Hiteshbhai
Kindly give your opinion on KEI industries
It has very good growth rate.
I think ,it has run up very fast in last 5 yrs, so it is consolidating.
Kindly give yr opinion
Thanks
Disc…invested
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Hi all,
Instead of replying to individual stock queries, I would like to stick to my view of markets which I have oft repeated in the past few days. The near term is clouded with uncertainty as to
- the timeline of lockdown and what happens after that if and when that is lifted.
- When and at what figure will India peak out in terms of Corona outbreak.
- What will be the sequelae of the Corona outbreak on the economy and how long the damage it will create last.
I am sitting on the sidelines because I do not have a precise answer to any of the above questions. In fact I dont even have an approximate answer to the above questions.
So even though markets are offering basement bargains by the dozens, I am yet to pull the trigger. A company generating net profit of 100 crores for fy 20 may be available for 500 crores and is at 5 PE. (lets leave all other things like management pedigree, balance sheet, business quality aside) If the same company suffers for a quarter or two or three, and manages report profit of 50 crores for fy 21, the 5 PE stock becomes a 10 PE stock. My guess thats what markets are fearing and hence the cheap low PE bargains are available in the markets.
I would like first to see the bleeding stop and then only take some clear decision on how to go ahead. Hence as of now I can discuss a lot of things about business models as of now for a lot of companies but I have dont have a clear cut idea of what kind of valuation to pay for these businesses in the backdrop of impending uncertainties.
This correction looks like a retracement of entire rally from 2009-2020. Any retracement of an 11 year rally is not going to be over in a hurry. Past major correctioins have taken 12-18 months atleast and hence I guess it may not be too prudent to use all the gunpowder too early. There are no marks for being first in the line. This will be a marathon and one needs to be patient and time the run properly rather than running hard early and getting exhausted midway in the race.
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Please refer the instiitutional research by HDFC sec…they are assuming stress case scenario till Q1 FY 21 and Q2 FY 21…i feel Q2 FY 21 is quite feasible as the fear of virus will fade only with the availability of Vaccine and till such times, people will avoid crowds and take all precautionary measures as part of living with Corona…
so we should include scenarios for 20 percent and 30 percent correction in market earnings for FY 21…current Nifty EPS is 443.8 as per trendlyne…this may get reduced to 355 & 310 respectively…with a PE of 15 , this will lead to 5325 and 4659 respectively…
This means a correction of 45-55 percent from the TOP…so we have a long way to go…
Looking at it time frame wise…nearest timeline to expect a vaccine is not before last qtr of FY21…even if we say that markets move in anticipation, bottom is unlikely to come before sep-oct 2020…
So one should try to anticipate the financial impact along with llikely price action and time lines…
The qtr 1 has already started and likelihood of its getting washed away will be very clear by may second week…similarly we might be able to appreciate the impact on qtr2 by aug 2nd week…
Now its not easy to sit on sidelines due to FOMO…but there is risk of 30-35 fall in overall markets…so i am following a strategy where i have spread my cash over a period till Dec 2020 atleast and will deploy this cash every 10 days like a SIP…before that i have selected a list of approx 30 companies (mostly market leaders in respective fields)…i would love to buy only below 8000 on Nifty and looking for Nifty to touch 5000 levels by this year end as worst possible thing…
technically, i looking at a minimum retracement of 38 percent from lows of 2008-09 for very solid companies llike HUl and asian paints to start making entry…Financials have already dropped by 50 percent…so 50 percent retracement and below should be suitable entry levels into them…rest stocks which were already in bearish mode have touched 62 percent and 78 percent retracements…so those levels and bellow should provide suitable entry points…
Now one should also respect the Upside risk also as any positive news on corona vaccine may send prices Up…so some cahhs can be deployed at these levels but liquidity should be retained till not only this year end but may be till next year also as the economy is unlikely to make a V shape recovery due to increased fear of virus in masses courtesy social media…
regards
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so for this scenario to play out and if Nifty touches 4500 to 5300 range in that case which of the index stocks are expected to fall 50% from its current prices and since all the knowns are currently priced in ( assuming it that it is ) what potential bad news can trigger such a massive sell off again to trigger a fall from 8200 to 5300 levels.
it will be interesting to build couple of what If scenario so that we can prepared well for the same if it plays out that way.
I think the most important factor is duration of lock down (complete or partial) and its corresponding effect on the earnings…based on a PE of 15, i think a growth less than 10 percent for FY 21 has been discounted till now…but a degrowth scenario has not been factored in till now…
The government walks a very tightrope with regards to the lockdown situation. In absence of enough testing due to paucity of resources, the key number to watch out for is number of deaths due to Corona. And that number as of now seems to be under control. But it needs to be watched for a week or two for any undue spike.
Now coming to lockdown my guess is if the number of deaths dont spike up too much by 14 th April, then there is high likelihood of lockdown to be lifted in phases. The hotspots where there are a high number of cases/deaths will probably see extension of lockdown.
In regions where it might be lifted, there might be some restrictions where interstate travels might be restricted, crowded places might remain closed and manufacturing operations not involving too much overcrowding could be allowed to operate but with due precautions. The big problem in manufacturing would be scarcity of migrant workforce which will not come back quickly even after lockdown is lifted.
Disease control is one aspect of government’s worries. By this 21 days lockdown, govt has allowed itself much needed time to set up infrastructure to deal with higher number of cases. In my city and state I see a lot of special exclusive Corona facilities being set up.
But stretching lockdown too long would cause big problems with the economy. The govt would also have an eye on how to kickstart economy gradually without causing too much damage in terms of disease progression. My guess would be lifting of lockdown with some sanctions continuing and returning of things to normalcy very gradually.
How all these things would affect market behaviour remains to be seen but I would expect atleast a relief rally coming through maybe for a few weeks if and when lockdown is lifted. . Post that, one would need to assess how economy shapes up and take a call.
But overall I think the up and down moves in markets will remain for next few months (my guess is maybe 12-15 or more months from now) during which there will be some stocks which could provide decent returns. As of now it all seems doom and gloom but market moods change quite often and we need to keep doing our homework and prepare our well researched buy list. As to levels at which this whole correction ends, its usually futile to forecast too much but take things one at a time.
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Hitesh Bhai, how reduction in interest rates is going to effect markets. How we should go ahead with our Mutual funds invested in the market.
Can i know your take on ZEE?Market leader at 7 pe ,even if you believe earnings will contract?Not a single stock is trading at more than 12 pe in the entire sector.
Suntv 7.3
TV18 11.73
TV today 6.82
Any company i am missing ?
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@rskothari I am not too much of a macro guy not having studied hardcore economics anytime in my career. But the general belief is that low interest rates are good for the markets but one must remember that interest rates alone cannot be looked at in isolation to make investment decisions. It is just one of the factors among a host of other factors.
If the economy is going to suffer as is likely due to Corona virus impact, then even if the interest rates are low markets are not going to go up too much.
@Gothamcapital Promoters of Zee had problems due to loans taken to fund their infra projects and that has played a big part in decline in stock prices of Zee. I dont track it too closely on financial front so not much idea about its valuations etc.
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“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.”
Great Understanding Sir, …HUL and Glaxosmithkline…were not corrected over 10% or so…and had make 52 week highs today.
As far as I have seen, accumulation phase happens after big falls on comparatively lower volumes. This is usually true for heavily traded stocks. For illiquid names its difficult to frame any kind of rules as different stocks will follow different accumulation patterns.
Again wish to reiterate not to take a single parameter/variable in isolation. One has to take first of all the structure of the chart in mind. Then use any parameters/variables one is comfortable/confident of using.
In the case of Bajaj Finance, one can argue the other side too. When the whole market went up so much yesterday (I think nifty went up 8-9%) Bajaj finance was finding it difficult to remain in positive territory. But this observation in isolation does not make sense. We have to see the chart structure and atleast for now it feels it looks weak.
Technical analysis is not about catching absolute bottoms or tops but is an aid to determine the trend or trend reversal across various time frames, namely short term, medium term and long term. In case of Bajaj Finance the 61.8% retracement of the entire rise from 2009 to 2020 is placed close to 1900 levels and that I feel is the level to watch out for. If the stock price consolidates and forms a base near or above these levels, it can provide good bounce post the aforesaid consolidation.
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Do you think that there will a long recession because of the covid pandemic?I mean governments WILL borrow a lot and the public debt will rise up leading to less leeway in the future for governments to spend on capital expenditures rather than revenue expenditures and interest payments.
If we all know that countries will borrow a lot ,then maybe we should accept that there will be a long drawn recession.Even Jim Rogers,whose words cannot be taken lightly thinks the same.
Jim also believes that the markets worldwide will correct further.
Even in India,the lockdown is likely to be extended as the day to day growth rate of the virus has not fallen that much.
Regading recession, I wont go by what the experts are saying. The job of experts is to keep giving opinions and the more scary they are, the more limelight they get during tough times.
But coming to reality, since this is a global event, and a time bound event ( impact of virus and subsequent peaking likely to be a few months after which low grade infections can continue) a lot of countries should be able to come out of lockdown like situation within max period of 2-3 months from now. While this event has impacted a lot of businesses and there are likely to be dire consequences, and the event has been unprecedented, the outcome possibilities are many.
The US and Europe are most likely to be impacted by this viral outbreak and consequently likely to bear the brunt of economic problems. But in an increasingly interconnected world, the ripples are likely to be felt everywhere and India could be no different.
While it is difficult to predict how things are going to pan out, we have seen the world come out of multiple seemingly difficult situations like dotcom bust and global financial crisis. The crucial question is of timeline and how long it takes for the world economy to recover. And I do not have any definite answer to that. I dont know if anybody else also has any precise answers. Everyone is probably shooting in the dark.
So for investors like us, its better to focus on individual companies and do our homework and try to find a way forward. Predicting macros is fraught with errors and while it may grab headlines, it serves little purpose.
In times like these, I always refer to Peter Lynch who has this to say about macros and their prediction.
"If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.
And he is one guy who knows what he is talking about because he has a fantastic track record to boast of.
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Hi Hitesh ji,
Do you track Metals sector? All stocks are at multi year lows, China is recovering, when other countries come out of COVID crisis, demand should slowly pick up. Do you think its worth to hold in the portfolio with medium term (3y) view?
I hold a tracking position in HindZinc. Vedanta and Maithan Alloys are in my watchlist. I would like to hear your view. Thanks a lot…!!!
1)What is your take on ITC?The stock is priced right now as if no one is ever going to buy a cigarette anymore…
2)What is your take on everest industries?
Dear @hitesh2710, It is told that Transpek’s products may be used in PPE. Do you have any information or sources to confirm this?
@hitesh2710
Hiteshbhai, taking the liberty of quoting your previous post of Jul17, where you had given your views on Pharma sector. It was a truly wonderful analysis on why did you exit all of your Pharma holdings. It was, in fact, a prediction that Pharma sector could be out of flavor. And it really was ! In the hindsight, the sector has really under performed for 3-4 years and now again back in limelight. I have queries about two sectors similar to this.
(i) In Chemicals space, a lot of capacities are being built up including long term contracts, putting up new facilities for world renowned customers, adding new products etc (read : Transpek, Vinati, Bharat Rasayan etc). This is exactly what has happened with Pharma sector in 2015-17. One can go back to the threads of Granules, Shilpa, Alembic etc and see that the current euphoria about chemical companies is exactly the same as that of (these) pharma companies some five years back. Do you see any risk here?
(ii) In the Financials space - as the pandemic spreads, Banks & NBFCs could be one of the biggest losers. Loan defaults (by both corporate and retail) might increase NPAs and Asset book might shrink as banks could become extra cautious in disbursements. Do you think the Financials (ex Insurance & AMC) will be out of flavor for quite some time now? (Again, looking at your analogy from above post on sector leader correcting by 50% - here in Financials space, sector leaders like HDFC Bank and Bajaj Fin have corrected by 40-50%).
Sorry for taking too much space to explain the query. Do post your views please whenever possible. Rgds.
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Metals space has been underperforming the markets ever since the Jan 2018 corrections began. Even before the Corona scare began, the metals sector was weak mainly due to weak economic conditions.
Post the last leg of correction in March 2020, metals have had another round of bashing. And justifiably so because if economy is going to suffer, metals will be impacted the most.
In your question itself, you mentioned about countries coming out of the crisis and demand slowly picking up, and the problem with this situation is that we have no clue whether the demand is going to go down from here too and then go up or remain sideways and then go up.
For those who can calculate replacement cost or liquidation value of companies and then apply a reasonable discount to the value arrived at (and do so accurately) there might be case of buying into select metal companies. But as far as I have observed, metals tend to bottom out the last and start moving with a lag once market itself starts moving up. So if the view is that the market correction is here to stay for some more time, there seems to be no haste to buy these metal companies.
In all this sometimes we come out smart (and or lucky) and buy close to bottom and have the patience to sit through the correction, a lot of money can be made. But there are a lot of ifs and buts here.
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- I agree a lot of capex is going on in the speciality chemicals space. But another way to look at this capex is that there could be a structural shift globally of outsourcing some niche speciality chemical products from India besides or instead of China. If that is true then there can be further tailwinds to the sector. Some signs that are there to see are some big global giants trying to partner up with domestic companies in some or other form. e.g Aaarti Inds, Navin fluroine, Bharat Rasayan, and some other companies entering long term outsourcing contracts which gives visibility for growth for many years.
I would watch the chemical space for outrageous capex at the cost of balance sheet discipline and if that happens I would be worried.
- In financials space, as you mentioned there are a lot of problems which previously were not envisaged. So I think the fancied names in the sector will take a long time to make a comeback.
On a different note, the strength shown by a lot of pharma companies in past few trading sessions has been amazing and surprising. It could be a sector to watch out in next few weeks and months.Some stocks like Cipla, Dr Reddys, Cadila, Sun and Lupin (many more names ) etc seem to have been showing signs of trend change by the recent rallies. But since the rallies are so sharp I would wait and watch for some signs of consolidation once the buying frenzy settles down. As of now waiting and watching.
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