I wrote some resolutions a week back. A week is a long time in stock markets. The markets worried about China have dived south. And the entire Indian stock markets have also been hit by the Chinese wave. Where do we stand? What should you do?
I think the headline of my post says it all. I don’t have to say it loud. Please use all your cash (not required for at least the next five years) to buy good businesses. Businesses are going a begging. The markets sway like a pendulum. The mean is in the centre but they hardly stay at the average or the mean. They swing from optimism to pessimism.
In the past ten days the PE multiple of the Nifty has dropped to less than 20 from a high of 23 plus. It is a good sign, businesses are available at fairer values.
Now, let’s do a simple analysis. I had earlier recommended some investments in stocks like Relaxo Footwear and Kitex Garments, amongst others. The drop in oil prices brings down the raw material cost for Relaxo. So, China contagion has no effect. Relaxo has largely domestic sales. So, doesn’t matter where Chinese Economy is headed, his revenues are assured. There’s very little debt in the balance sheet to worry about. If such is the business, then isn’t it a wonderful opportunity to invest when the business valuation has reduced by approximately Rs 1200 Crores. What a bonanza for someone looking at buying a complete business !
While buying stocks, I shall repeat ad nauseum, look at yourself as buyer of the whole business even if you are buying one share. If you had Rs 6000 Cr to buy Relaxo Footwear and on 01 Jan someone said, I can sell the business for 6000 Cr, would you buy it? and suppose the same gentleman, approached you after 10 days and said, I am willing to sell it for Rs 4800 Cr, would you buy it now?
The choice is yours, the seller is a stupid guy called Mr Market. He speaks through his hat. Sometimes, selling businesses way below their worth and sometimes at prices way beyond what they are worth.
It’s your money honey. Take your choice.
Disclaimer: I have an interest in some of the stocks I write about.