@hitesh2710, I am trying to be a value investor and investing into companies with Moat. I have selected ITC and Oracle Financial services where the valuation are accractive. I wish to invest for long term. My main problem is that I want to know how to evaluate their new business ventures viz. FMGC and cloud businesses retrospectively. Does just looking into segment earnings, ROE and ROIC , help. Can you please suggest methodologies or book to follow which will enlighten me in this respect.
Thanks in advance!
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Hitesh bhai.Could you please refer some book or resources to better understand the footnotes section of financial statements. Thank you
To evaluate the new businesses (though fmcg is not anymore a new business for itc, although profitability has not taken off after all these years) you can go through the past few years annual reports and see what the management has to say about them and the prospects and progress.
Next you can go through concalls wherever available and if possible ask relevant questions related to the businesses in next few quarters concalls. Or call someone at investor relations and get an idea about them.
The other thing you can do is create an excel sheet of segmental results over past few quarters and see how growth and profitability of these businesses are panning out and what kind of segmental roce are there and hwo they are progressing.
And finally try to treat these new businesses as optionalities and pay only for core businesses. That should provide you with a nice upside if the new businesses perk up start delivering.
@reggy You can read Five rules for successful stock investing by pat dorsey. Its a good book which provides clues on how to read the numbers and facts.
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Hi Hitesh bhai,
Sorry for repeating this question which might have been answered in this long thread, but can you suggest some good books on technical analysis for beginners ?
Thank you Hitesh bhai. I have already read it. I read
HOW TO READ A FINANCIAL REPORT by John Tracy, financial shenanigans and I took an online course on basic accounting. All of them were helpful and entertaining
where I struggle is understanding the footnotes section of the balance sheet. Basically I want to delve deeper in to the accounts and there are too many books out there. Decision paralysisđ
Hello Hitesh Sir,
My query is related to Sugar sector.
With Gov recommending 20% blending of Ethanol with Petrol, will the cyclic nature of sugar be mitigated(if not 100%).
There is involvement of Gov policies in Terms of MSP for Sugar Cane, with More demand from OMCs dues might be cleared faster. this might be win win for all.
Other idea would be moving from sugar cane to other molasses for better margins ans less dependency on Gov.
How do you see this story unfolding ?
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Books for TA
Technical analysis of stock trends by Edwardâs and macgee
How to.make money in stocks by William O Neil
Trading like a stock market champion by Mark Minervini
Books by Alexander Elder esp trading for a living
The next apple. (More of a market psychology book)
I have put my view on sugar sector 5-6 posts back in this thread. Nothing more to add.
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Hello Hitesh Sir.
1)Could you please upload an updated/latest version of your portfolio for our reference?
2)Sir, regarding forensic accounting: one can look at operating cash flow in comparison with profits, and one can see whether the firm is generating free cash flow. However, both these concepts are non-existent in the case of financial firms(banks and NBFCs). And given that financial firms are highly leveraged(D/E of typically atleast 3x), I believe the importance of accounting quality is even more in the case of financial firms. So what are some ratios/red flags you would look for in a bank/NBFC?
Thank you Sir!
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Its very difficult to detect frauds in financials. NPAs and defaults are usually backloaded. And during times of stresses in economy, negative things tend to be amplified.
In such situations, I think no amount of deep digging will give you absolute comfort about the books being clean. So while investing in financials, its better to go with the best management/promoters if you are thinking about investing for the long term.
Regarding query (1), I dont share my portfolio. I put up disclosures about my investment wherever applicable.
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How do you valuate the ESOPs? what should be the fair price from the investors point of view according to you?
Sir your views on recently de merged jubilant ingrevia.
Is it a quality portfolio stock for long ?
I dont have much idea about Esops or their pricing. You can try to find out details about the subject from subject from someone who is an expert in accounting.
@Aniesh7 I dont have any idea about jubilant ingrevia.
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Hi Hitesh Bhai,
Is Nifty in correction phase technically?
On Feb 26, large correction of 3.9% with significantly high volumes. Post that each attempt to rally is getting into distribution mode. Last 4 sessions are clearly showing higher distribution level. Can we expect something like 20% drop from peak levels?
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20 % down is not a correction, itâs a bear market.
@Tar, you are right. My question is are we heading towards bear market? After one year of good rallying bull market, itâs looking early - but technical indicators suggest same. Hence wanted to validate my reading with expert opinion.
Typically, how I evaluate esops is to check if the management is already earning a par fixed remuneration, and if yes, then the esop should be at the money (exercise price = closing price at grant date) with a expiry period of X years. If that is the case, then management stands to benefit from the future increase in share price, which should ideally be much more in % terms than the yearly increment.
This is how the stalwarts from Omaha treat as a fair method too. If you have time on your side, you can use the BSM formula too, but sadly in an indian context, ESOPs are always granted at a steep discount to the spot price. So all calculations goes for a toss and ideally you should account for the difference between the exercise price and your estimate of what the max. stock price will be during the validity period.
For a greater margin of safety and ease, I mostly treat it as if the option exercise price is 0 and evaluate the fully diluted EPS at the time of investment.
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Nifty does seem to be in a short term corrective phase. If and when and where it ends is anybodyâs guess. Even within this correction, there are some rallies but there does not seem to be any follow through buying.
This is normal for a market which has gone up at breakneck speed. A few weeks or months of sideways or mildly down market should in fact be healthy for the market. Support wise, we need to watch recent swing lows of 13600 and 14350. If nifty stabilises or reverses from above these levels, or even goes sideways while stock specific moves happen, things should be okay.
Within the overall markets, some pockets of strength are seen in some sectors like sugar, polyfilms (esp bopp films), select pharma names etc. I donât track other sectors like IT, infra, financials too closely on a day to day basis.
On the one side, the number of Covid cases keep rising. This was largely expected in view of the statewise elections, marriages, cricket matches etc where disease spread can be rampant. Against that, vaccination seems to be going on in a smooth manner but its results will be visible within 3-6 months. According to recent reports, immune response is best seen 4-6 weeks after second dose is finished. But I would take every bit of information scientific or otherwise with a pinch of salt. I feel that there is a lot of guesswork involved as far as Covid related theories are concerned.
But rising Covid cases make a convenient excuse to explain market falls on some day, when the falls cannot be explained by rising treasury yields. 
Rather than be worried about overall markets, I think it would make more sense to have a stock specific approach and find out good companies with good growth prospects over next few quarters. Many such companies like divis, laurus, pi inds etc are showing relative strength as compared to overall market and are likely to show good consistent growth in numbers going ahead. There will be many more such companies, Above list is of companies that immediately come to mind.
Even in small and midcap spaces there are opportunities if one does enough digging and homework.
@whipsaw I dont track zota healthcare.
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Hitesh bhai what do you do with rising valuations in case of a good company. Companies like Tata Elxsi or IEX which are decent bets in long term but then valuations seem to get ahead of themselves.
Do you just ride these times or book partial profits to invest where you see better upside.
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Dear @hitesh2710 ji,
Would love to know your thoughts on Glenmark.
Profit CAGR for 5 years is 23% but stock price CAGR is -11%.
The company is taking steps to reduce debt, also getting decent approvals but the price doesnât seem to respond to any positive news.
Thanks
There is a limit to valuations getting stretched. We are often carried away by the moves in stock price inspite of valuations being unjustifiable. A lot of investors of Wipro learned this kind of lesson the hard way. Inspite of profit growth being reasonably decent over the years, the price was able to achieve parity after a period of 15-20 years.
There can be times when even after we sell, stock prices can move up a lot. We should be able to live with that. Itâs nearly impossible to sell at or near the top.
So if there is an attractive opportunity to replace the existing exorbitantly expensive stock, I would rather leave some money on the table if I am not too comfortable with the valuations.
The other option is to do staggered selling at each rise, though it often requires a lot of patience and discipline.
@sarthakkumar19,
I donât track glenmark too closely.
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