Background:
- I started my corporate career
as an IT Programmer and ended as an IT Infrastructure Project Manager as I
decided to do something I'm passionate about
- I have been actively involved
in markets since 2002 and strongly believe in Fundamental Analysis of
stocks and approaches of great value investors like Warren Buffett, Peter
Lynch
- I felt the valuations were
extremely expensive and exited completely in end 2007 before the crash
and of course missed the subsequent rally as I wasn't comfortable
with the overall fundamentals
- I suggested partial profit
booking same time last year as well, as there was a fundamental disconnect
between the earnings and valuations
- For the first time since 2008,
I have started creating a portfolio for the long term since October 2015,
because of the attractive valuations and the intentions of the Indian
government in structural reforms
Just a disclaimer, the
stock selections are purely my own and I am not licensed to offer stock
recommendations.
Art of Investing and Markets:
I believe Investing is
an art with a bit of science. Art part comes in understanding of the business,
industry , future predictions and so on. Also, different markets require
different metrics for getting the right valuations. India is more of a growth
story and stock appreciation, whereas Singapore is more of stable growth rate
with decent dividend yields. The art in understanding the price to pay for,
what we believe is decent returns. It took few years to understand the Singapore
markets.
Metrics:
- As you are aware, value
investing requires different metrics for different sectors and
stocks. There are so many factors which determine those
- Some of the factors I use
include P/E, P/B, D/E , Market Cap which is the science part and almost
everyone uses them. I too use this as a reference
I also use PEG ratio on stocks which has
delivered sustainable consistent growth with management quality
- I try to identify the larger
themes and on board the journey as soon as possible and enjoy the journey
during the big growth phase. One eg is identifying Havells at the
beginning of their CFL boom and how they expanded into domestic
appliances. The same with BPCL when the pricing was adjusted to markets
and the fall in oil prices helped recover their marketing losses
- Currently, I am concentrating
on the much beaten down power sector as I believe there are many
multi-baggers sitting there if we believe in the good works of power
minister Piyush Goyal
Past Recommendations/Views:
- I wrote on the importance
of Margin of safety, especially when
the markets were defying fundamentals. Nifty was 7300 when I wrote the
need for caution and nifty is higher only by 4%, but as you could see the
sample portfolio with those 4 stocks I had given has out-performed
significantly
- When the fear was at the peak,
I did suggest some stock recommendations with entry price here. Again, these have given excellent
returns from those levels.
Reasons for Recommendation:
I shall share some
thoughts on some of the Indian stock recommendations I made. I am also
attaching the screenshots of my recommendations. I would like to keep it simple
and stick to my circle of competence without bothering about the size of the
circle.
IndusInd Bank (Recommended Price on
11th Feb Rs 810 ; CMP Rs 986) :
IndusInd bank numbers
are the dream for any fundamental value investors. They are doing what HDFC did
15 years ago, growing at a CAGR of 25% for the last 5 years. I was comfortable
with the valuation of 25 times as I felt the growth is sustainable, considering
the improvement in commercial vehicles segment and potential economic recovery.
They are likely to end the year with Rs 41-42 per share and at Rs 810, am
getting a company at 20 times, which will grow at 25 times. Even if the growth
drops to 20%, there is still a potential 20% gains from current levels. There
is huge margin of safety as they are likely to end up with Rs 50 per share for
the next year which is only 15 times next year forward earnings.
Larsen & Toubro (Recommended
Price on 22nd Feb Rs 1150; CMP 1238) :
There has been a huge
thrust on Infra development, though the words have not completely transformed
into actions by the Govt. The stock has corrected almost 40% from almost 1900
levels. Consolidated EPS for last year was 51 and assuming they do the same for
this year, it's available at 20 times. Stocks like LNT , HDFC will never be
available at such valuations when everything is going fine. Also, the basic
understanding is that India's economic reform can't progress without LNT being
part of it and I thought it offers huge Margin of safety even assuming the
order growth is muted
ICICI (Recommended Price on 22nd Feb Rs
198 and first around 240 post the correction; CMP 240) :
I don't believe in
timing the markets; focus only on the valuations and the predictability of
future growth. ICICI corrected to almost 12 times TTM at around 240 levels,
which I felt was a good entry level for one of the leading private banks, I was
personally very disappointed with the NPA of ICICI in the 3rd quarter,
especially when you compare the likes of HDFCB and IndusInd and also
considering their huge retail exposure. They reported Gross NPA of 5% which was
almost PSU banks levels and quite rightly market hammered the stock post the
results and also compounded by the overall sentiment. In spite of the huge NPA,
Net Profits was still up for the first 9 months. They did Rs.22 per share last
year. You are getting one of the top private banks at 10 times and
compare that to the 25-30 times of HDFCB for almost similar growth rates. I
felt that market was extremely harsh with ICICI and the question I had to ask
myself was "Will it go the PSU way or will they be able to fix" and
if the answer is latter, it's a steal and the market will correct the anomaly
soon and that's what has happened.
Tata Power and Praj
Industries (Recommended Price on 22nd Feb Rs 59 / 80 ; CMP 70 / 91) :
These are theme based
bets. The reforms in power sector and also the UDAY scheme of arrangement with
state board should reform the sector better. Also, there is a major emphasis on
the Ethanol blending and Praj is the only major structured player in the
segment.
Singapore Stocks.
Singapore Banks (21st Feb UOB : $17.24 , CMP 19.64 | OCBC $7.98 , CMP $9.20)
:
Singapore banks
reporting increase in profits compared to the global peers. UOB spent close to
$12M on buy backs last year. Similar to ICICI, the first time I started
liking was around the $20 levels, the same value as their NAV. So here you have
one of the most conservative banks, who have spent $12M on buy backs,
fundamentally still growing and available below book value. The stock has
corrected more than 30% from the peak, offers a yield of 4% plus at $18 levels
with the fundamentals still intact. I have seen similar situation in 2008 with
some of the Singapore monopoly business like Straits times, Singtel offering
10% yield but the fundamentals weren't impacted due to the global financial
crisis. I drew some parallel and thought it isn't 2008 and the company is still
growing and available below NAV. Also they spent the most on buy backs. DBS
reported 20% increase in net profits and the guidance is 7-8% growth for this
year at an extremely attractive yield of 4%. The worst case scenario was
increase in NPA from 0.9 to 1.3% if the oil drops to $20. So the choice was
easy given the circumstances.
Keppel Infra ( 21st Feb recommended Price
$0.485, CMP 0.50) :
This is an interesting
business. The stock may not move much as it's more of a dividend play and the
last few years have consistently given close to 7-8% yield. They have complete
monopoly on the cylinder business, improving WTE and Newater business and
couple of others. The merger with City Infra has further strengthened and
offers 8% yield at that level. Singapore companies should be looked at flat
revenues but the art part is identifying the par values so that they are
attractive for the respective yields as most companies have limited growth
opportunities. It provides almost 2% per quarter as divided yield
Fraser Hospitality Trust:
The company came out
with an IPO for 0.88 cents in July 2014. They have so far out-performed the DPU
projected during the IPO, both for the first year and the first quarter of this
year. So with the fundamentals intact, the fear in market led its fall all the
way to 0.72 cents with the yield increasing to 10%. As the numbers are better
with a diversified portfolio and a not so high gearing, I felt it offers huge
margin of safety.
Global Logistics Properties:
GLP is a very interesting company with the emphasis on state of
the art technology for the logistics properties globally with diversified
presence. It's a GIC owned company and the IPO happened at 1.96 in 2010 and
went all the way up to 2.80. The reported net profits for 9 months of this year
is 50% and the most recent quarter was 64%. They keep increasing lease space
rapidly and in an important space of logistics. The valuations seemed extremely
attractive considering the growth potential and backed by the management with
huge financial capacity.