Memo 34 – Winds of change!

"All good things must come to an end, so that better things can happen" For long term investors like us, falling markets are time for mixed emotions. The fear of mark down in portfolio values is interspersed with hope of buying long-awaited stocks at attractive prices. But this time, the emotions are tilting more towards relief that falling markets will bring sanity back to the world of business & investing. Relief that focus is changing from “growth at any cost” to “growth with profits”; that ...
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Microfinance – Cyclical recovery is underway!

Microfinance – Cyclical recovery is underway! Cyclicality in microfinance sector is as old as the sector itself. A good cycle usually lasts for few years and is inevitably followed by bad cycle. The sector witnessed its worst cycle over 2019-21 courtesy the build-up that happened over 2017-19 and the disruptions caused by the pandemic. Over the past two years, most MFI players have provided for or written-off around 10-20% of their portfolios. Credit losses of MFI players ...
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Gold price & gold loan NBFCs – Is the correlation breaking down?

Gold price & gold loan NBFCs – Is the correlation breaking down? All through the last 10 years, there has been a simple linkage between gold price and the perception of performance of gold loan NBFCs. If gold prices went up, stocks of gold loan NBFCs like Muthoot & Manappuram would do well and vice-versa if the prices went down. This simple correlation was based on the understanding that if gold prices go up, loan growth improves, operating leverage kicks-in, auctions reduce and profitabili...
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Memo 33 – Heads, I win; Tails, I don’t lose much!

Memo 33 – Heads, I win; Tails, I don’t lose much! The above title pretty much summarises the investor experience in stock markets over past 18 months. Markets continue to celebrate even the smallest of positive developments like revenge travel, re-opening of cinemas or the rise in valuation of start-up unicorns. Business media, Twitter & Instagram are full of positive interpretation even around the not-so-positive developments like: • Rising inflation (is good because far...
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Memo 32 – Investing through interesting times!

Memo 32 - Investing through interesting times! A complete victory over Covid seems at least a few months away, but that has not stopped the stock markets from making new highs yet again. The 2 nd wave made little dent on the markets even though it had much deeper impact on lives & livelihood of large number of Indians. The divergence seems even stronger when we see that unemployment rate in India is stubbornly high but most start-ups are facing unprecedented attrition as well as wage infl...
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Gold loans: The “Titan” moment for Muthoot Finance

Gold loans: The “Titan” moment for Muthoot Finance Q1FY22 represented a perfect storm for the gold loan sector. Gold prices had crashed 15% towards the end of Q4FY21, lock-downs had impacted demand as well as ability of customers of earn & repay, and banks had to deal with additional problem of lowering LTVs from 83% to 68%. It was no surprise that most players witnessed de-growth in loan book, rise in NPAs and subdued profitability for the quarter. Tough times generally separate the men ...
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Microfinance (MFI) – Blame it all on COVID?

Just when the MFIs were trying to write-off the Covid losses and re-start their growth journey, the 2 nd wave came and hit them. Given that this wave has penetrated the depth of India’s hinterland, the MFI sector has been very vocal is demanding an emergency credit line of Rs.15,000crs, government relief through Partial Guarantee scheme and enhancement the lending rate. As investors, we may be tempted to think that last few quarters should be treated as “exceptional” due to cyclones, special ...
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Memo 31 – Market View: Pessimism, Scepticism, Optimism and Euphoria!

Memo 31 – Market View: Pessimism, Scepticism, Optimism and Euphoria! The roller coaster of 2020 is resolutely behind us – Covid concerns are fading, life is bouncing back towards normalcy, our favourite restaurants & our household help are back in action, government &central banks are providing unconditional support to the economy and, stock markets are at least 20% higher than pre-Covid levels! One may be seduced to think that it’s surely a party time for investors. Well, life is n...
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Memo 24 – Market View – Separating Men from the Boys!

After almost four years of steady rise, the past few months have been rather challenging for Indian stock markets. The thousands of whatsapp groups which were buzzing with new recommendations every day have become unusually silent; the newspapers and TV anchors are no longer talking about multi-baggers and public personalities are no longer boasting about their winning bets. Let’s take a moment to understand why the euphoria suddenly turned into fear. The damage at the index level looks small (...
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Bandhan HAL & Bharat IPOs

Bandhan Bank, Bharat Dynamics & HAL IPOs – Invest After a long break, it’s again a month of good IPOs. Before you get excited, let us put a disclaimer – these companies are great companies in their respective sectors, but will not give you returns on day 1 of listing. Unlike in the past, you will have to stay invested for a slightly longer period. Since the euphoria in the IPO market has subsided, there is a good probability of allotment in all these IPOs. Bandhan Bank Apart from being ...
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