Author Archives: ZerotoBillion

The new FY is here and we’re trying to figure out how markets are likely to behave and how our returns are likely to be going forward. So here I am with my two cents:

We’re also celebrating two years of Covid lows and the recovery in the markets has been truly stunning. If we see how many people were willing to buy if they got March 2020 prices vs those who actually bought when markets collapsed on Ukraine scare, the difference is stark. I have made this point before that news and prices are almost inversely related. When you see green on the screen, the mood is good, headlines are upbeat, the prices of stocks are more likely to be higher than what you ought to pay for them. On the other hand, when the news is that of an impending apocalypse and the world is going under for some or the other reason, the prices are most likely to be most favorable to buy.

However, ask yourself if you followed this advice in last week of February 2022. Nifty was bleeding and stocks were trading at a discounted price. But we were scared to buy because the news made us believe that the world is coming to an end. We were going in for a nuclear war and WWIII and what not.

Investing requires the vision to see, courage to buy and patience to hold. Of the three, patience is rarest among investors. Unless you systematically train your mind to ignore the news- the Fed, interest rates, Russia Ukraine, elections etc and focus on the underlying business of a company who’s stock you have bought, you will make decisions which are injurious to your wealth.

Now let me talk about some things which I have been thinking about. Recently, you must have heard Nitin Gadkari about reducing EV prices and also that he used a Hydrogen powered car to come to the Parliament. Also, we see there are almost half a million Government cars which are likely to be replaced by EV. Everyday some or the other company is either talking about installing charging stations or making progress with battery. Now add to this that TaMo has sold it’s highest ever 3357 cars in March 2022. Just imagine the runway ahead and the kind of sales it can generate in years to come. TPG values it’s EV unit at $9.5B and today the entire company, with PV and CV unit trading at around $22B only. This is a no brainer where this stock is likely to be headed.(https://zerotomillion.business.blog/2021/10/13/hello-tata/)

Reliance is making numerous acquisitions in retail and Renewable energy and the thesis which I laid out in my earlier blog https://zerotomillion.business.blog/2022/01/10/is-the-new-amazon-amongst-us/ is being played out. Reliance is now almost 12% of nifty 50 and my bet is that it will continue to outgrow a lot of other large caps.

Over the past one year, I have moved away from cyclicals and commodities towards what I believe are beneficiaries of the larger India story. This has proved extremely beneficial in some and not so in others but am happy to add to ISEC and HDFC AMC as I believe they’re not three year stories but 15 year stories with a huge runway ahead.

One more thing I wanted to write about was this two wheeler EV catching fire recently. Ola, Okinawa and one other scooter was recently in the news for this reason. My point is that once the legacy auto makers- Bajaj, Hero and TVS comes in all guns blazing, the new kids will either fade away or merge or die. The analogy in this regard is the smartphones market in India. Not too far ago, we had brands such as Lava, Micromax and Karbonn. They all were cocky enough to poke the Samsungs and the Apples. However, once the economy of scale was achieved in the ecosystem, none of them could compete against the better equipped players such as Vivo, one plus and Oppo, coupled with Apple and Samsung.

Similarly, I believe in a couple of years, we’ll see some of the new entrants fizzle out and market being dominated by the players who deliver not just the product but after sales and service. Ola can claim to build a superfactory but how will it service customers in smaller cities? My bet remains Hero Moto as it also own a large chunk of Ather Energy.

PS: the recent news about bogus transactions by Hero seems far fetched to me as someone like Pawan Munjal who has run this company for 30 years and prides itself on paying highest tax and has a great dividend history , do you think it’ll destroy the name for some farm house in Chattarpur. This I believe is a non issue and the matter will subside in a few days. This might play out like the whistleblower complain in Infy when all it turned out to be was a great buying opportunity!

So with today’s fantastic run, Paytm is down to around 38k crore market cap or roughly $5B in dollar terms. So from IPO price, it’s down over 72% and is possibly one of the fastest minus 1l crore market cap in India’s history. This also values it the same when it raised money back in 2016. So anybody who came and put money in its subsequent funding series is underwater. This my friends is called reverse compounding and is deadlier to your networth than you can imagine. See – https://zerotomillion.business.blog/2021/05/26/dont-buy-junk/

First, my views on Paytm and its siblings have been consistent all through its journey to hell- see a link to an earlier blog , written in November ( https://zerotomillion.business.blog/2021/11/19/paytm-mat-karo/)

Second, in addition to what I wrote as to these fintechs are trying to achieve through cross selling and data selling is somehow be able to lend money by becoming a Bank or an NBFC or even an SFB. Now let’s put this to my logic test.

In India, who goes to avail loan from a paytm or likes? The one who won’t get a penny from his family as this fellow trying to avail 1l or 50k personal loan has basically no to little income, has no intention or inclination to manage personal finances well or else they won’t need this money in the first place and also, have little by way of a decent credit score or else their own banks would have extended similar loans at much better rates. These are people trying to fund an iPhone, or a Thailand trip or other fancy stuff which they certainly can’t afford in a better world. They’re like the infamous NINJA- No Income, No Jobs and No Assets loans in US which fuelled the fire once housing went bust.

Now lending is inherently a risky business as you’re never sure if your money will come back on time, if at all. On top of it to extend loans to such class is a sure shot recipe to disaster. Now let’s extend this logic. Even if they go on and extend enough loans somehow and acquire an NBFC or a Small Finance Bank license which in itself is far fetched, considering the myriad corporate scandals which keep coming out, they will be valued to price to book basis. The premium Banks like HDFC and ICICI trade at 3-4x price to book( equity book, not loan book) and extremely premium NBFC like Bajaj Finance traded at 8x Price to Book. So at max these companies can trade at similar levels. Now here’s the catch- thanks to the accumulated losses on the way,the moment they turn to profits, their capital will erode in order to clean up the mess. And that will make book value at max Zero from negative. And in such case, their price to book at whatever level will make the price, well, ZERO!

So even if they turn victorious in their Gods work they claim to be doing, the share price is eventually going to be zero.

Here’s my takeaway- one Yes Bank or Jet Airways or a Paytm a year or two can turn all your gains vanish and portfolio returns negative. So avoid junk, even if it’s for free. The first principle to make money is to avoid losing it. Say no to ideas which makes no sense and are just fancied in the markets.

( https://zerotomillion.business.blog/2021/06/12/art-of-saying-no/ makes similar points)

It is an unbelievable rally in this stock, up almost 5x in a year, most of which has come in the past ten trading days-up over 60%! This seems surreal, even though I have been a big votary of its value realisation. See my earlier blogs( https://zerotomillion.business.blog/2021/05/26/is-bse-the-new-game/, https://zerotomillion.business.blog/2021/11/16/nse-beckons/ & https://zerotomillion.business.blog/2021/12/15/bse-is-the-new-game/)

However, when it cruised past 3000 and momentarily above 3100 intraday today, all I wanted was to burst out with joy but then decided to silently pat myself on the back and hold my emotions. However, when someone asked me ” aur kitna jayega”, I reply with my usual- it’s just started.

The more I read about stocks which went up in a Bull run, the more I realised that the worst mistake is to fold too soon in a rising market. For someone who bought Bajaj finance after its first 5x move from 2014 basically missed the next 10x move. In absolute terms, the money made in every double is more than the entire sum made earlier and this is the key. We’re not here to make money in percentage terms but to become millionaires in real terms. If you invest 5l and it goes up 3x, you’ve made 10l profits. However, the next 2x will give you additional 15l and that’s the key point to remember.

So how am I feeling today after this massive run? Well, it’s over 40% of my networth and I keep going back to how Nick Sleep must have felt when he put close to $10M in Amazon and saw it going up 20x and become over 80% of his networth/portfolio ( https://zerotomillion.business.blog/2021/08/10/building-an-investment-thesis/ )

For me, the shares of BSE are not for sale, not now, not ever. The idea to book profits out of a stock which has infinite potential to move up is the stupidest thing one can do. Ofcourse it’s coming out of a massive rally and at some point it too will fall, go through time and price corrections and everything else which happens in the market. However, I’m just too happy to have it for the next foreseeable future and beyond.

Let’s see what I believe is happening to this company. Over the past week, when markets went up around 3-4%, it’s up over 50% and with unprecedented volumes. And that’s without a shred of news or even rumor. This doesn’t happen often in market. Not on twitter, or in any media publication anyone has come anywhere close to even concoct an explanation. So what’s cooking!

My gut is that it has a lot to do with someone building massive position ahead of something we might see on NSE front. Now I’m only talking my gut here without any source or information whatsoever. What I believe is that there’s something to do with ongoing cleanup of NSE . The colocation scam is refusing to die out and the incumbent CEO is hanging up his boots. It sounds a lot like what happened with Yes Bank. Remember here that Yes Bank fell 30% in a day just on the news that Rana Kapoor wasn’t given an extension. There was no mention of any fraud or malpractices. We knew how it ended- down 98% in 18 odd months.

Now let’s take my logic test- here’s a company with over 5000cr net profits, growing revenue year after year with a massive lead over its only competition in equity derivatives and cash segment; grey market deals value the firm at over 2l crore and the CEO is basking in this glory. So why on earth is he refusing for a near guaranteed second term for five years? There are only two reasons possible – either he knows that the goose is cooked and want to leave with his reputation intact or he’s been shown the door by the regulator and in a face saving gesture saying he’s not seeking a second term. In either case, it fails the smell test.

Now take this a step forward. If NSE was a listed company, by how much would it’s share price fallen on the news that its former CEO was running a sham operation with a fellow who cooked up the dumbest email id for a yogi- rigyajursama@whatever.com( the userid is the three Vedas named consecutively). I mean this fellow didn’t even pretend to be intelligent. And to add, the incumbent CEO decided to quit. Well, Jubilant foods on the same news fell 15% today. And there are whispers of a SEBI refusal for any IPO in the near future and grey market valuations falling sharply. Couple this with the recurring technical glitches on NSE which doesn’t seem innocuous anymore.

NSE was created to bring BSE to size. The earlier BSE was a broker’s fiefdom. NSE was supposed to be the good boy ,a poster boy for India’s resurgent financial strength. However, the opposite has seem to occur. BSE has become the beacon of positive corporate governance and technical know-how. In almost all new products, BSE has beaten NSE fair and square. Be it commodities, INX at Gift City, mutual fund distribution through starmf, NSE hasn’t been able to garner any significant market share even after outspending BSE by a wide margin. And with its gold spot exchange and power exchange ready to commence, the blue ocean businesses are only going to take it from strength to strength.

One advantage BSE has was it’s miniscule institutional holding. This means now that it has performed well in a falling market, the funds- PMS, HNI and FII-DII will have to enter at some point to share the spoils lest they fail to explain as to why they never owned anything in a stock which has gone up 5x in less than a year. This means a lot more price stability on the upside going forward. Furthermore , it’s market cap is a paltry 13k crore even today. It’s not even a mid cap stock as per AMFI classification. Once it moves to the mid cap club, it’s impending inclusion by funds and indices, the real price movement, if it happens and I truly believe it will, surprise the most optimistic of us all.

Remember this, Bajaj Finance went up 50x in seven years when Nifty barely doubled. What a stock can do on the upside is beyond anybody’s imagination. Once you’ve hit a bonanza, the only thing which can kill it is you- by selling too early!

Stay invested, the India story has barely begun. If BSE succeeds in even getting a fifth of India’s energy derivatives and gold spot market, we don’t even know what gold we’re sitting on!

With another down day, markets have erased all gains since August 2021 and are hardly up 5-6% for the past one year period. The relentless move on the up has shown equally powerful one on the way down. Let’s see where we were and are and how things can go from here:

The broader market is down close to 15% since October high. However, multitude of stocks, including both the fancy( Dixon, Indiamart, IEX), quality( Ultratech, HDFC group, Divis) and what I call the Saurabh Mukherjee ones( Dr Lal labs, Alkyl Amines etc) are down 25-40% in some cases. The pain is worse in some of the junk stocks which went up with the wind. People extremely bullish on India are now predicting a protracted bear run for the foreseeable future.

What negatives are we seeing around us? Russia- Ukraine is on top of the list. This has led to extremely sharp move on the upside in commodities which were already experiencing a super cycle since the bottom of April 2020. Most commodities are either at decadal or lifetime highs. This has stoked fears of higher inflation and low margins for corporates. The low interest rate regime may finally be coming to an end.

Also, there is relentless FII selling for the past one year or so. YTD in the current FY2022, FII have sold close to 2.5l crore worth of Indian equity. So are we done for good? Is the India story over and we sell everything and go home!

Let’s put some facts on the table. India’s merchandise exports have hit all time high and are track to cross $400 B this FY. Even with so much selling, Rupee has hardly budged from 75 levels thereabouts. And, with everything which could have gone wrong having gone wrong, we are down 13% on nifty, sensex and nifty 500 while mid and small cap is down just under 20%. However, if you take the mother ship in US, Dow is down similarly and Nasdaq had hit the 20% down mark last week. So it’s not that India has fallen more than everyone else and only we paid the price.

Coming to some sectors and stocks. Today marked a day when the quality pack( HUL, Nestle, Britannia, Asian Paints etc) were top losers. Since IL&FS crisis, this was a pack which went up come what may and everything else underperformed significantly. Only when Reliance doubled after Jio deals, it regained the highest weight in Nifty, which it had given up for HDFC Bank. And, ITC is actually up for the week. This I believe signifies stock rotation which was long overdue.

This bunch of supposedly highest quality stock has been trading at extremely high valuations, be it PE or PB vs the rest of the market and a narrative was set up that valuations doesn’t matter for this group. Another bunch of stocks traded at obscene valuations ( Dr Lal Path, Jubilant foods, speciality chemicals etc) were justified on similar lines. This excess is now being corrected. When did you last see HDFC group,HUL, Britannia hitting 52 week lows in a market hardly down 10%. More significantly, this group’s returns over a two and a half year period( from Corporate tax cut time in September 2019) is either flat or negative against a market which is still up 35-40% after this fall. So leaders of the bull run have changed and we are in for a massive time corrections in this pack.

Today might also signifies beginning of the end of ITC’s miseries. It was India’s best performing stock since inception of Sensex in 1980 until 2014. However, like many stocks do, it has gone into a massive price and time correction for almost 8 years. And I believe it’s time is here and now. A cash minting machine making almost 15000 crores profits every year with zero debt and 6% dividend yield can’t trade at 18 times earnings.

In my earlier post ( https://zerotomillion.business.blog/2021/11/07/all-money-is-equal/), I made a point that all companies with similar earnings should trade at similar valuations, factoring in for +- 10-15% for sector tailwinds or governance premiums. Let’s put this test for ITC:

Let’s add the trailing 9m earnings of Britannia(1138cr) , Asian Paints( 2188cr), Pidilite(945 cr), Nestle(1758cr), Titan( 1671cr),Dabur( 1448cr), Marico(998cr). It comes to 10146 crores. Now let’s add the combined market cap of all companies. Britannia- 81k crore, Asian Paints- 262k crore, Pidilite- 115k crore, Nestle- 167k crore, Titan- 216k crore, Dabur- 95k crore and Marico- 65k crore. Thus, a combined market capitalisation of over 10l crore.

Let’s take ITC. It has a 9m trailing earnings of 11225 crores and a market cap of 2.77l crore. This just doesn’t add up. It has more profits than all these biggies combined and a market cap of just one fourth of them. So the bet is clear as to which way the wind is blowing.

Now if we do the maths again, ICICI Securities has a trailing 9m earnings of 1042 crores and today a market capitalisation of just 20k crore. This also doesn’t add up.

We have seen similar times in the market when great quality companies have undergone massive time corrections. It happened with Microsoft between 2001-13,. Reliance between 2008-14, HUL between 2001-07 and many more. I believe the time to lap up on ITC is now and here as it has done it’s 9y of penance as it is still trading at 2013 prices. Further, I’ve no reason to believe that a company with ICICI securities kind of earnings, return ratios and growth rate is available at 15x earnings. I’m betting it’s not a $3B company but will eventually become something like a $25-30B company in years to come.

Now let’s come back to the broader markets. All bull runs have sharp, brutal and multiple corrections. This is the nature of the game. The reasons can be anything and we have seen a lot of things for which markets have taken a breather. Remember 2018? When in the name of LTCG, markets fell 10-15% and we thought the world was over? In2016, Demonetisation had almost 15-20% drop, 2013 it was taper tantrum.

Either you believe that it’s going to be WW III and the world is coming to an end or it will pass. Like I said, don’t bet against survival of human race and don’t bet against India. You wanted a dip, this is the bloody dip. This can be dip, dip,dipper but eventually it will go up. Have you heard the story- If only I had bought Eicher motors in 2002 or Infosys in 1995, I’d have been a millionaire. It’s your turn to make those stories real.

This too shall pass!

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This was one hell of a week. We went from worrying about inflation in the US to prophecies of WW III in no time. Also, if we look it on a monthly basis, everyone went from worrying about Covid to inflation to elections in India to all out war. This, my friends, is the pitch on which long term investing is played.

As all of us are now making geopolitical predictions, here’s my two cents. Russia is winning, hands down. If you ignore the propoganda on Twitter, ask yourself this- the Ukranians citizens in Kyiv are posting their live videos, including how they’re on guard against approaching Russians, their comedian President is making Instagram reels saying he’s enemy number 1, and if the Russians really wanted to bomb everyone and kill this man, how difficult would it have been! I mean, you don’t even need an army to do that. Israelis have taken out men and of all things secret nuclear reactors deep inside Syria, Iraq, Iran and all other enemy territories without deploying even the army. Their sleuths did this. So for all those saying Russians miscalculated/ repulsed etc, need to wake up and smell the coffee.

For someone who hoodwinked the entire West and went inside Ukraine, how difficult would it have been to bomb civilians like what US did to Japan in WWII and finish it off in half an hour? The endgame is to bring Ukraine down to knees, prop up a friendly regime and go home. The only losers in this game is US and NATO. Donald Trump must be a very happy man right now! Also, this is a stark reminder to all of us why you need a strong India, an aatmnirbhar India and a no nonsense administration. It’s so soothing that the Ukrainians who basically always opposed us at each opportunity are now begging us to mediate on their behalf. As an Indian, I’m a very proud man!

Let’s come back to the markets. After an unbelievable drop on Thursday, we had a superb Friday and if nothing special happens tonight and tomorrow, we’re set to see a massive plus day on Monday, going by how US closed on Friday. I must say the drop took each one of us by surprise but I did what I always do as reflex- buy, buy and buy. Let’s see how and why:

On Thursday, we opened about two percents down and with the news of Russian attack. People predicted catostrophe and global destruction. They almost preempted a US led NATO invasion and that this was WWIII. Well, all you had to ask yourself was this- is the world really coming to an end! And to all of you, I have a simple talisman. When the two sides of the bet are: the world is coming to an end, we’re all going to die and two: this too shall pass, this is the easiest bet on offer. The world doesn’t end that easily. This is what Seth Klarman said in his famous video about 2008 global Financial Crisis: ” We didn’t think the word is ending, we couldn’t believe as to how people could think that the world is ending, The World Doesn’t End This Easily!”. This is a man who put close to $4 Billion in six weeks during September- October 2008 and is a legendary investor of the same league as Buffet.

So I didn’t know if this was bottom but from my Covid crash experience knew that the selling was unreasonable. People sold because they said companies with European exposure might suffer. Agreed to some extent. So I understand Tata Steel dropped and to a distant angle, Tata Motors sold off. However, on a day cash market turnover was probably highest ever, why did BSE drop 10%? Why did TCS drop whose almost all engineers are working from their respective homes in India? So this is what you must remember when the screen tells you something you would not be able to explain to a ten year old. I didn’t know if TaMo would collapse in Europe, which anyways is too far fetched but knew half my office is lining up to buy a Nexon. However, I was happy that atleast United Spirits held up as joy or sadness, who says no to Johny Walker.

The point I’m trying to make is that too much macro predictions will take you nowhere as you will be so worried that won’t be able to make any sensible decision. Whenever you face such a dilemma, take a deep breath and zoom out on life, look at it on a monthly or yearly chart and ask how many things market worried about and sold off actually happened. In January we sold off because of third wave, in Feb because of rising inflation in US and now this.

Here’s my takeaway- Be extremely optimistic of the India story. Foreigners have sold over 2.25 lakh crores in this FY alone( April to date) and our market is down hardly ten percent from top. This is when Nasdaq is down more than 20% and most US and global markets are down much more than us. The Indian retail is rising. Our SIP is over 11k crore monthly. The total AUM of Indian MF industry is hardly $500 Billion. This is when only 8 cr Indians have demat accounts. Imagine what will happen when 20cr Indians flock to buy stocks in years to come.

So as I said earlier, be proud of the fact that you’re witnessing a rising India, an India which is respected and will be a major super power in our lifetime. Stay Bullish on India, stay invested!

This I believe is a late post on this subject as most of you have already heard the story of IEX- India is a large country with huge power production and demand but very little power trading. In Europe and the US, power/energy trading is almost over half of all that is produced and India will catch up. Hence, the runway and opportunity size is extremely large.

We witnessed a sharp surge in IEX price last year when it almost went up 4x in a matter of six odd months and became one of the darlings of the then roaring market. It also issued bonus and is now down close to a third of its all time high.

So what’s my take in this. I have to be honest that I didn’t buy into the story the whole of last year, especially around the time when it was a clear buy- a pre bonus level of sub 400. I actually was happy that my BSE position was beginning to be rewarded and at that time, I was only slowly waking up to the idea of buying growth stories. So I missed the bus completely.

However, I did follow the stock closely, not just the price but also the business. I was surprised when Mohnish Pabrai and Guy Spier both showed large interests in it( here’s a link- https://youtu.be/f_2Smx_1hDM and https://youtu.be/PpEDGdILAEU) I totally missed it until a few weeks back when I was researching more of the upcoming power exchange by BSE.

The key in a Bull Market is to keep some stocks on your radar and then when they’re down but not out, dig deep into their businesses and see if you can add or build your potential. IEX was one of the stocks and it kept popping up my radar. It ticks all my boxes, high profit margins, long runway for growth, operating in a market with huge tail wind especially when the government of the day is pushing hard to take energy trading to over 25% in a few years. So what stops me from owning this one?

My position in BSE is a reason I never looked to own either MCX or IEX. It’s one problem which occurs to most people while taking large bets on similar companies that when you know both the bets are good, you somehow develop one of them and say- this covers me on this one easily so why both. Also, I’m a firm believer in making large bets, atleast 5% of my portfolio to begin with and with BSE being almost a third of my entire worth, I never thought IEX will own much value.

However, of late I have developed a liking to buy long term stories which potentially can go up atleast 5-10x without much stratospheric to happen. And when you hit one of those bets, all you do is to raise that position and hold through all the volatility. BSE for me is that bet where I believe the runway for growth is exceptionally large and it can be a ten bagger from here atleast.

Now, what about IEX? Can it live side by side with BSE in a portfolio and even NSE potentially? Well, the answer is a very close yes. I operate with a thumb rule. Whenever I look to decipher on the India oppertunity, I see what similar stocks have done in the US and Europe. So I dug deep into the European energy stocks, especially the European Energy Exchange, owned by the Deutsche Bourse group. It’s a massive cash machine, generating over 1000 crores annual profits, without much capital. The real eye opener was however when I checked its annual report. It says it’s main competitors are the ICE group ( which owns the NYSE), Nasdaq and the CME group.

So I checked out their numbers and I couldn’t believe myself. For the Intercontinental exchange group, the total revenue from exchange operation is close to $3.8 Billion and of which close to $1.2B is energy trading!!! Only 300million dollars is the equity trading revenue. Similarly, NASDAQ earns over 1/6 of its annual revenue from trading energy derivatives. So potentially, Energy trading in India can generate more money than what NSE or BSE can ever make in their equity devisions.

BSE recently talked in their concall about their readiness to operate its own power exchange- Hindustan Power Exchange and that they’re eager to launch power derivatives once it gets launched with SEBI approval in India. Also, BSE is about to launch its Gold Spot exchange. Both these businesses will be revenue accretive from the word go.

A big selling point for IEX is it’s near monopoly in spot power trading. The only thing I have to check is if BSE can make a dent to the tune of atleast 25-30% in this market in one quarter of its launch. Because if it doesn’t, the final box will be ticked and I’ll lap all the IEX I can because doesn’t matter what happens, power trading will generate humongous amount of money in India going forward.

this is the first time I’m writing before owning a stock as I wanted to talk out loud on this subject. The only thing which this research did was to make me believe even more fiercely in the BSE story as even in Europe, all three major exchanges have substantial market share in energy derivatives so it won’t be a one man show for IEX. The whole market will be enough for a lot of money to be made by all players.

So here’s my takeaway- for all of us waiting for NSE IPO for a rerating of BSE are looking at the wrong item. BSE will be rerated based on its blue ocean businesses- gold spot exchange, and hopefully power exchange. And to any of you who think that 2300 is a large price to pay, imagine what will happen when it will eventually become a $20B business in 20 years( share price of close to 40000)

I’ll be completing five years in the stock market this weekand this post is part reminiscing of the journey and partly some more thoughts on what’s happening around us.

In mid February 2017, my father bought for me the first stocks of my own money- HUL, Asian paints and Sun Pharma. Thanks to him, I knew trading was out of question and they’re to be held for long term. Beyond that, as someone from engineering background, I knew next to zero about accounting or finance. All I knew was if everyone sells, you buy and when everyone buys, you sell. It’s more or less a variation in buy low, sell high strategy.

I was then in Imphal, already working and preparing for my last attempt of UPSC on the sides. So for entire 2017, I didn’t pay much heed except buying small quantities of shares with whatever money I had. After I flunked my mains, in early 2018, I asked myself as to what I wanted to do in life and then developed a craving to study for CFA charter. So I brought some books and began to teach myself everything about finance and accounting I could lay my hands on. Around this time, I also had begun to read investing books and was under the thrall of Ben Grahamic style of investing, religiously looking at PE and PB of the stocks I covered. Around that time, as I learnt to appreciate the balance sheet and P&L statement, I also read about the biggest names in value investing such as Graham, Buffett, Howard Marks etc.

One man and his style did influence me and it was Rakesh Jhunjhunwala. His story always inspired and continues to inspire me. Since I was single and had plenty of time, I began to read all the books I could and did what is call the dirty works- learning to read the balance sheets, reading quarterly and annual reports of companies I owned, reading for CFA taught me basics of F&O, portfolio management and everything the professional investors do. As I was alone, I began to hear a lot of YouTube videos of all the investors I could find- both domestic and international. Talks at Google series, videos of Rakesh Jhunjhunwala, Ramdeo Agarwal etc all helped me a lot to understand the nuances of the market.

Knowledge as we know is cumulative and by the time 2018 ended, my portfolio was inching towards ten lakh mark. However, this was a very polarised market and doesn’t matter what happened, I was always down 10-20% on my stocks. Tata motors had already collapsed from when I began to buy at 435 to 250. I couldn’t fathom it but all I did was to buy. However, in late 2018- early 19, I decided to not pursue CFA as I realised 1. The portfolio management theory and DCF methodology is junk and 2. I can’t buy 100 stocks and claim to beat the market and 3. I wanted to be an individual investor.

So by 2019, I decided to go full throttle and become an individual value investor. I sold my HUL at 1700, Asian Paints at 1100 and Reliance at 1100 types and converted all to IOC, Tata Motors, and of all things Yes Bank. I kept adding to my positions and realised some key things- quantity matters, dividends matter. However, my biggest learning was yet to come. It was when I sold both Reliance home finance and yes Bank and booked a total loss of over 2.25l when I realised Quality matters the most. Looking back, it’s a small price to pay or otherwise, I won’t have achieved what I did last year because I would have still been buying junk like Jet Airways, PNB etc.

So by Covid lockdown 1.0, I had lost over 2l , read almost all investing books I could find, built a sizeable portfolio, learnt to read and understand basic accounting statements, and began to breathe market day in and day out. And during the lockdown, I went all in and bought whatever I could as much as possible and this paid off brilliantly. JP Morgan says- you buy when there’s blood on the street, even if the blood is yours. From covid low, my portfolio is up 6x, ofcourse with incremental capital but this has been hell of a ride.

Also, my biggest learnings have come in the past year when on August 31, 2020, I finally broke even on my portfolio for the first time. Yes, for 3.5 years, I didn’t even break even on portfolio basis but held on. Patience pays off in the market and hence they say, time in the market is more important than timing the market. I learnt that selling HUL, Asian paints and Reliance was not smart but dumb, not averaging up was dumber and buying junk is the dumbest. Hence my current philosophy is something like this- don’t buy junk, buy growing companies which are on the right side of technology and the India story, be doubly sure of quality ( I have zero exposure to Adani group, I just can’t figure the price movement) and have not more than 10-12 stocks. Top 3 holdings in my portfolio are over 60% and top 5 over 80. Quantity, quality and price, they all matter.

Now let’s see what’s happening to my favourite stocks:

1. BSE- it’s back to its life highs and here’s a very big lesson. From 2014, nifty is up 3x, Nestle 4x, HDFC BANK 4x but Bajaj Finance is up 50x. I heard someone say a very important thing- in a market, some stocks will have their own mega bull runs, irrespective of the overall market. So even if the market goes nowhere, these stocks will be up 10-20-100 times. If you spot one of them, and hold it, don’t fall for the quick buck but just hold and let the home runs count.

Tata motors- The stock is holding in a weak market but the best part is that people are still not buying in the story. They’re still buying Maruti and Mahindra while the company sells more EV month on month. Since FII are selling, Tata motors DVR is artificially down an extra 30% to 240 and is a lip-smackingly good buy. In three years, I see Tata Motors selling huge number of cars and the stock going up atleast thrice from here.

Icici securities- This is a no brainer ten bagger from here. The stocks growing 30% plus year on year, return on equity 70% is trading at 15 times earning is a ten bagger on sale. I won’t be surprised if it goes to 5000 plus in three- five years or less.

Happy Investing!

I’m reading a book called Bad Blood by John Carreyrou about how a fancied billion dollar startup called Theranos run by then feted Elizabeth Holmes was a web of lies and cheat. It’s stunning but not surprising.

Theranos was a biotech startup which claimed to change the way we do blood tests. Instead of needles, it developed a method to prick and draw just a drop of blood which through its invented device can be used to do multiple tests instantaneously. So what went wrong? The device didn’t work. Simple. However, Holmes went around the town claiming it did and convinced everyone through fake data and lies that it did and called herself to be the first female self-made billionaire. Now that’s huge.

Nobody called the king naked. Why? One, most of us have this immense urge to be woke and progressive. So if a woman was doing so well and if you question her, you risk being labelled a chauvinist and worse. Also, in an era of low interest rates post 2008, when Facebook had just gotten public, people rushed in to buy whichever Silicon Valley startup they could lay their hands on. Nobody even bothered to get their blood tests done and get results. Anybody who questioned was either bullied, fired or muzzled. So what happened in the end? Holmes have been convicted in January 2022 on multiple counts of felony and awaits her prison sentence.

Why am I telling you about all this? It’s because the more I read about Holmes, the more I went back to the way some of our startups are going around the town at stupid valuations. If the only question one had to ask Holmes was- Can you do a live blood test for me and give results in ten minutes? The whole lie was woven to somehow not answer this question. In the same way, the only question to ask them is- Can you be profitable? And the moment you ask them this, they will give you everything under the Sun but this answer. Does it ring a bell? Let’s see.

Paytm went around the town saying it’s profitable if you look at something called a Contribution Profits. Now what the hell is a contribution profit? It has invented a way wherein it says if you don’t consider some minor indirect expenses, we’re profitable. So what are these minor indirect expenses? As per Paytm’s latest quarterly results which came out yesterday, they’re- marketing, tech expense, employee costs and some insignificant items. Holy Shit.

If a company which is supposed to be a tech company says, for me my employee cost, tech cost is indirect, what the fuck do you think you’re smoking? It’s like Google saying well whatever I pay my engineers and the cost of building my technology should not be seen as my direct cost. And, for someone who throws money down the gutter to generate publicity says marketing cost is indirect and should not be considered when determining my profitability, it’s easiest the dumbest thing I have heard. Now let’s see how much these insignificant items are? Paytm did a quarterly revenue of 1456crores. These items totalled 845crores. What it calls direct expenses totalled another 1000crores.

This means to generate 1456 crores, it’s burning 1850crores. That’s an operational loss of almost 400 crores a quarter. However, since it can’t justify whatever billions it’s worth by admitting to this, it goes around town inventing accounting terms only it understands. We have multiple occasions when accounting frauds led to downfall of high and mighty- read Enron. The reason everyone agrees on one definition of accounting is to ensure we all value similar things similarly. That’s the reason a profit and loss statement is defined in a particular way on which the whole world agrees upon to prevent accounting frauds like Enron.

All I am trying to say is that if someone doesn’t tell you the most fundamental truth about his company or you feel he’s trying to bulldoze you through jargons or want to make you believe that you with your limited understanding can’t understand his invention or product which is going to change the world- guys run for your life. It’s a fraud and it will go to zero. It might be valued at ten billion or the biggest names in the world are lining up for it, but if you can’t understand it, just don’t put a penny in it.

There’s one more thing we should work upon. When you can’t understand something, the ability to say I don’t know is a huge challenge. People like to pretend to be knowledgeable and if they say they don’t understand the newest fad or the latest startup, it’s equivalent of saying I’m dumber than the guy selling it and lo and behold, that’s exactly the insecurity these people prey upon. You don’t have to blabber something when you could say I don’t know. This emotional urge to appear to be smart is injurious to your wealth especially in cases when the smartest thing is to see the obvious and say, can you please elaborate and teach me or show me what do you mean.

PS: I’m a bitcoin non-believer. I read quite a lot on it and don’t understand a thing. So I realised if I don’t get it, most people around me also don’t. But all they’re trying is to pretend to get it and try to fit in so that someone doesn’t say oh you’re so dumb. Well, the only way you can buy a bitcoin or its siblings is if you believe in it. Like Justin Beiber’s beliebers. You can’t question, can’t argue, join the movement and change the world.

Well, good luck with that!

A lot has happened in the last one month. Even though markets haven’t moved much, a number of stocks have been beaten to near death. Netflix has halved, Cathie Wood is not the superstar she was, Zomato is buying businesses on borrowed money and ofcourse, FIIs have sold massively. So I thought it’s time to dwelve a bit on some of these issues and see if we can make sense of the world around us.

The biggest news for me was the pain these neo-tech-fin-consumer companies were subjected to. Most are trading below half of their highs and some are well below IPO prices. The good news is that now more people are calling their bluffs for being what they were- junk, money burning trashes. In markets, as long as the price rises, nobody calls the naked king. The moment it turns and shorts pounce on, a lot of skeletons comes out of the closet. Now everyone can see Paytm is just a capital burning train with no revenue in sight. It was fantastic to see legends like Uday Kotak, Sanjiv Bajaj and Kumar Mangalam Birla voicing their concerns on froth in private markets. End of the day, your market cap depends on net profits you make and not on the projections you make while raising private capital.

Zomato is buying two businesses which is a case of conflict of interest as it’s CEO is already on boards of both the businesses and the transactions are happening at stupid lofty valuations. Google about it for details. My take is that acquisitions are an acceptable form of growth. However, this should be funded by your own cash flows and not by paying other people’s money. Tencent is known to acquire fantastic companies( here’s a link https://youtu.be/_-D3hoftCaY) but Pony Ma puts his own cash. Most of these companies have no revenue if you take funding out of equation. They’re selling a thing worth 100rs for 80 and this 20rs is the venture funding. Now they say call us Decacorn. Well, plain bullshit.

End of the day, a business is worth the cash flow it generates, not the amount of venture funding it burns to death.

In my opinion, a lot of these firms will fall another 50-70% before being sidelined from primetime public discussions and we’ll move on to the new fad. Remember this, Suzlon traded at 2000rs in 2007, Reliance Capital at 2500 and RCom was a Sensex stock. They all trade below 5rs today. So a Paytm falling to 20rs won’t be such a big deal.

Coming to discuss what’s happening in the US with Tech firms. Well I believe what Apple has shown with $125B in quarterly revenue is the true strength of underlying businesses. However, Netflix falling 50% isn’t that big a deal for one reason- you can’t simply extrapolate early lead into everlasting moat. Netflix is in a business which has no entry barriers except money. Now Amazon is on its heels for atleast 7 years, Disney and HBO also have upped the ante. And as far as India is concerned, my bet is Reliance will be the predominant player in five years time. The reason is clear. You want to watch TV, you get jio fibre which offers pre bundled apps like Amazon prime, Liv etc. So instead of paying the Amazons and Sonys, you pay through Reliance. You want to watch Netflix on phone, your data is from Jio. And now with Jio entering content market, you’ll see very quickly Reliance hiring half of Bollywood on its payrolls. I mean how difficult is for Reliance to buy Dharma productions and hiring all A list stars on exclusive contracts.

The next big theme in India will be what happened in the US with Netflix and Prime. With tens of billions of dollars available with Reliance from its oil to chemical business, I am betting in five years time, it will have as big a library as Netflix in India. The game about subscription based model is to buy as much as library and somehow keep delivering new hit content. As the latter is not predictable, you can’t be sure of customers flocking to your app forever. This is where Amazons and Reliances will win because they are not dependent on these models to grow. They’re doing this to deploy their excess cash and gain some extra returns. Even if they get one Spiderman in a year( $400B revenue worldwide), it will suffice. On the other hand, people like Netflix don’t have any other businesses to generate cash and stay in the game.

As we enter the second year of this decade, we will see large companies garnering even larger shares of India’s growth. Lockdown actually helped accelerate this process as the unorganised players had to keep their shops shut while you could order brands online. Come 2030, we’ll have atleast a few companies over $500B market capitalisation.

Coming back to the markets. FII have been relentless in getting out of this market. However, I am feverishly bullish on India growth story and did add whatever little I could to existing positions. The key is to know why you bought what you bought so that it times like these when the world around you is losing its mind,you go out and buy. As JP Morgan famously said- you buy when there’s blood on the street, even if the blood is yours.

I’m lucky that buying on the way down is now natural to me because I entered the markets in 2017 and not in 2020. For the first 3 years, I only saw my portfolio down 20% when everyone made money. I bought Tata Motors all the way down from 435 to 64! That was my test and now looking at the rewards, I know it pays to be bullish on India.

As I write, most of us would have been so tired of asking ourselves- is the market falling too much, is it the bottom or the beginning. The real answer is- nobody knows. The better question to ask is- what should you do about it?

One confession at the beginning- I’m delighted to see what’s happening to Paytm and its siblings. I’ve always maintained that their business models are dumb, working on borrowed cash by venture capitalists at lofty valuations and are never going to work beyond a point as they can never make a dime in profits. Also, they don’t have any differentiation to say what they’re doing can’t be done. I mean, Zomato, Swiggy, dunzo, etc etc are all the same. Basically half of them want to deliver grocery in shortest time possible and the other half wants to make you buy now and pay later. No value addition, no difference, no profits.

So now that we have seen atleast a five percent drop in our portfolio today, what should be done? I’m a true believer, a frenzied believer in the idea that India will be richer, better, more competitive in ten years time than it is today. I don’t see any reason to be less bullish on India Today than I was yesterday, or when Nifty was at 18700. If that is still true, all you have to do is to thank god for this flash sale and buy more of what you’ve already been buying/ wanting to buy for some time but the price wasn’t right.

Remember this- only on days like today when there’s blood on the street, twitter is predicting apocalypse and everybody wants to sell and run, on days when you puke looking at your portfolio are the days when biggest deals are available. On days like these, you get a Tata Motors for 60rs and a BSE for 300. On days when people are selling everything for whatever little they can and truly believe that the world is coming to an end, are the days when you go out and say- The World doesn’t end so easily. India is not going to end and it’s just a price correction when I am going to buy more. Unless you can buy today, you’re in a wrong place.

So what am I doing personally? I added to what I already own even when my closest friends laughed at it. I truly believe some of the prices we’re getting today are going to look like dreams ten years from now. I mean how many of you remember there was a time when Bajaj Finance traded at 150 or Reliance at 300 or an Asian paints at 200. Unless you can buy them at those prices, you’re never going to make it big and keep jumping in and out of the markets, buying and selling on whims and losing more often than not and forever cursing the market.

Today is as great an opportunity to buy than it ever was. India is on cusp of a multi year economic growth and the next decade is going to make all of us richer than we were in the last. Believe in India, believe in the power of compounding and believe in the idea that you’re going to be very very rich in a decade if you can buy and hold and add to the companies on right side of this story. Whatever happens in the next one month, or budget or Federal Reserve or Covid or border tension or whatever else which can happen will not matter in three years.

The fun begins now!