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30 November 2012

The Dark Continent : Visited

I read somewhere that 'When to sell a stock' is the 'Dark Continent'. I too have tried to explore it but with little success. And then I had an epiphany (I had to look it up!).

No the answer does not lie in PE, NPM or other such analytical mumbo jumbo that I usually expound. In India, the (part) answer lies in taxation.

If you are making a loss on a stock purchased, sell it before you reach the 365th day of holding. Book the loss in the Short Term, reflect it in your tax return and set it off against your  Short Term Capital Gain. If there is no Short Term Capital Gain(STCG) that year, you can carry it forward for the next eight years i.e, you can book it against STCG of the next eight years !

However be sure to reflect it in the income tax return AND unlike me, file the return in time. If you have emotional feelings for the stock, go right ahead and buy it back the next day for the next 364 days!

What to do with a stock which has gained, is another story!

30 December 2010


A very interesting company came to light one-day while I was toying with certain filters. MAJESTIC AUTO. A Rs 112.40 crore market capitalisation company with a last quarter PAT of Rs 4.75 crore and historic PE of 5.41 at a current market price of Rs 108.

At a handsome ROE of 39 percent, net margin of 14 percent and a reducing debt equity of .74, the company is financially on a stable platform.

Of an impressive pedigree, the company has been turned around in the past four years by its promoters, the Hero Group, who have a 75 percent holding. From being a manufacturer of motorised two wheelers (read mopeds!) it has successfully transitioned to an auto component manufacturer with 60 percent of the sales coming from mufflers and 11 percent from spokes. Not the most glamorous of product lines but with a direct linkage to the darling of auto industry - motorcycle manufacturing.

I would buy with a target of doubling in three years.

12 May 2010


I am back in the markets after a period of over 6 months. One would think this is a long time, especially in the stock markets.

Of all the cliches, the pithiest that comes to mind is- the more things change, the more they remain the same.

I left the market at a Nifty PE of 23 (Index Yield 4.35%) and a 10 year bond yield of 7.35%. I return at a Nifty PE of 21.77 (Index Yield 4.59%) and a 10 year bond yield of 7.98%.

I wrote about a concept of Index Yield in my post Déjà vu : I've Been There and advised an avoid till the yield favoured the stock investor. Going by that logic, a PE of 21.77 gives an Index Yield of 4.35% i.e, a loss of 3.39% for the stock investor (not accounting for the risk premium) as compared to an investment in the 10 year bond. If you include the risk premium, then the loss is even higher.

In layman terms, I am being paid more (Rs 7.98 per Rs 100) for investing in a safer investment (long term bond) than the riskier investment (stock market -Rs 4.35 per Rs 100).

So I am still holding onto my money. And booking profits.

PS :- Another reason to hold onto your money/ book profit is historical. Every time the Nifty PE goes above 20-21, the market tends to fall. I know there are a lot of opponents of the mean-reversion theory but hey! I don't write the history. I only quote it. My friend Manish Chauhan, in his blog Jago Investor has written about this occurrence. Read about it here

14 October 2009

Carnival of Indian Stocks : Dhanteras Edition

Happy Dhanteras to all the readers of the Carnival.

Dhanteras, for the uninitiated, is the hindu festival of prosperity wherein it is auspicious to buy an asset.

So lets start this edition with the most precious of assets - platinum.

Here is one for the passive investors - Investing Toolkit presents What’s A Stock Market Index? posted at Investing Toolkit.

And one for the risk averse - Jim presents Debt Management: 3 Suggestions posted at Help for Your Personal Finance.

Silicon Valley Blogger presents OptionsHouse Review: Low Commission Broker posted at The Digerati Life.

For the penny pinchers The Smarter Wallet presents Online Stock Brokers With Cheap Brokerage Fees posted at The Smarter Wallet

and KCLau presents What are Your Saving Habits? posted at KCLau's Money Tips and Can you claim insurance caused by AH1N1? posted at KCLau's Money Tips.

Oflate a lot of interest has been generated in India about forex trading. So Lucky presents Forex Training Free - There are a Lot of Forex Training Free on the Net, but still Not Enough posted at Forex Software Free - Indian Forex Software.

So once again wishing you a very Happy and Prosperous Dhanteras and Diwali.

22 September 2009

Déjà vu : I've Been There

I don't know about you but for the past couple of weeks I have been having a sense of Déjà vu. A thought that something similar had happened earlier, has been gnawing at my bones. Though my head tells me that something as extreme as 2007 may not happen but then why take a chance? So I went about investigating further.

Index Valuation
The Nifty is currently at a PE of 22.41 with 74% of the Nifty constituents (by weight) trading above this mark i.e 31 stocks by count. The balance 19 companies are from the cement, metals, BFSI and PSU Oil& Gas spaces - all historically low double digit or single digit PE sectors. Suffice it to say that the index is trading close to the danger mark. Have a look at the graphic given below. Notice the PE 20 line. 

Without fundamentals following the rise above the 20 mark, the move could be termed as euphoric, with catastrophic results for the retail investor. The cliff face that you see there is Jan 08, wherein not many of us were able to move out of the market. If you wanna climb this mountain be well equipped.

Relative Valuation
Let us assume that the complete EPS of the index i.e the sum of the EPS of all 50 companies of the Nifty is distributed amongst the shareholders as dividend. Then the dividend yield (currently 1.02%) would become 4.46%. Remember, the future EPS has a certain amount of risk embedded with it.

Compare this to the risk free rate i.e the yield on the long term govt security or the 10 year Govt of India Bond which currently stands at 7.06%, a difference of -2.6%. So rather than getting compensated for taking enhanced risk in equities you are losing money and in a riskier asset. 

On 06 Mar 09 the Nifty touched a low of 2539 and a PE of 12.44 i.e an yield of 8.19%. The 10 yr bond had an yield of 5.78%, a difference of 2.41%. Need I say it was the right time to invest. (Of course hindsight is always 20:20!). 

Now have a look the graphic given below.

So the better period of investment in the Indian stock market is past, unless the bond yield goes down to about 5 % or the Nifty PE falls to a safer level say 13-14. Preferable both together! I would then plough my savings right in!!

However liquidity is a beast which may take the market to a higher level from here like Sep 07 to Jan 08. For fall in liquidity watch for two indicators - appreciation of the rupee and rise in interest rates.

So should I sell - maybe not but definitely get rid of the weaker suits, hold the trumps. 
Should I buy - I would hold on to that cash.

19 September 2009


The Festival of Stocks is a blog carnival dedicated to collating the best, recent posts on stock market related topics. It includes fundamental research and commentary on specific stocks, industry analysis, ETFs, REITs, stock derivatives, and other related topics. Its originator is Fat Pitch Financials , where you can read the previous edition.

It is the privilege of Kuberkhana to present to you the 159th edition of the Festival of Stocks. In this edition, we have for you 12 articles on subjects ranging from the tactics to strategy adopted in the stock market, a couple of research reports and a host of issues related to personal finance. 


Jeff Rose presents One Year Ago and What it Means Now posted at Jeff Rose.

The Investor presents Are you lost in Neverland? posted at Monevator.


Investing Toolkit presents Why Trade In The Forex Market? posted at Investing Toolkit.

Research Reports

Personal Finance

13 September 2009


In the previous post (read here) we spoke about the business of IVRCL.  Here let us look at its fundamentals first and then the valuations.

The company has 13.35 cr shares with a face value of Rs 2 (after a 1:5 split in Mar 06) and a Book Value of Rs 135. The current market price is Rs 379.

Its turnover rose five times in four years i.e from Rs 1054 Cr to Rs 4983 Cr. At the current price its a Market cap : Sales of 1. Y-o-Y it is up 35 % from 3698 Cr. There is revenue visibility of upto 2.5 years . Q-o-Q the sales are up 17% despite Jun traditionally being a slow qtr. 

PAT rose 4.5 times in four years i.e from Rs 56 Cr to Rs 226 Cr. (Infra is typically a low margin(single digit) business).  EBIDTA at Rs 451 Cr translates to a margin of 9.06% down from 9.9 % last year and an EPS 0f 16.93. At the current margins the estimated EPS for FY 2010 would be 19.8.

Though the debt equity ratio at .77  is higher than what a typical conservative investor would be comfortable with (.5) , IVRCL has a Compund Leverage Factor of over 1 for the last two years, indicating a positive contribution of leverage towards the Return on Equity, which is currently at 12.5 %, down from 13.13% last year.

This company has consistently given a dividend for the last ten years!  

The current price of Rs 379 implies a TTM PE of 23.16 and a forward PE of 19.13. A shade more expensive than I am comfortable with. So - buy on dips is the mantra for this stock. Remember , the best things in the stock market come at a price!


This blog should not be construed as investment advice, either on behalf of particular stocks or in regard to overall investment strategies. It is a site aimed at understanding competitive advantages and valuing businesses. The information provided here comes from publicly accessible sources, but errors in these sources and in transcription may occur. Any investment decisions you make should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.