Smart Money Update: Super Investor Activity Picks up Some Pace - The 5 Minute WrapUp by Equitymaster
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Smart Money Update: Super Investor Activity Picks up Some Pace

Aug 7, 2017
In this issue
» Which sectoral index has gone up the most since 2008?
» Mark Mobius Predicts Nifty to Hit 20,000
» Market Update
» And more...
00:00
Kunal Thanvi, Research analyst

I'll be honest, when I started investing, I didn't imagine that India even had any Super Investors.

I was naively focused only on the international investing giants. Benjamin Graham, Phil Fisher, Warren Buffett - they were the only super investors for me.

Of course, they continue to be rich sources of investing wisdom for me today. But my list of super investors has expanded considerably since the early days.

It started with a three-day workshop with Professor Sanjay Bakshi, where 70 value investors from across the country came together to learn from some of the best minds in the Indian value investing community...

Discovering these Indian Super Investors, the likes of Sumeet Nagar and Kenneth Andrade, changed everything for me...

When I met Rohan Pinto, another 'student of smart money', we exchanged notes on our heroes and built a list of the greatest Indian investing minds. Then we created a system to track their investments.

After back testing and real testing, we knew we were onto something extraordinary. So, we decided to take the system to our readers.

And that's how Smart Money Secrets was born.

Now, just last week, I told you the Super Investors we track have been remarkably inactive. Well, this week, the pace has picked up!

Some Super Investors I love have bought some exciting businesses. And in the case of one company, the promoter has significantly increased his stake. These are good signs.

I am prepared to meet the managements of these companies in the coming weeks. The presence of the smart money gives comfort, but it's really just a screener. The 'secret' to Smart Money Secrets is independent evaluation of super investor stocks.

And we never compromise on business quality.

For instance, one of our super investors recently bought a plastics company. Once a market darling, the company ran into some troubles. But now the management expects a robust performance as the company enters new lines of business.

The problem is that I'm still not sure I see a margin of safety. The valuations aren't giving me much comfort. So, I will meet the management this week and check the company's Smart Money Score (Required Subscription).

I'll let you know soon if the company is worthy of becoming our fourth Smart Money Secrets recommendation.

Stay tuned...

Editor's Note: Everyone's wondering whether they can emerge wealthy from this bull market... The Equitymaster Insider has answered that question for his readers. If you're not getting the Insider yet, it's not too late. You can still subscribe by clicking here.

03:00 Chart of the Day

S&P BSE Auto index is the best performing sectoral index since the global financial crisis. Auto index has surged by a mammoth 823% since November 2008. This is way ahead as compared to the benchmark index returns of 230% during the same period.

BSE Auto Index Witnessed the Highest Gains Since Financial Crisis

Within the auto index, Tata Motor's stock has appreciated the most since November 2008. The stock has posted a gain of 1180% since November 2008. Other stocks too such as Maruti Suzuki, Bajaj Auto, Mahindra and Mahindra have gained more than 1000% since then.

The main reason leading to this surge is the booming consumption story. Driving aspirations of the rising middle class have pushed up car sales in the world's second most populous country. Further, benign interest rates and lower oil prices too have supported this consumption boom.

Not only this, value migration is pretty much evident in the auto sector. First time car buyers generally interested in entry level cars such as Alto and WagonRs, are now hooping into the costlier Swifts and Dzires. Five years ago, one out of three (33%) first time buyers purchased these costlier models. Now, one out of every two (50%) first times buyers purchase these costlier models.

Value migration creates opportunity. We are firm believers of this structural change and love to look out for industries going through these changes.

Having said that, valuation too plays a big part in the trajectory of the stock prices and currently the valuations of the auto majors appears to be a bit stretched. Past performance is no validity of the stocks performing well going ahead and hence investors should pay utmost heed to the valuation before investing in the auto majors.

04:00

Mark Mobius, executing chairman of Templeton Emerging Markets Group is betting big on India. India equities now has the largest weightage in one of their Asian small cap funds.

He predicts Nifty index to double from the current levels of 10,000 points within the next three or four years. In his view, the rally would be supported by a massive chunk of domestic and foreign inflows.

He believes, low fixed deposit rates will lead to people shifting their savings to equity markets creating huge domestic inflows. Further, the benign interest rates structure too will support the economic growth rate of the country.

However, we would be candid in saying that we are not so bullish as Mark Mobius. A while back, we predicted Sensex to reach 40,000 in the next two to three years. Our call implies a Nifty level of about 12,375.

Our Sensex 40,000 call is based on an earnings revival over the next few years. It's not based on market sentiment, momentum, economic reforms, FII flows, retail investor participation, etc.

It's all about earnings after all. Unfortunately, the market is not going up because of earnings growth. It's running on hope-fueled expectations. These are not what drive stock prices in long-term. Only earnings growth does that.

In a rational market, Sensex 40,000 would be impossible without earnings growth. But the market is not rational right now. The earnings recovery hasn't happened yet. If earnings do not pick up in the next two quarters, the chances that this rally will turn into a bubble are rising by the day.

04:30

By the way, here is a message from our friends at HelpYourNGO for supporting Snehalaya, an award-winning NGO.

04:45

At the time of writing, BSE Sensex was trading marginally below the dotted line. Sectoral indices were trading on a mixed note with stocks in the oil and gas and realty sector witnessing maximum buying interest. Whereas, stocks in the consumer durables sector were trading in the red.

04:55 Investment Mantra of the Day

'Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.' - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Kunal Thanvi (Research Analyst).

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