FAUJI FINANCE

I have not written for a very long time now. Nov 2018 to Sept 2019. “Vaise toh amaavas 15 din ki hoti hai, lekin is baar bahut lambi thi…nau baras lambi thi naa…” just remembered this line from Aandhi, movie, when Sanjiv Kumar meets Suchitra Sen after a long hiatus. (Loosely translated, although the no moon night recurs every 15th day but this time the no moon night extended for 9 years, a pretty long time isn’t it?)And it is applicable to me too. The reasons were two — firstly there was some technical issue with the servers of my website host, and as I tried to update the widgets and plugins thinking the look of the web page will improve some glitch happened. Secondly, I was also travelling and on a new assignment which put me on a back foot. But those are just reasons. I am sorry for the break, readers.

Not too much has happened, actually. The sensex when I last wrote my blog on 29 Nov 2018 was at 36170. And on Thursday, 19 Sept 2019, it closed at 36093. So, basically I slept through a non event kind of thing in absolute terms. Seems like someone in the Finance Ministry also realised this and combined with the macro economic slowdown, it was time to give a booster dose to the stock markets and lo behold! On 20 Sep 2019, the Sensex jumped by 1920 points. In percentage terms, a jump of approx 5%. In a single day, that’s a big jump. Otherwise in an overall context nothing much.

So what are we supposed to do now. I have a very simple advice, continue buying good quality businesses at every dip and wait for the tide to turn, which it will. When, I do not know. But turn it will. I know that.

Let me put some statistics to explain what I mean, I had recommended Godrej Consumer Products at a price below 730 or so. If an investor had continuously bought it at every 5% dip with 10% of investible capital (say Rs 1 Lakh was your investible capital), one would have bought as follows:-

Rs 730 — 13 shares

Rs 694 — 15 shares

Rs 660 — 15 shares

Rs 627 — 16 shares

Rs 595 — 17 shares

That is a total investment of Rs 50,000/- and with that 50K one would have bought 76 shares. At the closing price of Rs 684/- yesterday, the value of investments would be Rs 51984/-. A positive return of about 4%. Not too bad, seeing the markets were generally flat. But I can bet a bottle of single malt 16 years old, that not more than TWO readers would have followed such a strategy or conquered their emotions to execute it. I myself finished my capital at Rs 650/- or finished my patience. Either way, I missed out the sub 600/- purchase price. The best investor would be the intelligent and patient investor who had his entire 50000/- invested at Rs 595 giving him a 14.96% return on investment or an annualised return of 18.21%.

And this process could have been repeated with any of the Mutual Funds/individual stocks. Just hold your horses for the time being, do not punt now. A lot of short covering by the bears may happen and prices may rise a bit more on Monday before they correct again. Giving you an opportunity again to buy.

By the way currently ITC at a dividend yield of 2.5% and a price of Rs 234/- is one stock which did not participate in Ms Seetharaman rally. But if you were to rationally think of it, ITC would also benefit by all the corporate sops. So in the long run, ITC from current level should also give you above 12% returns. Go buy it at Rs 234/- before the mob gets after it.

With a promise to write at least once a week from now onwards…..Hasta La Vista.

I wrote in August, in my last blog that the Sensex could correct sharply. It was at 37852 level on that day. It defied my logic, as the markets are always illogical. It peaked at 38896 a fortnight later on Aug 28, 2018.  And then  it did correct sharply.  In two months or approximately 40 trading sessions, it reached a level of 33349. That is an approximately 17% fall. Stocks with a beta of 1 would have fallen in price by 17% but the mid caps where the party was on, corrected by 20-40%.

And that is the time Intelligent Investors go to the mall to buy with their shopping lists.  Some corrections or fall in prices were genuine as the businesses were overpriced. But the others were just beaten out of shape by sympathetic detonation. Just because others were falling, they were also pushed in the melee. Stock market investments are like climbing a Vaishno Devi or a Tirupati temple. It takes a long time to reach the top. You will take rest, you will walk on flat surfaces, you will go down hill a bit, but ultimately you will reach the top. What happens when you reach the top, you start a downward journey. Downhill moves are always faster. You take less time in climbing down compared to  climbing up. Same is with Sensex. It may rise or climb by 2000 points in  60 sessions but may drop down by same in just 3 trading sessions. And that is what unnerves investors. It should not.

If you have cash in your account, the simple strategy is to continue with your SIPs in the mutual funds. Buy some good businesses going at reasonable prices at current levels — Mahanagar Gas Ltd (Rs 817),  Akzo Nobel (1575),  Swaraj Engines(1435)and Godrej Consumer(730).

Think in terms of what businesses will survive for 20-30 years and then think, which businesses will require less assets to keep earning for those 20-30 years, once major investments have been made in setting them up. And then look at their managements. You will get some wonderful results. Even if you go wrong marginally on the buy price, you would still do good.

PS. I made a visit to the National Museum over the weekend. You would be amazed  to know that the design of pots , and pans which the Harappans used is the same  till date. Only  the material and coatings have changed. Whoops ! 6000-7000 years, survival. Wish some Harappan inventor had patented it and left it for his generations to earn from the royalty and feed on. :-))   Look for businesses which imitate nature and survival. Businesses which are anti fragile.

Hi Friends

It has been a very long time since I put my fingers to a keyboard on this blog. I was waiting for some opportunities to advise you. Activity is not equal to making money in the stock markets. Just staying still like a Zen Monk pays better dividends. I was waiting for some correction and since last one month the mid cap and small cap space has cracked and fallen to levels where some shares are in buy zone.

But I will reserve my buy list and analysis for next post.

This one is to tell you to APPLY IN THE IPO OF HDFC AMC which has opened today and has already been oversubscribed on day 1. It is likely to be over subscribed by about 3-5 times on a conservative side. But that is not what prompts me to recommend you to put your money. It is simply the pedigree of the brand HDFC. One of the biggest wealth creators in Indian stock market history. About 400 times money multiplier in the last 30 years. Not Bad. 

The same story was repeated with their second offering HDFC Bank. The IPO came in 1995 . The share was listed at Rs 40. The IPO was oversubscribed by 55 times. I did not get in the IPO but I bought on the day of listing. So, how has it fared in last 23 years? Rs 40 becomes Rs 10000. About 250 times. Not bad at all. It’s a different story that a lot of dunces like me got off the gravy train somewhere in between. I sold my 700 shares at Rs 200. And have never bought it again. Not because it is not a good bank or good business. It’s just ego and regret. You divorce a good partner, look for others for some time but do not go back to your divorced partner. Mainly ego. Read Ego is the Enemy by Ryan Holiday. 

Back to HDFC. Then came GRUH Finance from that stable. 20x in 16 years. The story has repeated itself of compounding money upwards of approx 25% CAGR.

The fourth one was HDFC LIFE. It was priced at Rs 230 and listed last year in 2017. Oversubscribed just about 2 times. One got complete allotment almost every alternate applicant. And the price has doubled since IPO. Though the price has no correlation with the intrinsic value, yet businesses from a good house are valued better. The premium one is willing to pay for an HDFC Bank versus an Andhra Bank is like a Mercedes Benz vs Hindustan Motors.

What about HDFC AMC? It is actually an offer for sale so the money is not received by HDFC Mutual Fund AMC but by HDFC and the promoters. But the brand HDFC has a track record which cannot be wished away. HDFC AMC and ICICI Prudential AMC are the alpha males of the Mutual Fund Industry of India. They have the largest market shares in terms of Assets Under Management (AUM). And HDFC has very high corporate governance standards. Also, for a patient investor shares of earlier four issues have given humongous returns. I have learnt it the hard way. Why not learn from someone who is slightly more experienced than you? So do the following:-

Step 1    Go to your Bank website (assuming you have a net banking based account). IF YOU DO NOT HAVE NET BANKING, IN THAT CASE CONTACT ANY OF THE MAJOR BROKERS WHERE YOU HAVE A DEMAT ACCOUNT AND ONE CAN SEEK A FORM AND APPLY PHYSICALLY BY FILLING THE HARD COPY OF THE FORM.

Step 2 Check out Investments Menu

Step 3 Apply IPO

Step 4 Select HDFC AMC IPO

Step 5 Validate your particulars. 

Step 6 Select Individual Investor(IND) option for the application.

Step 7 Apply for less than  or equal to 169 shares. Because the lot size is 13 or multiples of 13. And amount has to be less than Rs200000 to qualify as an individual retail investor. (Assumption money required for application  held in account.

If you are existing shareholder of HDFC, then step 6 changes to Select SHA (Shareholder) option.

Step 8 Submit.

Happy Gains ;-))

It has been sometime since I wrote. The stock markets were for most of 2017 fully in control of the bulls or optimists. As I write this Nifty is not only at an all time high of 10500 but also is almost touching a high PE multiple of 27. That’s expensive by any standards when your median is close to 17.5 and mode is at 14.5 . It is in stratosphere. But I may be made to look like a fool in another 4 trading sessions when sensex crosses 35000. The markets are discounting the earnings of FY 2019 also. And if Gujarat elections were somthing to go by, 2019 may not be a cakewalk for the BJP. 

As investors some of you may have had a great run. A rising tide takes up all boats. And stockmarkets this year have given upwards of 40% returns so one did not have to bang his or her head. Just buy the sensex and sit tight. 

What will happen next year? I do not know. But I do know that two stocks are giving a decent arbitrage opportunity today. Swaraj Engines and Eclerx Services. They have announced a buyback at Rs 2400 and Rs 2000 respectively. What’s the play?

1. Buy Rs1.99 Lakhs worth of each stock at current price. Swaraj Engines at Rs2000 and Eclerx at Rs 1500. Beyond 2 Lakhs you come in HNI category. .
2. Wait for record date to be announced by the company for calculating the ratio of shares which will be accepted, generally the ratio is between 50-70% i.e to say if you have bought 100 shares of Swaraj Engines, the company will accept 60 shares at Rs2400 to be sold back to them. And balance 40 you may sell at market prices. Or hold on for the long term. So you tend to make 60×400=Rs 24000 worth of gains in 3 months or less on an investment of Rs 2 Lakhs. A 12% return. Even with a short term capital gains of 15% ie Rs3600 One makes Rs 20400 or a return of 10.2% post tax in 3 months. It is an annualised return of 47.48%
3. The return is with zero downside risk. And in case the company accepts more than 60 shares, your gains increase further.

I look for such lopsided opportunities which the market offers from time to time. One always does not have to remain invested. As I always say, hold 10-20% of your portfolio in cash for opportunities which are fleeting. This is one such time.

My Picks at current prices for 2018 and beyond are:-

WONDERLA HOLIDAYS

LUPIN LABORATORIES

AUROBINDO PHARMA

GATEWAY DISTRIPARK & CONCOR

and THOMAS COOK

Stay Safe, Stay partially in Cash. This party will eventually get over just like all of them do. Wait for that for investing your bulk.

MERRY CHRISTMAS AND A HAPPY NEW YEAR