Modi Policy: What has changed; what has remained the same

Indian Prime Minister, Narendra Modi, announced on 8th November 2016 that legal tender character of the notes in denominations of ₹ 500 and ₹ 1000 stands withdrawn. This was one bold step to scrap the parallel economy which was running on black money. Implications of this new policy are very positive for the economy over long term. Over 5-7-10 years, inflation is likely to be reasonable, taxes may moderate and real estate would become more affordable. Talking about businesses, our opinion is the businesses those were run on cash mostly from tax evaders etc will be severely affected. Consumption may slow down over 3-4 quarters. Liquidity problem may affect volume growth as unaccounted currency will vanish and black money parked in Gold and Real Estate will be difficult to liquidate. We see a modest negative impact on consumption of high-value items as entities and individuals with large amounts of undisclosed […]

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Category:Learn

To make wealth from equities, just think like a businessman!

A passive investor (non-executive) imagines himself in different shoes than an entrepreneur. We understand that since the operational part of business is not done by an investor, he considers himself different from an entrepreneur. But thanks to stock market mood swings an investor stands to gain almost equal to or just slightly lower return than what an entrepreneur does. Let us explain. We believe that investor almost always tracks ‘only’ stock price which essentially tells NOTHING. He often discards how the business is doing. We feel that an investor ought to track cash flows of the company from time to time and try to estimate whether it is increasing or decreasing and the levers leading to this change. As an analyst (wearing investor hat), we completely ignore stock price movements (read noise). We check stock prices only from intention of adding more stake or trimming the stake rather than checking what we […]

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Category:Learn

Sector diversification is not for retail investor

Retail investors get misguided by reading fund manager interviews or journalists write ups in newspaper. We were stunned when one of our subscribers asked us, are you overweight or underweight IT? Direct equity investors are often wrongly advised by investment management community to diversify into 8-10 sectors just because Index consists of so many sectors. We should first start by answering why Index was formed. Index was formed for Pension fund/insurance companies to gauge how a particular fund manager performs in comparison to broader market. The Index consists of mostly large sectors/companies of the economy depending on how developed the country is. We often get to hear only fund managers in media, who often hold more than 40-50 companies across most of the sectors. A fund manager faces a huge career risk if he misses a rally in a particular sector because cumulative index keeps performing in short term. We have no compulsion to have a particular exposure for […]

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Category:Learn

Investors’ common mistake during bullish market

You as an investor, may be considering trailing earnings or ROEs as base case for arriving at any valuation. The problem in this assumption is that high ROEs and margins are not sustainable as every company or industry reverses to the mean. Consider Airline and Refining industry currently. Many of you may be buying the stock looking at cheap P/E they trade at. What you may not be realizing is that margins and working capital cycle is at its peak. The P/E may seem subdued due to higher earnings base. Its prudent to consider cross cyclical P/E and ROEs while valuing a company. As Howard Marks says, “I think it’s essential to remember that just about everything is cyclical.” Similarly, if you see that companies which had one time contract order, low raw material costs, faster inventory turns due to short term tailwind may be trading at low P/E or EV/EBIT. Don’t […]

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Category:Learn
Nifty@MRP Suggest Markets Are Fairly Valued, What Should Investors Do?

Nifty@MRP Suggest Markets Are Fairly Valued, What Should Investors Do?

What is Nifty@MRP? As investors, we constantly track the Nifty movements. To make investing more profitable and not a game of mere chance, we need a solution, a solution which could help us identify whether the market is grossly depressed or irrationally exuberant. This is exactly what Nifty @ MRP is for! What is the latest value of Nifty@MRP? For Jun’16, considering the free float market capitalization at the MRP of individual stocks and the share price data as of 31 August 2016, the Nifty@MRP is at 8649. On 31h Aug, NSE Nifty index closed at 8783, which is ~2% or 137 points above the Nifty@MRP. It indicates that the index is slightly overvalued. On similar lines, the Sensex@MRP value is at 28741. On 31 August, 2016, the Sensex closed at 28452, which is about 1% or 288 points below Sensex@MRP. Future Outlook The nifty has gained almost 15% since […]

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Category:Nifty@MRP