Zero To Million Turns 4!

This blog began as an idea to share my views about certain stocks and market positioning in general back in 2021. Over the past four years, a lot of what I have been writing about did turn out to be true and I am only eternally grateful to Lord Ganesha for his blessings as we are nothing without his desire!

 

A reminder and a full disclosure is warranted. I have at times discussed stocks and written what I would believe to be their fair price and value and of course I have been invested in most, if not all of them. So at any point if I comment on a stock, it must not be treated as a buy or sell recommendation as I am not a SEBI registered advisor but a private Investor managing his own funds. 

So what has been the flavour of the season? 

The Capital Market play has finally started. I have always felt that the capital market stocks- Exchanges, AMCs, Brokers, etc are a decadal play and they are most likely to outperform everything else in 2020s and the markets have finally woken up to their existence. All the AMC stocks have finally made new lifetime highs and they are finally catching up with their peers in the industry. 

I strongly believe that when a sector is picked up and rerated positively on the upside, the stocks don’t go up 50-100%. They go up 5-8-10x in a year or two. Please go back and check prices of PSU banks from 2021-2024; defence and railway stocks in the same bracket and also the likes of Dixon and Kaynes in preceding five year period. 

Thus anyone having a fear that AMC stocks are expensive at 40x trailing PE should check price of Kaynes which is still trading at 125+ PE after having corrected 40% from its highs or Zomato which is still at 100X + or even some Defence names. That the runway for growth is large in AMCs is an established fact. I totally agree with Ridham Desai when he says that the retail money is not going anywhere. We have had 26800 crores of SIP in May itself which is a cool run rate of over 325000 crores annually. The FIIs can sell what they want but the retail is pumping enough to keep buying in droves every single day.

Also, as the markets will rebound eventually, the AMCs will benefit from both higher AUMs due to mark to market gains and also higher inflows which will lead to higher revenue and profitability. Thus, at close to 20-30% PAT growth, the 40x PE will easily be 80-100x PE in three years and at double the PAT levels, they can easily be 4-6x in similar timeframe. Nestle, Page, Eicher are numerous examples of how such plays unfold in markets.

Most importantly, the people are yet to understand how big the numbers can look like. At an AUM of close to $850B, the ratio of cumulative AUM to GDP is just around 0.2. Even if India grows slower than expected, it will be a $8-10T economy in 10-15 years. At that point, with incremental household savings moving to stock markets, if the ratio grows to around 0.5-0.6, we are looking at cumulative MF industry AUM of close to $4-5 Trillion. At that rate, the larger players will go from managing $100B to managing $800B-$1 Trillion. At any rate, the amount of sales and profits will grow faster than the AUM because of operating leverage which kicks in beyond a certain size and it will not be a far-fetched idea if these stocks begin to trade at 5-10x of current prices. 

Every sector which begins to catch market’s frenzy first rise 2-3x and then goes up 5-10x from there. Unless the Nifty 50 or Sensex 30 have these stocks, the rally can continue. These are not one month stories but decadal stores. We always under-appreciate how big 5 years out can look like but if we can force ourselves to think harder, it’s not too difficult an idea. 

Further, with dropping interest rates, FD as an investing instrument is fading faster than anticipated. Thus, the current generation have no incentive to park excess funds as FD and assume it to be an investment idea. 

 And now we come to BSE!

The last we talked about it was in March when it had corrected to 4000 levels and I was giving my clarion call to buy at the top of my voice. What unfolded then has truly been divine. How else than a stock can go up almost 2.5x in three months! Everything which could go right did go right and market finally woke up to its reality and BSE hit a pre-bonus adjusted price of 9090! That’s a without bonus price of Rs. 27270! Let that sink in. My first  few blogs four years ago mentioned it at around what was then a Rs. 600 stock. From there it has gone up almost 45x! What do I think about it now?

A. A lot of people have hated BSE for one simple reason. They missed it, period, So now they go on twitter and TV and diss about it as to how its a costly stock and how its a rigged stock and how it should go down by half and how NSE is the only king in the jungle, etc. A lot of them are doubly pissed because they have lost their shirts multiple times trying to short it. If you recall, twitter was abuzz with guaranteed price targets of upto Rs. 2200 in March 2025 when it had corrected from 6000 to 3670. Well, it did not hit 2200 but more than doubled from there to hit 9000!

B. A lot of media voices are clearly paid mouthpieces of NSE when they over-amplify everything which is bad and underplay everything which is good about BSE. My point is simple. There are two exchanges in India. NSE is a clear 80% leader in F&O and the amount of efforts it has put in to try and dislodge BSE’s growth in F&O is a testament to the fact that its getting hit where it hurts. It was the exchange which began the F&O market in India and introduced weekly expiries on almost all days of the week. So it’s kind of rich when it now cries foul about having too many expiries and why India should only have one expiry. Also, the zeal with which it wanted to have a Tuesday expiry made it evident that it has got not much idea as to how to counter BSE’s growing market share.

C. The panic of NSE shareholders is now getting real. They have now enlisted brokers to dump their unlisted NSE shares to retail in lots as low as 10 shares. It only demonstrates that they do not have faith in any IPO related pop of their shares and also have not so high hopes of an early IPO either. Everyone in this market is to make money. Nobody buys or sells out of their love for humanity. So if the retail public is being bombarded by their brokers with a get rich quick offer of buying unlisted NSE shares, it is only at behest of large holders who want to dump them as soon as possible. I never heard anyone sell their SpaceX shares to retail. 

D. On the point of BSE being expensive. I agree that at 80-90x, it is indeed not cheap. Well, there are over 80 stocks with a PE greater than 75 as on today with a market capitalisation of more than 10K crore. I generally don’t hear much about Trent or Titan or Asian Paints or Dixon or Solar Industries or Hitachi about being too expensive. Titan has been a 90PE stock all its life. Even Shree Cement is at 95PE! So just because of high PE a stock should fall is a bad idea. As long as the market believes that BSE can compound at over 20-25%, this high PE can easily sustain and can even grow. 

For those of you thinking Ive gone nuts, let me illustrate. Zomato has a PE of 120 and market cap of 245000 crores. PB Fintech has a PE of 250 at market cap of 88000 crore. Solar Industries has a PE of 193 with market cap of 1.93lakh crore. Last  I checked, no fund manager came on TV from Singapore and called them rigged stocks!

E. And finally, a lot of stories do go around comparing NSE and BSE valuations and how NSE is a steal at current levels. NSE is being valued at close to 6 lakh crore in unlisted market which means its trading at close to 50 times earnings. It’s easy to understand that its losing incremental market share to BSE and when it eventually lists, if it manages to hold on to 50x PE, no shareholder will make the listing day pop. 

So my limited point is that when something is a decadal story, it’s only realised in hindsight. If the Indian story is intact, BSE will do as much revenue as NSE does today in 5-6 years. It will be fair to imagine second largest stock exchange of India making $1 B in profits in 8-10 years. It did $150M last year. So even if it is then valued at 30x, it can be a $30 B stock which means it can more than double from here. It might not make as fast returns as it did in the preceding three years but if it can compound at 20-25%, and market values it at 50PE, it can be a $50B company. 

I am holding on to it with clear understanding that it will definitely give multiple 40-60% corrections through the next 5- 7 year period but that’s the part of the journey, isn’t it!

Disclaimer- The views expressed in this blog are personal opinions and are shared for educational and informational purposes only. They should not be considered as financial, investment, or legal advice. I write primarily to document my own learning and thinking process. I am not a SEBI-registered investment adviser, research analyst, or financial influencer, and no part of this blog should be seen as a recommendation to buy, sell, or hold any security. Please do your own research or consult a qualified professional before making any financial decisions.