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 !!!

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.

Thank you Basantji for this article. Keep guiding and enlightening us.

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