@hitesh2710, I have been long intregued by ITC, as has been the case with most of the investors. I find the present levels of ITC very attractive. However, my only concern is the current market situation, where cheap stock becomes cheaper. I want to know is it prudent to start investing in the stock in the present market situation when your price level have been reached or it is prudent to let the dust settle first before investing. Also your views on technical possible bottom price for ITC is highly appreciated. I am planning to go long on itc minimum investment horizon is 5/7 years.
Point to ponder is how much is priced in already. All your data points are publicly available information, so market participants are already aware of the same. I agree itâs not time to be brave and go all-in but in the same time we should slowly start buying good companies in our portfolio if we see good valuation support.
Some of the stocks that i have been tracking have been beat down mercilessly.Whether it is Rain industries or Chaman lal setia exports or tbz .Rain has corrected from 450 in to 50 whereas clse has corrected from 210 to 25 and tbz from 133 to 19 .But the fundamentals of these stocks have not changed,in case of the first and the third the companies have actually reduced debt.
Deltacorp has corrected from 200 to 60 in 3 months.
Have you seen such bizarre beatdowns before?
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How much of this rapid downfall would be related to algorithmic trading? Does it change the recovery pattern?
Would you keep a large Fixed Deposit or SB in Indusind Bank? Or if you are running a business, would you keep a large current account?
I am slowly learning it is better to look at RoA, Book Value, Leverage, Capital Adequacy Ratio, Provision Coverage Ratio, NPA, Price/Book along with RoE for lending institutions. Reason: These remain less volatile than earnings. Combining these factors and looking holistically will give a better picture.
For example, the entire equity will be wiped out if a bank has 10x leverage and 10% NPA.
Unlike a FMCG company, where the revenue/earnings are relatively linear, an increase in provision (in situations like these, especially) can wipe out all earnings of a financial company. A 8 PE company can become 80 PE if âEâ collapses. Provisions significantly impact E. It is easy to play with provisions.
Also, it woud be good to look at the asset side and look at the stress levels in those industries/people. If borrowers canât pay, they wonât pay. (Genuine defaults).
Discl: Not holding, but investigating.
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Quoting Anjan Roy:
The fall itself is driver by the covid fear and its impact on the world economy. However, the speed of the fall is unprecedented in history, it is totally driven by algos and the AI working behind them. As an example, last week, on one day, the trading on Dow Jones was halted in the lower circuit(-10%), 4 seconds after it started in the morning. No one can believe human traders could precipitate such a fall so fastâŚ
Unfortunately, this will lead to even higher volatility in the coming days⌠already we are seeing VIX both in India and globally at unprecedented levels
Not only internationally, even in India, it is believed that algos contribute at least 70-80% of the trading volume nowadays⌠if not more
In my opinion, as an investor, we have to understand that equity markets have changed forever(because of algos and AI)⌠There is nothing called bottom now and we should not try to find one. Rather, I believe that if we are in equities, we have to hedge our portfolios to manage our riskâŚ
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I think looking at the kind of cuts we have had in past few weeks, we might have made a major top at 12k plus levels on the nifty.
The viral infection which earlier was thought to be only a China specific issue has now travelled the world and hardly any country has been spared. This has led to a lot of lockdowns and stretching of resources to test and treat patients. Businesses suffer en mass due to lockdowns and these will have rippling effects on other businesses.
Having said this, as @dhavaldeolasi has detailed in his reply, market corrections undergo what is called an A-B-C type of correction, as described in Elliot Wave theory. I am not a big fan of the theory as its difficult to interpret, but it usually gives a rough idea about what to expect in a correction. Post sharp downmove which takes everyone by surprise and shock there is a tradeable upmove which could last any time betweena few weeks to few months. That was seen in 2008 too. Problem we are having is that in the current fall there doesnât seem to be any respite from selling.
The previous darlings of the bull market, viz. some financial stocks like the HDFC twins, (now quadruplets with addition of hdfc life and hdfc amc), some other companies like bajaj fin, au bank, mas fin etc which were holding very very strong have taken a very hard beating in past few days. So when the strongest stocks take a beating it signals some sort of capitulation which actually is evident looking at the screen too. How long this lasts is anybodyâs guess. People have come out and called bottoms only to see a vicious drubbing the very next day. So its foolish to be too biased and try to be too clever. When the correction ends there will be some tell tale signs which will signal that the worst atleast in terms of stock price is over. That might be the time to take a buy decision. Till that time its a good time to look at businesses which can be least affected by the viral scare even if India was to be affected in a significant manner.
If as we expect we have made a major top in markets, we should expect correction to continue for a few months or quarters atleast and one has to be nimble to get out at first signs of trouble if one is invested even for playing the bounce.
As I write this, I read that all international flights landing in India have been suspended which I feel is a great move on the part of govt and shows strong intent to be pro active and try to check the spread of the virus. Of course there will be the odd idiots who will go out and spread the disease inspite of repeated warnings but overall if preventive measures like social distancing is done properly, the outbreak can be limited to a great extent.
I think next 2-3 weeks remain very crucial for India. If the number of cases from below 200 currently dont growth exponentially into thousands, we might be able to fight back. The way the govt machinery is working and healthcare system is geared up, I remain cautiously hopeful. And if India escapes the viral onslaught, there might be a strong case for domestic focussed businesses. But still in an increasingly interconnected world, the sentiments would remain weak till globally there are signs of the viral infection receding.
@Rajkamalpol Indusind (as well as a lot of private sector banks barring hdfc bank and kotak bank) looks like a broken chart which will take a long time to mend. I think other attractive sectors will emerge once all the dust settles. One needs to be patient.
@riddhi ITC has been correcting even before the broader markets started melting down. At around 150 levels, it can provide 3-4% consistent dividend yield provided smokers dont give up smoking altogether. (a highly unlikely scenario). ITC seems to be at a price where a no growth or very low growth scenario is baked in. So it might outperform in a falling market but when markets start countertrend rally there will be better options to look at.
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Your thoughts have always been interesting , much sought after and provide a lot of clarity.If we see yâday and todayâs trading in kotak and HDFC bank, while HDFC bank has gone down drastically, kotak has infact been much better closed. Is it because of HDFC Bank huge exposure to Vodafone, which is likely to be an NPA?
Presuming that itâs certainly going to be NPA for HDFC bank, can u enlighten us on as to what extent, itâs going to affect itâs profits and earnings?Todayâs lowest price was RS 795/- .Has HDFC bank has lost its shine because of its huge exposure?Whether kotak would be superior having no exposure to Vodafone?
Since I am not a finance or banking guy, I request other senior members share their views
Regards
Disc:invested at an average price of about RS 1000/-
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Hitesh sir, One question on âI think other attractive sectors will emerge once all the dust settlesâ. Many experienced investors share the same, that after each crash new sector will emerge and lead the bull run. Sir, does this mean that we will never be able to recover our money from banking stocks like HDFC Bank and Bandhan? I have invested in both and even though Bandhan was not a market leader, if the whole banking sector wonât do well after the crash, I guess Bandhan will never recover as itâs inferior to HDFC Bank. Could you share some insights? thanks a lot.
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Although the question is for Hitesh Bhai, I will take a stab at it. Appologies for that.
This will not be the case when next sector emerges. Banking is the backbone of any economy, If other sector has to grow then banking must have its share of participation.
Even if other sector emerges as a bull that does not mean that rest of the sectors will lose. In comparison to the bullish sectors other sector may lag in terms of return %
For me Bandhan is solid franchise and was over valued with more than 6 times P/B and growing at 35%. Now the valuations has cooled down. Only things to look is the raise in NPA, Assam situation, Integration of Gruh with Bandhan, Stake dilution. It has got solid leader as their CEO, There will be turbulent times but they might overcome it. How sooner they will is the question even the valuations expert will be watching.
Disclosure: Invested.
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Market is assuming spike in NPAs due to cascading impact of virus and it is a big worry till we get exact nos (which is likely to be delayed due to virus is still spreading to unaffected areas and regulators have provided extra month for Q4/ Annual results) other than this Bandhan has aggressively provisioned for Assam issue in last quarter. Integration with Gruh has not seen any visible issues till date, although its too early to say that all is well but being optimistic we are hopeful to see bright light trusting leadership of bandhan & Gruh both. Stake dilution seems to be on back bench considering recent relaxation in opening new branches, Kotak getting relief & IndusInd approaching regulators based on Kotak verdict.
The main question remains is that if financial sector looses its leadership position in driving the markets and considering other sector emerges as leader for indices to reclaim their recent highs or drive the next bull market, how long should one remain invested in stocks like Bandhan / IndusInd / Kotak?
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Good observations. I second your thoughts.
NPA numbers have to be watched for, One thing is for sure if retail banks NPAâs goes up then its imperative that corporate lenders NPA will also be up. Fingers crossed.
For any country to prosper Banking sector plays a crucial role and the health of the banks determine in which way the country is heading. Stock prices may take a breather for a while till the issues gets resolved and market gains its confidence and in next bull run(Whenever it comes) banks may or may not be the leaders of it. Business per se Banks must do well else there shall be raise in NPAâs and this will effect GDP as well. Its all intertwined, From market perspective the big banks will get bigger as lots of people will lose confidence post PMC, Yes Bank(Just got saved) and they will come to top 5 banks HDFC Bank, Kotak, SBI, ICICI, Axis.
I had a talk with lot of people across age group and everyone is worried that they wont go to lesser known banks for their deposits due to recent issues. The above 5 banks will get massive boost in their CASA ratios which will get reflected in times to come.
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Hitesh Bhai,
I want to sell part of my portfolio. I am suspecting Corona will have significant impact once there is a community outbreak. Do you suggest me to sell on rally?
One has to take the statement I made in overall context of the markets. One sector being market favorite doesnât mean other sectors cannot move up. The idea here is to look out for sectors which are going to be market favorites and are most likely to throw up the biggest winners.
e.g Post Jan 2018 correction if you see, HDFC Bank went down from 1100 odd levels to bottom out at 942 in Nov 2018 and went up to post highs in vicinity of 1300. This upmove provided returns of 35% or so.
In contrast a company like Atul Ltd posted a high of 2900 in Jan 18 and did not correct much all during 2018-19 and posted lows near 2500-2600 and then reversed and took out the previous high in August 2018 and kept on going up to post highs of 5400. Which amounts to a lot of returns as compared to hdfc bank. Similarly Aarti Inds posted a high of 580 in Jan 2018 and hardly corrected much to post a low of 500 all during 2018-19 and then went on to post a high of 1070. Idea should be to look out for sectors or stocks which dont correct too much and go sideways all during correction and these are the very stocks which post corrections will post big returns. (Caveat here is that there will be a lot of stocks/sectors which are beaten down out of shape during correction and will double/triple in upmoves but we are not too confident about where they will bottom out and hence its difficult to bet big in these names.
Another example of an interesting situation came from a friend of mine who is in aluminium business. He said he has been accumulating Nalco shares in the range of 25-27 and expects his investment to atleast double in next 2-3 years That made me curious and I looked at long term charts of Nalco and found that the lowest levels posted by Nalco since 2004 were in range of 24. And each time the cycle turned as it inevitably does, the stock price doubled and often quadrupled. Such a simple logic surprised me and as of date I think it deserves serious consideration. I think in such cyclical sectors in companies which we feel are going to survive (who dont have too much debt or lots of cash on balance sheet) one can look out for winners.
The current correction will throw up a lot of net net cash bargains. Where cash on balance sheet will be some times more than market cap or enterprise value. These are also interesting models to follow. One such company which has come to my notice is Selan exploration which has currently market cap of 105 crores, investments, cash and equivalents of 155 plus crores and no debt. Because oil has crashed big time we need to see if there are huge losses in next quarter or two to wipe out some cash and equivalent but overall it looks interesting to atleast watch the situation. I have no investment in the company but have a lot of academic interest to see how the situation plays out.
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@hitesh2710 The way you are answering all queries even in this market is commendable. Thank you. I was thinking about the events over the last month. These days there is hardly any time to react. ( Possibly due to algo based transactions). Dont you think hedging with a long+short portfolio is a good strategy in todayâs world?. Please note that I am not saying this to get leverage. But to minimize the overall risk. One need not use overvaluation as the criteria. But a few other things like corporate governance related issues etc for selection. (Ideally there should be an option in cash market. But there isnt for long term). However I havenât seen well known investors do that. Wonder why.
Hitesh sir, I usually stay away from cyclicals and commodity plays and specially PSUs but off late have started nibbling some, considering the extreme downfall and oil crash as well. What are your thoughts on ONGC at almost 20 year lows and IOCl from downstream and upstream oil and gas. Oil prices would eventually stabilise to market determined. Excellent dividend yields offered by these two is another plus. Also, your thoughts on power sector, the leaders NTPC and NHPC and TaTa power - which is transforming itself to solar and EV enabler as well. Thanks!
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Thank you very much Hitesh sir. Your detailed answer gave me more points on how to find good companies/opportunities. I do not think I will find these from books. Thank you.
Thanks a lot sir, this is a very interesting point- just looked at the chart of NALCO since 2008 and he is absolutely right.
One question: you have a track of lot of companies and this is exceptional considering that you are also a doctor, so professional commitments would be highly engrossing as well.
Curious to know how many companies do you have in your portfolio? how many of them are like coffee can candidates(long term)? how many short term? do you have a fix %age break up of long term vs short term (positional/momentum)? what is the maximum %age allocation you have for your best long term stock? How do you track your portfolio?
Since the money is limited for small investors, but there is a always a temptation to add/nimble at new cases every few days/weeks(for e.g. NALCO excited me just now after reading this), would be of great learning for us.
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High dividend yields in PSU have been creating some excitement in investors since a long time and if you look at the price track record of these companies the trajectory has largely been down since past many years. Earlier people were excited by similar logic in PSU banks and look where the situation is today.
So I think one would have to pick and choose on what one buys. Companies like ONGC look headed for trouble as the cost of production currently is probably higher than the crude prices ruling currently. And from the look of things I think crude may not reach very lucrative levels in a hurry.
Power sector is difficult to analyse, there being too many variables and hence I tend to leave it alone. Last I invested in Torrent power which I exited due to the meltdown. Maybe at some price it might again start looking attractive.
Regarding Tata Power I have been hearing this EV thing since a long time but cannot see any numbers coming through. SJVN and NHPC can be good dividend yield plays but there too I cannot understand business or growth drivers.
I think companies that have assets like mines etc. viz. NMDC, Nalco etc can be interesting because all said and done, once economies recover these metal ore prices also will go up over a period of time.
Another interesting company could be GAIL where dividend yield is great. But again too difficult to analyse as too many variables and govt regulations affecting the business.
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