Dear Investors,

The last quarter's movement has evaporated a lot of bargains from the market and has created a situation wherein valuation gains (PE expansion) do not seem easy. Such a situation increases the risk in the market (as if this is something new). But there are still some bargains around though you may not get 20 such companies within your horizon of analysis but still companies growing at 25%-30% CAGR, available at less then 12 times Fy11 earnings, RoEs in excess of 40% and yields of prospective 3%-7% are not too tough to find.Though such opportunities are not too many but when we get one we should bet as Munger said " If you buy a few great companies you can sit on your ass". The painful thing is that the greatness or not so much of a company can be identified only in hindsight.  

a) Page Industries replaces Pantaloon Retail in the TED XI –  Page Industries is a franchise for jockey brand of inner wear, grows topline at 30%, available at  11 times Fy11, asset light model with consistent RoE of 40%+, yield should be at close to 4% for Fy10, the company has completed all its capex requirements till Fy 12 and should benefit from increased consumer spending. It is a recession free business and is a good play on the up market affluent Indian consumer. The major risk of this company is as licensee but then one could have missed a Hero Honda in 1995 (a 100 bagger) which was a licensee for technology with Honda Motors (Japan) all mining companies are licensees as a mining lease is granted for a period of 20 years only, all MNC FMCG and pharmaceutical companies are licensees and one can argue that they have equity involvement but that did not stop a Gillette or a P&G from stealing from their minority shareholders.

b) Hawkins Cooker replaces Dish TV in the TED XI - "Hawkins Cooker". Stock available at 7 times PE for Fy10, paid Rs 20 last year as dividend which can be expected to increase this year to Rs 30 – Rs 35 as they pay 60% of their earnings back, Capacity done till Fy 2016 so there is very little incremental capex needed, very high RoE. Company has been growing topline at 20% CAGR for the past 5 years and is cheap even if the topline growth slows down a little bit. It is a cheap stock that is expected to get moderately expensive with time.

Page Industries and  Hawkins Cooker are being moved into the Emerging companies section.

Markets: Keynes who is known more for his theory of Income and employment then for his stock picking skills was an outstanding investor and had a 13%+ track record for the Chest fund that he managed at Cambridge betting with a focused (concentrated portfolio) as the UK stock index went nowhere for those 13 years. Extending his stock market argument he wondered as to why the average opinion is always thinking as to what the average opinion is doing and this theory has been termed as the Most of the market participants were trying to do what Keynes had written about 80 years back.

When we had valuations on our side people were complaining bout liquidity when we have liquidity they are complaining about valuations. It is clear that we cannot have both and hence the people who look at too much of everything are destined to lose against those who look at only the businesses that they are interested in. I found it funny when someone told me that the smart money has been left out of this rally. If the money was smart it should have participated and if it has not it was dumb. Period.

I found it funny when someone told me that the smart money has been left out of this rally. If the money was smart it should have participated and if it has left it was dumb. Period.

    Basant