I have been waiting for this day for a long, long time …. we will be buying heavily through the day
On Friday, 6th March 2020, the Sensex plunged a mammoth 2.5% over fears that the deadly Corona Virus would wreck havoc with the global economy.
A fortune of Rs. 4 lakh crore was wiped out in the blink of an eye.
Rs 4 lakh crore gone in 60 seconds!#Sensex #Nifty https://t.co/iaE08tmqMF
— Economic Times (@EconomicTimes) March 6, 2020
In just the past 30 days, the Sensex has plunged 10%, causing incalculable loss to hapless investors.
A number of heavy-weight blue-chip stocks like Reliance, HDFC, Bajaj Finance, Bajaj Finserv, HDFC Bank etc have also been pummeled out of shape.
Stocks down from Record High
Reliance -21%
HDFC -16%
Bajaj Fin -15%
BajajFinsv -14%
HDFC Bk -13%#StockMarket #YesBankCrisis#Coronavirus— Mangalam Maloo (@blitzkreigm) March 6, 2020
However, while all other investors are in despair, Saurabh Mukherjea is rubbing his hands with glee.
This is because he is a staunch believer in Warren Buffett‘s philosophy that investors should aggressively buy stocks when there is “blood on the street“.
“When there is blood on the Street, if you are not buying, then I think you are doing something wrong,” Saurabh said, quoting Warren Buffett’s immortal advice.
“I have been waiting for this day for a long long time … we will be buying heavily through the day,” he said with a big smile on his face.
“Our job is to keep our heads cool in this time and as clients give us money, we put them to work. On days like this, it is actually not very difficult to put it work,” he added.
i was told to buy when there's blood in the streets. is this that?
— J.C. Parets (@allstarcharts) March 6, 2020
Yes Bank’s collapse will lead investors to safer stocks like HDFC Bank etc
Saurabh was amongst the handful of pundits on Dalal Street who had predicted that Yes Bank would collapse like a pack of cards.
“The writing was on the wall for a long time … How the hell it takes so long for this unravelling to happen in this bank?” he asked in an incredulous tone.
“I did write this was a disaster in the making for many years … Let us hope better sense prevails next time, as we see Indian banks getting built like this,” he added.
Unfortunately, the collateral damage is being felt by other Banks & NBFCs such as IndusInd Bank, RBL Bank, IndiaBulls Housing etc.
First Victim of Yes Bank Crisis? #Yes_Bank #YesBank
Indusind Bank Defers Board meet which was scheduled next week for Fund Raising via AT1 Bonds due to current market conditions @shail_bhatnagar @andymukherjee70 @ritusingh@ShereenBhan @latha_venkatesh pic.twitter.com/jhwC3YCFNA
— Yatin Mota (@YatinMota) March 7, 2020
ED arrests Yes Bank promoter Rana Kapoor
ED is investigating if his front company got Rs 600 crore as kickbacks from DHFL against loans worth Rs 4,450 crore pic.twitter.com/Iemi4fveBh
— Yatin Mota (@YatinMota) March 8, 2020
Saurabh opined that the collapse of junkyard banks like Yes Bank is actually a good thing because it will lead to “polarization” and a “flight of safety“.
High quality financial institutions which are doing a terrific job like HDFC Bank, Kotak Bank, Bajaj Finance etc will grab market share and prosper.
“A titan like HDFC Bank — a high quality lender — has only 6% market share. That makes no sense at all,” he exclaimed.
“A decade hence, even if HDFC Bank’s market share is a mere 12%, this bank will be worth closer to $700-800 billion. You cannot have a champion like HDFC Bank with just 6% market share. This 6% goes to double in 10 years and HDFC Bank shareholders, therefore, make money. Ditto with Kotak Bank,” he added.
Saurabh also explained that as the weaker lenders fall by the wayside, Bajaj Finance, HDFC Bank, Axis Bank, Kotak Bank etc will gain market share which will cause their cost of funds to drop.
While the stronger banks get funded at lower rates, the weaker banks will get funded at higher rates and this will result in the market share polarisation becoming very sharp.
“As the market share polarisation becomes sharp, the flight to safety will be basically a flight to HDFC Bank, Kotak Bank, Axis Bank, Bajaj Finance etc,” he said.
He also pointed out that a decade hence, only 20 companies will account for three quarters of the profit generated in India.
“Your and my job should be to push investors so that they can make money from this process of formalisation, from the process of concentrating profits in the hands of a small set of really high quality companies,” he emphasized.
GMM Pfaudler, latest stock pick
Saurabh disclosed that his latest stock pick is a blue-chip MNC stock named ‘GMM Pfaudler‘.
GMM Pfaudler is the largest manufacturer of glassline vessels in which drugs are made with a market share of 60-70% market share.
The stock was recommended by Anand Rathi a few months ago on the logic that it has strong prospects and surging profitability.
The investment rationale was impeccable:
“Its stellar execution capability and ~45% y/y order-book growth assures us of GMM’s strong FY20 revenue growth. With higher realisations, greater operating leverage and more export orders in Q2 FY20, margins expanded ~340bps to 19.6%.
We expect realisations holding at current levels, lower commodity prices and savings in power (from the new gas furnace) would sustain the high margins.
The debt-free status, healthy operating cash-flow, with strong prospects and profitability would lead us to retain our Buy rating at a higher target of Rs 1,849, 25x FY21e EPS.”
However, Anand Rathi’s target price of Rs. 1849 for GMM Pfaudler was frivolous and was effortlessly taken out by the powerhouse stock.
The stock is presently standing tall at nearly Rs. 3,000 and looks unshakable.
Angel Broking has predicted that more gains are due from the stock and has recommended an “accumulate“.
“We expect GMM Pfaudler to post CAGR of ~23%/39% in revenue/ earnings over FY19-22E. Management has indicated that the company is going to add two more gas based furnace from Q2FY21 which will help drive the GL business. Management also sounded positive on the heavy engineering business which is expected to scale up significantly in FY21. Hence, we recommend Accumulate with a target price of Rs 3437 (30x FY2022E EPS),” it is advised.
#MarketsWithMC | Shares of GMM Pfaudler (#GMM), rose from Rs 90 in Nov 2009 to Rs 1,450 on Nov 8, 2019, which translates to 1,500% rise of in 10 years. Here's all you need to know: https://t.co/8nVZlKIDLL#StockMarket #StocksToWatch pic.twitter.com/sPOQirv5XN
— moneycontrol (@moneycontrolcom) November 12, 2019
Coronavirus will also lead to a flight to safety
Saurabh opined that the deadly Coronavirus is unlikely to have much adverse economic impact though it has does have an “psychological impact” and has created fear.
“As fear kicks in, people will fly towards stocks that they instinctively believe will benefit from this correction,” he said.
He opined that “psychological safe harbour” assets and stocks such as Gold, Titan, Divi’s Lab, GMM Pfaudler, Nestle etc will be much in demand from frightened investors.
“These sorts of psychological plays will have a super run. Because ultimately, much as we would like to believe, we are logical animals, we are ultimately creatures of greed and fear,” he added.
what is in the green in a weak market?
All up 1-3%
Vinati Organics
Navin Fluorine
PI Ind
Alkyl amines
Neogen Chemicals— Sonal Bhutra (@sonalbhutra) March 6, 2020
When markets in red, Adv Decline 1:11 – what's holding the green ?
Dixon Tech up 4%
IOL Chem up 4%
Shankara up 4%
Elgi Rubber Co up 5%— Anisha Jain (@_anishaj) March 6, 2020
The coronavirus panic is dumb
— Elon Musk (@elonmusk) March 6, 2020
It is “Beggar belief” to choose cheap P/E stocks – invest only in champion franchises
Saurabh slammed the pundits who are advising investors to buy cheap stocks like L&T, PSU Banks etc.
“There is a sort of bizarre notion which does the rounds in the Indian market every now and then, which is buy large companies whose price to book and price to earnings multiples are low,” he said.
He described it as a “very strange notion” because some of these companies have glaring governance issues and the basic financials do not stake up.
“The notion that you buy high-beta plays, low price to book, low PE multiple plays at these times is very dangerous and I find it a little worrying. There are millions of people watching and obviously those people might end up buying these sorts of companies to the detriment of their net worth,” he said in a grim tone.
“That notion really is really beggar belief, because on the one hand you have a difficult economic climate and a difficult financial climate, now courtesy Yes Bank, you need to invest in absolutely champion franchises. This is not a time where you invest in weak companies and try to make money,” he warned.
Saurabh advised that we invest only in champion franchises like Titan, Nestle, Asian Paints etc despite their alleged expensive valuations.
“Their compounding engines keep chugging out profit growth in difficult times and because of their earnings compounding, you make money even in difficult times,” he said in a comforting tone.
What should you buy in this fall? Here's the pick of Saurabh Mukherjea of @MarcellusInvest pic.twitter.com/mNs8NznXzg
— ET NOW (@ETNOWlive) March 6, 2020
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