@hitesh2710 Sir, your long term view on Usha Martin and Gujarat Flourochemicals…
Since, UM is cyclical and GF into chemicals ( is some steam still left in chemicals as you say the best is over in chemical sector )…
Is this the right time to enter into both for long term Sir …
I hope you have read the threads on both Usha Martin and Fluorochem. If yes, then read both cos annual report for past 3 years , (concall details for past 3-4 quarters in case of fluorochem, Usha is yet to conduct concall )
If you have not gone through the threads, you need to do that exercise.
If after that there are any questions about the business, it’s cyclicality, etc, we can discuss that.
My view about whether or not they are worth buying at CMP does not matter as I am not your advisor, and it’s your money to invest, not mine.
@hitesh2710 thanks Sir for your valuable insights…
Dear Hitesh ji,
I was wondering if you are tracking or if you have a view on Indostar Capital Finance (ICFL).
A lot of drama has unfolded at ICFL in the last couple of months.
First the company admitted process lapses and a deep stress in their loan book…ultimately leading to a big write-off. Then the auditor came out effectively saying that the company has gone to the crapper. Then the management came out saying that they have practically made a fresh start and that happy days are ahead. It sounds like a turnaround story if you go by what the management is saying. The company is backed by a high quality foreign promoter (BCP Capital).
Would you play a story like this? If not, what will be your key reservations?
Many thanks in advance.
Hi Hitesh,
Can you suggest the time period to use on weekly charts for Relative Strength indicator? And which index do you use as reference?
Thanks
I haven’t studied ICFL, so no views on that. In financials, management and promoters assume added importance because a lot of NPAs can come in back ended. Its very easy to grow loan book, but maintaining asset quality over long periods of time is important. Besides in a market where there are so many better options in financial space, I don’t feel like taking any undue risk in dodgy names.
I use the standard 14 period RSI indicator. Although I am not a big fan of these momentum indicators. I prefer broader patterns which are visible to the practiced eye.
Most important parameter for me is price and that is followed by volumes.
I do not use any index in conjunction with RSI, but try to gauge relative strength with respect to Nifty, more on observations rather than using any charts.
Are you still following kaveri seeds? It seems like it is standing at strong support levels which has broken today!
Management commentary has been bulllish with buybacks in the past and this quarter result has been better then before, Both Fii and Dii have incresed stake.How should one play this out ?I am thinking of a swing trade but afraid as nifty at near 18000 level doesn’t give me comfort to enter a new trades.
I don’t track Kaveri seeds. I think the problem with the company is that there is a perception about it that it will find it difficult to grow as addressable market is limited. Even if you see the numbers for last 3 years, sales has been stuck in the 900 crores(plus or minus) range. Companies which are perceived as no growth or low growth do not attract very high valuations or high investor interest.
This is another example to show us that our focus should not be on what the DIIs or FIIs are doing, or whether they are increasing or decreasing their stake in the company… Imagine Mohnish Pabrai had invested huge sums of money in this company and ultimately had to take an exit.
The main thing to look in the company is opportunity size, scalability and management/promoter quality in that order. Instead of that a lot of investors waste their time looking at what kind of holding FII/DII have in the company and whether it is increasing or decreasing.
The other aspect you have highlighted is of Nifty being close to 18000 level. I suggest you read Peter Lynch’s One up on Wall street, if you have not read it and if you have read it, then re read the chapter on When to invest. There is no right or wrong time to invest in a company based on market levels. We have seen projections of Nifty touching 14400 in one of the threads when it was around 15300. If one would have waited for 14400, or scared about investing in a company looking at market fall, then he/she would have missed this near 2000 point rally in nifty where a lot of stocks , some of them even large caps have gone up by 20-30% or more. Our focus has to be in the company we want to invest in, its business and all things related to it. Rest is all noise.
@hitesh2710 what is your view on fluoro chemical stocks- Gfcl looks very promising with their products having good potential for usage in battery and semiconductor manufacturing. But it’s richly valued but given that their coming up with a capex of 25 percent of their netblock , can we still invest in it. Which amongst them, gfcl, Srf,Navin fluorine you find interesting
WHY A LOT OF INVESTORS FAIL.
I can think of following factors contributing to poor/less than expected returns in case of investors investing on their own.
Lack of knowledge. Most retail investors want free lunches. Very few of them even want to read basic investment books. To suceed in investing, you either have to have natural flair for investing by being street smart, or put in the hard yards and read some good books on investing and digest the learnings described in the book. This process of digestion would entail multiple times reading the book and trying to find where this knowledge is applicable while investing. So reading and re reading is important. For the sake of repetition, I would like to put up a list of good books I found very useful… 1. One up on wall street by Peter Lynch. 2. Five rules for succesful investing by Pat Dorsey. 3. How to make money in stocks by William O neil. 4. Zebra in Lion country by Ralph Vanger. 5. The Next apple by Ivayly Ivanov. 6. Minervini books if you are into momentum investing.
Not knowing yourself as an investor. To recognise which investment style is suited to your temperament is very important. And this has to be deciphered as early as possible in the journey. Its difficult for investors to practice all investment styles at the same time. Over time, people do tend to evolve as investors, but after some time in the markets it should become apparent which is the style that resonates with you. Whether you are a value investor, growth investor, short term trader, momentum trader, long term investor, so on and so forth.
Looking at bits and pieces. A lot of investors get stuck with only a few pieces of the puzzle while analysing a company and in the process miss the complete picture, or the big picture. Idea should be to be approximately right than precisely wrong. Its important to focus on what is important and what is relevant and not get lost in details.
Having pre conceived notions… One of my close friends usually has a common dialogue while discussing a company… " Is company ne to kuch nahi kiya hai… abhi tak" This is the easiest way often to kill a multibagger in the womb itself. While looking at a company, idea should be to be as objective as possible during the initial research. Once enough miles are covered, one can have some notions about the company and list investment arguments, or points against.
Over analysis. Many people tend to analyse company to such an extent that it paralyses them in terms of decision making. They get lost in a lot of irrelevant details. Idea should be to have a checklist of points in order of importance/relevance and take a call.
Execution… A lot of people make beautiful write ups on companies with all the necessary details and still cannot pull the trigger when it comes to buying… They keep dilly dallying on making a decision to buy even when the prices are right. Many a times this is affected by market levels. In the ealier post it was mentioned that an investor was scared to invest solely because Nifty was at 18000 or close to it. Or there could be a variety of reasons not to pull the trigger. Buying style can be different, with some people wanting to buy in a single shot, others wanting to spread out their buying, so on and so forth. But one has to execute the decision to buy within a stipulated time frame.
Lack of Flexibility… Some investors are absolutely rigid in their views and their beliefs. They often fail to read the writing on the wall. Even in the face of enough evidence which is contrary to their view, they fail to change their views. e.g Someone who was very bearish at 15300, ( a lot of us also were, we were quite scared by the kind of fall and the newsflow at that point of time) failing to change his views even if nifty rallied more than 500-1000 points and there was broad based rally. Or to give a fundamental example, someone who keeps believing that the company is going to deliver inspite of many poor quarters and unacceptable explanations by management.
Losing balance and poise at precisely the wrong time. Many investors tend to get scared by market corrections or dips, and seem to keep looking at SGX, or Dow Jones, or Nasdaq, or other such macro data, e.g Oil prices etc and lose sleep over these factors. We have to consider investing as a test match where the pitch tends to change its nature every session and we have to learn to deal with it and adapt accordingly. We often have to avoid getting scared out of our positions. Stocks often correct 10-20% from our purchase price without any rhyme or reason. If I am a purely fundamental investor, I should not get swayed by these moves. ( Technical guys will have different benchmarks)
Lack of independent thinking. A lot of investors try to follow what XYZ or ABC investor has bought and try to base their decisions on these mundane things. While analysing a company, we should have our own template and take a call based on that. Instead of what Hitesh Patel thinks about the company, you should have your own views. My view might be wrong, or different from yours, As investors we have to learn to make our own calls and own up to them and accept our mistakes if the calls go wrong. One cannot and should not blame anyone else for their decisions.
And most important of all, have faith in the ability of investments to create serious wealth. And work towards that with full efforts. Try to learn basics from good investors, but don’t go around looking for investment tips. This is a journey which is largely solitary and we have to learn, practice and earn.
At the end of all above learnings, the most important thing is to put in enough money so that serious wealth is created. This can be staggered over a period of time, but the quantum has to be sufficient to be meaningful. I have some doctor friends who have monthly incomes of nearly 10 lacs rupees but have a portfolio of only 10 lacs. This kind of investment is hardly meaningful in overall context of his financials.
Why_A_Lot_Of_Investors_Fail_By_HiteshPatel.pdf (109.2 KB)
Thanks a lot. 
Collectable document, worth reading and sharing with investor community.
Taking printout.
Anyone interested, can have PDF of the text, full credits to Dr. Hitesh Sir.
I have benefitted a lot from your write-ups and the patience, humbleness and passion that you always radiate. 
Once again, thanks to all the Great Souls whose selfless efforts benefitted a common person like me.
@hitesh2710 bhai, I am curious to understand how you think one should approach stocks which have run up a lot on good fundamental reasons, and where one feels the business momentum is likely to continue. I will illustrate my question with two examples and would request your view on both, and in particular on when one should enter. Not sure if you track either of these companies, so I’m putting the charts and a brief fundamental thought processes for both.
The stock has been on an absolute tear and has trippled in the last six months. The US business (about 25% of the total revenue) has been doing very well. They are the biggest Indian ice cream brand in the US and have a stronghold on the ethnic distribution with their own warehouses - the only major Indian FMCG brand in the US to have this. This gives them a massive moat against competition and has enabled them to launch many more products like Indian sweets, frozen foods, frozen Indian vegetables etc. I met the management of the US business recently and they are extremely bullish on the market potential and seemed very capable. The India business did pretty well too last quarter, I am studying what led to growth there and how sustainable it is.
Even after the run up, it trades at under 2 times total sales and about 22.5 times earnings, with a huge runway for growth and operating leverage in their US business given the established distribution network.
How does one decide what the right entry point is in this kind of a setup? There is always a fear that there will be profit taking, but waiting means the price gets further away and fills some of the valuation gap.
This is a slightly well researched story. Essentially they have two divisions:
a) Coex division: 75% of their revenues, a proxy play on domestic white goods manufacturing, mainly refrigerators. This is a medium but stable margin business and has a high market share selling to the refrigerator industry. Great and entrenched customer relationships. PLI and domestic manufacturing push are an added boost.
b) Biax division is a domestic monopoly (30% market share and rest is imports) making dielectric films used in many types of capacitors, and so is a play on the boost in EV, solar and other capacitor applications. They are doubling down on these high margin dielectric films over the next two years or so, and will add further capacities from there.
The company was unprofitable for very long as they had an inverted duty structure over the years, which the government corrected in the last two years. The stock went up some 75 times in 18 months from Sep 2020 to April 2022, and has then consolidated down on low volumes. It now trades at about 23 times earnings and almost exactly at 200DMA. I have also drawn a couple of wedge like trend lines.
Again, how does one approach this? Fundamentally it looks like a long runway picks and shovels growth story on multi-sector manufacturing in India. But it has gone up massively in the last two years and who knows till when people will book profits. What is the best way of arriving at an appropriate entry point for these companies?
Edit: For reference, the blue, green and red lines on the charts are 200DMA, 50DMA and 20DMA respectively.
Disclosure: 3% of PF in Vadilal from 2200 and want to raise it at the right price, no holdings yet in Xpro.
Vadilal definitely has a good presence in most American Indian stores like Patel Brothers, Apna Bazaar, etc. and I have bought their products just because of the brand recall so that is definitely an advantage Vadilal has in the crowded market.
But on the flip side, all the segments that they operate in have multiple players and the market is quite cutthroat and most stores have their own brands as well.
For example, in the ice cream segment, Kwality is much bigger than Vadilal in New Jersey where I live.
All this is based on my personal experience and should be taken with a grain of salt and I am no expert in this field.
For companies with strong business momentum, the time to buy usually is during sideways consolidation. e.g We saw a correction in Xpro India from levels of 1100 in March 22 to 650 kind of levels in May-June 22. Now it seems to be trying to gather some strength and has been in a tight range of 720-820 since past nearly 3 weeks. These are the types of consolidation one looks for accumulation if story is convincing enough.
Coming to Vadilal Inds, it has continued to be in a strong bull run and at some point of time go into sideways range which is when one can think about buying.
Or else one can use an appropriate moving average to add the stock… Or a percentage fall from recent swing high. Usually strong trend stocks will not correct more than 20% from swing highs. (this is not a rule cast in stone, but an observation. )
Just to add to the examples, I can quote example of Flurochem. It too has had a phenomenal run up and results have continued to support stock price. There too if you see, level of around 3200 was a sort of strong resistance which got taken out and stock price went up above 3600 and then corrected. It is now stuck in a range of around 3330-3450. I prefer these kind of corrections to add to my positions on the way up.
Pyramiding a stock on the way up is also a special skill set and one can learn with experience and experimentation. All strong upmoves in stock prices are punctuated by brief or long pauses which is where we should look out to add. But it requires a high level of conviction and patience to do this type of stuff.
Hi @hitesh2710, I am a new investor. I was looking to invest in the infrastructure theme. I had specific companies under my radar. one is PSP projects and the other is GR Infra. I was looking to invest in a small to mid-cap company.
Can u plz help me understand how one should think about which companies to select from a particular sector? When I look at companies I see a lot of them have good fundamentals. But we cannot invest in all the companies. So how should one select a couple of them from a sector before investing?
Within the infrastructure space, if you want to pick up a basket of companies using fundamentals then you will have to go through the presentations, concalls, annual reports, balance sheets and then do a comparative study and maybe pick 2-3 companies.
For those wanting to also involve technicals, its better to focus on stocks showing good chart structures. I can see some early bullish patterns in some infra stocks, though it still seems early days. Even L&T is setting up nicely.
If I would be bullish on a sector I would prefer to pick up 3-4 companies if I have good options.
Hi Hitesh bhai,
First, Thanks a lot for sharing your invaluable experience with us.
Could you please throw some light on the following stocks, if its in your radar?
1) Hawkings Cooker
The stock is consolidating for a long time. Fundamentals look promising.
Stock price has been consolidating in narrow range since last two years.
2) Vardhman Holdings
It is believed that all holding company trade at 50% discount but this seems undervalued. Stock is trading at flat 50% discount from all time high
Any thoughts on this? My analysis and intuition are forcing me to believe that this could be a next multi-bagger. I can completely be wrong.
Kindly share your valuable insights on this. Many thanks in advance.
Best wishes to all investors for multifold returns.
Love from,
Preet Shah
Hello Hitesh Sir. I have a question on the situation in EU and US.
#1. In many cases we are seeing that the companies which are exporting to EU & US will likely suffer, at least in short term and hence it could be a risk. But in some cases this could be an opportunity. And I understand that this is a company specific thing and we can’t color all the companies with the same color but still there is some confusion.
Let me take some examples here. So if we consider companies like RHI or companies which are in manufacturing of bearings, then what theme is likely to play out is “EU+1” or “India being a manufacturing hub” and this could very well play out considering that the situation in EU is not very good for manufacturing but on the other hand demand from EU itself is also likely to soften. In short it is like “Manufacturing in EU is difficult so we will get things manufactured from outside but demand will be less because economic situation is not that great”. So how one should look at companies/sectors like these.
#2. In some companies, the thesis was, “Increasing share of exports”. Now in companies like these, there could be some pain, at least for next few quarters. So how one should go about building position in companies like these. Say, I have already built position in company like this and thesis was playing out so far and I am sitting on some 30 40% gains. Now I think one of the thesis is broken and stock will suffer for some time, so should one be booking profits and re-enter at lower valuations (after situation in EU is looking better) or should one add more to the existing position at lower valuations. I understand that this will vary case to case basis but how do you manage such situation.
#3. Considering situation on EU & US, how are you analyzing/contemplating the companies in your portfolio and also about the opportunities that can arise?
The situations you have described about some companies benefitting and some losing out due to the situation in EU/US are not likely to be permanent. And for us sitting in India, its going to be difficult to figure out when things are going to reverse.
Instead of basing my investment thesis on these kind of uncertain situations I would like to focus on the companies which are strong enough to withstand such hiccups and if possible emerge stronger.
In the things you have ennumerated, the hypothesis comes across as very complicated and unpredictable. I personally prefer to have my investment theses simple and easy to define.
@preetshah Hawkins remains a good company for someone who wants steady compounding with limited downside. And if company can conjure up higher growth trajectory, it can provide better than compounding returns. Vardhman Holdings is as you say a holding company and unless there is an outright sale of the company it holds, I don’t see holding company discount going away soon. The quantum of discount may vary from time to time, depending upon market mood and other factors, but its better to focus on individual companies rather than try to play the holding company discount game. I have found the latter to be a frustrating experience.
The other aspect you have highlighted about low share capital is also something that needs to be tested. I have always found that its the company’s performance and particularly earnings that decide the stock price returns.
@Mohanlate I already mentioned that in some infra companies, I see some charts evolving into bullish patterns but its still early days. No use sharing now when things are uncertain. Once patterns form and confirm I will share if I find it suitable. L&T and PSP both seem to be good structures.
