Innovate or Perish | What will happen if you don’t Innovate?

All kinds of stimulus by the government is still not helping markets get into a bull rally. Markets waiting for the real push in the form of profit numbers from companies, which should take 3 to 3 quarters from now. Gains made from tax cuts, have begun to reach consumers, next is volume growth and add to more profits. Businesses are not having growth because of a lack of innovation. Auto sales down not because people don’t have cash, there is no Wow! factor to pull people to buy cars. Innovation crunch has hit all the segments of the market, only those who have given new experience to their customers are growing their business.

This kind of growth stories is always found in the markets, identify them and invest to make big returns on your savings.

Bajaj Finance – a long term story

Bajaj Finance stock crossed ₹ 4000 on 26th Sept 2019. This stock has been the darling of stock markets for quite some time, what is so big about it crossing ₹4000 per share.

It was a remembrance to me as I bought this stock way back in 2015 for 4K. Now, the same stock after 1:1 bonus and 1 to 5 split has again crossed 4000. This means, the ₹4000 investment in Bajaj Finace in Jan 2015 is today worth ₹40,000. Yes it is ₹40,000,  growth 1000% in about 4 years.

At a time when NBFC’s are getting masacred by the markets following thier poor handling for their businesses, followed by a crunch in support from banks which crippled their businesses. Most of the NBFC’s failed because of their exposure to real estate through builders funding as well as their own greed to acquire real estate assets using short term funds.

Bajaj Finance’s business is more focused on consumer lending. Bajaj Finance did not see a slowdown in it’s business. Even when economic slowdown was much talked about and felt in the economy, this company has been growing at 40%. Their NPA’s are at 0.75%. In a period where there is no funding available for other NBFC’s, Bajaj has been getting overseas funding at a fairly cheap cost. Along with this it has been mobilising large corpus through the Corporate FD markets.

It is growing its fund base alogn with business growth. Where can the stock go from here. Currently Bajaj Fiannce is trading at 60 times its earnings. That means, for every rupee of earnings that the company is generating, market is paying ₹60. It is too pricey, that is the price quality and consistency commands. Bajaj Finance’s latest earnings is at 72 per share and is grown at 42% in the June 2019 quarter. In the last 12 quarters it has an average of 21.55% growth on its TTM earnings. There was a dip in earnings when the company gave bonus shares.

In general market condition when a company gives bonus shares, its capital gets bigger and from there on because it has to service a higher capital, growth slows down. In the case of Bajaj, it slowed down only for 4 quarters, inspite of having 1:1 bonus, which increased the capital to double of what it had earlier. Growth momentum continued at a robust pace. This in itself was a very big achievement because getting back to 30% growth rates just after 1 year from bonus means very robust business growth.

Coming to future prospects, if the company grows at 21% & has a PE of 60, the stoock price will be 7800. Even at a 25% lesser valuation which the stock mostly has after the annoucnement of every quarterly results, the stock price should be at 3750.

Is it good to buy now? Absolutely not. Bajaj Finance stock is very highly priced. With today’s earnings Bajaj finance is attractive only if the price comes down to 2550, which is not a possibility when markets go bullish.

One can have this stock in mind to take entry when there is a crash in the market and price gets to a level it trades at less that 50% of current valuation.

On dividend yeild, this stock is a poor performer, it gives out very less as dividend which is a good move for companies that grow at a faster pace. Berkshire Hathway, one of the world’s highest priced stock, never has given bonus or dividend. Thier philosophy is that, instead of you investing the dividend and growing it, which normally is less than what I grow the company. I will retain the earnings and help you have the best growth for your money.

For those who have already invested in Bajaj Finance, it is one of the goldmine stocks, which can be held for some more years, till it shows signs of weakness in its growth.

Market direction after corporate tax reform

After corporate tax cut, what is the markets next direction?

Is it going to be up, getting into a new bull market?

Obviously not, at least not so soon. The damage from where we are coming from is big, it has not completed its cycle. Through all these stimulus packages and announcements government is making things more worse. They are not letting the market have its own direction.Economy has slowed down, it is not because of taxes or liquidity or any such government issues. In simple words, it is because the economy has become lazy and have to rejuvenate and think differently.

We cannot keep blaming that all that which is outside of me is against me, that is the reason I am not growing. What is the effort we have taken for growth. On one end there is disruption doing its rampage on the mankind. Giving a nightmare of what he will do for his living when machines take over all the work.

There is a need to become creative, accept the reality that change has come bringing in the need to innovate. We cannot keep running same old mill, churning what is now a junk or near to junk products and expect business to be normal. In all areas of the economy, need for change has penetrated. Unless people realize that, take action and get to a solution mode, it will not look rosy on the other side. With all the stimulus packages, the government has made the normal working of the markets disrupted. They have killed traders with regular surprise news flows. Now, traders will shy away from the markets.Stay out, work their next plan to strike, that strike will be a terrible blow to the markets.It will take time to happen. In the meantime, markets will get into sleep mode. Will lose direction, bring more pain to those traders who will be left there to venture out.

The next opportunity on the down side will be big, if it is not going down and changing direction from here? The build up of strength will happen at current level and then market will take direction.

Auto Sales Down

Declining auto sales, media crying that Auto sector is the biggest contributor for the country’s GDP and slowdown there would mean big job losses and hit to the economy. It is unfortunate that, these days the media in order to prove themselves right, has always been on the wrong foot.

Sales down because people are not buying cars. Was it that, in the past we were guzzling vehicles? No, our country moved to a better standard of living and people afforded to own a car. That population which is getting transformed from poor to affordable has slowed down. Then one basic requirement for growth is hurger for it.

That population which was hungry for growth moved to the next level, rather a part of them. They are now wanting a better car, not the same old entry level variants. The reason why entry level cars sales have dropped 56%.

Our manufacturer’s have built huge capacities for entry level variants, copying all that is possible from higher level products. Now there is over production which is piling up more on the inventories.

True that the economic cycle has slowed down. People have now started to postpone purchases due to various reasons. One of it is availability of money. The other reasons are, no good compelling design or product experience that is forcing people to change. Manufacturer’s are now coming up with creative design changes, they are only tinkering a little bit here and there and making the new variants look different.

In the era of disruption, there is poor creativity here.

Then, there is this hiring and rentals. Today with cost of owning a car getting higher along with the challenges of traffic and parking. The peaceful lot of the population prefer to do away with nuisances. OLA, Uber kind of disruptions have put down the need to own a car these days. For a person who is busy, a chauffer driven car will help him or her do some work on the way as the drive consumes huge amount of time due to traffic.

Elder people prefer to be driven than to drive on their own. In all these levels, hiring a car is a better choice. Even if 1 out of 5 users prefer to hire, car sales will drop 20%. Then, rentals is one more option, you need not own the car. Rent it when you need for some long drives. So, for short distance, hire, for long distance rent. Relief from the thought that, I should have one in case of a need to travel a little longer than in and around the city.

No creativity, over productions, options to hire and rent and then the buzz of the change to electric. Those who are planning a purchase in a year or two will prefer to wait for the new developments because if there is a chance to get the new technology why miss it, kind of thought.

Manufacturers need to find a better way out to improve sales rather than blaming on the government in the name of GST and Demonetization. Both of these transformations which our country saw was to kill black money generation. Welcome the change, your next generation will have a better living standards in this country.

Markets Rolling after the Biggest Gain of the Decade!

Surprise Tax cut on corporates turns the market from Bear to Bull. Yet, this rally will face challenges to sustain. This is India’s biggest reform in the decade which changed the Global view on the way of doing business in India. With the approx. amount of 1.45 Lakh Crores moving from Government to the corporate sector, we may see much better use of this money in the hands of the corporates. Now is the time to wait and see who will benefit from this exchange and how will this transform the Indian economy!

Sept 2019 webminar

Market going up, not a sustainable up move due to low buying power. FPI taxes & Bank mergers propelled market to go up. 5% GDP was brushed off, which is a sign that market has bottomed. Expectation on GST cut, Auto and Biscuit segments where cut is expected while there will not be any positive change due to this. Present correction which is likely to stay for another year or so is a very good time for investing, to pick up stocks at a bargain. It is time to increase SIP’s as well as bulk investments. ITC is now in a attractive buy position for long term investors. Dividend yield on ITC stock is about 2.25%, similar to rental income. Whereas growth is expected to be around 400% in the next 10 years.

Bank Mergers & 5% GDP

10 PSB’s getting reduced to 4, synergies that this big merger will create. Lesser competition for the bigger banks now and also the advantage of cutting cost due to branch closures are being a big positive for the banks. GDP at 5%, a 6 year low, in fact, brings opportunities with the next big jump that is possible with every fall. IN 2009, GDP grew at less than 1%, the following year it moved up to 12.50% and stock markets gave 100% growth in 1 year. One more such event is unfolding, time to invest.