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13 Feb,2019

Subject : Intrinsic Value of a Stock

How to calculate intrinsic value of a stock to determine if it is a cheap or not? What parameters needs to be taken into account. If a high PE stock growing 20% for the next 10 yrs can we say it is cheap.

Raghav Behani

It is very rare for a stock to grow 20% year on year for 10 years. For every HDFC Bank, Page etc that you see there are 100s of stocks which ride a boom and go bust.
In terms of growth, if a stock is growing 20% or more, then competition will come in, grab market share and slow down the growth and reduce the ROCE of the company.
Thus only companies with a very very strong moat can show such consistent growth. That is why these companies WILL command high PE ratios.

Intrinsic value can be calculated using Discounted cash flow, breakup value and other such text book methods. A lot of research papers have been written on intrinsic value and every investor has a different opinion about the same. One method cannot work for all stocks in the same manner! For example, we use DCF for a company like CARE but the same method cannot be used for a company like Muthoot, Control print, etc.
Give 2 mature investors a company to compute the intrinsic value of and both will arrive at widely different values.

13 Feb,2019
08 Feb,2019

Subject : APL Apollo

Can we buy APL Apollo now as it has fallen 50% from peak and is a good company?

Raghav Behani

APL Apollo is in a cyclical business. The numbers are dependent on steel prices. Also, just because it has halved, one cannot consider it a buy.
There are some red flags with regards to the shrinking promoter holding (now below 38%) and the dealings of promoter entities with Best Steel and other companies.

In our view it is a good business and has delivered strong numbers but we have our reservations on the management side of the business.

08 Feb,2019
30 Oct,2018

Subject : Interest Rate

Last Deepavali, you had told me that rising interest rates will result in low PE multiples across the world markets. Where do you see PE multiple heading in the next 2 years?

Raghav Behani

The PE multiples will most probably revert back to their long term mean of ~ 18x. It won't trade at 18x everyday but it should ideally move between +/-1 Standard Deviation. We had reached +3 SD which is extremely expensive. The market can stay over/under valued for very long so timeframe of any market cannot be forecasted.

30 Oct,2018
18 Sep,2018

Subject : Should gold be in my long term portfolio?

In the last few years, gold has given negative to nil returns. Also, if I should invest then what is the best way?

Raghav Behani

Gold is an inflationary asset. It might have given negative returns over the last few years but this will not be the case always. It is still widely used as a hedge against inflation. You can have 5% to 15% of your portfolio in gold, not more than that.
Again remember, you are not investing in gold for 12% p.a. but rather 1% to 3% more than inflation over 15 - 20 years.
Gold funds and ETF's will give you lower returns than than the domestic price of gold. You can invest in the sovereign gold bonds scheme run by the Government of India.

18 Sep,2018
04 Sep,2018

Subject : Why are we heavy on bond funds?

When will we increase allocation to equities?

Raghav Behani

We are having a defensive stance at the moment. Most of our funds are in liquid / debt category.

We are tracking a basket of stocks for investment opportunities but the valuations at this stage do not offer much in terms of returns. We will only invest in stocks which have the potential to atleast double in 3 years.

Heavy drawdowns on the portfolio are to be avoided and we are not having any regrets to be heavy on liquid funds when the Nifty is at all time highs. We have avoided drawdowns in the recent small-midcap correction and we believe that more correction is on the cards.

However, if we like a company at the fair valuation, then we will not look at the macro fundamentals before investing.

04 Sep,2018
08 Feb,2019

Subject : APL Apollo

Can we buy APL Apollo now as it has fallen 50% from peak and is a good company?

Raghav Behani

APL Apollo is in a cyclical business. The numbers are dependent on steel prices. Also, just because it has halved, one cannot consider it a buy.
There are some red flags with regards to the shrinking promoter holding (now below 38%) and the dealings of promoter entities with Best Steel and other companies.

In our view it is a good business and has delivered strong numbers but we have our reservations on the management side of the business.

08 Feb,2019
19 Aug,2018

Subject : BEL

Is BEL Bharat Electronics Ltd. a pick given that Defense is going to see growth. However it looks like Govt prefers to buy instead of build

Raghav Behani

We don't like the business because it is heavily dependent on Government spending, party in power and other red-tape hurdles.

19 Aug,2018
30 May,2018

Subject : Piramal Enterprises

Whats is your take on Piramal Enterprises? Do you think it can continue giving fabulus CAGR to investors in long term? This quarter results are good too. Appriciate your reply. Thanks!

Raghav Behani

Bullish on Piramal Enterprises but not bullish from an investor perspective. The PB Ratio is still expensive and is already factoring in a multi-year high growth rate.

It is in our watchlist and over the last 1 year we have seen valuations cool off a bit. Still tracking it.

30 May,2018
29 May,2018

Subject : Smallcap Index

How much can the smallcap index correct in bull markets?

Raghav Behani

You can have multiple 25% to 30% corrections in the smallcap index in a bull market. 15% to 20% corrections occur even more frequently.
However, the index can fall > 70% in bear markets as seen in the 2008 crisis.

29 May,2018
23 May,2018

Subject : Choosing cylicals

How to decide on which cyclicals to invest in?

Raghav Behani

To invest in cyclicals, you need to be ready with your homework. Your homework here is to have a proper analysis and understanding of the industry and the companies that operate in it.
If you believe that the cement prices and demand will increase, then you should go for the company which is most cost efficient in terms of Power & Fuel, Freight and Raw Materials.
If you believe that crude oil prices will fall, then invest in the airline companies that will see the biggest delta in their profits.
Cyclicals can benefit from 2 factors: Decrease in a major raw material's price (OR) increase in the prices of final product. You have to invest in the company which has the highest positive sensitivity to any of the above 2.

23 May,2018
04 Sep,2018

Subject : Why are we heavy on bond funds?

When will we increase allocation to equities?

Raghav Behani

We are having a defensive stance at the moment. Most of our funds are in liquid / debt category.

We are tracking a basket of stocks for investment opportunities but the valuations at this stage do not offer much in terms of returns. We will only invest in stocks which have the potential to atleast double in 3 years.

Heavy drawdowns on the portfolio are to be avoided and we are not having any regrets to be heavy on liquid funds when the Nifty is at all time highs. We have avoided drawdowns in the recent small-midcap correction and we believe that more correction is on the cards.

However, if we like a company at the fair valuation, then we will not look at the macro fundamentals before investing.

04 Sep,2018
29 May,2018

Subject : Mutual Fund Portfolio

I like the mutual fund advisory feature. Thank you for the guidance. I have one doubt, how frequently will we change the Mutual Funds portfolio? Should we sell old funds and buy new funds when the shuffle happens?

Raghav Behani

Thank you for the kind words. On an average, we might change the funds once in every two years.

i) If you make a lumpsum investment in the funds we recommend today, then you need not shuffle the funds. In the future, when we change the funds, it only means that fresh amounts should be invested in the new recommended funds.

ii) If you have an SIP, then you can continue the SIP in the new funds that we recommend and you can keep the old funds in your portfolio without shuffling them

iii) Once in 5-6 years, we might give an exit recommendation like - EXIT all smallcap funds / Midcap funds, etc.

29 May,2018
20 Mar,2018

Subject : Breeze Portfolio

When can we expect the first breeze portfolio recommendations?

Raghav Behani

In June, after the results for Q4 has been declared. The backtests are going on and we will share the results and past-performance with you soon!

20 Mar,2018
02 Feb,2018

Subject : Increasing Allocation

Is it a good time to increase allocation to stocks as most midcaps are lower and we have good cash in portfolio.

Raghav Behani

We will continue increasing the allocation only if we find the right stocks at the right price. While the right stocks are there; the right price is still far away.

Our cash allocation is high (~45% for new clients) because these rich valuations do not warrant a high equity allocation for new entrants. We are confident of buying the right stocks at the right price and holding for the long term.

02 Feb,2018
29 Jan,2018

Subject : Target Portfolio Allocation

How much % will be allocate to equities at the most for new subscribers?

Raghav Behani

As and when we find opportunities, we will increase allocation for new clients. Currently, we are 55% invested on a cost basis for new clients and we do not expect to cross 75% at the moment.

29 Jan,2018
18 Oct,2017

Subject : Equity allocation in portfolio

Ideally, how much do you allocate to equities in the long run? Isn't it a conflict of interest that you might increase allocation just to keep clients happy?

Raghav Behani

In the long run, definitely 100% (or maybe 95%). It takes time to build up a 100% allocation to shares and in the current market scenario ~ it will take longer than it usually takes us for building a 100% equity portfolio. We truly are grateful to our clients being patient and acknowledge their maturity in understanding the dynamics of the market. We communicate openly about the allocation and the future outlook. While we can get away with random allocation in the current upwards trending market, in the long run such gimmicks don't work out. We want to be a long term player in the market and thus we won't take any short term decisions which are wrong.

18 Oct,2017
15 Oct,2017

Subject : 100% equity allocation

I am bored of low equity allocation, can we increase allocation to 100% from existing stocks?

Raghav Behani

We are not getting paid to suggest you liquid funds. We try not to get frustrated with low equity allocation for new clients because we know clients like it on rocket mode (100% allocation). However think it this way - You are paying us not to manage returns but to manage risk by investing in equities. You will definitely move to a 100% equity portfolio, but give it time. We are yet to see a meaningful correction and thats why most of us don't know what bear markets are like. As a new client, you will get new recommendations as and when they come! So your allocation will start increasing in a planned and systematic way. As long term investors, we need to master the art of patience. In the long run as an investor, it won't matter to you if you invested in one go or over six months.

15 Oct,2017
15 Oct,2017

Subject : Monthly Allocation

Is monthly allocation guidance always same as model portfolio?

Raghav Behani

Similar but not same. Few stocks may have different allocation from the model portfolio. Monthly allocation depends on different parameters which we compute at our end.

15 Oct,2017
15 Oct,2017

Subject : Will future allocations be 2% or 3%

There are many stocks with 2% to 3% allocation. As they are high risk ones, will new recommendations for new members have low allocation too?

Raghav Behani

New members have a 2% - 3% allocation because the stocks have run up quite a bit since our initial recommendation and our maths shows us a 3% allocation at the most gives optimal risk reward at a portfolio level at the current prices. New members will get 5% and higher allocation for new stocks. Low allocation is only for old recommendations which are in our buying range.

15 Oct,2017
30 Oct,2018

Subject : Interest Rate

Last Deepavali, you had told me that rising interest rates will result in low PE multiples across the world markets. Where do you see PE multiple heading in the next 2 years?

Raghav Behani

The PE multiples will most probably revert back to their long term mean of ~ 18x. It won't trade at 18x everyday but it should ideally move between +/-1 Standard Deviation. We had reached +3 SD which is extremely expensive. The market can stay over/under valued for very long so timeframe of any market cannot be forecasted.

30 Oct,2018
28 Jun,2018

Subject : Pharma Sector

Is Pharma sector going to do good now?

Raghav Behani

The price erosion in USA and European markets will put immense pressure on margins going forward too. FDA issues are still unresolved for names like DRL. The sector is best avoided unless one has in-depth knowledge of the molecules that are being patented to understand the pricing power of these molecules.

28 Jun,2018
28 Jun,2018

Subject : FMCG Stocks

Can we invest in FMCG stocks as it is a defensive sector?

Raghav Behani

FMCG Stocks are trading at very high valuations and these valuations are factoring in a sustained high growth period for earnings of these stocks. If you look at the revenue growth for most of the big names, it is at low single digit numbers - not even beating inflation. While some of this can also be attributed to the rapid rise of Patanjali, Demonetization and GST effect, one cannot convincingly say that revenue and volumes will show double digit growth next year.

Our firm's view is that the earnings will grow faster than the stock price as PE ratios revert back to their mean over the next 2-3 years.

28 Jun,2018
29 May,2018

Subject : PSU Banks

Many PSU banks have written off major NPAs in Q4FY18, is it a bottom for PSU Banks?

Raghav Behani

The write-off's are big and the losses are multi-year records and for some, the biggest losses ever posted. The repayment of loans by some major defaulters like Bhushan might be a positive trigger.

However, we do not believe in PSU Banks being efficient enough for multi-year investments. At the most, they could give good returns in the short term but investors should avoid solely looking at their < 1 PB Ratios as most of the PSU Banks should actually have negative book values today!

29 May,2018
23 May,2018

Subject : Midcap Allocation

Your patient bearishness on Midcap space has paid off after 12 months. Are you still bearish on small & mid-caps or is it a good time to enter in few names as a SIP?

Raghav Behani

It is still not the right time to enter most small & mid caps as the valuations for most of them are not at all justified. However, we do believe that some midcaps are close to buying ranges.
Choose companies whose earning growth expectations are intact and the stock prices have fallen by > 25%. If the promoters had not offloaded stake in the runup, then it is an added bonus!

23 May,2018
23 Mar,2018

Subject : Is Pharma a safe bet?

Pharma and IT are safe bets now?

Raghav Behani

Pharma has a major disruption going on in the form of biosimilars. While this segment is different from generics, it is a disruption which will be very expensive for Indian pharma companies to venture into. Midcap IT looks ripe with very good December quarter results and we do have a good IT company with decent exposure in portfolio. We are not looking to add any largecap IT company.

23 Mar,2018
23 Mar,2018

Subject : PE Level of Nifty

Why does all the bad news only come when PE levels are > 25?

Raghav Behani

Bad news is always there. It is the absorption of the bad news. When the markets are bullish, even major bad news doesn't hamper sentiment. But when valuations peak out and the scope of further rise in PE Ratios OR other valuation metrics is not there, the markets start correcting.

One reason why we had such low allocation to equities in 2017 is this (For new clients only).

23 Mar,2018
20 Mar,2018

Subject : Infra Theme

What is your view on Bharatmala?

Raghav Behani

The roads laid per KM has gone up definitely. We need to identify the right companies that will benefit from the project. However, most company share prices have priced in high growth rates for the foreseeable future.

20 Mar,2018
02 Feb,2018

Subject : LTCG Tax

Will the LTCG Tax be a negative in the short term?

Raghav Behani

In the short term it is like interfering in an ongoing party and asking the DJ to lower the volume. The enjoying crowd might boo for a minute but in the long run it is good for everyone's health.

We think that LTCG tax is a welcome move and the rate is not a dampener. However, any rate hike in the future will hurt the industry (unless STT is removed).

02 Feb,2018
31 Jan,2018

Subject : $15 Trillion Opportunity

Your recent blog was on the next generation opportunity was very good. Any particular stock that will benefit from this mega opportunity?

Raghav Behani

There is no one stock to point out. The scale is huge but think of it - The major wealth in the USA over the last 2 decades has been created by companies that were not even there back then.

Names like Facebook, Google, Amazon add up to a trillion dollar and more in themselves (Market cap). However, focus on companies that will benefit from rising income levels. Insurance looks good at this point of time for the next decade but most insurance companies are richly priced in. E-commerce, fintech companies, etc will add value very fast but India needs laws that allow these companies to list! Orelse public will lose this opportunity to VC funds.

Further, even if the economy and the industry do good, there is no guarantee that every company of that sector will do good.

31 Jan,2018
29 Jan,2018

Subject : Nifty PE ratio

What are the chances of a crash from 27 PE and by when?

Raghav Behani

The chances are high. But we do not expect a "crash" like that of 2008. We expect either a stagnant phase for the market or a mild pullback of 15% to 20%. However, there is a very high chance of a deep correction in the midcaps and smallcaps space - Across the board.

This is one reason why we have a low equity allocation in the portfolio for new clients.

29 Jan,2018
26 Oct,2017

Subject : Best sectors for next 3 years

Which sectors will give best returns over the next 3 years?

Raghav Behani

i) Housing Finance: The growth will be good, however we expect margins, ROA and ROE/ROCE to go down due to heavy competition in the industry.

ii) Accessories/Jewellery: After 5-6 years of muted growth, this industry looks ripe to benefit from the expansion that they have undertaken in terms of physical presence.

iii) Tyres: Another industry which has shockingly underperformed in terms of volume growth, especially when automobiles have been doing good, is the tyre industry. We expect recovery in volumes but the softening of margins will be a dampener for most tyre manufacturers.

iv) Reality: Established housing developers will do good and enjoy good tailwinds. Look for companies with a dependable order book for the next 3-5 years.

v) Pharma: Some pharma companies will benefit from revenue growth in new ANDA approvals and related product launches. However, deep domain knowledge is required in this front to cherry pick the companies.

26 Oct,2017
25 Oct,2017

Subject : what should we do in crazy times like this?

With even blue chips hitting uppercircuit what should an average investor do. How to sit silent? As metioned by you in previous posts PE can be this for very long term, and even could take years to get back to buying range. How should we handle this situation.

Raghav Behani

This is a heated up phase in the short run. An average long term investor should be patient with his long term holdings and not fall into the trap of churning the portfolio. We have not seen more than a 2% fall for more than 200 days! Volatility is at extreme lows and this is NOT NORMAL. We are heavy on cash and will only deploy in meaningful opportunities.

25 Oct,2017
15 Oct,2017

Subject : Nifty PE above 26

Nifty PE is above 26! Historical high is ~ 28. Are we going to crash from here?

Raghav Behani

A PE of 26+ is very expensive. It is not a function of growth but purely due to low interest rates by central banks. Because of low interest rates, there is cheap money available and also higher growth forecast. A bubble burst is usually the result of a disaster like the tech boom or the sub prime mortgage crisis of 2008. Not just India but almost all global markets have done well over the last couple of years. We are expecting a mild correction (~ 10% to 15%) but we cannot predict the timing (We have failed to predict it since the last couple of years). We are cautious with a low equity allocation and going slow because of fewer opportunities. If your horizon is 3+ years then this should not be a problem.

15 Oct,2017
18 May,2017

Subject : PE above 24

With PE above 24, are we at an overvalued zone? Are we heading for a crash?

Raghav Behani

We are not in a bubble and we do not see a crash coming. A correction is very much possible.

18 May,2017
18 Sep,2018

Subject : Should gold be in my long term portfolio?

In the last few years, gold has given negative to nil returns. Also, if I should invest then what is the best way?

Raghav Behani

Gold is an inflationary asset. It might have given negative returns over the last few years but this will not be the case always. It is still widely used as a hedge against inflation. You can have 5% to 15% of your portfolio in gold, not more than that.
Again remember, you are not investing in gold for 12% p.a. but rather 1% to 3% more than inflation over 15 - 20 years.
Gold funds and ETF's will give you lower returns than than the domestic price of gold. You can invest in the sovereign gold bonds scheme run by the Government of India.

18 Sep,2018
23 Mar,2018

Subject : Realistic Returns

Over a 10 year period, what is realistic return I can expect from Indian equities?

Raghav Behani

Over a 10 year period, anything above 15% per annum is good! Mutual Funds can deliver you this number.

Direct investing in equities through an advisor like us should average 19% p.a. to 22% p.a. after all charges and taxes. If you expect 22% p.a. for more than 10 years, then your expectations are way beyond what you should be expecting.
Too many investors and advisors think that 25% p.a. to 40% p.a. over 10 years is do-able.

23 Mar,2018
29 Jan,2018

Subject : Provident Fund

Should I put my entire 80C investments in PF?

Raghav Behani

Your personal portfolio should be a healthy basket of Equities, Debt and other assets. PF is a good instrument to invest for your DEBT part of the portfolio and the other investments can be in equities,

But do keep in mind that your PF money comes with a lock-in. PF is not a substitute for liquid funds and other short term investments.

29 Jan,2018
13 Feb,2019

Subject : Intrinsic Value of a Stock

How to calculate intrinsic value of a stock to determine if it is a cheap or not? What parameters needs to be taken into account. If a high PE stock growing 20% for the next 10 yrs can we say it is cheap.

Raghav Behani

It is very rare for a stock to grow 20% year on year for 10 years. For every HDFC Bank, Page etc that you see there are 100s of stocks which ride a boom and go bust.
In terms of growth, if a stock is growing 20% or more, then competition will come in, grab market share and slow down the growth and reduce the ROCE of the company.
Thus only companies with a very very strong moat can show such consistent growth. That is why these companies WILL command high PE ratios.

Intrinsic value can be calculated using Discounted cash flow, breakup value and other such text book methods. A lot of research papers have been written on intrinsic value and every investor has a different opinion about the same. One method cannot work for all stocks in the same manner! For example, we use DCF for a company like CARE but the same method cannot be used for a company like Muthoot, Control print, etc.
Give 2 mature investors a company to compute the intrinsic value of and both will arrive at widely different values.

13 Feb,2019
24 Mar,2018

Subject : Importance of ROE

How important is ROE for you?

Raghav Behani

Very important. It is a make or break decision for us as it reflects the business's position in the industry, the management's wisdom, etc. We dig deep into the ROE to get a better view.
Investors should try and understand the factors behind the ROE - Pricing power, differentiated products, raw material advantage, etc. These are basically moats that might be strong enough for high ROE to sustain for a long period of time.

24 Mar,2018
23 Mar,2018

Subject : Research Team Strength

How big is the research team at DalalStreetBulls?

Raghav Behani

1 Research Head, 3 full time research analysts, 3 interns and industry partners.

23 Mar,2018
29 Jan,2018

Subject : EPS Growth vs PE Rerating

What is the primary driver behind multibaggers? EPS growth or PE Rerating?

Raghav Behani

Price = EPS x PE
EPS is what the company reports; PE is what the investor assigns.
If you do a backtesting of multibaggers, the primary reason behind multibagger gains is PE Rerating. PE Rerating gives you quick multibaggers (Like PC Jeweller).
EPS Growth gives you compounding machines like HDFC Bank, Asian Paints, etc.
Your life is sorted if you are able to catch hold of a future compounding machine at a low PE level.

29 Jan,2018
15 Oct,2017

Subject : Reading Books

Is it compulsory to read books to be a successful investor?

Raghav Behani

No. It is a very big myth to be honest. While I am personally an avid reader (because of interest), I can name many successful investors who don't read! To start off - Porinju Veliyath, Vijay Kedia don't read any books. Then there are many small but successful investors I know who do not read. Read annual reports, news papers or business magazines and you are good to go! There are 4-5 good investing books which you can read if you want to give it a try. You do not have to read 100s of books to be a successful investor. To end, if reading meant success in investing then Librarians would be top fund managers. Read books out of interest, not compulsion.

15 Oct,2017