Sunday, July 20, 2014

Bubble Bubble

Lately, most of you have noticed that I am reducing my holdings in stocks and increasing cash. Many of the stocks I bought last year around August has appreciated by 100 - 200% and my portfolio has gone up decent enough in the last one year. But looking at valuations of some quality companies I can see a bubble like valuations being developed in some pockets of the stock market. See the following list:

CompanyP/EPrice Gain 2009-2014CAGR Gain 2009-2014
Page Industries5726 times92%
Astral Poly Technik3530 times97%
Kewal Kiran Clothing3318 times78%
Eicher Motors5343 times112%
Poly Medicure27.546 times115%
La Opala RG37.470 times134%

The list is very long. All the investors who took a plunge in blood bath of 2009 have been rewarded handsomely. The companies are from diverse range of industries but most of them were midcap-microcap in 2009 while today their market cap is sizeable now touching large cap valuations. I am warning investors that this is not going to end well.
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10 comments:

Nirvana said...

Thanks for posting something Sane :). market cant go up forever, market is a little bit expensive and it makes sense to take some profits however it doesnt seem like a bubble yet, not at least in india however its difficult to call a top.

Karthikraja K said...

Whether Cheviot and Lumax are still in your list of short term holding or closed your position?
What is the target level for Anuh Pharma?
it is puzzled me that you closed down SJVN position?

Chinmay said...

@Karthikraja,

I was worried about impact of drought on SJVN. It was more of dividend play and gave me 33%+ returns in less than 3 years + 5% dividend which is like 15% compounded annually.

They have also commissioned new plants so might increase revenue/profits and dividend too in the next two years. Up to you if you want to hold onto it.

Shiv Kumar said...

trailing 12 month EPS of poly medicure is Rs 27.25 which means the p/e is 16.95 and not as rendered.

Chinmay said...

The annual results of poly medicure gives EPS of 20.45. See http://www.moneycontrol.com/stocks/reports/poly-medicure-financial-results-for-march-31-2014-802365.html. So at 460, it is around 23 times and not 27 that I have mentioned but still pricey.

The second last column is price gain between 2009-2014 in times. You can verify that the price went from INR 10 to INR 460 today in five years.

sania said...

i think its more difficult to exit than to take position in any company. can anyone guide me that what financial equations alarm or signals to exit from a company?

mayur said...

In the reply post to @Karthikraja, which comp you're referring in your 2nd sattements about new plant? is it Anuh?
Any new recommendation at this point?

Chinmay said...

@Mayur, The company I was referring to is SJVN only and I meant power plant that they recently started http://profit.ndtv.com/news/corporates/article-sjvns-rampur-hydroelectric-plant-in-himachal-starts-power-generation-383352.

Chinmay said...

@sania - I would take the advice of warren buffett and never sell a wonderful business even if it is highly priced. I didn't heed his advice and sold Britannia (bought 220 sold 450), Nestle (bought 1200 sold 2800), Asian Paints (bought 100 sold 220) all at half or lesser price than what they are currently trading at and now repenting.

Karthikraja K said...

Hi,
whats your present View on Cheviot? Poor results caused the slide in price. Do you see any revamp in Top line? El Nino will have negative impact on Jute bags for Agri purpose.
What is your view on Lumax Auto? Pl share?

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