Infosys, TCS are fading stars, don’t expect them to recreate past glories: Aswath Damodaran, NYU

Src : http://economictimes.indiatimes.com/markets/expert-view/infosys-tcs-are-fading-stars-dont-expect-them-to-recreate-past-glories-aswath-damodaran-nyu/articleshow/59105628.cms

Infosys, TCS are fading stars, don’t expect them to recreate past glories: Aswath Damodaran, NYU

ET Now|Updated: Jun 12, 2017, 01.52 PM IST

Infosys are not declining yet but they are closer to the decline phase of their lifecycle. People have to be realists when they invest in these companies.

Edited excerpts:

What is your view on Indian global brands?

Let us take the Royal Enfield story. It is a fascinating story because it was a motorcycle that was essentially Indian. It was basically a low­ cost domestic story. I am not even going to talk about the price.

It is amazing how the company, the Royal Enfield has been able to adapt and change its story and expand into a global brand. It is possible that the pricing has got out of hand. But I call these, runaway stories. Some time when a story sounds so good, you sometimes can file into the story without wanting to ask questions.

The questions that need to be asked is what kind of margins can Royal Enfield which is now a global brand name make in the global market place? And that is when reality starts to intrude in that story.

But I love the Royal Enfield story. In the next version of the book, I will simply like to show how you can change stories over time, how a purely domestic mass market company rebranded itself and told a new story about itself as a global brand name company.

It will be interesting to see how much play they can get out of it but it is something I am going to watch for a while because I find it fascinating.

I also thought why not look at two interesting models from the banking space ­­ the largecap private banking segment particularly ­­ which has drawn a lot of foreign institutional investors. Let us look at ICICI Bank versus HDFC Bank, one a ranked outperformer, the other a ranked underperformer. Goldman Sachs has just called for a $100 billion dollar market cap by FY20 for HDFC Bank. Price to book on a future basis at four times is pretty much at the peak of the valuation cycle. There has been a long due call for ICICI Bank to rerate from the current valuation levels which are about 1.5 times price to book. How do you compare the two stories and where do you see more potential?

With almost any Indian banks/financial service company, in the background there is always a question of when are these markets going to open up and what is going to happen to these? These companies right now have big markets that are protected from outside competition. But considering the extent that these markets are going to open up sooner rather than later, the question is who is in better position to deal with that foreign competition?

Foreign competition is going to come in big time with people throwing money into India and what the market seems to be saying is HDFC is in a muchbetter position to fight off that foreign competition because of the segment of the market that it serves than ICICI.

I am not sure how much base is to that story but that seems to be the story that is driving these valuations. It will be interesting to see how housing finance plays out in India and how that market actually works through time because that is going to be a market where how India opens up the financial services segment of the economy and what will drive the valuation of these companies. So with any of these investments, you are making a joint bet on the company as well as how you see reforms playing out in the particular sector.

If one was seeking value bias in this market, then ICICI Bank to my mind at 1.5 times book would be more compelling.

Let me put it this way. As an investor, I would rather have ICICI in my portfolio than HDFC. So, as an investor. it is a no contest to me. I would rather have 1.5 times book value and take my bets on ICICI being able to deal with the competition than a four times book value company. But I am making a bet that the segment of the market they are in is protected enough from competition that they can deliver 10%, 12%, 14% returns because that is what four times book value translates into.

As an investor, it is an easy pick for me. ICICI is a better investment. If you ask me which one is the better company, that is a different question, and I think that is an interesting question investors need to ask themselves.

There are lots of great companies in India that are bad investments and there are lots of bad companies in India that could be great investments because it all depends on the price you are getting in and for me ICICI looks like a better investment right now even though it might not be as lucrative a company in terms of its comparative advantages and the expected return on equity

The next study is of course Maruti, it is classic story on Indian consumption, JP Morgan has put out a March 2018 price target of Rs 7200 on the stock and the stock is already at that mark which values the business at 24 times FY19 estimated earnings. How do you look at the value in the story?

In a world where everybody wants to be global and they think that the only way to grow is to look outside your market, Maruti operates as a counter example of a company that is kind of focussed on India and said we are an Indian automobile company, we know this market really well and we are going to play to our advantages which is we can deliver low cost cars that are not ambitious. They are reaping the benefits of having focus because one of the things I tell people is when you are a founder or you are a CEO your instinct is, let me tell a big story, we are going to be a global company,

we are going to be everywhere, we are going to be everything to everybody. But sometimes it is better to have a focussed narrow story and Maruti in fact has had that focus that most other automobile companies in India have not had because every other automobile in India has tried to be everything to everybody.

They want to be luxury car markers, they want to be global, they want to do this, they want to do that, Maruti stayed focussed on what they do well and it has paid off for them. Now would I buy them at Rs 7200? you That is a tougher call for me because they have a foothold in this market that seems at the moment at least to be very difficult to overcome, a barrier to entry which is why they have a cost advantage over everybody else and they are exploiting to the fullest.

I do not think any other automobile company can sell their cars at the prices that Maruti is selling their cars now and make any money. And until that changes, Maruti will continue to gain the benefits of cost advantage. So plaudits to Maruti for kind of creating themselves and staying focussed on what they do well.

The last one would have to be TCS and Infosys. The jury is out whether Indian IT can come back or whether the business models have been changed for good. You have not been upbeat on Indian tech but you have called both these IT biggies fading stars, why?

I think they have had a good run. Their basic business model worked for 25 years, it has delivered profits and market value, the only snag is that their business is low cost outsourcing model, you can dress it up as much as you want but that is effectively how they made money. They approached the companies in developed markets and offered them a way to do the services that they had to get done at a much lower cost. The cost advantage came from their location and the fact that they did not have to pay their employees as much and they took advantage of it for a long time. I am not saying that was not a great model but that model is fading.

It is fading because other people have even lower costs than India now and you cannot play the cost advantage game any more if there are countries with even lower costs like Nigeria or the Philippines. The second is increasingly you see automation replacing people. The biggest advantage that TCS and Infosys had was cheaper people but if 95% of your cost are machines, there is no advantage anymore. So the underlying basis for those business models has faded. It does not mean that these companies are not going to invest once again but we have to be realistic about what they can do. They are not going to go to double digit growth that over time. They might have a year or two of good growth but these are mature companies, they have to be run like mature companies, they have to be managed like mature companies. The biggest danger that investors in these companies face is they try to recreate their past glory. In other words go for growth at any cost, go out and do acquisitions, do things that are really not in their competitive strengths.

To me both companies reflect that and this is a natural process; companies are born, they grow, they mature and then they decline. I am not saying TCS and Infosys are declining yet but they are closer to the decline phase of their lifecycle than they are to the growth phase of the lifecycle. People have to be realists when they invest in these companies and not expect miracles because those miracles are not going to happen.

Top 5 rules to handpick stocks which could turn out to be multibaggers: Ashish Chugh

http://www.moneycontrol.com/news/business/stocks-business/top-5-rules-to-handpick-stocks-which-could-turn-out-to-be-multibaggers-ashish-chug-2301869.html

Jun 12, 2017 10:22 AM IST | Source: Moneycontrol.com

Top 5 rules to handpick stocks which could turn out to be multibaggers: Ashish Chugh

India could be a bright spot and the FII inflows can, not just sustain but accelerate in the coming years.

One has to understand that multibaggers are not there from Day 1, they evolve over a period of time – that’s why we call them "Potential" Multibaggers, Ashish Chugh of Hidden Gems Advisory, said in an exclusive interview with Kshitij Anand of Moneycontrol.

Q) How are the markets looking?

A) Frankly, I don’t look at the markets on a day to day basis. And, I have figured out that it does not help figuring out what the markets are going to do the next day - I think it is a waste of time.

It makes more sense to understand the business dynamics and to figure out which companies and businesses will do well in the coming years. It does help to visualise this for a longer period rather than the next quarter.

Q) I know you won't talk about stocks in particular but if you can tell us the sectors you are bullish on & the investment themes you are working on currently?

A) My approach to stock picking is bottoms up & not top down. However, long-term potential of the sector surely is one of the considerations.

a) I have found out most of my multibaggers at times when the stocks were beaten well below their intrinsic worth and to abysmally low levels, on the back of certain short-term negatives.

b) One common characteristic of all stocks that have turned multibaggers is a significant growth in Sales. Growth is, therefore, a very important parameter - a value stock will otherwise remain a Value stock unless there is growth in the company.

c) I am on the lookout currently for companies where Capex is done in the last five years, the capex has not started yielding results because of factors like - not adequate demand or teething startup problems.

The profits would be lower today (compared to a scenario if they had not done any capex) because of higher depreciation & interest cost & hence lower Investor interest in the stocks. This enables me to buy the stock at lower levels.

However, my thesis is that as and when the demand pick up happens or the teething issues get resolved, revenues could go up & profitability could shoot up substantially due to operating leverage.

d) I am looking for stocks in sectors where the demand pick up can happen - ancillaries to Housing, Infrastructure, Building material & Rural plays etc. I am looking for select plays in Cement & E-commerce space, of course in the microcap segment.

e) I am also looking at few companies with great brand and brand recall, which were not doing well because of change in dynamics of their business - some of them may be restructuring and reinventing their business models. Am keeping an eye on such opportunities.

Q) Indian markets are at an all-time high and in many terms it as a liquidity driven rally, do you see foreign investors putting more money into the Indian markets?

A) India is undergoing a revolutionary change currently - something we have not witnessed since a very long time. Corruption, Black money, inefficiencies in the system had become an integral part of our lives & first time there has been a serious effort by any government to challenge the existing system and to change it.

Demonetisation & GST are steps which will change the way we transact and will bring in more transparency, reduce corruption and generation of black money and hopefully lead to increased efficiencies.

There are going to be teething problems on the way to this and this will take a few years to get fully streamlined though - so no quick fixes for our problems & changing the eco system which was built over decades.

I feel once the impact of these measures and many more changes that the government is envisaging starts coming, India could be one of the world's fastest growing economies.

India could, therefore, be a bright spot and the FII inflows can, not just sustain but accelerate in the coming years. Why just Foreign Money - with Real Estate & Gold in stagnation/ downturn and with FD Rates becoming unattractive, even flows from Resident Indians into Equities can also increase substantially in the future.

Q) I know you've been doing Microcap & smallcap investing all these years, What are the important things an investor should consider in microcap/smallcap investing?

A) First of all, it is important to understand ‘Who You Are’ & ‘What kind of Temperament’ do you have. You have to figure out whether you are cut out for microcap investing or not.

Microcap Investing & Multibaggers sounds fascinating; however, you have to figure out whether you can see your stock underperform the markets for years and whether at the back of this underperformance, can you develop the conviction to hold the stock.

How does your mind get swayed due to stock price movements? Microcaps are highly illiquid stocks with very high impact cost & in bear markets, you may have to see your stock trade even 50% lower than buying price - how would you react to such a scenario.

I have seen some of my stocks fall 30-40% from my buying price & then go up 5-10X times from there. I could have well sold out in panic, missing all the returns later.

In such a scenario, it is important to focus on the business and its direction rather than let your mind get swayed by stock price movements.

The other important thing is Risk Management - if you have learnt to manage your risk, 75% of the job well done. Remember, Equity Investing is all about Probabilities & Risk Management - no certainties here.

Focus on valuations is the key to risk management. Also, you can't work with target prices in microcap investing - here you have to focus on the process rather than the outcome.

One has to understand that Multibaggers are not there from Day 1, they evolve over a period of time – that’s why we call them "Potential" Multibaggers.

Also, it is prudent to invest in a basket of stocks - allocation of capital may depend upon conviction levels, visibility of earnings & Valuation parameters; however, the important thing is to diversify (and at the same time not over diversify).

Q) Management as we all know is a very important factors in any company. However, the fact is that most smallcap companies are run by managements where not much is known or written about in public domain? In such a scenario, how does one identify a good management?

A) Well, this is the tough part in microcap investing. You are right that these are mainly managements where not much information is available in public domain. However, if you go through the past of the company (not a few quarters but few years), you can get vital clues about the management.

The important thing to first understand is what constitutes a good management - I think this is one subject I believe is grossly misunderstood. I think in most cases (not all), it is nothing more than a perception which changes with the Stock price.

Most analysts link good managements to the stock prices of their companies - I am talking this from my experience of last many years. What I experienced is that when these stocks were trading at low valuations & low prices, there was not much interest of analysts and brokerages & these were brushed off as companies with management issues.

If everything else in the company looks OK & the management does not talk to the analyst or conduct Investor or Analyst concalls, such managements were labelled as being Investor unfriendly.

When the price moves up 5 to 10X from those levels, you start seeing analyst reports & suddenly the management quality would start looking good.

For me, a good management is one who is focussed on the business - Has skin in the game aka high promoters stake - allocates capital diligently - shares the wealth with Investors in the form of share buybacks & dividends.

Even companies which may not pay dividends (because of high Dividend distribution tax) but uses the earnings for regular Capex & scaling up a business without Equity dilutions. This too enhances shareholders value.

I think not making impressive investor presentations or not conducting Investor Meets and concalls are factors which are unimportant for judging a management as far as I am concerned.

W, Aurelia brands owner TCNS Clothing may file for IPO this year

http://www.livemint.com/Companies/qCfWWyJYm2FdMMTmIpms2J/W-Aurelia-owner-TCNS-Clothing-may-file-for-IPO-this-year.html

Last Modified: Mon, May 29 2017. 12 13 AM IST

TCNS Clothing, which markets women’s apparel under the W brand, is in talks with investment banks for launching an IPO, but stake sale details haven’t been finalized yet.

Mumbai: TCNS Clothing Co. Pvt. Ltd, which sells women’s apparel under the W, Aurelia and Wishful brands, has started discussions on an initial public offering (IPO), two people aware of the development said. New Delhi-based TCNS Clothing is backed by US-based private equity firm TA Associates.

“TCNS Clothing has started meeting investment banks to discuss an IPO. They plan to file for the IPO by the end of the year,” said one of the persons cited above, requesting anonymity as the talks are private. “However, talks with the banks are at a very early stage right now. The company is yet to decide on the stake that it would look to dilute in the offering, and whether it would be a pure primary offering or a mix of primary and secondary share sale,” this person said.

Brands of TCNS Clothing, founded by brothers Onkar and Arvinder Pasricha, are sold at more than 1,600 points of sale across India, Mauritius, Sri Lanka and the Middle East, and in over 350 exclusive stores in more than 100 cities. The three brands also have a strong presence across large multi-brand retailers and online portals. W’s first store opened in 2001 in Delhi.

According to the second person, the IPO should see strong interest from investors, who have shown keen interest in share sales by consumer brands in the recent past.

“Companies such as D-Mart witnessed very high demand for its share sale and investors were also rewarded handsomely on listing. Some other consumer companies such as Manpasand Beverages Ltd has given investors very good returns post IPO. W’s numbers are attractive and hence the company should be able to drive strong interest for its share sale, as and when it hits the market,” said the second person cited above.

D-Mart, which went public in March sold its shares at Rs299 each in its public offering, which was subscribed 104.5 times. On Friday, the company’ shares closed at Rs717.6 per share. Manpasand Beverages shares have risen to Rs845.05 per share, as of closing on Friday, from Rs320 when the company went public in June 2015.

According to filings with the Registrar of Companies, TCNS Clothing reported standalone revenue of Rs590.67 crore in 2015-16, up almost 65% from Rs348.75 crore in the previous financial year. Its profit more than doubled to Rs62.51 crore from Rs27.27 crore in the same period.

The company also reported an increase in its Ebitda (earnings before interest, taxes, depreciation and amortization) margin to close to 20% in 2015-16, from 16.5% in the previous year, RoC filings show.

Emails and text messages sent to Anant Daga, managing director at TCNS Clothing, went unanswered. Dhiraj Poddar, India head at TA Associates, declined to comment.

So far this year, six companies have raised Rs4,914.4 crore through initial share sales, data from primary market tracker Prime Database shows. In 2016, 26 companies raised Rs26,493.8 crore.

In August, TA Associates invested $140 million in TCNS Clothing. In June 2016, Mint reported that TA was in talks to acquire a stake of about 30-35% in TCNS, with existing investor Matrix Partners India selling its almost 20% stake and promoters 10-15% to raise fresh capital for funding expansion. Matrix had invested about Rs100 crore in TCNS Clothing since 2011.

“The women’s ethnic apparel market in India is largely unorganized and is undergoing a shift towards organized and branded. As the leader in branded women’s apparel, TCNS Clothing is driving this shift and providing the Indian consumer with a differentiated product and value proposition across its multiple apparel brands,” Naresh Patwari, director at TA Associates, said in statement while announcing the investment in August last year.

The Indian women’s apparel market is predicted to reach around $20 billion in 2020, up from $13 billion in 2015, a compound annual growth rate of 10%, according to Avendus Capital. The branded portion of this market, approximately 17% in 2015, is expected to surpass 38% over the next 10 years.

Are you fit to be an equity investor? - Uma Shashikant

http://economictimes.indiatimes.com/wealth/invest/are-you-fit-to-be-an-equity-investor/articleshow/58762008.cms

Are you fit to be an equity investor?

UPDATED: MAY 23, 2017, 08.27 AM IST

By Uma Shashikant

Investor attention turns towards buying equity shares when the buzz in the markets increases. Celebrations around the Nifty reaching the 10,000 mark would leave many gasping at the possibility of becoming wealthy by simply picking up a few stocks.

My consistent message to eager investors has been this: Equity investing is tough. It takes a lot to be successful. Do it only if you can persist, learn and persist even more. So what does it take to become a successful equity investor?

First, to invest in equity is to invest in a business. You should have a basic interest in how a business works and how it struggles through various challenges and ultimately succeeds. The richest equity investors are those who set up their own business and spent the best part of their lives working towards its success. The value they build over the years reflects in the shares they own as promoters, managers and stakeholders.

To be able to achieve such success as an outside public investor, who will have no direct control of any of the decisions the business makes, you have to be willing to learn what makes a business tick. This can only happen with time and equity investing is a long­ term game.

Second, you should have the ability to put together a framework for growth of the business you will invest in. To do this, you should have training in financial analysis, or be willing to pick up the knowledge and skills required to understand how profits are generated and how

the numbers come together. Every business whose shares you buy should be supported by an investment thesis, and you should be able to put that thesis down in words and numbers.

Third, you should have the perseverance to apply your framework on the potential stocks you could buy and come up with a shortlist. For example, you can have an investment thesis that says that you are looking at companies that are in businesses whose sales is growing at an even pace (plug a number), and whose return on capital invested is high (number here too) and the management is focused on growth without leverage or increasing costs (quantify these too).

There would be hundreds of stocks that would meet these criteria. You should be willing to sift, analyse, sift again and again. Your investment process will get more and more robust as you do this.

Fourth, you should have the risk taking ability to keep your money in the a few picks that meet your stringent criteria. There is no point in  buying stocks that are in the news, or recommended by friends or relatives, or picked off random conversations or lists from the TV or newspapers. When you do not know why you are buying, you will stake too little. When you lack in conviction, you will take no risks. Then you will end up with a long list of stocks.

The problem is, even if some of them turn out to be winners, you won't have enough money in them for it to make a difference to your wealth. A portfolio with too many holdings will do as well, or worse than the index. You did not have to go through all the trouble to earn just index returns!

Fifth, you should have the discipline to keep investing in the stocks you picked while also tracking their performance. Without a good understanding of the business and the numbers, and a robust investment thesis, you will not be able to make up your mind about whether to keep or leave the stock as its performance unfolds. Even the best investment mind cannot forecast the growth path of a business.

The excitement of equity investing is the travel on this unknown path and the excitement of seeing a stock soar beyond your expectations. That would happen to just one or two of your picks. One or two will be just alright, and one or two would do worse.

Sixth, you should have the mental framework of a learner who is willing to be caught having made a mistake. If you are the kind of person who likes to always be right or seek complete control of things in your life, or like the comfort of everything going exactly as you planned, equity investing is not for you. You have to be able to take active calls on what is going wrong. There is no knowing the potential upside of a stock.

Every successful equity investor will tell you stories of being humbled by businesses that grew exponentially over time. But cutting losses when you have made a mistake is what protects your wealth. We are all victims of confirmatory bias and the cruel endowment effect, where we begin to love what we have too much and can only see what is right with it. Both attitudes are harmful to equity investing.

Seventh, you should have the patience of the farmer. As Kabir famously remarked, you can pour hundreds of pails of water, but the tree would flower and fruit when its season arrives. Your attitude should be one of a nurturer, who is willing to let the business you have invested in trudge along, knowing fully well how it is working and how its managers are steering it through challenges.

There is no point reacting to news and rumours and panicking at every unexpected turn. You should be able to wait for numbers to come in, sift and study them to see how they stack up against your thesis, and make the decision after carefully considering the qualitative aspects. It takes a few cycles to learn the game, and losses are the best ways to get enduring lessons.

Begin small, but begin with intensity and depth. If you like to stake a few rupees in this and that by staring at the screen of moving numbers, you are simply speculating. If you are lucky, you will make some money, but you won't be able to replicate it. If you are intimidated by the amount of work equity investing takes, you can buy the index or an equity mutual fund.

But if you nurture the secret ambition to run a business yourself; if you can invest time and effort to give the task the attention it deserves; and if you like the joys of dealing with unexpected twists and turns, equity investing is your game! Ensure that your vision is sharp, your hands are firmly on the wheel, and feet well balanced in the choice of the brake and the accelerator.

(The author is Chairperson, Centre for Investment Education and Learning.)

Kids' fashion takes big steps in e-sales - TOI

http://timesofindia.indiatimes.com/city/bengaluru/kids-fashion-takes-big-steps-in-e-sales/articleshow/58334082.cms

Kids' fashion takes big steps in e-sales

TNN | Apr 24, 2017, 06.03 AM IST

BENGALURU: As children are online from a very early age, fashion brands for children are increasingly turning to ecommerce platforms. And for the latter, kids' fashion has become one of the fastest growing categories within fashion.

When women fashion brand Chemistry launched a brand for girls aged between 7 and 15 two years ago, they launched exclusively on Amazon. It has since launched on other e-commerce platforms, including Myntra and Jabong.The brand, Chemistry Girls, wanted to reach a wider audience and test the market before setting up physical stores. Amazon India said the number of units of kids' fashion sold and the number of customers buying kids' fashion in the first quarter of 2017 were both twice that in the same period last year. Children are getting influenced by what they see online. They have access to the internet and they want newer styles.While the children in this age group might not all be online, their parents would all be in their 30-40 age bracket and more comfortable shopping online. So it made sense for us to launch online first. Also, there is no capital cost," said Sunil Jhangiani, owner of the Mumbai-based brand.The girls, he says, have a mind of their own, and they want to look hip and can convince their parents on what to buy for them online. Denims and T-shirts with cool graphics on them are particularly strong, he says.

"With 35% of our custom ers buying kids' fashion new to apparel purchases on Amazon, it is expanding the overall fashion business of the company ," Arun Sirdeshmukh, head of Amazon's fashion business, told TOI.

Flipkart says kids' fashion has been the highest growing segment in the fashion category in the past few years. Rishi Vasudev, head of Flipkart Fashion, said the space grew at more than twice the growth of the overall lifestyle segment for Flipkart last year and currently contributes close to 10% of apparel sales. "We have a lot of labels brands that are exclusively on Flipkart and are doing extremely well. Izod kids is exclusive with us. We have special lines of collection from Disney, Chemistry, 612 League and other character merchandise (Marvel, Avengers, Shiva, Jungle Book) which are only available on Flipkart," Vasudev said.

For kids' brand Mothercare, which has a significant presence offline, the online space now contributes to more than 10% of revenue."We have seen a 50% jump in online sales in 2016-17 and in a couple of years, online revenue should contribute to 20% of overall revenue," said Timmy Sarna, MD of DLF brands, which runs Mothercare.Mothercare sells on platforms like Amazon, Jabong, and has 95 stores across 20 cities.

Kids' wear brand Gini & Jony saw a 100% growth in online revenue in 2016-17. Online contributed 3.5% of revenue in 2015-16, this rose to 10% last fiscal. "Customers were very price conscious earlier. But now, the brand has become important for the customer, the price doesn't matter. If a pair of jeans was priced at Rs 2,000, they would hope to get it online for Rs 1,000. Now, the average ticket size is equal in both online and offline," said Prakash Lakhani, CMD of Gini & Jony.

Top 5 guru mantras from Raamdeo Agrawal to help investors' generate wealth

http://www.moneycontrol.com/news/business/markets-business/top-5-guru-mantras-from-raamdeo-agrawal-to-help-investors-generate-wealth-2260143.html

Market valuation still at comfortable levels but the job of picking stock has become tougher, said Raamdeo Agrawal, Joint MD, Motilal Oswal Financial Services in an interview with CNBC-TV18. 

We bring to you his 5 guru mantras from the interview:  

Be choosy in what to buy

Stock picking was easy sometime back but after the recent rally finding stocks at the right prices has become tougher. When the Nifty was trading at 7,000-8,000 levels, the job of picking stocks was easier, said Agrawal. Now, investors have to be more careful in what to buy at what price. 

Most of the investors now know what to buy but that may not be available at your price. Finding good things at a reasonable price is the biggest challenge in this market which makes the job even tougher, he said. Finding big idea has become difficult. 

Construction boom is coming, timing is key

Raamdeo said he is not into real estate stocks right now but trend seekers should always be on a lookout for sectors which could outperform. For example, the construction boom is imminent, but timing remains a key. Underlying stocks can surge very quickly whenever that happens. If investors pick stocks from depression stage, the returns are usually exotic. 

Don't be carried away with averages

The market might be trading at 22x, but there is hardly any company which might be trading at a P/E of 22x. Averages have one fundamental quality that the distribution of the population is presumed that 50 percent on one side while the rest on the other side (normal distribution). 

In a stock market, when you are saying that it has done 18 percent where 4000 companies are listed, it is assumed that 2000 companies would have done below 18 percent while the rest 2000 companies would have done above 18 percent. But, the world is not so simple. 

Markets are skewed which means that 10 percent would do 80 percent of market performance and the rest 20 percent will share the rest. Out of 4000 companies, only 400 companies would contribute about 70-80 percent to the market cap growth and the rest will share the average. While operating in the market, don't be carried away with averages, explains Agrawal.

Select winning companies: 

Agrawal emphasised on the fact that investors should not be concerned about companies which are not in their portfolio. Instead, they should handpick, let's say, 20 companies which can be called as winning stocks. 

To explain the concept from the book he just read, he took the example of Dow Jones Industrial Average between the period of 1976-1982, Dow moved in a narrow range but Warren Buffett's portfolio grew by 6 times. 

It means that even if the market is down by 5-10 percent, it is the job of active manager's job to put money in those stocks which can grow irrespective of how markets perform, said Agrawal. 

Pick stocks for the long term: 

Agrawal said when we buy stocks we buy for the long haul. None of these companies (Avenue Supermart, RBL Bank) were created for 2-3 quarters and prices are not such that it can't grow, he said. 

If the valuations are high then prospective returns in the short term will go down in companies which are expensive. But, it will be attractive in long term such as 10-15 years, he said. 

Agrawal further added that we try and pick stocks with reasonable valuations so that out short term return is reasonable and is very attractive on a 3-5-10 year's basis. Hence, we buy stocks with 10-15 years horizon. 

Below is the verbatim transcript of the interview.

Anuj: I know next month you will be going to Berkshire AGM, so, good question to ask you -- are you comfortable with market valuations right now, especially with the fact that earnings have not caught up yet but are you comfortable?

A: I am always comfortable with the market. It is no issue. We have to only see in a change situation how do you play. When market were at say 7,000-8,000 job was easier. Now you have to be even more careful what you buy at what price because now most of the guys they know what to buy, what is good, but you want to buy is not available at your price. So, then you have to find something.

First thing you will find very few things which are good and which probably might be reasonably priced. So, finding good thing at reasonable price is the biggest challenge in this market. So, that makes the job even tougher and you have to be far more focused. We have done nothing for last six months, we are just doing whatever we had done and sitting on that, or buying more of that. So, finding some big idea and piling onto that, that has not happened. So, it is becoming difficult.

Latha: What is the 12 month trailing valuation of the market, the multiple of the market now, just to get us down to reality, are we at 22?

A: Must be about 22-23.

Latha: At this juncture, let me come to some of the sectors that people appear to be discovering, real estate.

A: I am not in that. People will find as I said, different spots where things are changing and those who are early trend seekers, some of the sectors will definitely turnaround. Maybe one of them will someday PSU banks, some day real estate, or even the metals, we saw last time steel came back very strongly, maybe someday cement has to be -- it is overdue that cement comes into limelight because without cement in the steel, construction boom has to start one day. Whether it is six months away, six years away, only time will tell. However, that boom has to happen.

So, underlying stocks can surge very quickly because when you buy from the depression, generally from very bad to bad is a very exotic journey. You saw yesterday, all the realty stocks, people hammered for months, years they kept hammering, yesterday the first flush was 10-25 percent, I think one stocks was 40 percent. So, those kind of fireworks do happen.

Sonia: Every time you come here you teach us something new in terms of market wisdom. I want to know have you read any recent books where you can sort of impart some wisdom in terms of market, anything new.

A: I am always reading. Every 15 days I finish a book. It is the books only from where you learn. I finished book called ˜Investing: The Last Liberal Art' by Robert Hagstrom. There he talked about the averages. What is the average? Say 22 or whatever. These are market averages, but if you go into that, there is hardly any company at 22 price-to-earnings (P/E). What happens is, one of the biggest myth in the market is that index has done at 15 percent for last 34 years.

Averages have one fundamental quality that the distribution of the population of which you are taking out average, it is presumed that 50 percent is on this side and 50 percent is on other side. So, stock market when you are saying it has done 18 percent, and 4,000 companies are listed, generally it is assumed that 2,000 companies would have done below 18 percent and 2,000 companies would have done above 18 percent. However, the world is not so simple.

Always markets are right skewed, it is skewed market, so what happens is, very few companies, 10 percent will do 80 percent of the performance and 90 percent will share that 10-20 percent. So, what happens is that out of 4,000 companies, about 400 companies would contribute almost 70-80 percent of the market cap growth and 90 percent will share the average just for the sake of name.

Latha: Is that one of the wisdom of that book?

A: Yes, that is one of things I learned. There are a lot of things in that, but kind of I was aware in other places. What it means is that while operating the market, don't be carried away by the averages. What he is saying is when you say market is up or market is down, he has given an example, between 1976 and 1982 market remained at 757 or 787 in Dow in US.

During that period Warren Buffett's money grew by six times. So, what it means is that market is down by 5-10 percent, that does not mean anything in the marketplace. Those 200-300 companies are growing continuously. It is the active manager's job to figure out whose winning companies and put one's money into them and make money.

Anuj: You have identified some of these companies in the past. Your own portfolio has done well. I just wanted to discuss, you have taken a big bet on Avenue Supermarts (D-Mart) and RBL Bank. D-Mart I think you got anchor allocation as well. That has done well now and is trading at phenomenal valuations. What do you do with these bets now?

A: That is the dilemma in the sense that what we have is very small portion of the fund and typically we like to be 5-6 percent of the fund. So, we have only 0.5-1 percent of the fund. So, we will wait for our time.

Anuj: On RBL Bank?

A: RBL is there. It is doing well.

Anuj: But its 5 times price to book doesn't concern you?

A: We have not bought it for six months, eight months and all. We are in there for long haul. None of the companies are created for two quarters or three quarters, and the prices are not such that from there they cannot grow. However, what happens is when your valuation is high, your prospective returns go down. Now, prospective returns in the companies which are expensive, their very near term return, one year, two year return is going to be very bad. However, 10-20 years return is going to be still reasonable.

So, what we are saying is that we will not start at very expensive valuation, we will start at reasonable valuation so that our short term return, prospective return in 12 months or 18 months is also reasonable and it is very attractive on a three year, five year or 10-year basis. So, we don't want to buy a stock which is in or out in six months or one year or two years. We fundamentally start with 10-20 years horizon.

Latha: Let me come back to the theme that the market is now very excited about. You spoke about this possible construction boom, maybe because of housing. How are you playing it, you told me you are not into real estate, is cement the way to go, housing finance companies?

A: Housing finance is one because all the houses have to be funded; now even rural housing has to be. I think there will be only few good housing finance companies but there will be so many cement companies, so many steel companies, so many contracting companies, so many house owners, what to buy? You can buy either the aggregates like paints, cement, or fittings, those things you can buy, air conditioners, fan makers, whatever goes in the house, bed makers.

Latha: Jalaj Ashwin Dani has left Asian Paints, you are not worried?

A: In these kind of corporates these kind of things keep happening. The whole promoting management team is now away and only professionals are managing. So, I think it will have not that much kind of an impact.

Sonia: You have never been very high on Reliance, I have not seen it in your funds for many years, but it is now as of today, it has overtaken TCS as the highest market cap company. Do you regret not buying it in the last six to eight months?

A: Not at all. I need to know my 20 companies, and that does not mean that only 20 companies will perform, there will be another 180 companies which will also perform. Today I can miss about Reliance, tomorrow I can be missing the Indiabulls, there are thousands of companies which are doing well and I don't have them.

So, I have to regret if my 20 companies don't perform. In fact it took me 35 years to focus your 20 companies, don't focus too much on the companies you don't have. So, it doesn't matter. The day on which we get confident about that stock, we can get in that stock any moment.

Latha: One more theme which everybody plays GST, the informal will become formal types. How are you playing that if at all?

A: Let it come, still three to four months away. There will be enough chaos and in that chaos we will try to find who is getting hurt. GST once rolled out, it is like a broken egg. You cannot roll it back and I am quite sure there will be difficulties and it is not going to be everything just day one and everything is perfect.

So, as it is rolled out, we will see because first time it is happening. So, where exactly is the impact; I am quite sure the good companies will become better and big companies will become bigger. That looks to be the theme and we are generally in all the leading companies in that respective sectors.

Anuj: The next big bet, AU Financers IPO in next one month. I think you hold it, you have been early investors of course, what is the big story here?

A: These is another banking company which will benefit out of the private licence and the PSU segment that is two thirds of the bank which is -- so value is migrating from PSU banks to private sector banks and among private sector banks you have all sorts of banks like HDFC, ICICI, Axis, RBL, Yes Bank and so this whole list is there.

This is a growing industry, so, now this is yet another new kid in the block who has got the licence and they will roll out. Till now they were regional NBFCs, now they will roll out as a bank and you have to see the progress of this management team, how well they can do.

Radhakishan Damani: His journey from Dalal Street punter, to long-term investor, to entrepreneur

Src: http://economictimes.indiatimes.com/small-biz/entrepreneurship/radhakishan-damani-his-journey-from-dalal-street-punter-to-long-term-investor-to-entrepreneur/articleshow/58230305.cms

Radhakishan Damani: His journey from Dalal Street punter, to long-term investor, to entrepreneur

By Shailesh Menon, ET Bureau | Updated: Apr 18, 2017, 07.53 AM ISTPost a Comment

According to market sources, RD is greatly inspired by the legendary value investor Chandrakant Sampat, whom he had met in the early-90s.

MUMBAI: Manu Manek, the dreaded market operator, ruled Dalal Street in the 1980s. The cobra, as Manek was referred to by brokers who disliked him, would run riot pounding and shorting stocks at will. Not that Manek was a 'perpetual bear' by choice, but in a market devoid of low interest funding, shorting was probably the smartest winning strategy to adopt. 

Bullish traders, in those days, borrowed money at 20 - 30% interest rates to take position in the market. Large bullish bets would gore stocks to higher price-levels, creating winning positions for bulls. This is when the Cobra would strike. He would short the stock ruthlessly causing significant price erosion in a matter of few days. 

Bullish traders, who had borrowed money to bet big, would be plagued by calls from money lenders - either to replenish margins or exit the position completely. When loses mount, the bulls pull out cutting huge losses. Manek - the Cobra would walk away with all the gains he made on his short positions. 

Radhakishan Damani, then in his late-20s, would stand at the farther end of the raucous trading ring and watch the Cobra in action. It is evident that the young Damani (RD) learnt a lot watching crafty Manek spoiling the bulls' party time and again. A few years later, RD would employ similar tricks to outgun his bête noire - the big bull Harshad Mehta. 

On some days, Manek Bhansali (who later set up Enam Stock Broking with Nemish Shah) and Haresh Shanti (another trader) would join RD at the outer ring. 

"He merely stood there and watched; he rarely called out trades… he'd would just stand idle and understand the pulse of the market," reminisces Deena Mehta, who stepped into Bombay Stock Exchange's trading ring for the first time in 1985. 

Few from that era imagined that RD - always in a white shirt and white trousers - would emerge as one of India's most successful stock investors, seed-fund a retail chain and take it public at premium valuations 15 years later too be counted among India's top billionaires. 

Radhakishan Damani: His journey from Dalal Street punter, to long-term investor, to entrepreneur

The Damani family's holding in the recently-listed Avenue Supermarts is close to Rs 40,000 crore. It would be "safe and conservative" - as one market watcher puts it, to add another Rs 15,000 crore as the value of RD's other stock market investments. This is counting out a few more thousands of crores Damani would have made in his stock trading career spanning over 40 years. 

But nobody really knew RD in the 80s. A few people who knew him, called him 'GS', because his 'entry badge' (used to enter the trading ring) said so. 

THE TUMULTOUS 90s 

The late-80s and the early-90s were dark ages for Indian stock market - and more so for the exchange in Bombay. While not many would admit it publicly even today, the Bombay exchange was clearly divided - with Gujaratis on one side and Marwari traders holding fort on the other end. 

"They spared no opportunity to bleed one another … So when one group of traders bought, the other group went on an overdrive to spoil the trade," explains a retired investment manager of the old Unit Trust of India. 

Gujarati traders found their voice when Harshad Mehta emerged from the shadows to become the most powerful trader on D-Street in the late-80s. At around the same time, a nondescript group - locally called the 'triple-Rs' - cut some real smart deals on the street. 

The 'triple-R' group comprised Radhakishan Damani, a chartist named Raju and a young greenhorn, who later became a big name in Indian stock market. The 'triple-Rs' were also joined by a few more traders and brokers - some of whom are active even now. 

As fate would have it, the growing clout of 'triple-Rs' launched them into the orbit of Harshad Mehta, who had already begun surfing large waves by then. According to some old timers, the 'triple-Rs' unintentionally (or intentionally, one would never know) got caught in the Gujarati-Marwari one-upmanship game. They became the antidote that Marwaris were searching for against the big bull Mehta. 

"We were not influenced by world markets then… and people always played against each other. There was tension between Gujaratis and Marwari traders, but RD never took sides - at least openly," admits an operator who has known RD for over 30 years. "His friend Raju, the chartist, was a Gujarati," says the operator as an afterthought. 

According to old-timers, Harshad and the 'triple-Rs' first locked horns over Apollo Tyres. Harshad was long in the counter, but triple-Rs could not digest such high valuations for the tyre company. As was the practice of the day - and what they had learnt from the likes of Manu Manek - triple-Rs went on shorting the stock, without really knowing the source of Harshad's endless funding. 

Harshad went on shoveling in the money and triple-Rs continued to bleed every single day as the stock price surged. It came to a point when triple-Rs could not take the losses anymore. They exited the position cutting huge losses. Round one went to the big bull and his cronies. But this was just the beginning of a long war that spanned for nearly two years - until the scam was unearthed in 1992. 

Several years later, RD is believed to have told a few of his friends: "Agar Harshad saat din aur apni position hold kar leta, toh mujhe kathora leke road par utarna padta." (Had Harshad held his position for seven more days, I'd have taken a begging bowl and walked on the road). 

"Till 1992, RD was a punter like others of those times… He cleaned up after the Mehta scam. He turned a long-term investor after 1992," says a small-sized broker and a close acquaintance of RD. "Perhaps, he came too close to bankruptcy then. He was scared of losing money after that," the broker adds. 

The octogenarian investment manager of Unit Trust of India, who has seen most operators of the 80s and 90s in close quarters, has his own set of views. 

"Harshad was a fraudster; Damani and his friends rigged stocks to exit at a later date, leaving gullible investors in the lurch. Manek was more humane of the lot; he simply shorted the market with his own money," he opines. 

MERCY ME! 

The war between triple-Rs and Harshad Mehta, and the eventual downfall of the latter, had sucked in a lot of gullible investors into a whirlpool of losses. 

"A lot of innocent traders, who followed Mehta's investment advice, suffered huge losses… RD let go a lot of small investors who owed money to him. He allowed a lot of small investor to exit trapped positions by buying them out," says the head of an NBFC, which used to lend money to the triple-Rs in the 90s. 

Veteran broker Deena Mehta has also seen the benevolent side of RD in the aftermath of the Ketan Parekh Scam. RD had helped a few of Deena's clients exit trapped positions in BPL and Videocon shares. 

"When some of our clients got trapped in Videocon and BPL shares, RD helped us by taking over their positions... These scrips had become unsalable as there were no buyers in the market," Deena recollects. 

"RD is a very positive player in times of crisis… He's a shrewd investor; makes more money when he's bearish," she opines. 

For all his positives, RD is painfully reclusive and has lot of inhibitions when it comes to facing the spotlight. He does not give media interviews or attend market-related events. RD is rarely seen at social gatherings and he is even more restrained when it comes to funding charity projects or taking up social causes. 

When RD funded the construction of two guest houses of 'Maheshwari Pragati Mandal' in Mumbai, he requested mandal office-bearers to not disclose his name. 

For a habitual recluse, RD is extremely well-networked. He is in regular touch with some of the best names in Indian stock market. Ace investor Rakesh Jhunjhunwala considers RD as his guru while Ramesh Damani, Nemish Shah and Vallabh Bhansali are said to be his close friends. 

The country's top money managers were present at the listing ceremony of Avenue Supermarts - "mostly to oblige the big man who had extended personal invitations," snitches a junior fund manager whose boss had attended the event. 

ET gathered views from close to 30 marketmen who have known RD and his friends over the years. A good number of them spoke to us in strict confidence. Many of RD's closest friends refused to co-operate, while a few only had pleasant things to say. 

"RD is quite reserved… he's a simple man, not one bit proud of his achievements," says Dilip Bang of Nirmal Bang Securities. 

"He treats everybody equal; gives a lot of respect to people… He's cordial to even strangers who catch up with him during his evening walk on the Girgaum Chowpatty," Bang says. 

INVESTMENT STYLE 

According to market sources, RD is greatly inspired by the legendary value investor Chandrakant Sampat, whom he had met in the early-90s. 

For those who are not aware, Sampat started investing in stocks in the early-70s, practiced the art of value investing and made a fortune. He passed away in 2015. It was Sampat who tipped RD with Gillette India. 

"Sampat had only bought a few lakh worth of Gillette shares, but when RD heard about it, he packed a truck and went after it," says a broker who had close ties with Sampat. 

"Sampat never liked RD's trading mentality… but then he considered him as one of the best. He used to say: RD is one guy who can think long term and also spot quick short-term trades," the broker recalls. 

VST Industries, HDFC, Sundaram Finance, ITC, Gillette, Crisil, ICRA, 3M India, Blue Dart Express, Prozone Intu Properties, Uniply Industries and India Cements are said to be some Daman's best picks over the years. He is also known to have shares of MNCs such as Nestle, Colgate and HUL in his portfolio. 

RD had acquired almost 15% of VST shares in year-2000 at an average price of Rs 80 apiece; the stock is now trading at Rs 2985. Likewise, a few years ago, RD had advised a friend to buy Sundaram Finance at Rs 270 per share; the stock is now trading at Rs 1690-levels. Another big scalp of RD was HDFC Bank, which he started acquiring at Rs 400 crore market-cap levels. 

When somebody asked RD why he was buying HDFC, and not a big PSU bank like SBI, he's rumoured to have said: "Dharavi Dharavi hota hai, aur Pedder Road Pedder Road… aage jaake HDFC ka bhaav dekh lena." ( Dharavi is Dharavi and Pedder Road is Pedder Road… wait and see the value of HDFC Bank in future). The bank now commands a valuation of Rs 3.69 lakh crore on the bourses. "He keeps a core and trading portfolio… RD dabbles with F&O only in his trading portfolio. His holding time in core portfolio is usually 5 - 7 years," says a broker who has dealt for RD. 

RD is not much of a reader; he does stock research by himself - mostly by talking to a lot of people. "Market kya lag raha hai?" is the first question he'd ask any active market participant - big or small. RD, the good listener that he is, gauges market sentiment by talking to a lot of people. He doesn't share much or give his own opinion about stocks. 

When a flamboyant fund manager - now managing an offshore India fund from Singapore - asked RD about his views on market, RD shot back saying: "For me, price is god… price determines my view. So am bullish at market-open, bearish at noon trade and completely out of market towards market-close." 

"He gets the market-top right most of time… He may just be one or two days late or early in judging market-tops," says a broker and another close accomplice of RD. "He got the dotcom bust-up of 2000 and 2008 market crash quite right… but he failed to see the market recovery of 2009. He had expected the downfall to last a lot longer then," the broker says. 

RD was not very active in the market between 2001 and 2004 as he was busy setting up Avenue Supermarts in Mumbai and Gujarat. Several acquaintances have seen RD travelling in his Fiat Uno across Mumbai assessing good spots for his DMart stores. Some people say, RD used to work 12 - 14 hours every day of the week. 

"His entrepreneurial pursuits bloomed pretty late in life… But he built a sound business indeed," says an old broker, whom RD contacted every day of the week in the mid-90s to understand the stock preferences of foreign institutional investors (FIIs had begun investing in Indian shares only then). 

RD's Avenue Supermarts has expanded its retail network from one store in 2002 to 118 stores in 2017, across 10 Indian states. The uniqueness of Avenue Supermarts is that it owns most of its stores. This strategy enables the company to capture future price appreciation of real estate as well. Avenue Supermarts shares have gained 1.62 times since its listing in the third week of March, and are currently trading at Rs 784-levels. 

"The stock is clearly overpriced now… RD would have shorted the counter if this was not his company," says a prominent investor residing down south. "It's a case of price manipulation, I reckon… retail is a sunset business. Stores, as a retail business format, are closing down world-over. Even their premise that real estate (owned by Avenue) will go up is a misnomer. Real estate prices have not gone up since 2013," the investor adds. 

However BR Bagri, a Delhi-based broker, does not support this view. "Avenue Supermarts has a great business model and it will do well in the coming years." Bagri's father Babulal Bagri and RD's father Shivkishen Damani were business partners in the 60s and 70s. "We both hail from the same place in Bikaner… Bikaneris are very kind people; they're very sharp in business. 

A GREAT FRIEND 

Two years ago, RD is learnt to have offered shares of Avenue Supermarts to several of his friends at par value (at Rs 10 per share). If market grapevine is to be believed, his inner circle of friends received "gift deeds" (consisting shares) free of any charge. This, according to a broker, was RD's way to thank his friends for their help and support. 

RD considers Nemish Shah as his closest ally. So, when Shah applied for a large lot of Avenue Supermarts shares during the IPO, RD's joy knew no bounds. RD and Shah share great admiration for each other, but their investment preferences differ by a wide measure. 

Shah, who is known to be spiritually inclined, does not invest in liquor, tobacco, leather or meat processing companies. RD does not have such inhibitions. When an acquaintance asked RD why he invested in tamasic (evil, impure) businesses, RD replied: "When am on the trading table my job is to make money. My moral values come to the fore only when I decide how to spend the money I made." 

RD, now 61 years old, is a strict vegan and takes a holy river dip every kumbh season. Till about a few years ago, he used to walk down to a bunk shop near Industry House (Churchgate, Mumbai) to devour a paan after lunch. RD prefers to wear white and white as "it's one less decision to make every morning." 

The Harshad Mehta Scam was a watershed event in the lives of people who filled up the trading ring in the 80s and 90s. A good many moved on from being petty traders to value investors. A few turned religious. Greenhorns graduated to bigger leagues. Some, like RD himself, branched out to set up successful businesses. Only one thing remained constant - their love for money and their passion to make more of it every living day.