Interesting Insider Trades – 2018

One way to source for ideas to research is to look for promoters increasing stake in their companies.

Insider Trading Disclosures – You can download the historical disclosures from the following link. ( Select the dates and click on the download button in the corner )

https://www.bseindia.com/corporates/Insider_Trading_new.aspx#

We have just highlighted the interesting insider trades in the last 1 year.  ( have only focused on entries where promoters have done a direct market purchase.)

Interesting Insider Trades 2018

No recommendations.

 

Disconnect between price and value in many growth and value stocks

Some snapshots from a Kotak Report

 

The re-rating of ‘growth’/‘quality’ stocks (see Exhibit 14) and de-rating of ‘value’ stocks (see Exhibit 15) has continued for a long time and we are at a loss to explain the continued mismatch in the price-value equation for the two sets of stocks for such a long period of time. Our previous thesis regarding high correlation between global bond yields and
earnings yields of ‘quality’ stocks has been deflated by the continued fall in earnings yields of ‘quality’ stocks even at the time of rising global bond yields. Anyway, the argument about a potential de-rating in multiples of ‘quality’ stocks on the back of higher global bond yields
may no longer be valid as global bond yields will likely stay subdued due to a synchronized global economic slowdown.

Lastly, certain so-called ‘value’ companies have found new ways to disappoint investors on corporate governance, thereby
making the valuation argument largely redundant for such stocks.
It seems to us that the market has simply taken a ‘permanent’ view on the future of most companies, thereby effectively segregating companies into (1) long-term winners; these are companies with superior business models, trustworthy managements/promoters and good corporate governance practices where no price or valuation may be too high to own the
stocks and (2) long-term losers; companies with inferior business models and poor governance practices where no price or valuation may be too low to avoid the stocks.

Interesting Snapshots from Research Reports/Annual Notes of AMCs

Our comments in brackets.

Primary Market Issuances in 2018.    ( Issuances peaked out in 2017 )

Nifty Valuations – Using P-E for Non-Financial and P/B for Financial Companies.  ( Interesting take on valuing Nifty.)

Indian Equities strongly correlated to S&P 500 !!   ( More co-related to US than Asia)

Indias Contribution to World Market Cap – Higher than Average but lower than the highs.

Nifty EPS estimates – Motilal Oswal    ( Estimates have been wrong through 2014-2018 for all brokers. Will it be finally right ? )

Emerging Market ETF Flows    ( Is the tide finally turning for Inflows to India)

Market Cap Wise Performance in CY 18 – ( Huge divergence in large caps to broader market – Can it reverse in CY 19 )

The Power of Retail Investors    ( 2019 will be the real test for Retail Behavior in MFs)

(Midcaps Premium to large caps finally reducing but still higher. )

Hotel Valuations around the World – Kotak 

Categorization of Large Cap, Mid Cap and Small Cap Stocks – The Contrast between AMFI and NSE

SEBI Categorization of Large Cap/Midcap and Smallcap.

SEBI in its circular https://www.amfiindia.com/Themes/Theme1/downloads/1507291273374.pdf has come out with a way of defining large-caps/midcaps/small-caps.

Observations from – Semi-Annual Review – Stock Mcap Classification
(AMFI Release-Jan-19) by Edelweiss

 

Analyse India Observations 

  • There are 1624 companies in the NSE and 4649 companies on BSE as per the data.
  • The cut-off for companies to be a Mid-Cap is 8600 crores. Any company less than that is a Small-cap.
  • There are just 779 companies with an average 6 month market-cap higher than 1000 crores. So roughly around 529 companies in the band of 1000 to 8500 cr market cap.
  • There are approx. 1700 companies with an average market cap of 100 cr.

The Contrast of AMFI/SEBI Categorization with NSE  Indices. 

The categorization is based on 6 months average Full Market Cap.

This is a stark contrast to the fact that all Mutual Funds are benchmarked to indices which have a free float market-cap methodology.

( Free Float Market Cap gives a higher weight to companies with lower promoter shareholding )

Another contrast is SEBI/AMFI wants low churn by Fund Managers and trying to limit the number of schemes etc and want them to be long-term investors but expect them to re-balance every 6 months on basis of price movements.

( Rule – Subsequent to any updation in the list, Mutual Funds would have to rebalance their portfolios (if required) in line with updated list, within a period of one month. )

The categorization of Stocks changes every 6 months and there is no limit to it. So a lot of stocks will keep changing from Large Cap to Midcap or Midcap to Smallcap and vice versa in the categorization.

In contrast, Nifty Index constituents can change every 6 months but have a limitation of only 10% of the constituents to be changed in a year for Nifty. Also replacing stock has to 1.5x free float market cap to the lowest weighted stock. For example, Nifty 500 can make 50 changes in a year and Nifty50 can do 5 changes in a year.

This difference of in categorization will keep leading to a major difference in Midcaps as per AMFI categorization and Midcap/Smallcap as per the NSE Indices.

Funds now have another headache as benchmarks and AMFI classifications do not match.

( An interesting read – http://www.analyseindia.com/midcap-funds-underperformed-in-2017-because-of-vakrangee-limited )

The difference in the categorization of Nifty Indices with AMFI categorization. 

12 Stocks of Nifty Midcap 100 are classified as Small Cap by AMFI classification based on SEBI Circular dated Oct 6, 2017

MANAPPURAM Manappuram Finance Ltd.
MGL Mahanagar Gas Ltd.
ENGINERSIN Engineers India Ltd.
VGUARD V-Guard Industries Ltd.
RELCAPITAL Reliance Capital Ltd.
TV18BRDCST TV18 Broadcast Ltd.
PRESTIGE Prestige Estates Projects Ltd.
VAKRANGEE Vakrangee Ltd.
AVANTIFEED Avanti Feeds Ltd.
PCJEWELLER PC Jeweller Ltd.
DBL Dilip Buildcon Ltd.
SPARC Sun Pharma Advanced Research

6 Stocks of Nifty Midcap 100 are classified as Large Cap by AMFI classification based on SEBI Circular dated Oct 6, 2017

 

DIVISLAB Divi’s Laboratories Ltd.
UBL United Breweries Ltd.
PAGEIND Page Industries Ltd.
IBVENTURES Indiabulls Ventures Ltd.
BERGEPAINT Berger Paints India Ltd.
LTI Larsen & Toubro Infotech Ltd.

18 Stocks of Nifty Midcap 150 are classified as Small Cap by AMFI classification based on SEBI Circular dated Oct 6, 2017

AVANTIFEED Avanti Feeds Ltd.
BLUEDART Blue Dart Express Ltd.
DBL Dilip Buildcon Ltd.
ENGINERSIN Engineers India Ltd.
FINCABLES Finolex Cables Ltd.
GET&D GE T&D India Ltd.
JMFINANCIL JM Financial Ltd.
KRBL KRBL Ltd.
MGL Mahanagar Gas Ltd.
MANAPPURAM Manappuram Finance Ltd.
PCJEWELLER PC Jeweller Ltd.
PRESTIGE Prestige Estates Projects Ltd.
RELCAPITAL Reliance Capital Ltd.
SPARC Sun Pharma Advanced Research
SYMPHONY Symphony Ltd.
TV18BRDCST TV18 Broadcast Ltd.
VGUARD V-Guard Industries Ltd.
VAKRANGEE Vakrangee Ltd.

8 Stocks of Nifty Midcap 150 are classified as Large Cap by AMFI classification based on SEBI Circular dated Oct 6, 2017

BAJAJHLDNG Bajaj Holdings & Investment Ltd.
BERGEPAINT Berger Paints India Ltd.
DIVISLAB Divi’s Laboratories Ltd.
GSKCONS GlaxoSmithkline Consumer
IBVENTURES Indiabulls Ventures Ltd.
LTI Larsen & Toubro Infotech Ltd.
PAGEIND Page Industries Ltd.
UBL United Breweries Ltd.

 

10 Stocks of Nifty 100 are classified as Mid Cap by AMFI classification based on SEBI Circular dated Oct 6, 2017

ABB ABB India Ltd.
ACC ACC Ltd.
ABCAPITAL Aditya Birla Capital Ltd.
BEL Bharat Electronics Ltd.
BHEL Bharat Heavy Electricals Ltd.
LICHSGFIN LIC Housing Finance Ltd.
NHPC NHPC Ltd.
OIL Oil India Ltd.
SRTRANSFIN Shriram Transport Finance Co. Ltd.
SUNTV Sun TV Network Ltd.

 

SEBI Annual Report 2018–Quick Notes

Link to the SEBI annual report – https://www.sebi.gov.in/reports/annual-reports/aug-2018/annual-report-2017-18_39868.html 

  • FPI portfolio: Top 40 stocks Forty stocks account for 74% of FPIs’ equity portfolios in India
  • Mutual fund portfolio: Top 40 stocks Forty stocks account for 63% of MFs’ equity portfolios in India
  • LIC portfolio: Top 40 stocks Forty stocks account for 83% of LIC’s equity portfolio in India
  • Of the 223 issues, 216 were from the private sector which raised ` 68,870 crore compared to 118 issues that raised ` 31,683 crore in 2016-17.
  • In the cash segment, the turnover at NSE increasedby 43.1 per cent during 2017-18 compared to 19.3 per cent growth in the previous year. The turnover of BSE too increased by 8.5 per cent during 2017-18 compared to 34.9 per cent growth in the previous year.
  • The turnover of all stock exchanges in the cash segment increased by 37.4 per cent to ` 83.2 lakh crore in 2017-18 from ` 60.5 lakh crore in the previous year.
  • Of the aggregate turnover, NSE accounted for 87 per cent of the total turnover and BSE accounted for 13 per cent of the total turnover.
  • Over the years, index options have emerged as the most traded instrument in the Indian derivatives market. During 2017-18, the share of index options in total turnover at NSE increased further to 81.8 per cent from 77.1 per cent in the previous year.
  • So far, under mass media campaign, more than 67,980 TVCs, around 2, 25,040 radio spots, over 5,200 insertions in various print editions, around 962 screens in cinema halls were covered under the campaign. Further, around 53 crore bulk SMSes in various languages were sent cautioning investors against Ponzi schemes/unregistered CIS
  • During 2017-18, the total amount of fees and other charges received was ` 624.44 crore (audited) as against ` 518.75 crore in 2016-17 (audited). The recurring fee was 48.90 percent in 2017-18 as compared to 60.70 percent in 2016-17 of the total fee collected. During the year 2017-18, the largest recurring fee of ` 78.00 crore was collected from Derivatives Members registration followed by ` 40.82 crore collected from Stock Brokers and Sub- Brokers. In non-recurring fee category, the highest fee was collected from Offer Documents and prospectuses filed (` 112.24 crore) followed by Buy Back of Share (` 106.12 crore) and Takeover Fees (` 29.70 crore).
  • As on March 31, 2018 the total number of employees in various grades is 794 (including employees on deputation/ contract), out of which 698 employees are officers and 96 employees comprise secretaries and other staff. The male and female composition is 527 and 267, respectively.

There is a very long section on SEBI orders which is very interesting to see actions taken and how much time it takes.

Some more snapshots from the report

  • Mumbai continues to be the leader in turnover.

Mumbai Rocks

  • Free Float Market Cap at 45% of total market cap.

Free Float Market Cap

  • Only 3121 stocks trade for more than 100 days.. No of listed maybe 5200.
  • Only 1730 stocks have traded from more than 100 days regularly on NSE.

Trading Frequency

  • CDSL catching up in terms of investor accounts but value-wise NSDL is way above.

NSDL CDSL

  • CDSL leads in geographical spread of DP locations.

Geographical Spread

  • Options share increasing. But its due to calculation on notional value of the contract.

Index Futures to Derivatives

  • Good increase in AUM and no of clients in PMS.

Portfolio Managers

  • AIFs picking up big time.

AIF

  • Not a major jump in FPIs

Intermediaries

  • USA followed by Mauritius on in Assets Under Custody

AUC FPIS

  • No of SME listings are ramping up in a very big way.

SME listings

  • Market cap is still small.

SME capital raising

  • Pending actionable grievances being reduced at a great rate.

SEBI grievancesSEBI pending grievances

  • Sub Brokers reducing !!

Sub BrokersPortfolio Managers RIA RA

  • Given the high networth requirements doubt no of MFs are going to grow anytime soon.

No of Mutual Funds

  • Way too much surveillance ?

Surveillance Measures

Individual Shareholding Increases in Downtrends–PC Jewellers , Vakrangee and Manpasand Beverages top the charts

We had written a note on how Retail Investors keep averaging stocks in this article on NooreshTech Blog

http://www.nooreshtech.co.in/2018/04/why-do-traders-go-bust-and-investors-get-lost.html

Look at this snippet from Kotak Institutional Research Report.

Almost all the stocks are in downtrends and have corrected more than 20% from their highs.

 

Page Industries – 90 PE is not expensive – Cartica Capital (Part 2)

In our last post we mentioned how Cartica Capital finds Page Ind. is reasonably valued at 90 PE

The interview was aired on 28th June 2018

Looking at the Shareholding pattern of Page Industries we came across that holding of Cartica Capital has come down from 8,62,721 shares to 6,84,058 shares  between March to June 2018. Price range of Page Ind. during same time was 21800 to 27800

Shareholding of Cartica in Page Ind. over last 3 years

Quarter No. of shares
June 2018 6,84,058
March 2018 8,62,721
September 2016 8,64,565
June 2016 8,69,465
September 2015 8,63,650

Price Chart of Page Ind

Page Industries–90 PE is not expensive–Cartica Capital

An interesting take from Cartica Capital which is the 2nd largest public shareholder in the stock after Nalanda.

Video Link – https://www.youtube.com/watch?v=BnoCjHHyjJU

Check 2.40 to 4.10 . The overall interview is also interesting.

You might want to read up on Modigliani Miller Model for valuation

Indag Rubber–Buys a Group Company – Electric Vehicles Ancillary–Sun Mobility–Diversification or Diworsification?

Intimation under Regulation 30 about investment upto Rs.14.50 crores (USD 2.1 million) by way of acquisition of 21,00,000 equity shares of USD 1 each of SUN Mobility Investor Ltd.(Jersey)

https://www.bseindia.com/xml-data/corpfiling/AttachHis/9942e6e3-ef09-4c96-ac6c-3ac533796c69.pdf

http://www.sunmobility.co.in/ 

Khemka group has indirect control and ownership.

Investment is being done at book value of USD 1 per share.

Although the total investment is only 14.5 cr as of now. Will this be a good diversification or diworsification ?

Disclosure – No Holdings. Not a recommendation.