Here is the video link of the presentation Jiten Parmar made at PPFAS FOF in Dec 2019. Viewing time : 88 min
The new year note and current view on the market sent to our subscribers.
Aurum Capital New Year note: Jan 2020
Market View and Analysis:
We are going through a tough time in the economy, and outside of a handful of stocks, in equity markets too. The index is just not giving the true picture of the markets. This kind of polarization has not been seen in the Indian markets. If we categorize the stocks by market capitalization, in the last 2 years, only the first 20 stocks as a group have given positive returns. Rest all the stocks have given negative returns. As we go down beyond 500 stocks, the return of the rest of the stocks is -53%. This covers almost 90% of the number of listed stocks. Another study shows that “A” group shares command 94% of the market capitalization of the Indian markets and the rest including “B” group and others command a mere 6% of the market capitalization. This is extreme polarization and again has never been witnessed in the past.
The Indian markets and economy had a big slowdown and that does affect the broader markets. The reasons are many. We do have a global slowdown, and the Indian economy is formalizing, so it will also have cyclical upturns and downturns. Whenever there is a slowdown, there is a flight to safety, and we are seeing this. Making “quality names” very expensive. As investors in equity, we have no option but to tide out these times, stay invested in the companies where we have our conviction.
The silver lining is that in the last few days broader markets have started to outperform. We expect this to continue. Valuations are favourable in this space. It’s time to reap the seeds of our patience.
We believe the worst of the slowdown in the economy is over. The reason, we think this can happen is
- Monsoon effect: We have had a good monsoon, albeit a delayed one. The effect of good monsoon should start playing out now. Agriculture is a big part of the economy. We see some uptick in rural spend. Due to delayed monsoon, many industries like mining, cement had an extended downturn. Electricity demand was also down due to this, apart from the general slowdown. These should move up. Auto demand should also pick up and we are already seeing some green shoots.
- Policy steps: The government has woken up, albeit in a delayed manner, to the problem in the economy. And have taken a number of steps, the biggest being corporate tax cut. And we are hearing that there can be changes in income tax slabs, putting more money in the hands of taxpayers. These can help in reviving demand.
- Transmission of interest rate cuts: We have still been able to transmit only 30% of the interest cuts. We think as liquidity increases and NBFC crisis gets resolved, further transmission of interest rate cuts can be seen in the next 6 months
We have been invested majorly in the small and midcap universe. As you would recall, we have been extremely cautious with our investments. We remained conservative to the extent that till today we are invested only 70%. We remained very conservative during 2018 as well and invested only 32% at the end of 2018. We were criticised and questioned too for this extreme cautious approach. But in hindsight, we know that it helped us in controlling the damage.
Our performance measurement criterion remains conservative and does not consider any returns from liquid/debt funds for the un-invested money. However, we include any loss booked in any of our investments.
We have to understand that returns are also cyclical and follow market cycles. The segment we are in has had a tough 2 years. We believe this is likely to change. Most of the companies we have invested in have value, and it’s a question of time when this value will be realized. We are constantly reviewing each company we are invested in. We just have to ingrain the trait of “PATIENCE”, and we are confident that we will be rewarded in the due course of time.
We have given a limited-period offer of a 20% discount. We thank you for the overwhelming response to renewals. The members, who have not renewed may avail of this.
We are thankful to each one of you for your continued support and confidence in us.
We will end this message with a quote.
“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.” – Peter Lynch
We wish you all a happy new year.
SEBI registration No: INA000011024
This article written by Niteen S Dharmawat, co-founder of Aurum Capital, has appeared in Moneylife magazine. You may find this of use.
Recently, the Securities and Exchange Board of India (SEBI) found that Karvy Broking had illegally diverted nearly Rs2,000 crore of clients’ shares to its own accounts. Equity brokers have defaulted in the past as well, but this is surely one of the largest cases. Also, remember that there is never a single cockroach in the kitchen; we might have more such cases. So what should you, as an investor, do to protect your interest?
Power of Attorney (PoA): Brokers insist on PoA which allows them to operate your demat account. This is a necessary evil. Without PoA, the trade settlement becomes highly risky for the broker. What if you do not deliver the shares you have sold? However, with PoA, brokers have a route to misuse your stocks. The PoA should be limited only to market trades and, as per the latest SEBI rules, brokers need to call you before they execute any trades on your behalf. These calls are recorded. If you receive calls from a mobile phone, do not entertain them. Also, keep a recording on your files.
Delivery Instruction Slips (DIS): DIS is an alternative to PoA for trade settlement. But it is cumbersome for many in the era of the Internet. There is an alternative to DIS that is also elaborated below.
Download the Mobile Apps of CDSL/NSDL: Depending on where your demat account is, download and configure the app for your demat account. You would need your demat account number, PAN (permanent account number) and your date of birth, to register. The demat account has a 16-digit numeric character (in case of CDSL), whereas in case of NSDL, the demat account number starts with ‘IN’ followed by a 14-digit numeric code. An example of a demat account number with CDSL can be 01234567890987654; a demat account number with NSDL can be IN01234567890987.
Verify DP Holding with Broker Holding: Once your DP app is set up, you can see your holdings in the DP account. Never forget to verify your DP holding at least once a month and crosscheck it with what you see in the broker’s holding. It will not take more than five minutes (unless you have hundreds of stocks).
Verify Pledging of Your Stocks: Whenever you get the details of your stocks with the DP, also check if any stocks have been pledged without your knowledge. This can be another route to misuse your holding.
Transfer the Cash: Preferably transfer the cash lying with the broker to your bank account. It does not earn anything; the cash remains idle with the broker and is open to misuse.
Active vs Dormant Account: People do invest for the long term and, as they say, buy and forget. Please do not do that in India, at least. Keep your account active. If you have a sizeable holding in your account and if your account is not active, it could become the target of a rouge broker. It can happen not only with stocks but also with the bank account. Yours truly is a victim of such a fraud in one of the leading banks where my wife’s dormant bank account was compromised. So be careful and keep it active, maybe by way of logging into the account to verify the details/once a month trade, etc.
Check Client Master: The client master has critical information related to your address and mobile number. Keep it up-to-date and verify it from time to time.
Full-service Brokers vs Discount Brokers: I got messages from the worried investors about their holdings with discount brokers. I also read articles that discount brokers will suffer the most after the Karvy scandal and investors will move to the full-service brokers. It is important to note that Karvy was not a discount broker. It was a full-service broker. Frauds can happen anywhere.
People have recommended many full-service brokers on various social media platforms instead of discount brokers. There is nothing wrong with full-service brokers or, for that matter, with discount brokers. The choice is with the individual.
I would suggest that you go with a broker who is large in size, has execution capabilities and provides uninterrupted services with a stable platform (especially during periods of high volatility). One can also select a combination of full-service and discount brokers.
Some Other Preventive Measures
- Use CDSL’s ‘easiest’ or NSDL’s ‘speede’. These are Internet-based facilities that permit clearing members of beneficial owner (clients) to submit off-market, on-market, inter-depository and early pay-in debit instructions from their demat account.
- When you register for easiest/speede, the broker loses the PoA over your demat account; this would mean that you cannot sell shares from your holdings using your trading platform because the broker will no longer be able to debit your shares from the demat account. You will now have the power over your demat account as a result of which you will be able to transfer shares using easiest/speede.
- Separate your broker from the DP. For example, your DP for the holding can be a prominent broker while your broker for the trading purpose could be a small/discount broker who charges less.
Do these steps and best practices guarantee that fraud will not happen? No, it does not; because fraudsters are always there to find new gaps in the system. But these practices will surely help in the early detection of fraud/misuse of funds/securities. If there are any new ways/gaps, they should be followed with newer practices.
Trust this helps. As always, we look forward to your feedback.
Here is the note that we shared with our subscribers.
These are interesting times in the Indian equity markets. If one were to leave a handful of stocks, the broader market has been in deep correction mode for the last 17 months. The few stocks which have done well in these times are mostly large-caps, and at high-end of their historic valuations….
SEBI registration No: INA000011024
This note is sent to our paid subscribers on 2nd Jan 2019.
First of all, wishing you a very happy new year.
We launched our services in the mid of 2018. As you would see below, we did fairly well during this short window of 5 months. It is too early to evaluate our performance when equity investment is to be seen from a long-term perspective.
One of the founding principles of Aurum is “transparency and interest of subscribers first”. The early subscribers will recall our cautionary notes when we launched our services. Keeping in mind the market valuations and expectations of more correction, we decided to defer our first recommendation. We did not recommend any stocks for several weeks and instead asked those early subscribers to have patience.
When we delayed the first recommendation, we also decided that the subscription period for our first batch of subscribers will not start until they receive our first recommendation. None from our subscriber family had asked for this. But as we mentioned that for us the interest of our subscribers is always paramount even if it means a loss of few weeks of subscription fee.
Let’s have a quick glance of Aurum Capital performance during last 5 months.
But before we do that please note
1) We include all exits to arrive at our performance
2) We take the weighted average price of the recommendation. We do not and will never take the lower price of the band while calculating buy. Similarly, we do not and will not take the upper price of the band while calculating gains for the exit. This, we believe, avoids any bias for artificial gains. It rather reflects performance close to the reality.
3) This outperformance is despite our exiting one of the stocks at a loss where we were the one who discovered a serious corporate governance issue in that company.
4) Out of five recommendations in Current Recommendation section, two are still in buy range.
5) Please always follow our detailed research and subsequent updates on the company provided under Current Recommendation section.
6) If you have any questions then you can raise them in Investor Forum section for paid subscribers. These are always responded by the founder and not outsourced to any executive.
3rd Aug our launch of recommendation
Our current list of stocks is in the small-cap category. As you would notice that our conservative and cautious approach paid a significant dividend. We could outperform the market during this turbulent period.
-> Aurum Capital down by -2.22%
We are thankful to each one of you for your continued support and confidence in us. 2018 was a tough year. There are domestic political and some global economic risk in 2019. But on the domestic economic front, we believe that our corporate performance will start improving. If we get a stable government or a government that is not against the policy of liberalization we should be fine. Considering this, 2019 is expected to be a better year. In today’s time, we do not believe that anyone will go against these policies. The degree of implementation can vary. The stock market performance in long-term is more aligned to the corporate performance than the political and we should stay focused. We believe that the valuations of stocks of our sphere are much favorable than what they were a year ago. We will continue to hunt and pick the stocks that suit our criteria of investment.
We are almost ready with the new Current Recommendation page and there will be search feature in the Investor Forum. This should be launched in the next few days and we will inform you. We will continue to make more changes at the back end to enhance the subscribers’ experience and security of the system.
Happy investing 🙂
SEBI registration No: INA000011024
(these are not recommendations)
An article in Economic Times by Jiten Parmar of Aurum Capital where he shares the sectors he thinks can outperform in 2019 and beyond.
The fallacy of predicting Short-Term movements in Investing
I keep getting asked this question a lot of times “What do you think of the markets?” My answer is “I don’t know.” We are in the business of equity analysis and not astrology. Let me give a recent example of how hazardous predicting short-term movements can be. Two events happened recently. On the same day. The RBI governor resigned abruptly and the ruling party lost elections in 3 key states.
According to media and pundits, these were big negatives. The market should have gone down due to these events. But, we all know what happened. We had a superb rally. Nifty rose by more than 600 points and broader markets also participated to a good extent. This has happened many times before too, when market behaved contrary to what many think in the short term.
Investors spend too much time thinking about short-term views. They must be spending that time wisely, researching companies, reading annual reports, learning about industries/sectors, understanding market and business cycles, doing scuttle-butt. There are a few things investors can control and a few things they cannot.
What they cannot control is market behavior. What they can control is their behavior. We try to predict the former, which is not in their control. Do the things that you can control. Control your greed, master your fears, focus on buying companies at good valuations, learn to be patient, understand and learn from mistakes and so on.
On the macro and micro front, there will be something or the other wrong at all points. Learn to live with them. What one can do and must be focused on is buying businesses at good valuations. Below their intrinsic value. Track them diligently. Always write a hypothesis before you buy. And keep visiting it at periodic intervals. A value investor always should focus on buying a dollar worth of assets at 40-50 cents or lower. And opportunities do come. Just wait for those opportunities. In short-term markets may always be not efficient. But in long-term, as long as the company you invest in performs, the stock price will follow, provided you have entered at comfortable valuations. Control your temperament.
One must also learn the art of selling. Every asset has a price to sell. When valuations are in blue sky zone, one may book profits. It doesn’t matter, even if it is a good/great company. Corrections are inevitable. Blue sky valuations also correct. Wait for the companies to come into value zone, before buying. An example. An IT major is still at a 30%+ discount to its price of the year 2000, despite growing its profit by 25 times in this 18 year period. It was a decent company then and is still a decent company. One will find many examples like this in the market. My belief is one should be detached from stocks. Never love them and never be married to them. Look at them critically from time to time. Seek disconfirming evidence from people in your trust network. Building a trust network is very very important and it really helps.
As far as Indian markets are concerned, we must have a long-term view. Short-term challenges will always be there. This country is going to grow at a good pace for many years to come. The demographics simply point to that. As per capita income crosses $2000, a lot of things change. Incremental income is spent a lot on consumption, health care and so on.
We, at Aurum Capital, always focus on the long-term. We believe our job is to identify good companies at good valuations, keep tracking them rigorously, and stay the course, till valuations are in favor. This is what we can focus on, and that is what we focus on.
As always, we eagerly look forward to receiving your response.
SEBI registration No: INA000011024
To know more about our services: https://aurumcapital.in/services
Disclaimer: The stock name/s mentioned are only for the education purpose. These should not be considered as our recommendations/advise. Please consult an investment advisor before taking any decision.
This is the presentation that Jiten Parmar made at IC 2018, and which was presented on bloombergquint.com . The live feed and the presentation both are attached below. We believe it will be good for investors to see the presentation and understand the psychological aspects of investing and learn some traits of successful investors.
This note was written to our subscribers about two weeks ago. The underline message continues to be valid and may benefit others. So we decided to post it on the blog.
There has been a big panic since last few days in the market. This had seen a correction in several stocks.
We have been cautious in giving recommendations, and hope subscribers understand the reasons now. We had been facing macro headwinds and to top that valuations in many stocks were not attractive. We now believe risk-reward ratio is returning in favor and there is an enhanced margin of safety.
In our views, such times of panic are friends of long-term investors and provide great opportunities.
Also, remember that when a big earthquake comes it is followed by tremors. We will continue to witness volatility, it is going to be here. On the economy front, there are macro issues. But on the micro front, our economy is doing well and the ground reports suggest picking up in economic activities all across. While the economy does well, we will have to keep a close watch on macros too. If they deteriorate any further we will keep you posted for next actions.
Specifically regarding NBFCs. The valuations are critical and we have been harping on this from the beginning. NBFC valuations were very high and it needed a trigger to correct, howsoever small it may be. Always understand, the sectors once they go out of favor, do take time to come back in flavor. So, one must be very careful in catching falling knives. Unless you understand the knife well.
If you have any questions, feel free to post it in Investor Forum available for paid subscribers. These are not responded by any assistant or Account Manager. All the emails and questions in the Investor Forum are personally replied by the founder. If we find a merit in the question, e.g. related to the investment, market, and not repetitive; we surely address the question.
SEBI registration No: INA000011024