What Do You Buy at the Stock Market's 'End of Season Sale'?

Apr 5, 2018

Kunal Thanvi, Research analyst

The end of season sale.

It's that time of the year when giant apparel players put their stock on sale.

To be precise, in January and July every year, they offload their unsold stock at a steep discount.

In fact, in some cases, the discount goes as steep as 70-80%.

The idea is to get rid of the seasonal stock.

People rush to take advantage of the discounted price...only to unfortunately find the stock to be mostly outdated.

Even if it may not be the case always, that's the general perception.

However, given the steep discount, people cannot resist. They buy.

End of Season Sale

While, the apparel market has this 'sale' twice a year, the stock market doesn't have any such frequency.

It generally surprises you.

The sale is steep in some shares compared to others.

Shares of weak businesses are available at a steeper discount compared to shares of strong businesses.

Sadly, investors tend to replicate their habit of buying stale apparel in the stock market as well.

Since, the fall is steeper in weak businesses; they start to look attractive compared to the quality businesses.

What happens next?

The fall usually continues.

Smart Money Secrets and my super investors do the exact opposite.

In times like this (when the market is in a correction phase), they too go shopping.

But with a big difference...

Unlike most people, they don't hunt for weak businesses which have fallen a lot.

Rather, they buy quality businesses, where the fall is probably lower compared to their weaker counterparts.

These investors are the 'smart money' of the Indian markets.

I track them closely. And I am glad to inform you they are investing in some interesting themes.

The current 'sale' in the stock market has given them opportunity to size up their stakes.

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I've found a lot of interest among super investors in these three mega themes:

  • Theme 1 - Rural Economy (Super Investor, Kenneth Andrade)
  • This super investor believes that one of the biggest beneficiaries of government spending has been the rural economy.

    I recently looked at his portfolio. Most of the businesses he owns are based on this theme.

    Now, with the recent sale in the share market, one of the stocks this super investor holds, has corrected and looks very attractive.

  • Theme 2 - Real Estate (Super Investor, Multiple Mutual Fund Managers)
  • The real-estate sector in India is going through a multi-year consolidation. Thanks to four events that happened recently - RERA, Demonetisation, the Union Budget, and GST.

    Many super investors are upbeat on this sector. They believe the recent events have shaken the sector to its core...and will help make it more transparent.

    This will unlock multiple stock-picking opportunities.

    The stock that is held by the smart money has corrected significantly and I believe this could be the best time to buy more of it.

  • Theme 3 - Manufacturing (Super Investor, Sumeet Nagar)
  • India is not a manufacturing power house. But that doesn't mean there aren't opportunities.

    Our super investor believes, the combination of low interest rates, increasing capacity utilisation, and improving balance sheets, has created a very interesting proposition. He believes, the private sector investment cycle will pick up from FY 19-20.

    He has bought a very niche company providing Fast Moving Industrial Goods (FMIG) to the manufacturing industry.

So there you have it.

Unlike the apparel sale where you buy new clothes just because they are available cheap, in the stock market, it's better to look at quality stocks before rushing to find new opportunities.

Now, the icing on the cake... My Smart Money Secrets team and I have already recommended these three stocks and the ongoing sale in the Indian stock market, has made them even more attractive.

One more thing....

And as many of you know, at Equitymaster conference, I talked about meeting more super investors and bring to you my interactions with them.

And I have started my journey again. I will write to you again about this... very soon.

Chart of the Day

Indian Share Market is on a Sale!

If we look at the headline indices, it is down around 9% from its peak. In fact, with the recent trade wars between China and US, there is an expectation of a global sell off.

If the correction in markets continues, we will find more opportunities to invest. Apart from new opportunities, what Super Investors and what the Smart Money Secrets team will do is - 'buy what they already own'.

Regards,

Kunal Thanvi
Kunal Thanvi (Research Analyst)
Editor, Smart Money Secrets

PS: The best investors in India do all the hard work required to pick the right stocks - all you need to do is watch what they are doing. Follow India's top 40 super investors here.

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