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This is How You Profit from a Crisis...

Feb 24, 2016

In this issue:
» Which promoters are betting big on their own companies?
» Why the 10,000 Yen currency note is in demand in Japan
» ...and more!
0.00
Tanushree Banerjee, Co-Head of Research

There is nothing like a crisis to throw up opportunities. More on this in a minute...

First, let me ask you - are we in a crisis?

We live in an era that has seen the 2008 global credit crisis, an unprecedented scale of credit expansion and money printing, and now...negative interest rates. It hasn't helped that oil and other commodities have crashed or that global growth has remained anemic. Indeed, deflation is the buzzword these days.

But is India in a crisis?

It is too early to tell. But we do have our share of problems. The Modi euphoria has died down. Earnings of India Inc have not exactly taken off. In an interconnected world, India is not immune from the ills afflicting global economies. And now we have the added headache of bad loans in the banking sector.

When I talk to company managements, it is amply evident that there has been no meaningful recovery on the ground. But you would not think so looking at the Indian stock markets.

2014 was the year of Modi. He and his government swept into power and ignited the minds and imaginations of Indians and investors alike. Forget the fact that the economy slowed considerably during the reign of the erstwhile UPA government; Mr Modi would set everything right. The stock markets firmly believed so. And the Sensex gained around 30% that year.

Things began to change into the middle of 2015. After successive quarters of tepid earnings growth by India Inc, there was a perceptible change in mood. Expectations began to align with reality. Clearly, Modi is not equipped to lead a significant turnaround in the economy.

Weakness in the global markets and the crisis in China only added to the volatility in the Indian stock markets.

Amid these stock market swings, our investing approach at Equitymaster did not change. For instance, in 2014, when practically every large-cap stock was rising significantly, we didn't come out with many buy recommendations. As the managing editor of StockSelect, I received some flak for that.

But I firmly believed that StockSelect is all about recommending safe bluechips at the right price. The goal is to reward shareholders immensely in the long term. And that wasn't going to happen by giving out buy recommendations just because everyone else was.

I believe that despite the headwinds the Indian economy faces, many blue-chip companies with strong managements will be able to tide the rough weather and emerge stronger than ever. This could mean a few quarters of sluggish growth. But in the longer run, because of their strong business models, they will be among the last ones standing.

But we won't recommend these bluechips at any price. The valuations have to be reasonable. So when stock markets are correcting - as they are now - we are more than happy to increase our number of buy recommendations.

This is what I mean by profiting from opportunities during times of crisis.

Indeed, my team and I are an excited lot this month. We have unearthed four bluechips whose prices have come down significantly in the recent market meltdown. The fundamentals of these businesses are intact. But more importantly, the valuations have become very attractive.

So much so that we will be releasing four buy recommendations this week!

The last time we were spoilt for choice with so many safe stock ideas was in 2009 and 2013. And it could be another 3 to 4 years before we get an opportunity like this again.

Now we obviously don't want to have everybody knowing what these companies are.

But to give you a quick preview, we have a company that's capable of using competition and digital disruption to its benefit to emerge even bigger, an industry leader is powering up to beat its nearest competitor once again, a commodity company waiting to pounce back from its lows, and a staple safe stock that passes almost all Buffett tests.

In short, 4 solid bluechips selling for cheap that you should not miss at any cost!And you can get full details of these 4 bluechips by tomorrow via StockSelect.

StockSelect is our Blue Chip stock recommendation service with an excellent track record average of 77.3% from 2002 to 2015. This means about 8 out of every 10 stocks recommended through StockSelect have hit their targets.

Indeed, we firmly believe that buying good businesses at the right price is the only way to achieve long-term success investing in stocks.

My StockSelect report that reveals top four stock recommendations in this market releases tomorrow. Here's your opportunity to join in and be among the first to get access to it... Plus everything else StockSelect has to offer. Just click here to join for a 30 day trial...

2.40 Chart of the day

Continuing our discussion on opportunities in the Indian equity markets, it seems that promoters of a bunch of companies are finding value in their own stocks. As per The Economic Times, promoters of 125 companies have increased stake in their companies in the year till date.

Some worthwhile mentions include promoters of Bharti Airtel investing nearly Rs 320 crores or (Rs 3.2 billion; Japan based Kansai Paints investing Rs 245 crores (about Rs 2.5 billion) in Kansai Nerolac Paints. Further, the Reddy family - the promoters of Dr. Reddy's - have invested Rs 720 million - making the most of the stock decline following the issues raised by the US FDA.

Promoters Find Value in Their Companies

It goes without saying that promoters upping stakes in the businesses they understand the most is a positive sign for investors. These actions provide a strong confidence boost.

Whether the companies mentioned above or in the article written by the business daily are buying opportunities is not something we will comment on. However, it does give a sense of an approach that should be taken while investing. Instead of panicking during times of extreme volatility, investors would do well to take a broader view and make the most of market opportunities as and when they occur. Having said that, a thorough gauge at the risk-reward ratio is required.

Do you think that promoters upping stakes in the businesses they understand the most is a positive sign? Let us know your comments or share your views in the Equitymaster Club.

3:45

What would you do if one day your bank starts charging you for keeping money in your savings account? Would you keep money in the bank? Or store it at home? I would definitely choose the latter option.

Turns out that this is exactly what is happening in Japan at the moment. With the announcement of negative interest rates a month ago, depositors are preferring keeping money at home instead. Japanese authorities have stated that depositors will not be charged for making deposits in banks. But with interest rates dropping to as low as 0.001%, the population is preferring keeping cash at home.

This may turn out to be an issue for the government as the money is moving out of the financial system. Bloomberg has reported that as much as US$ 890 billion (a fifth of the economy) is the cash pile up in Japan; the demand of 10,000 Yen (equivalent to about Rs 6,125) currency notes have been the highest in many years; a 6.2% YoY rise in 2015, the highest since 2002.

The Japanese economy has been in the doldrums for years. While the government has tried a bunch of measures and tricks to spruce up things - right from increasing government spending to flooding the financial system with cash - there seems to be no success.

While being a country with high savings, Japan also deals with the problem of an ageing population. And with the nation's people opting to keep cash under the mattress, it does give a sign of their sentiments, which seem anything but positive.

4.45

At the time of writing, the Indian stock markets were trading below the dotted line with benchmark indices - the BSE-Sensex and NSE Nifty trading lower by about 235 points and 67 points respectively. Stocks from the mid and small cap spaces were out of favour as well with their representative indices down by 0.7% and 0.9% respectively.

4:50 Today's investing Mantra

"It is far from certain that the typical investor should regularly hold off buying until low market levels appear, because this may involve a long wait, very likely the loss of income, and the possible missing of investment opportunities. On the whole it may be better for the investor to do his stock buying whenever he has money to put in stocks, except when the general market level is much higher than can be justified by well-established standards of value. If he wants to be shrewd, he can look for the ever present bargain opportunities in individual securities." - Benjamin Graham

This edition of The 5 Minute WrapUp is authored by Tanushree Banerjee (Research Analyst) and Devanshu Sampat (Research Analyst).

Today's Premium Edition.

Power Sector: Down but Not Out

While the power sector remains in a mess, there might not be reason yet to completely write-off investments in this space.
Read On...Get Access

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3 Responses to "This is How You Profit from a Crisis..."

Monita Mehra

Feb 26, 2016

In many a cases promoter's upping their stake in their companies in a positive but not necessarily. One will need to look into the valuations of the company and understand the reason for the correction in the stock price but it definitely is a reason enough to try to understand whether the investment would be worthwhile. It gets add to your list of stocks to be evaluated.

Like 

Amol

Feb 24, 2016

Good start in 2016 and good relief for the EM subscribers. With bluechips being attractive, how abt reviewing india letter and Hidden treasures recommendations aswell.
Any scope for multiple recommendations there at current valuations like Stockselect.

Thanks,
Amol

Like 

Anil Mehta

Feb 24, 2016

Promoters further investing in their own company is a very healthy sign. It goes a long way in instilling confidence in other investors about health and prospects of that company.

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Equitymaster requests your view! Post a comment on "This is How You Profit from a Crisis...". Click here!
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