November 20, 2019
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10 reasons why long-term investors shun real estate stocks, and why its time to do the opposite

Posted by | Business Models, Indian Markets, Industries, Investing Framework, MoneyControl Column | No Comments

Whether it is real estate as physical assets or as stocks, there has been a lull for many years now. Will the two always move in tandem? Can real estate stocks do well even without real estate assets picking up? Before that, let’s understand why the real estate business and stocks are so out of favor: It is an extremely asset-heavy business with significant upfront investments needed for buying land and for project development, necessitating the use of borrowed money or settling for a lower return on equity. Further, each project has a long gestation period of 7-10 years. To make economic sense, the project size has to be meaningful, in which case even one or two projects going wrong on location/timing/pricing can push the company behind by a few …

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October 23, 2019
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Only 2.5% of 8,000 Listed Indian Stocks Are Investable; Here’s The List

Posted by | Indian Markets, Investing Framework | No Comments

A lot of us have the quest to unearth those high-quality stocks which will create wealth for us, but how do we figure out which are those 15-20-25 stocks worthy of being in our portfolio from over 7,800 stocks listed on the Indian stock exchanges? Looking for the ‘right’ stocks from this vast universe is akin to looking for a needle in a haystack, you often end up wasting too much time with not so satisfactory outcome. As minority investors, it is difficult to conclude with any degree of confidence that a specific company is high-quality, which is often an abused term to just refer to a bunch of stocks which recently outperformed the markets like small-caps in 2017 or large-cap consumer stocks in 2019. But how about we turn the question on its head …

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September 24, 2019
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Corporate Tax-Cut: Implications on Markets, Portfolio & Economy

Posted by | Indian Markets, Issues in India | No Comments

(This is a slightly edited copy of Investor Memo shared with subscribers of Stalwart Advisors’ Model Portfolio) The corporate tax rate (including cess & surcharge) in India has been slashed to 25% from earlier 35% giving a stimulus of Rs 1,45,000 Cr ($20bn). This is a flat rate with no further incentives; companies which are already enjoying some incentives like export-oriented plants or R&D expenditure etc. would have to let go of those benefits if they want to switch to this rate. This is applicable retrospectively with effect from 1st April 2019, so current year’s (FY20’s) profitability for corporate India goes up roughly by Rs 1,45,000 Cr. For companies which were paying full tax at the rate of 35%, their post-tax annual earnings go up by 15% with a commensurate rise in their …

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July 11, 2019
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How to Identify Fraudulent & Fragile Companies

Posted by | Investing Framework, Investing wisdom, Issues in India | No Comments

Who knew that the liquidity crunch which began in September 2018 would kick start one of the most sweeping clean-ups in Indian corporate history? Slowly, all cockroaches are coming out one after the other. Fraudulent business, over-leveraged or fragile, the sudden drying up of liquidity has now exposed them all. Stocks of these businesses have crashed as much as 70-80 percent in the last year and this fall has surely shaken investor confidence. Many new investors are learning the same old lessons. Unfortunately, many are still committing the same old mistake of averaging costs when stocks are falling heavily. Some think that these stocks have fallen 80 percent from their 52-week high, and so, how much more can they fall? They do not realize that these shares could fall another …

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April 08, 2019
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Nifty at record high: Don’t get carried away; real opportunity lies in these stocks

Posted by | Indian Markets, Investing Framework, Investing wisdom | No Comments

My April’19 Article Written For Financial Express While Nifty is at a lifetime high, the average fall across 3,000 traded stocks is still 40-50% from their 2018 highs. Smaller the market capitalization bigger has been the bashing its stock has taken. Though there is nothing unusual about it – small companies swing wildly in both directions depending upon market sentiment; after all, they are thinly traded with low free-float (non-promoter holding, available for trade) so the rise in volumes can lead to high impact. The onlookers and investors who entered markets recently might have concluded by now that it is so safe to invest in large caps which not only did not fall much in the correction but now when markets are improving they are also participating on the up move. While purely …

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March 25, 2019
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Listed MNCs in India: a good catch, but an opportunity slowly fading

Posted by | Indian Markets, Investing Framework, MoneyControl Column, Stocks | No Comments

My March’19 Column Written For Moneycontrol A basic tenet of long-term investing is to look for high quality listed businesses. This essentially implies 1) they earn returns above the cost of capital (reflected by return on capital employed), and 2) generate strong free cash i.e. they don’t require a lot of capital (fixed assets and/or working capital) to grow revenues and profitability. Those retained earnings can then be utilised either to acquire other companies in the same line of business or diversify. Alternatively, excess capital could be returned to shareholders via dividends or buyback. But have you ever wondered why would a promoter of such a business list his company as it involves diluting a significant chunk of his ownership to minority investors? For instance, why is a business like …

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March 18, 2019
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India’s Market Leaders: My 10 Key Observations

Posted by | Food for thought, Indian Markets, Industries, Investing Framework, Investment Gurus, Stocks | No Comments

My March’19 column written for Safal Niveshak’s ‘Outside the box’ newsletter One common advice I find veteran investors passing on to next-generation investors is to look for companies dominating their industry and enjoying entry barriers ensuring their profit pool share is protected. Now, ideally, we may think that the top 3-4 players by market share in any category should be qualified as ‘dominant players’ even if their respective market share is in single digit. However, for the purpose of this research, I have restricted my analysis to only those companies that enjoy at least a 35% share in their respective categories. You must be thinking that it is quite a stringent filter and there would only be a handful of companies that will make it to the list – after all, …

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February 02, 2019
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Here’s what a customer visit to a Tanishq outlet tells you — that its financial statements won’t

Posted by | Business Models, Industries, Scuttlebutt, Stocks | No Comments

My February’19 Column Written For Moneycontrol The beauty about being in investing profession is that your mind is always curious and observing even when you aren’t ‘working’. Any occasion — a family holiday, house renovation or wedding — can effortlessly translate into scuttlebutt (primary research) where you experience so many products and services as a consumer, get to interact with dealers and also get to observe your family and other consumers engaging with those products and brands. I had one such wonderful experience recently. There was a wedding in my family and like all Indian weddings, it meant shopping jewellery for the couple, relatives, gifting, etc. My family and relatives have been traditionally dealing with two jewellers in our neighborhood who belong to same community (Sindhi) – one of them …

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November 10, 2018
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Three Forms of Value Investing

Posted by | Investing Framework | One Comment

While there are various styles of investing, we can categorize them under three key heads: Special Situations (Arbitrage): Open offers, rights issue, mergers would all fall under this category. One is betting on a specific corporate action with well-defined timelines and aim to make a certain return independent of what happens to the company’s fundamentals or market sentiment. Typically aim is to beat fixed income return while not taking any material risk. Holding period ranges between few days to few months. Re-investment risk is high as one has to keep looking for new opportunities which also involves sitting on cash in between. (Suggested Reading: You Can Be A Stock Market Genius By Joel Greenblatt) Statistical Bargains: These are average businesses which are available very cheap – below liquidation value/cash, at …

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November 09, 2018
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Forget market-caps, here’s how we classify stocks

Posted by | Food for thought, Investing Framework | No Comments

Mega-Caps, Large-Caps, Mid-Caps, Small-Caps, Micro-Caps, Nano-Caps… As if the business analysis wasn’t complicated enough, we have divided the universe based on size as well. But does size really matter? The answer will be a big yes if you are running a mutual fund, or some other regulated fund like a pension fund, which has to 1). Comply with SEBI guideline and stick to fund mandate by investing in the universe of stocks which comply with that and 2). Ensure enough liquidity so as to be able to enter and exit with minimal impact cost. But the same isn’t true for individual investors and in fact is their biggest advantage (See Jatin Khemani’s presentation on ‘Individual Investor’s Real Edge – TIA 28th Jan 2017’). Generally speaking, large caps have been around for …

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