H1 CY15 - In Thermals

The hawks are making lazy circles as they are in the uplifting convection thermals. 

The FMCG player had seen a radical shift in the power equation in last few months. Few more competitors died. Many refused to participate in crop buying, as the prices fell down and overleveraged traders exited. Lower prices, and higher volumes, is good news. The company was able to grow its dominance - both at the retail end, by expanding network, and at procurement end, by procuring more and by being a ready buyer. Goodwill in community has also increased. 

The wind energy sector is also facing tailwinds. Govt's concessions are helping the industry. But the rest of infra capex is still languishing. The hopes of industry are kicked down the timeline - from end-of-fy15 to H2-of-fy16 to now, maybe-fy17. Overall, volumes are slowing in many industries and we will see negative surprises. The hope-bubble is punchering as industries arn’t seeing much kickstarting on the ground. 

SEBs (state electricity boards) position hasn’t improved as expected. The new government claims that the 2012 FRP (Financial restructuring package) has failed. The losses of SEBs have grown. States like Rajasthan have again approached banks for another loan restructuring. Many guys have not increased power rates as promised in FRP. Without strong political will, conditions in power-distribution are very poor and slow. 

The exuberance of last few months OND & JFM has come down in many sectors.

Good things – India is still being considered as better off in the indebted world. The crude, commodities and mass-market are on our side. And the Indian retail investor is waking up. The capital flows from the Indian retail have jumped sharply, and this looks like to be a year with highest retail participation coming up. 

General et al - Overall, the general environ looks very chaotic today. Govt infights, regulatory indecisions, scams, pollutions, rising population in few metros, adulteration, lawlessness looks common in public affairs. Hats off to the entreprenuers who are still growing in such environs. Hope things smoothen.  

H2 CY14 - Sexy Sirens

General Economy

Lots of marketing is being done by Government to attract investors. Modi is playing relentless tireless cheerleader for India - a true capitalist PM and seems to be putting our best foot forward. Some ambitious projects are being promoted by Government– like the 1 lac MW solar project. For more, check this jazzy presentation by Government – 200 days of power minister’s achievements. Solar is aggressively being pushed and made mandatory for buildings in Haryana. With such initiatives, if implemented, things look good for India.

Oil downfall is another good news for India, as well as for other consuming countries. With oil reaching $50, Indians couldnt have asked for more. Although not passed to consumer, it is still benefiting government to manage the deficit. 

At same time, the fall in soft and hard commodities will reduce incomes for many players, esp. farmers. Rural economy is facing decline as observed by few farmers. The prices of many crops – cotton, rice, wheat, sugar, maize, etc - this season are very low. Even the source of easy money for farmers , viz.  the land sale – is on decline, as no more aggressive land buying is done by Industry or real estate developers.  Overall reduction in farmers' income is visible in decline in agricultural equipments/tractor sale. This doesnt bode well. 

Hope, the dope!

A part of market, sectors like consumption, which were expensive last year, have become psychotic this year. Seems like desperate money/newbies facing deprival super-reaction are chasing and buying in panic. Few companies have shown ZERO growth over past 6 years - zero, nil, nada, zilch!!! - and currently hyped up to justify 60x pe!! Another one, sells at 70x pe, 12x sales! Pied Pipers are playing and rats are high on opium.

Its easy to digress from one's strategy at such times, and get swayed by sexy sirens. The landscape look easy, but it is actually full of landmines. 

YOU as The Chief Manager

The question often arises, what if market tanks down from this level. Secondly, if it falls, do we see absolute crash like 1929?

My take is 1929 kind of situations are averted lately by easy money from the Feds. It has set up a entitlement assumption amongst fund managers that Government will protect the economy/markets no matter what. This is what we saw in last credit crises.  

So, if not an absolute blowout, how do we manage minor setbacks? AND at the same time, how do we think about the scenario where the market goes in opposite direction and becomes fairytale bull runs for 2/3/5 years? My answer is by becoming your own prudent asset allocator.

Time again, we have seen that assets, no matter what, over time, fetch higher valuations provided managements don’t swindle. There would be many buses for each bus missed, but the ticket price every year would escalate. Buffett was right when he said that compounding should start as early as possible – and asset acquisition should be done aggressively early on. 

It makes sense to take consistent additional exposure in assets, with inflows from earning income (or dividends, or insurance float/debt as in case of Buffett).  Managing fixed allocation, with some idle cash on balance sheet is not a great strategy for personal allocations. Rather, being fully in equities, and keep adding additional capital in rising economy, is the way to be (keeping an eye on valuations ofcourse). Similarly, adding when the markets tank, and successively take float/leverage, if possible (keeping in view on markets) on way down, could be much better policy. Again, nothing is absolute gospel – a careful vigil needs to be kept throughout. But one must keep take reins of one’s financial destiny.

Oppurtunities in a Bull run

This is second most prominent question asked. The answer resides in part in the above section - i.e. managing one's allocations. Its impossible to predict the run of a bull market, or a downfall. The only way is to buy cheapest wherever possible and keep a dynamic allocation, as described above. There is no dearth of opportunities in an upwards markets too. For years, markets can remain high (or low) than one’s wildest expectations – the only way out is to develop multiple skills/earning streams and keep allocating periodically.

I was buying some company last year. This year, I'm still buying it at 3-4x original price because the valuations have moved ahead and growth has accelerated and is visible. So, anchoring to original buy price is WRONG criteria. RIGHT thing is to anchor to the moving intrinsic value and keep allocation a dynamic process.  

As they say, Investing is simple, but not easy.

Etc

Found some interesting stats from different fund managers’ way of investing. Below is a pullout from Bruce Berkowitz’s Fairholme presentation. This is to point out the concentration being followed in his fund, where top security is almost half of the fund. Similar point was recently made by Pabrai at an investing summit in Mumbai,  please enjoy the interesting conversation here.