a company like Aarti have sounded quite upbeat on future prospects in concalls.

There seems to be many things working in their favour like

  • better price realisations
  • Preference for non-chinese suppliers in global markets
  • govt policy announcement for API manufacturing
  • currency tailwinds

Based on your experience do you see this trend lasting for medium to long term?

Thanks

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@princevegeta

As you said, these CRAMS/CDMO/API players are on a tear in this market. If you see Dr Reddys results declared yesterday, the PSAI (pharmaceutical services and active ingredients which includes custom pharma services and API) was the business that stole the show by its growth. And even in the concall the CEO mentioned that they expected the traction in this segment to continue going ahead.

Similar commentaries also given by Granules guys. Need to see how Laurus fares today. And what the commentary is. There seem to be some structural tailwinds for the business. It seems large global pharma companies are now in the mood to diversify their API sourcing and do not want to depend only on the Chinese for their API requirements. Besides this, govt also makes noises about providing a better playing field to these players. So all these things combine to make strong tailwinds even stronger.

It is not uncommon for stocks in the favoured sectors to go up 2x, 3x or more in short periods of time as we have seen many times in the past. If you look at the FY 21 projections, most of these still after the run up quote at valuations of less than 20-25 PE. (barring Divis) , some even at 10-15 PE inspite of big run ups. So it seems valuations wise also the run up could continue for more time after brief periods of consolidation in each stock. Sentimentally and psychologically the sector starts having signs of bubble when there is a feeling of infallibility in the busiiness model and the managements of most companies come on various media platforms and conferences and sing fancy songs. This seems some distance away and I feel it might make sense to ride the rallies in this sector.

@Rudresh Whatever has happened with Kodak is a small drop falling in the ocean. Why even bother about it? Its not as if its going to start supplying tons of the stuff from tomorrow itself.

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Hi @hitesh2710 Sir,

I would like to know how do you deal with selling a stock?

Suppose, due to overall market correction, your current holding (some pharma stocks) corrects significantly, do you place a stop loss to protect your gain or buy further using any cash available to grab the opportunity?

Don’t want any stock specific answer but if you can guide what should be the thought process?
If my holding is already at a profit of 70-80% and the stock correct more than 15-20%, should one buy more or take an exit first and evaluate and re-enter later on when the situation stabilizes?
Please guide.

Regards,

@jayesh265

First a disclosure. I do not have a great track record in selling. Usually it has been too early to sell and sometimes too late to sell.

But some ground rules to follow in companies bought on fundamentals should be to keep riding the stock till the fundamentals remain strong. If allocation becomes skewed due to huge run up, maybe some trimming may be done if at all. Idea should be to try to ride the winners.

If one has to apply techno funda principles, then it makes sense to keep riding the trend along with the fundamental story. One can keep an appropriate trailing stop loss of say a 3-4 week low or a suitable moving average or percentage correction from high or a combination of such parameters.

But my experience has been that if buy price has been right and allocation is sufficiently okay, these largely make up for mistakes in selling. Though I always try to keep figuring out ways to avoid mistakes in selling. I haven’t cracked the code yet so will not have a definite answer.

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Hi Hitesh ji

What’s your take on Kilpest- a play on molecular diagnostics which is enjoying super normal profits due to covid.
Thank you
Jey

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Hello Hitesh Sir,

I have not experienced 2008 crash however collectively in this unprecedented times of market, wherein a market has fallen and rallied quite for a long term after 2019 covid crash.

Can you share your lessons a 2-3 sentence about market corrections or tickers from your past experience? - this scenario cannot be correlated to the past however market sentiments can play a major role.
Its definitely hard to predict however for a novice like me to study and learn it will be of great help + with your wisdom it will help us even more to get deep insights on outlook going ahead

This will be basically a self study for me and hope it helps others for studies in their respective knowledge graph.

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@nithin_Shenoy

2008 was a brutal correction. I think it began on 22 Jan 2008 and in the initial phase, there was a lot of disbelief that the housing bubble in US is not going to affect the Indian markets as we were supposedly de coupled from US. Actually the US markets had started correcting from Nov 2007 or somewhere about that time and Indian markets kept going up. But the first sign was that the small and midcaps had stopped moving up much all throughout the few weeks preceding Jan crash. That actually now in hindsight was a sign of trouble.

Post the initial violent fall, there was a sharp rebound in the next month which led people into believing that the correction was over and bull market may have resumed. But that corrective upmove quickly dissipated and downmove started. And the downmove began again in March-April 2008 and market formed a bottom on 27th Oct 2008. (I remember that date clearly because it was my birthday and I had no clue what to buy and ended up buying Hitachi Home appliances as it was then known at around 25 bucks and promptly sold for 35 a few days later. I was worse than a novice then. You can read up One up on wall street and there is a character described in that book called Houndstooth, with whom I identified myself the first time I read the book. :grinning: ) That was followed by some sideways moves in markets for another 5-6 months and another higher bottom was formed in March 2009 which proved to be the decisive bottom. Post that markets kept rallying.

That scar led me to sell off most of the things I held in March 2020, which again in hindsight now might have been a wrong decision. But I wanted to get rid of all the losers from the portfolio and have a clear mind to focus on where to invest my money when I saw the things stabilising. Atleast that has helped as I could get into companies like Laurus, Alembic, and the pharma pack when I saw that the sector was showing resilience in the market and subsequently started outperforming. Since then helped with concentrated position in Laurus, the scars have largely been wiped away.

The thing I figured out from the current scenario was that each correction assumes different contours and one cannot base the investment thesis based on previous experiences. General rules do apply and those are that one has to try and look out for companies that are going to benefit coming out of the correction and these are often visible to the naked eye by looking at what is outperfoming in the markets. And that can lead to sectors/stocks that could be investigated fundamentally.

@tjjeykumar I have not tracked kilpest. (and missed a big multibagger in the process. :kissing_heart: )

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Dear Hitesh bhai,
Going back a few threads, how do you balance between your fundamental and technical instincts? Refer above - “Realisations have improved” and “cleaning up balance sheets” reflects your fundamental side, whereas “stock charts show immense strength” and “take out all time highs” reflects your technical side . Or do you tend to take opportunistic bets when the two views complement each other? What would stop you from taking a fundamental longer term Hold call on these polyfilm companies if they were indeed to undergo a re-rating? Do you place them in the same basket as other cyclical commodity plays like paper, textiles etc. and hence desist from buy & hold.
Also could you expand on what would mean short to medium term in this context … like 1 to 2 quarters? Or is that adaptable, flexible?
Thank you, always valuable learning.
Keval

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Hi @hitesh2710 , I have few questions on technical analysis, approach to buy/accumulate stocks, putting stop loss etc. Sorry if I am asking a question which has already been answered in above thread.

  1. First question is on using technical analysis with fundamental analysis for new investors. e.g. I have price bias. If I have bought a stock at 400(just an example), i find it hard to buy at 500 or more. I might average it downwards. This approach always backfired and ended up with few/no quantities of winners(e.g. Aurobindo) and lot of quantity of losers(Yes Bank, Multibase and many more). I have learnt from your thread that we should look at stock making 52 week high since it has potential to go more. So I want to understand how technical analysis could be combined with fundamental analysis for new investors. Shall we look at 50 day moving average and buy stock if it goes above? Can you please give some example from any of the company name like Vinati Organics or Aurobindo pharma or Alembic or any other company of your choice?

  2. How do we put a stop loss in case we are buying some opportunistic bet. e.g. if we buy a stock which looks good but we dont have much conviction, shall someone put stop loss on some percentage like 15-20% and keep revising this in case stock goes up?

  3. Do you buy large quantity at one go or stagger them? Do you average them on upwards trend?

  4. About pharma rally, i completely missed it. How does someone look at the trend to see if sector has tailwinds and start buying. e.g. Market made low on March 23 and pharma sector start moving upward after that. Shall someone check for 1-2 week and let sector/stock go 10-15% upwards before starting buying. What are your thoughts on current pharma rally? If someone has to buy pharma stocks now, do you think one should start buying or wait for some correction. Just want to know your opinion.

@Keval

I have been tracking these polyfilm companies far too long to believe that these are secular buy and hold or buy and forget kind of stories. The idea in these kind of bets should always be to ride the trend and get out at opportune moments or even before that. The price realisation, raw material price volatility etc are too much in these companies to take a longer term call.

Marrying fundamentals and technicals is something I am quite comfortable with and I have seen it work over the years. Once you achieve a reasonable amount of success with a type of investment style, the confidence in the style keeps increasing. Plus we ourselves try to improve upon our own methods and that leads to better outcomes.

Long term investing as in pharma etc was based mainly on fundamental analysis as I could clearly see the tailwinds emerging for the companies in the sector. In these companies even if I did not have clarity about technicals, I would have invested.

The beauty of the rally in the last few months is that technicals have worked perfectly and most patterns that have played out have provided the targets indicated by the patterns.

Short term means few weeks and medium term means few months.

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Hello @hitesh2710 sir,

Are you still tracking Surya Roshni? June quarter results have not been bad considering the lockdown scenario. Margins have been subdued but that is understandable because most of the companies would be looking to clear off their inventories and margins do take a hit because of that. Interest has been coming down over last 3-4 quarters. Though it still amounts to about 25-35% of EBITDA earnings(50% in this quarter). So debt is bit of a concern. But the promoters have revoked considerable amount of pledging over the last couple of days so that looks like a positive news in this situation.

Please let us know your thoughts on it if you are still tracking it. Thanks!

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Hello @hitesh2710 ,

Can you explain the impact on Manappuram finance / Muthoot finance, considering the recent RBI’s decision on increasing the Loan to value ratio from 75% to 90%.

Kind regards

Siva

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Hi @hitesh2710,

What are your views on Trump’s executive orders on Pharma such as regulating price by allowing imports from other countries and recent news about banning imports of essential drugs - https://www.fiercepharma.com/manufacturing/trump-to-issue-buy-american-executive-order-for-government-agencies-reports

Does this worry you about the sector and how it would affect US dominant players like Granules, Alembic?

@ankit95

We need to see the size of purchase of drugs by govt agencies as compared to the overall size of US pharma market. My guess is it would not be too great. Even while reading a concall of some pharma company based in India (probably strides) I recall about the company mentioning about VA qualification for their Singapore plant and their US facility. So my guess is this is nothing new and being only highlighted now. I think the whole pack consisting of pharma biggies like sun, lupin, drl etc have broken out of their respective 52 week highs and all time highs and we might see strong gains in the sector. Lets see how things go ahead.

@sivareplies I dont track the sector too closely but this development should be positive for the gold loan companies. I think this provision is for limited time period.

@dm88 Surya Roshni evokes very painful memories for me, it being the cause of big losses for me. :grinning: Hence stopped looking at it.

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Dear Hitesh Bhai,
Now a days any stock I pick and its giving me 5-10 % return. “Aisa kabhi nahi hua”. What do you think. Isnt this exuberance ? How it will conclude. Bit scared…

Regards,
Saurabh

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Hi Hitesh Sir, do you see a trend similar to 2017 playing out in the markets currently? There is a lot of euphoria and price elevations, although the underlying businesses may not have recovered from the crisis (some even longer term). Eager to hear your thoughts as you usually spot these broader trends correctly through your market experience.

Thanks!

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Good Evening Hitesh Sir,

Hope you are doing well.

Today the results of Alkem Labs are out.And primafacie suggests they are pretty good. Would you mind looking into the results and provide your analysis on that.

Thanks,
Deb

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Good evening sir,
Can you please say about Gujarat Gas. Posted recently Q1result. Not do encouraging. Can you please give your opinion.
Thanks
Lans

The markets recently have been showing a lot of rallies in the broader markets, with small and midcaps outperforming the large caps and index movers. (Barring reliance)

If we see the rally post Jan 2018 correction, there was no participation from small and midcaps all throughout 2019 and early 2020.

Then came the catharsis of March 2020 when all small cap bulls were washed away and no one was ready to buy them. Everyone wanted safety in quality names, mainly those with brands and moats etc. That has sown the seeds of a strong rally in small and midcaps and those that kept faith in that segment and picked up companies that were likely to deliver good numbers going ahead have been rewarded handsomely.

Some companies I track and own even after the run up do not seem too expensive. Something like alembic could report 65-70 rs eps, and with qip overhang out of the way, seems reasonably valued at 16 PE. Here the concern is sartans over dependence, maybe rightly or wrongly, only time will tell.

Similarly, laurus, if it continues momentum shown in q1, for next few quarters can report good numbers and again at around 15-16 pe and a strong demand scenario seems ok.

Same thing with a lot of other small and midcaps where earnings momentum has returned but price is just about beginning to catch up.

A lot of cyclical stocks were beaten out of shape, and therefore rallied to reach fair values.

So although the markets do seem frothy, with small and midcaps running hard, maybe there might be some steam left.

I am fully invested, but would be on the lookout for too much froth to make any decisions to exit. The only worry I see is last time I saw strong moves in small and midcaps was in 2017 and then 2018 happened, which depressed sentiments in the segments for 2 whole years.

I dont track guj gas too closely. Alkem numbers are very good, but need to listen to concall to guess the way forward.

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