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December 2016

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2016 was all about Anti-Consensus, a year where most analyst went wrong most of the Time. Personally i delivered the worse performance in 6 years even though it was positive it was below my historical standards, but my learning curve has gone to the next level. We Started 2016 at 7946 on Nifty and we will probably end it at between 7900 and 8000. But nifty doesn’t show the volatility an investor has gone through in 2016.

#Anticoncensus 1 – Crude Price Doubles- 2016 Started with Fall of Crude Price. The consensus target among Large Investment banks like Goldman Sacks, Barclays, RBS etc for Crude price Target was 10-15$, well as we see it today, crude prices have doubled from its February low of 26$. Infact commodities have been the best performing stocks in 2017, where Nifty metals is up 40% for the year. This has happened on backdrop of lower Chinese demand.

#Anticoncensus 2 – Brexit- In july Majority of people expected that Brexit wouldn’t happened and Incase it did market’s would crash as that would be the start of fall of EuroZone. Well Brexit did happen, but FTSE has rallied 20% since then and is very close to its lifetime high.

#Anticoncensus 3 – Donald Trump – The odds of Hillary Clinton winning was 91% till 3 days before election day. The Market was expecting that if Hillary wins, the market will rally and incase Trump Wins, markets would Crash. Well Trump won, and US Markets went on to hit Lifetime highs and have rallied 10% in last 45 days.

#Anticoncensus 4 – Buy India,Sell Brazil – India was the biggest overweight country among emerging Market by majority of Global Funds as it was the fastest growing country in the world beating China, turns out its has been the worse performing. Brazil which has been in recession for last 11 quarter, saw its currency crash, in mist of a political turmoil which was the biggest underweight for global funds has been the best performing Index with MSCI Brazil Returns of 56%

#Anticoncensus 5 – NBFC/MFI are in Multiyear Bull Market – This is where i myself have been hurt and believed that NBFC had the perfect ingredients to lead this bull market, Turns out that they have crashed 30-50% from their highs after demonetization.

Conclusion – Markets have a short Memory, today the consensus is that everyone is expecting that nifty might be weak in 2017, demonetization will hurt the economy really badly, who knows by the end of 2017 Nifty might be Hitting a New lifetime high.

The Question that is constantly asked to me is what will be the Multibaggers for 2017?

Today i am going to discuss a technique which i we have been using at stallion for last many years :

1)Look at macro Disruptions like change in government policy, change in prices of input/output etc.

2)Find Beneficiaries of that disruption and buy Them.

I will give you a Year by Year Example these Macro disruptions have created Multibaggers since i got in the Advisory business and how every year we have invested in it.

1) 2013- USDINR Crisis- A Year where USD:INR depreciated 25.5% in first 9 months,the key beneficiary were exporters like IT and Pharma. we went long IT and Pharma Stocks like Indoco Remedies, RS Software, Mindtree,NIIT and FDC which created massive alpha.

2) 2014- Ecommerce Gain Ground- Companies like Flipkart started getting frenzy  valuation, in October 2013 flipkart was valued at $1.3 Billion, by July 2014 (9 months later) flipkart was valued at $7 Billion. Logistics companies which were redundant and were trading at bankruptcy valuations, were now the only e-commerce play in the market. Stocks like Gati went up 10x, TCI went up 8x within 12 months. We at Stallion Asset went long GATI, TCI and Patel Logistics.

3).2015- Decline in Crude Price- Crude prices fell 75% from about 108$ per barrel in July 2014 to about 25$ Feb 2016. The beneficiaries were easy, Airline companies, Oil Marketing companies, companies where crude derivatives were a large input like plastic etc. The Result was Spicejet went up 9x, Jet airways 2x, Nilkamal (Plastic)4x, HPCL 1x. We at Stallion went long Spicejet, Jet airways, Nilkamal, Wimplast and Premco global based on this theory.

4) 2016- Paper and Chemical – Paper companies went up Anywhere between 5-10x in 2016. Why did this happen? Ballarpur Industries, India’s biggest paper company, had shut down plants owing to its financial situation, leading to a shortage in paper supplies, which had driven up prices by 10-15%. This was a game changer for very low margin paper industry.

Chemical Sector stocks went up 5-10x in 2016 because the Chinese chemical giant Hubei Chuyuan, had to shut down its operations as its government asked its polluting plants to move from the east side to the west side as the former was heavily populated by humans. It was the largest dye intermediate manufacturer in the world making 2000 tonnes which is 30% of the global consumption and the largest producer of H-acid, K-acid and Para base. This caused prices of chemicals to increase by 60-300% because of which Indian chemical manufacturers like Bhageria, Bodal chemicals, Akshar chem etc went up 3-10x within 24 hours.

Today the biggest disruption is demonetization, i have absolutely no doubt that there will be many 5-10 baggers due to this event as well.

Stallion Asset is a SEBI Registered Equity advisory company and we specialize in catching long term trends.

Our Investment philosophy is often compared to Basant Maheshwari’s Strategy, we at Stallion have a lot of respect for him. Today i want to share our consistent strategy of creating wealth for our clients.

 

 

At Stallion Asset’s core is its Unique Philosophy of catching large trends in the Market. We are not interested in 10-20% up moves; instead look at buying companies that can give our clients multiple time (multibagger) returns. Our Niche lies in buying great Midcap companies which are often ignored by the Analyst Community.

 

 

How do we catch the Trend?

 

Our Investment Philosophy is backed tested by 22 years of Historical Research of the biggest wealth creators in any 3 year period starting 1994.

 

1)History has shown that Wealth is Created by following the below rules

 

2)Buy and Rotate Strategy beats Buy and Hold strategy.

 

3)Every Bull Market has a Different leader; we find the leader in every bull market and stick to it.

 

There is No Bull Market without Earnings Growth; we always buy sectors with high expected sustainable growth of more than 20% for next 3-5 years.

 

Winners of Previous Bull Market will not lead the next bull market.

 

We only buy companies that are making 52 week Highs, rather than new 52 week lows.

 

The more market believes in the longevity of growth, the more valuations the stock get. Longevity is often the mispriced portion in Capital markets.

 

What’s Our Buying Strategy?                                         

 

 

We have a consistent strategy of only buying companies that fit our stringent Criteria of Growth at a Reasonable Price.

 

 

Can grow 25%+ for long periods of time

 

 

Can generate High Return of Capital Employed

 

 

Smart and Ethical Management Team

 

 

Competitive Advantage over competitors (Moat)

 

 

Low on Leverage

 

 

Reasonable Valuations

 

 

Free Cash Flow Generator

 

 

 

Why Sector Rotation?

 

In our historical research of last 22 years of the Indian Stock Market, we found out that in an Overall Bull Market 7 Sectors do well and 3 Sectors Underperform, whereas in an Overall Bear market, 3 Sectors do well and 7 Sectors Underperform. There has always been a bull market in atleast 3 sector in the market caused due to innovation, change in macroeconomic activity, change in Government regulation etc.

 

What is our Selling Strategy?

 

We are not traders. We recommend an investment only if we believe the stock can atleast double in next 12-18 months.

 

We sell only if one of these things happens:

 

 

 

1)Better Investment Opportunity

 

 

2)Story no longer Holds True 

 

 

3)Extremely Overvalued

 

 

 

4)Long Term Breakdown in Stock, Sector or Market

 

 

 

 

 

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