Opportunities in the Carnage - Brainstorming required

There is reason why I am posting this thread under the Special Situations Category.

There has been a carnage in the mid-cap and small cap segment. Even the big boys have not been spared. There is selling (panic selling) all around.

Value Investors always say :

  • that the time to buy is when others are selling.
  • Be greedy, when others are fearful.

If that is the adage that we have to live up to, then it makes sense to identify opportunities in the carnage.

There are stocks that are selling at low/abysmal valuations and as value investors we need to keep our head strong and steady and find those stocks.

Require the help and experience of seniors like Donald Sir, Ayush , Safir Sir, Hitesh Sir, Kiran and every other valuepickr so that we can compile a list of beaten down stories to load up on.

In my view, this is not a carnage yet. Most of the good mid cap stocks are still at medium valuations, only 10-20% down from highs e.g. Yes bank, Indus Ind bank, Unichem Labs, Ajanta pharma. 10-20% fluctuation in mid cap stocks is not definitely a carnage.

Many defensive stocks have not at all corrected e.g, mid cap pharma- indoco, FDC etc.

Stocks with poor earning quality have corrected the most e.g, real estate and infra stocks.

Stocks can go down a lot more in which case it may be a carnage, or may start moving up from here.

I think while making a list of stocks to buy, it makes sense to include those stocks where one can predict the levels close to bottom with a fair degree o accuracy. Or else there is some sort of dividend or valuation protection.

e.g GIC Housing finance --Book value is close to 110, net NPA is nil, div payout ratio is usually 35-40% so we can expect a dividend of Rs 5-6 per share in fy 13 (based on eps projection of around 17-- 9M eps at 12.7 already clocked) . Now we know housing loan business is as stable as it gets and these companies are not going to go down under. so at around 100 Rs which is cmp, one can build a buying scenario wherein stock is attractive at cmp of around 100 at 5% div yield. I think I can reasonably say that I dont see stock going too much below Rs 80. So I can stagger my purchases at levels like 100-95-90-85-80 and then pray an hope for the best. Benefit in this kind of stocks is that once the beast called market comes to its senses which can happen within a time frame of 1 year, we can reasonably hope for around 40-50% returns. Same goes for canfin homes.

There are other stocks as well which people might be tracking but this is the way I prepare my buy list and stick to it.


Hi Hitesh,

Any thoughts of levels where Gruh and page industries becomes attractive?


Hi Hitesh,

Any attractive?


Coming to gruh, it is expected to do eps of close to 8-8.5 based on numbers of 9M fy 13. Applying a pe multiple of 20 times to a stock growing at around 25% cagr would be attractive. So effectively stock prices neare to 160-170 should be great for buying.

But one doesnt know how low stock price will go – so one call allocate various levels of buying the stock like 195-185-175-165 and buy in lots of 25%. This is just an example of how I would go about things but different people would have different methods of buying.

Page seems to be undergoing time correction rather than a price correction. So it makes sense to keep buying in this range of 3180-3300. Expected EPS for fy 13 could be around 100-110 per share. Usually Page commands valuations of close to 30 times ttm so here also it seems 3000 should be floor price. In extreme market situations, and PE contraction to 25 PE, one can calculate targets accordingly.


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**Thanks Hitesh as always for your views **

Hi Hitesh,


@hitesh bhai

according to me buying anything at 8 times of sales would only give average or below average returns. gruh has sales of about 600 crs for fy 13 and mkt cap at 4000 cr . expecting it to reach the sales of 4000 cr will take more than 5 years if everything goes well. hence i assume such investments dont ensure adequate margin of safety.

i was having a look at the tiles company ,…many of them are avb at price to sales ratio of below.5 to .8 hence looks like a decent sustainable business with good margin of safety eg…somany or kajaria …


If u look at price to sales try comparing the companies in same sector rather than taking a general view across sectors and markets.

Another aspect while comparing companies on basis of price to sales even in same sector is to look at net profit margins. e.g One cannot compare Sun Pharma which has supernormal net profit margins compared with other pharma biggies like cadila or dr reddys only on basis of price to sales.

Regarding tiles companies, I agree kajaria seems attractive based on growth prospects. Again price to sales is below 1 bcos these companies are operating at net profit margins of close to 6% whereas in case of gruh the net profit margin is close to 20% --so the market cap (or price) to sales ratios will vary to a large extent depending on NPM.

If you are interested in using price to sales ratio, then read kenneth fisher’s super stocks. He used to buy based on this theory after a lot of other studies and made big multibaggers.

@hitesh bhai…

i do agree with ur view point that one should not compare price to sales(psr) in different sectors . according to me psr should be one of the variable everytime one should be buying a stock not considering the sector ,…will add to the margin of safety…

and yes i have read super stocks and i did like the notion of psr as finding multibaggers according to that.

we might be actually living in the time where it is more relevant today as in this long bear market(2008-2013) we might find some excellent business which have had good growth of revenues and now are on the verge of margin expansion in a year or two.

m reading one up on wall street again…somehow whenever i read the book…i come up with some new ideas to discuss.

one which comes to my mind is strengthening of rupee may be the next cycle which should play out in couple of years . hence importers of raw materials may enjoy some decent margin expansion .

happy investing


Hitbhai - thanks for sharing your strategy. Request other boarders to share their buying strategies. While knowing that one can never predict prices, it would be nice to follow proven buying strategies that take emotions out of it.

my buying strategy in such crashes has been similar to what hitesh says but a bit different in implementation. i would illustrate with following example.

lets saya stock starts falling from 100 rs and i consider 80 as the first level to start my purchases and i want to buy total 100 shares. i would buy 5 sharesat 80 and theni would increase my incementalbuying amount on every 5 rs fall. so this way I would buy

5 at 80

10 at 75

15 at 70

20 at 65

25 at 60

25 at 55

this way, if the strategy works out ok and i do get to buy till 55, i would end up with an average buying price of 63.75 which would have been 67.5 if i bought equal amounts every time. this automatically makes me buy more at a lower price. i use a similar strategy for selling a stock where i sell more at a higher price.

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hi hemant,

what happens if it falls from 100 to 80 or 75 and starts raising to 100. will you buy on the way up ? when will you buy the remaining qty ? is it possible you may remain underbought sometimes ?


saya sharesat 80 and theni incementalbuying

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hi bala,

if it goes to 75 and turns up, you would risk not buying more but this will be the case with any other averaging strategy. key is to average in the best possible way. what i typically do is to identify the starting point and expected ending point for my averaging strategy like say 80 and 55 and then come up with a strategy for that. you could end up buying less than you wanted but that would almost always happen unless you can catch the bottom or buy all in one go and are willing to take the pain when it goes down from that price.

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This staggered buying has to be flexible according situations.

you cant anchor urself to fixed price points but have to be patient and flexible.

everyone can devise their own strategy and follow what suits them best.

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agree with hitesh. i typically start with the target range and then vary it as i go taking into account the strength or weakness shown by the stock.

Why not buy in equal quantity, because no one knows when will the trend reverse. Otherwise if we are sure that it is going to go down to the lower range than why do we buy at the higher range ?

pankaj, buying in equal quantities doesn’t help as well in case the stock turns up before you could finish buying your desired quantity. the key is to assess the strength of the market as well as the stock and estimate how deep the correction is likely to be.

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Hi Hemant/ Hitesh

It is a good strategy to learn. Its an Idea that can change my life. As the markets are in down trend, I have started accumulating stocks which are fundamentally strong and debt free. You have opened my third eye and extended my horizon. Great idea.

I buy stocks once in a month, the total amount distributed between 5-8 stocks (amongst my 20+ stocks). The choice of the stock where I want to invest depends upon undervaluation, ROE, sales/profit growth, and my conviction level. I follow this strategy irrespective of the sensex mood.

In rare case where I find a really good stock in the middle oi the month, I sell/reduce stock where I have the least conviction and convert it to the new idea.

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I normally buy 40% upfront and then go for the staggered buying on every fall. If the fall in the prices is steep and if my conviction level is high, I go for1.25 times the targetted quantity. So the last 25% buy is at extreme low levels which I book profits once the first buy price iscrossed. This way theavg buy price comes down. Similarly when the price shoots up after the initial 40% buy, I do buy on the up depending on the mkt strength and conviction level. Many times I end up short of the targetted qty, then I move on to the next stock.