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shontou
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Quote shontou Replybullet Posted: 13/Oct/2011 at 1:13pm
Originally posted by Kautilya

Originally posted by shontou

Just to add one more factor in favour of domestic oriented consumer stocks is their immunity from currency fluctuation.

Some of these domestic oriented companies, like Dabur, Godrej Consumer and Marico have made acquisitions overseas and thereby have dollar loans. I do not know if this matters so much.


You are spot on Kautilya. That is why one should concentrate only on purely domestic oriented companies.
Every day, self-proclaimed stock market "experts" tell us why the market just went up or down, as if they really knew. So where were they yesterday?
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smart_prof
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Quote smart_prof Replybullet Posted: 13/Oct/2011 at 1:25pm
Originally posted by basant

This caption was conceptualized with a lot of happiness and a little bit of arrogance. The ability of human nature to feel proud and happy on success is natural. Hence the kind of success that TheEquityDesk has generated for all its members through their collective debate and reasoning especially relating to the investment potential of consumer stocks is extraordinarily phenomenal. Most of the consumer names here have been up by four to twenty times over the last 2 years even while the broad market has done almost nothing!

Taleb would call this a random event and if it is that so be it. As someone mentioned that given an option in between being lucky and smart he would rather be lucky then be smart, the same logic applies for all the members of TheEquityDesk who have made a ton of money in the great Indian consumer boom.

In my relentless endeavour to interact with money managers and analysts I have seen no one being bullish on consumption stocks. Most of them have found it expensive and a few of them were courageous enough to admit that they missed it while a small percentage of the others were waiting for a fall to buy it. It is strange that people always want to buy a stock a in a recurring infinite loop 20% cheaper then what it quotes at.

So this story repeated itself with many of the consumption stocks where most of the Ted members made money while the world waited to buy it at a lower scale the believers pyramided with incremental salary cash flow thus creating a portfolio of multibaggers.

Most analysts argue against consumer stocks on the basis of a relatively high PE ratio. Quality growth stocks have to be bought with the thought that if the growth continues for a couple of more quarters the stock would become cheap. They are seldom available at absolute levels of cheapness (whatever that means) and when they are as in March 2009 the others trade at PE ratios of three and five with an yield greater then the PE ratio and many of them generating returns of 20%+ on invested capital. So relatively speaking, quality is always expensive.

The general market consensus is that everyone else has bought consumer names and are hiding in them so it can crash but no one says that he has bought it himself, so it is a case of no one buying this in bulk but still assuming that everyone else has bought it.

Another argument is that if you add the market cap of the top best performing consumer stocks (TTK Prestige, Page Industries, Jubilant Foodworks, Hawkins Cooker Bata etc) the total market cap is less than US$ 5billion. If you add Titan to this list then it moves closer to US$ 10 Billion. This is certainly not the sign of a bubble in an economy where private final consumption could hit US $ 3.4 trillion over the next ten years.

Over the past couple of years as these consumer stocks moved ahead there is a case of not even a single consumer oriented mutual fund being floated. How many did we have before the infra and real estate sectors went bust? I guess around three dozens and a few more.

But, here comes the important but, like all sectoral rallies this one will also collapse and to counter that we have to keep our eyes and ears to the ground both in terms of what the companies are doing as also as how the market participants are thinking. Both are equally important and also amongst the consumer names one has to keep getting out of the relatively expensive ones and buying more of the relatively cheaper ones something that is easy in hindsight and almost impossible in foresight but investing is about making educated guesses and we keep doing that.

However even when this music stops most of us will keep dancing as has happened in every boom over the last four hundred years and so it is important to stop and make sure that we have to dance as long as the music plays rather than assume that the music will keep on playing till we dance!

For the moment though there does not seem to be any signs of the drums stopping though depending on the beats one has to keep evaluating and switching the dance steps.


Excellent !!!
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MR TED
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Quote MR TED Replybullet Posted: 13/Oct/2011 at 3:38pm
Originally posted by tejas.k

as always great post basantji.
manish had made a very good point. i wonder why all of a sudden most of the consumer stocks got rerated.  ( because everyone knows these are evergreen and and not very capital intensive). subu also highlighted the stagnant stock price of TTK etc till 2009. do you think investors realized the potential of consumer stocks because of the recession in 2009?..  i think one cant attribute it to the raising per capital income. because if that were the case, rerating should have happened from early 2000 itself..

Re-rating in consumer stocks has happened because people are fearful now, fearful of recession, fearful of capex, fearful of Asset oriented/capital intensive companies..and are hiding in steady cash flow companies for the time being. All have become risk averse post 2009.
So indeed a bubble is growing, but interestingly this bubble is not out of exuberance but out of fear!
 
I my be totally wrong!
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sameerde
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Quote sameerde Replybullet Posted: 13/Oct/2011 at 5:53pm
recent results of ttk point to ability to pass thru price increases and steady volumes. as rightly pointed out, the demand for consumer themes is the steady cash flows, ease of passing thru prices hikes and marginal impact of lower volumes unlike industrials where the leverage impact of lower volumes is huge.

in addition, i think there is an important point we are missing; that of comfort. how many scams have we heard of in consumer sectors?? barring telecom none. how many in industrial sectors--numerous going from mining, real estate, metals etc.
clearly, the wherever there is regulation and high ticket items/large benefits involved, there is corruption to be found.

i think india's discounting can be impacted severely if such scams continue to be unearthed + if there is a new scam in a consumer sector. then there will be no belief. even now, people have simply started considering annual reports not as founts of information, but as something to finance their next haircut! their belief--what is the use of reports when the reality and actual numbers are entirely different.

these may be extreme views, to some extent reflecting my discontent and disgust.

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Quote shalukat Replybullet Posted: 13/Oct/2011 at 8:00pm
Hi Basantji, excellent post. Though I joined the TED very late and therefore was not able to make money in the consumption stocks/theme, I a just very happy that I DID join TED as I am learning so much by just reading the old posts by all senior teddies. I think I will eventually emerge a winner in the long run as I have totally changed by investment style and have learnt a lot from this forum.
Shalu
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coolcarney
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Quote coolcarney Replybullet Posted: 13/Oct/2011 at 12:40pm
Thank you Basantji for this article. Keep guiding and enlightening us.
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paulinasu
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Quote paulinasu Replybullet Posted: 13/Oct/2011 at 4:16am
Good article, Basantji.
It is only because of TED that more than 80% of my present portfolio consists of Titan, Hawkins, Zydus, HDFC twins. Eventhough I have not made huge profits so far, as I started shifting to TED stocks only a few months back, but Iam definitely not in a loss. I owe a lot to TED, as otherwise my original portfolio which used to consist of the so called "hot stocks" from various tip providers, especially during this global downturn, would have shrinked a lot. 
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vijaygawde
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Quote vijaygawde Replybullet Posted: 13/Oct/2011 at 7:09am
Originally posted by basant

However even when this music stops most of us will keep dancing as has happened in every boom over the last four hundred years and so it is important to stop and make sure that we have to dance as long as the music plays rather than assume that the music will keep on playing till we dance!


Very Well said Basantji,

I will keep dancing but only near the exit door Wink
Diversification is protection against ignorance, it makes little sense for those who know what they’re doing.
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