Wednesday, March 15, 2017

DOMESTIC RETAIL INVESTORS: TIME TO SALUTE YOURSELF



This has to be said. Indian retail investors over last many years has been at the receiving end of many jokes. Always buying at the top, selling at bottom, “Dumb money” and what not. But the last 6 months have been remarkably different. It’s time the domestic equity investors put their head high and say “We are the smart money”

Picture this, FIIs sold stocks worth over Rs 40,000 cr post demonetization and when during the initial part of this process the Nifty fell from 8500 to 7900, a bear market loomed large. However, the domestic investors said nothing doing and they started to buy. Dollar to dollar FII selling was matched by DII buying and I am not even counting the direct retail buying.

And now, yesterday FIIs bought 4,000 crores at the highest level of Indian markets. Now this is not to say, FIIs have been foolish. They have a choice of investing in various markets and there are many markets which far outpaced Indian markets so they focused their energy elsewhere. But while in the past, retail would throw in the towel at huge FII selling, this time they kept buying treating this as a flash discount sale and boy are they reaping rewards now?

Make no mistake, market is set to go through a frenzy now but this is the time to sit back and enjoy while FIIs scramble to buy at all-time highs. At some point, this market will become euphoric and fall under its own weight but trust me that time is long long way off right now.

Picture this, over last 2 years when the Nifty has made a move from 9100 to 7000 and back to 9100, the midcap index has surged 24%. So retail has made huge money in individual midcaps. And a rising tide will lift all boats, so the portfolios are set to surge higher even from here.

What if you missed this rally? No problem – wait for dips and consolidations, they will inevitably come but when they do, have to participate. There is no fun in watching someone else make all the money.

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options given to him by his employers as part of his compensation


Thursday, March 9, 2017

HOW TO PLAY TODAY?


Extremely important day of trade coming up. As I write this, the SGX Nifty is down about 35 points. The most important cue as we start trade in first half is the big 5% decline in crude oil but the most important cue of second half will be the impending exit polls which will be announced post 5:30 pm. The market will give great opportunities today. This is how I think today can be played.

In first half, focus all your energy on users of crude oil – Oil marketing companies, Paint companies and perhaps most importantly aviation companies which could well go through a goldilocks scenario – tax advantage, lower oil prices and under-owndership.  And with state elections out of the way, OMCs should swiftly move on petrol and diesel prices and paint cos too have corrected from highs. So this appears to be the low hanging fruit.

Crucially, in second half – trading psychology will work. Will shorts want to keep their positions open ahead of a mini binary event? Anecdotally, exit polls favour BJP and the market will know that. So I won’t be surprised to see a late surge in trade today, which could continue with a gap up tomorrow inviting some weak hands and finally a Sell on news in tomorrow’s second half.

These are my thoughts. You should act on what you think is right!!

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options given to him by his employers as part of his compensation




Thursday, February 16, 2017

HDFC BANK: THE BIG NEWS FOR TOMORROW’S TRADE


This is going to be a short blog post. A very important trigger for the biggest stock in the Nifty and the Bank Nifty. HDFC Bank is the highest weighted stock on the Nifty and the Bank Nifty and it’s now out of the ban list for FIIs. Simply put, tomorrow morning, FIIs can buy HDFC Bank in open markets. So how crucial is this?

Well first of all, those FIIs who want to own a piece of HDFC Bank all this while could still do it. However they could only do it from their fellow FIIs in a special window and the premium on that is 12%. Even today, while HDFC Bank closed at 1327 in the normal market - http://www.bseindia.com/stock-share-price/hdfc-bank-ltd/hdfcbank/500180/ , it traded at 1482 in the FII window: http://www.bseindia.com/stock-share-price/hdfc-bank-ltd/hdfcbank6/600180/
. So that’s the premium which some FIIs are willing to pay to get the shares of HDFC Bank.

Now, I am not suggesting that the stock immediately goes up 12% tomorrow but what is interesting is that this window will last for all of 2 days, i.e 17th and 20th and by then it will be back in the ban list as there will be enough demand. So it’s literally a case of a flash sale that lasts for a few hours and you see huge demand.

By conservative estimates, I expect the stock to rally at least 5-6% tomorrow. Do the arithmetic on what it could mean for the Nifty and more importantly the Bank Nifty where it has over 30% weight.

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options given to him by his employers as part of his compensation


Monday, December 12, 2016

THE TATA MOTORS DEAL: FIRST OF MANY BY TATA SONS?


You have all read the news – some unidentified buyer is willing to buy 1.73% stake in Tata Motors at up to 10% premium. Sounds wow right? May be that’s the intention. What I explain here is my gut feeling and I could be completely wrong, so take this with a truckload of salt. Let’s understand few things first. My sense is this unknown buyer is Tata Sons and now let’s get to the deal.

This 10% premium sounds huge but is actually not much in terms of meaning because a) This is screen based, so it’s a maximum of 10% and b) the stock is already down 25% from its highs of 600, so it’s not as if this is some outlandish price for Tata Motors. So what exactly am I trying to say here?

While Tata Group is a huge conglomerate, there are only 2-3 really big stocks and TCS and Tata Motors clearly belong to the top. My sense is that this is 1 step towards the final Tata-Mistry truce where the only logical solution I see is Mistry selling the 18.4% stake in Tata Sons. Now it’s in interest of both parties that this 18.4% gets a reasonable value.

So, this exercise in essence is to make sure the sum of the part valuations of Tata Sons are brought to respectable levels. Curiously, note how TCS was surging today while the rest of the IT pack was down and TCS is the company where Tata Sons of course has highest stake.  Keep watching this space, it could be first of a few more deals to come in this space.

P.S. These are my first thoughts and my personal views. I have not contacted Tata Sons for a response and please ignore the typos and grammatical mistakes.



Tuesday, September 20, 2016

CASTROL: THE BLOCK DEAL AND BEYOND


It’s public knowledge now that the second tranche of promoter stale sale in Castrol was due. In fact last month, many traders were caught short anticipating the block deal that never took place and stock saw massive short covering.

Something interesting happened again here between yesterday and today. Lot of shorts got built yesterday anticipating the conventional wisdom of the block getting executed at a discount. In fact, yesterday there was some 40% jump in Open Interest and the stock fell 4%

Now, the interesting bit here which a lot of people have forgotten is that Castrol India has been a massive underperformer over last 2 years. In fact the way crude has fallen, this stock should have been a multibagger but actually over last 2 years, it fell some 28% for variety of reasons but the promoter stake sale was the main overhang.

So what happened this morning? The block deal book was launched at a price band of Rs 408-422. First thing in morning, the entire issue was underwritten by a single investor. Yes, a single investor was ready to commit Rs 1800 cr in Castrol. This led to a lot of protest by other investors who all wanted a pie of the share. After all, this is a global MNC, blue chip and a stock which has underperformed with potential to rally big and with knowledge that promoters won't sell any more now with stake down to 51%. So finally, merchant bankers had to drop the deal in the block window since the price in morning itself went much beyond the band and the demand was too huge. And hence the deal at a premium and once again shorts getting trapped.

What next? Well, looking at the appetite today and given it’s last 2 years of underperformance, if the stock has hit an inflection point, I won’t be surprised to see this stock running away to 550-600 and that too if you are conservative. Of course, this won’t happen tomorrow and the stock is bound to have periodic correction. But the market is offering you an interesting idea if you are willing to pay a minor premium over the recent price move!!

P.S – These are my first thoughts immediately after the deal and the feedback I have got. Please bear with me for typos, grammatical errors etc.

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options given to him by his employers as part of his compensation



Sunday, June 19, 2016

DON'T FRET OVER REXIT OR EVEN BREXIT, MARKETS ARE FINE!!



WHY STOCK MARKETS WILL MOVE ON

I was in 2 minds about the conclusion of my thoughts on markets post Rajan till 30 minutes back. That is when I decided to go for a walk and by the time I was back, I was fairly certain about what I was going to write. It rained cats and dogs and it still is while I write this. So makes my job easier.

First things first – The only reason anyone should even fret about Rajan exit was because of its timing. It couldn’t have come at more uncertain time with market already bracing itself for the Brexit vote and some renewed uncertainty over the progress of monsoon.

If this was 2015 second half or first 2 months of 2016 when the stock market went through a cyclical bear phase, I wouldn’t have ben surprised by a 300 point Nifty fall. However, things are different now. This is a market in which smart money is so hungry for bad news (so that it gets an opportunity to buy cheap) that the first major correction (if any) will be lapped up by both hands.

The best example of what I am saying was the market’s reaction to the changes in P notes regulations, which the market forgot in a matter of 45 minutes. Last year, the market was making lower highs and lows on the day of good news. This year, the market is making higher highs and lows on the day bad news hits it. In stock markets, you don’t argue with the tape. It’s telling you something

So what makes me so bullish and comfortable on the state of markets? Let me go back to the opening para – the rains. The monsoon is THE MOST IMPORTANT trigger this year for us and if we get a normal monsoon, then you will find (with benefit of hindsight) that REXIT was a great buying opportunity.

After-all, RBI as an institution is way bigger than any individual. Yes, Rajan has done a good job in RBI's war on bad assets and crony capitalism but there is no reason to believe that his replacement will do any different. On the other hands, if the new governor leads to even slightly easier monetary policy, the market will get one more catalyst for a rally. 

Now, the next important trigger this week would be BREXIT. If Britain decided to stay within Euro zone, all markets are poised for a big rally and India would be part of that. If however, the dreaded BREXIT does take place, then again I will repeat the same point. If the monsoon is good, you will find that BREXIT was once in a lifetime opportunity to accumulate stocks.

For tomorrow, trade with caution – Buy any significantly big dips in good stocks and be prepared for a mark to market of 10-15% and don’t be afraid to buy more if that happens. I don't see this market moving anywhere lower than 7800 in a worst case scenario. The way I see it, if we have a good monsoon, this market is on course to hit a new all-time high at some point in Oct-Dec quarter.

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options given to him by his employers as part of his compensation



Friday, June 3, 2016

SOME LESSONS IN LIFE FROM RAAMDEO AGRAWAL


SOME LESSONS IN LIFE FROM RAAMDEO AGRAWAL

I have started doing a new series – I go out and talk to some of the most successful investors but not necessarily about stocks and markets. I try to present the man (or woman) behind the face you see on CNBC-TV18. The personal traits, the lessons of life, the likes, the dislikes, the achievements, the regrets and everything else and then what lessons

So yesterday I went out and shot at the swanky and large office of Motilal Oswal financial services and spoke to the face of the company – Raamdeo Agrawal, someone who is one of the proponents of value and growth investing. These are some interesting takeaways that came out from this interview

1)      Work on a solid foundation, rewards will come later: When asked what has been his biggest achievement, Raamdeo says completing his CA, even though it took time. He still rates the basic education as the most important stepping stone for his huge success

2)      No excuses: Raamdeo grew up in a village with no electricity and a very humble background. But that didn’t stop him from dreaming big and constantly working towards achieving that dream

3)      Enjoy your riches too and believe in giving: Raamdeo enjoys his life. He is an avid traveler. There are only 28 countries left in his bucket list and he will visit them over the next 5-10 years. He also believes in sharing wealth and does a lot of charity work which satisfies him a lot

4)      Take care of your employees: The facilities for employees at Motilal Oswal rival that of some of the biggest MNCs. And they keep working on improving that. According to Raamdeo, it’s more important to retain talent than finding good talent and they go all out to make sure their employees are happy

5)      Read, read and read: To be a successful investor or to be successful in general, Raamdeo believes it’s very important to read good books and treasure your collection of good books. Till this date, he has all the newsletters of Warren Buffet printed and hard bound and he keeps referring to them

6)      No regrets: If you take a calculated decision and it goes wrong – so be it. There have been instances where he has sold stocks right at the point of a start of multi bagger cycle. But then, if he had taken an educated call to sell the stock, he won’t regret it but won’t mind buying it higher again if his conviction tells him so.

7)      Price is last: For Raamdeo, price comes last. Most important is quality, then growth and finally price. His belief is that if quality and growth is sustained, price will have no option but to keep going up. The best example of this is Eicher Motors per Raamdeo.

You can catch the show all through weekend and once the Youtube edition is available, I will embed it on the blog. It was great learning and fun