Mountain, meet Molehill

ILFS default. Yes Bank succession disaster. Housing Finance Company Books Cooked. Jet Airways on the verge of default. It is carnage. If you have been following financial media over the last two weeks, we’re already at 2008-level crisis-alert levels. The wheels are coming off the India equities growth story and there are many obvious reasons why, we are being told, by patient experts. The problem is, they only started explaining how a combination of trade wars, impending elections and bond defaults explain the correction after it has been well underway. Now, I have no idea whether this is a complete reversal in

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Tough times don’t last, High ROC Companies do

Does an investing strategy that invests in high Return on Capital companies deliver better returns than the market? This post backtests the strategy by simulating investment in deciles of companies with varying ROCs. The results support the hypothesis that a strategy that invests in high ROC companies does better.

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The most profitable industries in India

This post presents aggregated analysis of the most and least profitable industries in India in 2018. Profitability is described by different accounting metrics, each one with its own merits and drawbacks. EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) is useful when comparing companies within a sector where some participants might have made recent investments compared to others who been around a long time. It inflates profitability for companies that aggressively capitalise costs. EBIT (Earnings before Interest and Taxes) ignores the composition of capital structure i.e. extent of Debt involved (like EBITDA). Useful in comparing across industries which might have different tax

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What did they not tell us about long-term investing

This post was first published on capitalmind.in A picture is worth a thousand words No pain, No gain Money can’t buy happiness   Or the more contemporary: Privacy is a myth If you’re not paying for it, you are the product They are insightful phrases, originally by wise and often witty people. They convey one powerful idea in a short statement that would take most people pages to describe. Just that they have been used so often in literature and conversation as to have no more insight to offer. A test for whether something someone says is a truism is,

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Does sector-picking trump stock-picking?

What do Agrochemicals, Food Products and Household Appliances have in common? What do Telecom Services, Oil Exploration & Production and Electric Utilities have in common? The first set is three of the best performing sectors in India in terms of stock market returns over the last ten years. The second set, you guessed it, is three of the worst performing sectors for stock market investors. Chart shows the top 10 best and worst performing sectors in India in terms of investor returns from 2008 to 2018 Note that cumulative returns here mean median of CAGR returns within each sector Does this

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Bharat 22 ETF FFO – Should you Invest?

Bharat 22 ETF opened its FFO (Further Fund Offer) starting June 19th, 2018 for anchor investors followed by other investors from June 20th to 22nd. link Wait, Back up a little. ETF? Bharat22? FFO? And most importantly, should you invest? Exchange Traded Funds and how they differ from Mutual Funds ETFs or Exchange Traded Funds are baskets of securities traded real-time on exchanges, just like individual stocks. They differ from mutual funds in two key ways: Structure: An investor buying ETF units is usually buying pre-built blocks of shares created by the asset manager or from other investors. With a mutual fund, the

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The curious case of HUL and how the markets play favourites

Hindustan Unilever just posted its results for the quarter ending March 2018. A healthy 14% year-on-year increase in net profit mostly attributable to a poor base quarter. HUL stock price promptly went up from around 1504 to 1574, a 4% increase in a couple of days. It is now valued at 65 times Earnings This means, If HUL’s profits stay the same and it paid out all of it’s profits to shareholders, it would take 65 years for a shareholder to recover her current buy price. For context, the NIFTY is at 27 times earnings. Chart shows HUL Earnings and

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Debt in Indian Companies

How much debt have Indian companies taken on over the last few years? Chart shows the aggregate debt on the balance sheets of listed Indian companies from 2008 to 2017. Note this is from a sample of ~ 1,000 largest companies by market cap. Since 2008, total debt has grown by 3.7X from 7.6 Lakh Crores (USD 116.8 Billion) to 28.3 Lakh Crores (USD 434.9 Billion) in constant currency terms. For context, the lines on the chart show total debt as a percentage of market cap and of country GDP (unadjusted for inflation). Which brings us to the natural question: Which

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Fastest growing sectors in India

India Sector Sales Growth Chart shows aggregate Sales Growth by sector from 2008 to 2017, ordered by top 40 sectors by Sales in FY17. The growth columns show compounded growth rates broken into two periods, 2008 to 2014 and from 2014 to 2017. The red shaded cells in the ’14 – ’17 column show sectors that have seen negative sales growth in the last three years. The green shaded cells highlight the sectors that have grown faster in the last three years than in the six years before that. Banks continue to be the largest sector by revenue over the

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India’s top sectors over the years

India Sector Market Cap Rankings Graphic shows sectors that have been in the top 10 sectors by aggregate market capitalisation in India over the last ten years. Top 10 rows in the table correspond to the rank as of March 2018. The final ‘CAGR’ column shows annualized growth rate in market cap over the same period. Takeaways 20 different sectors have been in the top 10 largest sectors by market cap at some point from 2008 to 2018 implying significant churn in investor interest However, the current top 3 market cap sectors, Banking, IT Consulting & Software, Pharmaceuticals in addition

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