What’s ur take on rates on reits at CMP have u booked out or holding both of ur portfolios.
1 Like
Holding. Ive kept a rule with reits… keep buying at a huge discount ie 20 to 30 percent to NAV and then hold for the long term(added embassy around rs. 306 and mindspace at 275 ie all time low). They aren’t assets I’m willing to ever sell when bought cheap and they aren’t assets I’m ever willing to sell either since there aren’t many better and safer quarterly income generators like these when bought cheap. There is no way I’d buy at current prices ie premium to nav. Note that If there is euphoria and the unit price crosses 20 to 30 percent of NAV i may consider selling all of my profits and holding onto the investment amount and re-entering the profits under NAV. The NAV value makes them one of the most predictable assets to own since you get a clear signal of when to buy and when to sell.
7 Likes
Hi Malkd, thanks for you insights. Perhaps a lame question but how do we get the NAV of REITs? It is computed anywhere. I could not find it, e.g., in Embassy’s site.
@pratikiitb
You’ll find it in the quarterly investor presentation…right now embassy’s nav is around 393. When NAV is calculated it’s usually overinflated a bit… so one has to take a 15 to 20 percent margin of safety. So around rs. 315 to 330 would be the price that i would start buying again. And would sell profits around rs. 475+ ie 20 percent over NAV since in the long run an reit shouldnt trade so high above NAV. Right now it’s in the middle for a conservative investor worried about capital protection ie don’t buy and don’t sell since the price is around NAV value. Not that it’s a bad investment at this price…just that There ll be plenty of other better options in the market too currently. As interest rates rise theoretically an reit should fall. So if macro factors play out there’ll be an opportunity for investment in the future.
6 Likes
Hi, what is your view on Indigrid in that case? Since it is quoting much above the NAV, did you sell it partially? I am holding at below 100 and added in rights issue. Contemplating partial selling
Hey would be good to know how you are looking at this possibility of a strong bear market and/or recession? What strategy are you planning to follow…
Are you holding on to your picks, buying the dips or coming/already come in substantial cash?
I could see you got cash by selling Deepak nitrite but that was more stock specific issue and not related to bear threats…Thanks
@Investor_No_1
It was actually more that i needed the cash (or i may have needed if the bear situation plays out) for my personal life/business and not due to any stock specific reason since i wouldve liked to hold as long as possible. So I’ve kept that amount aside as an emergency fund in my idfc account at approx 5 percent interest. Now that i have the money set aside and saved i will be investing future cashflows… that being said I’m considering increasing my safety buffer a bit and saving a bit more than i need to first before investing.
I’m not too worried about the bear market now since I’m well capitalised… I’ve not looked at my red portfolio for a while now since i dont need to sell and I’m not bothered by how much it has fallen.
but i am looking at some names that stand out for being very cheap. Right now I’m looking at companies that can offer me a high yield to navigate through what could be tough times ahead so i get a tangible return every year.
The likes of Hdfc amc, manapurram finance, Bajaj consumer, PTC india, irfc, ambika cotton, Cochin shipyard and adding more to rites , piramal and ofss are what I’m interested in(and everest kanto for the pure undervalued nature of it.).
The moment Im done studying them properly(I’m not even close to being done studying…using this time to do so) and have the money available i will be deploying it. Some of those names are really low quality like Bajaj consumer and ptc etc so I’m waiting for an even higher margin of safety there. In short… i am enjoying this bear market and I’m salivating at the thought of some of those companies ending up at unreasonably low price points.
For eg let’s say manapurram reaches my target rs 75… il then invest a truckload… i wouldnt care about the overall bear market after that and if it falls even further since i would have bought at valuations I’m comfortable with and nabbed a yield of 3 to 4 percent too as long as the business stays stable even without growing. Now is not the time to go with growth stories and high PE companies and overpaying for companies though as far as I’m concerned.
I know theres a lot of pressure everywhere including on this forum to abandon equities… but if one does not invest when companies are cheap and during a downturn they are exposing themselves to the risk of buying them expensive during a bull market and facing a future downturn. Il continue to buy(when i have the funds) during this bear market as long as i find cash rich/stable/undervalued companies.
12 Likes
Thats an excellent mindset to be in!
Agree, however my doubt is more on the strategy to generate cash out of our own portfolio when we see an upcoming long bear market and/or recession… say at 10-15% fall of indices, if we sell 60% of portfolio and generate cash out of it, we can deploy it at 40% down (assuming the bottom of gruesome bear is even lower at 50-60% down and we obviously cannot time the bottom)…
This is more important IMO who have done building their portfolio to a large extent and have low cash levels compared to their portfolio…
That’s the definition of timing the market… post accounting for tax and brokerage hits once has to be able to enter at a much lower price… and that’s gambling. Personally that game isn’t for me. If i take too much cash out i wouldn’t know what to do with it either… unless i maybe found a house/real estate at cheap and can invest it there. At the end of the day i am of the mindset that what will get a person wealthy is systems more than anything else. Make a good amount of cash flow from job/business, have a mindset of paying yourself first and saving 80+ percent of income, invest with one’s own philosophy in assets that one understands and repeat for years without panic and short term moves. Id rather just stick to that.
4 Likes
Appreciate your clarity of thought and calmness! My thought process resonates yours, however, I must admit over last couple days I did get a little confused over a long like 1-2 year bear market with 50% or more drawdown…more so because I was almost done building my portfolio and have very low levels of cash percentage available to make use of major drawdowns…
Also, another reason could be I have reached the asset allocation to equity to which I am comfortable and if any major drawdown and I add significantly more, I may not be comfortable with that increased allocation to equity percentage as per different asset classes…
Still thinking for above two cases, what do seasoned investors do? As I have not seen a long bear so far and specially with decent allocation to equity the risk is even more now…
1 Like
Apologies for jumping into the discussion but could not hold myself back as I am almost exactly in the same position .I have been an extremely cautious 90% FD person till 2020 (I know its idiotic ) and in past two years had seen my invested X amount in stocks increase to 2.2X. Now it has reduced to about 1.8X and I am also not thinking about adding extra money.
Every one of these crimson days , I wonder why I did not sell some IEX, Laurus, BR,Globus etc. near the top and everyday I wonder whether I should sell now .But old hands say what Malkd said and I dare not say they are wrong. Since I could not time it then what guarantee do I have that I will get it right this time . Also I do not see a recession in India even if US goes into it, hence no fundamental impact on my deshi companies as such. So I have decided to only sell the stocks with less conviction and deploy it into the stocks where I have more conviction. That will allow me to handle the itch of doing stuff in my portfolio and give me the satisfaction of buying good stocks at low price. I only hope that during the next cycle I would be better prepared temperament wise to sit on cash and do nothing for long periods of time .
1 Like
I think the main thing that needs to be done during this period is one needs to take a step back and ensure that one really does have money they can afford to lose in the stock market And that they have enough liquid cash to handle expenses for a year or two… and then apply the real world consequences of a recession scenario and increase this liquid cash allocation accordingly. I realised I’d been a bit too agressive regards equity since i hate seeing money lying around being beaten down by inflation. So i was 100 percent in equity and enough cashflow coming in per month to cover all my expenses. I’ve now readjusted everything post my selling to 80 percent equity , 20 percent cash and enough cashflow per month to cover expenses. I’m pretty sure il be able to handle even the worst case scenario in my daily life for a couple of years with this allocation. Now that I’m pretty antifragile i can start increasing my equity allocation again slowly with income from now on without touching the 20 percent saved.
I’d rather do this adjustment now at profit than be forced to sell a year from now because we enter a recession and cashflow slows down and my stocks are at a loss. Now that I’ve covered this worst case scenario i feel I’m pretty well equipped to handle the upcoming bear market(if it does indeed occur… in April 2020 all i heard were bears and we know what happened).
I think everyone needs to make a readjusment here and there( if they haven’t already) and adjust for the worst case scenario incase it does play out. … but once done… with a safety net fund+ if one can maintain good cashflow a long slow bear market is the best thing that can happen to a person.
Note that the people most scared of a bear market are overleveraged people who don’t have an emergency fund and have a fear of dipping into equity to survive. As long as one avoids this situation(and plans for the avoidance of this situation for 2 to 3 years ahead of time) there’s nothing to worry about.
Not buying at crazy valuations helps too. i stuck to undervalued bets throughout the last 2 years and only put money in when I felt comfortable with valautions. During that time people were chasing IPOs and “forever growing” tech stocks. So I’m pretty confident with my PF even now(again, vaibhav global was my only overpriced mistake… never to be repeated again).
If you think about it… Good companies save cash for the future, plan out expenses for 2 to 3 years at a time etc and can handle a few years of slow growth/slowdown. The people buying them don’t do that. So when companies crash it’s usually the people buying/selling that are the reason and the company is still anti fragile(good , not leveraged, non corporate governance issue companies of course). So getting it cheaper during a bear market is due to the unpreparedness of the masses financially vs the actual company.
So one needs to put themselves in a good position to benefit from this and then slowly but surely take advantage of it no matter how long it lasts(i would love 24 months to build a huge position in the likes of Hdfc amc , manapurram etc at 3 to 4 percent yield for eg since they will survive and thrive in the long term while the people investing in them may not and hence sell at unreasonably low prices)
6 Likes
Yup…hence why anyone trying to predict the market is just kidding themselves. The best thing to do is just continue investing with a plan to handle the worst to cover the worst case scenario if it does play out. It’s personally a win win scenario for me. If the markets rise i will be happy since my 80 percent networth will rise with it. If we go into a bear market i can increase my stake in equity at good valuations. This position now let’s me sit back and relax a bit and study companies… I can’t imagine how panicky I’d be if i had a loan with interest to be paid every month + a business/job which may go bust and end cashflow + no savings for daily expenses + no emergency fund +100 percent equity. Since I’ve actively avoided those situations/prepared for them I’m happy with whichever way the market goes.
9 Likes
Sorry for the late response, I would not opt for Zero growth stocks however lucrative the dividends are.
If Infy, TechM, L&T falls another 5% i will go all in. At this point, I will be happy to deploy 25% of my free cash in these stocks.
Even KPIT is looking like a good bet at this price.
I’m just going to post my watchlist here in alphabetical order with some unrealistic entry points(I’m hoping the bear market gives me this chance) while i continue studying them so that anyone here who knows about the companies sees something glaringly wrong can point it out. Still building cash so i can wait for a bit until my entry points play out… I’m hoping atleast 2 of the below reach those points over the next few months since I’m asking for a lot regards their prices
-
Ambika cotton: Low 1000s. Shrewd promoters. I like the way they handle cotton price fluctuations. No debt, high cash yielding business. Dividend yield itself should offer a nice cushion at low 1000s
-
Bajaj consumer: aiming for 1700 crores valuation or lower. With 800 crores in the bank and 800 to 900 crores of revenue and 150 to 200 crores of profit a year this would be a nicely undervalued bet. There won’t be miracles here for a few years but considering the cash yielding, no debt nature of this business I’m willing to take a punt at the right price
-
Everest Kanto, Godawari Power: Both covered well enough in this forum. Still studying and i don’t understand the businesses too well so i can’t figure out the correct valuation to enter since they already look undervalued.
-
Hdfc amc: Quality blue chip business that can grow forever at a nice 10 to 15 percent. If i can somehow buy it at a dividend yield of 3+ percent ie around rs. 1500 then this will be one of my highest priorities
-
Irfc: I’m not a fan of government run financial businesses. However, the non npa nature of the business and the fact it is defo reaching mis priced territory is tempting. Probably last on my list though. I’d be tempted when a lower range rs 1 dividend gives a 7 percent yield ie around 15 to 16 since this is primarily a dividend play.
-
Manapurram finance: My number 1 priority if it breaks rs. 75 and i can sit with a 4 percent dividend yield for my trouble. It’s a quality company and I’m quietly confident that all the current issues will be in the rear view mirror over a 5 year span.
-
PTC india: Rs. 60 and maybe even much lower. The PFS issues have made this non investable at the moment since we don’t even get results on time.
-
Reddington: i don’t know much about this business. Had a look last year and Just begun studying again and it’s interesting especially if it goes below rs. 100 just from a yield standpoint
Apart from these I’m obviously still looking at adding deepak Nitrite and vaibhav global again if i get them a lot cheaper Along with increasing my stake in lux and piramal and idfc.
Still a long way to go until I’m done studying + build up cash + the entry points of some of those reach(if ever)
9 Likes
Show some compassion to fellow investors please 
. I thought 1700 is low enough for Ambika…I shudder to think how it would look in my portfolio if it goes to your target price !!
2 Likes
Haha. I’m not expecting the price to come about. I’m just keeping a list of a few companies at unrealistic prices. Expecting just 1 or 2 of these to happen, if any. The bigger the list the higher the chance 1 or 2 actually play out(I’m not actually looking to add 8 companies to my PF!). As they reach those prices il study them further and add the 1 or 2 that do reach there when i have the funds. I don’t have any technical charts or fundamental reasons for the same. These aren’t predictions either. Just unrealistic entry points I’m noting down so that i take the plunge if the market throws these opportunities up. Ambika deserves higher valuations for sure! In a bear market one can dream about crazy opportunities though and there could be a day or two when someone is willing to sell them at those crazy prices if the panic in the air is high 
2 Likes
i am still holding irfc ,@ 16 to 17 rs …it will give a yield of close to 10% and i am pretty sure that sooner or later we will get to that figure as well if and when the growth will happen when the government starts to push for dedicated freight corridors.
@raku
When calculating yield i try to look at worse case scenarios rather than just the previous year especially when I’m investing for dividend alone. At rs. 1.4 ie 30 percent of EPS(which is their policy) that’s more than 7 percent yield at current prices. However, when investing purely for dividend i like considering what would happen if EPS drops by 20 to 30 percent(if government spending slows down regards railways) so that i can get a base case yield since I’m not targetting growth here. Hence why im considering around rs. 1 as base case dividend and hence my target of 15/16. Same thing applies to the other companies I’m targetting so i dont get trapped chasing dividend in these kind of companies. Apply a drop in eps and then use the average dividend payout/policy on that and only then consider yield. For good companies i take a smaller mos for eg I’m reasonably confident manapurram can maintain 3 rs a year in dividend But for a Bajaj consumer I’m considering dividend falls to rs. 5.5 (instead of 8 right now) to calculate expected dividend. It’s all psychological really. If i buy irfc purely for dividend and the dividend falls due to eps falls i won’t know what to do(since I’m not chasing growth). So before entering i like being mentally prepared for a drop in dividend and eps before hand itself and valuate accordingly(if i am investing for dividend and not growth… which is the case in these kind of bets. 15/16 is unrealistic though unless the eps does indeed drop of course)
2 Likes
Irfc dividend yield cannot fall as they lease out assets to government for 25 years so whatever base they have formed they will continue to get that plus if there are any addition ,if you look at the last 7 years that is the only data available ATM on screener about 70% revenue has come in the last 7 years and about 50% of the topline increase in the last 3 years so it is safe to assume you would at least get get more then 70% of the yield which is higher then 1 rs for the next 17 to 18 years plus higher if more are build and leased out.
Not to mention there is one more clause of distributing dividend via 5% of networth which currently stands at 31 rs,i am not sure if that can fall as they will continue to transfer 70% of the profits to reserve .
1 Like