Hariyali Hi Hariyali... Changed Dynamics of the ZERO SUM GAME..

 

" It's far better to buy a wonderful company at fair price, than a fair company at a wonderful price."                                                                                                                                   - Warren Buffett.

The quote says it all. Honestly in my opinion the most basic lesson of the stock market across the globe starts with this quote. Investors who can able to search such wonderful companies at fair prices are the investors who are the most experienced one in the stock market. 

BUT,,,, how to invest in such wonderful companies in the BULL RUN, specially in Indian stock market? as the bull run is going on since April 2020, when Nifty showed levels around 7500. Currently we are looking of NIFTY levels at 24500, around 3.26 times than the covid time. Many more stocks has given over 1000 % returns in these 4 years, People who are in direct touch with me and the readers of this blog, must be knowing what I am telling here. 

Since we are all the part of the journey of the bull run of the Indian equity market, the above question of knowing the undervalued stocks remain at Numero Uno.. Currently there is tide of fear about overvaluation of the Stocks in Indian Stock Market. If you are following any analysts or news channels the targets given by the analysts for their suggested stocks are now very less and not even more than 10%, in fact in some cases i realised it that they are actually talking of 5% or less target for their suggestion. Every Mutual fund houses in spite of huge money flow, are cautious and most of them suggests the overvaluations of the mid and small caps. With all this, how to go ahead with our own investment journey is the main topic across the Investors...

In my opinion overvalued is very relative term in the stock market. Overvalued index, overvalued sectors, overvalued stocks, all are getting judged with the previous history of returns, comparison is normally with time horizon. It is never judged on the basis of inflows and outflows of the money. 

If the stock has grown up by multiple of 4, will that stock come under overvalued category? In my opinion it depend on what is the future growth prospect the economy, sector and inflows/ outflows in the stock. I will try to give the example from my own portfolio here. 

Dynamatic Technologies Ltd. (Readers of close group, this is repetition for you, as already shared this data for learning purpose):

This stock was identified by me on 16th Jan 2022 (Sunday) during my stock analysis and I entered in the stock on 17th of Jan 2022, very next day. The price at which I have entered was 2290, For 11 month that mean till Nov 22, the stock was in consolidation phase but with bullish sentiments, real break out came on 23 Nov 22. In recent past it touched 9082.9, which is its 52 weeks high.

Sorry for the quality of the above screen shot, but you can check the dates i have mentioned.

Currently the stock is trading the on 6700 level, which is 25.56% drop from its 52 weeks high. On personal level i have trimmed my positions on 8400 levels near around 2nd of April 2024. After which it has reached to its 52 weeks high on 8th April 2024. Now if someone asking the question that is this valuation of 9082.9 very high? At that time, my answer was YES because of the run of the stock which is around 3.96 times than my price. The reason of trimming down the position here from my own portfolio was to book the profits as I am retail investor I can use this profits for many other reasons, But this time my timing of booking the profits were fortunately correct as on 8th April 2024, HDFC Mutual fund sold its 1.51% of the stocks out of their total 7% of company stocks holdings, and on 29th of May 2024, Sameena Special Situations Mauritius Fund (FII) sold around 4.75% out of their total 8.18% of the stock holdings. The results we can see with the fall of 25.56% in just 4 months. 

So after this sell off, in the month of April and May, my answer to the question of the stock being overvalued, created 3 more questions, 

1. Whether Big players has squared off their complete holdings? 

2. Who were the buyers for such sell off

3. Should I book the profits completely and not partially?

After answering these question may be the answer to main question will be clear.

To answer the above 3 most crucial question, lets see the facts about the stock.

1. The company is with very high quality fundamentals,

                                            Data source: Trendlyne.com

Concentrate on growth of operating profit, operating profit margins, Net profits, Basic EPS and Basic EPS TTM.

2. TTM PE Ratio is below industry median, which is around 38.52

3. Valuation wise, 25.56% correction in the price and still correcting is good sign and I will consider this as opportunity in buying in the dips, for such fundamentally good stock.

4. Moneyflow is suggesting that Still 6 Fiis and 1 Mf house (HDFC MF) is still holding the stock. 

In fact, retail participation is declining along with MF house as it must be a profit booking with such great returns of 3.96 times in 2 years, but institutional and Fiis participation is still on advancing stage. Fiis has increased their stakes from 16.5% to 17.1%. which is positive point for retail investors like me.

5. Negative to positive growth in sales and profits is still giving comfort in falling stock price. 

Finally to answer the main question about the valuation of the stock, in my opinion Stock is still attractive provided if you know when to enter. There are many other factor to consider the reentry,  keeping Price valuation at Numero Uno position as the stock has given already multibagger returns. 

Disclaimer:- THIS IS MY PERSONAL OPINION, I AM NOT SUGGESTING ANYONE TO ENTER IN THE STOCK AT ANY VALUATION, I HAVE SHARED MY PERSONAL PICK AS AN EXAMPLE FOR LEARNING PURPOSE ONLY. 

After taking into the consideration of the fundamentals, technicals and money flow of the stocks it comes to the step up parameters of sectoral shifts, FPI money flows in the respective sectors. 

After General Elections, market has gone up with strong positive money flow from FPIs, Data is showing the bullish sentiments of foreign investors. Lets see the details

TOP 10  Country wise FPIs movements:

                                            Source: NSDL FPI Monitor.. 

Except  FPIs from Japan and Ireland who are negative in money flow all others and top 8 FPIs showed positivity of around Average of 8% from the May to June in total equity AUC (assets under custody). Mauritius, Canada and Luxembourg showed extra faith on India stock market and its valuations irrespective of the OVERVALUATION fear in the market. US FPIs are also bullish, as of now which is welcoming for Indian Stock Market. 

Fortnightly Sectoral Shifts (FPI Investment data):

                                                 Source: NSDL FPI Monitor.

Top Gainers from the above list are as below: 

Diversified sector investment is new favorite for FPIs followed by information technology, consumer services, Utilities, construction materials and Oil gas & consumable fuels. If investors are holding the stocks from these sector then clear indication whether to hold the stocks or not in "OVERVALUED" stock market, of course investors should consider that the rate of change of the sectoral shifts from FPIs has been gone up in recent past. To keep the portfolio in green, investors should look these kind of data frequently especially when the stock market is driven by liquidity along with fundamentals and technicals. 

Tops Losers from the main list..

Textile sector is major loser in last one month especially last fortnight (from 30th June to 15th July 2024) suggest major sell off in the sector which is of 10.91%. Metals and mining sector is 2nd losers from the list. 

Now here I would like to touch again our topic of DYNAMATIC TECHNOLOGIES LTD. (DYNM)

If you relate the sector data to the profile of the company you will get little direction of the possible price action stock. 

DYNM is manufacturer of engineered products in aerospace, automotive, hydraulic industries in India, UK, US, CANADA. This company comes under consumer discretionary sector in Auto Components industry. If you see what FPIs sentiments about Automobiles and Auto components, till June 15th 2024, sector has gained 10.26% of money flow from FPIs, where as from 15th June to 30th June 2024, it has showed negativity of -1.16%, In my personal records, Automobile and auto component as sector has gained around 31% of FPIs allocations since 15th Feb 2024, that is in last 6 months. 

It is now up to the readers judgement if the Dynamatic technologies ltd. stock is overvalued and one should avoid to enter or vis a vis. 

FPIs Monthly Net Investments:

This data as of now is actually making investors smile as it clearly suggest the bullish sentiments of the FPIs. 

                                           Source: NSDL FPI Monitor.. 

If you see the Indian Stock market, there 2266 listed companies on NSE where as 5309 listed companies on BSE (Data as on Jan 2024), Not all are overvalued, and many of the companies like above are overvalued but waiting for JUDGEMENT of the Budget which is on 22nd July 2024. 

Recently one of the vintage investor and analyst Mr. Shankar Sharma was answering to the question raised about the overvaluation of the market and correction expected in the market. He gave some facts about the factorization effect in the stock market, where he was saying that, if major unknown event is happening like covid, lehman brothers, Harshad Mehta scams, then market do will react abruptly and correction will come until that fear will not goes off, but once these events are also known to the market and if the event is happening 2nd time then market will just react to it for a bit but will not correct drastically. To support this, he gave the event like war, where he said if anyone observed that war news are constant in the world, but is markets across the globe are factorising the news constantly. 

So to those who are reader to this blog, they know that I follow the big players religiously especially FPIs, and currently FPIs are not only bullish in CASH segment but also in FUTURE Segment. And as said by Mr. Shankar Sharma, as of now, there is no news across the globe which will impact Indian stock market negatively. 

In my opinion Investor should not worry about the correction or over valuation of the stock market, but they should worry whether their portfolios are in line with current changed dynamics of ZERO SUM GAME of the stock market. 

Try to understand that Big players (FPIs, promoters and promoter groups of the companies, institutional players, MF and PMS houses) do not consider the drop of 1000 to 2000 points in the stock market (INDEX) as correction, For them it is just the opportunity to restructure or rebalance their portfolios, but for retail investors like us 1000 to 2000 points on INDEX means people normally gets panic attacks. 

I am sure as retail investors will mature with the experience, their portfolios will perform in more subtle way. 

That is all in this blog, let me know your thoughts, feedback, critics, in comment section below.. If you want me to cover any specific topic under this knowledge series, I will try my best to give the justice and present it here.

**Disclaimer**: 

All data that I have shared above is publically available in the domain site which I have mentioned as source. Readers can cross check and cross verify the same. All the analysis and conclusion is done on personal level, there is no institutional research involve in the same. I am not SEBI Certified analyst. 

Kindly do not take any buying/ selling/ holding positions in any segment of the market based on the above data. Consult to your own financial advisor/ analyst for any decision that you want to make in the stock market.