Regarding the current fall I had exited most of my financial stocks some time back. Still stuck with a couple of them but wish to offload them too. But in all this process if I see prices of stocks like edelweiss and bajaj finance and iifl it seems they have become attractive again. Dont know what to make of it.
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Hiteshji
What is your view on Solara Active Pharm ? with the API scarcity due to china environmental crackdown
Sequent Scientific.
I have asked you this question earlier and you were tracking it, did you initiate a buy. I attended the AGM today in Mumbai.
Historically Bajaj finance has traded at 2-3 times book pre 2013 and between 2015 to 2016 between 4-5 times book. The whole scenario changed post that where it started trading above 7 times book and most recently at 10 times book. The current 8 times book is still very expensive and I feel it looks cheap only on a relative basis from recent peak (Anchoring) but if it has to go back to 2015-2016 levels of 4-5 times book, there is still more correction left. I feel paying anything over 4-5 times here is risky considering the turn in the rate cycle.
I feel its the same case with Edelweiss which was trading between 1-2 times book before 2016. It is only post demonetisation that it went up to more than 5 times book which is ridiculous overvaluation. At present it has come down to between 2-3 times book. Again, the rate cycle should put these businesses in their place in the near future. I feel Edelweiss should follow JM Financial and MOSL and go back to historical average valuations.
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Which stocks are you currently keeping an eye on?
@1.5cr - For relative valuations, either between peers or for the same company across a time series, any of these parameters work either alone or in combination. All we are trying to do is get a feel of what exactly changed in the economy/individual business that there is a change in the character of how the market valued these companies (either P/E or P/B or EV/EBITDA or DCF or Dividend discount model whatever metric you want to use depending on the type and maturity of business) over a short period of time of 2 years.
All sorts of overvaluation was in fact justified by relative valuations during this period. The same thing happened in private banking space as well and micro-finance companies. Bandhan/AU Small Finance Bank was trading at insane P/B multiple and so was/is RBL Bank and as was HDFC AMC. The entire financial space was being justified with a lot of reasoning from financialisation of savings, private banks will get PSU Bank business, Insurance adoption is set to grow exponentially, consumption is set to blow and so on. These are not incorrect assumptions but they were baking in value from the far future into the present, especially when the present involved serious macro headwinds.
I think its only prudent to expect everything from private banks, nbfcâs be it HFCs or microfinance or wealth management companies, ARCs, insurance businesses etc. revert to historical averages in whatever valuation metric you want to use.
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I think these weak market sentiments are likely to remain weak for some more time, maybe till next elections.
Some sectors like metals and mining, pharma and speciality chemical seem to be showing some relative strength by correcting less as compared to others. Still i would like to observe things for some more time before making a call.
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Not much idea about salora active pharma but sequent remains on my watchlist.
You sound like an expert in whatever you have to say. Will be happy to hear your views on valuations for Hdfc Bank & Gruh Finance. More particularly, if you foresee stock price crash & since when are you foreseeing this?
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Thanks for the pointers towards the rout in the NBFC space. I, for one, am not able to make up my mind whether I should cut my losses(~30%) and look for appreciation in another sector viz. pharma or consumption or stay put and wait for things to get better in the NBFC space. What is your take on it?
I donât know if thatâs a jibe but I will bite. I am no expert and I have less than 2 years experience learning the ropes/first principles (thanks to VP and threads like this one) and I am just a hobbyist so take whatever I say with a pinch of salt. If you look at my checklist, I have avoided banks and related businesses that are in the business of money for making money because of their self-referential nature.
HDFC Bank has not had a serious re-rating in valuation in the last 2 years like the other NBFCs, SFBs, Private Banks, AMCs, Microfin, Brokerages etc. It seems to have always traded between 3.5 to 5.5 times book and is currently in that range so its not way off like the other businesses although it is still in the higher end of the range. A meltdown could at most cut its valuation by a 15-20%.
Gruh has historically been at a premium but since demonetisation, it seems to be have traded at a 30% higher range to that premium and it currently appears to be shedding that weight.
Again - No expert.
Apologies @hitesh2710 for spamming your thread. Will be off now.
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What is the reason for thinking of selling at 30% loss? Did not do proper diligence before buying? Entered at wrong time and overpaid? You need capital to invest elsewhere? You think it would take a lot of time for them to get profitable? What is the reason. I have similar experience and my reasons were all of the above.
Selling at 30% loss is big. Is this 30% loss in a few stocks or in the entire portfolio? If individual, then I guess you can look at them as investing mistakes and lessons.
By chasing a better performance sector may turn out to be another mistake, so invest with a proper plan.
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I did my diligence but a few of them are at 30% loss owing to current sectoral and macro factors. Overall portfolio is at 10% loss thanks to a few multibaggers. The underlying numbers for the loss making companies has not changed drastically but the whole NBFC sector seems to be correcting , probably due to the interest rate hike and the IL&FS and YesBank fiasco. I am unable to foresee for how long this will last or even worse, if it is the new normal. Do not need capital for the foreseeable future but donât want to lose money either(notionally or actually). For example, I have quite a large exposure to MOSL(~30% loss). I feel the Aspire part of their business is too small to value the whole business at 18PE. The market does seem to be punishing them unduly and that they will eventually fix their problems or control the damage and succesfully exit. But the market currently does not seem to like Housing finance companies. and MOSL has a bad hand in that business. Personally I want to average down my price of acquisiton in MOSL but unsure if I should. Similar logic with almost all the finance sector stocks.
@hitesh2710 @phreakv6: What are your thoughts?
You are not spamming the thread. I enjoy your point of view so please continue.
This thread is not my property so no issues on that front too. 
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Understood. As I am on the same boat, although my losses do not pertain to one sector, no connection between them. So I look at them individually, what made me invest, what did I expect, can I afford the capital loss and the opportunity cost. Also Iâm coming out of a couple of stocks as I need the capital elsewhere. If we could afford loss, then we can look at all of this as part of learning, which we can hope makes us a better investor in the future. But since you have invested big, be careful, wish you best.
A good analysis of the current crisisâŚ
@hitesh2710 just wondering how could you be so ruthless in exiting most of your financial stocks ? 
I would like to understand how you make decisions like this as we have been always taught to stay invested for long for compounding returns if bought quality business (stocks) at right price. And not to time the markets and avoid frequent entry and exits.
I understand one thought where you make exit decisions where you see weak sentiments in the whole sector and it could remain subdued for a long time, but I am still not able to understand / apply in practice.
Any learnings / knowledge would be helpful.
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Pardon my ignorance but when you are certain of the performance of a particular sector, wouldnât it be lucrative to exit while at the top and perhaps enter while the sector is beaten down?, thereby you are gained and still are invested in the same stocks as before, you have both eaten and still have the cake.
There could be signs visible to seasoned investors who could take such bold calls, as they can tell, as history may not repeat but rhymes.
@hitesh2710 Sorry Hitesh ji for using your thread, started learning, so cannot miss the chance of expressing myself to what I think I can understand.
Sorry, couldnât understand this comment. Google was of no help either.
I am also feeling curious that if you avoid financial sector overall, what still keeps you interested in them to the extent that you are able to add detailed explanations to the points you want to drive.
It is exactly the opposite actuallyâŚI remember Hiteshbhai exiting all the pharma stocks when the pharma bull was roaring ! Soon after few months, the whole sector went to a very long downward consolidation and still the sector leaders are well below their life highs. Something similar has happened in HFCs.
Sir, how do you predict (well, i couldnât think of any other word) this? What macro factors you look at to arrive the conclusion that the whole sector is due for correction? Would be glad if you can share your thoughts (rather, thought process) @hitesh2710.
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Self-referencing systems have nasty self-reinforcing feedback cycles and it cuts both ways - both positive and negative. Without going into things like invariance, strange loops, recursion, self-similarity etc, essentially there is no difference between the product and the payment for financial institutions (unlike a steel maker who sells steel and gets paid in cash) - this is what I meant by self-reference. A loan can be siphoned off by faking a borrower but you canât siphon off steel with the same ease.
Similarly, credit and Money are similar but they are not the same but are used interchangeably so often. Then there is the interconnectedness of the financial institutions and systemic risks which again arise out of self-reference and recursion. Then we have things like derivatives. This sort of self-references breeds unpredictable complexity. Where there is self-reference, there is complexity - the human consciousness is a prime example of this. For more on this topic if you are interested, I suggest Godel, Escher, Bach by Douglas Hofstadter
This is the prime cause for boom and bust cycles. I am not saying avoid financial completely but avoid them for the most part. Post a recession these are in the goldilocks zone where there are rate cuts, high growth, low inflation, economic stability - the works. I wouldnât mind being in during that time but any other time, the systemic risks are always on the rise owing to poor lending standards which invariably creep up after the goldilocks economy - as economy overheats, rate cuts dont spur growth, inflation rises as does bad debt and with it goes down the debt servicing capacity and then the painful deleveraging (which is where we are now). If you are interested in this, do read Ray Dalioâs Big Debt Crises. Hope I managed to convey my thought-process.
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