Finding a Value

Hello. I came across an interesting post on Nesco at Rohit Chauhan's blog, here. From there, I found few more analysis. You can find Ninad Kunder's analysis here, Neeraj Marathe's analysis here & Sanjay Bakshi's research report here. Sanjay's report is about 2 years old.

You will find a very strong case for investment. I am from Mumbai and have worked in Nesco premises earlier. Even today, I stay in Goregaon in Mumbai and I can understand the investment rationale. This is a good case of bargain fishing. Rohit, Ninad & Neeraj have shown an excellent comparison of Nesco's intrinsic valuation estimates Vs. current market value. I am aware that Mumbai Real Estate is slowing down though including the Exhibition business, Nesco sounds a good proposition.

Regards, Rohit

Disclosure. As of now, we are not invested in Nesco. I may or may not invest sometime in the near future.

Its been a while

We have liquidated all our Mutual Funds holding except for Gold ETF. I am seeing lot of opportunities from a 3-5 years perspective so I am getting very aggressive on direct equity now. I still continue with my dilemma of "Still Investing" when I see need of substantial funds next year :)

I continue my weekend classes for financial planning course. Intend to give exam in about two months. I am learning interesting concepts especially on Retirement & Goal based planning. There are many excel formulas I already knew though making good use of them now.

I have decided not to make any specific stock or mutual fund recommendation considering my current engagement at work place. I am updating my portfolio in the "Disclosure" tab. Banking & Finance  continues to dominate with 55%, Technology at 15% & metals at about 9%.

This Diwali, I wished but could not buy any Gadget. I was very close to buying an IPad 2 however, keep hearing rumors about IPad 3 launch. I know, this way, I may end up waiting for IPad 5 and may never actually buy but just human nature, after all :)

Love for buying the books continued though. I went all over the place and bought some 44 books from India Plaza. Most of the books are in Financial Planning, Money or Investment area.


Regards, Rohit

Here is a link on Money Control showing views of Basant Maheshwari (The Equity Desk) for Page Industries & Hawkins Cooker. I found the views to be interesting especially on Page Industries. I have been holding back from sometime to invest in Page Industries thinking its bit expensive but here is a perspective.

We have invested in L&T Finance IPO though looking at market undertone, I suspect there may not be any listing gain. The quality of IPO looks very good so let's wait.

Recent Outlook Money edition (July 13, 2011) has a good article on zero debt stocks to buy. Argument is that in the rising interest scenario, the stocks with zero debt and good track record are good bets. The below stocks are covered. I would skip FAG bearings and SKF India as I don't think I understand the business. Gujarat Gas Co. is in the business of providing piped Natural Gas & Compact Natural Gas in Gujarat. CRISIL is of course a relatively easy business model to understand. Castrol India is into Automative & Industrial lubricants. I am not sure if I understand Castrol's business. I am not looking for Portfolio expansion so skipping these stocks for now though would have ideally liked to research on Castrol India and CRISIL.

1. Castrol India
2. CRISIL
3. FAG Bearings
4. Gujarat Gas Co.
5. SKF India

I continue my little trades. Have recently sold all quantity of Power Finance, Innoventive Industries, Eros International, MOIL, Muthoot, Punjab & Sindh Bank, Shipping Corp. & Tata Steel. Also sold a little bit of LIC Housing Finance & Yes Bank. Hope to buy some of these back at lower levels.

Regards, Rohit

In & Out

Some of my IPO investments are coming in & out. Paid a very heavy price for wrong decision on Innoventive Industries :( Similarly, Muthoot Finance and Power Finance (FPO) turned out to be poor listing as well. It seems to me that Sell decisions are turning out to be more crucial at this stage than the buy decisions. What I am doing right now is to leverage the bearish undertone and use sell positions.

As an example, I had liquidated all of Innoventive Industries at about 97 on the listing day (against IPO Price of 117). Few days later I managed to buy them at 86 and again sold them at about 95. The stock is down to 91 right now.

Similarly, I managed to liquidate Muthoot Finance @ 183, bought back at 160. Missed selling them when it reached 185 and its now back to 160. Nevermind :)

Similar story with Power Finance. Sold the FPO quantity at about 194 average against 193 FPO Price. Now the stock is down to 180. I am thinking to buy back tomorrow subject to market mood. The valuations are extremely attractive too right now...at about 8 PE.

If I could afford to invest more in Stock Market, I would buy more of below stocks with investment horizon of at least 3 years. The most part of my buy recommendation is attractive valuation and solid growth foundation that already exists.

• Power Finance
• Yes Bank
• Shriram Transport
• Piramal Health
• Tata Steel
• Aditya Birla Chemicals

Yes Bank has announced the Roadmap for 2015. They would want to get to 750 Branches from 250 today. They would like to grow to 3000 ATMs, Rs. 125000 Cr. Deposits and Rs. 100,000 Cr Loan base. This is very impressive. I am tracking Yes Bank since 2004 and can say that they have proved their credibility. I do see a bit of delay in management guidance and actual execution as an example Rana Kapoor had declared the target of 225 Branches by March 2010. This actually happened somewhere end of 2010 / early 2011. However, my sense is that this is still an incredible growth with a high management pedigree and a very good quality of loan book.

I feel there is a bearish undertone in the market and in the short term lower levels could be seen. I do not watch markets very closely now a days and given my engagements at work place, I have slowed down on most of the reading as well. My sense is that in the Bulls Vs. Bear fight, at the moment Bears are having an upper hand. I have a very strong conviction that any one investing in the markets right now will be very handsomely rewarded in 3-5 years time.

Regards, Rohit

So what next

Stock Markets continue to crash :)

Tata Steel FPO is starting on Jan 19 @ Rs.594-610. The share last traded @ Rs. 622. Its not clear as yet, if there would be 5% Retail Discount. Even assuming that, the Issue does not look attractive. Street view is that in the Secondary Market, Tata Steel will be available at around 580. I am not excited to apply for FPO but if it does come to 580 or so, I would like to buy. Valuations are less than PE of 8. I however don't understand Steel Business. All commodity businesses follow a cycle.

We bought few Yes Bank, LIC Housing about a week before. I have been sitting quiet so far. Let's see. Intention is not to deploy any additional funds in Stock Market.

My friend Bhuvan Singhi has started a blog with his analytical thoughts on the current state of affairs. You can visit his blog on the below address. Happy Reading.

http://bhuvanoninvestments.blogspot.com/


Regards, Rohit

Understanding a Stock

The Sage of Omaha says that when you buy a stock, you are actually buying the business.

I am wondering how long one takes to understand a Company's business. Fundamentally, Stock Market values a Stock based on its current & future earning power. Yes, there can be other parameters that help valuation but from a very very fundamental & conceptual perspective, I believe, its the earning power.

What impacts the earning ? Well, Its Pricing Powers, Competitive Edge, Product Leadership, Economic Cycle, Regulatory Forces, Quality Of Management & so on.

Understanding a Company Business needs substantial efforts. Tracking the Quarterly Performance, Reading Balance Sheets, Management Interviews, Brokerage Reports & Market Views..

When Central Banks tighten liquidity, this means pressure of a Bank's margin since Banks now need to keep more money with Central Bank with lower yields.Similarly, Rising Crude has a cascading impact in the Economy and impacts the earnings. Decreasing or Increasing import tariffs have again substantial impact. So when one understands the underlying business, its easy to analyze the developments and identify impacts on the stocks.

We are not saying that we need to watch like a hawk quarter on quarter. After all, the Equity investments are for long term. Yes. But the deeper understanding of the business and earning helps one to maintain an outlook & take a position in line with goals. This is one reason, I strongly discourage most of the individuals I meet, from trading directly in equities & instead focus on Regular Investments through Mutual Funds.

Time, as they say in the market is more important than timing the market.

Regards, Rohit

Stocks Screnning

I have been jotting down stock ideas from various News Papers & Magazines. Some are currently available cheap, some are trading to their 52 week low. Some of them are familiar name so I am going to add 3i Infotech for now. It also shows attractive on PEG Ratio & has an "Affordable MRP" :)

File with complete list of 47 stocks is available here. I would like to take a deep look at few more stocks in this list and take an investment call. However, I am already invested full in Stocks right now and don't have a great appetite for investing substantially more. 3i Infotech, I have been eying for sometime.

During 2008 crash, it had gone down to Rs.25, I recollect. One reason I thought to avoid this was IT Software business. Already being long on Infosys & MindTree, I was not sure if I should add more. Over the period of time, I have allocated Infosys for a different purpose and are now out of my investment purview. MindTree I sold off few months before to garner capital for IPO.

Just reversing the logic i.e. Stocks close to their 52 Week high but low PE results in Shree Ganesh Jewellery, Ind Swift Laborataries etc. Will check these out later.

Punjab & Sindh IPO listing was disappointing today. We are hardly breaking even at the current price, including cost of funds. With enhanced limit for Retail subscription & experience like Coal India, my sense is, much money is on from Retail segment and 'making money' will continue to be difficult :)

Regards, Rohit

Stocks Study

I have compiled a really large list of stocks that I need to study and make a decision if I can invest. These are over 50 stocks that have been recommended in the Media or Financial Magazines or Newspaper and they caught my attention. It would have been nice if I have a time tested model for stock screening in place :)

Regards, Rohit

Portfolio Review

A quick look at my equity portfolio shows that out of core holdings, Yes Bank, MM Forgings & Infosys have done well. In absolute terms the gain is 120%, 94% & 64% respectively. Reliance is 4th @ 50%. The investments are of course made at different points in time so there is no direct comparison. I recently entered back in MindTree and thinking to take a position in NTPC.

In Mutual Funds, HDFC Equity, Birla Sun Life Midcap & Fidelity Equity are the top 3 performers. In absolute terms the gain is 105%, 92% & 80%

Just like 13 scripts in Direct Equity, over a period of time, I have invested in 19 different Schemes of MF. I plan to reduce these to best 10. Will divert the amount so liquidated to chosen direct equity scripts.

Regards, Rohit

Investments Update

Few weeks before I decided to cut down on my monthly SIP in MF and direct that to Direct Equity instead. I still continue 1 SIP in HDFC Equity though. I picked up Aditya Birla Chemicals, JBF Industries, MRO Tek, Manugrah Industries, Micro Tech, Mind Tree, Precison Pipes & Reliance Communications. Big Shopping, huh !

Review of my portfolio performance shows that Direct Investments are earning a far higher rate of return than the one in MF. Now, this is not a new discovery though the Direct Investment ideally requires a quality time to research & understand what you are getting into.

In the time to come, I would focus on reducing the number of scripts I have in my Direct Equity Portfolio - currently at 13. Somehow, I am psychologically attracted to scripts which have low MRP :) I am consciously looking at scripts in the sub 100 Region so its mentally easier to build position. That's how most of the scripts mentioned above have found a place in my portfolio.

Review of our family's Asset Class, net of all liability shows that I continue to have an overall asset imbalance, primarily due to inflated real estate in Mumbai. Here is how it looks:
78% Real Estate
8% Equity
14% Cash or Equivalent
There is nothing much I can do in the short term. I hope to avoid additional real estate investment, keep diverting my savings to Equity & Debt and get a proper balance, eventually. But why is it not possible to correct this imbalance? Well, the real estate pie (net of loan value) comprises of the only property we have so we can't liquidate. It has grown significantly in last 4 years though its more like a paper profit as one always needs at least one house to live.

Why am I sitting on cash? Hum.... As I mentioned, I do not have time required to make a quality investment. I am pondering over some of the real estate investment options if I should increase the imbalance and go ahead. On the other hand, there is always 'I want to be on my own' thoughts though I am miles away. Let me post separately on this.

Regards, Rohit

Portfolio Updates

I finally gave up on few minor bets I had taken on Adlabs, Kotak Bank etc., for a momentum trading. These were supposed to be for 20/30% profit in few months time and I was to get out. Given the 2008 performance, this did not work for these scripts. After close to a years investment, I sold out at a massive loss of over 80% but never mind since the amounts are not very significant.

I also gave up on Reliance Power. Idea is that if money sitting on something which is not earning enough, let's move somewhere else and create some earning. So I have moved the residual amounts, from Adlab, Kotak & Reliance Power to Reliance Capital which has shown a better momentum.

I will continue with my momentum trading approach but will not exceed 5/10% of my portfolio. My current bets are Reliance Capital, HDIL, IDFC, Oracle Financials & Punj Lloyds. I will keep buying them on significant corrections and sell them the moment I reach 20% profit. For sure, this approach cannot work forever. So far, I have made decent profits in Reliance Capital, Mundra Port, HDIL, Oracle Financials, this way. But again, the amounts are insignificant :(

From the family portfolio, I also finally redeemed HDFC Long Term MIP at about 5% loss. Moved the proceeds to ICICI Bank FD for 390 Days @ 10.25%. Net net, over two years, this investment would earn less than the bank saving account and obviously, much lesser than the inflation. Bad luck :(

We also invested in another ICICI Bank FD, few days before, @ 11%. These are senior citizen rates. I now plan to invest in Tata FD for 3 years. @ 12% cumulative yield works out to 13.5% and looks too good. Of course, these are unsecured but for sure, I am happy to take that 'risk', with Tatas. Being very busy with work, so not sure if this FD is still open. Let me check.

I increased my SIP Investments. I am now invested in below, all growth options. When time permits, I would search on high rated funds giving good dividends. Recently, Outlook Profit issue lists out many Cos., at current valuation, are giving excellent dividend yields. I would prefer to invest thru a MF route, though.

1. Birla Sun Life Midcap
2. DSP BR Tiger
3. Franklin India Prima Plus
4. ICICI Pru Infrastructure
5. Reliance Banking
6. Reliance Growth
7. SBI Magnum Contra

At the aggregate portfolio level, The Direct equity investment is down by 42% & MF investment is down at 28%. Of course, it's not a direct comparison since the individual investment time frame differ.

Reviewing my overall asset allocation, I am under invested in equity. It's basically my PF investments which tilt the balance in favor of debt. With the current investment, I would be re-aligned to right proportion in next few years.


Regards, Rohit

Interesting Trades

Bought few more 'momentum' stocks, albeit in small quantities. Adlab at 775, Kotak Bank at 820, GMR at 150 and Mundra Port at 700. In case of GMR I had succeeded in buying at 120 on Jan 21 and then selling at 190 just few days back. Got opportunity so bought back at 150. I am trying to broad base my investment approach and see if I can succeed in making some bucks in next 2-3 quarters. I am finding it difficult to hold everything. Given my investment approach of substantial holdings in choosen few, very large part of my long term investment is in stocks like RIL, NTPC and Yes Bank which I am not willing to sell.

GMR, Mundra, Kotal look very good at these prices and I am hoping some 30-40 % appreciation in sometime. Idea also is to see if I can partly cover that I have booked in Manaksia IPO & IFCI :)

Motilal Oswal and Edelweiss looks very attractive from the price history perspective. Some section of the market feels that due to recent crash, Brokerage house results are likely to be severely impacted in Q4 due to bad debts etc. I have not managed to study this aspect in detail or take a close look at one of them, so I am skipping both the stocks.

I am ready to loose my shirt given the overall bearishness in the market and state of the Global markets. I have, however, restricted such trades to 10-15% of my total investment portfolio. Let's see how it turns out.

Regards,

Rohit

Check your Brokerage

I have active accounts with Sharekhan, Motilal Oswal and ICICI Direct. In past I have used Citi Kotak & Five Paisa account as well. While the quality of online portal, customer service etc. requires a separate post to share my thoughts and experience, here is what I am planning to do to save on brokerage.

I am using this basic excel calculator to check if brokerage is charged correctly on my transactions. Given my level of trades, it makes sense for me to shift my trades from ICICI Direct to a low cost brokerage. ICICI Direct is expensive and from sometime, I have been observing very poor response time of the online portal, particularly when we need to trade most urgently (e.g. 21/22-Jan-2008 when Market crashed, the ICICI Direct online portal was extremely slow).

I am planning to open Reliance Money brokerage account. They have a scheme of flat brokerage. So for example, I can pay Rs. 500 upfront and trade upto Rs. 500,000 in a year, resulting in an effective rate of 0.1%. I am not sure if there is something in fine print so let's see how this experience turns out. I am also planning to open account with Angel Broking. While one can not make duplicate applications in IPO, one can have multiple accounts as long as they are with different DPs. This is what I am made to understand. While it's an expensive affair, it helps to have access to research reports from different brokerage houses.

While low brokerage matters, one thing is certain though. If the on-line portal is not good, I will not stay put. Convenience, flexibility for offline trades, user friendliness, response time / speed, customer service etc. matter a lot to me.

Regards,

Rohit

Portfolio Shuffling

So lot's happening with my portfolio. Let me try to give a quick update. I took a first major decision regarding my core direct equity portfolio and decided to sell Petronet LNG.

The biggest concern is the changing demand and supply scenario in India. Domestic Gas discoveries are rising. It seems very strongly that we will we a Gas surplus economy in next few years. Imported Gas will not be competitive thus. Also, Petronet has not been able to further tie up Long term LNG supplies. Kochi terminal is delayed by 2 years.

Current buoyancy in the stock is due to spot cargo volumes & appreciating rupee. These are short term / not so reliable factors. Also, regulatory intervention is very high as you can see from recent order to change the way Petronet sells LNG esp. to benefit Dhabhol.

Incidentally, except for Kotak brokerage house, everyone else is bullish on Petronet and recommending a buy. You can get the research reports from deadpresident's blog. For sure, I know, 15/20% upside is possible in Petronet due to short term factors. Over a period of next 2-3 years it can perhaps double from current levels. Though my feel is that this will not be a ten bagger and this cannot be a long term play. If it cannot be long term, I am not interested. So I have started selling my holdings.

Here is my Core Direct Equity Portfolio.

1. Reliance Industry
2. Infosys
3. NTPC
4. Yes Bank
5. Bharti Airtel
6. MindTree Consulting

Bharti Airtel is a recent addition. I have MindTree from its IPO time though I am not buying lot many shares. Priority is to buy as much shares as possible of Yes Bank and NTPC. Once in a while, I keep buying Reliance and Infosys. Heavy focus is on Yes Bank from the perspective that, to my mind, it has greatest potential to rise in the market.

I have also invested some of my IPO profits into IFCI. I usually don't like short term investing. This looks like a special situation case. At current levels of 80, I have made 20% profits. I expect the stock to go around 100-110 in next 4-6 months. I did not do a great amount of research. Just looked at few research reports and they suggest that intrinsic value is around 90 rupees considering the stake that IFCI has in so many companies.

I also don't like IPO trading. Though I invest in very few chosen IPOs where pricing looks attractive & one can make 20% or so in a short time. Again the same strategy. If I were to apply for an IPO, I would try and apply from all my family accounts so that allotment chances are maximum and my time looking into the IPO is justified by the returns. Most of the IPOs I get allotment, I sell quickly booking whatever profit. Some of them are good stocks but I have limited capital that can go into long term investing and that allocation has already been done in favor of chosen core equity portfolio stocks. Also, since I usually don't sell my core portfolio stocks at all, it's good to do some booking of profits, somewhere.

I made few changes in my core MF portfolio as well. Last few months, I have sold Franklin Opportunities, Franklin Prima and now started selling Franklin India Flexicap. Incidentally all these belong to Franklin Group. Not intentional ! Proceeds from selling Franklin Flexicap will go towards buying more of Magnum Contra. It's proportion is low compared to other schemes. It's doing well. So I am buying more.

I am building my MF Portfolio. Here is the list:

1. DSP ML Tiger & ICICI Pru Infrastructure - Thematic funds
2. DSP ML Opportunities - Opportunities funds
3. HDFC Tax Saver & Magnum Taxgain - ELSS Funds
4. Fidelity Equity & HDFC Equity - Large Caps
5. HDFC Prudence - Balance funds
6. Reliance Growth - Mid Cap funds
7. Magnum Contra - Contra funds

I also have Sundaram Select Mid Cap. Fund is not doing very well and I am happy with Reliance Growth. So I will start selling Sundaram Select Mid Cap very soon & shift money to Nifty Junior BeES.

I also started buying Benchmark Bank BeES and Nifty Junior BeES. I am eyeing Nifty BeES now. It's low expense (0.30%) is mouth watering. I am really really looking at a long term so these expenses do matter. Over next few years, I hope to make index funds to constitute like 40/50% of MF Portfolio. I may add ICICI Pru SPICE index fund at a later date.

I usually don't sell investments for less than a year to avoid paying short term capital gain tax and also to avoid getting into the hassle of tax returns preparation.

One common element of both Direct Equity and MF strategy is to build substantial positions, over next few years, in few identified stocks/schemes. I know this increases risk but I think overall the portfolio is quite diversified. More about this sometime later.

These are big decisions. So let's hope for the best !

My favorite stocks

Yes Bank - excellent growth potential
NTPC - does not need any introductions
Petronet LNG - sound business model

Yes, the list can be longer. Much longer. I only needed more money !!! If anyone needs latest research reports on any of these stocks, please send me an email.

One suggestion from my experience and general observations. One typical habbit is to buy everything possible in the world. So I know people who buy Reliance, Infosys, Wipro, Satyam, L&T, Siemens, Bhel, Bharti Airtel, SBI, MTNL, India Bulls and all the names one can think. Now because of such large horizon of stocks, they typically buy very small quantity of each of these say 10/15 or so.

Now my strategy is different. One can only make real gains on a substantial holding. Imagine someone currently holding 1000 Reliance or Infosys, bought couple of years back. Imagine the kind of profits that they will book now !!! Yes, the diversification helps to reduce risks but if that's the objective, then one should look at mutual funds. The real advantage of direct equity is the potential of multi baggers. Otherwise, we have so many v good mutual fund schemes available ! So identify your picks and build a substantial position and patiently wait. Of course, keep checking the story regularly.

The rule of 5 says that always buy 5 growth stocks. 3 of them will turn out to be OK. One will disappoint for some reasons and one will be a multi bagger. This is very similar to the rule published by National Club of Investors...as mentioned by Peter Lynch in the book Beating the street.

I have learned a very good way to keep a track on my investments thru Google / Yahoo alerts. I do have to read thru lots and lots of contents and be careful to skip thru the ones not very relevant.