How does one pick those multibagger stocks? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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How does one pick those multibagger stocks? 

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In this issue:
» India's wind power capacity is a shadow of China's
» Mutual funds are seeing huge outflows
» Kirit Parikh report on oil pricing to see the light of day?
» Bernanke stresses on Fed's independence
» ...and more!!


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00:00
 
How does one know the right stock to invest in and that too at the right price which will ensure strong returns in the long term? This will be a question that will be the uppermost in the minds of most investors wanting to allocate part of their funds towards stocks. Especially in light of the heightened volatility in the markets in the past.

For instance, take a look at the period between 2005 and early 2008. During that time, there was a general sense of euphoria prevailing in India what with the country consistently logging in growth rates of 9% plus and the stockmarkets zooming to 21,000 levels. And then this optimism snapped. The global financial crisis reared its ugly head and sent global economic growth and world stockmarkets including India into a tailspin. Suddenly there was nervousness all around. Forget bad stocks with bad fundamentals, investors in India were loathe to put in their money even in good companies available at attractive prices fearing that prices will fall down further. Then 2009 dawned, signs of recovery began to be noticeable and stockmarkets surged once again. Those who missed out on the current rally are now waiting for the next round of correction to start putting their money to work again.

The idea really is not to time the markets. That is a feat best left to speculators. For long term investors, even at present when overall valuations of companies seem on the higher side, there will still be some stocks that they can look to add on to their portfolios. These stocks if picked at the right price by following 4 proven approaches can turn into multi-bagger opportunities. This free guide is a small gesture on our part to extend our gratitude to the faithful readers of The 5 Minute WrapUp.

01:17  Chart of the day
While India's problems with respect to the power sector are well documented, the country has a long route to travel even when it comes to alternate sources of energy, notably wind power. In sharp contrast, India's major competitor and illustrious BRIC peer China has made considerable strides on this front. As today's chart of the day shows, China has recorded the maximum increase in wind power capacity in the past one year as compared to peers. In India's case, this increase has been miniscule. Amidst increasing competition between the two in the global arena, this is another area where the dragon nation certainly scores over India.

Data Source: The Economist

01:52
 
It is said that change is the only constant in life. Yet, changes in the way a thing functions often lead to resistance. And when one is talking about structural changes, it is likely to come up with an even bigger wall of resistance. Take the case of the Indian mutual fund industry. It has continued to go downhill even six months after market regulator SEBI banned entry loads. As per a leading daily, in the five months since SEBI pulled the plug, equity schemes of mutual funds have seen net outflows every month. Infact, the net outflow jumped to as much as Rs 22 bn in the month of December 2009. The reason? Mutual fund distributors just do not want to touch MFs now that the earlier incentives are all but gone. Infact, another landmark decision by the SEBI to allow MF sales on exchanges has also drawn a huge blank.

However, all is not lost yet. Some industry experts are hopeful things would improve once the industry goes past the initial teething troubles. The distributors too need to be patient. Agreed that they have lost a very important revenue stream. But the earlier arrangement was certainly not a win-win situation for all. It had given rise to lopsided benefits. The entry load ban has thus led to a level playing field and ensured that all stakeholders benefit. In time, the distributors too would get their due.

02:36
 
The Indian energy sector has long been plagued by the government's unwillingness to price fuels at market prices. It has traditionally shielded consumers from high fuel prices even though it has affected the financial health of downstream oil companies. Several committees in the past have pointed out that this is unsustainable. And they have recommended remedial measures. But the political ramifications are so huge that the government has not been able to follow through on any recommendation so far. The latest committee is headed by Kirit Parikh. It too has made several recommendations. Market determined prices for petrol and diesel. LPG and Kerosene prices to be linked to per capita GDP growth. Incremental taxes for oil producers. Higher excise duty on diesel cars. Link kerosene distribution to the Unique Identification number. The key question is of implementation. On paper, most of these suggestions are sensible in the long term. But given the short term concerns of inflation and its political impact, will the government bite the bullet? We think not, but time will tell.

03:17
 
Some really substantive changes have occurred in the global economy since the onset of the credit crisis. Chief among these is the fundamental change in the way most big investors look at developing counties like China and India. And a very positive change, mind you. The renowned chief investment officer at Pimco, Bill Gross, recently expressed his own affinity for the same. He is reported to have said recently that growth oriented assets should be directed toward developing countries less levered and less easily prone to bubbling. Said Mr. Gross "When the price is right, go where the growth is, where the consumer sector is still in its infancy, where national debt levels are low, where reserves are high, and where trade surpluses promise to generate additional reserves for years to come. China, India, Brazil and more miniature-sized examples of each would be excellent examples." As developed economies such as the US and Europe work to slash their humongous debt burden, he expects them to lose their positions as drivers of the global economy. From the looks of it, it sure seems like this attraction towards countries like India is a more long term trend, rather than a short term fad.

03:56
 
Steering the world's largest economy out of a recession is a tough job for any central banker. US Fed Chairman Ben Bernanke has got an extended term for that. The Fed chief has been criticized by some for bailing out big banks and fuelling inflation through cheap liquidity. Others, including Buffet, have applauded his unconventional steps to prevent another Great Depression. At the very start of his next term, Bernanke has clearly outlined the key challenges to US' economic recovery. Most important of them being reducing the level of unemployment and preventing asset bubbles. The Fed chief however believes that it is time the US central bank gets its much deserved independence from the Congress. It is only then that the Fed will be able to take appropriate steps. Is Obama listening?

04:17
 
We recently asked our readers a question - Which asset class will be the best performer in 2010? And the replies we received suggest higher optimism towards stocks. Almost 50% of those who voted opted for 'stocks' as compared to 'gold' (30% votes) and 'real estate' (20%).

Interestingly, this answer might have some bias involved. This is given that investors have just seen a splendid rise in stock prices since March 2009. With the broader markets - BSE-Sensex - already up around 100% over the last 10 months, it is easy to get carried away by the popular view. And the popular view currently favours stocks.

As for our view, we believe that valuations of most blue chip stocks do not leave much on the table for investors. However, a case can still be made for some brilliant long-term investment opportunities that are available cheap as of now. The idea must be to invest systematically in good quality stocks, without trying to predict what the markets are going to do in the short term.

04:46
 
Meanwhile, Indian stock market opened on a weak note today and languished in the red throughout the session. The Sensex was trading lower by 174 points (1%) at the time of writing. Auto and metals stocks bore the brunt of maximum losses. While most Asian markets were trading mixed at the time of writing, European markets are also witnessing a mixed trend.

04:58  Today's investing mantra
"If you don't feel comfortable owning something for 10 years, then don't own it for 10 minutes." - Warren Buffett
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8 Responses to "How does one pick those multibagger stocks?"

guru balaji

Apr 7, 2011

How does one pick those multibagger stocks

Like 

sunil anand

Aug 13, 2010

Please send me the latest multibaggers

Like (1)

K.D.Viswanaathan

Feb 5, 2010

"How does one pick those multibagger stocks?" is an ever-pertinent question. To-day's '5-minute Wrap-up' has provided an excellent analysis. Some of the facts stated theirn might appear to be basics but they are intended to remind the investors about the absolute need for keeping them in mind while buying or selling stocks. The brief observations on Mutual Funds and wind energy were also quite interesting.

Like (1)

taffazull

Feb 5, 2010

Only after a really efficient public distribution system is in place would it be possible to remove subsidies without crushing the poor.Making the PDS functional is the first priority,not reducing subsidy. By the way petroleum is priced at $75(Approx Rs 3500/) per barrel(200 litres). That works out to Rs 17/litre of petroleum.Petroleum refining adds value so that cost value of petroleum for sellers is less than Rs17/ litre.What the govt gets as taxes is partly returned to the taxpayer as a minor subsidy.Why should anyone shout oneself hoarse about that.

Like (1)

rakesh devmurari rajkot

Feb 4, 2010

sir i want just one trial after trial you ask full money in your letter we cant receive any useful message or latter you just advertise your scheme

Like (1)

g s tiwar

Feb 4, 2010

2.25% of customer is saved n mutual fund but same time forced us to pay 18 to 20 % in ulips.is they favouring ulips to mf? is it fishy?
demolish all allocation charges then of ulips . will you

Like (1)

Vivek Mahajan

Feb 4, 2010

Thanks indeed to the Equity Master team for the brilliant work. It's a masterpiece - intelligent investing cannot be made simpler than this.

Instead of following the crowd, media and market gossips for investment decisions, if investors make a small effort to look into the basic information suggested by report, I am sure the rewards will be far greater. In my thirty two years association with the financial markets, I have rarely found such powerful investment techniques put in so simply.

I seek your kind permission to circulate this report further with full credit to you.

Vivek Mahajan
Investment Manager,


Like (1)

E.R. Viccajee

Feb 4, 2010

I am a regular reader of your 5-minute Wrap Up. Why is it that at times the last one or two lines of some of your paragraphs end abruptly the last few words having been lost in mid-stream.Have any of your viewers experienced this problem ?

Like (1)
  
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