Markets rejoice!

So the market has finally made its new lifetime high , having spent almost 13 months trying to scale this peak. It looked pretty insurmountable just a few months back with excessive bad news on all fronts- Rupee v/s dollar, Ukraine Russia, FII outflows, inflation, crude oil prices and what not. In a recent post https://zerotomillion.business.blog/2022/07/30/%f0%9f%90%82-is-back/, I believe I had called the bottom right and my thesis was the fact that once market refuses to go down on bad news which otherwise would have led to a collapse, it is bottom indeed.

So what has happened in the past one year. Foreigners sold almost everything they could while our small little you and I kind bought through our small SIPs and direct equity. This counterbalanced the outflow so beautifully that the moment the tide turned, we raced through the gates for another record high.

We must appreciate that this is not a fluke. I had mentioned in a previous post that the decision of the government to let pension funds be deployed in equity markets is a game changer. Just as it happened in the US, once the pension funds were allowed to buy stocks beginning the early 1980s, there has been a Bull run taking Dow from a measly 800 to almost 36000 in 2021. Even with SIP flow notwithstanding, our pension accounts are being deployed into buying stocks, every month, without fail and that creates momentum because this money will not place any sell order until the next 20-30 years. Also, with EPFO mulling to invest up to 15% of cumulative corpus, instead of the incremental flows it receives, we’re talking of approximately one time inflow of over $40B( EPFO corpus being around $275-300B). Just imagine what will happen once that money finds its way through the bourses.

So the larger picture of India remains one of a sustained bull run where the biggest risk is to not invest and trying to time the market, getting in and out to book 10-20% gains and leaving on table 10-20x moves.

Now let’s come to another favourite topic of mine, the new age companies – the Paytm and Nykas of the world. Let’s talk about Paytm first. It’s now trading at $3.75B market cap, much below what it raised in 2016- it was valued at almost $4.8B in 2016, up from $2.8 an year ago. So for anyone who has held on to its shares without unloading anything is under water with no sight of a rescue boat. Nyka is also trading below it’s IPO price and in all certainty, it’s going down the drain pretty soon. Why do I say what I say?

Simply put, a business is worth its net profit per share multiplied by the number of shares outstanding. Anything other than this is bullshit, hoax or worse, a Ponzi. So when Paytm invented something like an unheard of term, contributing profits- take my expenses on account of technology, marketing and ESOPs out and I’m profitable, it was shit served cold to investors. I was dead sure that day that its shares will be worth zero, sooner than later. Unless someone buy the entire business for a song just for the database, it’s worth not more than $1. Yes, that’s a single dollar without a suffix.

Nyka on the other hand is a case of a good thing stretched too far. It made a princely 5 crores in profits and is trading after falling 60% from top and 10% from IPO at 50000 crores. An ITC doing 15000 crore in PAT a year with 4% yield is expensive at 25 times earnings but a Nyka is cheap at 1000 times earnings. So a good price to buy Nyka would be somewhere around 20rs, adjusted for bonus.

Regarding another two erstwhile darlings, Oyo and Byju. I recently travelled to Jodhpur from Jaipur, in a peak wedding season with the entire hotel and resort industry in the entire Rajasthan being sold out for the season. I didn’t encounter a single Oyo hoarding or billboard wherein there was one atop every single hotel possible just a couple of years ago. So we know that boat has now sailed. Byju was another PE funded balloon being deflated by the reality of life. This whole EdTech industry was notoriously unethical and overpriced and I see no reason why we won’t have a stringent government oversight in the near future. Just like in China, they’ll vanish from being the poster boys overnight. Also, with Byju also inventing its own Accounting, we know best to avoid it at all cost.

The rising interest rates are bringing so much sanity into the ecosystem. Please go listen to the greatest investor of all time- Stan Druckenmiller and what he’s got to say about this. The skeletons are out in open at least in the Cryptocurrency world with Sam Fried or whatever his name is vanishing with over $10B in client money into the serenity of Bahamas. Bitcoin is now down below its average mining price and the bottom is about to fall.

So to sum up, don’t buy into fantasies, get rich overnight or the premium products of some faraway land. Equity market is to buy into living businesses which at the end of the day must generate cash, not dreams and ideas of crazy promoters. Remember, not all what glitters is gold. At times, it’s shit covered in glass.