the PE is not 50. March quarter had an aberration of higher taxes due to corporate tax law change. On normalized earnings, TTM pe is 32. However, what we should observe is the trend in the fundamentals. OPM are mean reverting to previous levels, they will go higher this time due to business mix change, Much higher contribution from the CMS segment and shortage for key APIs in US (follow punit bansal sir on twitter he tweets about this a lot). When it comes to Neuland, I only have 1 song to sing: Abhi toh pawwwry shuru hui hai!
PF price action updates:
|Instrument||Avg. cost||LTP||Net chg.||% Allocation||% PF||Type|
|Growth in Capital Deployed||12.9%|
I think my PF has managed to hold on to the gains despite weakness in the market as a whole. This is most likely due to fact that all of these are high earnings growth companies.
- Sold out of tricoat as I had said I will. Tricoat product volumes have also gone down.
- Added Saregama. Read the concalls and annual reports. Watched some interviews and also talked to an investor friend who is invested. Saregama has a very bright future due to their massive song catalog. The music streaming revenues they will generate should grow at at least 20% CAGR implying much higher profit CAGR due to very low variable costs. Caravan is a massive optionality with potential to become a platform for audio content. Yoodlee films is one of the best professionally and financially prudent run film houses I have ever seen. Look at their SOP. Look at the checks and balances. They also intend to acquire 20% of new songs with 5 year pay back period, implying business throws up enough cash to have a self sustaining business model. Only reason I have not invested more is because I am starting to run out of idle cash. Want to keep some cash at all times to take care of responsibilities, emergencies and also a market crash fund.
- have reduced size in Route because it seemed like the least differentiated business model among all my businesses and also due to entry of twilio in Indian market.
- Continuing to track indigo paints. If it falls a bit more there could be an opportunity to enter in my opinion.
Disc: Not investment advice, for educational purposes only.
PS: Apologies for late replies to everyone, I was in between shifting houses in BLR and hence was unable to spend enough time on my investing commitments.
How do you think about REITs given the WFH related risks to the commercial real estate space? Even occupancies of some of the A Grade office guys seems to be falling + most IT companies have already stated publically their intent to move to a partial WFH model over the next 5 years. How do we price the same and do you think there is a substantial margin of safety to invest today?
This answer by dhiraj beautifully covers my own thoughts about ReITs:
Tldr is that the wfh trend is not sustainable. Despite bearing the heaviest brunt of wfh, embassy reit which is based in Bangalore only lost 2% in terms of occupancy from 93% to 91%. Imo 90% would be the local minima and as vaccinations ramp up, mortalities go down, offices would open up.
I am employed by Google. Even though they are a global giant they do not plan to implement voluntary wfh forever. They intend to make it easier go wfh but we would always have to go to office few days a week in order to collaborate. This means that the office space would have to be maintained. I believe this would be the trend going forward.
For the local IT companies which claim that their employees can wfh forever, I find that they are jumping tbe gun a little. As responsibilities increase same employees would find our congested 3 bhk homes very small for 2 people to productively wfh for multiple years at a time. Work life balance would also be much better when people work from office and hence people would tend to want to work from office in general (there would always be exceptions). Hence some reduction in distribution in short term but very stable over longer term.
Thanks for the reply, the thread you posted was also illuminating.
Still not quite convinced by the WFH argument, especially for IT companies. As mentioned, most IT companies, including TCS which has over 500k employees have publically stated their intent to move to a hybrid WFH model: only 25% employees coming to office each day and no employee spending more than 25% of their time in the office by 2025 (can see on TCS annual report). Lets even say they achieve half of that, so 50% WFH by 2025.
Of the India-wide commercial office space, I think IT is about 35-40%. Their share of incremental absorbtion is also the same. India absorbed close to 50 mn sq-ft of commercial office space in FY20 (all-time high). If IT stops absorbing office space, or god-forbid starts net releasing space, I think we can effectively forget about the 5% annual price hike that most analysts have built into estimates. The question I am trying to answer is, what impact does that have on NAV and on DPUs? I dont think this is an overly pessimistic scenario. Had you asked residential real estate investors in 2010-2011 about residential real estate prices, I think most would have also said that prices are going to increase 5% till eternity. But, prices have been flat there for 8 years now and we cant discount the possibility that the same thing will happen in commercial.
Portfolio Updates for April
|Instrument||Avg. cost||LTP||Net chg.||% Allocation||% PF||Type|
|Growth in Capital Deployed||0%|
Few very interesting updates:
- In the interest of style diversification, I have decided to experiment with a couple of smallcases. I have subscribed to Abhishek basumallick sir’s Q30 smallcase which is a quant small case with momentum+fundamentals based strategy. I have very high respect and regard for abhishek sir and expect to learn more from his Quantamental newsletters while also letting my capital compound well.
- The second smallcase I invested is in Negen PMS’s Neil’s Tech+opportunistic smallcase. I’ve been following Neil bhai on twitter for quite some time now. A LOT of companies he invests in are of special interest to me. I thought there could not be a better opportunity to learn from someone while also investing in a theme that I believe in and compounding my money well.
- Due to these factors I have not grown my own PF at all this month, since capital is limited.
- I also had to go through covid for last 3 weeks. things got a bit out of hand and had to get admitted to a hospital due to low oxygen and very high fever even on the 12/13th day. Thankfully doing much better now and recouping @ home. I mention this on my PF thread because I had to make some large purchases (oxygen concentrators which were being sold for 3x the usual price) by dipping into my emergency funds which will also need to be replenished. Capital deployed into PF might not grow a lot in coming few months.
- I decided to sell out of astec. Astec has a bright future and will grow bottomline at 20% for many years. In general i liked their Q4 commentary and like the direction company is going in. However, I want to have high allocation to my top picks and hence over time want to reduce PF size as much as possible. Astec seemed like the most obvious candidate being quite highly valued at 4x sales and with growth which IMV pales in comparison to the company to which I switched capital (next point).
- I decided to deploy astec funds (and then some) into Angel broking. The more i read about angel the more i realize how absolutely under a rock I have been living. Indian equity markets are full of such amazing transformation stories that just need our research to uncover. Will try to start a VP thread on angel when i feel better/stronger mentally (still recovering from covid physically and mentally). While most brokerages were losing customers to zerodha in 2020, angel was only one able to grow similar to zerodha. They are focussing on market share gains which will translate into high topline growth for 2-3 years at least. They are cognizant of the somewhat cyclical nature of broking and are working to apply for an AMC license. Their vision for AMC (smart beta, ETFs, algorithmic/quant ETFs) is also something i agree with (this is the future). The new CEO, Narayan is an absolute tech giant and is the ex CTO of ola and ex head of engineering at Uber. Has worked at Google too. His leadership will transform angel from a broking to a true fintech. First time I heard an indian CEO talk about 4 9s reliability being a top level goal. Angel has not even started the distribution of MF and insurance yet. This cross selling will directly add to the bottomline and hence large operating leverage will play out. My PF sizing here is not at all proportional to conviction. Reason I have started with a small position is that i am not a hasty person. I will continue to study and build the position over next few weeks.
- Results season is going on and companies are performing phenomenally, including PF companies. Will post complete analysis post all results declaration. IDFC First, Angel broking, Laurus Labs, Mastek and Astec (ex company) and embassy have all given stellar results.
- I stopped tracking embassy here in the table simply because capital appreciation is not really the point there. I liked embassy’s Q4 commentary and remain bullish on the long term prospects of REITs
Disc: This is not buy or sell advice. Only a catalog of my thoughts and decisions. Nobody should construe this as investment advice.
These are not embassy clients. Embassy clients (if you read about them) are fortune 500 companies all of which are growing their presence in India and bangalore aggressively. One cannot extrapolate from TCS to Goldman/Morgan Stanley/Well’s fargo. Also, Indian IT are wrong about their public guidance as per my independent analysis and will have to eat their words.
If horses could fly then horse racing would be a very fun event to watch. What matters is the probability associated with an event. IT sector (specially fortune 500 companies) reducing leased space in india is a very very low probability event IMV (it might be easier to genetically engineer horses to grow wings and fly )
But i do not care about 8 year price trends. As i have been writing in the REIT threads, REITs are a multi decadal capital protection opportunity. Over a 20-30 years period, all real estate would appreciate at inflation rates. Add to that whatever rental yield we get (4-7%) and we manage to beat inflation.
If you are still not convinced, we can always agree to disagree. Thank you for adding your thoughts though, contra views are a key part of any investor’s investment process IMV.
Very interesting points in the last post.
Wishing you a speedy post covid recovery…
Also I tried searching and reading about smallcase …it’s a subscription based service for various duration… So if I want a sip or one time investment…do I need to have a continuos subscription or a one time subscription will keep executing without any new additions or changes.
Please taken your time to reply
Also I have been tracking angel broking and there results have been stupendous to say the least …broking anyday is a cyclical business…how can one differentiate early that angel is not treading the same path … except the quarterly and annual results.
I mean any learnings from the industry which has caught your eye.
Subscriptions are of various durations. The ones i took are annual. Need to be renewed every year. After i subscribe, for 1 full year i get full support of fund manager which means:
Periodic updates to the smallcase in terms of decisions to buy or sell any of the small case companies.
This is a characteristic of broking industry. No way for angel to avoid this. However, they are applying for AMC as i wrote about which is much more secular industry thereby reducing cyclicality of cashflows. The other thing is, Angel will get into distribution of MF and insurance in a big way the new app and that will also enable some secular elements to come through, specially as people start doing more SIPs. We have to listen to angel concalls to understand the vision of the management. This looks like a broking business today, but not necessarily 2-3 years down the line. We have to focus on where the puck is moving. Look at the way CEO talks about four 9s reliability. This is not how broking house CEOs speak. This is how scalable fintech CEOs speak. Key differentiator is the way management manages to stay ahead of the curve, anticipating the needs of their users and building those products proactively. ARK advisory service, smart beta and ETF based AMC are all indications that this management will do so.
Hi Sahil, Hope you are doing good bro.
I was also looking through couple of smallcases mostly momentum ones by Alok jain, What i realise was momentum works mostly when markets are in a bull run for other times these small casess will end up mimicing performance on indices. My question is how do I calculate based on the portfolio size whether mf is good for me or smallcase is?
So how did you decide while investing in negen that it will give you an alpha over a mf say ppfas
Please evaluate abhishek sir’s Q30 strategy. He has backtested it over last 12 years. The performance is robust. He has PF level as well as individual stock level exit strategies to ensure that cash call can be taken at appropriate times.
I found this to be the best momentum strategy i could find. He is a very very able manager. Key is to build enough protection into the system that we can protect the capital during down years. I think abhishek sir has done that.
IMV mutual funds are very bad instruments for investment. I only put very small amounts for goal based investing (need X amount after Y years where X is small). Mutual funds chase short term performance and 1 year returns.
Understanding the strategy of the fund manager.
Been following him and his thoughts for quite some time now. Read his old tweets. Listened to many of his YT videos. His PMS is best performing one in last year i follow his public stocks and i am myself invested in some of them heavily. For me, neil’s smallcase represents a way to benchmark myself as well. If i cannot beat its performance, it might as well make sense for me to put all my money with him and stop wasting my time. If I can beat him, its good and means that I can stop investing my money with him. Without trying I’d never know.
Thnak you so much sahil sir for lots of wisdom and stock ideas, really realy appreciable for retail investor.
The Quant strategy by Basu sir has 2 smallcases, Q10 and Q30. I’m not able to find more details about Q10. Is it similar to Q30 but with less investment or it is a different strategy altogether.
It would help if you can point me where I can find more details about this.
Just my speculation that it is 10 stocks chosen from some Universe. I discarded it because q30 is the mainsteam product he has. You should be able to ask the question to his vp message box and I hope he replies.
How did you compare other smallcases offered by other FM like Alok Jain. I know comparing strategies is not possible but given the humdrum about weekend investing smallcases, how did you decide q30 was a better pick?
This is actually a simple answer. I know abhishek sir (through his work not personally), have tracked his progress on VP over 10 years, have seen his track record and trust him.to.manage it better. Also he has rigorously back tested a quant strategy. What else can one do? How much more rigorous can one get ?
46% cagr over 12 years. If we can even get 2/3rd of that over next 12 I would be happy and satisfied customer.
I have been thinking deeply about how to decide what stock to sell out of, when i want to add a new PF stock. I realized the only way is to to do the grungy work of building out some sort of a model for what returns I expect stock to give in next K years, and comparing all PF stocks based on that metric. This would require me to estimate 2 critical components for each PF stock, exit valuations, and fundamentals (earnings for non lenders and book value for lenders) growth. That, along with current valuations would lead me to estimate future CAGR and thus estimate which stock to sell. I do not like doing this exercise because there are just opinions. Well informed ones, but still opinions nonetheless. There is no way i can objectively justify why my exit multiple would be 7 for a stock and not 6. However, i still expect this exercise to be useful since I would only be using the numbers to make relative decisions between the stocks (which one to exit), not absolute ones. I still intend to apply my own judgement on top of this filtering criterion, this is not a quant procedure.
|Instrument||Percent of PF||Timewise visibility||Valuations||Est Topline Growth||Est Profit Growth||Future CAGR Expectations|
I have taken a bear and bull case for 3 parameters: exit valuations, topline growth and bottomline growth. I have estimated future CAGR based on 3 metrics: bear, bull and average where exit valuations and bottomline growth are average of bear and bull case. Based on that above table was computed. Based on my calculations, I have decided to exit NCC. Some human judgement has to be applied on top of the numbers. Even Dynemic, sequent and laurus are giving low growth. However, I am more sure of the growth in sequent and laurus than most companies so doesn’t make sense to sell those. NCC with the infra cycle revival would be most difficult to predict. As one can see from the table, I have decided to replace NCC with pix transmissions (update: Pix transmissions - low profile microcap company - #118 by sahil_vi). Investment thesis is here.
Please note that none of whatever I have posted is investment advice. This is purely to document my own thinking and share methodology with forum. Forum members must have their own buy and sell decisions based on their own individual research or suggestions of their financial advisor. All estimates are wrong. Some are useful. I hope mine prove to be useful to my portfolio.
Also attaching the excel in case someone wants to play with it.
What to Replace_.xlsx (17.7 KB)
You should know that there are some stocks that find a place in Negen PMS and not in smallcase that’s why the returns of the PMS are better. Some times by the time the stock is updated in smallcase it’s already moved quite a bit.You could write to Neil and clarify. He replies
I am not invested in the smallcase for alpha. Primarily interested in 3 things:
- Stream of research ideas.
- Benchmarking myself.
- Learning more.
If i were interested in alpha i would have deployed a much larger corpus into it. it is only ~3% of net worth. Also, it is very difficult for me, someone that is only paying Neil 11k INR a year to influence their smallcase updation procedures. IMO the amount of energy and time it would take and probability of success do not allow for a favorable ROI.
My bad. I misunderstood. The last para made be think you are investing for Alpha