So, I wonder if ease or motivation of running the company by the promoter is linked with his % holding.
In my limited understanding that would be more of an exceptional case. I would generally prefer to invest with those who have their skin in the game. And though not all pledges are bad, what I have seen is that it becomes more of a habit (where they pledge release pledge release) especially in the Indian context and then when will it blow up is anybody’s guess.
In fact, many of these companies (I have mentioned only a few) have created huge investor wealth over time. So, these are not exceptions I guess.
But yes, I also tend to avoid companies where promoter holding is this much less.
About the question of what happens to promoter pledge if the money derived out of pledge doesnt achieve the desired results etc… Dont you think this is too complex to fathom? And in the current markets when we should be looking out for no brainers these kind of companies should be brushed off at the first look itself. Why should we waste time on these kind of complex situations? (This is my personal view and you and many others might have a different view but I usually dont go too deep when I find things complex to understand or project)
Investment thesis should be simplified to a few lines on a page. If the thesis put up in one page in a few lines doesnt make sense then its not worth following.
Aptly put Hiteshbhai. My mind is clearer now. 
Dear Hiteshji,
I would like your views on Orient refractories valuation at current levels of ~200 per share.
I think the business is great and very strong. They are also in a good industry.
My only question is on the valuations. they seemed to be fairly priced at 150-170 prior to the merger.
Now with the merger being done, how would you value the company?
Thanks!
Hi hitesh bhai ,
1 How to determine a turnaround in a sector early? What factors can one check to determine turnaround in auto sector at early stages?
2 Also can quality cyclical stocks make good long term bet if one stays through the troughs in the cycle i.e would it make up for the lean cycle period or should one get off when the cycle seems coming to an end ? As cyclical stocks i find bit difficult to estimate and hence request you to kindly explain the same .
3Also secular stocks generally are well discovered by the market and its very difficult to find a quality underpriced secular stock as even if one discovers , theres lesser information available in the market about corporate governance of new companies as against well established companies . So does cyclical offer a better bet or please correct if i am wrong. I would love to add a secular stock in my portfolio but find valuations too high and seem discovered.
Many thanks
What are your views on Bharat rasayan
Hi Hitesh,
What’s your opinion on Ajanta Pharma now? It has come up with a poor result in Q3. While it’s showing decent growth in Indian market, it seems to have slowed down in global markets.
Orient refractories is a fantastic company but there seems to be margin pressure in Jun and Sep quarter looking at OPM as shown in screener. These kind of companies are typical steady compounders and returns often are magnified if bought during downswings.
Ajanta has come out with poor results with degrowth in topline and bottomline during q3 fy 19. For any company which has shown scorching growth for many years a few quarters of stagnation or degrowth is usually the norm and during these times the stock prices tend to go sideways.
Chart shows a head and shoulders top with neckline at 1120 odd levels. After breaching it during May 2018 it went down to 900 and tried to rally. Sometimes after these breakdowns stock prices tend to go up and reach or slightly exceed the neckline only to fall down again. Same thing happened here where the stock price reached 1200 and weakened and now after weak q3 fy 19 results seems downtrend has again resumed. How low it goes is a thing that needs to be watched but in view of chart pattern combined with poor results its prudent to stand aside and watch patiently till either charts or preferably the fundamentals improve. (growth returns)
These days most auto companies report monthly sales figures which are available as announcements on exchanges. This is a good way to check for turnaround in the sector. Or one can visit a couple of vehicle showrooms nearby and try to ask the dealer about inventory levels and sales in general under the guise of being a buyer or otherwise.
One sector where quality cyclical stocks have been great investments are cement stocks. If u look at shree cem or ramco cem or any other high quality cement company over a longer term time frame they have delivered superb returns. (thats not to say its bound to happen again.) Among others I was surprised to read that balrampur chini has delivered close to 20% cagr returns over something like 10 year period inspite of big rallies and drawdowns. Ideal way to play the cyclicals is to buy when a lot of companies in the sector are making losses and a few of them file for bankruptcy or are in dire straits. Selling is a difficult art to master in cyclicals but sometimes it helps to be mindful of peak margins attained during previous bull run and be watchful when these margins are reached during a subsequent bull run. Thats when staggered selling can be done. But all said and done, in cyclicals, buying is the most important part. Correct buying price would make up for a lot of errors in the selling part of equation.
Secular growth stories are indeed priced perfectly especially in this day and age of information dissemination and overload sometimes. But there will be times of market panics which happen almost every year or couple of years on a regular basis when these correct reasonably from their lofty valuations and one has to be confident to buy them. This confidence comes from doing homework on these companies and determining levels where one wants to buy them.
You can read Peter Lynch on how to approach the cyclicals investing.
In the current markets, only the quality companies are holding somewhat while all the poor quality/poor management/poor corp governance companies are taking it on the chin.
@bhaskarbora67, Bharat rasayan seems like a good company but one needs to see the receivables and working capital cycle of these company to take a call.
Thanks so much Hitesh bhai for the crystal clear and practical reply as always. Understood the same perfectly now .
@hitesh2710 hello Hitesh bhai , are you still tracking Andhra Petro? it seems the margins are going to improve a lot based on latest RM to finished material spread. besides the numbers, how do you feel the management/comapny is ? is it worth keeping for longer periods or is kind of cyclical in your view? thanks
Hi Hitesh Bhai,
What’s your opinion on Pricol?
Hiteshbhai
What is your opinion on Grauer and weil?
Hitesh sir, i am very keen to know your opinion on Bandhan Bank in light of the Gruh merger… what do you make of the management? Results have consistently been fantastic, with CASA levels on par with HDFCBank… could there be something fishy?
Sir, first of all very thankful to you for the knowledge shared by you on this platform! It helps new investors learn from your experiences…
What is your view on FDC LTD at the current levels? It has been a safe stock with the management distributing surplus cash to the shareholders…What is your view given the recent Drug Pricing Regulations ?
Hi Hitesh bhai,
1 What to do if a diversified portfolio becomes skewed due to corrections in one sector or price rally in another sector . Should the portfolio composition be changed to reflect changes in market value due to the huge correction or rally in a particular stock and the sector ?
2 My portfolio currently consists of portfolio with sectors like as below
| Finance | 17% |
|---|---|
| Auto | 17% |
| Auto comp | 10% |
| Software | 13.00% |
| FMCG | 15.00% |
| Auto ancillary | 15.00% |
| Commodity | 13% |
Should there be more concentration in certain sectors like finance considering there growth drivers ?
3 Have observed that you have gained expertise in many stock sectors totally unrelated to your field. Would love to know your suggestions on how to gain knowledge and increase circle of competence for new and niche fields as fields like fmcg etc are already very well discovered . i am currently researching engineering sector and specialty chemicals but find many things difficult to grasp. As an example, i found researching gmm pfaudler quite complicated due to lack of knowledge. Another reason i am asking this is i find there are fewer and fewer oppurtunities in easily understandable sectors as mostly all stocks in such sectors are already well discovered.
4 Is there any importance of owning stable compounders in a portfolio as they are growing very less as compared to fast growers ? What i mean to say is is it ok to have a reduced portfolio with only fast growers or have a increased total portfolio thereby including stable compounders also?
5 I always tend to predict future growth basis past growth performance ,and most of the times i have got it wrong. how to predict future growth of a company or a sector ?
6 What little i observed, i found that Certain stocks being market leaders always command higher valuations and premium inspite of other stocks in the same sector not having much difference in the growths . So does it always make sense to invest in market leaders inspite of other companies having similar if not better management pedigree in the same sector (considering other factors similar) and are relatively undervalued due to market perception . Mostly such perception seems very hard to change . Please let me know as to what i am missing here ? But then appreciation chances also become limited due to the higher valuation of market leaders in the sector.
Many thanks
Too many questions.
We have a portfolio allocation thread on VP which was a blockbuster thread and you can go through it. Besides these there are books on investing I mentioned earlier which you can read a few times and most of the answers lie in there. I cant give a generic answer to this question because each investor’s mindset is different.
About higher concentration in any particular sector we have to set our own benchmarks as to where we want to draw the line in terms of percentage allocation. If PF allocation becomes skewed due to price rise in a particular stock/sector some leeway may be given. Its a good problem to have…
About gaining expertise in analysing companies in different sectors it comes with experience and interaction with other investors. And reading through annual reports, on the sector in question and research reports if available. Nowadays it has become very easy to research a company because VP can be used as a good starting point.
Stable compounders merit a definite place in the PF esp if PF is a big one. They lend a stability to PF. If someone is starting with a smaller amount and wants to build capital quickly in a few years, small caps could be a the place to be. But it requires a specific mindset and loads of luck.
Predicting future growth is possible only in predictable companies. If I want to predict earnings in cyclical sectors like cement or steel or PVC films etc I would err often. So prediction should be attempted only in consistent predictable businesses.
Market leaders will obviously command premium valuations in any sector. Even in cyclicals most often. But maximum money is made where there is a huge amount of perception reality mismatch and thats where betting on slighly unknown companies or misunderstood companies is rewarding. Change of perception is a slow process and takes time. Till the market changes its perception one has to be patient. You can read the threads of some multibagger companies from beginning to get an idea about what I am talking.
@Pragnesh I dont track grauer and weil. @rskothari I dont track pricol. @Rohit_b I dont track Andhra petro.
Thanks so much @hitesh2710 Hitesh bhai for taking time out and replying to long questions of novices like me and my apologies for the long questions . But your simple , practical and easily understandable replies make me come back to you whenever i have queries . Will read and reread (as many a times i find the second reading helps gain more insights ) the books you mentioned and as always, your crystal clear replies have always cleared my queries which no book could . Thanks so much once again sir.
