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Wednesday, November 02, 2016

How Are We Doing Diwali 2016

Wishing All Investors. Readers & Visitors A Very Happy, Healthy and Prosperous New Year...
Let us start with a review of performance of stocks recommended in this blog.

Its been around 7 years since the blog was started.. A total of 30 stocks have been suggested as good investment ideas.10,000 invested in each of the 30 stocks ie 3,00,000/- lakh invested over the 7 years would have been worth 9,64,764.70 (Including dividends) would have given a return of 38.64% per year.
without including dividends the return would have been 36.41%

This is hypothetical case, because there have been rights issued and I have assumed that rights shares have been bought.  Also the total invested days is 2093 days as the stocks were introduced over the period of 7 yrs (2 of them in 2016)

The Recommended Best Buy stocks have turned around in 2016-17 Last year the Best Buy stocks had a 6 yrs absolute return of 50.51%  and this year 7 yrs absolute return is 271.67% an increase of 220% in one year..
In past 1 year
GAEL has increased from 45.20 to 95.4
Jayant Agro has increased from 109.90 to 551.40
NHPC has increased from 17.70 to 26.90
Tata Comm has increased from 431.30 to 634.55

The point being made is its very difficult to know when the stock becomes active and starts to be valued by investors increasing demand and increasing stock price. I also feel management suppport is important and management is in a position to project the right image to investors..

The question is.. is there still value left in these recommended businesses? The answer is yes!! These companies will still continue to perform well and with passage of time the value of their business will grow..

One of the most important things about a business/company is its ability to pay taxes after all expenses are considered. An individual gets a salary.. which is first taxed .. and then we pay for our expenses and finally we save the remaining income.
For example
A company earning 1000 having 500 as expenses  paying 30% tax has following savings
1000 - 500 = 500 which is then Taxed @ 30% (150/-)
Savings : 1000-500-150 = 350.00

An Individual earning 1000 and having 500 as expenses and paying 30% tax has following savings
1000 income is Taxed @ 30% ( 300/- ) & 500 Expense,
Savings = 1000-300-500 = 200.00

As you can see All things equal.. Individual saves 200/- while corporate saves 350/- A corporation can save 75% more than an individual just because in case of corporates you pay taxes  after all expenses are paid.. while in case of an individual you pay taxes before your expenses are paid. (BIG Difference!!)

So one of the important functions of a corporation is the tax benefit and hence corporates have an incentive to invest and grow. Over a period of time the effect of compounding increases the wealth of corporates. Management is always an important factor as they can make or break a corporation.

Outlook: BASEL-III implementation is just being rolled out.. so banks are going to have a tough time growing their books. due to lower leverage than normal.(due to basel -III restrictions) . what is the need of the hour is "excessive printing of paper currencies" and all the central bankers are busy doing it..

Excessive printing is required to replace the lower leverage in the balance sheet of the banks.. now the Goverment balance sheets are expanding... and till the bank leverage stays low we are all good.. the problem will be when the banks return to their old ways and leverage their books.. that is when the problem will start.

India is one of the few countries where the level of leverage in the system is very low. A large portion of the Indian population is still unbanked.. NBFC with no basel-III restrictions can really eat the cake of the banking industry.. and a NBFC owned by a bank would be able to somehow have the best of both worlds..


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