India has a large number of listed Holding Companies (HoldCos) that hold shares of other listed and unlisted companies. A large part of the value of these HoldCos stems from their stakes in other businesses. Globally, HoldCos trade at a discount to the underlying Net Asset Value (NAV) of their holdings. These discounts tend to range between 5-20%. HoldCos in India are unique because the HoldCo discount is sometimes exceptionally high, ranging from 50-80%.
Investing In The Time Of Corona
“Whatever men attempt, they seem driven to try to overdo. When hopes are soaring, I always repeat to myself ‘Two and two still make four and no-one ever invented a way of getting something for nothing’. When the outlook is steeped in pessimism, I remind myself, “Two and two still make four and you can’t keep mankind down for long.”
– Bernard M. Baruch
The Markopolos Method
Bernie Madoff was the king of Wall Street. He had served as the Chairman of Nasdaq, the world’s second largest stock exchange (by market capitalization of shares traded). He was a prominent philanthropist serving on the boards of non-profits and donated millions to various charitable causes. He also happened to be the mastermind behind the world’s largest Ponzi scheme estimated at 65 billion $s. For his role in this scam, Bernie Madoff was sentenced to 150 years of prison.
Impact of Tax Cuts on Intrinsic Value
The government surprised the markets last month by cutting corporate tax rates to 25.6% from 34.9% (all inclusive) earlier. All else equal, the future profits of a company currently operating on a full tax rate should increase by ~15% and therefore the intrinsic value should also go up. However, the reality is a bit complicated. We share below our thoughts on the impact of tax cuts on different companies.
Avoiding Landmines: The Panama Pump
In 1969, Eddie Antar opened a consumer electronics store in New York. Eddie’s stores (later renamed as Crazy Eddie) became popular for selling electronics at deep discounts to their competitors.
Investing in the Era of Platforms
The proliferation of internet has enabled a new breed of businesses called Platforms to thrive. Over the last two decades, several platforms have emerged (YouTube, Uber, Airbnb, Google, Facebook, Apple etc) and decimated many traditional businesses. As per a 2017 Credit Suisse report titled “Technology killing Corporate America”, average age of an S&P 500 company has come down to 20 years from 60 years in the 1950s. It is therefore important to understand the investment implications of the era of Platforms.
Moat + Long Runway = Buy at any price???
2018 has been a year of significant de-rating in multiples of several mid and small cap stocks. However, many businesses with strong moats have been able to avoid the fate of the rest of the market. In most of these cases, stock returns over the last few years have been even higher than the earnings growth. Valuation multiple expansion has been a big driver of returns for these stocks.
How Bad Is This NBFC Liquidity Crisis?
With the recent default on Commercial Papers (CPs) by IL&FS, all NBFC stocks have fallen. NBFC has suddenly become a swear word. While there are concerns on liquidity management of specific NBFCs, there are no solvency concerns as yet. However, this has again given rise to extreme debates such as whether there is even a need/place for NBFCs when so many banks exist. The perceived risk that investors associate with investing in NBFCs has suddenly shot up. And this has happened before too – many times. Let us go back in time to see how things panned out then.
Quality & Governance Matters!
2018 has been a tough year for the broader markets. While the Nifty 50 is up, both the small and midcap indexes have taken a beating. Even among the small and midcap stocks, there are clearly diverging trends. Good businesses with strong moats have fallen far less than poor quality stocks which lack any significant moat. Even among poor quality stocks, there have been diverging trends. Poor quality stocks with governance issues have crashed 50-90% from their peaks.
OTT Disruption In The Indian Media Sector
In January 2018, Netflix announced that it had crossed 54 mn subscribers in the US (i.e. 1 in every 2 US households). Netflix achieved this within 10 years of the launch of its over-the-top video streaming services (OTT[1]).
The last couple of years has seen a similarrapid rise in OTT platformsin India that did not exist few years back –
