It’s been a difficult period to be in the markets, especially in India. The mid and small cap rally has faltered and the headline indices refuses to go up. Some attribute it to Trump and his tantrums while some believe the earnings hasn’t kept pace. What are we thinking?
Firstly, I have had the fortune of incorporating my new venture, Caelis Ventures Pvt. Ltd. ( https://caelisventures.in )in an attempt to institutionalise my learnings and have a serious, formal attempt to go from zero to billion. Now that Caelis is in existence, the tone of this blog will move away from discussing individual stocks to themes which we prefer in the markets. It, ofcourse, now comes with a disclaimer that anything I write here isn’t a buy or sell advice as neither I nor my company is registered to provide any such advice. The purpose of this blog is to engage in meaningful market related discussions, only.
Firstly, it is a difficult place to be. The stocks which are relatively cheap aren’t growing and the ones which are growing aren’t cheap. You can still get an ONGC or other PSU stocks at sub-10 multiples but there is an overhang of some OFS or some policy intervention which might dampen the mood. The PSU oil marketing companies are a case in point. They have been selling their products at a constant rate for almost two years now which damages the shareholder interest as you can’t decide when the profit cycle will pick up, if at all.
Second, there is still a nostalgia about buying large caps as they’re termed as cheap compared to their historical averages. Well, how can someone justify a 0-2% growth for a nestle trading at 75 x trailing earnings? How is it justified for the likes of HUL or an Asian Paints etc. So just because the stock hasn’t moved an inch for three years doesn’t make it attractive. The problem is that people talk of ITC doubling from such levels in the past or an SBI going up 3x. Well, it took ITC 8 years to take out its previous highs and in absolute terms, the stock is hardly up 25% from its 2014-15 peak. Similarly, SBI did triple from Covid lows but it took it 12 years to take out its previous peak in 2007-8. Do you really want to hold something for the pedigree or are we trying to make some money?
Third, the headline index is now biased towards banks and erstwhile performers who haven’t delivered any returns for close to years and thus, if the index was more broad based and included other performers in mid-cap segments, this Nifty would have been something like 32000-35000 instead of languishing here at 24500 thereabouts. So we are at a situation where even though money keeps chasing large caps for supposed safety, the actual returns aren’t made in there nor do I see any meaningful upside in there. Ofcourse, if the buying resumes and we have a massive short covering, even the nifty can go up to 30000 in six months time, who knows!
Let’s discuss the capital market stocks, our all time favourites. There is a lot of buzz about SEBI barring weekly expiries, etc. Well, the amount of pessimism is growing multifold everyday. The exchange stock is down 25% from its peak which isn’t bad because it does take out a lot of froth which got built up in anticipation to bonus allotment. My take is simple. There are only two exchanges in India. If there is a market wide disruption, the more hit will be taken by the bigger exchange as it has close to 80% market share in F&O. So if the pie does shrink, there will be repercussions for both but please understand, the exchanges have existed since 1700s and will always remain such. People will eventually develop some other methods to trade as unless you ban equity trading in India, the exchanges will continue to mint money left and right. The reason why you get this exchange at 25-30% down in two months is because of news which to my mind I noise. When things get clear and the dust settles, do you still think the share price will remain same? Also, I was also getting a bit uneasy with 90-100 times PE multiple. It’s a good thing that it is now down to 70x trailing. If you simply do the math that its earnings will likely to go up 3-4 times in 5 years time, you are looking at a sub 15 times multiple going forward and even if the stock gets de-rated to 30-35x earnings, it should easily double in 4-5 years period which is not bad at all.
Also, we do underestimate the long term impact by share price movements. The amount of money which is going to come in the Indian markets over the next 5-10 years is significantly higher than anything we have seen before. So the only thing you should do is to hold your stocks and ride the volatility. Unless you go through regular 25-40% downturns, you will never see multi baggers in your portfolio. Some stocks are not to be sold and these capital market plays- exchanges, AMCs are exactly those.
Finally, are there significant opportunities? The clear answer is no. Unless you buy junk in the name of value or join the bandwagon in some power, Pharma, maufacturing theme, there is nothing to add right now. The IT sector is beginning to look attractive as there are only two possibilities- the AI juggernaut kills Indian IT sector and we lose whatever we own or the sector finds a way to stay relevant. The massive layoffs in the largest player is a signal of a significant churn happening therein. I as a natural contrarian is getting excited and am following it closely but there isn’t anything worthwhile to discuss.
So when there is nothing much to do, one must wait. As Charlie Munger has said and we put this up on our website too- The big money is not in buying or selling but in waiting.
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.
Life is all about Compounding! 