April 2019 Newsletter – High PE Ratio

The markets made an all-time high in April 2019. The markets are consolidating close to these highs. The General Election of 2019 is going on and as we write this newsletter, most of the constituencies have already voted. By the time we write to you the next month’s newsletter, the election results would have been out. While the Bharatiya Janata Party is most likely to be the single largest party, the markets will be having a keen eye on the number of seats the BJP wins on its own. Anything above 220 will keep the sentiment positive on Dalal Street. However, if the single largest party fails to win 200+ seats, then the markets could react adversely. In 2009, the markets were locked in upper circuit after the Congress won 200+ seats on its own and the UPA retained power with an even more ... Read Full Article

Wipro Buyback 2019

Wipro has announced a buyback worth Rs 10,500 Crores. The Wipro buyback is for 32,30,76,923 at Rs 325. This represents nearly 5.35% of the company’s equity. In 2016, the company had done a buyback for Rs 2,500 Crores and in 2017 it did a buyback for Rs 11,000 Crores. The buyback type is through the tender route. Wipro buyback details Buybacks create an arbitrage opportunity for retail shareholders. SEBI’s guidelines on buybacks through the tender route stipulate a 15% reservation for retail shareholders. Those with less than Rs 2 Lakhs holding on record date are considered retail shareholders. Simple calculations and assumptions can show us the probable returns from this buyback. In 2017, we made ~ 10% over 5 months in the Wipro buyback and later also made a similar return in t... Read Full Article

Alphamultiple Shuffle Portfolio

In our quest to reduce human bias from investing, we have come up with a high risk – high return strategy. This strategy makes up the Alphamultiple Shuffle Portfolio which consists of 15 stocks. The portfolio follows a Buy and Hold approach. Alphamultiple Shuffle Portfolio Strategy Market Cap of companies: Rs 300 Crores and higher Number of stocks: 15 Holding period: 1 Year Start Date: 1st working day of June Cash Holding: NIL We churn the portfolio only once a year. The expected returns are 15% p.a. and higher over a 5 year period. Rationale We look to buy decent businesses at cheap valuations. The markets are known to mis-price stocks and create bargain opportunities. A basket of 15 stocks creates a diversification that is neither too concentrated nor too diluted. While not all s... Read Full Article

Wabco India Delisting Candidate

Wabco India delisting is on cards as ZF Friedrichshafen has acquired the parent company in an all cash deal. Subsequent to this development, as per SEBI regulations on takeovers, ZF Friedrichshafen has made an open offer to the shareholders of Wabco India. The open offer is at Rs 6318 which is nearly 25% lower than it’s 52 week high. While this open offer will not find many takers, ZF Friedrichshafen will eventually look to delist the company. Priced at $136.5 per share, it is an all cash deal worth $7 Billion. The deal should be closed by 2020. ZF Friedrichshafen is privately held. The company been moving towards developing technologies and components for self driving cars. Wabco India Delisting Wabco India has delivered Multibagger returns to it’s shareholders. Over the last ... Read Full Article

March 2019 Newsletter

<This is an extract from our March 2019 newsletter to clients> Return on capital employed – The Promoter angle Recently, Naresh Goyal stepped down from this leadership role at Jet Airways. The media was buzzing with the story of a travel agent turned airliner who was at the forefront of the air travel boom in India. If you think of it, the air travel industry has grown multi-folds over the last couple of decades. However, Jet Airways has failed to create wealth for its shareholders. This should serve as an example for those who believe that just because an industry will grow, shareholder returns will follow. But, the focus of this letter is on another aspect. Imagine – You started a business and ran it for many years during which the business made big losses, you would have e... Read Full Article

Lumax Industries – Stock Analysis

Lumax Industries is an auto component maker. It is India’s leading manufacturer of front and rear lamps used in motor vehicles. The company’s clients are the manufacturers of two-wheelers, four-wheelers and commercial vehicles. The company’s promoters are the DK Jain family and the Japanese company Stanley Electric. Both hold a 37.5% stake in the company. The company started in 1945 as a trading house and today it has 28 manufacturing units.     Business Model The company makes ~ 65% of it’s revenues from front lighting systems and ~ 25% from rear lighting systems. Other accessories make up 10% of the revenues. Passenger vehicles contribute 67% of the revenues and 2-wheelers contribute ~ 27% of the revenues. The company’s top customers are Maruti Su... Read Full Article

February 2019 Newsletter

<This is an extract from our February 2019 newsletter to clients> Investor Behavior – Returns will come While 2018 was a tough year for most investors, the optimism is still there. Many investors remember the 2017 performance of their stocks and believe that returns will come back in 2019-2020. While investors have enough maturity of thought to understand that returns are not a given and that there could be periods of negative returns, they tend to forget that the market has a 3rd dimension as well – Flat / range bound. Many investors are assuming that the Small / Mid-Caps will bounce back and deliver stellar returns over the next 2-3 years. The expectations of 15% CAGR from their equity investments are still alive. Nifty 10 year chart (1992 to 2002) The above chart shows the... Read Full Article