In our last blog we explained we don’t intend taking cash calls just because markets may seem overvalued.
In this note we provide more rationale for the same. Even if one was to get market timing – selling and re-entry – both legs perfectly right, and that is a big assumption, the net impact on your incremental IRR vs staying invested is marginal.
Read More4 common questions we have recently been getting
1. Is this still a good time to enter markets?
2. Will you invest all additional capital at present?
3. Will you take some cash calls because markets have run up so quickly?
4. Will you rejig the portfolio as cyclicals may do better short term?
Read MoreOver the last few years, traditionally defined “Value” stocks have continued to get cheaper while “Growth” oriented cos have done very well. The divergence is stark and is now prompting questions whether Value Investing is dead.
The categorization of stocks between “Growth” and “Value” is erroneous. Anything that is low PE multiple and out of favour with markets is typically labelled “Value” and anything with high multiples and fast growth is labelled “Growth”.
Read MoreSEBI came out with new guidelines last evening where Equity Multi-Cap Funds now compulsorily need to invest at least 25% of their corpus in “Mid Caps” (firms ranked between 101-250 in pecking order of Market Cap) and another 25% in “Small Caps (firms ranked 251 or higher in pecking order of Market Cap). This needs to be achieved by 31 Jan 2021.
In this note we want to address the following issues
a) How did SEBI get here?
b) Our view on this order
c) What this order means for Small and Mid-Caps in the short term?
Read MoreWe are in the midst of an economic shock. India has not been able to flatten the curve and the number of infections continues to rise. There is no visibility of a vaccine or a cure. SMEs are in distress. Neighbourhood shops are doing very little business, if any at all. Yet stock prices seem to ignore market conditions and have reached the levels of February 2020.
What is going on? Are markets ahead of themselves? Should Solidarity be taking a cash call at present to preserve some of the gains?
Read MoreWe had shared an earlier blog, ‘Why Mid-Sized Banks are strategically disadvantaged’ as they are forced to take on more risk in a business where success needs to be rooted in conservatism.
The collapse of Yes Bank will further widen the competitive gap between the leaders (SBI/HDFC/ICICI/Axis/Kotak) and the others.
Read MoreA question that remained unaddressed in the last Q letter to Partners was “Why do we not own any Mid-sized Banks?”
Banks can be attractive businesses to own as they enjoy natural growth tail winds of growth while delivering 15-18% ROE. However, over the last decade, only 3 Banks (representing < 15% of Industry Assets) have delivered over 15% PAT growth or above 15% ROE consistently.
Read MoreIndia has implemented two significant regulations in the recent past. GST and the Bankruptcy Code. We argue that a third one is on the way which will lead to Re-pricing of Credit risk
Read MoreThe best businesses are those that can grow predictably while generating cash and can grow without any or very little reinvestment of this cash.
Read MoreIn our Q2FY18 letter dated 4 July 2017, we had made the following observations
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