Budget 2019 & industry view on it…..

Just back from a meeting with Manish Gunwani, CIO of Reliance Mutual Fund. His views about our markets are that we are at a sweet spot where India markets will perform well. Election outcome if the seats are in the range of 180 to 250 for BJP, markets will not react. Less than 220 seats, will see a new Prime Minister, likely candidate is Nitin Gadkari. It was a little out of the box to hear Modi is not a choice, challenges of a bigger democracy.

We have very less contributors on exports. IT contributes $100B and NRI remittances at $80B. Apart from these 2 there are no big contributors. Pharma was giving some support, now with a lot of regulations, it has gone down. While our imports from Oil which is $100B and Electronics at $40B, almost takes away all of our income.

Oil price should reduce which it eventually will over a few years, due to the advent of electric vehicles and solar panel usage. With #MakeInIndia, as we begin to consume more of electronics made from India, both the big shareholders of our Forex expenses will come down. This shows a very bright future for India.

In the immediate period, 2019, though fund houses and fund managers are saying that we will have 10-15% growth, I don’t see a potential, it might take another year to get a boost for our economy.

The budget shows too much dependence on PSU disinvestments. This year Rs.90K crores to come from PSU disinvestments. Every year if we keep selling what will be left. Already government ownership in many big PSU’s have come to 50-55% levels. As it is, they are poor performers, and would not fetch good price, hence finding buyers will be a challenge.

Among PSU’s some are called Nava-Ratna’s & Mini-Ratna’s or Gems. These Gems got their shine because of government business which was like a light shown on a plain glass. Once they come to the outside world and face competition, they are very poor performers. When the light goes off, it is only plain glass with no value.

Continuous selling is also bringing down prices. Example is Coal India, where the stock was offered for sale at one price, then 5% discount, again at 3% discount and it continues. As the sale keeps happening the stock price is not moving up, thereby not giving any growth for the investor.

Now again government want to sell some more shares, which might not be an achievable target. Due to this the planned deficit of 3.4% will not be achieved. There were talks that, for the last 10 years we have been trying to maintain deficit at 3% and not achieved.

Next big damage in this budget was the bringing of a permanent expense of Rs.75K crores in the form of payments to farmers. These kind of facilities cannot be rolled back, no government will want to bit that bullet of non-popularism.

2019 probably might not be a big winning year for the markets. One very good advantage of this condition is that, if there is 2 consecutive years of no or negative returns next subsequent year will be a super star year.

2019 will set the tone for the blast off in 2020.

Shifting of Crude Oil pain

In early October this year the emerging economies predominantly India was worried about crude
increasing rapidly on its price. Many of analyst expectations that it will not go beyond $63 went wrong, it moved past $80 and there were pessimists in the forefront talking that it will soon cross $100 and will bring big challenges for India on its CAD, the government on its elections, inflation etc. Oil going up continuously even defying its own weakness on technical made many who thought that pain of oil price to the world is behind us were also made to believe that it will have some more damage done to the growth of developing economies.

For the Oil producing countries, there seemed that they were the lords of the world, dictating terms
on price front threatening of production cuts to jack up price. At times it felt like they were enjoying
the pain that the emerging world was undergoing.

Within 40 days the story turned upside down. On 5th October, oil was at $84, it is overvalued on the
charts. On 21st November, it was $63, going straight to undervalued zone. Now the talks of the global media also have changed. So far, it was a concern that the emerging world is at pain. Now, thoughts of global slowdown has come.

Mercy thoughts are flowing in support of the oil producers. Saudi wants price to be above $73, to meet its budget plans. Russia says $70 is ok for us and we cannot stop our companies from producing as it will bring pressure to their capital. US says even $68 is ok for them.

Emerging countries are in party mood. In India, pressure on the Government to bring down taxes on
oil when price kept moving higher has now brought double benefits to the users. Oil price is down
and along with that lower taxes, it is big savings for the consumers and in a election year, there will
be no increase of taxes so, it is time now to enjoy lower pump prices.

So much in just 2 months. What took more than a year for the bulls to move up oil prices only took
40 days for the bears to damage. This is why it is said that, Bulls climb by the stairs and Bears jump
out of window.

In a couple of years from now the importance to Crude Oil as a product will be history. For immediate periods, Crude will try to move up in price, while it will find resistance on every upside rally and bears will bring prices down. At least 2 such events of lower price penetration will be there before we have any significant upward movement in prices of Oil.

Karnataka Election Outcome and The Future

 

Softening of crude oil prices nd the currency. Karnataka election outcome and the future. Tata Steel taking over Bhushan Steel that brought new life to PSU Banks. Growing losses of PSB’s, which has crossed 60K Crores.

520% growth the markets had in the last 37 years which no other asset matched. A comparison on multiplication of assets by Gold, Silver FD’s and Stocks, where stocks show 260 times multiplication.

Why people lose in such a win win situation that the markets offer? Why Real Estate returns look attractive to investors even when Stocks delivery double their returns? Repeating of the 2015 patterns in the market, what is in store for the next 3 years. 43500 on the SENSEX soon

Crude price brings shocks to OMC’s

Government asks OMC’s to take up burden of crude oil price increase by Re. 1/- per litre. This is not a good decision, when crude prices dropped, they brought in duties to take advantage of the gains and filled the government kitty. That was a good decision because small difference in price which the consumers were used to spending will not help them save big & rather make them spend that gain in unwanted luxuries. The same amount if saved by the government will help them get some big projects done, which will benefit the whole population. It actually helped the government to clear off the bonds that it had given OMC’s to make good of the losses when crude was its peak as they were selling at lower prices to ensure that our economy does not suffer.

Now when crude prices moved up, government still wants to have the same revenue and pass the burden to the OMC’s just because they were used to it, is a bad decision. It shows that, Government is not worried about businesses going under loss, while it wants its share to be intact.

OMC stocks which gained strength on their own weight which was not so far since their existence now is again going back in the losing spiral. Stocks have started to bleed heavily post this decision from the government.

Phillips Carbon Black – A Phenomenal Growth Story

In June 2016 when we invested in Phillips Carbon Black, we wondered if it was the right call. The stock was priced high at Rs. 158 levels but since it was our research recommendation, we would follow the system. The RPG group was getting bad press due to news of issues within the group. However, we also knew of their achievements, one of them being HMV (His Master’s Voice, now SAREGAMA).

Today, it is 18 months past the investment date and the stock has reached Rs. 1500 plus levels, giving us a 900% return on our investment. We have added to our position at various levels, even after their September ‘17 results when the price was above Rs. 1100. At today’s price, even the last addition has made about 35% gains.

Company Outlook

The company is in the business of manufacturing carbon black- an input raw material for tyre companies, along with other rubber products and plastics. Seeing as auto sales have increased at double digit rates since 2012, it is only natural that demand for the raw material goes up too. Any automobile needs a tyre replacement after 3 to 4 years of usage. As the auto industry continues to grow, the demand for carbon black has multiplied due to OEM usage and replacement market for tyres. PCBL is one of the major producers of carbon black in India and holds a large share of the market. There are only two listed companies manufacturing carbon black, with the other being HEG.

The company turned around in 2015 and is now staying on top by leveraging all potential opportunities and also investing in capacity expansion. Demand for the company’s products is expected to grow in the long term, which will be beneficial to the company’s stock price in the coming quarters.

BTT REVIEW

Today, our investments in speciality chemicals with PCBL, HEG and Graphite India contribute to our ability to outperform the market. In the first six days of trading in 2018, our portfolio has managed a 7.15% growth against the SENSEX which grew only 0.88%. A near-ten-times higher growth than the benchmark index thanks to our strong portfolio of holdings.

India’s Savings through OIL

India is presently saving about 70b$ due to the price correction that Crude Oil had, which is presently quoted at 45-50$. It will not again reach the $100 mark. Crude Oil will become history in a couple of decades, countries who minted money through crude reserves and are holding stock will have to force sell their stocks, else it will become junk very soon.

A couple of days back there was news that India is aiming to go all electric on its vehicles by 2030. Tata Motors to launch electric bus, M&M planning more electric vehicles along with its E2O. Today there is news that Jaguar Land Rover or (JLR) will be rolling out its Electric Vehicle by 2020 and all their new variants from them on will be an EV. Volvo follows too……

All these news support the ending of the Oil Supremacy, I remember a couple of years back how much the OPEC commanded the world markets, often coming out with production cuts and help the Oil price rise in the global markets. Middle east countries drooled themselves into high time luxuries, now the tide has began to turn against them.

For India, non-dependence on Crude imports will help save tonnes of dollars as well as subsidy expenses. As it is we are witnessing the Government aggressively cutting down on subsidies. All the savings that would come through these above mentioned advantages will be spent to build our economy, the dream of seeing India as a world super power is just around the corner.

Stock markets ready for its next euphoric rally

bravisatempletree-stockgrowth

Expectations….expectations. Expectations, towards the end of a Government term which did not have the confidence to decide on any plans that will allow the economy to grow. Expectation on the team that was coming to power, which was aggressive. Expectation on Narendra Modi, who was presumed to be a strong decision maker, as the next Prime Minister. Expectation that, the new government will clear all the infra projects awaiting clearance, which will drive the economy into a robust growth phase.  Indian economy staged a pretty strong recovery and went on to give a robust growth.

Favourable RBI policies, supported by Raghuram Rajan’s strong commitment to revive the Indian economy with his bold decisions on the interest front along with the cleaning up the banking system. His decision to impose curbs on Gold consumption, bring transparency into the Real Estate markets.

Almost all the external factors supported the expected growth. Crude Oil prices crashed, never to see the high’s that it went through. Favourable monsoon, good automobile sales followed by growth in profits of companies in competence. 2014 was a wonderful year for investors as the SENSEX surged more than 40%.

This expectation fizzled out earlier than it was to, things changed. As markets grew leaps and bounds, businesses did not see growth in sales. People began to complain that, “only the stock markets are moving up, money flow is not seen yet. No visible developments in the economy.”  Soon, it was followed by the historical crash of the Chinese markets. Volkswagen case and normal to flat growth from the businesses, markets turned down, went into a tailspin throughout 2015.

After the March quarter results, there are glimpses of change visible. One of the most important factors in the results announced so far is that, sales growth has been still at a slower pace, while profits are showing good growth numbers. Such number growth is possible only if operations are controlled. On one side it is a negative, as controlling operational expenses cannot give continuous growth, it can become counterproductive.

While, on the other side, there are green shoots visible, if the companies who have managed to bring down their expenses, continue to maintain the same tightness on their expenditure and along with that when the sales numbers improve, the profit margins are going to be phenomenal. And that would mean a euphoric rally in stock prices.

As many analysts say on the media, “we are in a cusp of a great bull market” the future looks very attractive for India. It is time to give more exposure to Equity investments. For those who have missed the 2014 rally, now there is an even bigger price move waiting to happen. Those who have maintained a wait and watch on their stock investments, now it is the right time to begin investing. One can even think of adding to their existing investments. Those of you who had stopped their SIP’s or had moved to the debt markets for safety of capital can now think of venturing into the Equities segment to have very good gains.

If things pan out well, we might witness a rally in stock prices, which we had not seen so far in the Indian Stock market history. The next 5 years are going to be a boon to all those investors who venture into the markets.

Take advantage of the markets next move; at the early stage itself, waiting for more confirmation will only result in lost opportunities.

EPFO rethinks Equity

47033746Employees Provident Fund Organization (EPFO), after a long thought out process, delaying decision for more than 18 months decided to take exposure into the equity markets to its contributors the advantage of Equities. What turned out is history again, the long dilemma in deciding took away the best of opportunities in the markets and just after their decision to pump in ₹6000 crores or 5% of the corpus into equities in the month of June 2015, the markets took a U turn with the China Crisis in August followed by the downward spiral of the Crude Oil markets.

In 6 months from the decision, the EPFO is rethinking its strategy and wants to pull out its investments following losses it has suffered in the markets. While this condition will give wrong signals to the employees whose contributions were the corpus of this organization? That the Equity markets are not a good investment avenue, while it is not the markets whereas the time of the entry which came amidst a lot of fear and attracted what it was feared off.

They had actually planned a regular investment, which in reality is a very good decision, over a period with the might the equity markets have in providing the highest return on investments which no other asset class in the world can match. To give such good returns, it also requires another important factor, which is TIME. If equity investments are approached with a short term view or with a mind-set that we will only make profits, that is not going to happen. It is the volatility that gives this asset the advantage of giving best profits.

Give your investments time of anything  between 3-5 years, the risk quotient almost becomes zero and it has a potential to give more than 15% annualised returns, provided the necessary churn is done on the portfolio.

How to be a winner in stock investing?

I had written an article on who is smart, the FII’s or the DII’s (https://bravisatempletree.com/mid-cap-stocks-are-stronger-than-their-large-cap-peers/) a couple of months back. I did not expect that so soon we will get back to square one. In one of the recent data on how the investments have been happening post China crisis, it was sad to note that again our retail investors have caught the tiger by its tail.

HerdMentality Holdings.19.10.15

The public participation had helped the DII’s to have larger exposure into the Mid Cap space which was the performing segment in the current bull rally. FII’s got their fingers burnt with their large cap exposure. Now, the retail data that comes out shows a sad story. FII’s were smart again, they learnt from their mistakes, changed fast. While our retail investors are still in the same swirl.

To be successful in stock market investment one has to be invested in companies that are big growth stories, both fundamentally and technically. The list of stocks that the FII’s have bought as per September data shows that they have placed themselves perfectly in those companies that have strong price patterns. Whereas, our retail investors have made perfectly wrong decisions by buying into stocks like Amtek Auto and Aban Offshore. These are companies that the FII’s have discarded from their portfolio.

Why people have bought into these stocks?

When we experience something good, we invariably want to experience it again. While doing so we naturally get carried away and take the experience in face value. Same thing happens in stock investing, when we see the price of a stock at a particular price and decide to buy into the stock, while it keeps rising not giving us an opportunity to buy, then one day suddenly it corrects and drops to some extent from its high. For us, it is a cheap stock and we load it into our portfolio. Little do we realize that the stock price has fallen for a reason?

For example, AMTEK AUTO is down because it has defaulted on its debt, a very big 15000 Crore debt default is staring large at them, it is also brought sleepless nights to fund managers in JP Morgan who have large exposure in this company’s debt. Similarly Aban Offshore is down because of crude price drop, will it regain its glory, is not known for now. When such impulsive investments are made, it is obvious that these investments will either stay flat or drop further. And when it drops, we tend to add more to our holding in the thought of averaging our losses without realising that, when we add investments into an already losing investment, we immediately add to our losses.

Over a period our investment will end up in a loss and what we talk about our experience to the outside world is that the stock market is GAMBLING.

Some of the exits from the retail segment like KEI and DEEP Industries too are wrong, these are stocks that have good potential for growth.

Be invested into good stocks, your investments will naturally be profitable. If the investment crosses 5 years, you’re down side risk is absolutely zero. And the profits will be the highest.