Start of a golden period folks, hopefully. If anything like 2018-2020, we'll get awesome valuations to buy this year. Very happy to see decimation of stupidity and over-confidence. DYOR and don't rely again on social media charlatans feeding you bullshit. You are now educated. India, as always, grows despite everything and not because of anything specific. As I have said before, it's never as bad as it seems and never as good as it seems either. Markets will swing to extremes, you benefited on one side, now you have to ensure on the other.

Read that BIS is refusing to certify factories in China and Vietnam and this is 'aimed at promoting local manufacturing'. Regulatory arbitrage businesses tend to be hot trends in the stock market. Not sure it's good for us as consumers, though.

(1/6)
If state wishes to promote domestic manufacturing, it can put tariff controls like it does for solar modules. If it wishes to promote better quality, it puts standards and BIS enforces them. BIS does not 'promote domestic manufacturing'; its function is quite different.

(2/6)

Star Health employee offers direct illegal API access to full customer medical records for $43,000; then stiffs buyer, asking $150k because 'senior management' wants a cut, buyer then promptly blows the whistle in retaliation. How incompetent could you be at white collar crime?

https://twitter.com/jasonxparker/status/1841748306591903920

Had one job, (a) don't leave a trail and (b) don't cheat your accomplices. Wasn't that difficult to get away with. Have to be operating with zero fear of consequences to be this careless. Darwin award candidate. Video of interactions with employee here: archive.org/details/553521

SEBI finally going after the finfluencer-broker nexus. Right time to point out Zerodha founders have tried all along to whitewash their role by acting holier than thou. One of them was caught cheating in an exhibition charity match with Vishwanathan Anand too. Leopard's spots... So while on one side you have the founders going around 'cautioning' the retail public on trading and speculation, on the other side you have a massive funnel of fraud finfluencers directing traffic your way, driving the thousands of crores in profits. The house always wins.

EKI Energy...a story.

Auditor of EKI Energy resigned in Nov'22, stating emphatically there was no dispute with management, and audit for H1FY23 was completed by them w/ clean limited review report.

But in Q3FY23, new auditor Walker Chandiok trashed the financials.

(1/12)

Management has recognised revenue, AGAINST opinion of auditor, in absence of fulfillment of contractual performance obligations!

In polite words, this seems to be fake revenue. 190 crore sales (~10%) and 110 crore (~40%) PAT. Almost half PAT is possibly...non-existent.

(2/12)

1/ A good way to contextualize PE ratio, think it as earnings yield:

5x = 20%
10x = 10%
20x = 5%
30x = 3.3%
50x = 2%

As you go down this scale, you're paying increasingly more for growth + durability + intangible assumptions. If assumptions uncertain, how much would you pay? 2/ If you're worried about inflation and interest rates, just remember:

A 10% bond purchased at FV 100 is at 10 PE.
A 5% bond at FV 100 is at 20 PE.

It is a very simple way to analyze how much extra you'd pay for equity if I could give you a safe 10% bond instead?

Most scenarios, vertically-integrated = better margins, as long as cost of key inputs becomes small fraction of costs eventually.

If KI are 50-60% cost at final stage w/ sharp price hike = business at sole mercy of end-customer w/ demand destruction.

Observe next few quarters. In this scenario, commodity producer will not budge as many buyers in the market. Person who gets squeezed is the penultimate link in the chain. If end-customer unwilling to absorb full price hike, manufacturer WILL be holding the bag to keep the relationship.

(Thread)

Some thoughts on investing in listed family-owned businesses.

Cobbled together from several years of investing in and observing such companies, and also some professional interactions with business owners.

👇 1) There are immense latent capabilities in family-owned businesses. People in business for 30-40 years, building incrementally. Eg. so many companies spent *decades* for 0-100, 5 years for 100-500, and are now aiming 500-5000 in next 5 (not accurate, but you get the point)

The 6 buckets of information I look at when analysing a company for the first time.

Most of these tend to be small companies with little coverage but with larger competitors.

A thread 👇 (1/14) A. Assessing Promoters -> 60% holding preferably (not iron rule), either highly educated or very experienced in the business. Preferably minimal related party transactions, no unlisted entities with significant operations. Do not grudge high salary if otherwise clean. (2/14)

A random assortment of thoughts on smallcap/microcap investing, once again 👇 Most important thing in small and microcap investing is to set aside the notion that market is rigged / full of scammers. If you believe this, you are best avoiding this space. Most people shouting scam don't understand the space and basic reflex is to call it rigged. (1/n)

Nobody really knows how much more markets will fall, or till when. Best you can do is stagger your purchases as the companies you like get cheaper. Bottom will be made before anyone tells you it has been made. Focus on valuing the companies you like, with a margin of safety. I am fundamentally positive on India - if you don't believe in this, perhaps equity investing isn't the right form of investment for you. Remember, if things are as screwed as they seem to be, you have bigger problems than just stock markets.

Here is some perspective on temperament, decision making, risk factoring in individual investing that I have gained over the years.

Random assortment, but here goes👇 1) Conviction is oft misunderstood - you need to have conviction in your investment process, not your investment itself. Investment process is essentially risk management. Researching deeply gives you business context - but does not address risk, which is multi-faceted.

Interesting experience to hold BSE when it reverse split to halve shares and double price in 2016, and hold now with 2:1 bonus in 2022, reversing and adding 50% quantity on top. Based on a lot of manual but intermittent observation over the years, here are my thoughts. (1/6) The broad effect of split or bonus is a change in the profile of investors looking at the stock, eventually manifesting in the distribution patter in the SHP. For many, buying more shares for less price is a no-brainer. This is is laughable to the educated reader. (2/6)

What they don't tell you about microcap/smallcap investing.

(a thread) 👇 1/ It is extremely lonely.

For a large part of your investing cycle, you will be holding some tiny companies and you know that even if you talk about it, you will either be wrong 80% of the time, or people will just trash it.

Every annual report tells a story.

In small companies, you can read between the lines to get a feel of the management style and business economics.

I take Fredun Pharmaceuticals Ltd (FPL) to illustrate how to go about this (it's not pretty).

Let's go 👇 (1/n) Please note that the main objective of this review is to get a preliminary understanding without doing a thesis.

It is oriented towards a "quick and dirty" review to decide if you want to dig deeper.

Review financials on a screener website before reading further. (2/n)

Noticed Shri Jagdamba Polymer Limited (SJPL) featuring recently, as a long term pick.

It's difficult to find a bigger potential conflict of interest from a minority investor's perspective.

Let's see👇 (1/11) Fact: SJPL promoters have another unlisted entity Shakti Polyweave Pvt Ltd (SPPL) with exact same business. ALways a red flag, but lots of promoters have small side-busineses. Fortunately, public credit reports of SPPL have tons of useful information to understand further. (2/11)

Asian Granito (AGL) scrambling to ensure the upcoming Rs 225 Cr rights issue doesn't run into headwinds. Promoters recently sold 12% of AGL to invest into a related party, and promoters will now invest back into AGL via rights issue! What's up 👇 (1/7) Promoters justify 12% stake sale in AGL for investment into a related entity Adicon Ceramica LLP, where they state they have no holding. Weak argument, because business is intertwined and a designated partner of the LLP is a director in all material subsidiaries of AGL. (2/7)

This thread below was an example of allocation policies you don't want to find when analysing a rights issue. Let's see the other end of the spectrum. Natural Capsules Limited (NCL) announced a rights issue on 05 Aug 21 to raise growth capital.

https://twitter.com/leading_nowhere/status/1428722374728306692?s=20

(1/26) Why NCL with 100 Cr market cap? There are many small manufacturers like NCL. Without economies of scale, smaller players suffer from high fixed costs, obsolete machinery and lower operating efficiencies, which generally depresses margins and constrains future growth.(2/26)

There are a few things to look at when analyzing a rights issue as a special situations play. Capital allocation skills of the management rank right at the top. Fundamental question - is it growth capital or a cover-up for fiscal misprudence in the past? (1/13) Let's see how to spot the ones that may be covering up past fiscal misprudence. In this example, I take NxtDigital Limited, with 1100 crore market cap. Previously called Hinduja Ventures, it provides TV broadcast and broadband services. (2/13)

What we're seeing in small caps and mid caps - broad decline and lack of momentum - is natural in the rotation cycle. If your companies continue to grow earnings, they'll be back and beyond in a few quarters. If not, you picked lemons. No amount of narrative can change this. This is usually the time when investors start to doubt the narrative they believed so far. Pain of loss hurts a lot more than pleasure of profit. It's scientifically proven. It's difficult to believe "sector has tailwinds" when your own money is disappearing before your eyes.

Windlas Biotech DRHP - Boulevard of broken dreams for US PE fund 👇 (1/n) Introduction: Windlas Biotech Limited (WBL) is a Contract Development and Manufacturing Organization (CDMO) for domestic pharmaceutical companies. This is 'hot' industry right now, so the IPO has been optimistically priced at 50X earnings with a price band of Rs 448-460. (2/n)