Thanks a lot for your inputs. I am myself reeling under heavy exposure to low quality stocks. Lessons learnt and time to correct the course.
Equitas Holdings said it will approach the RBI for an approval to merge with the bank at appropriate time, post the lock-in period of five-years.
Ujjivan Financial Services said subsequent to the listing of its bank and closer to January 2022, the company will approach RBI to consider its merger with the bank
How one should look at this possibility of merger and itās impact on valuation thereafter.
Would be helpful to have insight into this and any other related matter.
Regads
Tracking. Not invested
@hitesh2710
Dear SIr,
I was lucky to get out of NBFCs (Magma and PNBHF) between Jan18 and Apr 18 (Had exposure of around 6% of portfolio). The exit was solely on the basis of reversal of interest rate cycle. In hindsight find myself lucky considering the current situation. Currently have Nil exposure to Banks/NBFCs. Thinking of building a basket of stocks of Banks/NBFCs and take exposure of about 15% of portfolio. I have put down my thoughts in key words against each of the shortlisted stocks. Also have put down key reasons for some of the stock ruled out. Request for your advise/views.
The excel file is attachedNBFCs & Banks.xlsx (11.6 KB)
Regards
PS: I like reading your posts as they are meaningful and a source of guidance.
I have made my views clear in a post on financials few posts back. They remain the same. While there is no doubt that financials have over the years been big wealth creators and may in future also be wealth creators, I think post the kind of drubbing most of them have received it will take some consolidation in form of time wise correction and price consolidation in a range before they can start moving up.
In the short term because of excessively oversold conditions in the sector, there can be sharp bounces but if one wants to buy for the really longer term, one can wait on the sidelines. Or if at all one still wants to buy, the buying has to be staggered over next few months/quarters.
The problem with a leading sector of bull markets is that investors tend to keep their hopes pinned on the sector even if the story in terms of price action seems to be over. The justification offered is that price wise it has corrected x % from top or fundamentally speaking, post this correction a lot of negatives are priced in and so on and so forth.
Coming to the list of stocks you have prepared, I think the current correction will offer great chances to own the best financial stocks i.e no brainers (if at all there is something like it in a sector which has received such solid pounding ) which too have corrected. The best among the lot would be companies which have emerged stronger post each crisis. e.g hdfc bank, kotak, bajaj finance gruh. Personally I would still be watchful and careful before taking a very long term call.
Ideal thing to do in current situation is to look at the companies posting decent results since past few quarters on a consistent basis and make a list. Then try and study them in an effort to see if the results shown are likely to be sustained forward and what kind of variables can affect these businesses. The quality of management and business is of course of paramount importance. Concalls, annual reports and trying to understand the sectoral tailwinds would help in making a call whether the earnings momentum is sustainable or not.
Once all these things are done, one has to keep monitoring the list and see how the stocks in the list behave. At the fag end of the correction, these stocks would stop falling in tandem with markets and would consolidate in small tight ranges or make attempts at small rallies which might/might not be sold off into. But the lows posted during past correction are more than likely to be held during each round of sell off. And once these stocks come of the tight ranges they have formed with good volumes, one should consider buying. Atleast thats what my plan currently is.
I Know its difficult to adhere to if the stocks you want to buy keep falling. But rather than buying a stock which is on its way down I personally prefer to buy stocks which are in tight consolidation range or are showing signs of an upmove.
Thanks for the detailed response. Would endeavor to follow on the advise.
Best regards.
He has the same view
Nice thoughts. Quality creates value, more so in the long term for sure. However, just did some back testing on some popular companies and found that Growth is a relatively more significant driver of stock price.Coupled with good ROCE it becomes explosive, at least in the last 10 years. Only good ROCE but lack of growth will at best preserve capital but not create wealth. A sample back testing is attached for reference.
Top Stock Portfolio.xlsx (16.0 KB)
Hi Hiteshjiā¦Microcap stock SPL industries is turning aroundā¦promoter constantly buyingā¦profit margin improved drasticallyā¦please give your opinionā¦thanks in Advance
Hello Hiteshji
What is your opinion about temporary parking of some funds in Blue chip āParkingā stocks like HDFC Bank, Infosys, Nestle and Britannia.
Most of my āCashā is in Liquid Mutual Funds but after recent scare of defaults on CPs, Iām trying to diversify that.
The logic is that these Bluest of blue chips would normally have limited downside in case of secular falls and even in flat markets, their predictable business performance makes their average point to point returns are atleast equal to FD rates.
Many thanks in advance
I too had a scare when I saw one of the tata liquid funds nav drop overnight by 5%. Going forward I think one should check the exposure to ilfs in any fund one wishes to invest in case of debt fund. Till some other name crops up besides ilfs.
I think the best recourse if possible is to lock in money in FD in a high quality bank even if one gets a couple of points lower returns as compared to debt/liquid funds.
Coming to your point about blue chip stocks being parking places, it could be a good idea provided we are absolutely certain there is very limited chance of capital loss in them too. If the correction were to extend further after the ?countertrend rally, blue chips also might crack. Who knows. My best course could be to park funds in FDs.
What he mean by manufacturing sector, what industry sectors get covered in it?
Dear Hiteshji,
I am an avid follower of all your posts. I have taken most of your replies as guidelines for my stock picks, not only in this thread but in many others.Since this is my first post since I joined about a year ago, kindly pardon any error from my part.
What is your opinion on the Nifty Weekly Elliot analysis I have posted here. As far as I can see, the 5th wave of the uptrend that started after the 2008 correction, could very well have been completed. But as you can see, the 5th wave retracement has not even reached 50% of the uptrend (5th wave uptrend). What is your take on this. Is it too early to expect a deep correction of the post 2008 uptrend, or do we need further confirmation.
And in this scenario, what is your cash to holdings ratio now. In the last post, you had mentioned a pull back rally, do you think that there will be much more to the down side.
Regards
Mithun
The Elliot Wave counts you have posted seem to be the correct ones though different people will have different counts and explanations. Coming to the downmove post the top of 11600 plus, there has been a fall of nearly 1500 points on nifty which has shaken a lot of investors. Expectedly the counter trend rally now seems to be on. I had earlier also posted on a thread on technicals a possible resistance zone of 10800 region. While looking at Nifty futures chart I saw a big falling gap from 10800-10880 which could be a strong resistance for nifty going forward. If that region is crossed and nifty manages to close above that region for 2-3 days the counts on nifty would have to be revisited.
Fundamentally speaking there seem to be two opposing things happening. Results for q2 for a lot of companies have been very good and post this correction a lot of stocks seem to be appearing at reasonable levels. Especially those that have posted decent results. Because in this markets even after very strong results very few stocks have run up consistently. There has been the odd 1-2 day rally followed by weakness in prices.
Against the great q2 results there has been the usual worries about oil prices (which seem to be cooling off atleast for now), dollar strength (which again seems to be retracing some of its upmove), political uncertainty and so on and so forth. Another factor has been consistent FII selling. There has been liquidity sqeeze from the markets and as we have seen during the time of 2017 till January 2018, liquidity is very important for significant upmoves. With strength in US treasuries and raising of interest rates in US, a lot of money is moving towards the US.
Another aspect that needs consideration is the state of global markets. Most of the markets including US posted significant tops in past few months and have corrected sharply. If there were to be a global cooling down in equities, Indian markets also inspite of decent results would tend to go down.
So to cap it all, there seem to be divergent forces at work and I am not too sure which way the markets are going to go. Hence I have decided to remain in cash and have gradually increased the cash in my portfolio. I dont want to get into exact levels of cash as I dont want anyone following me to get biased as I myself am not too sure which way the markets are likely to go. As of now I remain slighly bearish but would change my views if things unfold in a way which I dont expect them to.
Thank you Hiteshji. Your reply has clarified a lot of confusion I had in mind. I also had shifted to Cash ie liquid mutual funds at about 11300 odds. I think wait and watch is the right course.
Too many uncertainty and unpredictable events are lined up in 6-9 months , market vitality is inherent.I am also of view to remain in cash for coming opportunity. In fact I am increasing my cash based on market up move.I have a feeling 9500 is a possibility.
Most of you are of the opinion that the worst is yet to come in view of the upcoming elections and other macros which may unfold in the next 6-9 months and hence moved to cash in substantial way. However I have a feeling that during the last 10 months, the market may have priced in these uncertainties and possibly the market may have bottomed out. This is only my opinion, not backed by any technical analysis as I am not proficient in it.
Thanks for your views. I would like to pen my views and some of it at the cost of repetition.
First of all we have corrected 15% from the top which is usually a regular sort of correction that happens usually once or twice a year. The reasons often are different. In the past these were sometimes domestic and sometimes global. Nov 2016 to Feb 17 was clearly due to demonetisation and its perceived effects. There the picture was pretty clear that things would definitely pass but no one was certain about the time it would take.
The correction starting feb 2018 was more to do with dealing with excess froth built into the system and to add to that the govt made the stupid blunder of levying long term capital gains tax. The small-midcap correction that had started since then has clearly seperated the boys from men. But during that time a lot of froth had been built into NBFC space. That now seems to be getting taken care of.
Coming to current situation, I feel the overhang of election outcome is something that cannot be wished away. If a single party or a cohesive coaliton is going to cross the line comfortably then that would be known only atleast one or two months before the elections. It may even take the time till declaration of results which might go on till May-June 2018. In the near term, BJP is going to face some tough music in Rajasthan atleast and we need to see how it fares in the other states.
Coming to risk reward equation, for me its pretty clear that if things change for the better in terms of market sentiments, the change in mood would be pretty evident. And the thing I suffer is that I might have to buy companies at 10-20% higher prices than what I might like to pay if I buy now. But the other side to the equation is that if the correction till now was only the trailer then the downsides could be significant.
The big positives have been very good numbers reported for q2 fy 19 and crude which seems to be weakening as of now. The negative is US dollar not coming off significantly, rising global interest rates, and the political uncertainty. Another factor which came across while discussing market risks with a market veteran recently is a soft landing in Chinese economy. According to him it was the single biggest risk factor. (I never thought about it). And of late a lot of global markets are also coming off strongly. That could trigger a global rout. If markets were to go down post the current rally I dont know where the fall could end.
So in essence if I were to take a big risk like the risk of political uncertainty, I would like to buy things at very attractive rates which I dont find even after the recent correction. What the strong multi year rally has done to our thinking is that we consider 20-30 PE as attractive for companies growing at 15-20% and 30-40 PE for compounders. If one compares these to the times of 2011-2012, these valuations would appear very expensive.
I prefer to remain circumspect about where the markets are headed and keep focussed updating my watchlist with companies which I feel are going to have good business momentum for next 2-3 years.
Technically I would watch out for resistance in the zone of 10800-880 where a falling gap could offer strong resistance. Till now the indices have not been able to go above 200 day moving average convincingly. The current upmove seems to be a potential right shoulder in a bearish head and shoulders pattern. Lets see how things pan out.
Hiteshji
Thank you for your valuable views. I have seen you correctly calling the mid cap meltdown as well as the recent NBFC one. I had planned to add Pidilite, Kingfa ,Vaibhav Global and Havells during the recent meltdown but some indecision at the right time saw them bounce off pretty smartly from their recent lows. This may have skewed my views. It is very kind of you to have taken out your valuable time and express your views on my opinions which are amateurish.
Dear Hiteshji, thank you for your excellent analysis. Iām quickly realising that tracking businesses with a good momentum in the next 2-3 years would require a great deal of time, patience and discipline and that wouldnāt be easy for a novice investor like me. Although Iāve been making good progress by gleaning insights from investors like you, I have to admit that Iām no where close to a balanced, low-risk, long term wealth creation strategy. I would definitely agree that good businesses are still way too expensive from a P/E perspective as well.
Therefore my strategy is to concurrently begin investing in Nifty 50 & Nifty Next 50 Index Funds from UTI (lowest expense ratio) starting around 10,000 levels onwards and gradually increase it as it moves lower especially if the stocks Iām tracking do not get attractive enough. My question to you would be this-
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Is this something you would recommend in terms of a low-risk strategy?
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What point would you say the Nifty/Next Nifty is attractive enough to start dipping in? Would 10,000 a good level to enter in terms of value?
Thank you.