Is it the right time to invest? Quality are the only stocks running… Will Midcap and small caps catch up by this year? This is probably the most asked by our clients.
Let me tell you 10 Things which we strongly Believe in –
Stallion Point 1 – Special Stocks – Over time you will realize that in some very special stocks, valuations are a permanent concern! Market views them really really differently… When Nifty PE is 15 they will trade at 30 PE, When Nifty PE is 28 they will trade at 50-60 PE, Its all relative! If these stocks fall from 50 PE to 25 PE, My understanding is that the stocks which are now at 25 PE will fall to 10 PE. In long term it’s the Sustainable Growth Rate that matters the most.
Stallion Point 2 – Bull Market Leader – This is a Global Bull Market where the leader is the US Stock Market and within them its the Technology companies which are leading the bull run. If Trends are global then companies who use technology to solve large customer Problems should nail it in this Bull Market.
Stallion Point 3 – Slowdown in India- Well this is a opportunity for large players due to consolidation, History has taught you that in a Slowdown the stronger players survive & the weak die.
The economy is very challenging, it would be naive on our part to say that India is a great market because it’s not. It’s a Market which has opportunities but short term challenges as well and it can change dynamics of Business in no time. We are seeing Signs of consolidation in Markets.
We now have 3 Telecom Players v/s 16 Players 5 Years back
We now have 5 Strong Banks V/S 48 banks few Years back
We now have 5-6 Surviving NBFC’s v/s 100’s of NBFC 1 year back
We now have 1 Airline Company which is 50% of Aviation Market
We now have 1 Hotel Company which holds more than 50% Market Share.
We have 1 Jeweler in the Country which gains Market share every Quarter
We have 3-4 Real Estate companies in every city
We have 4 Life Insurance companies in the country
We have 3 Grocery discount Retailers in the Country v/s 30 Retails 5 years back
We had 100’s of Cinema in India, now we have just 4 Key Players left.
Stallion Point 4 – Markets are Narrow- Markets are always narrow, its only in years like 2017, 2014,2007, 2004, 2000 that they broaden. Market don’t make Everyone rich together. Its true as the Bull Market progresses, market typically broadens but we are seeing signs of Narrow Bull Markets in USA as well, my only observation is that market doesn’t always broaden as bull market progresses, it sometimes narrows.
Stallion Point 5 – Midcap Rally – There is a School of thought which is buying Midcaps. Well we don’t see any problem with that strategy, the Rule of Buying Midcap stocks now is to Buy the Survivors & with a Few Quarters of Growth you will get Valuation Re-Rating + Earnings Growth.
Don’t buy Midcaps because they are Cheap, Buy them because you see Earnings Delta & you can do well.
Stallion Point 6 – Warning of a Market Crash – Commentators have been warning a market crash since last 5 years, cut your equity weights, this bull Market has gone 10 years, Markets are liquidity driven etc etc, someday these guys will do right & tell you “Meine Bola tha” but they will forget what the gains they have forgone if you had followed their advice. Bear Market do come almost always when some large unexpected change happens which change the Long term Earnings Growth outlook including but not always due Higher Interest Rates
Stallion Point 7 – Risk Market Takes – There are 4 keys risk & Market forgets one of them always
A) Business Risk
B) Regulatory Risk
C) Promoter Risk
D) Valuation Risk
Business Risk – In 2003-2007 Bull Market, Markets bid up Project Business like Real Estate, Infrastructure & Commodities, markets forgot that these companies don’t have recurring revenues.
Regulatory Risk – In 2009-2015 Pharma Bull Market, the Markets ignored Regulatory Risks these companies had.
Promoter Risk – In 2014 to 2017 Bull Market, the Markets compromised on Promoter Quality & everyone paid the Price
Valuation Risk – In this Bull Market the Narrative is set that Buy Good Companies at Any price & you shall do ok, Markets are forgetting Valuation risk.
Ofcourse you need to ride these trends or else you wont make money but you need to know that markets will Stretch more than what you can ever imagine, though this too has to end someday.
Stallion Point 8 – Bear Market – Bull Market & Bear Market are reality of Markets, you will have to survive the bear Market to be Rich in the Bull Market. I can guarantee you 90% of the Investors who made it large in a Bull Market will give it back in a Bear Market. Getting Rich is easy, Staying Rich is difficult in the stock Market. Our Goal is to get rich & stay rich. Bull Markets will force you to get into not so great business’ which you will realize only Later, Manage your Risk damn well.
Stallion Point 9- Value Stocks – So called cheap Stocks or Value Stock have become deep value, now deeper value & what stops it to be deepest Value. The Problem wasn’t the Strategy of buying Cheap, the Problem was not respecting the wisdom of the Market. The Markets have been screaming loud that I am not interested in Value. Contrarian Investing on average works only in Asset Classes not in Individual Stocks.
Stallion Point 10 – Is it the Right Time to Buy? – Bull markets typically climb a wall of worry, there are too many worries today though I can with decent certainty say that Portfolio Managers/Advisories/Individual Investors who have a sound approach to Investing will do really well 3-5-7-10-20 Years from today, bet on the horse running the Show.
Disclosure – This is not Investment Advice, this is just what we believe right now. Our Belief in markets keep changing.
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