A focus on quality together with attractive valuations can help you to spot big gainers on Dalal Street. The criterion is working for a Mumbai-based Nikhil Gangil (29) who has spotted at least 10 multi-baggers in the past five years.
In an interaction with Business Today, the young investor said stocks like Sawaca Business Machines have delivered him 68 times, or 6,700 per cent, return from the average down price so far. It was followed by Meghmani Finechem (15 times), Tata Power (6.5 times), Tata Motors (6.5 times), GNA Axles (5.8 times), Ramco System (5 times), Nava (4.7 times), Marathon Nextgen Realty (4.7 times), Tejas Networks (4.5 times) and Fiem Industries (4 times).
Gangil is still holding Ramco System, Marathon Nextgen Realty, Tejas Networks and Fiem Industries. Before going ahead, here is a disclaimer that stocks mentioned in the article are for information purposes only. One should consult their financial advisors before taking any position.
While sharing his view on investing strategy, Gangil who also enjoys watching movies, travelling and singing, said, “I prefer wonderful businesses at low valuations. Every business and sector go(es) through ups and down cycles. I try to analyse great businesses and wait for the right prices.”
He has also developed a self-ranking system where he ranks the stocks of a sector by their sales growth, return on capital employed (ROCE) and price-to-book. “Top three stocks become my stocks of choice in that sector,” the investor said who is also an M-Tech postgraduate from IIT Madras.
Apart from the above parameters, he also looks for capex, and corporate action before picking any stock.
Over the years, after some trial and error, he has evolved his investing strategy. “From day 1, I have been a value investor. Earlier, I was a valuation first and quality second kind of investor. However, when I started to filter stocks based on quality and then check for valuation, things started to work out for me. Basically, I understood everything that is cheap is not undervalued,” the investor said.
When to sell a stock?
On asking when he sells his multi-bagger stock, Gangil said he defines a stock as undervalued and overvalued on the basis of valuation and cycle. “I call them ‘Min Intrinsic Value and ‘Max Intrinsic Value’. I buy when the stock comes to ‘Min intrinsic value’ and exit when it hits ‘Max intrinsic Value’. Apart from that if I see debt piling up excessively then I plan to exit the stock,” he said adding he has always been an individual stock lover.
Sectors to watch
At present, Gangil who is also the Founder of Intrinsic Value Equity and a smallcase manager is zeroing in sectors like pharmaceutical, telecom, banks, NBFCs and traditional battery & lubricant stocks. “In the pharma space price has been consolidating for more than seven years while growth is consistent. On the other hand, if the interest rate hike sustains, valuation rerating will happen in the banking and NBFC space. I see good multi-bagger opportunities in the space,” he said.
The investor further added that themes like traditional battery and lubricant stocks are way undervalued because of EV hype. He explained that value should emerge eventually as now people understand that EV is not the only way.
Books to read
Gangil, an avid reader, recently read 7 secrets to investing like Warren Buffet. His other favourite books are The Little Book of Value Investing - Christopher H Browne, Mastering the Market Cycle - Howard Marks and The Little Book That Beats the Market- Joel Greenblat.
Lessons for young investors
Sharing his advice with young investors like him, Gangil said that one should think big and think for the long term from day 1. One should keep an intention to hold the stocks for 5-8 years. “As a value investor, never underestimate growth. As a growth investor, never underestimate the value. The combination does wonders,” he said adding that one should continue reading as much as possible.
"Stock picking is a fine art but patience will transform your portfolio from fine to awesome," the equity investor said.
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