Wednesday, February 21, 2018

1 YEAR OF CHANDRA: MIXED BAG



1 YEAR OF CHANDRA: MIXED BAG

There is a temptation to say N Chandra has stabilized the Tata Group after the ugly Cyrus Mistry saga that played out. Let’s analyze that and while the stock market is not the only yardstick to measure the performance, since that’s an important barometer, let’s take a look at what Tata Group has done under 1 year of N Chandra.

Tata Group is a large conglomerate which essentially has 1 giant company in TCS and 3 large companies in Tata Motors, Tata Steel and Titan. Then it has some other decently sized companies like Voltas, Tata Chemicals, Tata Global, Rallis India, Tata Communications and Tata Coffee among others.

Let’s start with what truly is N Chandra’s baby – TCS. The company that accounts for lion’s share of group’s revenues, profitability and market cap. That stock is up 19.7% in last 1 year, which is good enough but then the IT Index itself is up nearly 16% in that period and TCS has been running under a good template for more than a decade.

Now let’s talk about the much fancied Tata Steel. The stock is up 41% in last 1 year and there have been serious attempts to sort the balance sheet of Tata Steel with the merger of European business with ThyssenKrupp. But just to burst the bubble here, that process started before Mr Chandra took over and the rally in Tata Steel stock is essentially a result of a huge steel cycle where many would argue Tata Steel has actually underperformed. For example during same period, JSW Steel is up 65% and the market now values JSW Steel a good 10,000 crores more than Tata Steel.

Then, let’s come to Tata Motors. There is a school of thought that under Chandra, the domestic CV business of Tata Motors has stabilized. Here again, let’s just look at what Ashok Leyland has done compared to Tata Motors. The stock is up 45% while Tata Motors is actually down 19%. Again, it was a case of being at the right place at right time. The domestic CV market is going through an up cycle and in that Tata Motors may have again underperformed. Make no mistake about it, Tata Motors has been a failure for last 1 year, especially the JLR performance. Ask shareholder of Tata Motors if you don’t believe me.

The only 2 stocks which have truly managed to outperform the markets are Tata Global and Titan, both of which have nearly doubled and this is where Chandra deserves a lot of credit though many people would argue that Titan has been a story of Bhaskar Bhat and Tata Global is bearing fruits of good work done by Cyrus Mistry earlier. But to give credit where due, these stocks have done remarkably well.

Let’s give benefit of doubt to Chandra and say that his 1st year has not been a failure and under him, the group has made positive strides. That cannot be denied and you have to give the man his due. But I would refrain from saying that he has been a phenomenal success. Let’s see the next 2 years. The jury is still out.

P.S. – This is entirely my personal opinion and I do understand that I could be wrong and I reserve the right of being wrong. 






Wednesday, March 15, 2017

DOMESTIC RETAIL INVESTORS: TIME TO SALUTE YOURSELF



This has to be said. Indian retail investors over last many years has been at the receiving end of many jokes. Always buying at the top, selling at bottom, “Dumb money” and what not. But the last 6 months have been remarkably different. It’s time the domestic equity investors put their head high and say “We are the smart money”

Picture this, FIIs sold stocks worth over Rs 40,000 cr post demonetization and when during the initial part of this process the Nifty fell from 8500 to 7900, a bear market loomed large. However, the domestic investors said nothing doing and they started to buy. Dollar to dollar FII selling was matched by DII buying and I am not even counting the direct retail buying.

And now, yesterday FIIs bought 4,000 crores at the highest level of Indian markets. Now this is not to say, FIIs have been foolish. They have a choice of investing in various markets and there are many markets which far outpaced Indian markets so they focused their energy elsewhere. But while in the past, retail would throw in the towel at huge FII selling, this time they kept buying treating this as a flash discount sale and boy are they reaping rewards now?

Make no mistake, market is set to go through a frenzy now but this is the time to sit back and enjoy while FIIs scramble to buy at all-time highs. At some point, this market will become euphoric and fall under its own weight but trust me that time is long long way off right now.

Picture this, over last 2 years when the Nifty has made a move from 9100 to 7000 and back to 9100, the midcap index has surged 24%. So retail has made huge money in individual midcaps. And a rising tide will lift all boats, so the portfolios are set to surge higher even from here.

What if you missed this rally? No problem – wait for dips and consolidations, they will inevitably come but when they do, have to participate. There is no fun in watching someone else make all the money.

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options given to him by his employers as part of his compensation


Thursday, March 9, 2017

HOW TO PLAY TODAY?


Extremely important day of trade coming up. As I write this, the SGX Nifty is down about 35 points. The most important cue as we start trade in first half is the big 5% decline in crude oil but the most important cue of second half will be the impending exit polls which will be announced post 5:30 pm. The market will give great opportunities today. This is how I think today can be played.

In first half, focus all your energy on users of crude oil – Oil marketing companies, Paint companies and perhaps most importantly aviation companies which could well go through a goldilocks scenario – tax advantage, lower oil prices and under-owndership.  And with state elections out of the way, OMCs should swiftly move on petrol and diesel prices and paint cos too have corrected from highs. So this appears to be the low hanging fruit.

Crucially, in second half – trading psychology will work. Will shorts want to keep their positions open ahead of a mini binary event? Anecdotally, exit polls favour BJP and the market will know that. So I won’t be surprised to see a late surge in trade today, which could continue with a gap up tomorrow inviting some weak hands and finally a Sell on news in tomorrow’s second half.

These are my thoughts. You should act on what you think is right!!

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options given to him by his employers as part of his compensation




Thursday, February 16, 2017

HDFC BANK: THE BIG NEWS FOR TOMORROW’S TRADE


This is going to be a short blog post. A very important trigger for the biggest stock in the Nifty and the Bank Nifty. HDFC Bank is the highest weighted stock on the Nifty and the Bank Nifty and it’s now out of the ban list for FIIs. Simply put, tomorrow morning, FIIs can buy HDFC Bank in open markets. So how crucial is this?

Well first of all, those FIIs who want to own a piece of HDFC Bank all this while could still do it. However they could only do it from their fellow FIIs in a special window and the premium on that is 12%. Even today, while HDFC Bank closed at 1327 in the normal market - http://www.bseindia.com/stock-share-price/hdfc-bank-ltd/hdfcbank/500180/ , it traded at 1482 in the FII window: http://www.bseindia.com/stock-share-price/hdfc-bank-ltd/hdfcbank6/600180/
. So that’s the premium which some FIIs are willing to pay to get the shares of HDFC Bank.

Now, I am not suggesting that the stock immediately goes up 12% tomorrow but what is interesting is that this window will last for all of 2 days, i.e 17th and 20th and by then it will be back in the ban list as there will be enough demand. So it’s literally a case of a flash sale that lasts for a few hours and you see huge demand.

By conservative estimates, I expect the stock to rally at least 5-6% tomorrow. Do the arithmetic on what it could mean for the Nifty and more importantly the Bank Nifty where it has over 30% weight.

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options given to him by his employers as part of his compensation


Monday, December 12, 2016

THE TATA MOTORS DEAL: FIRST OF MANY BY TATA SONS?


You have all read the news – some unidentified buyer is willing to buy 1.73% stake in Tata Motors at up to 10% premium. Sounds wow right? May be that’s the intention. What I explain here is my gut feeling and I could be completely wrong, so take this with a truckload of salt. Let’s understand few things first. My sense is this unknown buyer is Tata Sons and now let’s get to the deal.

This 10% premium sounds huge but is actually not much in terms of meaning because a) This is screen based, so it’s a maximum of 10% and b) the stock is already down 25% from its highs of 600, so it’s not as if this is some outlandish price for Tata Motors. So what exactly am I trying to say here?

While Tata Group is a huge conglomerate, there are only 2-3 really big stocks and TCS and Tata Motors clearly belong to the top. My sense is that this is 1 step towards the final Tata-Mistry truce where the only logical solution I see is Mistry selling the 18.4% stake in Tata Sons. Now it’s in interest of both parties that this 18.4% gets a reasonable value.

So, this exercise in essence is to make sure the sum of the part valuations of Tata Sons are brought to respectable levels. Curiously, note how TCS was surging today while the rest of the IT pack was down and TCS is the company where Tata Sons of course has highest stake.  Keep watching this space, it could be first of a few more deals to come in this space.

P.S. These are my first thoughts and my personal views. I have not contacted Tata Sons for a response and please ignore the typos and grammatical mistakes.



Tuesday, September 20, 2016

CASTROL: THE BLOCK DEAL AND BEYOND


It’s public knowledge now that the second tranche of promoter stale sale in Castrol was due. In fact last month, many traders were caught short anticipating the block deal that never took place and stock saw massive short covering.

Something interesting happened again here between yesterday and today. Lot of shorts got built yesterday anticipating the conventional wisdom of the block getting executed at a discount. In fact, yesterday there was some 40% jump in Open Interest and the stock fell 4%

Now, the interesting bit here which a lot of people have forgotten is that Castrol India has been a massive underperformer over last 2 years. In fact the way crude has fallen, this stock should have been a multibagger but actually over last 2 years, it fell some 28% for variety of reasons but the promoter stake sale was the main overhang.

So what happened this morning? The block deal book was launched at a price band of Rs 408-422. First thing in morning, the entire issue was underwritten by a single investor. Yes, a single investor was ready to commit Rs 1800 cr in Castrol. This led to a lot of protest by other investors who all wanted a pie of the share. After all, this is a global MNC, blue chip and a stock which has underperformed with potential to rally big and with knowledge that promoters won't sell any more now with stake down to 51%. So finally, merchant bankers had to drop the deal in the block window since the price in morning itself went much beyond the band and the demand was too huge. And hence the deal at a premium and once again shorts getting trapped.

What next? Well, looking at the appetite today and given it’s last 2 years of underperformance, if the stock has hit an inflection point, I won’t be surprised to see this stock running away to 550-600 and that too if you are conservative. Of course, this won’t happen tomorrow and the stock is bound to have periodic correction. But the market is offering you an interesting idea if you are willing to pay a minor premium over the recent price move!!

P.S – These are my first thoughts immediately after the deal and the feedback I have got. Please bear with me for typos, grammatical errors etc.

Disclaimer: The author of this article does not invest/trade in stock markets including derivatives. His only exposure to stock markets is via the stock options given to him by his employers as part of his compensation