Author Archives: ZerotoBillion

In the last blog I mentioned the fact that maybe we had hit the bottom post the Windfall tax news. Post that, NASDAQ is up a thousand points, almost ten percent and nifty is also up over a thousand points, almost 6%. We should realise Nasdaq was down almost 35% while Nifty was down 18 so it’s an almost equivalent rebound.

The GST collection has consistently over 1.4 lakh crore, exports are averaging $40 Billion a month, Indian rupees hasn’t fallen off the cliff even amidst all this flight to the safety of US dollar. Corporate profitability, their balance sheets are in the pink of health and capex journey is all set to begin. Now what it means is that Indian economy is in a much healthier shape than before and the moment markets turn, India will resume its upward journey.

As far as markets are concerned, my belief that we’re in a secular up cycle which suffered its first time correction over the last eight nine months. This has shaken the weak hands and the punters who thought buying shit can make them millions are now out of the system mostly , if not completely. The days of ultra high valuations for anything and everything is over and most of the fancied Saurabh Mukherjee’s names are down in the dust. My best way to find out is that his appearances on the TV have reduced which is an indication of the new reality.

What went up the most has fallen the most. Nobody talks about IRCTC and IEX anymore. So does about Dr Lal, Chemical stocks, India Intermesh types were taken to the cleaners while metals have fallen off the side. ITC is back to the top of the charts while Reliance and TaMo have refused to fall that much.

I’m personally extremely bullish on HDFC AMC and ICICI SECURITIES and luckily Mercellus has exited it as well post their exit in ITC. It is the Jim Cramer of Indian markets. Whatever they sell goes up significantly. ITC was sold and look what it has done. And AMC has begun to crawl back to a more rational level.

The thing about ISEC is that people were worried about the fact that markets will go down and that will reduce its brokerage income and thus it got corrected from 900 to 400. Now the thing is, less than half its income comes from broking. Plus, markets have begun to turn and people will come back all guns blazing and so will brokerage income. Plus, it’s extremely less owned by funds so the moment it turns, there will be a rampage to add it to the portfolio, something like a BSE move last year.

My blogs are getting shorter and that’s because after saying the same thing in 70 blogs, I’m getting the clarity I require.

The only thing you need to do is to bet on India, on stocks which are going to grow faster than India and the ones who can survive the next five years. Rest, it’s all taken care of.

If you noticed Reliance falling almost ten percent on Friday and went around scratching your head as to how something like that happens, well, let’s just say it did better than ONGC and Oil India for the day. And if you tried finding answers on Twitter or TV, you’d have come across something called a Windfall Tax. What it did was to ensure our faith in the PSU was dented, again as who’d want almost a year of gain knocked out in a day?

So now let’s decipher the news share some views and then move on to what I have been up to. The government said since these oil refiners are milking a lot of money turning crude oil into marketable products, let’s ask them to share some part of those excessive profits with itself and try and solve a couple of problems simultaneously – help the government manage an impending Current Account deficit by discouraging exports of crude produced locally which could be used for domestic consumption, thus reducing the need for importing similar quantities at a much higher price. This might also help cool the inflation which to be honest is at a much more manageable level in India than in the West.

Noble objective, right? Yes. It only had some collateral damage in the form of carnage in share prices of some companies as I mentioned. Well, we missed something equally important. The government raised taxes, shares tumbled but markets ended in Green! It was very bad news to be honest but markets recovered. If it was any other day, the market would have sinked but it didn’t. I sense this is the beginning of the end of this fall we have experienced over the past nine months.

A lot of people have begun to dig out the fact that the FIIs still have close to $500 Billion of equity exposure left in India so it can go a lot worse from here. This is crying in the face of an impending catastrophe, the end of the world if you will. What I truly believe is what Seth Klarman told us- the world doesn’t end that easily. Let me share what I feel sums it up all, so well

Coming back to my portfolio – I’m now crawling back from an almost 25% cut at the bottom and now I believe I should say, only a 25% cut! One thing which I learnt this year is to avoid stocks where one policy decision can kill the story and thus, I’m out of IOC, ONGC,OIL, NALCO etc.

I’m now running quite a concentrated bet wherein the game is clear- it’s a bet on rising India, both on the consumption and investment side. This theme took a beating last year when all the asset management companies and broking stocks are down in dumps and we are now being asked to not come anywhere close to them. Well, this is exactly the time when you can buy great stuff at such prices. I believe in three years we can look back and say, those who bought it in 2022….

What a day it was. Nifty is down to 15300 and everything came down crashing alongside. Beyond a point, I couldn’t even look at the screen to check my portfolio because it didn’t seem real at all. Twitter is flooded with doomsday predictors and everyone and his aunt is advising you to sell everything and run away.

Let’s see some facts. This is the first close to 20% drop post Covid crash of 2020. However, this correction has now entered its ninth month and is slowly wearing everyone down and out. What is being felt is the idea that this is just the beginning of a long drawn bear market and we’re slowly heading towards much lower levels on the indices. Well, let’s go back a year back and recall how things looked back then.

India was reeling under an extreme Covid induced emergency and we had hardly vaccinated a million people. The world and left cabal predicted the end of the road for us as a nation. The tax collection was severely hampered and we didn’t even know if we could ever come out of a lockdown. On the day the second lockdown was announced, the market made its then bottom of around 13000 and flew all the way up to 18600 in six months time.

Cut to today. Our monthly GST collection is over 1.4l crore, direct tax collection has crossed estimates, exports have touched $400 B and are on their way for another record breaking year this time around. Add to this that the FII have sold close to 4l crore( over $50B) since October 2021 and are relentless in their pursuit. On the net basis, they have now sold more than what they invested since the end of Global Financial Crisis, way back in 2010.

The Indian market is slowly being supported by its own money- money you and me are investing, betting on India. Retail money through SIP crossed 12000 crores a month in May 2022, which is almost twice what it used to be hardly 4-5 years ago. If it was not for our retailers, Nifty would have been sub 10000 by now. Remember, on account of a much subdued level of selling, our markets fell 60% in the 2008-09 crisis.

As far as the US markets are concerned, nobody knows where they’re heading. If it is really the doomsday everyone knew would come one day since 2009 or not, I don’t know. One thing though, is very clear. This whole shebang of Startups changing the world has landed in the gutter and is being flushed pretty hard. The only reason we don’t know the real extent of pain is because private equity prices aren’t quoted daily. Just see what has happened to Cathie Wood’s ARK innovation ETF or our very own Paytm and the likes.

How am I faring? Well, being down 20% doesn’t feel nice. However, to be down just 20% in a market like this is a blessing! We didn’t even realise when Hindalco fell 50% from its peak or how Bajaj Twins are both down 40% or how HDFC group lost its sheen that when I realise I’m still only down 20%, I somehow thank my stars.

What am I feeling? Well, I’ve single point belief in the idea that India’s market is in a multi year bull run and this is just one of those Bull market corrections I had read in history books. I unflinchingly believe in the idea that in ten years time, India would be much richer than today and some of the stocks which I own today will not be up 2-3x but will possibly go up 20-30-100x from here. Everyday when I look at the prices, especially when nobody has any money left to invest, I realise the prices are in some cases unreal. The selling is irrational, not as much as we saw during Covid but pretty close. This is definitely more intense than 2018 though.

What am I thinking? As a keen student of behavioral investing, I sense pessimism getting towards borderline depression. Everyone is predicting doomsday. Everyone and his aunt knows that inflation will kill our savings and how recession will kick us in the butt. Everyone knows the market is headed south. People have literally stopped me to ask how low we are going. This is music to my ears as I sense we’re pretty close to the bottom. In April 2020, I distinctly remember I told my friend that we had hit a bottom because everyone was talking of an impending crash in June that year.

I was today telling my wife that the fastest way on the upside is by short covering. The markets are getting severely oversold. One small trigger and there can be massive short covering. What today looks like down 20% can in a matter of a few days become down 5% or even better. Remember that nifty went from 7500 to 10000( a move of 33%) in hardly two months time. So to go back from 15200 to 17000 is just a matter of a week.

I do realise that to say such things when everyone is losing their shirt is not easy. Well, who says investing is for the faint at heart. It takes courage to lose a couple of lakhs a day and still smile. Imagine how much down RJ would be on a day like today. Even a down 2% day is over 800 crores for him.

So my dear friends, I am extremely bullish on India, always was and forever will be. This is the time to buy, as much as you can. If not, this is the time to hold on to your stocks tightly.

One of my favourite lines is what Jack Bogle said” Your success in investing will depend in part on your character and guts, and in part on your ability to realise at the height of ebullience and the depth of Despair alike that This Too Shall Pass”

My wife and I are huge fans of Swiggy Instamart. Reason? Well, it delivers our daily grocery needs at our doorstep within 45-60 minutes and that too with huge discounts. I ordered a big ice cream tub worth Rs 232 and paid a handsome Rs 132/- . I also order large quantities of fried chicken, kebabs and roti worth over 900-1000rs from Karim’s and have never paid more than Rs 500. This is magical.

Similarly, I get deals on Amazon prime as well wherein my delivery is free and timely, mostly a day or two. Amazon pay gives me cashback for making usual payments like buying stuff online etc. On top of that, my Amazon Pay ICICI credit card refunds almost 5% cashback on all transactions.

Now this is insane. They are paying money for things which I would have anyway paid for without worrying about cashback or rewards. Who will not pay his milk bill if there are no rewards on offer? None I believe. Will you stop paying your electricity bill or not book a ticket online for want of cashback? No.

So as far as I’m concerned, these are crazy businesses which are funding my dinners in the hope that one day in the distant future, I shall be so dependent on them that they could charge me whatever they’re splurging now. Well, they’re chasing a mirage. The day I don’t get discounts or at least the price I find comfortable with, I’ll open another app/website funded by the newest VC chasing his own version of Amazon. There’s no customer loyalty nor will there ever be.

In the world of 12GB RAM smartphones and free daily data, how difficult is it to install another app which claims a lesser price! So this whole rally in Zomato post numbers is going to fizzle out very soon and anyone who’s trying to bottom fish believes it is the bottom is going to lose his bottoms!

Let’s come to Nykaa. They’re in the business of selling luxury Beauty products and other related cosmetics to women online and for that they’re hardly making 10crore net profits for the entire year. Last I checked they have opened retail stores in order to reach out to a larger audience. Well, it means they’re trying to become an omnichannel retailer. So in other words they’re trying to do a Shoppers Stop in reverse. Once you open retail stores, the whole story of low fixed costs etc goes down the drain and you’re just another BodyShop or Shoppersstop or Lifestyle competing for the same footfall. Thus, they should be valued similarly.

Shoppers Stop has a net sale of over 2500 crores and a market cap of just over 5000 crore. Nykaa did close to 3800 crores and the market cap is 66000 crores at about 1400 rs a share. So on the test of logic, Nykaa should be valued at best close to 7500 crores Max and that will still be a valuation of over 150 price to earning. Now you don’t get that multiple even if you’re a Titan. So at a lofty multiple of 50 times earnings and even if assuming Nykaa does 100 crores profit in three years, it should be valued at close to 5000 crores market cap which is roughly 100 rupees a share.

And in the end, let’s discuss the Policy bazaar. It’s just a platform through which customers buy insurance. Of course all platforms are valuable if they make money. And in this case, it doesn’t. So for a loss making entity to command a market cap of 30,000 crore is a joke when BSE plus ISEC is under 22,000 crores. With rising interest rates, VC taps are drying out. They don’t have access to infinite cash which could fund their eternal loss making in the name of customer acquisition/habit forming/ growth!

Anyone who’s looking to dabble in Policy or Paytm or Zomato and the likes must be forewarned- All good things come to an end, even Discounts! I dread for the day when I’ll pay in full for my kebabs and milk and icecreams without cashback. It’ll be a sad day for me as a customer. However, anything which is not sustainable will end and so will these companies, atleast most of them.

PS: Amazon after its IPO at $18 per share rose all the way to $90 a share at the height of the dotcom bubble. In three years time, it was down to $6!

Markets have been on a continuous downward spiral for almost 8 months now. From the highs of October 2021, major indices are down between 15-25% and there is no hope in sight. The newspaper headlines have changed. From loudly cheering the growth stories, they’re now howling about the impending recession, rising inflation, crude prices,etc. GDP projections are being downgraded on a daily basis.

Stock returns are almost zero to negative on a one year basis and major stocks are down anywhere between 25-40% from their recent highs. TV channels, twitter and newspapers are filled with experts loudly voicing a deep long drawn bear market ahead of us. Absolutely no one is bullish on Stocks!

I will be making the same call I gave out last year. India is going to experience a multi year structural bull run, not just in equities but in economy as well. This correction is one brutal Bull Market pullback which is par for the course. It is ensuring that the sector rotation which was badly needed is underway. The last bull run heroes are being mauled while slowly and steadily the new leaders are emerging.

Look at the price movement in Reliance and ITC. Both the heavyweights are trading within 5-10% of their highs and if not for them, nifty would be down to 12-13000 levels. On the other hand, Bajaj and HDFC group stocks are battered. Metals have begun to move south. The bubble levels in speciality chemicals, mid cap IT, sugar, diagnostic companies etc are being deflated. Saurabh Mukherjee’s fund is underperforming so significantly that he’s going around town explaining a concocted term – return holiday in quality stocks. Well, this is just another term for time wise correction. It happened to Reliance between 2007-14 and to ITC from 2015-22. It is bound to happen with HDFC group and Bajaj Twins as well.

Behavioral finance teaches us the importance of being contrarian in light of the madness of crowds. The whole world is fearful of the future. FII have sold out the entire net investment they made between 2010-2021. They have pulled out over $40 Billion in the last 8 months alone. On a much lesser drawdown, our markets were down 60% in 2008. If it were not for you and me, the retail money, nifty would have been at sub 10k levels.

Warren Buffett tells you to be greedy when others are fearful. This is the perfect time for being extremely greedy. Stocks are battered and are being written off. The correction is slow and painful, thus also making sure the required time wise correction is in place along with the price correction. Covid time was a deep price correction but thanks to strong intervention by the governments and the global central banks, there was hardly a time correction. In order for a bear market to end, extreme despondency among investors is necessary.

How does a market bottom out? It bottoms out when there is no buyer. When there is so much pessimism, such negativity that every rally gets sold into and we keep falling back. In that case, anyone who wanted to buy steps aside. Thus, whosoever wants to sell can’t sell any further. We are very close to that point. Nifty has gone down to 15800 in the face of relentless selling four times now. However, at every point, there is some recovery. It is not breaking down any further. The selling exhaustion can be sensed in multiple stocks which are down beyond reason. Isec is down 55% when its profits are up 30% over the last one year. It’s trading at 10 times earnings and 6% yield. This is madness.

I remain eternally bullish on the India story and strongly believe that this too shall pass. We’re in the midst of a roaring bull market and this is nothing but a passing correction. In three years’ time, we might look back and say, oh it was a great buying opportunity!

May is a special month for me. 8 years ago back in 2014, just a couple of days before I graduated, I ordered my first set of 5 books. It’s been one hell of a journey ever since and I make it a point to read almost a book a week. One year ago, I wrote my first blog on zerotomillion. It’s been 64 such posts in the past one year and I feel thrilled to realise that I’ve begun to compound in writing as well.

There are few things in life I truly believe in. At the top of that list is that Anything one wishes for and dedicates his entire being for is possible. I’m one of those people who actually believes in the law of attraction which I call the law of conpounding- If you do something over and over again for long periods of time, the results are going to surpass even the most optimistic of your wildest imaginations. One of the reasons I’ve been able to survive and somehow thrive in my life is because I’m willing to make ten years commitments. I start something and keep doing it over years together and get better over time.

One of the gifts I had in my life was to be surrounded by people who were far superior than I was in most walks of life- studies, sports, in school, college and at work. However, what I’ve realised is that Will Smith is right- Skill beats talent over time. Skill is acquired by beating on your craft over and over again. Also, a lot of talented people never achieve their full potential because they are good at so many things that they never take that one idea and devote entirely to it. This is why the cool kids in schools or colleges aren’t the ones who end up being a millionaire at 40!

Once you realise the true meaning of compounding and start making it a process of living, you’re bound to be successful. All you have to do is to remain patient, repeat taking small steps and not give up. This is true if you’re lifting weights, reading books or Investing your money.

I’ve a lot of friends who start by saying- I’m a long term investor and I’ll be invested over the next 15 years. Well, that’s a sound idea stretched too far. You don’t need to burden yourself with such a big statement. All you need to do is to say that I’m willing to invest X amount over the next one to three years and come heaven or hell, I’m not going to run away.

The real test of an investor is when the markets are sideways over six eight months, like they are today. Anyone who has been in the market for the last one year is either barely in green or possibly down 10-15%. So those who enter committing ten fifteen years are silently praying for a pullback so that they can sell at their cost and get out for good. The IPO frenzy has also died a gruesome death with most issues from Paytm to LIC being underwater. Even the earlier heroes like Zomato, Nazara, Nykaa are down in the dumps.

So this is what I believe one must remember – Over a long period of time, if you stay invested in equity markets, you’re bound to make a lot of money. However, every other year, there are going to be phases when you’ll just not make anything. If you give up now, you’ll forever curse the markets and regret three years later when something which you sold 20% down went five times up. Even the mighty Amazon has gone down 70% at least thrice in the past 20 years. Imagine the plight of someone who sold Amazon in 2008, only to see it go up 30 times and more.

To my friends who take some inspiration from my journey, all I have to say is to stay invested in life and in equities. There is hardly anybody we know who kept doing something he was doing ten years ago and didn’t give up. You know what we call somebody who actually didnt give up- Great! Greatness is not the preserve of a precious chosen few. It’s possible for you, me and everyone to achieve greatness in our own lives, in a field of our choosing by compounding.

We all hail Jhunjhunwala for holding Titan for the past 25 years. Well, he made his Billion Dollars by not giving up on the idea that Titan can become a lakh crore company.

Happy Sunday!

Every Bull market is led by different heroes. The ones who led the last bull market rarely contribute on the upside. We have all heard this multiple times. However, it’s interesting to see this playing out day in and day out on screen. What is happening to the HDFC group stocks or the Bajaj Twins is not totally unexpected.

Markets have fallen in line with the global markets. The US tech stocks which were the darlings leading up to the end of last year have been butchered. Multiple fancied stocks have fallen over 75% while the revered FAANGs have not been left unscathed either- Netflix has gone from 700 to 175, Facebook/ Meta is down 50% while Amazon and Google are down a third each. Even Apple is down more than 20%.

Now add to this the fact that Adani is all set to take over Ambuja-ACC combined and you have an entire episode of 2007-08 playing out with Tata Steel acquiring Corus and Tata Motors acquiring JLR.

What I believe is that a churn is happening in the markets and a new Bull Run is taking steps with new leaders. The old war horses will either start to massively underperform or will move sideways for years to come. We have seen this in the past as well. The technology stocks did nothing for the first decade of this century after running up all the way to moon and back- Microsoft, Infosys and for that matter even HUL went nowhere for a good 7-8 years period. Similarly, Reliance went nowhere between 2007-14 while ITC has only recently begun to crawl.

So my bet is that the current lot of quality stocks- Asian paints, Berger, HDFC twins, Bajaj Twins etc will languish while the hot stocks such as IRCTC, Apollo hospital, Page etc will either fall 50-70% or will do nothing for the next 5 years. The game has moved on and so shall we.

As far as the new age companies are concerned – Paytm, Zomato et al are still hugely expensive and will go down at least 50-60% from here. The only thing I managed to learn from this carnage is that our MF managers do nothing special but to buy what’s going up! I used to admire Ramdeo Agarwal a lot for his conviction and quality picks. However, when I realised he has been buying Zomato and Policy and such a lot just because they’re moving up and came out on TV to justify the same, I lost quite a bit of respect I had for him.

In a market where junk flies the highest, the temptation to buy is enormous. I remember being asked if Zomato is a good buy and after having said no it’s not, to be almost mocked because the price went up 2x in three months. Well, I’m happy that I didn’t succumb to any such feel good story. A lot of people who thought Paytm is a great buy at 1200 or at 800 or even at 550 are yet to learn history lessons taught in the case of Yes Bank, Jet Airways and Suzlon.

Coming back to the Adani deal- I sense this massive $10B deal will formally mark the end of this commodity/metal/cement run in India. As I’ve iterated earlier, all these deals mark the end and not the beginning of a massive up cycle. It will be interesting to see how Adani group stocks fare over the next one year or so.

ITC has been the story of this correction. I’ve sensed in an earlier blog that maybe it’s ripe for an upswing and that feeling is being proven correct. The fact that it’s up 20% when the market is down 20% in itself shows which way the wind is blowing. Reliance too seems to be ready to lead this rally.

Some of the great stories such as Insurance, Credit cards etc were massively overpriced throughout the past five years. Similarly, Dmart, CAMS, IEX etc were beyond the reach of any sensible investor. I reckon in two to three years, some of them would be reasonably priced, just the way HDFC AMC is trading below its listing price after four years of IPO. This market may give us some opportunities in the near future.

As is our ritual, let’s talk about what I’ve been reading- Ambani and Sons is a fantastic read for anyone to understand how India looked 30 years ago and how privileged we are to not be living in those times.

PS- here’s a video from October 2008 when the world was literally falling apart. https://youtu.be/dcA9zGoAUhM

It’s interesting to see what our heroes talked about when they didn’t know if the world would survive. What stuck me is the ticker price showing Bajaj Finance at 50, ACC at 400 and Bajaj Finserv at 130! Now in hindsight it’s easier to say oh everybody knew Bajaj Finance is such a great stock. How many actually bought it at that price is the real deal!

A lot has happened in the past week. Both the US and Indian markets have fallen sharply following rate hikes by global central banks to address the rising inflation challenges. As you know, I don’t worry about the macro scenario so will not spend much time on what we already know- volatility is the nature of the beast and markets will move up or down for whatever reasons. Today I would rather talk about three things- startups, Reliance and of course the overall scenario!

The past six months have been brutal for new age tech companies across the globe. Be it our Paytm and Zomato or doordash, zoom etc in the US. Paytm we all know is going to zero very fast and is now joined by Zomato which is down roughly 66% from its all time high and over 50% from listing price. Zomato is now finally selling for the price of 1kg tomato! The beating in the US is much worse- Zoom down 75%, PayPal down 75%, Ark ETF down over 75%, the mighty Amazon down over a third and the list goes on and on. The idea that only tech will survive and everything else will forever stay in the dumps is being challenged.

Closer home, I was wondering how these startups find a way to lose money in businesses where making money is guaranteed by the nature of the game. In stock broking businesses, whether you buy or sell, lose or win, house takes a cut, period. Thus we are betting heavily on Isec, BSE etc. Now you have newer players like Groww and Upstocks funded largely by private equity losing money to attract customers! Wow! It’s like the Umpire in a cricket match getting out LBW! It sounds incredulous but true. The full year revenue for Groww is hardly 5cr rupees and it boasts one of the highest retail customers! So basically it’s a casino which allows people to gamble on its own account so that it can claim higher footfalls! Incredible!

Similarly, I am amazed by the way these grocery and food delivery companies operate. They deliver free of cost on the same day, some even in a few hours and charge much less than the retail price of fruits, vegetables or groceries and offer cashback! Wow! I mean, the smallest of the fruit vendors makes at least 30% on his cost and these supercharged masters of the universe lose money! How beautiful! Of course as a consumer I am delighted with their services but would never invest in their stocks.

Let’s now discuss Reliance! If ever there’s a company which embodies scale, this is it. The annual trunover for the whole year FY2022 is over $100B! Its profits for the year is over 67000 crores which is higher than sales of almost 99% of the listed companies in India! In an earlier blog, I mentioned how Reliance can grow to almost a Trillion Dollars company (https://zerotomillion.business.blog/2022/01/10/is-the-new-amazon-amongst-us/) Reliance retail is now doing annual sales of 2lakh crores! Just for reference, let’s compare it with other much more fancied retail chains- Titan did around 29k in sales and 2200cr in profits. Dmart did similar sales with around 1500cr in profits. Titan has a market cap of 2l crore and Dmart is at 2.4l crore, even after 40% correction. Reliance retail did 2l crore in sales and over 7000 crores in profits. This is twice the combined profits of the two behemoths. Take a deep breath and absorb this fact!

Airtel has annual profits of close to 5000 crores and sales of roughly 1.1l crore in the trailing twelve month period. Jio did sales of 95k crores and net profits of over 15k crore! Almost 4x of Airtel. And Airtel has a market cap of 4l crore!

So once you add Reliance in your portfolio, you basically have Titan, Dmart, Airtel, ONGC, speciality chemicals ( Reliance is one of the largest petrochemical companies in the world) at a market cap of 17l crores which is a steal compared to the valuations market is according to some of the stocks I mentioned earlier. I was all too happy to add some of it when Russia invaded Ukraine and it fell back to 2200 types.

Investing requires us to be patient in times like today’s when the bluechips fall massively and begin to underperform, markets trade sideways for months together and there is pessimism all around. What I do is to read more. I recently finished the Ambuja Story, autobiography of Narottam Seksaria, the founder of Ambuja Cements. It’s a fantastic read about someone who dared to dream big in the 70s and 80s in a socialist India. Anyone who believes India is in the doldrums needs to revisit where we were 40 years ago and how we survived the ugly days of state control. You may also like to pick Ambani and Sons by Hamish McDonald which chronicles the story of Dhirubhai Ambani. These two gentlemen are first generation entrepreneurs in days when India was a hungry third world country. In one generation, both of them became Billionaires. This is what I believe – bet big on India, it works! https://zerotomillion.business.blog/2021/05/24/bet-big-on-india-it-works/

It’s 2007, the world is in a multi year commodity bull run led by China’s insatiable demand to construct now what we know as Highways to nowhere. Fuelled by higher share prices and soaring profits, Tata Steel acquires Corus, the UK Steel major. Hindalco acquires Novelis, another major global alumina giant.

It was anticipated that China’s rise at the breakneck speed of almost 10% per annum is the new normal. All major commodities, ferrous and non ferrous traded at lifetime highs. The music was getting louder and the party seemed unstoppable.

Come the 2010s, the world is still reeling under the aftermath of the global financial Crisis and the China story is shaky. People are beginning to whisper of a hard landing in China, metal stocks are down and both the deals which were touted as arrival of India on the world stage are now being found wanting!

It took Tata Steel almost a decade plus to cross its highs made at the top of 2007 bull run and for the entire period, most metal stocks were shunned altogether by investors. This is typical of all deals done at the top of the metal cycle. What I believe and sense is that the end of the current bull run in metals might not be too far away..

Recently, Holcim announced its intention to dispose of it’s stake in Ambuja and ACC at the tentative deal valuation north of $10B. This was followed by media reports claiming interests from JSW group and Adani group to bring the cement companies under their fold. What is interesting is that JSW plans to fund part of the deal by mortgaging some of it’s stake in JSW Steel and JSW Enegery, both shares trading at decadal highs, fuelled by this post Covid commodity dream run.

History rhymes, if not repeats itself. The stocks of old economy stocks such as Steel, cement etc were shunned by investors for almost a decade before making a splendid comeback in the latter half of 2020. Experts are lining up to urge the public to allot major parts of their portfolios to metal stocks as they promise rising profits and higher dividends.

Once the cycle turns sour, the profitability of metal and all commodity stocks goes down sharply as most of them have very high fixed operating costs and margins vary wildly based on current market prices of the underlying commodity. Like it or not, the deals are done mostly at the top of the cycle because that’s when balance sheets look strong, it’s de-leveraged and analysts are more likely to assign a higher EV-EBITDA valuation.

Howard Marks has highlighted this in his fantastic book Mastering the Market Cycle. It’s illuminating to see how investors are extremely greedy at the top of the cycle and horrified at the bottom. The key in investing is to be the opposite – be fearful when others are greedy and be extremely greedy when others are running for cover.

It’s going to be very interesting to see how this story unfolds!

Today I would like to talk to you about two kinds of people in India. The first kind are the learned class, the intellectual types with good degrees and plush jobs, the kind you can find in offices around you. If you ask them- is India growing/getting richer/ on the right track? The first reaction would be a 😏.

If you probe them any further, they’ll tell you everything that is wrong with India. High inflation, joblessness, growing social tension, higher crude and commodities prices, rising inequality etc. This is the standard answer I generally get from most of my colleagues. And to prove their point, they’ll give you data and reports in droves, especially from the “reputed” international organisations and non-profits such as Amnesty, UNHRC etc.

What I generally ask after this is if they’re investing their money in stocks. More often than not, the answer is that hardly a part of their net worth is invested in equities. The two aren’t interrelated and am not drawing any conclusions but are just a reference point for further discussion.

On the other side are some people who are perma- bulls. Here’s a speech from Gautam Adani who said India is likely to eradicate poverty by 2050 and can have a $28-30 Trillion economy by then. A back of the hand calculation shows that it assumes an average growth rate of roughly 8% over the next 28 years. Here’s a link (https://twitter.com/ETNOWlive/status/1517145792594968578?t=Icdo1Qp89btcZdPUw1AmUQ&s=19)

The moment you tell these things to the first kind of people, you’ll be mocked, ridiculed and possibly shunned altogether. They are going to quote experts and organisations and who’s who or everywhere as to why India is never going to grow that large and why we’re not even growing right now and all the data published by the Govt which says we grew at 8% last year is a sham and what not.

Now here’s my take on this. If you ask them how many companies these experts run or have created? The answer is Zero. How many of such experts are self made millionaires, the answer remains to be zero. If you also ask them if any of their types even believed India was likely to survive the Covid pandemic, the answer still remains to be Zero. I call these experts Doomsday predictors. Fortunately, they don’t matter.

If you follow any of their advice, you’re most likely to never bet on India and will forever stay off from investing in the humongous wealth creation we’re likely to witness over the next generation. Choose your gods wisely.

Let’s talk about another idea. I’m reading this book about the performance of equities during the second world war.

The most interesting thing which I took from this is that surprisingly, US, UK and German markets could sense which way the war was heading before even the generals and the political leaders knew. The UK market bottomed in 1940 when Britain was the weakest.The German market made its top much before their armies had even faced a significant retreat, much less a defeat and similarly the US market made its bottom when everyone knew that the US was losing the war. Take a look below:

The important takeaway is two: market bottoms are made at the point of maximum pessimism i.e. when you’re fearing apocalypse. After that, the market moves up not because the news is good or better but because it’s less bad than what is already known. Similarly, market tops are made at the point of extreme ebullience. Once that point is reached, it can only get worse from there.

It helps us understand why the market made its bottom on the day of the first lockdown in 2020 and not when the damage was done two months later. It also helps us understand why on February 24,2022, the recent panic low was made.

The point I’ve repeatedly made is to buy heavily when the markets fall and buy your heaviest when the world is collapsing. Here’s what Jack Bogle had to say

This sums it up the best!

PS: Since we are discussing experts, let’s also discuss the stock market gurus we watch on CNBC and on twitter. On April 4, when the merger of HDFC with HDFC Bank was announced, there hardly was anyone who didn’t go ga ga over the brilliance of the move. Every channel and its anchor and every expert worth his salt came out and said, the days of HDFC group’s underperformance are over and the upswing is just the beginning. They explained in detail how this will lead to low cost of funding and finally take the shareholders to the proverbial land of milk and honey.

Cut to yesterday, both the HDFC and HDFC Bank are down 15-20% from the merger day’s high. The same experts are now justifying why the merger isn’t that big a deal and why the group is likely to continue to under-perform over the next two years. So much for market genius!

Try watching this on YouTube by digging into the library of CNBC TV18 or just typing HDFC Bank merger news. It’s funny!