Plenty of opportunities to make money in India
Some investors are feeling despondent at the alleged lack of investing opportunities in India.
They are raising issues such as the economic slowdown, low GDP growth etc as excuses to avoid making investments.
Saurabh Mukherjea rubbished these fears.
He explained that the sense of fear in the air about the alleged slowdown is actually a good thing because it has cleansed the exuberance and made valuations reasonable.
Also, people are realistic now in their expectations.
“There are abundant opportunities for making money. India is a large Country and there are plenty of under-penetrated products,” he explained.
“It is a great time to be investing in India,” he added with a big smile on his face.
Stocks in my portfolio are doing well
Saurabh advised that there is no need for us to obsess over whether we should buy large-cap, mid-cap or small-cap stocks.
Instead, we should invest in those stocks which meet the criteria regardless of their market capitalization.
He provided examples from his own portfolio to prove the point that stocks will do well if their fundamentals are supportive.
For example, Asian Paints, the large-cap juggernaut, has been chugging along nicely for the past several decades, posting hefty CAGR gains of 25%+.
Similarly, Dr. Lal Pathlabs, a mid-cap stock, provides essential pathology services and is prospering well.
Relaxo Footwears, the small-cap beauty, which makes cheap ‘Hawaii Chappals’, is a dominant franchise with a virtual monopoly.
Such stocks like Dr. Lal Pathlabs Ltd, HDFC Bank Ltd, Asian Paints, Relaxo Footwears etc have all given 30-35 percent return on capital over the past few years and made investors fabulously rich, Saurabh reminded.
It is worth recalling that Saurabh has earlier provided a masterful explanation on why Relaxo Footwear deserves to be a part of our portfolio.
Sakshi Batra of moneycontrol.com has also provided a brilliant “three point analysis” in which has analyzed the fundamentals of Relaxo Footwear.
Buy stocks which have a monopoly franchise & entry barriers
Saurabh advised that we should go back to the basics of investing and look for companies that are supplying essential products to consumers.
There should be a high barrier for entry to prevent competitors from barging in.
“Look for a company that is doing something that others can’t – assess moats, assess competitive advantages. Look out for (potential) monopoly franchises,” Saurabh said.
“Look out for companies that have clean accounting, clean governance,” he added.
Saurabh cautioned that if there is no barrier to entry, the company may grow but there will be no profitability.
The Airlines sector in India is a textbook example of this, he stated.
Companies like Jet Airways and Kingfisher grew like rockets but came crashing down for want of profits.
Indigo Airlines appears to be heading on the same path if one goes by its latest quarterly results.
5 pointers to Indigo Results
Loss of 1062cr nearly doubles
Costs very high , Domestic slow down impacted
Yield up 9.4% ,RASK up 5.7% & Capacity growth of 24.2%
Almost all tgts revised downwards pic.twitter.com/BLCi1rxA16
— Aditi (@AditiYagnikCNBC) October 25, 2019
Did you know HDFC Bank and Asian Paints are 10-baggers over 10 years?
Some investors, particularly novices, are reluctant to buy large-cap blue-chip stocks like HDFC Bank and Asian Paints in the misconception that they are “boring” and do not have much juice left in them.
So, they buy stocks of little-known companies, run by managements of dubious pedigree, in the hope that they will earn multibagger gains.
Saurabh rapped them hard on the knuckles.
“Very few people realize that companies like HDFC Bank and Asian Paints have grown 10x in 10 years,” he pointed out.
“It has doubled in the past three years,” he added.
“You lose sight of where money is being made and are chasing small companies,” he said in a somewhat stern tone.
Marcellus Investment's Saurabh Mukherjea speaks to CNBC-TV18, says he won't rule out an I-T rate cut pre-Diwali pic.twitter.com/3FnXLwI7DP
— CNBC-TV18 (@CNBCTV18Live) October 18, 2019
HDFC Bank will give 6-7x gain comfortably
“HDFC Bank is a tremendous wealth creator. My hypothesis is that it will easily give 6x to 7x gains comfortably even now,” Saurabh said.
He explained that HDFC Bank has only a 4% market share while SBI, the market leader, has a 40% market share.
HDFC Bank is only 1/10th the size of SBI, so imagine the size of the opportunity, he added.
He also pointed out HDFC Bank’s moat or barrier-to-entry is the low-cost savings deposits that it has cultivated over the years.
It is worth recalling that Saurabh has earlier disclosed that he is aggressively buying HDFC Bank.
“Our consistent focus has been to look for companies with outstanding fundamentals …. Every single day, for the last 9 months, we have bought HDFC Bank for our clients’ portfolio. I also hold it in my own portfolio,” Saurabh said.
#MarketMaster | Saurabh Mukherjea, Marcellus Investment Managers says believe the market is bracing itself for a poor Q2 earnings season; @KotakBankLtd, Bajaj Finance & @HomeLoansByHDFC are good picks for a portfolio#OnCNBCTV18 @latha_venkatesh @_anujsinghal @_soniashenoy pic.twitter.com/jgvcHGmIin
— CNBC-TV18 News (@CNBCTV18News) August 30, 2019
Also, HDFC Bank has been strongly recommended by Morgan Stanley and Nomura on the basis that it’s valuations are “alluring“.
“Earnings outlook of HDFC Bank is strong with CAGR at nearly 20 percent over the next three years. Compounding implies meaningful margin of safety for longer-term investors.
Historically, the stock has done well over a 12-month period from current levels and we would expect similar performance,” Morgan Stanley said.