Contrarian at precisely the right time?
Prima facie, Shyam Sekhar appears to have mastered the art of turning contrarian at precisely the right time when the stocks have bottomed out and a huge upmove is on the anvil.
We saw a glimpse of this when he bought sugar stocks at rock bottom prices.
My Contra call on sugar was 90 days ago. Knowing past cycles, turnarounds swift & sudden. REAL triggered a black swan. Cuban drought kicker.
— Shyam Sekhar (@shyamsek) October 13, 2015
Sugar stocks took off like a rocket soon thereafter and yielded mega multibagger gains of upto 1000% (10-bagger).
Being counterintuitive helped pick sugar at option valuations. Investing in cyclicals needs a lateral bent of mind. https://t.co/tsJe1Hzgpb
— Shyam Sekhar (@shyamsek) January 23, 2016
Shyam Sekhar was not alone in figuring out that sugar stocks had bottomed out and were ripe for an upmove.
Luminaries like Dolly Khanna and Anil Kumar Goel had also packed their portfolios with high quality sugar stocks in anticipation of the change in sentiment.
Porinju Veliyath recommended that we also buy sugar stocks though, as usual, we royally ignored his advice.
Bought Sugar after a decade
'turnaround sector' on @ETNOWlive Diwali show with @Niraj__Shah
Stocks up 10-20% today!https://t.co/e8d8ghBG2C— Porinju Veliyath (@porinju) November 13, 2015
Understandably, Shyam Sekhar was so pleased with his achievements that he conferred upon himself the title of “sugar daddy”.
The Sugar Daddy must be a happy man.
— Shyam Sekhar (@shyamsek) July 21, 2017
PSU Banks are “untouchables” now but can make big money later
Shyam Sekhar sent us the subtle hint that the time is ripe to tuck into PSU Bank stocks because they were at trough valuations. He hinted that there is big money to be made at the first sign of recovery.
PSU's the new untouchables. Reminds of 2001-2004 when most people got caught off-guard. PSU bulls made big monies first in that recovery.
— Shyam Sekhar (@shyamsek) November 22, 2015
Porinju also expressed the same view.
Some under-owned PSU Banks could surprise you with a responsible Government in New Delhi!
— Porinju Veliyath (@porinju) February 2, 2017
Shyam was later more direct in his recommendation:
“The bad part of the PSU pack as you rightly said are the PSBs. The focus of the government would be in helping the bigger ones which are in a better position to come out faster from their crisis and then there would be a concerned approach to put all the other ones to get out to create a few good entities …
Once the bigger ones that is the SBIs and the Bank of Baroda’s and the bigger companies are fixed which I think will happen much faster than we realise I think that the negativity on the PSBs will definitely come down”.
PSU Bank stocks surge like supersonic rockets
Today, Shyam Sekhar’s prediction came true. After the Government announced a mammoth Rs 2.11 trillion package for PSU bank recapitalisation, bank stocks surged that they have never done before.
Experts called the move “historic” even as some stocks gave mammoth gains of 50%.
A screen that one can not miss. Historical day for the PSU #Banks
PNB end the sessions with single day gains of 50%. pic.twitter.com/HXtehukXbO— BTVI Live (@BTVI) October 25, 2017
Never seen 20% on Nifty PSU Bank Index
— Darshan Mehta (@darshanvmehta1) October 25, 2017
PSU Banks on Fire
SBI +20%
Bank Of Baroda +20%
PNB +20%
Bank of India 20%— ronith ramesh (@ronith_28) October 25, 2017
PNB is up 40%…….cant believe the screen i am seeing today
— Darshan Mehta (@darshanvmehta1) October 25, 2017
Understandable, Shyam Sekhar was very pleased at the way things had panned out and at the massive gush of gains into his portfolio.
It was an extremely unpopular, lonely decision. But, @ithoughtadviser took and stuck to it. #PSU
Advisory, to us, is all about conviction.
— Shyam Sekhar (@shyamsek) October 25, 2017
After debating me on PSBs, a leading banking FM reportedly yelled "what the f£#k does he know?"
Today, his virgin knowledge just got taken.
— Shyam Sekhar (@shyamsek) October 25, 2017
To be a contrarian investor, shift focus from P&L A/c to changes in Balance Sheet
Shyam Sekhar provided a masterful explanation of contrarian investing.
He explained that investors have to shift focus from the P&L driven investing to a balance sheet driven approach.
Opportunities for wealth creation will lie in how the composition of balance sheets will change over the next few years, he said.
He added that the opportunities would arise from “deleveraging” situations (where assets are sold to pare debt) and this would lead to “value creation”.
Steel stocks are also a contrarian buy now?
Shyam has formulated the theory that the Government has no option but to disentangle the Indian steel industry from the global market by giving protection from dumping.
He also opined that the reforms in the banking and the steel sector would have to be implemented simultaneously because they are closely connected.
He pointed out that the 2017 Steel Policy makes the production of 300 million tonnes of domestic steel a priority and the only way to achieve this is to make the market reasonably stable and insular to global trade.
“Steel is a sector where there is definite growth and this growth is fed by domestic demand you are going to see operating leverage,” he added.
Which are the best steel stocks to buy?
We have never studied steel stocks before. However, given that Shyam Sekhar has opined that there is big money to be made there from, we will have to take a crash course on the best steel stocks to buy.
Shyam Sekhar has a big chunk of Electrosteel Castings in his portfolio. This Company is the promoter of Srikalahasthi Pipes, a stock in which Dolly Khanna and Anil Kumar Goel are invested.
Prima facie, the promoters of Electrosteel Castings appears to be of dubious credentials given that they were raided recently by the CBI for various alleged offences.
Of course, this may not come in the way of the stock surging to become a multibagger.
Jindal Steel and Power Ltd is also a promising candidate. It has been recommended by Ventura for a target price of Rs. 472 (200% + gain).
Ventura has also endorsed the theory that the steel industry is headed for a cyclical upturn given that China has undertaken initiatives to cut excess capacities citing environmental issues.
It is also pointed out that there has been a rebound in global steel prices which is aided by the Government policies to check dumping.
Info Tech stocks are also a contrarian buy now?
Shyam Sekhar advised an investment in Info Tech companies on the logic that the valuations are not reflecting what will be the future based on the exchange rate.
He also pointed that an “untold story” about IT is that there is a sustained cost cutting that is happening in these companies.
“These companies have a history of being good allocators of capital and in a market where you do not have ideas I think one should play on better allocators of capital because they could come up with some special situations,” he advised.
He cited the Infosys buyback as a “classic example” of this theory.
Conclusion
It is evident that by not acting on the theory of contrarian investing, we have lost out on mega gains from sugar and PSU Bank stocks. We must ensure that we do not lose out on the gains that will flow from the steel and the Infotech sector stocks as and when the turnaround happens!
I’m just small investor ,how much quantity I want purchase Jindal steel??
In what rate I want to purchase
You can buy at current rate of 168 with SL of 133. SL is on monthly basis, no need to monitor daily just at end of month. Two never ask how much quantity first make your investing strategy (diversification) and then pick quantity
Keep in mind strategy is required because there is no such thing as guarantee in stock market.
PSU banks are Black holes which will sink what ever may be given to them. No doubt PSU banks has been good for trading bounce as they are under priced and under owned but will never be good long term investment stocks. So it is better to stay with pvt Financials if some body want to remain invested for long term. Govt 2 Lakh Crore bail out package will only help psu bank employees, inefficient Enterpenures and their employees , those farmers who take bank loans from PSU banks not to return but for loan waiver during elections. So in short term job loss may be prevented till economy turns back in few months after failed Demonetisation and unplanned GST. Market migration to pvt financial may deaccelarate for some time till PSU banks burns this money but will again accelerate after some time.
PSU banks are good trades not investments.
You are absolutely right. Kharb Sir. This amount is going to be used for loan write off by banks just before elections. This is a political game only.
kharb,
How to play steel recovery? Either by steel companies or ancillaries? examples can be help ful.
But at least they are better than Reliance Capital. Also not all PSBs are bad. Some have maintained pretty credible performance in these times. What about ICICI Bank, Axis Bank, Yes Bank which claimed to maintain highest standards of corporate governance. It is now proved that they are hiding NPAs. At least PSBs are losing because they are helping farmers in distress.
Also when MFIs coerce their clients to commit suicide nobody has any issues. They are great stocks but when PSBs waive off loans of distressed farmers people have objection.
MY GOLDEN ADVISE:
Never invest in a company you would not like to own for lifetime and which you would not buy @ price offered (MCap).
Always screen your stocks using this advise, in good or worst time.
I think we should also consider this fact that Electrosteel Steels which I think is a sister company of Electrosteel castings is one of the 12 stressed accounts which is in bankruptcy court. The head office of both of them are in the same premise. Can anyone confirm?
Shyam Sekhar is true turn around investor. He has mentioned it several times he picks basket of turnaround stocks.
People who don’t understand his investing method always complain about his stock selection.
I don’t really understand his investing method, being a contrarian is difficult, personally I only prefer proven performers.
I don’t think its fair to complain about someone’s investing method specially looking at their success.
The move in banking sector wasn’t accident and I totally give him credit for his wise decision.
On other hand I am also positive on his pick of Electrosteel, it is in my buy list. I’ll buy when it’ll break long term resistance of 37.
Again Jindal Steel is also in my portfolio since long time. I picked it first time at 87 and then again at 123.