17 Month Update

There was not much to write in November and people also urged me to keep writing so here goes my new post.

The markets have not done much in the last 2 months except for moving around in a small range with one downswing. This is the much needed consolidation that is taking place.
This is perfect from a recovery point of view. The result season is over and they were not bad. The markets across the world are showing signs of recovery (with India and China showing the way).
The consolidation is almost over with the markets poised for a move outside the range. There could be a sharp down move if some other country in the developed world goes belly up after the Dubai scare.
From an Indian stock market point of view these would be buying opportunities. Not great buying opportunities like Jan or March but still decent enough for those who missed the last 12 month rally.
I personally am positioned for a move towards 19K on the Sensex and then I might exit many over-valued stocks!

What to buy in these corrections, if any? Blue chips are expensive now and may not really correct in these small corrections. The thing to do is look for value. Some of the middle sized companies are still trading cheap and would be great buys for a holding period of 2-4 years. Even the out of favor Mahindra Satyam could give 100-200% returns in 2 years time with the Upaid case being settled out of court. Many such good companies are available at 1/2 or 1/3 the PE of its industry average.

Most blue chips are now trading at PE of 27-30 and if these cross 40 (like Ashok Leyland) it might be time to exit and sit on some cash. There might be blowout when the PE of these great companied touch 45-47 corresponding to the Sensex level of 21K.
My personal guess would be that we would be making new Sensex highs only in the 2nd half of 2010.

My value picks are beating the Nifty by a whopping 72%!

Merry Christmas to all!

15 Month Update

As per my last month’s posting, the scenario 1 is being played out with the sensex moving around in a small band. The result season is here and its best to wait for they to get over before taking a call. If the average bottom line don’t show a 30% YOY increase , then we are in for a decent correction. Most of the blue chips are trading above a 26-27 P/E and business is not actually roaring at the moment. People are just making up for the depleted inventory and human resources. Once they are up to decent levels not much upside can be seen in the short term.

This does not mean opportunities exist. Airtel is a classic example of what Buffet would term as “stock beaten down by an irrational market”. It’s biz is best in the vertical, great management and available at a very cheap price. There are others also but not many blue chips. At these levels you might want to exit any bad eggs in your basket. If at these levels also they are at a major loss ( say 40-50%), its best to exit these.

My value picks below continue to beat the nifty by 58% !

14 Month Update

Sensex at 16K almost 100% return from Oct 2008. The question that people ask me most now is – Where to from here ? For long term investors who are already invested the answer is very simple , stay invested! Going forward ( for the medium term ) I can see 3 scenarios
1.The Sensex moves listlessly in a small band of 16-17K for the next 3-4 months.
Justification – The market now has moved ahead of fundamentals and will not do much till the fundamentals catch up and developed markets also inch up so that Indian exports become more healthy.
2.The Sensex runs up sharply till 18K and corrects to 14.5-15K levels
Justification – People pump in money thinking that they have missed the rally and jump in seeing no correction coming soon. Then around 18K when they find valuations much ahead of fundamentals the people become skittish and pull out money.
3.The Sensex slowly inches down and starts moving up around the end of the year.
Justification – FIIs slowly start pulling out money from Emerging Markets and start deploying it in Developed markets, seeing better value there. The decent will be slow because of the huge amount of liquidity sloshing around and DIIs/MFs maintaining their buying.

Personally I believe the 2nd scenario having a 60% chance and the other 2 having 20% each. Whatever the scenario if you are sitting on 10-15% cash it’s a good thing. Just wait for an opportunity to present itself and deploy the cash around 14-15K levels. With knowledge of only the last quarter results now 14K levels can be justified. For us to justify levels of 17-18K the results of the July-Sept should also be good.

I enjoy the daily ride so I check the price of good stocks everyday. There is still value to be found in midcaps. They should give good returns in the next 12-18 months. For people who cannot stand the volatility, they can wait by the sides, enjoy Dashera, Diwali and Christmas and check the markets only in the new year.

Check the excel(updated as of yesterday) below you can make out that with decent stocks in your portfolio you can always beat the markets. My value picks are still outperforming the Nifty by 45% and the other stocks are tracking the Nifty closely.

13 Month Update

The Sensex is down 3.5% this week! It got spooked by the scanty rains. Should we worry a great deal? I am not so sure. Should we worry at all? YES. Whatever said an done in Indian are scared about high food prices. A really bad monsoon will make food prices shoot up further. Inflation will rise again and govt. in trying to please the Mango people ( aam aadmi) will go after profit making sectors in the industry. Can the Sensex ignore this and keep rising ? sure it can but I would dread such a rise. I would rather the Sensex correct to levels below 14K now and then price in all the negative factors and then rise. If the opposite happens and Sensex breaches 17K the next correction could be really deep, as deep as 20-25% (taking 17K as the base for calculation). A decent correction from the current levels is not so bad. People who had invested around oct-nov ‘2009 have doubled their money. Losing a little bit of the profit should not hurt too much. Also 13-16K is a great trading range. Good traders will make good money in this range.

Important question - Will the actual economy really suffer due to a bad monsoon? Maybe not. We are a resilient lot and also bad monsoons are a part and parcel of an agrarian society. We have been fortunate to get almost 4-5 continuous years of good monsoons.

Good thing is that the whole drama will play out in the short period of august and September. Hold on to your horses and invest intelligently and you can make real good money in the next 2-3 years.

Note – My value picks are beating the Nifty by close to 60% with M & M and Tata steel surging ahead.

Wishing all a very Happy independence week!

12 Month Update

One year is over since I started writing about the markets. I still have lots to tell so I will continue for some more time.
The 1 year returns of the general stocks are nothing to boast about. They are underperforming the markets by 8 %. But the value picks of January are out performing the Nifty by 21%. Let’s talk about Beta today.

Have you seen how the US markets behave? They hardly every fall too much to rise too much. While the Asian markets, especially the Indian Sensex jump around wildly. Well that is Beta for you. Indian Markets are with the highest Beta amongst the Asian Markets. So while the US markets maybe down only 30% from the top the Indian markets maybe as low as 50-60%.

Another problem with the Indian markets is that there is very less depth in the market. Meaning? In the developed markets there are 30-40 very good stocks in every conceivable sector where as in India there are hardly 3-4! This is responsible for more volatility. When big investors want to liquidate there are only these 3-4 companies that they can sell. And when they do the whole markets come crashing down like a house of cards.

One more problem is the number of investors in the Indian markets. With only 2% of the Indian population investing in stocks, making the Sensex shoot up or down is relatively easy!

2 things that can make the Beta come down in Indian markets are
1) more penetration and
2) more good companies getting listed.

There is another aspect of Beta. As all stocks are compared with the Index (Beta = 1) you should never panic or be overjoyed when your portfolio under performs or out performs the index. That is nature of the beast. Unless you actually buy the nifty/Sensex your investment will never track the index. You can never actually make money in low beta stocks. The trick is to but great companies like tata steel, SBI, etc. when they are relatively very cheap and wait for them to outperform the Index to sell.

Markets this week are down and I expect some more downside. I personally will be entering in a major way when the Sensex is around 12500. People can start buying now and go all the way down to 12500. Companies like Tata steel and Hindalco can easily give returns of around 80-100% in the next 2 years.

Happy investing!

11 Month Update

My last interim update of May 20 has captured most of the up move. The euphoria of the newly elected govt. is still there but most importantly there is lot of liquidity on the sidelines. Even if the euphoria dies down in the next 2-3 months the liquidity might not. Remember Mr. Market is a “manic-depressive” beast. In Oct and Mar it was in its depressive phase and now its in its manic phase. This phase might push the sensex up to 16-17K in the short term. The valuations of blue chips are already far ahead of their earnings for this year. Is that to say that markets will crash to 10K levels? Not likely but a decent correction of 15-20% is always on the cards. I personally feel too much is being made out of the UPA govt.’s ability to deliver. Remember the congress still follows a “socialistic” policy and Trinamul and DMK are as bad or good as the left. There are already rumblings of not so good times to come for Mr. Singh.
The real economy is still struggling. Exports are in terrible shape and auto sales are again slowing. Monsoons are a bit delayed. If all the negatives come together , I will be a happy man as I can bring out my shopping bag again. There are still quite a few mid-caps available at decent valuations but I would prefer to wait. This year MIGHT just be the year when the monsoons play truant after almost 6-7 great years.
Budget , 1st quarter earnings and monsoons should be out of the way by July end so I would wait and watch for the moment.
This time is also good to check the passive income coming in the form of dividends.

Note – my value picks are beating the index by a whopping 45% and if you had invested X amount on Jan 25th, now you would be sitting on 2X+! It might not be a bad idea to book some of the profits in companies where you have made more than 80-100%! Remember unlike the US , Indian stock markets are a high beta market and you have to book profits once in a while. Please also understand that this is a virtual portfolio without any actual money being invested. I myself have not done as well as my virtual portfolio.

Interim Update

I just could not hold back , ignore the market moves and keep the moves of my value picks secret! I will not give any gyan(my old blogs are there for that), just state facts.

My Value picks returns - 90% (positive)
nifty in the same period - 60% (positive)

My General stocks - 6% (negative)
NAV change of a popular MF - 4% (negative)
Nifty in the same period - 4% (positive)

Please see sheet below for details.

10 Month Update

Surprised by the 40-45% rally from the bottom ? Don’t tell me you believed that it would stick around at 8K Sensex levels for a long time. I believe that the Sensex fair value to be around 12K to 13K and it could stay in and around these levels for a long time. As this rally happened very fast lot of people have been left out , even the so called “professional” money managers. The markets are like a pendulum going from one extreme to the other. Once there is a small 10-15% correction takes place I believe that all these “professional” will pump in money and take the sensex above its fair value ( to its over valued extreme) ! so if you have invested money before Mar and are not in for the long haul, it would be fair point to book some of the profits at this extreme. 50-60% profits in such economic conditions are great returns. If you are long term investor like me then hold on for another 6 to 12 months for real wealth creation. Real wealth creation happens when you are able to sell X times your buying price. Another point to note is that in case you are holding on to dividend paying companies, there is no way you should sell before July - August. May – August dividend is paid out for lot of companies. In some good companies, the dividend yield is as high as 10-11%. This yield is higher than deposit rates and this return is in addition to the capital appreciation and people say stock markets are a risky business!

My value picks were 50% plus in the green last week before people started booking profits. They are still doing pretty well and beating the index by 9%. The other companies in the display below are also good only reason they are not doing great is that they were picked up at high valuations. Investing is all about buying Re1 for 75paisa ! If you are able to pick this Re 1 at 60-65 paisa then you also have built in a margin of safety.

9 Month Update

Happy New FIN-Year !!
Are you thinking of joining the party seeing my 25th Jan portfolio? It might not be very wise !
Sensex and Nifty distract all and I am also in that “all”. Last week was a sterling show of strength. Have you lost out in the gain? Not really. If you check we are still 18% down from July ’08.
Can it run up more ? sure it can as I believe the fair value of the sensex around 12-13 K. if it shoot up to 12K I would wait for it to correct till around 10K to buy and if it goes down from this level I would wait for 8.5-9K to buy. Can you start buying now , sure. On a day when the Sensex is down 300-400 points you can pick up some good companies. If you take a 1-2 yr horizon companies like Ashok Leyland at around 20 is very attractive but I would wait for it to dip before I buy.

Oct-Nov was a good period to buy. Companies like SAIL, RIL, TISCO and M&M have given returns of anywhere between 30% to 90% returns! It is almost impossible to time the bottom, but if you find great value it is time to buy. In the period of Oct-Nov the downside was around 10% but the upside seemed more than 40-50% so it was a buying period.

There are mails floating around speculating that Sensex’s new high might be at 37000! can it happen sure it can but first we must go beyond the 21K of 2008 and I don’t think that will happen in a hurry. It would also be a terrible thing to happen. Look at Japan, some years back it was at 40K and now it is bouncing along the bottom of around 8K. The 40K high might never be reached again.

MFs are again becoming active and trying to woo the retail investor. I just cannot understand this mentality. How can you just give someone your hard earned money and do what can be easily be done by you. It just takes 3-4 hours a week to do some basic research and buy good stocks. If you are hard pressed for time and cannot spend even these 3-4 hours per week then sure, go ahead, and give your money to MF managers. If you are planning to invest then I would suggest that you wait for the results to be out this month before deploying fresh cash. Price/Earnings, Price/Book and Price/Cash are some basic indicators to go by before picking up stocks. Current P/E ratio might give wrong inputs as the price is low and earnings are of previous quarter. P/B and P/C are still good. In the lows of Oct and March some companies like Indiabulls Realty were at prices lower than cash! Such valuations are worth dying for. There are still quite a few companies at such valuations. You just have to find them and read up on them to ensure that your investment is safe.

Note - My value picks are beating the Nifty by more than 9% !

Happy Investing.

8 Month Update

A very happy Holi to all. As the markets were closed these last 2 days, I took the liberty of updating this page 2 days after the 9th. I am happy I delayed it as a swallow has been sighted and it may be the harbinger of spring and an end to the long and cold winter. The last 2 days the US markets are surging. Most markets across the world had fallen more than 60% from the top and it seemed the US would also follow suit. The US markets have much more depth than any of the emerging markets and chances are that it would not go below 6500 on the Dow. Yesterday that Dow was more than 6% up and today also it has opened positive. My guess is that the US market has bottomed out. The Sensex may or may not have bottomed out. But this is a great time to buy. The best of companies fall the last and are the first to recover. So watch out for the ones that will surge 5-7% in this month or the next. These blue chips should be good to buy for the long time. Good telecom companies are still going strong. 2 wheelers sales have picked up and 4 wheelers (retail) are also showing signs of coming to life. Inflation is down to 3%. Steel industry will benefit from the pick up in auto sales. Even banks like ICICI have grudgingly reduced rates. Even the layoffs in India are almost done with. I believe that 3 more things are yet to happen. One, the Interest rates are yet to come significantly down. Two, real estate yet to collapse and three, gold prices are yet to come down. People who have made a killing in gold will slowly sell and come back to equities which are very attractive levels. The money locked in FDs will also come to equities as with lower interest rates they will not be attractive for long.
With the elections just around the corner in India and things slowly turning around, the markets will not surge up in a hurry. But Tata Steel at around 150 and SBI at less that 900 might not be available by the time elections are over. If a single party get a majority then it is surely impossible to see such attractive prices in future.

My value picks are still out performing the nifty by 0.7% while the normal ones are underperforming by more than 15% !

Wishing you a Happy Holi once again and happy investing.

7 Month Update

The interim budget is about to be presented but the sentiment still seems to be pretty down. Sentiment is a strange thing. It can make you feel very confident when Sensex is at 18K but it might make you feel pretty low when Sensex is at 9K. It is surprising indeed, this sentiment. It is similar to saying that a shirt available at Rs. 1800 is cheap and at Rs. 900 is expensive. I cannot stress enough the importance of buying around 9K for those who are investing for next 3-5 years. I see only positives pointers in the near future. Inflation is down around 5 and rates are dropping fast. I do not know what will drive the sentiment and the confidence of the Indians up. Maybe it will be once in 5 year comedy – the elections, or even the IPL might give it a boost ! I expect the markets to make a move around mid year and real economy to pick up steam by the end of the year. We are in pretty good shape compared to the US, which should take a whole lot more time to recover.

Do not have more to say this in this update. The numbers below speak for themselves. The value picks are beating the index and the others are trailing it by more than 14%.
Comments and queries are welcome.

Interim Update

The republic day is upon us so let us work towards freeing ourselves of all debt. Once economic freedom is there we can all follow our dreams. With this free time on our hands and spare cash to boot some of us will also work towards making India a better place to live in.
I take this opportune moment to explain the limited knowledge that I have of Value investing.
What most people do is speculate and not really invest. Investment should be only done when you find “value”. It applies for all types of investments be it commodities, real estate or equities. You can say that when you get Re 1 for the price of 80 paisa, there is value. On top of this if you can find a margin of safety of 30 paisa more, now that is real value! The wider the difference between the true value (Re 1) and the current market price , the wider is the moat (WB's words)! You do not buy gold at 14K or a 2BHK in the suburbs for 1 Cr or the Sensex at 21K. All this is called speculation, expecting to find a bigger fool to bail you out. As this site is dedicated to equities I will explain a little more in detail on equities. Graham’s book the intelligent investor needs to be read to under the concept in totality. I personally look the following parameters to find out a good company to buy.
1) Low P/E
2) High Cash/Book and low debt
3) Steady growth in EPS
4) Good management
5) Competitive advantage

These parameters need to researched much in advance and should be tracked regularly of the 10-15 companies that you wish to buy (or all listed companies as Buffet does!). Once the data is collected wait for markets to give you the opportunity to buy the Re 1 company at 50 paisa. The current market condition is one of those situations when there is blood on the streets and even 10 year old investments may be at 0% profit. There is plenty of value. Many of us are afraid to invest. The fear is always of the unknown. Do your research and understand the companies and you WILL have the conviction and the confidence to invest.
Six months back I had started a dummy portfolio and promised not to change the companies it. It is a general portfolio. I will start another portfolio with just 4 companies and the same amount of investment. Here the difference will be that the companies I pick up should have real value. Over the next 6 months let us see if these companies to better than the randomly selected companies.

Note – Do Not invest without doing your own research.

6 Month Update

A brand new year is here. It’s better to start a year on a low key so than at least by the year ends with a flourish! The December month seemed to be bringing a close to the Apathy period and people had started at least looking at their portfolios. It almost seemed the markets might even quietly run away and not give any opportunity to the fence sitters who had not invested in Oct and Nov. And then the “Satya” came out of Satyam.
All said and done we all have lots to thank Mr. Raju for.
1)It has finally confirmed our belief that governance was never the strong point of many Indian companies
2)It has shaken quite a few companies who innovate when declaring results
3)This time’s quarterly results might be the most accurate EVER and people will desist from painting a rosy picture even when the whole industry is down.
4)Regulators and audit firms will pull up their socks and investors have become more vigilant
5)If none of the above happen in “chalta hai” India , at least the markets are back to reasonable levels where blue chips can be bought

The news channels will keep on showing only news on Satyam and scaring people like you and me but this whole saga will be soon be swept away by the next “breaking news”!
In this all hoopla let’s not forget to look for Value. Many good companies are still available at good valuations and might be for the next 2-3 months. The day the FIIs decide to pump in money the same companies will be over priced within a week or two. Personally I think markets will slowly go down a little further (around 9000 on Sensex) and then take a U turn.
Over all the whole year might not give great returns but if good companies are bought at a correct price you can still get a 30-40% returns as the credit condition improves. With inflation ,oil and interest rates coming down there is more upside than downside left in the market.

Sagas such as the current one shows us why great investors like Mr. Buffet check our the data of more than 10 years of a company before investing in it.

So be at it and keep investing small amounts whenever some great company looks cheap so that in 3-5 years time you are not cursing yourself that you did not invest in 2009.

My sample portfolio is still underperforming the nifty by 8%.

Happy Investing in 2009

Happy New Year to all.
This space will be used primarily as a commentary on the Indian Stock Markets. On the 9th of each month an update of the current market scenario will be posted. This monthy update will also have the update of a virtual portfolio of Rupees 1 Cr which was invested in 15 companies in July 2008. This site is meant for any person who is interested in Value Investing.
It is safe to assume that i have vested interests in all stocks that i comment on.

Atnamus.