Tweet Buster: Basant Maheshwari explains how to value a cyclical

As Nifty broke out of its two-month-long consolidation zone last week to scale fresh highs, two stocks - and - which were struggling to make a mark in the last few months sprang back to life. With a jump of over 8 per cent, Airtel ended up as the top Sensex gainer while ITC gained as much as 4.5 per cent. In a clear sign of ample liquidity in the market, investors poured in Rs 1.7 lakh crore in four IPOs last week and are now ready for another set of four IPOs this week.

In this edition of Tweet Buster, we bring the best of social media gyaan from market mavens so that you keep compounding your wealth in the market.

Drawdowns in compounding
DSP Mutual Fund's Kalpen Parekh explained the role of drawdowns in compounding by giving the example of his AMC's smallcap fund.

Role of drawdowns in compounding

Our small cap fund to give an example

Up 6 times (from peak of 2008)
Up ~ 20 times (from lows of 08-09)

Same tenor of ~ 13 years

Odds of investing

1) at lows : almost nil
2) at highs : very high

— Kalpen Parekh (@KalpenParekh) August 8, 2021

Just chill
Parekh said the NAVs of liquid funds are hitting all-time high every day but there are no celebrations nor anxiety attacks. "Such indifference to long-term asset classes like equities would help our compounding," he said.

Liquid fund nav hits all time high every day

Just like an FD s value too

Neither we see greed of celebrating it nor fear of anxiety of falls from there

Such indifference to long term asset classes like equities would help our compounding

— Kalpen Parekh (@KalpenParekh) August 7, 2021

Are steel stocks cheap?
For those confused on calculating the value of a cyclical, PMS fund manager Basant Maheshwari explained it by giving the example of .

#Sail Q1FY22 profits were 94% of full Fy21 profits. Would have easily surpassed but for lower volumes of 3.3. MT (oxygen related shutdowns) compared to 4.35 MT in Q4fy21. Two numbers to focus are Rs 20,250/ tonne Ebidta and a 5063 cr debt reduction. Now how to value a cyclical:

— Basant Maheshwari (@BMTheEquityDesk) August 6, 2021

Sail traded at an Enterprise value/ Ebidta of 6x during the pandemic. Market cap was 10k cr in March 2020, while debt was 54k cr total Enterprise value came to 64k cr. Assume that Sail trades at the same EV and debt is reduced to 15k Cr at the end of fy 22. Then …..

— Basant Maheshwari (@BMTheEquityDesk) August 6, 2021

… at a 17 MT output in FY 22 and a conservative 21k per tonne Ebidta, Sail generates a Ebidta of Rs (17 mn x 20,250) = 34,425 cr for fy22.

— Basant Maheshwari (@BMTheEquityDesk) August 6, 2021

Join the party guys
Dalal Street veteran Shyam Sekhar said when everybody makes money, make sure you participate too. "If you failed, then recreate your ecosystem. Your investing approach must change. Your focus needs to change. Not being able to even participate in a secular bull market is a warning bell. Prepare for the next time."

When everybody makes money, make sure you participated too.

If you failed, then recreate your ecosystem. Your investing approach must change. Your focus needs to change.

Not being able to even participate in a secular bull market is a warning bell.

Prepare for the next time.

— Shyam Sekhar (@shyamsek) August 8, 2021

Warning Bell
Independent market expert Sandip Sabharwal believes that the future of PSU banks, including that of SBI, is bleak in the long term. "The bread and butter for banks are the low-cost CASA deposits. Tell me, how many of you went and opened an account with a PSU bank these days, unless and until it's a salary account?"

The future of #PSU Banks including #SBI long term is bleak
The bread and butter for banks are the low cost CASA deposits
Tell me, how many of you go and open an account with a PSU Bank these days unless and until its a salary account?

— sandip sabharwal (@sandipsabharwal) August 6, 2021

Market operators
Sabharwal wondered why the stock of Barbeque Nation has gone up about 120 per cent since listing. "Market manipulation is reaching unprecedented heights with no action from exchanges and regulator," he alleged.

So what exactly is going right for #BarbequeNation for the stock to be up 15% today, 120% since listing?

Market Manipulation is reaching unprecedented heights with no action from exchanges and regulator

— sandip sabharwal (@sandipsabharwal) August 6, 2021

Once again #Titan came out with below par results.They changed some hedging policy whose impact on margins unclear
Only difference is that this time they did not give excessively bullish guidance
Compulsory Hallmarking will get other jewelers at par with them negating purity card https://t.co/vb46iIyUoH

— sandip sabharwal (@sandipsabharwal) August 5, 2021

Investing gems from Ian Cassel

95% of your future returns will likely come from 4-6 core investing principles. Then you have 20 other things (distractions) that we like to overemphasize that make up the other 5%.

— Ian Cassel (@iancassel) August 6, 2021

You're a business analyst, not a stock analyst

— Ian Cassel (@iancassel) August 6, 2021

If you can't handle the volatility then you don't deserve the long-term gain.

— Ian Cassel (@iancassel) August 3, 2021