Basant Maheshwari soothes nerves of PMS clients
I reported earlier, with my usual diligence, that in September 2018, Basant’s PMS had lost 21.50% and was branded the “worst performing portfolio management firm” by Bloomberg (see PMS Portfolios Of Basant Maheshwari & Porinju Veliyath Suffer Losses & Under-perform Peers).
Basant Maheshwari Wealth Advisers (@BMTheEquityDesk) was the worst performing portfolio management firm in September.
— BloombergQuint (@BloombergQuint) October 10, 2018
The meltdown happened because Basant was very gung-ho about NBFC stocks and they collapsed like a ton of bricks over fears of liquidity etc.
Naturally, Basant’s PMS clients have been somewhat nervous and he has addressed a detailed letter to soothe their nerves.
The letter reads as follows:
“Market Update by Basant Maheshwari – October 7, 2018
1. We write to you only when the house is on fire not when there’s a party going around. Handholding comes in handy when prices are collapsing with or without reason.
2. We can control the companies we buy for you but the price that those companies will trade at will be determined ‘over the longer term’ only by the earnings growth that those businesses generate.
3. With sufficient time we can control all of the above. But if we are short of time, we can control all but the price.
4. Personally, we have seen this kind of a fall several times before. The biggest of them was in 2008. Our only survival metric during that period was to wait for earnings growth than for price.
5. If there is earnings growth, prices have to follow.
6. Optically, this looks as bad as 2008 but in reality it is nowhere close to it. 2008 was about systemic failure but right now the issue isn’t even 20% as grave as that.
7. In more companies than one, the problem is more because of the investor than from the investment.
8. We feel the heat because the neighbour’s house is on fire.
9. By the way, our entire net worth is invested in the same stocks we have bought for you.
10. Forced speculator unwinding and discretionary regulatory decision making – both of which aren’t in our control.
11. No text book can explain the plight of a seasoned investor when a reckless trader sells for margin.
12. Stocks of companies that report 35% to 40% earnings growth cannot fall by 30% and stay there. This is because a 40% earnings growth with a 30% price fall results in a 50% valuation compression.
13. If held over a period of time there are only three things that decide the price of a stock a) Earnings b) Growth and c) RoA/ RoE. If you’re sure of these three things in a company the price will follow. If you aren’t find a company where you are.
14. The market is like life to us. And life has its ups and downs. You don’t get rid of your life just because things aren’t working out well.
15. If your skill sets are weak and you have chosen inferior quality companies a bear onslaught is enough to knock off 60% to 70% of the capital.
16. These falls for as are not like organ failure. They are like viral fever which will go away with time.
17. We are confident of our future because we are confident of the businesses we own.
18. Personally, we watch prices tick by tick. It’s like seeing your heart beat on the screen. It gives you that sense of connection with what you own.
19. If you can spend your time doing something else do it but don’t panic. Nothing great has ever been achieved by panicking.
20. This is all paper money and the fact that this money has gone doesn’t mean that it won’t come back.
21. All we are waiting for is for the result season to kick in. Stocks cannot continue to fall amidst the earnings growth that our companies deliver. And if they do there has to be something fundamentally wrong with the stocks in the portfolio and we are well equipped to take corrective action for that.
22. Prices don’t dictate strategies…
23. We are happy to own expensive stocks as long as they return the favour back by growing at above average rates. Above average for as means 30% plus.
24. Problems in a stock market remain problems ….. till they are unknown.
25. Many of you are transferring in cash to top up the accounts and we are buying shares in one shot. That’s not because we don’t fear a 5% to 10% downside in our stocks but because we don’t want to miss the turn.
26. The broad story for the inferior quality small and mid caps remain the same. There is no light at the end of the tunnel. And if there is one, it could well be that of the train coming from the opposite end.
27. We are very careful not to be sucked in by the optical illusion of cheap valuations.
28. When the market turns money will chase quality and growth and we are well poised to take advantage of the turn. The biggest catalyst for the turn can come in anytime and from anywhere.
29. Personally, we feel this week should see the end of carnage and the only reliable trigger seems to be a fall in the price of crude.
30. If the dollar tops out at Rs 74-75 that should be the big trigger and that will happen only if crude can fall or at least stop to rise. Any of these might signal a historic bottom for the Nifty at just about 10 000,
31. So while the overall market seems stuck in the quicksand of a bear onslaught at least till the new Govt comes in power companies which report earnings and growth with decent utilisation of capital (RoE) shall bounce back irrespective of what the market does. And for that ….. the commentators will turn, the advisers will turn, the negative gyan wale will also turn and so will the onlookers, the naysayers, the losers, the pessimists, the fundamentals will also turn but not before the market is a good 10% to 15% above the lows.”
— Basant Maheshwari (@BMTheEquityDesk) December 4, 2018
Basant also advised us to be “eternal Bulls”.
You have to be an ‘eternal bull’. Everything else falls into place after that. https://t.co/tDn0NxriUL
— Basant Maheshwari (@BMTheEquityDesk) December 5, 2018
#OnCNBCTV18 | Basant Maheshwari, @BMTheEquityDesk says expect leading #NBFC players to gain market share post liquidity crisis; Would look out for #IPO of Apollo Pharmacy@_anujsinghal @SurabhiUpadhyay pic.twitter.com/5H6VZW1d31
— CNBC-TV18 News (@CNBCTV18News) December 3, 2018
We bought lots of NBFC stocks and own it to the neck
Basant candidly revealed that he has two high-quality NBFC stocks in his portfolio.
These are Bajaj Finance and PNB Housing.
He explained that he owns Bajaj Finance “till our neck” on the logic that it is going to capture market share in the next three-four years and deliver multibagger gains.
Basant explained that the present liquidity crises which is plaguing the NBFC sector works in Bajaj Finance’s favour because it is able to mop up market share from its competitors.
As regards PNB Housing, Basant explained that it is presently under an overhang because of the impending stake sale.
Once the stake sale happens, it will be business as usual and the stock will surge back to its golden days of glory, he opined.
Jump out of high growth stocks if the growth slows
Basant explained that there is a radical difference between secular high growth stocks like D-Mart, Page, Eicher Motors, Asian Paints, Bajaj Finance, HDFC Bank etc and their counterparts in the infra and Pharma space.
He pointed out that if a 30% growth company goes at 25%, the stock price does not come down because at the same time, the 15% growth company is now growing at 10%.
“It is always a relative game,” he said.
He cited the example of HDFC Bank where the growth of 35% has gently tapered to a growth rate of 30%, 25%, 22% and now at 18%.
However, despite the obvious low growth rate, the stock price has not crashed.
In contrast, the growth rate for infra companies can collapse overnight if they lose out on orders.
Similarly, the growth of pharma companies which are dependent on certain generics or molecules etc can also suddenly slump.
Basant advised that we have to keep red alert for the growth rates and dump the stock if it starts faltering.
“The moment we see that the growth has started to slip, we will come out of it and buy something better maybe,” he said.
Apollo Pharmacy IPO is a good bet
Basant explained that the onset of IPOs will provide definite sign that the sentiment is changing for the better.
He advised that Apollo Pharmacy IPO should be looked at because it is a stable business selling medicines.
The business is scalable and extension of the retailing play, he added.
It is implicit in Basant’s theory that it is better for us to buy the stock of a chemist who is selling medicines rather than that of a Pharma company. While the Pharma company is beset with numerous risks such as a FDA ban etc, the chemist is relatively immune to these risks and can effortlessly deliver mega gains to us!