Leverage Mr Gurmeet Chadha's Experience In Strong Portfolio Construction
Here Mr. Gurmeet Chadha took session 2 on CNBC Market Gurukul
- 20+ years of experience in the market
- Indulged in wealth management, banking, mutual fund distribution
- Founded Complete Circle Wealth Solutions in 2015 (Managing Partner and CIO)
- Ex-VP of CITI Bank Northern Zone & investment head
- Part of Reliance Mutual Fund & HDFC bank
- Expert in wealth management, equity and debt investing
This session will focus on how much qualitative & quantitative your portfolio should be and way to manage wealth with it.
As per Gurmeet quantitative analysis is the engine of the car involving 3 main financial statements:
- PnL (sales & profit increasing)
- B/S (debt under control, internal accruals increasing or not)
- Cash flow (from ops and free cash flow to be there)
Gurmeet gave different examples of cos to help us know the method of tracking the stock by attending the sector’s conferences, meeting the internal team, and predicting the co. growth journey.
Gurmeet gave e.g of Britannia of how it got buzz word from Britiannia factory in Delhi adn through related party transactions between companies (Varun Beverages collab with Britannia) to grow fast.
Few more factors to study:
- Promoter intent
- Capital allocation
- Management aggressiveness or conservative
- Track record of management guidance & how they met them
Even if you don’t find specific info about a co. (you’ll surely find in the company’s IPO RHP)
The another check is innovation: Not just in tech or applications but innovation is in distribution, employee value system, decreasing the production time and market penetration strategies.
The best combo: innovation check + quantitative & qualitative analysis
Mr Gurmeet was usually talking with the company’s promoters or atleast the management team to know the product's evolving strategy (these same insights are shown on the stock graph)
The way to track company’s & industry’s valuation is through common sense (it can be gained through general market news, govt. policies, consumer behaviour in each sector, and global co. entrance and movements in the Indian market) - more examples given below
Size of Opportunity: In the HAL case study, Mr Gurmeet focused on looking the size of the market, growth rate, how much attention govt. is giving to them. The discussion Gurmeet had with one of the HAL associate to understand the cost savings strategy & plan to strengthening the defence. Sometimes overlooking the PSUs we need to see the opportunity size.
Industry size can be calculated via co. presentations, annual reports, industry conferences, expos, management interviews, white papers, TV interviews, reports from global IB & consulting firms.
As per Gurmeet, a portfolio is known as core & tactical where you’re projecting the co. growth. The core approach in the Indian market cos needs more time (considering a high opportunity size) to double, triple and multiply your investments.
Gurmeet portfolio consists of 15% tactical & rest core approach (highly long run). Tactical opportunities are like (breaking XYZ parent co. into subsidiaries, de-merging a certain business model, etc.) One needs to be clear of what is the purpose he/she is entering into the stock & exiting later.
Next important metric is cash flow from cash free operations with some of these below examples.
Few forensic checks you need to follow:
- Avoid politically associated cos
- Large exit from management
- Loans from promoter & high interest rate
- Analysis of related party transaction
- The most undiscovered metric is contingent liabilities.
There’re no stocks like buy and forget. You need to buy & track them through graphs and market sentiments. Few large-cap may give -ve returns, however, they’re the same who show strong bounce back
Buy and hold are those stocks where you see the co. is expanding superbly in different sectors e.g. Titan.
Identifying future themes:
Defnece is the new govt. theme of this decade. IN teh last decade there has been 102 companies (out of 500) - 21% of NIFTY stocks who are 10 baggers. There’s myth in the market to find out the hidden gem and invest. India is a retailer stock keeper market.
There are so much good country neighbours we’ve got, defence is an opportunistic market.
Here’s an interesting manufacturing theme chart shown by Gurmeet:
Manufacturing can be the dominant theme in one’s portfolio.
QnA:
How to check patents of a co.
You can check the annual reports and in the filing details too.
Re-explain related party transactions again?
E.g. a) Cash flow of Zee was negative (receivables from Dishtv, citicable, and other owned companies were increasing) where the sale has happened but the payments weren’t received.
b) Britannia is investing in it’s own FDs
When you’re investing in your relative or known co. in an unfair way, and showing metrics in a fair way, those are related party transactions.
Technology innovation can be easily identified. How to find efficiency innovation like Indigo, where to find this info?
The company’s financials will show the other efficiency levels (in the airline sector, all the receivables start decreasing, showing a good turnaround time).
Another co. is TVS supply chain which manages auto components (these components are high in price so can’t store else there’ll be an increase in working capital)
Launch your Graphy