Investors lament despite unstoppable rally while Traders rejoice
The stock market is presently coasting at All-Time Highs.
The Sensex, Nifty and Bank Nifty have effortlessly reached levels never seen before by mankind.
Sonia Shenoy, who is the good luck charm of Dalal Street, formally announced the historical event.
nifty hits fresh record highs now
— Sonia Shenoy (@_soniashenoy) December 17, 2019
— CNBC-TV18 (@CNBCTV18Live) December 17, 2019
However, the surprising aspect of the rally is that most investors are feeling left behind.
This is because their stock picks are not participating in the rally.
Eminent investor Vijay Kedia, who has raked in a massive fortune from the stock market, pointed out that the index is deceptive and does not indicate the true picture of the market and the economy.
He also lamented that the Government is trying to cure the ills of the economy with ‘homeopathy‘ instead of ‘surgery‘.
Govt is trying to cure with homeopathy whereas the economy needs a surgery. https://t.co/hoAUaBU8zQ
— Vijay Kedia (@VijayKedia1) December 3, 2019
Basant Maheshwari also appears to be feeling forlorn and dejected.
He slammed NAMO and Nirmala Sitharaman for being preoccupied with frivolous issues and ignoring the “sinking ground reality“.
Certain measures are long term some immediate and a few short term. Even if they start with LTCG, DDT and one from the other categories it will be great but no one listens. Maybe they are pre-occupied with other things or perhaps not aware of the sinking ground reality.Who knows?
— Basant Maheshwari (@BMTheEquityDesk) December 13, 2019
However, some distinguished fund managers like Ravi Dharmashi are not impressed with investors pleading for Government intervention.
He opined that investors must pick stocks which will thrive irrespective of hostile government policies.
All the ‘great’ investors have become day traders and god knows what they expect from finmin press conferences. Build expectations and then express disappointment. What happened to investing regardless of govt actions?? #Markets
— Ravi Dharamshi (@ravidharamshi77) December 13, 2019
On the other end of the spectrum, traders like Atul Suri have no problems because they are able to rake in big bucks irrespective of where the market is headed.
It is notable that Atul Suri has already alerted us not to be bogged down by negative news like the alleged slowdown in the economy etc but to focus on being with the trend.
“Ignore Doubting Thomases, Nifty is heading to 13,500“, Atul Suri said in a prophetic tone, giving impeccable logic.
High-quality stocks are not in a “valuation bubble“. They have huge growth prospects
Saurabh Mukherjea has earlier formulated the theory that high-quality stocks cannot be valued on traditional norms of P/E etc because they enjoy several virtues that their counterparts do not possess.
He has provided a detailed explanation in support of this proposition with facts and figures.
He has also argued that even if we end up buying high-quality stocks at 100 P/E, we need not worry because we will make healthy returns in course of time (see If You Buy Quality Stocks Even At 100 PE, You Will Still Make Money).
— ET NOW (@ETNOWlive) November 20, 2019
Consistent compounders are not too big to grow and are far from saturation point
Saurabh’s theory has met with a lot of skepticism from the pundits of Dalal Street.
The pundits have claimed that all stocks have a saturation point and they cannot grow rapidly beyond this limit.
In his latest article, Saurabh has rubbished these fears by cherry-picking three stocks from his portfolio and explaining their virtues:
Relaxo – still a midget despite impressive growth
I pointed out earlier that Relaxo Footwear has been a magnificent mega-bagger with a mind-boggling return of 12,000% over the past 10 years.
The stock was also one of Dolly Khanna‘s favourite stocks though she prematurely dumped it and deprived herself of gains of Rs. 100 crore+.
Saurabh has explained that despite all of Relaxo’s impressive achievements, it is still a midget with a revenue of only Rs 2,300 crores which is less than 6% of the footwear industry of Rs 40,000 crore in India.
He has also pointed out that the shift from the unorganized sector to the organized augers well for Relaxo.
He has also pointed out that if Relaxo doubles its market share from 6% to 12% and if the overall footwear industry continues to grow at 10% CAGR, more multibagger gains will come gushing out of the stock.
HDFC Bank and Bajaj Finance – powerhouse multibaggers
It is well known that HDFC Bank and Bajaj Finance are all-time favourite stocks of Saurabh Mukherjea.
He has revealed that he bought HDFC Bank “every day for the past nine months“.
He has also opined that the stock has the potential to give 6-bagger returns even from here (See Saurabh Mukherjea Recommends “Tremendous Wealth Creator” Stocks With 6x Gain Potential For Us To Buy Now).
He has now pointed out that while the banking sector is growing at 13% CAGR over the past decade, HDFC Bank and Bajaj Finance are dominating the sector with a 7% and 1% market share respectively.
Both are amongst the best placed lenders in terms of their access to low cost funds (liabilities side of the balance sheet) and their ability to grow their loan book ahead of their competitors, particularly in the aftermath of the ongoing financial crisis.
“If the broader credit industry continues to grow at a rate higher than 10% CAGR over the next decade, and within that if firms like HDFC Bank and Bajaj Finance double (to 12%) and treble (to 3%) their market share respectively, the current size of these lenders won’t be an impediment to growth,” he has opined.
India’s young demography will prevent saturation of growth potential
Saurabh has also provided cogent commentary on why the compounder stocks in India can never saturate in comparision to their peers in the developed countries.
One of the main reasons for this is the so-called “Demographic dividend” of the Country.
“A young and large population combined with economic growth supported by rising middle class household consumption provides a long runway for growth to most sectors in India,” Saurabh has explained.
He has also pointed out that the companies have the ability to successfully expand into adjacent segments over time should there be a risk of saturation in one segment.
Page Industries and Relaxo Footwears, for instance, deal with a variety of segments such as innerwear, outerwear, kidswear, hawai chappals, Bahamas etc, each of which has a large market potential.
“This ability to keep widening the basket of products whilst also sustaining the firm’s competitive advantages helps avoid market share related stagnation within a single product category,” Saurabh has stated.
At the end of the detailed analysis, Saurabh has opined that if the companies retain the ability to sustain their competitive advantages, the risk of the growth runway becoming saturated is low.
“Our analysis shows that the growth runway available to most of our portfolio companies – from category growth or market share gains or ability to expand the basket of product portfolio – remains long,” he has added in a soothing tone.