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The Spotlight with Anuj Singhal
This blog of mine is dedicated towards internals of Indian stock market and within that individual stocks
Saturday, April 21, 2018
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
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