A tale of two starkly different Analyst Meets

In this issue:
» The importance of meeting company managements
» How did the BSE-Sensex perform relative to global peers?
» A round up on global and domestic markets
» ...and more!

00:00

Over the last few weeks, I had the opportunity to meet the managements of quite a few companies. And I must say it gives you a whole new perspective on businesses and the people who run those businesses. This is one of main reasons why we make it a point to personally meet the managements of companies that we recommend, particular in the small cap space.

Of the many interactions I had with managements, two meetings stood out in my mind. One was an 'IPO meet' of a logistics player. The other was an 'Analyst meet' of a small cap fabrics exporter that is already part of our Hidden Treasure recommendations. (Our Hidden Treasure subscribers will receive more details that I collated from the meet as well as our latest update on the stock soon.)

Now, I would really like to discuss some interesting trivia from these meetings. Sometimes, tiny details do reveal a lot of information about the mindset of the promoters.

So here I go...

First, some tidbits about the IPO meet. The meet was organized at the rooftop banquet hall of one of the most renowned hotels in South Mumbai. The management team and the lead managers were assembled on the dais dressed in suits and blazers. By the time I got there, the room was jam-packed with a battery of analysts and investors. When I looked around, there were flashy banners and logos of the company all over the room. Then, of course, the presentation began. The promoters spoke. People asked questions.

This was followed by high tea. It was evening and I was already quite hungry after the long presentation. So I happily indulged myself with a wide variety of fare that was being served on the food counter. I could see the sun setting through the window on my right. What a view it was!

Now, let me share my experience at the analyst meet of the small cap company. When I received the invitation for the meet, I could not recognize the exact location. It took me a while to locate the place. When I reached there, I was told to take the lift to the sixth floor and head to the board room. To be honest, it didn't feel like the typical analyst meet that I was used to. The building was quite old. And when I entered the board room where the analyst meet was about to begin, I was even more surprised. To describe the board room, it looked old and as ordinary as something can be. There was no podium for the management team. We all sat around a large conference table. And let me tell you, if you hadn't known the management team in advance I bet you wouldn't have been able to recognize them. They were dressed in ordinary formal clothes, just like the rest of us. The meeting went on for quite long. As is the case with most analyst meets, they concluded with high tea and snacks.

Having been used to wide varieties of fancy dishes at such meetings, I was expecting nothing less than a decent fare. And then when I saw the stuff that was being served, I almost laughed. There was khaman dhokla, chutney sandwich, cookies and beverages. That's all!

When I came out, I pondered a bit about these two meetings. At the face of it, the IPO meet was quite a pleasant and luxurious experience in comparison to the analyst meet.

But I hadn't gone to these meetings to have a 5-star experience and to gorge on the food. I was there to know more about the companies. And more than anything else, to know the promoters...

The IPO meet was clearly a fat sales pitch aimed at garnering investor interest in the stock. Being an ardent student of human behaviour, I know how vulnerable our minds are. We are naturally conditioned to look at people more favourably when they give us a luxurious experience and good food. So when a company wants to raise a few billions, a few lakh spent here and there are nothing but smart marketing. So I don't blame the company at all for spending so much money on a fancy meet. I wouldn't judge the promoters for this. Because after all, an IPO is an opportunity for a promoter to make his best sales pitch and get the best price for his holdings. As an investor, what you can do is to not get carried away by big promises and the lure of listing gains.

In comparison, the simplicity of the analyst meet of the small cap company really impressed me. It reflected that the management was frugal and prudent with money... That it did not believe in splurging shareholders' money on fancy analyst meets...

Well, it would be a bit naive of me if I read too much into such tiny details and drew conclusions based purely on them. But let me tell you, the real reason I began to admire the promoters was that they showed the same value-consciousness even when doing business. Whether it was about taking the big business decisions, or petty decisions about where to organize the analyst meet, the promoters' behaviour has remained quite consistent.

After all, shareholder returns are a function of how wisely and efficiently the promoters make the capital allocation decisions. If the promoters display frugality with all big and small capital decisions, your money is probably in safe hands.

What, according to you, is the best way to know about the quality of a company's management? Let us know your comments or share your views in the Equitymaster Club.

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03:15		Chart of the day

Indian stock markets were on a roll in 2014 when the Modi government came into power. High expectations from the government in terms of big bang reforms propelled both domestic and foreign investors alike to pump money into stocks. 2015 has been a bit of a different story. Indeed, a spate of corrections has been seen quite frequently as reality has set in. Indeed, as can be seen from the chart, the Indian stock markets were up by a mere 11.4% in the past one year. This pales in comparison to the returns generated by the other global stock indices.

While some reforms have been announced, implementation was always going to take time. Also, the earnings growth of India Inc has not exactly set the pulse racing. And so a combination of all these factors has led foreign investors to pull money out of India and put it into other emerging economies such as China. Ironically enough, China's stock markets have also defied logic by posting strong gains when the Chinese economy has been slowing down. So the notion that China is a better bet than India from an investment perspective appears faulty. As far as India is concerned, the growth story still remains intact from a long term perspective as the implementation of structural reforms begin to bear fruit.

How did Sensex perform in the last one year?

04:00

Barring the Japanese stock markets, majority of global indices were down during the week gone by. As per recently released data, the US economy contracted by 0.7% in the first quarter. This is in sharp contrast from the earlier estimate of growth of 0.2%. Even Greece slipped back into recession in the first quarter. Greece's economy emerged from a six-year long recession last year, but since late 2014, the political uncertainty has been weighing on the economy.

Over and above, the US Treasury Secretary Jack Lew on Friday also warned about a possible risk for the world economy if Greece and its creditors miss their June deadlines to make the payment. Greece, which has been stuck in a deep debt crisis since last five years, has to pay back US$ 410 m to the IMF by the end of June. On June 30, Greece's bailout expires, this means it would not be able to call on cash post the expiry of the deadline. European stocks dropped as uncertainty in Greece stays in the spotlight.

Meanwhile, Japan was the only gainer for the week with the Nikkei remaining at 15-year high levels. The Japanese data on Friday showed signs of bottoming. Decline in Yen is further providing the boost.

Back home, the week was quite volatile for the Indian stock markets. The global and domestic factors influenced the direction of the Indian markets. Eyes are now on RBI's monetary policy review scheduled on 2nd June, since there are high hopes of rate cut.

Performance during the week ended May 29, 2015 Data source: Yahoo Finance

04:50

Weekend investing mantra

"It's better to hang out with people better than you. Pick out associates whose behavior is better than yours and you'll drift in that direction." - Warren Buffett