Share market - An Investment Destination: 2015

Thursday, July 2, 2015

Shares which may safeguard your portfolio from any volatility

An investor should always have 30%-40% of his investment invested in good quality, less volatile shares. These shares work as a safeguard for the portfolio in case of any negativity. Followings are few examples of such type of shares.

1. Dabur India
2. HUL
3. Britannia
4. Powergrid
5. Bayer Cropsciences
6 Abbott India
7 Nestle

The reasons for less volatility in these type of shares are :

1. Leadership position in their respective segment
2. Clear Business Model
3.Visible Future Growth
4 High Demand in HNIs

Investors can see the price performance of these shares during the down period of the market.

I have abbott and Bayer in my portfolio. Investors are advised to consult their financial consultant.

Five Shares which can give you good return quicker than and more than expected over next 2-3 years

MCX	Now all the negatives are behind for MCX. With no capex requirement, healthy cash position and clarity in regulatory framework ,MCX is in the position to get benefited from the booming economy.
VST Tillers	The company is the largest manufactures of power tillers in India. It also manufactures tractors and other agri equipment like rice transplanter, power reaper etc. Last year, the company has started its new unit at Hosur. The company is expected to be benifited from good monsoon and increased govt spending on agriculture.
Umang Dairies	It is a JK group company. It is turning into a great turnaround story. A small improvement in the performance will lead the share price into 3 digits which, I think , would be just a start of the journey
IDFC	IDFC is continuously testing the patience of the investors. After conversion into the bank, it would have access to low cost funds and high margin business. Which is making it a must buy. I am sure that the patience will be paid off.
Force Motors	After Firodias taking over full control over the company, the company is poised to grow significantly from hereon. The company manufactures a range of vehicles including Small Commercial Vehicles (SCV), Light Commercial Vehicles (LCV), Multi Utility Vehicles (MUV), Sports Utility Vehicles (SUV), Heavy Commercial Vehicles (HCV) and Agricultural Tractors. Its flagship product traveller is enjoying leadership position. The company has also partnered with BMW for supplying of engines and gear box for later’s Chennai car plant. Wide range of products, debt free status and market cap of Just over 2000 Cr. is making it a must buy for a long term investor.

I don’t believe in giving targets. I believe that long investor should invest in good companies at right price. If it is difficult to determine right price, investor should invest as SIP. Long term investor should buy and hold the shares to get the benefits of compounding,

All the shares discussed above are in my portfolio. I intend to hold them for long term. However, investors are advise to consult their financial adviser before investing.

Wednesday, July 1, 2015

Why should investor not consider the book value of a share ?

The price of share is derived from its future earning prospects both in the hands of the company and in the hands of the share holder (in form of dividends, buy back etc). Book value represents the historical value recorded in the books of the company. A share with low price to book value ratio does not mean that the share is cheap. In my previous post, I have discussed about the factors to be considered by long term investor while investing in a share. http://rvinay.blogspot.in/2015/06/factors-to-be-considered-while.html .

Here is the list of few shares with high price to book value ratio.

S. No.	Name	CMP*	BV	P/BV	ROCE %	DP Ratio %
1	Nestle	6144	294.27	20.88	62.75	51.27
2	Dabur	282.5	10.84	26.06	43.24	46.06
3	Britannia	2731.55	123.1	22.19	66.2	38.91
4	Colgate	2055.2	85.21	24.12	101.3	58.38
5	HUL	918.3	15.15	60.61	148.75	75.2
6	Asian Paints	760.8	44.1	17.25	46.31	44.08
7	Eicher Motors	20352.35	454.53	44.78	64.82	24.24
8	Ajanta Pharma	1584	89.41	17.72	55.8	17.24
9	Page Industries	15074.49	434.85	34.67	75.64	43.51
10	Symphony	2131.4	66.54	32.03	58.27	45.99

Below is the list of few shares with low price to book value ratio.

S. No.	Name	CMP*	BV	P/BV
1	RIL	1005	739	1.36
2	ONGC	313.9	201.22	1.56
3	Hindalco	113.05	196.6	0.58
4	Tata Steel	306.95	376.91	0.81
5	Gitanjali Gems	40.00	189.31	0.21
6	Bank of India	179.85	449.87	0.40

CMP	NSE price as on 1/7/2015
BV	Book Value
P/BV	Price to Book Value Ratio
ROCE	Return on Capital Employed
DP Ratio	Dividend Payout Ratio

Source - Moneycontrol.com

If you compare both the type of shares, you will find that the expensive share is becoming more and more expensive. I have discussed the reasons for such a high valuations in my previous blog. http://rvinay.blogspot.in/2015/06/why-do-some-shares-command-high.html

Here are few possible reasons for high book values.

1. In the past, the company may be a part of M&A exercise. The high reserves may have been created out of that exercise.

2. The assets shown by the company may not be realisable.

3.The company is not an investor friendly company and its Dividend Payout ratio is low.

4. Company is investing its earnings in the projects with high gestation period.

Generally retail investor think that the high book value is a safeguard against any fall. It would act as a base for the share price which is not the case. If P/BV ratio of a share is low, there must be some reason this (mentioned above). The investor should understand that the book value is not going be his.He will be getting dividend and capital appreciation which has no relation to the book value.

Monday, June 29, 2015

Greek Crisis - What Should a Long Term Investor Do ?

Every body in the stock market is talking about Greece Crisis and its impact on market. Every analyst is giving advise on how to deal with the crisis.

In my opinion, a long term investor should do nothing in this event. It should be non event for a long term investor. He should stay calm. if possible, he should stop watching business channels also. Otherwise he might end up selling some quality shares.

Make investing a regular activity. It should not be based on any particular event.

Factors to be Considered While Investing in a Share

1. The company you have chosen should be at least in the top 5 position in its segment.

2. The company should be growing with at least 20 % CAGR during previous 2-3 years.

3. The company should be paying dividend regularly.

4. The company should be from the sector having visible growth prospects for next 4-5 years.

5. The company should not have diverse business interest. Companies with diverse business interest command less valuation because it is difficult to value different business verticals.

6. The company should have excellent corporate governance track record. Though you may find such companies expensive.

7 The Return on Equity should be more than 25%. Higher the ROE, higher the price.

Saturday, June 27, 2015

Why are most of the IPOs avoidable ?

In my 10 years of experience in equity market, I have found most of the IPOs avoidable.

Investor should understand that no promoter (Except Government) would ever give them shares at discount. Rather they would try to fetch maximum value. So be careful.

You need to be more careful in bull market. Because primary market is flooded with IPOs in bull market. Every promoter wants to encash the bull run by offering shares of his company to public. But you need to take decision based on merits not based on the euphoria, Reliance power IPO is best example of how people are made fool by creating euphoria.

You must understand that it is not compulsory to apply for shares in every IPO.

If you want to participate in an IPO, just start gathering information about the company from independent sources. Just have a look at its financials and compare the valuations with the peers. You will come to know whether the offer is cheap or costly for you. I am sure that you will find most of offer expensive. This type of share may give you some listing gain (but eventually comes to the realistic level) which is not the purpose of long term investor.

If an investor is exiting in the IPO, the IPO is prima facie avoidable. Why would an investor exit at cheap price ?

You should understand that not all the IPOs are for you. Only few IPOs suits you and you should be able to identify them.

Friday, June 26, 2015

Why Should Retail Investor Stay Away From F&O Space ?

The main purpose of F&O is to hedge against the volatility of the stock market. F&O trades are for big players and should be used as hedging tools. Since, the F&O trades are not settled through actual delivery, this has turned this segment into speculative one. It is a highly leveraged and high risk segment of the share market.Retail investors should not participate such type of speculative activities. Why to involve yourself into a speculative activity. It is made for big players and are to be used for hedging purposes only. In our system, unfortunately, margin requirement is so low that an investor with Rs. 50,000/- can start trading in F& O space. He may earn initially some thing but eventually ends up with empty hands and broken hearts. He may earn in 9 out of 10 trades but one trade may wipe out all his earnings.

Thursday, June 25, 2015

Why Should Long Term Investors Not Look at Technicals ?

Long term investors should understand that it is because of their behavior, technical trends are generated. I am not talking about short term trades which are of speculative nature. If you are convinced about long term prospects of one stock and if it is worth buying then just buy it without looking into technical trends. You should understand that you will always find good stock costly in comparison with its peers. If your are worried about short term price movements, you should buy in small quantities and keep them adding in regular intervals. If your stock choice is right, you will see the multiplier effect in 2-3 years.

Disclaimer : I follow the same strategy . The article is purely based on my experience in share market.. Investors are advised to consult their financial adviser before taking any decision.

Monday, June 22, 2015

7 Days non-stop rally - what next ?

Market is continuously rallying since last seven days. We should note that this rally is with thin volumes. So don't be over excited, market may fall again. If you are a long term investor, don't be worried about such falls. You should make a list of your stock and keep on adding them in your portfolio. As, I am a long term investor, I keep on buying regularly. In June month, I have added following shares in my portfolio.

1. Dish TV

2. Bayer Crop Sciences (Already having in my portfolio, added more)

3. Abbott India ( Already having in my portfolio, added more)

4 SML Isuzu

5 VST Tillers (Already having in my portfolio, added more)

6 Indiabulls Ventures

7 Indian Hume Pipes

8 DCB

Happy Investing.

Friday, June 19, 2015

Why Do Some Shares Command High Valuations ?

There are few shares in Indian Stock market whose always command premium valuation irrespective of the market conditions. e.g. Colgate, Dabur, Hindustan Unilever, Bosch, Abbott India, Nestle, Asian Paints etc. There are various reasons behind such high valuation.

1. Long Term Earning Visibility: Companies with long term earning visibility always command premium valuations. FMCG companies are the most suitable example of this.

2. Return on Equity : Companies with high Return on Equity always command premium valuations. Nestle,colgate are the companies whose ROE is more that 100%

3.Corporate Governance : Companies with high corporate governance always enjoy a premium in valuation over their peers.

4. Multinational Companies : Multinational companies with strong parent and having strong presence in India enjoy premium valuation. This premium is because of their technological edge , good corporate governance, high dividend payout ratio, High ROE and hope for open offer and delisting. Bayer Crop Science, Abbott India, HUL, Bosch, GSK are prominent examples.

Disclaimer : I have shares of Abbott India and Bayer Crop sciences.

Why F&O in Indian Equity Market

F&O trades are for big players and should be used as hedging tools. But in our system, a small investor even with Rs 50,000 capital can enter into F&O space. He may earn something initially but eventually ends up with no money and broken heart. We should have the minimum margin amount of Rs 1.00 Cr. for F&O trades and all F&O trades should be settled through delivery on the settlement date.

The so called investors and FIIs surely will not like this but we have to protect our people. We need to turn them into productive activity not in speculation.