Indian Markets

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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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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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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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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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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Are We In A Bear Market?

Posted by | Food for thought, Indian Markets, Investing Framework, Stocks | 2 Comments

You might be feeling it’s an odd title given CNX Nifty (which consists of India’s top 50 companies) is merely 3.7% below its all-time high of 11,171, hit in Jan 2018. Median drop in Nifty 50 Stocks from their 52-week high though is 17%, but the index is holding up thanks to a few heavyweights like HDFC Duo & Reliance hitting lifetime highs. But what about broader markets? Following is some eye-popping performance data about the 1,584 stocks listed on BSE with a market capitalization of more than Rs 100 Cr. as on 25th June 2018: Fall from 52-week high  (Source: Ace Equity, Stalwart Advisors Research) No. of Stocks >= 60% 106 50% – 59% 175 40% – 49% 289 30% – 39% 359 20% – 29% 336 The median fall for these …

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‘Growth Investing’ Vs ‘Growth Revival’ – Which style to follow?

Posted by | Indian Markets, Investing Framework, Stocks | 3 Comments

Style 1: Growth Investing Growth stocks are companies which are consistently and predictably growing at supernormal rates and given the visibility in their earnings trajectory, the market keeps re-rating them to levels which look obscenely high when one looks at price-earnings multiple of trailing twelve months. But proponents of this approach chose to ignore trailing multiple and, considering growth potential, feel comfortable with multiple it would be at two or three years out. Assume Stock X trades at Rs 100 and earned Re 1 per share in FY17 implying a price to earnings ratio of 100 times. If earnings grow at 40% CAGR the forward price to earnings would keep contracting as follows:  FY17A FY18E FY19E FY20E FY21E FY22E EPS @ 40% CAGR 1 1.40 1.96 2.74 3.84 5.37 Price-Earning …

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Gillette’s Eroding Moat & Key Lessons

Posted by | Indian Markets, Investing Framework, Investing wisdom, Stocks | 2 Comments

Back in 2013, I had written a post on Gillette discussing the likely challenges it is going to face in growing its business. A business with such headwinds trading at 80 times earnings should have gone only one way- down. That’s a different thing the stock has actually more than doubled given the exuberance in markets. Nevertheless, it has significantly underperformed the broader markets. For a long time, Gillette was touted as the perfect example of a moated business, well reflected in its 70%+ market share, 60-70% gross margins and extraordinary Return on Capital Employed. This was all being protected by sustained investments in 1). product innovation; pioneered multi-blade technology and kept on launching better razors latest being a 5-blade razor 2). branding to have a dominant recall. The demand was …

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Should you invest in IPOs?

Posted by | Food for thought, Indian Markets, Investing Framework, Investing wisdom, Investment Gurus, IPO | No Comments

There are two kinds of Initial Public Offering (IPO) – 1). Fresh Issue where new shares are issued and money raised goes to the company which can be used for growth or retire debt and 2). Offer for Sale where existing investors (promoters and private equity) sell their shares and money goes to them rather than the company. Unlike earlier times when most IPOs were a fresh issue in order to raise growth capital, now most issues these days are Offer for Sale. During rapid growth phase companies go to private equity firms for capital and after achieving reasonable scale comes up with an IPO at rich valuations, leaving hardly anything on the table for new investors, to offer an exit to private equity. IPO is a seller’s market, they …

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[Memo] Penny-wise & pound-foolish – how brokers dupe investors?

Posted by | Indian Markets, Memo | No Comments

Following is a copy of recent memo shared with Stalwart’s clients – It is unfortunate that despite such strict regulations and risk management by SEBI and Exchanges, in a recent case a Delhi-based broker could pledge his clients’ securities worth Rs 55 Cr., borrow money, divert funds for trading/personal use and eventually default. The investors are now at risk of losing a part or all of their portfolio. A broker can do that because sometimes clients agree to transfer their securities to broker’s pool account, whereas in many cases it could also be done fraudulently without letting clients know about it. Why do investors allow the broker to transfer their DP holding to broker’s pool account? Brokers lure clients by offering interest on securities as high as 7-10% if they agree to …

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