Sell! That’s been the FII warcry on Dalal Street over most of 2008. The cumulative pullout this year by FIIs may well cross $5 billion by the time you read this. Even as India stutters along its much-touted growth path, global investors are waking up to the newfound risks of betting on our economy and its shining companies. So are we knocking the doors of a vicious endgame to this growth cycle ?
In keeping with our policy of staying in cash, there are no fresh purchases this fortnight. I have, reluctantly, reduced Bartronics by 200 shares purely to bring down the stock exposure to this hi-conviction idea during a time of macro-crisis. We’ll try and trade back into Bartronics at lower levels. Let’s see if this small experiment works. Meanwhile, the only good news to emanate from the stock market is that new (and old) voices are vociferously exchanging investing ideas on Money Today’s portfolio blog. Apart from regulars like Pramod and Lakshmikanth, there is ‘Stockso’, whose latest ideas tell me that Stockso is a nuttier stock picker than I am!
ICSA and Pyramid Saimira are Stockso’s two hidden gems. These companies are growing at breakneck pace. And they are driven by hyper-aggressive CEOs. While ICSA works in the power software and systems space, Pyramid operates a fast-expanding chain of cinema halls. Stockso, we need to wait for the macro clouds to clear before committing any more resources to ideas such as these, because of the increased risks that they are now running. And these are not market or perception risks—we are talking about business risks for both companies as they run head first into a looming slowdown.
Pyramid’s cinema halls (their mainstay business so far) are not really multiplex-class, I must point out. But the idea of refurbishing existing properties is surely a good one. Both companies will be hit by an increased cost of capital, as interest rates harden. Keep in mind, Stockso, that the next few years are going to see these companies cash strapped since they are not generating enough surplus from their current operations to fund expansions. ICSA’s business is working capital intensive so top-line growth will bloat up debtors and inventory.
And have you noticed that the promoter’s shareholding is less than 19%. Want to partner these guys? Go ahead, I’ll wait for some time. Lakshmikanth’s latest blog comments leave me in no doubt that he would win the Money Today fund manager election hands down (should my editors ever get this corny idea!).
His latest comments talk of safety and capital protection instead of absolute gain (caution takes precedence over greed). One of Lakshmi’s new stock ideas, howsoever unwarranted it might seem in today’s market upheaval, is a top quality company backed by sound conviction: Esab. This is a multinational, and a market leader in welding equipment/consumables with strong cash flows. And is available for a single digit P/E! His arguments in favour of LMW, though, bear more scrutiny.
Yes, it’s a cash- rich company and has a solid competitive advantage in the business of textile machinery. Remember, LMW’s customer is the textile industry. And it’s going nowhere globally or in India, particularly the yarn spinners, who form the bulk of LMW’s buyers. Rising steel prices and lower capacity of customers to pay would force me to take a second look at LMW. Checked their order book lately, Lakshmikanth ?
Some more ideas from Pramod (another one of our regulars) and Lakshmi merit mention, although they might seem a little difficult to digest right now. Since things seem to be going nowhere in the markets for a while, this is as good a time as any to ruminate on ideas.
Andhra Sugar is a mid-cap company in the caustic soda and sugar business, and is close to its one-year low. But do I really want to own a manufacturer of two lowglamour commodities in this economy? And if I do want to buy sugar stocks, why not market leaders with global size like Balrampur Chini or EID Parry? Similarly, if you want to back caustic soda would you not look at a market leader like Gujarat Alkalies?
Another dark horse would be DCM Shriram Consolidated, which is sitting on a huge cash pile after a windfall land sale, and is present in sugar, PVC and caustic soda. What’s more, its old urea plant in Kota has been upgraded to gas and is poised for better times once Reliance’s KG basin gas begins to flow.
It’s a privilege to get constructive and meaningful investing debates going on our blog. And to get regulars like Lakshmi and Pramod to write long (but instructive) comments on why they like certain stocks. Keep the blogging alive, readers. And for those who have come in late: check out the
MT portfolio blog .
