Author Archives: ZerotoBillion

This has been a pretty hectic month for global markets. At the last count, three major banks in the US and one of globally significant ones- Credit Suisse have gone bankrupt or sold at pittance to its national rivals. Let’s deal with this one by one!

The SVB collapse is a stark reminder of the global financial crisis circa 2008 when banks and financial institutions collapsed while enabling maids and strippers to purchase mansions in Florida ( no am not making this up, Strippers did buy mansions. Go read the Big Short by Michael Lewis). It is eerily similar because, and am borrowing a quote from Shankar Sharma that this startup lending is subprime by its very nature. On the other hand, Credit Suisse going under came as a surprise but not shock to anybody following its share price in the past one or two years. At the last close, before it was sold at 75 cents a share, it’s market cap was just around equal to that of Canara Bank while it was bought at half the current market cap of Yes Bank! So much for global dominance and sound banking principles.

Currently, UBS, its savior has a market capitalisation less than that of ICICI Bank! The bigger thing is not market capitalisation but resilience of the Indian Banking industry in the face of global carnage. It is a matter of great pride and joy that our economy and banks are in absolute fine shape while the erstwhile global giants are collapsing like house of cards. It is also a testimony of our greater national economic resilience that while all major countries are staring at a recession, India is booming. Lamborghini is sold out for the next one year, Mercedes and Jaguars have have a waiting period beyond a year, Hotels have seen bumper occupancy at almost three times the usual prices and almost everything from iPhones to luxury watches are selling like hotcakes in India. So much for a falling GDP growth!

Look around folks, India is experiencing a monumental leap which is almost tectonic in magnitude . Over the next ten years, we’ll grow from $3 Trillion to almost $8-10Trillion and the way we see ourselves will change. This will be reflected in absolute world-class infrastructure, excellent hospitality industry and an India which is prosperous and aware of its role as the global rule setter.

Just see the change we have gone through. We now complain of a patch in a newly constructed highway being flooded whereas twenty years ago the road was no more than a single lane patchwork. I recently drove from Jaipur to Jodhpur, end to end in less than 5 hours including traffic( 350KM) whereas it used to take no less than 8 hours just a few years back. The roads and airports are now at par with the best in the world and any gora trying to tell you that India is an emerging economy must be smoking hash! We have the best payment and settlement systems in the world and the world is trying desperately to copy the UPI phenomenon. If it takes more than 5 minutes to open a broker’s account, I’ll be perplexed whereas the Germans still line up and wait for two weeks filling copious paperwork. The world is actually backward when it comes to digitisation and financial services. The Japanese are still figuring out mobile wallets while we’re going to international UPI.

One more thing, our hotels, even in tier two cities offer far more fine experience than one can imagine in even places like Dubai while Europeans still can’t figure out losing luggage in conveyor belts. This is our hallmark- hospitality. The world is also experiencing a new Indian traveler- richer and demanding. I don’t want to eat bland boring stupid pancakes and cupcakes because I want my laal maans and if you can’t provide it, you don’t get my money. The world will and is taking notice and the power of the Indian passport is rising. If you want me to visit your slowing economies because your people desperately want to sell high-end bags and watches which your people can’t afford anymore, be respectful of my identity. If you go around allowing Khalistanis to disrespect my flag, you lose my money Sunak! I’ve personally made a thumb rule that I’ll never travel to a country which doesn’t allow e-visa to Indians. As an Indian, a citizen of this extraordinary country facing its true tryst with destiny, I can be absolutely insistent on being on the Big Boys table.

So coming back to markets. This Credit Suisse, now Debit Suisse was pretty fast in not accepting Adani bonds as collateral. In one month, Adani has prepaid over $3-5 Billion of bonds while in Credit Suisse’s $17 Billion bonds are now worthless and it is bankrupt. Wake up Europeans, smell the coffee! India produces the best in the world btw!

Most importantly, I believe we’re somewhere in early 2009. This is when Lehman and AIG and the likes were dead or bailed out and the markets enjoyed a decade long bull run. We’ve gone through enough time correction where people have written off equity. This, as history tells us, is the time to be bullish left and right. I personally am always 110% invested so I’ve a vested interest in being so!

If you have read me this far, invest on India. Be bullish on this beautiful Country of ours which will be one of the most prosperous places on this planet in the next one generation. The naysayers will earn brownie points but you can earn a Billion.

So the monkey is off! The Silicon Valley bank collapsed in the US and the first major corporation is finally bankrupt post the rate tightening cycle which began at an unprecedented pace in the US and the world last year. Everyone was actually worried as to why no major poster child has yet collapsed and what better than the bank lending to startups in the Silicon Valley. It proves that the era of easy money is over and the hardest hit are the guys who had a free run beginning 2008, the guys running startups without revenue or profits or both.

There will be reverberations in India, ofcourse and our markets have been following the trend on the way down. I’m not sure as to when it will end but this is actually the beginning of the end for now the panic has led to chaos. You can blame me for being too optimistic but that’s how I view the world. So let me make some points in my defence.

The hardest hit by increasing interest rates are the guys who borrowed their way to growth. In India’s case, our listed corporate balance sheets are pretty clean given what happened post IL&FS crisis. Our Banks NPA are already one of the lowest in recent memory and their capital position extremely strong. Banks are also raising CASA deposits fast by offering juicy FD rates to their customers and even the stock market channels are now advising their viewers to park money in the bank. And this is my strongest point. The pessimism mood has given way to irrelevance.

It has been around 1.5years that the market hit its peak in October 2021. After that, even though the indices are down just around 8-10%, portfolios are down well over 20% and people have seen such negative down days that the hope of making a quick buck has died long time back. The Covid traders have gone back to their day jobs and equity markets are being viewed as a dangerous place once again. I know of a novice trader who had it so good that he almost made a million rupees through options trading and felt like king of the jungle. He, ofcourse, gave it all back in a couple of trades and has now gone back to massaging people’s back( he’s a physio).

The office conversation which was about how IEX has made a lot of money in 2021 went to how the market has fallen a lot in 2022 has now given way to “I don’t even know what’s happening in markets” in 2023. And that is the height of skepticism. People now refuse to believe that the market can go up and thus have stopped paying any attention to it. They either have taken their money out at a loss or have certainly vowed to not put in any more.

I personally have seen my portfolio go up 5% and fall ten so many times that even I at times feel if I made a mistake not selling out something when the going was good. So it happens with everyone and now I believe that the tide is turning.

Markets always climb the wall of pessimism and skepticism and eventually they will this time as well. How can a company who owes no debt fail? How on earth does an ITC fail when it has cash reserves of 50000 crores paying higher interest income to itself when the rates are going up!

Remember! It is essential to differentiate between the stock prices and the businesses which you own. This is the test when men will stand out from the boys and I’m sure, we’ll see the sharpest recoveries pretty soon. When everyone has given up on the market, when everyone sells on a rally, when everyone is dead sure this is a dead cat bounce, therein lies the seed of a new Bull Market.

Remember April 2020! Everyone and their uncle knew the market would fall and it is certainly going down to 6000 Nifty. Well, after that bottom of 7500, it was almost a one side run to 18000!

Stay invested, stay bullish.

India is on the cusp of a momentous feat. As the nation celebrated the 75th year of its independence, it also recently edged past its former colonial master to become the 5th largest economy in terms of nominal GDP. It took the country 50 years of independence to become a trillion dollar economy, while the next two trillions have come in 7 years each. It is also likely to become the third largest economy by the end of this decade, as per the recent IMF projections.
The objective of this article is to trace this journey of Indian economic growth through the rise in its stock markets and see if there exists any telltale signs of what is in store for India @ 100.

Journey of the Indian Stock Market
Even though India is a part of the emerging market basket, it has well developed and sophisticated financial markets, best depicted by the presence of the oldest stock exchange in Asia, the Bombay Stock Exchange (BSE), established in 1875. The bellwether index, the BSE Sensex has gone up almost 400 times since inception, at a CAGR of over 15%p.a.


The market capitalization of all companies listed on the BSE have gone up significantly from just over Rs. 6lakh crore in 2002 to over 28.3 lakh crores in September 2022, a growth rate of over 20% compounded annually. The BSE Sensex over the similar period has grown at a CAGR of just over 15% from around 3300 in 2002 to almost 60000 in 2022.

The fact that market capitalization of all companies has grown at a significant rate than the annual returns of the Sensex is in part dealt by Jay Ritter (2012) which says and I quote “… that investors realize only on the shares that they hold, not on shares that may later be issued by the same companies to other investors. … Part of an economy’s growth, as we have already seen, can be attributed to savings invested in new companies, and to the issuance of new securities by existing companies. But the gains on this capital investment do not necessarily accrue to today’s shareholders.”
This basically means that as more companies which are yet to be listed find their way to the bourses, the total market capitalization of the country rises, a fact which is not necessarily captures in the returns on the Sensex. There are two further explanations to this. One, not all companies which get listed on the exchange get included in the Sensex 30, as any such inclusion is based on the size of the float and turnover criterion and two, even if a newly listed company does get included, this itself may happen with a lag and thus, the return it has generated in the meantime is not captured.

A big chunk of companies which hit the bourses post the bear market which ended in 2003-04 have gone on to become mega corporations such as TCS & Maruti & DMart while the large PSUs which have only recently been listed include the likes of Coal India & LIC. All such corporations have contributed to the significant outperformance in the rise of market capitalization vis-à-vis the Senex. It is also reflected in a popular market hack/myth that companies underperform the index upon inclusion as most of the prices have run up ahead of their eventual inclusion.
Relationship between Economic Growth & Market Returns
There is a rich literature which has analyzed the role of economic growth in stock market returns. Ritter (2005) has found a negative correlation for the compounded real return on equities and the compounded growth rate of real per capita GDP for 16 countries over 1900-2002 period. Krugman (1994) & Young (1995) have argued that much of real economic growth in emerging markets comes from high savings rate and the more efficient utilization of labour, neither of which necessarily translates into higher profits accruing to the shareholders of existing firms. Dimson et al (2010) too found a negative correlation between real growth in GDP per capita and real equity returns. They also opine that the stock markets anticipate future growth and run up ahead of the curve and thus, high growth countries does not necessarily are the best performing stocks.


In case of India, for the period 2002-2021, we observe a very strong positive correlation of 0.94 between the growths in total market capitalization of BSE listed companies and GDP in absolute terms. On the other hand, a small negative correlation exists in each of growth in market capitalization v/s the returns of Sensex (-0.201) as well as growth in GDP v/s the returns of Sensex (-0.2183). This is in line with the literature which also observed that economic growth in a country is not necessarily translated to higher stock market returns and vice versa.

It can be argued that the Sensex 30 companies contribute just over 40% of the total market capitalization, and thus may not be a true proxy to capture the real returns of the markets. Keeping this in mind, data for BSE 500 index was utilized to observe if the above thesis stands ground. A similar level of negative correlation (-0.26 for BSE 500 v/s growth in GDP while -0.21 for growth in market capitalization to BSE 500) was observed.
An interesting observation, however, was in store while working the same set of data in absolute terms. A highly positive correlation of 0.94/0.96 was observed between the total market capitalization v/s the Sensex 30 & absolute GDP at market price v/s the Sensex. Similar correlation figures of 0.961 was observed for the Sensex absolute value v/s the per capita GDP in dollar terms for the period 1980-2021 and correlation figure of 0.952 for total market capitalization and the per capita GDP for the period 2002-2021.
The above points to a scenario where over the long term, a rising GDP results in a rising Sensex as well as higher total market capitalization even though a growth in GDP may not necessarily mean or indicate a positive return on the index in that particular year. The most obvious examples of this are years 2008 & 2020. In the former, the stock markets nosedived along with its global peers while the Indian GDP managed to hold fort against a wave of global meltdown. On the other hand, in 2020, the Indian GDP recorded its first negative economic growth in over 40 years while the stock markets managed to climb all walls of worry and registered a strong positive year.



Journey of the Domestic Investor-
Even though India has a large tradition of stock market investing, majority of the household savings have habitually been parked in gold and real estate. In the era of socialist policies, it was an ultra-socialist Minister, George Fernandes who inadvertently led to the birth of equity cult in India. As Industry Minister in the then Janta Party government, he forced the MNCs to dilute their stake in their Indian subsidiaries and thanks to the then prevailing policies, global majors such as HUL were forced to list their stocks at controlled prices on the domestic stock exchange. Alongside came Dhirubhai Ambani with the listing of whose Reliance Industries in 1977 and through its subsequent rights issues, then begun the first phase of equity cult in India.
Indians, however, have been slow to take the plunge. The total number of Demat accounts, a proxy of actual investors participating in the markets only numbered around 4 crores until 2019-20. Then Covid struck and Indians who found themselves stuck at home suddenly thronged to the markets in hordes. Thanks to the online onboarding by digital stock brokers, the total number of Demat accounts have jumped significantly to over10 crores in September 2022.
One reason which may be theorized is the rise in discretionary income in the hands of Indian populace. A proxy for this is the per capita GDP of the country, which has grown admirably from a lowly $82 in 1960 to over $2270 in 2021. According to the IMF, it has crossed $2500 in 2022. As the income in hands of people increases, they have more money left to either consume better goods or to invest. According to the World Bank, India’s household savings to the GDP stands at 29.3% in 2021. This translates to roughly $900 Billion of savings. A major chunk of this savings is parked in non-financial assets such as real estate and gold, etc. A trend, however, is slowly emerging towards greater financialisation of this savings. A proxy for small investor money flowing into the market is monthly SIP book which stands at record 12693 crores in August 2022.

Road to India@100
India has seen massive growth in its economy and the stock markets over the previous 75 years. The next 25 years, however, are likely to be even better for the nation and investors betting on it. In absolute terms, India is likely to add over a Trillion Dollars in its economy in even lesser number of years as it did the previous years, simply by the law of compounding. This will translate into real wealth for the nation as even at current 29% of household savings rate, the absolute value of such savings is likely to grow into trillions of dollars per annum and that means more resources for everything- infrastructure, welfare and wealth creation.
As the trend of financialisation of savings picks up, the amount of money flowing to the markets will be massive and that is likely to feed the stock markets in years to come. As we have observed, the rise in stock market capitalization moves in tandem with the GDP, Indian stock market capitalization is also likely to scale unfathomable peaks. Even though growth in economy is not necessarily a predictor of stock market returns, in absolute terms, over a long term, stock indices have been known to rise up alongside the economy.
Since the mood is cheerily festive, this is the year of dreaming big and making bold predictions about the future. So here is my two cents. The law of compounding is the eighth wonder of the world, said Einstein (though nobody can be sure about it). Indian GDP growth rate, the new normal of which is assumed to be somewhere between 4-8%, depending on how optimistic one is. The GDP is projected to reach anywhere between $8.8 Trillion to over $23 Trillion, as the chart below depicts. The per capita GDP may also reach anywhere between $6300 to over $16000 in the same time frame.



The most eye catching prediction is what lies ahead for the stock market. Indian stocks have delivered over 15% CAGR since 1980 and as Jeremy Seigel in his famous book, Stocks for the Long Run has depicted, stocks are known to deliver returns above the risk free returns of the treasury over long periods of time. This excess return is what is known as Equity Risk Premium. In India, G-Secs yields have moved between 5-12% for the period March 1998-September 2022. Assuming 3-4% risk premium, let’s see what the Sensex can look like in years to come:

Bet Big on India- it works!
*****

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!