Thanks Hitesh for yet another in depth view. You rightly mention private general insurance taking share from new india etc. and private life insurance from lic. One interesting fact want to say which many miss as it’s small part now - hdfc life is only life insurance firm which is also into reinsurance business like gic and also they are I think only one which also have pension company as a fully owned subsidiary.
Having said above, with almost 1 lakh cr mcap for hdfc and almost 50k for SBI, icici pru…can we consider such big companies in same league as private banks were 15 years back. Are these already big enough in mcap with years of growth already priced in or these can really become giants like say a 10 lakh cr mcap for hdfc life a new normal in next 10 years and still growing?
Lastly life insurance vs general insurance…which should be a safer and more sustainable long term bet which can present lesser surprise black swan event issues?
Could you please share your views on Dixon Technologies. The last con-call in Dec '19 showed some really promising scale up in TVs with big brands like Samsung, but their OPM has been around 5% now for some time. Do you feel the current P/ BV of 11x is justified or a couple of bad quarters could derail the price?
Could you please elaborate when you say market movement is sideways. Is there a technical indicator? I see jagged lines so is this sideway movement?
Also when you say we are looking for indicators to show strength, what are they in a bear market? what indicators are these? i.e.what indicates market reversal?
Dixon technologies has had a stellar run post the 2018 correction. Basically it does job work for all leading brands and one can argue that the nature of its business is such that it has a very long runway for growth. But paying such high valuations for B2B business and especially in the backdrop of an expected poor q1 fy 21 (and maybe even q2 if the current environment sustains) is something I would not be comfortable.
Compared to that, there are many better businesses available at cheaper valuations. Just for example. Would I buy Marico at 38 PE or Dixon at 44 PE? (I know it is not an apple to apple comparision and growth prospects of both companies in near term are different but run way for growth for Marico according to me is far better and longer than something like a Dixon) I may be proven wrong in my assumptions but I cannot bring myself to pay these kind of valuations for Dixon like companies. I will not value these kind of businesses on price to book. If at all, PE could be a better matrix than P/B.
Markets get excited by these kind of processor/B2B businesses and often accords them very high valuations for brief periods of their trading history. Examples are Mayur, CCL products etc but once expected results dont come through for many quarters in a row, these stocks underperform big time.
What is your view on NBCC at these levels? No debt + whether stock has discounted all negatives (mainly execution) at this price? Nauroji nagar redevelopment order has also come. Considering frequent govt contracts, whether risk reward is optimal at these prices?
Sideways movement in markets basically means no clear direction in the markets. If you see the markets recently there has been a day or few days up and then a day or few days down. So directionally it is difficult to take a call on the market atleast in the near term, say a few weeks . For the medium term say next few months, one can say that the correction that started earlier in March is currently taking a pause and might/might not resume its way down. (My bet would be for markets to move down gradually or sharply in medium term, but thats my opinion and doesn’t count with markets )
Regarding strength, I dont go too much into indicators. For me, price has to show strength. For a sector to show strength, most of its companies need to show strong momentum in price. Taking the example of pharma, stocks like Sun, Lupin, DRL, Cadila, which are frontline stocks in the sector have posted 52 weeks high or in some cases 1.5 to 2 year highs. And some others like Alembic, Divis, Alkem, Biocon, etc have posted all time highs in such a market. For me that is an indication enough to focus my attention to this sector. And even if these stocks correct briefly then do not correct too much. There are the odd days of 1-5% corrections and then sideways or up. This is a show of good relative strength.
And business wise also many of these names are posting very good numbers, And even if lockdown continues or if it opens up, these are the companies which offer promise of growth in current scenario. So whenever markets do start strong upmoves, there will be a strong appetite for companies which are growth companies or are perceived to be growth companies.
For market reversals, we need to be on the lookout for any signs on candlesticks, higher tops and higher bottoms or broader market patterns like inverted head and shoulders, cup and handle, rounding bottom etc.
Hi Hitesh bhai,
On one side there are stocks like Bajaj finance which have corrected quite drastically due to perception and as you rightly said can give major returns if they manage to change perception again while on other side , pharma seems to lead the market with all companies growing with high valuations . so which one has probability to provide high return , whether it can be pharma or nbfc like bfin which can change perception ?Many thanks for calmly answering queries of novices like us as well as experts . You are a real guru for us all showing light in these testing times and always taking time out to reply in detail .
The question of which company is going to provide better returns going ahead is a tough one and I don’t think there is a one size fits all answer.
Going by past observations, the sector showing strength usually outperforms during the following weeks, months and often years.
In the past too, stocks from sectors that have gone out of favour have appeared attractive all throughout their journey down. And still these continue to go down. There can be exceptions to the rule and the odd stock/stocks can outperform. But the base rate of finding winners is low.
Personally I favour sectors with momentum and good business prospects. I have been repeating my preferences in my posts previously.
If and when issues specific to financials get resolved, there are possibilities of good returns but one will have to keep a fairly long horizon for that.
Whats your view on PM Modi big announcement tonight? shud one buy domestic focused stocks in financials auto cement etc or wait for more details? cud it another big moment like corp tax announcement moment?
I completely agree with the point that you cannot just look at things like ROE & other factors in isolation.
@hitesh2710 - Please let me know what you feel about my answer.
The future returns of a stock are based on a multitude of factors, (Eg: Value migration, Premiumization, Sales growth, Operational Leverage, PE re-rating etc.) and the impact of each factor would be different for each company and each time period.
On the other hand, you can make outstanding returns if you as an individual can find an ‘Edge’ over the market and then act on it without letting your emotions control your actions. So I feel it is better for Individual investors to focus on recognising and growing their unique ‘edge’ rather than focusing on the other factors for generating out sized returns.
Eg:
Making purchases and exiting your fundamental positions based on Technical strength/weakness. AKA Techno-Funda.
Holding a concentrated portfolio of 5-15 stocks.
Holding stocks for long periods of time. Eg: 5+ Years.
Buying into a sock via SIP model for lowering the price risk and increasing the “Time in the market” (Weekly, Monthly, Quaterly).
Spent sufficient time and effort studying a particular company as a business that you get Unique insights into the future of the company/industry. This way you can pro-act before the market re-acts.
(Eg: Scuttlebutt, Insights that come from your career)
Buy and never sell any position until long-term story changes.
increasing allocation to winning stocks over many years without fearing concentration risk. AKA Averaging up.
The main point to note is that, there are very few market participants who do many of the things mentioned above consistently. If you can do the above things at the opportune time, you will have an edge and you stand to benefit.
Digvijay q4 numbers are very good and dividend of Rs 1.50 per share is like icing on the cake. Having said that, the big concern is that all construction activities in the catchment areas of Digvijay cement would have been at a standstill since the beginning of lockdown and I dont expect any demand surge coming through in q1 fy 21. Post that, q2 is usually a weak demand season due to monsoon. So one needs to factor in two weakish quarters going ahead and take a call. But with these kind of numbers, downside could be low and if it corrects at all, it can be interesting to look at.
Do you still track Lux industries ?
In the currently standstill fashion market, the demand for innerwear could still be strong with increasing WFH
Also if you could explain why you had earlier considered Lux instead of Rupa when both seem to be in very similar product offering in men’s Innerwear in particular
Regarding valuations being expensive in the pharma sector,
In the bigger companies like sun, lupin, drl etc there are so many moving parts to the business with lot of geographies covered by the companies in question. Hence it might be difficult to do a detailed check on valuations.
Earlier I had a preference for domestic facing pharma companies like jb chem, ipca etc. But now it seems situation has changed somewhat and these domestic facing companies will face some problems with prescriptions of doctors drying up due to low patient visits to hospitals amid the viral scare.
But because of the factors mentioned in the post link to which is given above namely
Faster USFDA issue resolutions, faster anda approvals, strong dollar, continuing production inspite of lockdown, and the all important strength exhibited by most stocks on price parameter. Besides the chances of usfda audit problems are lower because of travel restrictions, and hence at least for next few months, companies in the sector are likely to face less thread of related issues.
Coming to my preferences, I now am in favour of companies which have a very strong base US business which is getting stronger. I also like companies which are well placed in the API space and which seem to be posting decent numbers since past few quarters and there is promise of growth and profitability improving.
Coming to companies quoting at very high valuation like abbott, divis etc, I am avoiding precisely because of the kind of valuations these companies are quoting at. I like companies like alembic, cipla, biocon, laurus, aarti drugs etc and am invested in them. I also am keeping the frontline stocks like sun, lupin, dr, cadila etc on my watchlist as I see the pharma index likely to outperform going ahead and companies like sun (21% weightage), drl (10-11% weightage), cadiila lupin etc have high weightage to the index.
@Mukundks, I dont track lux, you can reach out to someone who is tracking the thread closely and responding there. @Hemant_Dujari I dont track polycab.
@Vivek_6954 These packages etc in the longer run dont mean much. These create excitement in the markets for a few days and then its business as usual. I prefer to focus on companies’ own strength rather than be swayed by macros, unless the macro is really affecting/changing the business model of the company. Case in point being financials of all forms which can be impacted by corona majorly and hence instead of trying to find winners there, I prefer to look elsewhere.
What is your opinion on Alkem Laboratory? Is this a trustworthy organization to keep in a long term portfolio given that it has a short history as a listed company?
My shortlisting rationale is the following:
Good frontline brands in the acute segment.
Fast growing domestic (~ 67% of revenues) & US businesses (~ 27% of revenues).
@hitesh2710 , I feel that Price Capping on drugs and other medical devices will also be detrimental to companies focused primarily on Indian markets. This is a populist measure which will be followed by all parties in an attempt to woo voters.
Your thoughts ,since you are from the medical profession ?
Chemical & Pharma companies has been resilient & holding up strongly in this market. If someone has a negative view on the overall market & feel market may correct more ,
will it be a good decision to buy chemical & pharma stock or wait for the broader market to settle down & then take a position ?
Even if market fall down more , do you think these stock will also fall down similar to market or just consolidate or may go up from these level ?
Hi Hitesh. I am seing lot of interest generating in pharma. The latest headwind they faced were of FDA issues. I don’t understand pharma much, but these are quality and process issues. Generics are needed in US as majority public there cannot afford the regular drugs costs. Some very basic questions - 1. Why government of US promotes generics - to help public and also reduce its own healthcare cost…in case it subsidizes the poor. OR also to help the regular US drug company to enable it to spend more time and energy in research and new discovery? I mean do generics benefit the original company other than the royalty till time of patent existence?
2. If US were on a spree to not approve Indian generics, how was the above ecosystem balanced in US in last 3 years? Did they partner with any other country pharma company to fill the gaps?
3. In a bid to increase manufacturing and supply chain ties with India, will US be more willing to approve Indian generics now? I believe they would only do that if the country which filled the gap above, if any, was posing any supply chain or long term risk. OR US filled the gap by its own efficiency and local ecosystem?
4. Lastly could be that recent approvals happening as a part of ongoing process normal course and nothing to do with any points above.
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