Opportunities Galore for the Brave !!

One more year is getting to a close. The Stock Indices have moved up 28% from the beginning of the year. Almost all the SENSEX stocks had a great year. The laggards had been in Pharma & IT. The equity prices were pumped up by domestic liquidity post demonetisation. Domestic Mutual Funds were flooded with huge money and it had effectively balanced the outflow from Foreign Investors. The gush of IPOs sucked up some of the flood of money, but the flow continued pushing the markets up and up. On December 22nd the BSE Market Capitalization reached the magic number of 150 Lakh Crores (All Time High). Sane voices are drowned by the cacophony at this moment. We are just a year and a few months from the next elections. The market expectations is that the Budget 2018 shall be populist and can be a spoiler to the markets in the near term. There is risk of interest rates and inflation inching higher.

This is one more time of the year when we get a large number of recommendations on stocks. Starting from Oct/Nov onwards we get bombarded by the next 10 Big Ideas. First one comes during Deepawali, nex t one comes in 2 months as the New Year Picks, another 2 months we have the Post Budget Picks and finally the New Fiscal Year Picks. So many share recommendations in such a short period of time from every Tom, Dick & Harry. It confuses the genuine investor. To succeed in this scenario and not to lose money, an investor need to learn to distinguish the wheat from the chaff. But in these euphoric moments it is like looking for the elusive needle in the haystack.

Entry of New Investors

At market peaks we find a new person on the street. The wannabe novice investors looking to make it big in the market. I too got a few enquiries from friends. As is the case each time, they look at the Share Price and generally choose the ones with the lowest price (Penny Stocks). Most of the times these penny stocks remain in the penny zone or simply disappear sooner rather than later. Past examples include KingFisher Airlines, Global Trust Bank and many more.,

What are the hunting grounds for Stock Ideas at this Moment ?

What are the sectors and How to hunt at these levels ? The investor need to go to the basics of investing instead of following TV analyst and momentum investing. The key is to have a macro view and good macro analytics instead of simple arithmetic. The Market Valuation is at the peak in terms of the PE multiples. As I had written last month adventurous investors and savvy stock pickers can still find sectors and companies for investing. Indian Stock Universe is the biggest in the world with over 5000 listed companies. There are definitely a couple or more companies which can give good return even from these valuations. Let us have a look at what are the factors to look for at these times.

An Investor should have the Strategy and must adopt the right Tactics. By Strategy he or she should identify a few good stock ideas. What I meant by tactics is to keep a small war chest.. An investor can also sell a small portion of the highly valued stocks in his portfolio and create some liquidity. Wait for any sudden opportunity from any geo-political event, fiscal events which leads to a dip in stock prices.

Let us have a brief look into the changes happening in the Indian Economy and the sectors which shall benefit from this change. These are the sectors to look for the next Ideas.

Changes in the Structure of the Indian Economy

The Indian Economy is getting changed like never before. There had been changes brought in by the Government (Demo, GST, Make in India etc.,) and Technological changes (Solar, Cloud Computing, EVs, Block Chain etc.,). The few of the major trends which shall impact the markets in the

•         Movement from Unorganised to Organised (GST, Demo)
•         Financialisation of Saving (More funds for Insurance, AMC)
•         Defence, Space (Make in India)
•         EVs, Solar,
•         Government's Focus on Infrastructure
•         100% electrification of villages

The structure of the Indian Consumer Market is changing due to a plethora of factors ranging from

•         60% of Indians below the age of 30
•         Per-capita Income to rise from 1800 $ to 2500 $
•         Rising aspirations and product availability
•         Increasing Credit availability
•         Quest for Quality products & services at reasonable price

Where to look for Ideas ?

The twin factors of Government Policy & Technology Changes and Rising Consuming Classes are strong Tailwinds. This shall benefit all the companies which work in those sectors. However the key to make money in the stock market and investing is to invest in a stock which can give return. There are very often cases where select companies in a sector makes money where as all other companies are in the RED. Key to success is to invest in the right one. For example during the Infrastructure Boom of 2008 vintage almost all the Asset owners lost heavily where as the EPC & Equipment Manufactures made huge profits.

1. Consumer Companies :

Now let us look at consumer companies and try to figure out who can be the winner. As the Disposal Income goes up people demand better products to enhance their lifestyle.

The demand shall also go up as more and more consumer get into the consumption market. The demand shall slowly but surely shift companies focussed on the Customer Service and delivering premium or semi-premium products.  Companies who produce these products shall see a huge fillip to their earning due to twin factors of Pricing Power & Volume Growth. This is seen in the increasing sales of Premium and branded products and services. The investor should look for products which Companies who can increase volumes without significant Capex or R&D Investment shall be the biggest winner in this game.

 This phenomena is reflected in the teeming crowds at the newly opened shopping malls, Mul tiplexes, Air-conditioned Fine Dining & QSR Restaurants, Travel & Tourism, Galloping Sales of Premium products ranging from Royal Enfield & KTM Bikes to Sedan Cars to Large Screen TVs to High end Smart Phones to Branded Groceries & Garments.. 

2. Banking, Finance & Asset Management :

Banking & Finance companies are currently valued at obscene valuation. But new virgin companies are getting listed in this space viz., Insurance & AMCs. Half a dozen Insurance Companies got listed over the last 6 months. Insurance Penetration in India is quite low. Less than 30% of the global average.

Our Economy is now slightly over $2 Trillion. It is predicted that the Indian Economy shall become a $10 Trillion one in another 10 years. The Insurance Industry can expand at least 10 times in the next 10 years if we reach even 50% of global levels. Apart from this the Private Insurance Companies shall start gaining increasing market share from the PSU Companies in both Life and General Insurance. A similar thing happened last time in the late 90s when the Banking Sector was liberalised. Whoever invested in the Private Banks made good money. An investment of Rs. 10000/- in each of the 8 Bank IPOs in the late 90s is worth over Rs. 1.50 Crores at today's price. The Insurance sector with their strong entry barriers has the potential to be the next Big Wealth Creator.

Investors can identify a few sound companies with great management in each of the sectors in Consumer Industries, Insurance & Make In India Sectors and wait for the next big buying opportunity. 

Opportunities Galore for the Brave like the lions & leopards at the Serengeti. Be opportunistic and shrewd, decide when to and whether to hunt for the Wildebeest or the Zebra or the Girafee or the Thomsons Gazelle. Choice is yours.

Fortune favours the Brave & Bold.

Fallow me at LinkedIn as Sheri Anvesh

Visit my website:-MyJanuQuots.com