You might be feeling it’s an odd title given CNX Nifty (which consists of India’s top 50 companies) is merely 3.7% below its all-time high of 11,171, hit in Jan 2018.
Median drop in Nifty 50 Stocks from their 52-week high though is 17%, but the index is holding up thanks to a few heavyweights like HDFC Duo & Reliance hitting lifetime highs.
But what about broader markets?
Following is some eye-popping performance data about the 1,584 stocks listed on BSE with a market capitalization of more than Rs 100 Cr. as on 25th June 2018:
|
Fall from 52-week high
(Source: Ace Equity, Stalwart Advisors Research)
|
No. of Stocks |
| >= 60% |
106 |
| 50% – 59% |
175 |
| 40% – 49% |
289 |
| 30% – 39% |
359 |
| 20% – 29% |
336 |
The median fall for these 1,584 stocks from their 52-week high is 34%.
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Verdict: A ‘no-brainer’ Buy
IPO Snapshot:
HDFC Asset Management Company (AMC) Limited is entering the primary market on Wednesday 25th July 2018, with an offer for sale (OFS) of up to 2.55 crore equity shares of Rs.5 each, by both the promoters, HDFC (34% of OFS) and UK’s Standard Life (66% of OFS), in the price band of Rs. 1,095 to Rs. 1,100 per share. Representing 12.01% of the post issue paid-up share capital, total issue size is Rs. 2,800 crore at the upper end of the price band. The issue closes on Friday 27th July and listing is likely on 6th August, which will be the 5th listing from HDFC stable.
Company Overview:
HDFC AMC, 56.97% subsidiary of HDFC Ltd, with foreign JV partner UK’s Standard Life owning 37.98% stake, is India’s second largest AMC (behind ICICI Prudential) with asset under management (AUMs) of Rs.2.91 lakh crore (31-3-18) and 13.7% market share. Company is the largest AMC with equity oriented funds (at 51.3% of AUM vis-à-vis industry average of 43.2%), which also helps it become the most profitable AMC in India, having earned net profit of Rs. 722 crore in FY18 or 18.1% market share of the industry PAT, due to higher fees earned in equity as against debt product. Thus, with only 13.7% market share in total AUM, 16.8% market share in actively managed equity-oriented AUM help the company garner 18.1% market share in net profits of the industry, comprising of 42 players. Besides high profitability, company also enjoys benefit of retailisation of portfolio, with 62% AUM coming from retail investors, unlike industry average of ~50%, again highest market share in retail AUM of 15.7%. Systematic investment plan (SIP) products, with average ticket size of Rs. 3,800, also provide high revenue visibility, as 77% of company’s SIPs are signed up for 5 years.
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Smead Capital Management letter to investors titled,”Risk Is Not High Math.”
Long term success in common stock ownership is much more about patience and discipline than it is about mathematics. There is no better arena for discussing this truism than in how investors measure risk. It is the opinion of our firm that measuring a portfolio’s variability to an index is ridiculous, because it is impossible to beat the index without variability.
We believe that how you measure risk is at the heart of how well you do as a long-duration owner of better than average quality companies. In a recent interview, Warren Buffett explained that pension and other perpetuity investors are literally dooming themselves by owning bond investments that are guaranteed to produce a return well below the obligations they hope to meet.
Buffett defines investing as postponing the use of purchasing power today to have more purchasing power in the future. For that reason, we see the risk in common stock ownership as a combination of three things; What other liquid asset classes can produce during the same time period, how the stock market does during the time period, and how well your selections do in comparison to those options. Why would professional investors mute long-term returns in a guaranteed way? The answer comes from how you define risk.
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Bill Nygren is a fund manager at Oakmark Funds. He is also Chief Investment Officer for U.S. Equities at Harris Associates. He’s particularly well-known for being a value investor who doesn’t fear the technology sector.
This post summarises key takeaways from his talk at Google in December 2017. While he reinforces many core value investing principles, he also challenges us to think differently.
The difference between gambling and investing
A value investor recognizes there are different ways she can put capital at risk and the difference between gambling (negative expected value) and investing in stocks (positive expected value)
Buying stocks like you would buy groceries
Bill observed the way his mother shopped for groceries by buying more of something that was on sale and deferring her purchase of something that wasn’t yet on sale
Smart money is not always smart
He spent two years as a research analyst at Northwestern Mutual Life where he pitched ideas of companies that he found were trading below their asset values. However, the portfolio managers chose not to buy such stocks until after they were recommended by 2-3 Wall Street analysts, by which time the price had moved to above asset values.
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Verdict: The Cool and Nice Stock
IPO Snapshot:
TCNS Clothing Co. Limited is entering the primary market on Wednesday 18th July 2018, with an offer for sale (OFS) of up to 1.57 crore equity shares of Rs.2 each by PE investor, promoters, current MD and former employees, all in the price band of Rs. 714 to Rs. 716 per share. Representing 25.63% of the post issue paid-up share capital, total issue size is Rs. 1,125 crore at the upper end of the price band. Issue closes on Friday 20th July and listing is likely on 30th July.
Company Overview:
TCNS Clothing Co. is a New Delhi head quartered branded apparel maker for ethnic women wear, operating 3 brands – W, Aurelia and Wishful, with sales mix of 57:33:8. Its 465 exclusive branded outlets (281 for W, 183 for Aurelia, 1 for Wishful) accounted for approximately 50% of FY18 topline of Rs. 838 crore. Further, products are sold through 1,469 large format stores, 1,522 multi-brand outlets and online/ e-commerce websites, which account for 28%, 11% and 10% of the topline respectively. While design operations are in-house, manufacturing is completely outsourced. The brand outlets, all on long term leases, are either company operated or franchised out. Company plans to open 75-80 new stores each year, to strengthen its brands.
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Valuations are looked at through the prism of cash flows, earnings, corporate governance, return ratios, debt-equity proportion and so on. Within these, the most primary valuation tool used by investors is the Price Earnings (P/E) ratio.
The P/E ratio is arrived at by dividing the stock market price with the company’s Earning Per Share (EPS). For example, a Rs 200 share price divided by EPS of Rs 20 represents a PE ratio of 10. Theoretically, it translated into the assumption that if we were to buy this company today it would take 10 years to earn back our investment.
The Trailing P/E ratio uses the earnings of the last 12 months, while the Forward P/E uses the expected earnings for the next 12 months, which means it requires estimating the forward earnings.
At Mumbai’s Morningstar Investment Conference in October, equity market strategist Ridham Desai and head of Morgan Stanley’s Indian equity research team tackled the subject of India’s high P/E.
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When it comes to the world’s best investors, Charlie Munger (Trades, Portfolio) is in a league of his own. For most of his career, Munger has been the right-hand man of Warren Buffett (Trades, Portfolio), which has, to some degree, limited his impact on the world of investing (although not by much). When people think of Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), it is Buffet, not Munger, who first comes to mind.
But that does not mean Munger has no investment skill. Indeed, before he joined Berkshire, he ran his ownq partnership where returns we as good as, if not better than, those of Buffett.
Still, for the past several decades, Munger has been known as Buffett’s right-hand man, so it is extremely likely he has had more influence on Buffett’s strategy than anyone else.
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The 3rd article in this series explains about the key performance indicators (KPI) to track any pharmaceutical company and measure their performance. Few of those metrics are R&D spends, ANDA filings, Operating Segments, to know particularly in which market the company deals, what is the status of the products in the companies pipeline, the number of patents that have been filed by any company etc. It’s not necessary for every pharma company to have the same standards of operating and therefore financial metrics and KPI can differ from company to company.
how-indian-pharma-industry-works-part-3
The original post is written by Shuchi Nahar, appears on alphainvesco.com and is available here.
The second part of this series explains the various business segments in which a pharmaceutical company works. This post will help us to understand the significance of different segments in detail and will give a brief idea about how pharma companies make money through R&D , sales and marketing. The need of having a strong distribution channel, dispensing the right goods at the right place and at right time is equally important.
how-indian-pharma-industry-works-part-2
The original post is written by Shuchi Nahar, appears on alphainvesco.com and is available here.
Following article is first in the series of articles on the Indian Pharmaceutical Industry, the first article is written to familiarize ourselves with the terminology or the jargons of the pharmaceutical industry. We will briefly touch upon terms like API, Intermediates, Formulations, Innovator drug, Generic drugs, life cycle development etc.
The Indian Pharmaceutical industry is about $ 17 bn industry (2016) with as many as 20,000 registered companies (includes MNC’s and small-scale units) directly or indirectly involved in the business of selling medicines. India has the distinction of being the lowest cost producer of medicine in the world. India also has the feather of being the largest exporter of generic drugs in the world, we have some great franchises like Lupin, Sun Pharma etc.
how-indian-pharma-industry-works-part-1
The original post is written by Shuchi Nahar, appears on alphainvesco.com and is available here.
