In the past 1 year, one sector that did tremendously well was the Tyre sector. It has given between 100-489% return on investment. Among the several reasons behind this phenomenal growth, the 2 strong points were –
1. Rubber prices on the Global markets reached 5 year lows. Tyres companies capitalized on this, did not transfer the gains to customers, but, instead increased their margins. The margin gains to the extent of 50% were witnessed on the year on year NPM.
2. The economic cycle in our country slowed down. Due to tight money situations, people who normally change their cars in 5 years, continued to run with the existing ones. When they did not replace their vehicles, they were forced to replace the wear and tear in them. Which gave a very good replacement market for the Tyre companies. This may not continue for a longer period, the present situation is entirely different. Our economy is the best performer in the Global arena. Income levels will rise and people will replace their cars. Here again is an opportunity. OEM’s will start their purchases, which again will contribute for good sales.
How did we capitalize on this bull run?
Our research identified Tyre stocks when the shift began to show up, way behind in the second quarter of 2013-14. At that period, there were no news about rubber prices. It was just analysis. We got signals only in CEAT and JK TYRES, not the other companies. Today, when we look back, these were the two stocks that have given more than 300% profits in the last 1 year. Other stocks, though in big time news, did not give the best return on investment. Following is the One-year chart comparison of the Tyre Stock performance in the last 1 year.
We did not go all out in to be fully invested in these stocks. As per our strategy and discipline we kept to the allowed exposure and for now, have made decent gains on our investment. So, having a plan and following the plan divinely pay rich profits over a longer period consistently.
Stock investing is not rocket science, it is like any other business. A business of investing, if done with passion, we can drive home with loads of cash.