Author Archives: ZerotoBillion

There have been extreme swings in the market over the past few days. A lot of noise has shrouded the markets and everyone from journalists to politicians have jumped onto the bandwagon trying to score a lot of brownie points based on their alignments, be it ideological or political. Well I’m not a politician and this is not a journalist’s blog so let’s keep the news aside and discern what is important for us.

First, we have to make a distinction between the Adani stocks and the Adani group’s viability. I’ve two bits to add here:

The group’s viability depends on its ability to service its debt. As far as this is concerned, we now all know that the group has some bonds which are due for maturity over the next couple of years amounting to some 2 odd Billion dollars. Based on public information, there is not much doubt that this will be serviced. The late rally in bond prices also signals on similar lines. Even the worst rumours going on agree that the group has real assets which are functioning like ports and airports and cement companies and in the worst case, selling part of it to retire some debt won’t be an issue.

Second, there are some groups, the so-called gold standard banks which have reduced LTV values of some Adani bonds and that created some news worthy points for an eager media. Well, the two groups are Citibank and Credit Suisse. First let’s talk about Citibank. Even the current CEO won’t be sure about the number of times this group has either gone bankrupt or sold at distress prices. Credit Suisse has only been left with a fancy name and it wasn’t too long ago when its share prices hit lifetime low levels. In the past five years, CS shares have gone down by over 80%. So we must also know who is presiding over the case in what capacity.

Third, we Indians must refuse to be told about our interests by some gora sitting somewhere whose own pants are on fire. I am in complete agreement with Harish Salve that this assault on a group is being used to negate, deflate and nullify the India story and this is my biggest point. That India is a beacon of growth and prosperity in a world ridden with high inflation and macro economic instability is hidden to none. And there are enough vested interests who would like to hinder our progress. And of course there are pliable insiders who are all too happy to take orders from their masters in a wishful hope of being anointed as regents in a day when the current dispensation is laid to rest.

I refuse to buy this bullshit that share swings, however wilds are not going to deter the onward push of this giant who now has risen from its deep slumber after decades. India is truly rising and no force is going to stop it, from within or without.

Now, let’s come back to the share prices of the Adani group which in effect is the hot topic of the day. A lot of my friends are suddenly tempted to buy their shares which appear to be down significantly from their highs and offer deep value. Well, as I have written last week, no bull market leader ever comes back to its previous highs within at least ten odd years of its peak. Now will this group turn out to be a dud like Unitech or DLF which hasn’t ever crossed its peak or will it be an Infosys will only be known in hindsight. The only thing you should do is to get out of the way of this train which might cause a lot of damage before coming to a halt.

So here is my conclusion – never bet against India. This is our decade and we’re going to make a lot of progress. Bet big and be a part of this growth story.

And here’s my favourite part of the week- ITC released its numbers for the Q3 on Friday and what bumper set it was. On an already high base, the profits grew by over 20% and the stock is at lifetime highs . This in my opinion is only a start. Let me give you a small number to play with- ITC trades at just around 25 times trailing earnings while Nestle and HUL are at over 65-85 times. If there’s just a PE expansion and ITC begins to trade at around 50 times, in a couple of years, the stock will well be trading at over 1000 rupees a share and still won’t be as expensive as some of the FMCG giants are currently.

And in the end- Mercellus guy has now sold Relaxo claiming it’s no longer a monopoly stock and other related bullshit. This man is the biggest scam in the fund management business where all her did was to buy momentum stock and intellectualise the process to appear smart. His fund has consistently underperformed the benchmark over the past three years and I’m certain with most of his holdings now entering a degrowth era- Berger and Asian paints and HDFC life being hit by the budget bullet, in no time will he quietly fade away like other fries in the pan.

Yesterday was a massive day for the markets. The FM delivered a better than expected budget and the indices we’re gung ho until the sell off began. Adani Enterprises was circuit down 30% and all other group stocks similarly placed. So with the FPO out of the way, literally, what are we thinking now?

First, on the budget. I’m happy that my tax outgo will reduce going forward and that’s a big positive. Also, with the 80C era almost over, the country will move from forced tax planning to real consumption and investment at personal levels. I believe it’s a fantastic push for consumer companies as there will be more disposable income in the hands of consumers and they can then decide how to spend, save or splurge.

This was seen as a negative for AMC stocks but in my opinion if you see their performance across the globe and especially in the US, they have compounded multiple times without any tax incentives so I have no reason to believe that our mutual fund companies will not do well going forward.

And here’s my two cents on Adani stocks. First, I did feel good when the FPO was subscribed as it made sure that the market has decoupled from the carnage in group stocks. Had the indices not recovered from the lows yesterday even though Adani group continued its downward move, I’d have been pretty worried. So the systemic collapse is not to be worried about.

Second, is it a good time to buy Adani stocks? Hell, no. I’ve earlier maintained that I had avoided the group when it was moving up 5% everyday for simple reasons that I didn’t believe the price was justified. For this and one more reason, I’m happy to see it go down or sideways or anywhere it wants to.

The first reason is that the derating of the group is now firmly in place. No group/sector/stock ever comes back to similar elevated levels just after it begins to slide just like no bull market is led by the leaders of the last run. So the prices we have seen in Adani will soon be a thing of the past and aren’t coming back in a hurry, if at all.

Two, I don’t know if the group will survive or not but am reasonably certain that this is going down the lane of Yes Bank and DHFL, even if the end game is not zero. Remember the day when Yes Bank fell 30%, people including myself jumped into it thinking this was a stress sale. I was fully convinced that this was a dream opportunity but to cut the long story short, I lost 90% of my invested capital. This group has only halved from its highs, it can still go down by half three or four times in the blink of an eye. Please read my earlier posts- Don’t buy Junk for more details.

So the best thing is to exit whatever you own in Adani and the second best is to avoid adding more to the existing positions. The one thing you must remember that it’s not a blue chip distress sale which is going to make you rich but a trap for losing half of your money in a hurry.

Thirdly, ITC is at lifetime highs! It feels fantastic but the story has only begun. I’ve maintained that these high quality, dividend stocks will do well and am certain the end game in ITC is not 400 but 600+.

On a slightly different note, I was in Dubai recently and have noticed the fact that the moment your income goes up, you spend and splurge on luxuries. Ne it cars, watches, perfumes, bags or any of the high end consumption items. Even though India is way behind the GDP per capita, there is a quiet explosion happening in consumption in our country. People are lining up to buy better everything. So the companies which are providing these brands to the public are going to do fantastic over the next decade as when China went up from $3T to $10T, every luxury goods was bought in a hurry by the Chinese, from LV bags to Johny Walker Blue Label to Range Rovers.

So by this idea, I foresee a future where TaMo will sell more JLR in Indian than in UK and Europe combined while Green and Gold Labels will be staple drinks. Reliance Retail is now selling a lot of these luxury brands in India exclusively so that makes it a fantastic bet. There are others as well so take your pick but play this theme. It’s still early days but over the next three five years,this is certainly going to explode.

I’ve been extremely bullish on Tata Motors which is a true elephant in both its girth and gait. It is by far the biggest automaker in India with sales north of over 3.2 lakh crore for the trailing 12 months. This elephant, however was not really dancing in joy as it made losses, quarter over quarter, especially since 2018-19 when it began to rebuild its balance sheet.

Around 2018, its India PV business was in doldrums, the CV business going so so with a looming slowdown and JLR acted more like a white elephant which made losses the moment a car was sold. Since then, the management has been extremely prudent and aggressive in cutting slack and the results are for all to see.

From selling close to 5k vehicles a month in 2018-19, it’s selling almost 50k a month and is a very close number two contender, having sold over 5.26l vehicles in 2022. It has come out all guns blazing in the EV space and now has over 85% market share with an ever dominant portfolio. The JLR business has just begun to show real signs of turnaround with it generating over 5000 crores of free cash in the Q3 FY 2023. This my friend is a signal that this elephant is slowly beginning to dance.

The game is pretty simple. It is breaking even on its India PV business and with sales rising, it will generate close to 1000 crore plus profits there. In JLR, if nothing spectacular happens and the business does little better, it is perfectly capable of throwing over £1-1.5B pounds of free cash. That is over 15000 crores of annual profits in cash and when that happens, even at just 20 times earnings, it’ll be valued at roughly 800-900rs a share! And that’s without assuming anything out of the ordinary ! And the moment the market figures this out, it’ll price up the share to perfection and that I believe has already happened yesterday.

Amidst all the Adani led carnage yesterday, TaMo went up 6% plus. It couldn’t hold much higher levels simply because it faced an absolute rout in related stocks. So I believe over the next quarter or so, all TaMo needs to do is to not throw a bad surprise and we are in for a massive run from here. The beauty of this share is that even though it’s a large cap, its moves are that of a small cap stock. So it can very quickly rise or fall 15-20% in any given week.

There’s one more reason for my absolute bullishness. Tesla, the big daddy of the EV world has reversed its downward trajectory and was up just over 36% last week! Just imagine, a $150B company is going up 36% in a week. Out TaMo is just around $17-18B. Remember, the biggest money is made when a consistently loss making machine suddenly begins to generate free cash and that’s exactly what I am anticipating here.

https://zerotomillion.business.blog/2021/10/13/hello-tata/ and https://zerotomillion.business.blog/2021/05/23/random-investment-thoughts/ are some of the links you might wish to read for a preview of what my earlier thoughts have been on TaMo.

Here are my two cents on other market events:

What Adani group is facing wasn’t entirely unanticipated. Every bull market darlings goes down with some sense of disappointment, a hint of a scam or some external event which looks innocuous but has great significance. So even if the FPO doesn’t or does go through, I am sure the great premium it commanded will remain a thing of the past. This also is the beginning of the end of the rally in PSU stocks which have just been touted as the newest blue chips by Shri Ramdeo Agarwal. I believe I now have a new market indicator. Let me illustrate:

Ramdeoji is a growth and quality investor. So whenever an investor of his calibre enters a hot sector and buys crap, I believe that signifies the absolute top of the hype for that particular stock or sector. He infamously bought Zomato which I had mentioned in a previous blog when I got extremely disappointed with him. Now in a new interview he said he should not have even bothered but in the same vain preached of the great money PSU banks are going to make. Well, with the Adani carnage, the top has been made because now nobody is sure how much exposure these banks have with Adani and if SBI, the lead banker suffers big, the entire sector will suffer. Bull runs end when the darling takes a beating and SBI was the absolute darling of this PSU rally. So am sure, the 750 target for SBI will take five to seven years and a massive downside in the meantime.

https://zerotomillion.business.blog/2022/05/16/history-rhymes/ is a link to my earlier views on this.

So I’m extremely proud of sticking to a framework and not being sucked in, even when great investors have. I didn’t buy any of these Nyka, Paytm, Zomato nor did I buy the PSU banks or Dixon types. The key is to buy businesses which are not one year wonders but who can withstand tough days and still throw good cash.

One view now I’m beginning to strongly hold is the revival of high quality dividend yield stocks, such as ITC, Colgate and the likes. Look for names nobody’s talking about and which have fantastic cash to return to us shareholders. With rates inching up everyday, the only company which can survive and do well is the ones who don’t have debt followed by the ones who are cutting it fast through their own cash flows.

Here’s the book I’m reading currently – it’s called The Thoughtful Investor by Basant Maheshwari and having read the first hundred pages, I’ll rate it right up there with the best books on investing and certainly the best book ever by an Indian on the market. Do read! Also, most of his videos are now available for free on YouTube so you can cherish them both.

So last I checked, we have the much feted Nykaa trading at around 35000 crore market cap which is roughly $4.2B. At its issue price, it was floated at close to $6.2 B and at its life high levels reached somewhere in the year gone by, it commanded a hefty $14 odd Billion capitalisation. This is not the funny thing though. The funny thing is that it has earned a grand total of $1.2 M( rupees 10 crores) in the first six months of the FY 2023 and is still trading at a trailing PE of around 400!

I’ve said this before and shall reiterate that all money is equal. A company making hundred rupees should get similar valuations to another company making hundred rupees, give and take the required premium for its Return on capital employed. However, at the end of the day, hundred rupees will be worth a hundred rupees. Now let’s take the sample of some of our listed companies and see how they fare

Asian paints has made over 2800 crores in the first nine months and trades at close to 2.7l crore valuation. Page industries has generated close to 500 crore in the nine months ended September 2022 and trades at 44k crore valuation. Dmart has done over 1900 crores in the nine months ended Dec 2022 and trades at over 2.27l crore valuation.

ICICI securities has done over 850 crores in the past nine months and trades at just over 16000 crore market cap.

I’m not recommending any stock but simply reiterating a point which has served me in good staid. Value investing or for that matter any investing requires you to scout for a rupee trading at 50 Paisa or less so that you’ve your margin of safety. If the rupee itself grows into a five or ten rupee note, you’re sitting at a potential multibagger. That’s what Chris Mayer has so elegantly summed up in his book , Hundred Baggers.

So coming back to our title. These lousy companies came out with fancy valuations and we’re feted by the media as doyens of innovation and what not have quietly lost a lot of billions in market capitalisation which of course was constituted in a rush of mad easy money by venture capitalists. Now that the tap has been turned off, they’re gasping for liquidity which is few and far in between. Having lost almost 75% from top, they’re still trading at obscene valuations made up largely on hope, not real cash.

Our mutual fund and investing gurus have all taken to this magic, having bought substantial positions in some names, especially Paytm, nykaa and Zomato. They’re actively disseminating their views on TV as to how these companies are going to make a ton of money and why we all should buy them because they have fallen enough! Remember, Yahoo went down over 90% and so did Infosys in 2000-2002. The joke is- what is down 90%? It is a company which is down 80% and falls another 50% from there.

So don’t rush to buy the new new thing which might look extremely cheap because it’s down a lot. Remember, Yes Bank fell fifty percent, then another fifty, then a few fifty percent more. And it still didn’t get cheap. These companies are trying to lose a few billions, I hope it’s not your money!

Ben Graham is credited with the discovery of a character called Mr. Market, a maniac depressed character which is either euphoric in joy or dismayed beyond repair. He experiences wild mood swings and throws erratic prices at you, quoting Reliance at 2500 one day and 900 a month later. The best investors are those who take advantage of this behaviour and make money in the longer term. Those who react at every wild swing go bankrupt in no time. These are the punters or our intra-day traders as we call them.

So I realised that having an investor’s mindset is key to success in the stock market. You buy when the prices are most favorable and sell when you believe that it’s your best chance to exit. For the intervening period, you go for a walk and watch movies. The quotational loss and gain might be a good source of entertainment but you don’t take it to heart and sleep peacefully.

This is the basic principle behind this blog that compounding is a slow process rather than a destination and it takes its own sweet time. It is referred to differently as being patient, delayed gratification, holding one’s cards to chest, etc etc. Now this principle is the same as Karmayoga in Hindu culture. One does his duties as a way of bhakti and lets God decide what the outcome is. If you get panicky everyday for your deeds are not delivering the desired outcome, you are not discharging your duties righteously.

So I’ve earlier propounded this belief that personally, slow growth has led to massive compounding for me in reading, physical fitness and investing. From where I began the respective journeys to where I’ve been able to reach is like night and day. I surely couldn’t have imagined the progress I’d be able to make in the intervening period.

But why limit this behaviour, this investor’s mindset to only words, wealth and wisdom. Why not apply this to every part of my life and see if it works for of course it will. If you believe that in office, your bosses and colleagues represent the larger players of the stock market and they will cry and shout in unison for no better reason than they’ll praise and love you and all you’ve to do is to switch off the TV and let the day pass, you can outlast many a bear markets and enjoy the fruits of an eventual upswing. I personally have been a culprit of being an F&O trader in my dealing with my bosses and have certainly have had more than my fair share of bad margin calls.

Similarly, if you treat your spouse as another case of Mr. Market and start to see the larger picture and not react to her every mood swing, you’ll enjoy the true fruits of long term compounding without any short squeezes or a false breakout. Apply this to anything and it works- you want to attract a girl and you hit on the first one you see in college instead of hanging on to get the best available opportunity! You eat the first thing you see and it’s generally a pizza and have a fatter belly than you like. Imagine yourself driving through a bad traffic route and either you abuse your way through it or quietly focus on the way forward.

Having an investor’s mindset is crucial and I believe the key to it is self-discipline. Discipline is not some esoteric idea or a punishment but the price one pays to get rewarded multiple times over in future. It works in markets and so does it work in life. Hence I said, investing is life. True investing is investing in yourself and the key is self-discipline!

It’s been a while that I’ve posted something so first of all let me wish all of you a very happy and prosperous new year. Indices are doing their bit, falling for a few days while rising on the rest. As famously attributed to JP Morgan when asked what he thought the market would do, he replied – it’ll fluctuate.

So here I’m musing about a few themes which I believe are interesting. The first one is the capital market stocks- brokers, exchanges, asset managers, etc. These are fantastic businesses and have been around as listed entities only recently. Of the three, asset managers across the globe are known to be excellent compounders with out of the world margins and excellent cash to PAT ratios. Similarly, most big brokers in India have PAT margins over 30%, excellent ROE etc and what not. The same goes for exchange businesses. So what’s stopping them from performing? Well, to be honest, Nobody knows. What I truly believe is that just the way the biggest wealth creation in the last decade and half happened in the private sector banks when the ICICI and HDFCs of the world became $30-50-100 Billion market cap companies, similar stories are going to be played out in this sector. They’re trading for excellent valuations and we might make a lot of money going forward.

Tata Motors might be closer to its turnaround, finally. JLR is generating free cash, domestic PV numbers are through the roof and the EV market is growing at a fast clip. Like I always believe, a loss making company which gets back in the black is the perfect multi-bagger opportunity. It will do over 3.2 lakh crore revenue this year. Just imagine! With break even numbers going down, if it can sustain its decent show, it’ll go from making loss of 5000 crores to net profit of 10-20 thousand crores in no time. And that will make it trading at hardly 10-15 times earnings. If it can sustain its domestic momentum and can hit the targeted 60-80k cars a month, we might be looking at a potential triple from current levels, if not more.

And this is regarding the overall trend going forward. The quantitative tightening is here to stay. Funding stupid business models with cheap debt is dead. The businesses which can generate sufficient cash with high dividend yield are certainly coming back in flavor. So value is not just PSU banks and ONGC. It is also a Hero Moto throwing 4% yield, an ITC still trading at 4.5% yield and the entire IT pack which returns all the cash. The FMCG is a pack wherein thanks to non-performance, yields in cases like colgate and lever are pretty decent. We tend to treat dividends with contempt but am sure in an era where FD is paying 7-8%, stocks with attractive yields will find favor.I’ve also added an IT stock which trades at pretty high yield and has excellent return ratios.

So where do I think the market is headed? Up and above. The severe time-wise correction in the US especially is tiring down and the Nasdaq refuses to break below 10500 levels while the Dow has held 32k pretty tightly. All it needs is a stable US market for us to break above the recent highs as the myth of FII selling has been nullified through retail SIP alone. At the current rate, SIP will add close to $20 Billion a year and some more. Add to that the NPS monthly contribution which has a ‘no-sell’ mandate for at least 2035-40 and you have close to 200000 crores annually which just has to buy at every level.

An interesting area where nobody seems to be looking is the FMCG basket where some stocks which used to trade at obscene levels are cooling down, like the ones I mentioned. Similarly, the old two wheeler stocks are currently not loved at all. I believe that you must look at pockets where no one seems to even care. Everyone wants to find the new crafted single malt but sometimes all you need is the good old wine in the old bottle!

This has been one hell of a year. It will be remembered for, before everything else, the resilience of Indian retail money. Until a few years ago, markets went down just in anticipation of FII outflow and when they sold, markets collapsed. In the fall of 2008, Indian markets went down over 55-60% when the cumulative FII outflows were around $20B. Come 2021-22, the net outflow was over $40B over an eight month period beginning October 2021, and yet we hardly caught a breath. Indian indices are up on a year to date basis and have hit fresh lifetime highs in November 2022.

There of course have been people and institutions who were waiting for our markets and more than that our economy would collapse but to their dismay, both are in sound shape. History tells us that when Sind was attacked in the seventh century, it was the natives of that region who helped the invaders to cross the Indus river. So our land has always had a history of traitors. They’re now in myriad forms. Some ex-employees of the previous regime are desperate for a post retirement/ rejoining the post at high levels and thus do everything in their might to criticize everything the nation does. When the entire world has recognised India as a beacon of growth and stability with it being the fastest growing major economy, they will claim that India will do well to even grow at 5%. Sour grapes I must say.

Anyways, coming back to our discussion. It is now believed with certainty that the country is poised for a major upswing in this decade. The absolute size of the opportunity over the next ten-fifteen years can be anything between $3-10 Trillion, depending on the rate of growth. If one is seized of this fact, the biggest risk is to not invest in India and the second biggest risk is to play for a ten-fifteen percent gain.

If you can’t choose a stock, put all your money in a low cost nifty or sensex Index fund and do monthly SIP. Don’t look to book profits and ride this wave for the next decade, you’ll make a lot more than what any other instrument can offer. From an individual perspective, FD post tax is not more than 5%, gold is just around that in a good scenario, real estate has such a high ticket size that a man in early 30s with a 30l yearly income can’t afford to buy a decent house in a tier two city. Bitcoin has run into muddy waters with get rich quick schemes like it and NFT etc going to zero.

What has happened in Alameda/ FTX isn’t anything novel. It happened in Theranos a few years ago, with Berni Merdoff in 2008, Enron in 2002 and Harshad Mehta in 1992. Men and women alike want to get rich quick. If I explain to ten colleagues of mine to quietly buy an index fund for ten years and that it can give you 12-15% compounded return, they’ll not listen to me. I, however, tell them to lend me money by guaranteeing 5% a month, they’ll sell their house to give all they can and then ask their friends and families too. In a famous quote, somebody asked Charlie Munger as to why people can’t just follow him and Buffett and get rich beyond imagination, he said because nobody wants to get rich slow. Unfortunately, except maybe Elon Musk and Zuckerberg, everybody else has gotten rich slow.

Coming back to my favourite part- new age tech stocks in India. I was recently reading a book on the origin of PayPal and it struck to me that whatever Paytm founder has been saying about being making profits etc is nothing but the exact words of Elon Musk when he launched the X.com and Peter Thiel when he led the merged entity called Paypal. There is, however, just one difference. Paypal never made money in payments, until it began to charge people for it. In India, that’s not possible because UPI, my friends, is a public good managed by NPCI. Thus, it doesn’t matter what Paytm or the likes tell you, there will never be a way to make money as all these apps use UPI to transfer money and the technology is free for the public. So, I get everything Vijay Sharma says but since the hole in his P&L can’t be filled, more money is required to be burnt every minute of everyday to keep the game going and the moment he runs out of funding, it’s over. And then comes the fantabulous idea of buyback. A company which is burning cash to stay alive wants to waste 850 crores to buy back shares in order to support its share price.Such noble thoughts!

Byjus is in trouble for more reasons than just shady accounting. It is accused of using malpractices to push its products by almost blackmailing parents and siphoning off their hard earned money. The biggest emotion there is to tell a middle class parent that unless they use some course, their child will be left behind. With rising child suicide cases in Kota, I’m more than certain that this coaching – Edu Tech business is soon to be facing the might of the government. The best entrepreneur was the Aakash guy who sold it off to Byju at the peak of market valuations and has been buying farmhouses in Delhi for hundreds of crores.

Regarding Myntra and Nyka, what I believe is that once Reliance is game, you can’t beat it. Ajio has made massive strides in fashion this time and the deals and offers have been better than before. You just can’t beat a company which has a 50000 crore annual free cash flow from its Oil refinery by raising a few hundred crores. Reliance ecosystem now has everything – shopping, malls, online, toys, digital products, and what not.

One online business I really think will survive is this food delivery one. The valuations are an issue for me because I myself use it twice a day and know the retention levels are enormous. I will actually wait for Swiggy to list and valuations to correct another 50-70%. You can lose a lot of money by paying top dollars for a fantastic company too! So Zomato at 25, maybe yes. At 60, avoid.

This year marks the end of sixth full year of my investment career and from personal experience, all I can tell is that the best returns are in sitting. You’ll make 2-3x on the portfolio in six months while the rest of the time will be a test of patience. Hence investing is an art of keeping patience, when everyone has already lost it!

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.

Life, as investing requires one to keep doing something over and over again to gain mastery. It is, however, easier said than done. Everyone loves to be fit, or to own a ten bagger, nobody wants to wake up early or to hold a stock when it goes down 50% and does nothing for three years.

What I have learnt and imbibed in myself is to focus on the process. What serves me well in good times is what keeps me going during bad times too. It is simple to remember this but extremely difficult in practise. When you’re on a roll, you can do no wrong. All your stocks are moving upwards, your muscles burgeoning and budget in check. You feel great about yourself and the family and friends cheer aloud. This is the time to remain cautious and not let the guard down.

When the market inevitably turns and your biggest holding falls by over 50%, your friends who thank you profusely to have suggested it will begin to avoid and denounce you as just one lucky chap. When the time is bad, you realise how many of them were with your time and not with you. This is one essential check one must do for everyone, for the high flying stocks which were essentially junk but went up above in the sky or someone who was just praising the glory of your time.

The most important thing is to stay true to fundamentals. Personally, when I’m down, I make sure to hit the gym harder and more regularly, read more and better and to do everything with clockwork precision. I’ve a belief that what has brought me to this place will take me higher. How will it happen or when will it happen is destiny. I neither control nor cry over it. Exactly the same way, if the stock is fundamentally strong, has a good running business and ticks the boxes on all our checklists, underperformance with regard to the market is a time to buy and hold, not sell and run away.

Also, one must be wary of people who begin to doubt your intelligence and stock picking ability. You must remember that most people who never invest in a dime will criticize Rakesh Jhunjhunwala for not being a good investor. These are the same group who are going to sit before their TV or phone screens and watch the world move up and down and die when they’re old. They’re not the ones to be taken seriously but instead be avoided.

One must remember that most people in this world will grow up, make a living and babies, grow old and die without a trace. If you’re in the long haul, to make a name for yourself and grow healthy and wealthy, you must choose your friends carefully. I’ve received more Gyan on fitness from the ones who never went for a walk, on investing who can’t tell the difference between Nalco and Nelco and on books who have never read anything other than Chetan Bhagat. Just like buying a book and reading are two separate hobbies, joining a gym and working out regularly are separated by a mile, similarly having a demat account and being an investor are poles apart.

Most people who join the gym will quit by the end of the first month and will criticize the gym for being overcrowded. Most people who make a trade will never invest after the stock falls 20% and forever crib for the market was rigged. It is essential to remain focused on why you truly started this journey – of fitness, playing a sport or investing.

It doesn’t matter what you pick, nothing beats doing it over ten years and letting the magic of compounding unfold. There will be multiple ups and downs, bear markets, bad weather, Russia Ukraine but you must stay the course. The glory is not for the weak at heart. If you intend to have a ten crore portfolio, you cannot keep jumping in and out of the market and investing 50k when you must invest 10 lakhs.

It is famously said that great investing requires vision to dream, courage to buy and patience to hold. Of the three, patience is mostly rare. It doesn’t matter what the rate of compounding is, the deciding factor in the formula is the time period.

So when you next see your stock fall faster than the market, remember why you bought it, not what your neighbour says about it now.

I’ve been holding BSE shares for over 4 years now and it has been a rollercoaster ride. I first began to buy it at around 730( bonus not adjusted) for the healthy 5% yield it provided. Over the next one and a half years, it fell, and fell a bit more. For the first three years of my holding, it never crossed my first purchase price even once. Time changed, it went up over 12x from its Covid lows of 275 to around 3100 levels and then fell 50%. Currently, it is at a pre bonus price of around 1800. What do I think it is doing and what is my current opinion, let’s find out.

Let’s do the step wise analysis of BSE as I always do to find out if the stock is worth a look, investigate, invest and hold. So firstly, the company. It’s the oldest stock exchange in India, in an extremely regulated environment which has resulted in it being one of the two duopolistic players with no reasonable chance of any new player coming in any time soon. Secondly, the company has survived for over 140 years so it is reasonable that it is likely to hold a fort for the next decade at least. Also, the brand recall is possibly the best in the Financial Industry in India. So the first box is ticked.

Secondly, is it on the right side of the India story? An emphatic yes. It is catering to the growing masses flocking to the securities markets by being the first gatekeeper, charging a small premium for its services. Technology wise, it is the better of the two players. Its business requires an extremely limited amount of fresh capital to scale and the expansion is funded through P&L and not through asset heavy Balance sheet. So anything left after its expenses is returned through a dividend with extremely high dividend rates. The company is cash rich with close to 3000 crores of cash sitting on a zero debt balance sheet. The fact that it generates regular profits and is available on just a Billion dollar market cap makes it a fantastic buy.

Now we do appreciate it is not going anywhere in the traditional businesses – equity, derivatives and commodities. Here is the thing. It’s a runaway success in most newer businesses it has lauched- International exchange, StarMF platform and now Electronic gold receipt and insurance broking. Some of them are beginning to show good revenue runrates while the other will soon turn to mint cash.

The thesis is extremely simple. More and more Indians are likely to turn their savings into financial instruments and it doesn’t matter who buys what, the house is likely to win over the long term. It currently does close to $100M in revenue and $25M in profit and this number is likely to grow ten twenty fold over the next 10-15 years without much fuss. This in itself will throw out so much cash that the dividend will be higher than today’s share price. No exchange in the world is worth less than $20B with the largest ones- NYSE, LSE etc are valued over $60-80B. The second largest exchange of the world’s currently fifth and most likely third largest economy in the next five years can’t trade at $1B. So my opinion is a strong hold and don’t even look at the price!

Isec is a similar play with even better financial numbers. It is already churning over 300 crores a quarter. It was going down because once the Q2 2022 numbers were out and markets began to go down, people believed that the best was behind and stock fell from 900 odd to just over 400. Now the worst quarter in the near term was most likely the Q1 of 2023 which generated 275 crores of PAT. And that was the first quarter when it didn’t fall post results. It is trading at levels in my opinion it is unlikely to ever see in its three five year cycles. You just don’t get a business with 65% ROE with revenue growing at 30% trading at 10 times trailing earnings. That stupid NYKA is trading at over 1000 times earnings.

Just imagine this. Nyka did a PAT of paltry 5 crores and even at this price gets valued at 50000 crores. ISEC makes 300 crore PAT and is trading at 16000 crores market cap.

As we have seen with ITC going up 75% in a year when Nasdaq has fallen 35%, paypal and mera are down over 80%, the market does wake up to valuations. My opinions have only grown stronger for what I own and in my limited understanding of the markets, as long as the business is doing fine, share price does catch up. Funnily, most of this catching up takes place in an extremely short period of time, especially when no one takes notice.

PS- My strong sense is that Hero is on the verge of a catch up play very soon. Just like ITC, it has done it’s eight year of penance when it has all been written off. In reality, it is one of the best poised players in the electric play with tie ups/collaboration/investments in three fantastic EV players, which in that order are Gogoro/Zero/Ather. And a company which sells 5l vehicles in a month and gets trolled, just imagine what it will do when it’s ready!