IIM (C) did an interview with me as part of a project on the Indian stock market. These are excerpts from the project they did in the background of that interview.
They have edited some of the statements to make it fit for the project!
. RESEARCH FINDINGS
Stock Market, a place to invest
Attractive
• Matured Market
o “Investors are now less prone to manipulation and fraud.”
• Strong fundamentals
o “The share prices are rising due to the growth in size and bottom-line of the company.”
• Money making opportunities
o “There are lots of opportunities in the market to make money if an investor is ready to take some risk.
• Large pie
o “Scope for every investor to make money”
• Secular boom run
o “All sector stocks are rising”
• Proxy for Indian growth story
o “Economic barometer”
• Convenience
o “Online trading options has made it easy to enter and exit”
Transparent
• New SEBI regulations
o “Feels more transparent now with regular SEBI intervention”
Competitive
• Broad range of players
o “Retail investors contribute a very small part”
• Lower brokerage charges
o “Competition among increasing number of brokerage firms”
• Easy Access
o “Can follow markets and invest from office desk”
Higher aspirations
• Higher income
o “More money in hand to invest”
• Satisfaction
o “Creating wealth is fun”
o “Making money is a thrilling experience”
Stock picking – criteria of selection
Reliability
• Management’s Behavior
o “Management should be shareholder friendly and honest (e.g. - R. P. Goenka is not shareholder friendly)”
• Brand value
o “Which brands are parts of my life?”
o “Brand value associated stocks – Tata, Reliance, Colgate, Other MNCs”
o “Companies creating brand out of commodity – Airtel (telecom), HDFC, ICICI (insurance – services)”
• Heritage Stocks
o “Everyone knows everything related to stocks like Colgate, so there is not much investment opportunity in stocks like that”
o “Cream has been taken out of milk – saturated stocks”
Affordability
• Price per share
o “If a stock is priced very high compared to fundamentals, I will have second thoughts about it”
Past-Performance
• Company’s profit
o “I look at the last five years profit of the company in comparison to its peer firm”
• Capital structure
o “I look into the debt-equity ratio of the company”
Financial indicators
• P/E ratio
o “High P/E ratio compared to growth makes me skeptical about the stock price increase, although its not the only factor I look for”
• 52 week high/low
o “Current price of stock in respect to its 52 week high/low”
Business Environment
• Regulations
o “ Frequent policy changes by Government in some industries keep me away from investing in that industry”
• Cyclical business
o “Cyclical stocks are always very risky”
• Sector growth
o “Pick up the sector, and then look at the best companies in the sector”
• Government’s Interference
o “Sectors like energy are dependent upon the government”
• Government’s policies
o “Government interference restricts the movement of stock”
• Business opportunity
o “ Check if the company has good business opportunities in its core function”
• Market expectations
o “How the market perceives the future of the business”
• Change
o “Buy a stock in a sector that is changing”
Position
• Sector leader
o “Market leaders are the safest bet”
• Top 3 Companies
o “if I invest in top 3-4 companies, the risk comes down”
Core Competency
• Core Business
o “How the company is performing in its core area of strength?”
• Sector Expertise
o “I prefer to invest in the sectors, of which I have knowledge like retail,, media.”
Stock X: when to buy or sell
Signaling
• Merger and de-merger
o “De-merger unlocks the shareholder’s value”
o “Mergers can have negative synergy in the short run”
Financial & Operating Performance
• Results
o “Quarterly results are good indicators”
• Year-on-Year growth
o “Consistent YoY growth makes one feel confident about the share but at the same time, cautious about the future growth prospects”
• Operating Margin
o “generally, stocks of companies with high operating margin are comparatively safe”. No fixed rules here though
Management
• Qualification
o “IIT/IIM graduate at the top is better equipped to manage the company”
• Past incidents
o “Any past activity signaling the attitude and effectiveness of management”
Intuition
• Inadequate analyst reports
o “Most final decisions are based on intuitions; analyst reports can not be trusted.”
o “Many reports in newspapers are planted”
• Subjectivity
o “Subjectivity tells more than the objectivity” - The interviewee here implied that management factor and gut feelings are more important than what analysts say.
• Initial impression
o “Initial good experience with a stock makes me look back at it regularly”
Exit
• 3-5 years holding horizon
o “Always have a holding horizon of 3-5 years”
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