ITC – A Long Term Investment

After September 2019 results where ITC declared a 35% growth in its profit, slow down in its mainstay cigarettes business. FMCG business showing nominal growth & having overall growth of 8% in its sales. ITC remains a dividend play, 500% dividend to continue as profits so far are meeting the requirement. Being an Innovation machine, ITC has always surprised the markets, this time with its FABELLE premium segment chocolate launch, priced at 4.31 lakhs a kilo, it creates world records and enters the Guinness Book of Records.

ITC has also become a fund manager’s favourite stock, has made its presence in 309 out of 700 mutual fund schemes. It has the potential to quadruple in 10 years. ₹250 investment today will be ₹1000 in the next 10 years, in between enjoy big dividend income.

Bajaj Finance – India’s cash machine

Yet another thumping result from Bajaj Finance which has been the darling of Indian stock markets for more than a decade now. 43% growth in profits over the Sep18 results. This comes at a time when the country is crying of slowdown. Expectation over delivered.

2 years back Bajaj Finance had 300 crores of profits per quarter, last year it was 800 crores, now it is 1375 crores. This company is growing money like nobody’s business. Stock has delivered 250% returns in the last 3 years. 8000% in the last 10 years. Very few investors would have made all of this gains because, there was some bumpy ride which would have triggered exit for many of the early entrants. Yet in every season this stock delivers best returns to its investors.

Our experience with this stock was a 300% in 2014 to 15 and currently holding with 35% gains.

Can we invest now in this stock or add it to a stock portfolio?

Probably not at this level. It requires some correction. Management comments on the results was kind of pessimistic, giving warnings of future earnings. The same had come in the last quarter too and the stock has delivered even bigger numbers than last quarter. At the same time the tide cannot continue for ever, whereas there is still more steam left in this stock. Currently Bajaj Finance is available at 50 times its earnings, too high a price though the stock is a gold mine. It will become attractive if price drops to 3000 levels, which mostly does not happen in this stock.

It only comes to such mid values when the whole market goes to big pain. One can keep the stock in his/her radar or watchlist, if price reaches 3000, without second thought add the stock to your portfolio. The next expected target for the stock is 4800 levels.

64 lakhs turns 1 Crore in 120 days

BravisaTempletree added HDFC AMC to our portfolio of India Top 30 stocks in June 2019, today this investment just crossed 1 Crore mark. In 120 days 64 lakhs goes on to become 1 crore. The gains made in this position gives me the first signs that our market has revived from its bear hug. Feels like the return of good old bull market days of 2014-17. Brings confidence that, the next leg of top performance against all other investment portfolios like we had done in 2017 has begun.

As HDFC AMC leads the pack of gains this season, we are having stocks like Bajaj Finance, Bata, SBI Life, Avaas Financier, KEI kind of stocks supporting with good gains building up in their positions. Both SENSEX and NIFTY are reaching for their all time high levels, now the tide is changing. In the last 2 years a handful of stocks were leading the markets upwards bringing confusion in the minds of investors as to why their investments have not gone up, where as the market is going up.

Now, it is time for the SENSEX and NIFTY to cool off while the broad markets will take a lead. Already in the couple of past sessions we have seen big traction in price moves of Mid & Small cap universe. Even today as I write this small note, NIFTY and SENSEX are down, while both Mid and Small caps are up. Infosys, which was the Gold Standard of India’s corporate world got mired into problems, today a whistle blower letter indication discrepancies in their accounts has tanked the stock 13%.

Showing that one day like how a bad market can revive to good times, some good also can go down. Being in the market, we should not worry about all these issues. If we have a process and follow it with discipline, we will not be caught in any of these challenges.

In our experience, we have not had any of the bad names of the resent season in our portfolios. DHFL was there with us 3 years back. At that time company was growing we made our share and got out with 100 plus percent gains. INFY, was out of our radar in 2013. Same stories for many stocks that have lost more than 50 to 90% in the recent meltdown in our markets.

HDFC Bank exposure in Mutual Funds

We have had a good correction in stock prices of Mid & Small cap segments in the last 2 years. When Small cap saw 40% drop in prices and Mid cap had a near 30% drop, Large cap segment which kept the markets up in most part of 2018 have not participated in the weakness. Even now, after more than 20 months of broad correction in our markets, Large cap indices like SENSEX and NIFTY have given back only about 4 to 6%, which is not at all a correction in prices of those stocks.

The present patterns in the indices and the stocks that kept them at high’s are showing signs of weakness. When the turn comes, most of the stocks that lead the rally will give way to weakness in prices. This will have a big downside move, on the funds that hold these giant large cap caps.

Stocks like HDFC Bank have maximum exposure in many Mutual Fund Schemes. 14.41% of the Bank’s Equity is held by Mutual Funds present across 395 schemes, most of them holding it to the max permissible limits.

Fundamentally HDFC Bank is one of the biggest contributor to stock market wealth creation in the last 2 decades. Along with its parent, HDFC, which was having a 500 Crores market cap when it was listed in the early 90’s, current value of both these companies along with their subsidiaries have crossed 13 plus lakh crores.

HDFC Bank had been growing at 30% per annum for a very long period, in the recent past for a couple of years its growth has tapered to below 20s. Even the September quarter results is expected to hold the 18 to 20% growth range.

On the technical side, HDFC Bank’s chart seems to be getting close to bearish divergences, which is an indication that it is getting saturated at the top. Post the results, if the price moves are not pretty strong, it will give way to the bears.

Two possible outcomes is likely in this stock.

  1. It succumbs to bear power and goes down, which will become a very good opportunity for long term investors to add this stock to their legacy holdings or
  2. Lose momentum, will hold to the current range to build strength for the next rally.

In the present condition, later is most likely to happen. Though the stock might not see a steep fall, as it has formed a range of 1050-1250 on its prices, this range should hold and then have an up side breakout. When this consolidation plays out, all of the mutual fund schemes that hold this stock will go through the same pattern of consolidation because of the large exposure this stock has in all the portfolios. Today 14.41% of the Bank’s Equity is held by mutual funds, which is present across 395 mutual fund schemes.

Like HDFC Bank we have many such Giant Large Cap stocks which are having similar patterns both on their profit numbers and technical patterns. This raises concern on the near future performance of funds holding exposure into these stocks. This also coincides with the thought of non-participation of large cap in the correction. Now with the developments that are expected, we will see good amount participation, which will mean that we have to brace for another bout of weakness for our markets.

Since it is the big businesses of our country that will go through this change of correcting themselves, it might not be a big drop in values.

After the mid and small cap value correction, now it is time for the big stocks to correct. Since the last 2 years, we have had investors complaining about non-performance of their portfolios where very few of them still had some positive growth in their investments. This was due to the over stretching of the Giant Large Caps in our country. Thanks to the current developments, soon this non-correlation will come to an end.

All of these developments are bringing new opportunities too, since the large cap space is going to correct now. It will be good to take exit from your existing investments, move the funds to liquid and have the same get back into the same large cap scheme in a staggered manner through STP. This will help you book available profits, not take the hit when NAV drops and also get in with an average NAV to participate in the next rally.

Those of you who have exposure to schemes which are in the large cap space, which has completed their exist load period. Mainly having stocks that are likely to turn negative can take this unique opportunity to add more returns to your investments.

Oct19 Webinar

In this webinar, we talk about Govt stimulus that failed to revive the markets expectation for the next year, equity portfolio performance and Nippon India Large-cap(Reliance Large-cap), A small review. Intro to BTT Stylebox.

Top 30 losers of 2018-19

As markets turned down from bull to bear after the 2018 budgets, along with good stocks that gave up in price to adjust for extended valuations, there were some big names that have collapsed in price.

Here is the list of top 30 wealth destroyers of 2018-19.

It is sad to see that stocks have lost about 67 to 98% of their price in just 1 year. Among them here are some very poor quality names that had shady or unethical promoters like the Reliance Adag group, DHFL, McLeod Etc. Promoters who took advantage of their corporate presence to grow personal wealth. In some places greed made them use liquid assets to own illiquid assets, which turned out a nightmare to them when they had the need to repay the borrowings that they created pledging shares of their companies.

DHFL, Yes Bank CG Power, Coffee Day, McLeod, most of them bet their greed on real estate and lost badly. Poor corporate governance got added to their greed. We have some very prominent names like Yes Bank losing almost 85%.

It is said in the markets that, when a stock loses 20% in a very short span, chances of the stock getting back to normal is bleak. Here we have stocks giving away more than 65%, which means all of these stocks have kind of completed their life cycle.

Among the above names we did have exposure to some of them in their hay days like Graphite, HEG, IBull Ventures and even DHFL. In all of these exposures we have booked minimum 100 to 300% profits.

On hindsight, when we look back, it is the process that helped us get the best out of any stock that we invested. For example, DHFL, we picked it at 340 levels when the company was giving out good results. Trend continued pushing the stock to 680 levels from where it turned down. When this down side happens, results had kind of showed slowdown in growth. DHFL moved out of our ranking tables and triggered exit for us.

We did not exit at the top, while got out at 642 levels, almost pocketing 100% in 10 months.

In Graphite we had an early entry, we picked up at 155 levels, stayed invested for more than 18 months. Graphite has a continuous rally in price without any tiredness.

Earnings too supported with robust growth, by 4th quarter of FY18, it showed tiredness, we had exit signal at 900 levels. At that time SEBI and Exchanges played havoc in the markets. Both re-categorisation and Additional Surveillance Margins killed the stock price. It had continuous down freezes which gave us exit only at 643. Yet we made a little more than 300% in this stock, while had the opportunity to book 500%.

The learning at that time was, even a good stock can get hammered when regulators step in. Had to accept the gains left for us and not worry about that which is lost.

Now after a year since we had exited most of these positions, there is an even big learning. Come what may, follow your rules, you will be saved always. Today we own none of these stocks. Feels proud when we see the prices, on the hindsight mind thinks, we have made good a big chunk of profits from these stocks which today seems nowhere close to them.

For those who have a strategy, follow it divinely, profits are available in loads.

Market Going Down, What to DO?

Market giving back gains post Corporate tax cut announcement, while the decisive change of direction post the announcement will hold the markets in a range. That should take about 2-3 quarters from now for a Bull Rally to resume. Markets are waiting for profit growth to show up in the balance sheets before buying power comes in.

Good time for SIP Investors as it does its job only when markets are down. One time investors can use STP route to get in and be ready for the next big bull market for India.