In my recent post on three most Important words , I wrote on the importance of Margin Of Safety, especially after such huge rally in the markets. The market has given almost 40% returns since Feb and as Ramesh Damani said, in a recent interview with CNBC, could well be the 2nd part of a 3 part bull run. The following is an excerpt from an interview of Ramesh Damani few days ago.
Senthil: Do you think all the easy money has been being made in midcaps because you are a keen watcher of this segment?
A: I am a very keen watcher and I will frankly tell you one more time there is never any easy money made in the market. It’s pretty hard to make this money, trust me. We suffered those stocks on the way down. We have held on to the faith and now they are being rewarded. It’s still a good time to go out and invest. I believe that the bull market has long way to go. This is as good a time to come and invest. The market top out when there is huge public euphoria, there is outstanding positions lots of initial public offerings (IPOs) lots of qualified institutional placements (QIPs) — none of those symptoms are present right now. In fact, conditions are said to be benign, liquidity is good, India has the spotlight on it. So this is as good a time to go and buy. In fact, during the second stage, you see headlines now turning from largely negative to positive. Earnings would start coming through in some companies, so it is a good time to go fishing.
The other striking aspect for me so far is the results of many companies. Suddenly there is better performance all around and the valuations, in spite of the recent rally, don't look overly expensive. Unless there are other non-india specific reasons, the valuations are still very attractive on some of the nifty components and no new offerings hitting the market, this might be a good time to be in the markets and enjoy the ride.
Senthil: Do you think all the easy money has been being made in midcaps because you are a keen watcher of this segment?
A: I am a very keen watcher and I will frankly tell you one more time there is never any easy money made in the market. It’s pretty hard to make this money, trust me. We suffered those stocks on the way down. We have held on to the faith and now they are being rewarded. It’s still a good time to go out and invest. I believe that the bull market has long way to go. This is as good a time to come and invest. The market top out when there is huge public euphoria, there is outstanding positions lots of initial public offerings (IPOs) lots of qualified institutional placements (QIPs) — none of those symptoms are present right now. In fact, conditions are said to be benign, liquidity is good, India has the spotlight on it. So this is as good a time to go and buy. In fact, during the second stage, you see headlines now turning from largely negative to positive. Earnings would start coming through in some companies, so it is a good time to go fishing.
The other striking aspect for me so far is the results of many companies. Suddenly there is better performance all around and the valuations, in spite of the recent rally, don't look overly expensive. Unless there are other non-india specific reasons, the valuations are still very attractive on some of the nifty components and no new offerings hitting the market, this might be a good time to be in the markets and enjoy the ride.
It's extremely important to stick to the Margin of Safety as there is lot of euphoria around and many of them are at least 4-5 baggers in the last one year. Just keeping it simple, I would like to present my view on what I feel as Margin Of Safety of select stocks.
Tech Mahindra
Not so long ago, even after the huge run, similar to other IT companies, Tech Mahindra too under-performed. It was languishing below 1900 during the 30% rally since the elections when it touched 52 week high of 1950 long before the rally started. One of the major reasons for the under performance was the Re appreciation. I understand the impact but it would probably impact just the margins by a percentage or two and these are still the companies which will grow at the consistent rate. It grew 40% in Re terms last year and reported EPS of 126. Nasscom predicts IT exports to grow at 15% for this. I expect TM to out-perform based on the last 6 quarters and also the worst of Satyam merger is behind them. Assuming a 15% growth rate, they would end this year with 140 rs, the downside risk looks extremely limited and soon the market caught up with the valuations post the results of the biggies and it's trading around 2160 now. The real trend could be set on 31st post the result, but looks good for at least 25-30% returns for this year.
Indus Ind Bank
EPS for the last 5 years
| 26.80 | 20.30 | 17.17 | 12.39 | 8.53 |
Reported first quarter growth of 26%.
Assuming the same rate of growth for this year, Projected EPS would be Rs 33 for 2014-2015.
They are the market leader in commercial vehicle space and with an expected improvement, it could be more but let me stick to the reported numbers.
A 20 times P/E would price the stock closer to 650 which gives a potential 20% returns in 9 months.
I'm seeing signs of the HDFC Bank like journey in terms of the growth rates, so it might be worth entering at current levels and track every quarterly for the right valuations and exposure.
Hope you all benefit from this bull run.
Cheers
