H2 CY17 - The Fallibles

Poorer companies r getting jacked up/raising as much money as desired from poor retail guys - most dont exhibit sustainable earnings or major change in operations. Ironically, many good large cap companies havnt moved an inch in last 3 years, mostly due to no growth or degrowth. Professional investors r somewhat cautious and doesnt seem to be playing with leverage yet.

One can find young crowd from tier III/IV towns travelling in local metro, and trading on their new 4G mobile connection with slick apps - on one hand, its indicates consumption being accessible to everyone, great market potential unleashing in India, and potential of many new investors ready to on-board financial markets; on other hand, current excesses in the markets. All said and done, India is a must market to be in now. 

The FMCG player is working well. In classical Munger's coke way (Practical thought about practical thought), they are far far ahead of competition. The super cash flows are giving them enough ammunition to experiment with products and advertisements/promotions. Product wise, not only the core business is growing fast (developing new segments, capturing unorganized, and assailing organised market share), new additional products are way ahead than any other imitator yet. Also, the flow of advertisement is a case study in itself - its changed rapidly from Pavlovian conditioning to emotive to operant conditioning now. The new segments being churned out of traditional products are exemplary. 

Credit industry too is growing fast and is expected to grow by 30-35% over next 3-5yrs (as mentioned in most industry concalls). There would be clear shift from unorganised to organised players in the industry, as new private sector banks increase reach, product portfolio and ticket size. The unorganized market and unbanked population, even in Tier I towns like Delhi/Bombay is huge. The consumption, in this segment, is quite observable by travelling in local metro/buses and finding ever-growing flux of people from smaller towns. There has been a drastic change in just last 5 years - one can easily observe that the average age of travelers in local metro has gone down towards mid-twenties, travelling around either for higher education or for jobs. 

In my view, there can be some market-contraction. However, if one pulls out of mkts, it can pose a timing-risk against growing businesses. Few played the game of mkt-timing since last 1.5 years - only to repent. Few jumped back with deprival super-reaction and FOMO. Predicting mkt-timing is difficult, as many companies are sitting unleveraged, or have over capacity, or due to reflexivity in the markets (prices creates business environment - poor balance sheets start looking healthy if they are able to raise money at high prices and move forward)

Businesses which are working well and growing fast, with visible runway, may deal well with mkt-contraction - eventually, price is slave of the future earnings. No growth/degrowth/shady companies can face headwinds or some time corrections. Possibility of new long term capital gains taxes, rumored to be introduced, is worrisome. 

In such times of euphoria, lets not forget how fallible we can be, like Bruce Berkowitz Fairholme/Eddie Lampert and their SEARS. And Bill Ackman/Sequoia and their Valeant.