With extensive modernization, capacity building and import substitution being the theme for Indian Railways, have you come across Hilton Forging ? This microcap is known to have supplied an initial set of wheels for railways, and apparently got approval too.
With the usual supplier of rail wheels, Ukraine not in the market now and difficulties in importing from China (atleast the public optics) do you think Hilton will be a winner. I’ve not been able to find who their competitors for wheels (in India) are and what their competitive advantage is.
My question is about buyback strategy used by management to arrest falling prices.
Recently, I have noted two examples. One is Tanla, which did not result in much price change. The other one is IEX, which is yet to be played out. My question is, does this kind of buyback help in trend reversal on technical charts? Given that chart is already looking week for such companies, have you ever noted/experienced such strong trend reversal?
I have a similar kind of question. Can we trust managements who have tried delisting their company multiple times but failed, to look after minority shareholder benefits? Case in point is Allcargo Logistics. I have faith on its growth trajectory, competitive positioning and believe that the valuation is still reasonable, but the fact that they made sustained effort to delist the company during 2020-21 is making me uncomfortable.
Buybacks should be considered by managements when they feel that their own stock price is hugely undervalued. It is never a tool to support stock prices. And companies often go in for regular buybacks if their stock prices remain depressed for long periods of time.
Of late a lot of companies, IT companies in particular go in for regular buybacks to reward shareholders. It is sometimes more tax efficient for retail investors than paying out dividends . (need to check the latter fact with CA guys. )
Buybacks are of two common types. The tender offer wherein investors tender their shares for buyback and buyback is done in proportion to shareholding. The other is market buyback which is more of an attempt to protect slide in stock prices. Management decides a certain sum of money earmarked for buyback and a maximum price below which they will buy the shares.
As investors we need to understand that the most important holy grail of stock prices appreciating is growth in sales and profits, and predictable growth is preferred to lumpy growth. All other things are to be considered as much less important factors. So it makes sense not to waste too much time thinking about these less important things.
At the cost of repeating myself, the holy grail of making returns is a company showing good consistent growth. All other things like these buybacks, delisting etc should be considered less important factors.
Delisting is a tricky subject with a lot of complexities and I feel is better left to experts. Esp the arbitrage guys. They use it as a special situation and try to make returns out of it.
Every once in a while rumours start floating around about delisting in a particular company and it creates temporary flutter in stock prices. Its rare to see something play out according to our plan if we try to play the delisting theory.
I don’t track allcargo so not much idea about its management or their antics.
Thanks for your continued commentary on the markets
Wondering if you have a technofunda view on Supriya Lifesciences and/or Chemcon Speciality Chemicals? Both seem to have a strong narrative around them (exclusive producers of some chemicals, complex chemistry, capacity expansion in the near term, big on export etc.), however the stock price has been hammered for both post listing (about an year ago). Based on management commentary these are temporary headwinds (China lockdown for one) and that they will be back on the growth path soon.
Can you pls help me to understand something very basic. I have tried googling / reading relevant blog or post but couldn’t
get the answer.
In general it is always being told that when there is a huge sell off , the share price of the company will fall and vice versa.
In a secondary market, the number of total outstanding shares remains unchanged and every sell transactions will be squared off with buy call.
For example, let’s say a mutual fund is selling 1% of holding in open market and those shares are being picked by retail investors like you and me.
Why does the market fall here. because all shares are picked by retial investors already.
Both supriya and chemcon have been recent listings. Both do not have long trading histories. Both companies listed when their respective sectors were in market favour. These were the proverbial Hot company in a hot sector. And when this kind of company lists in a favourable environment when there is a lot of froth and fanfare, the IPO pricing itself is high and to add to it, post IPO, some interested parties can take these stock prices to crazy levels. And these are often not sustainable. Once the cookie crumbles, (story weaknes, or numbers disappoint) all hell breaks loose.
Same seems to be the case with these two companies. I don’t track these companies or their products closely but a look at the latest quarterly numbers is enough to provide reasons for the kind of drubbing they have received.
You quote about strong narrative, based on exclusive products. Now if the products are so exclusive, then the numbers should not disappoint . Supriya Sep qtr results show a decline of sales from 150 cr in q2 fy 22 to 112 cr in q2 fy 23. Operating profit down from 80 cr to 29 cr in same period . Chemcon sales down from 61 cr in q2 fy 22 to 57 cr in q2 fy 23. And op profit down from 19 to 10 crores. Companies with any kind of niche do not report these kind of numbers. The narrative is often given out by management, or interested parties to suck in naive investors.
Based on above numbers, you tell me how markets should treat these kind of companies. And in a strong bull market who would want to buy these kind of names? My guess is even those who have been holding these names in hope of good narrative will start jumping ship and shift to companies which are likely to provide better, surer returns.
As investors, we have to learn to be absolutely dispassionate and ruthless about companies we invest in. We cannot afford to fall in love with companies, or their managements. The only exception to this rule applies to dominant companies which have an established long term track record of coming out of difficulties with flying colours and which emerge from each crisis more stronger. For guys like me even there I tend to get out rather than bear pain. Mainly because I have no problem of getting in at much higher levels if the picture has improved and growth visibility is much clearer.
The simple answer to your query is the theory of demand and supply. And that too at different price points.
Say you and me are interested in buying shares of company A at say Rs 100. Now the two of us have a combined capacity to buy 1 lac shares. But if a mutual fund comes around to sell 1 crore shares, who will absorb the rest of the 99 lac shares? Maybe you and me can influence our friends and families to buy additional 5 lac shares at 95 (as we feel that since we bought at 100, our friends and families are getting a better deal by buying at 95. ) But that still leaves 94 lac shares. So some guys following my write up and maybe your write up or someone else’s twitter thread will come around and buy at 90. Say 4-5 lac shares. But the mutual fund guy is still left with close to 89 lac shares. And he is facing redemption pressure and wants to sell at any price. So price can go even lower before deep value investors step in. That’s how things work in stock markets.
The fall is arrested if at some level a big buyer of say 80 lac shares feels that price is too attractive at around 70 and starts buying in real earnest. This often creates a short term bottom (ultimately this can turn out to be long term bottom)
For every stock that a person sells, there is a buyer and both of them think they are smart. One of them can be smart in short term and dumb in long term, or vice versa.
Most paper stocks charts show indecisive patterns. Though they have not broken out, they have not broken down also. So maybe we need to watch for some more time before taking a call. In general, in commodities, its better to be cautious than adventurous especially after sharp run ups. And there are plenty of other sectors and places where the picture is much more clear.
@hitesh2710 Minda Corp is one company that has caught my eye recently but I think you do not track it. It is an auto ancillary company, catering to many OEMs like Ola, Ather and other electric two wheeler companies. 97% of their products are compatible with the newer EV vehicles. Given the small market cap and relatively higher growth in demand for electric vehicles, will it be beneficial for the company? Also the valuations seem to be very reasonable considering the growth.
I have very less experience, knowledge or confidence when it comes to investing in such small companies. It will be really helpful if you could share what you feel about the company or even about how I can go about building my positions in such small companies.
Sir, I have asked follow up questions to my technical analysis, and you did not reply, so assuming that you may have missed my post, asking again with some more thoughts added.
Is it possible to look at pure technical analysis and trade? Even Mark Minernivi talks about earnings, is this because professional big traders cannot afford to take positions purely based on technical setups, so they incorporate fundamentals into their system, as their positions are big and their expected return is big?
Or the element of minimal knowledge about the businesses has to be a part of technical trading, despite the size of the capital or the knowledge of the trader?
From the very little experience I have with pure TA investing, it seems there is merit in following price and volume, and chart patterns. Although fundamentals are what drive the price up or down, is it possible to predict even to some degree that price can go up, the momentum will sustain? I have had some success with this, but I am not yet sure if I should take major credit for the wins or should attribute the credit to the market alone.
If it is possible to gauge the next moves to some degree, where can one start exactly? Is there a difference between learning technical analysis and use it for investing or some discretionary trading, and learning technical analysis to make an activity out of it? Does a different way of learning exist if one were to do trading based on technical analysis alone? Or it is the same, despite the purposes, the tools are the same, so learn about the tools, practice and it takes a form and shape, and get better, as time progresses?
I cannot possibly think of anything I cannot ask you, so want or perhaps need to hear your answer.
For someone who wants to do pure trading like what Minervini does, taking low allocation positions, riding from a few days to few weeks and going in for lot of churns, too much fundamental analysis is of not much use. And if you read his books closely or listen to his videos (if you can manage to get hold of his master trader program video or those freely available on the internet) what he usually implies is that price is reflecting all fundamentals well in advance. So fundamental analysis carries little weight.
But for those who want to practice techno funda investing, knowing both technicals and fundamentals are important, and this can facilitate concentrated betting, if one is so inclined.
I do not get exactly what your query is, but if one is doing pure technical analysis then it makes sense to have a proper backtested and trustworthy trading system and follow it accordingly. There are a lot of pure technical analysis practitioners who do short to medium term investing or even long term investing based on pure TA. And applying basics of fundamental analysis is not too difficult.
As investors/traders we do not face any lines etched in stone about not mixing technicals with fundamentals, or following pure technicals or pure fundamentals. Its about what we are good at and what suits our temperament and style.
How do you view DCB Bank technically and fundamentally ?. It is trading close to the book now and was trading below book value since covid crash. It crossed 200 dma and broke out of down trend at 85-95 range and as you mention ran up much. I can see that it did not grow sales or profits in the past 5 years unlike many other banks.
Do you think much juice left on this counter? I took a small position here considering finance sector stocks are rallying of late.
125-126 was the swing high of DCB Bank during the rally in Dec 2020, immediately after the Covid lows of 58. Now recently stock price have hit swing highs of 138 and seems to be consolidating… My guess is some more consolidation and retest of previous major resistance of 125-126 or thereabouts could happen before another leg of upmove begins… (It can very well move straight up from here too, no one knows movements in short term. )
Fundamentally book value is at 130. Going ahead, stock price will track the growth in the company. The undervaluation rally seems to have run its course.
Namaste hitesh Bhai. I would like to know your view on the chart of l&t finance holdings. The stock moved up above 200 weekly moving average. It has consolidated below it for more than 2 years. And started hitting 52 week high since last week. What’s your take on it.
Thanks in advance.