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Large Cap Nifty Stocks – Returns since our call in December 2011

Important: Don’t miss the last paragraph.


When we wrote Large Cap Nifty Stocks available at deep discounts in December 2011, we were very excited to find a number of great companies available at very cheap prices. And since the world as well as Indian economy hadn’t fully recovered, it was really common sense that one stuck with businesses which could weather the economic turmoil. We advised and bought a few of these large caps for our personal portfolios.

So after an year, when index has given 25% returns, we checked the performance of individual stocks. And we must say that we are more than happy to see around 15 stocks giving 40% + returns. But there are a fair number of duds too. There are 10 stocks which trade at discounts compared to December 2011 prices.

Large Cap Nifty Stocks Returns One Year
Nifty Stocks: One Year Returns (Dec 2011 – Dec 2012)
As of now, markets are trading at a PE of close to 19 and since markets have run up around 800 points in last 4 sessions, we are not sure if it’s a good time to pick stocks. We would rather wait and watch for the time being.

Caution: Our post might make you believe that we have good predictive capabilities. The fact is that we don’t. Why? Markets have risen 25% in last one year. So have all stocks representing the market. And as Warren Buffett said: A rising tide lifts each and every boat. You only find out who is swimming naked when the tide goes out.

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Dividend Analysis of stocks in Dead Monk’s Portfolio

We highlighted in an earlier postthat DMP would be built, primarily around dividend investing.  The core of DMP is made up of 5 stocks, namely ONGC, Clariant Chemicals (I) Ltd., Balmer Lawrie & Company, Graphite India, Tata Investment Corp Ltd. And let us confess. We did receive a few brickbats about our stock selection for forming the core of DMP. So here we would like to offer a few thoughts –
  • These 5 stocks are selected on basis of our (not your) risk appetite.
  • These stocks have been selected for long term (10+ years) and not for trading on daily or even monthly basis.
  • We do not expect these to be multibaggers. Though we would love them if they become one.
  • Selecting these 5 stocks in core does not rule out any further addition to core in future.
  • These stocks do not disturb our sleep at night.
  • We may or may not be comfortable with stocks current price.
  • We are comfortable and very happy with present dividend policy and consistency of these 5 stocks.


As you can see in above table, all 5 stocks have been consistent dividend payers for last 5 and 10 years.

But at present, multiples at which Clariant Chemicals (I) Ltd is trading are not cheap. A P/E of 17.5 is much above our liking and so is P/BV of 3.3 (Read a good analysis on Clariant at SN). As far as we are concerned, we would start accumulating once the stock comes down on these parameters. Tata Investments is primarily an investor in famous Tata companies which include cyclicals like Tata Motors and Tata Steel. Current P/E of 15.4 is not to our liking and we would rather wait before further buying.

Part from these 5, we also proposed 7 large cap stocks in DMP. Though we picked these stocks for their stability, a good and regular dividend payout can be an added advantage.


BHEL, NTPC, BOB and NHPC have quite tempting dividend yields considering the fact that initially, we picked them for their large capitalization and stability 
(Note- NHPC has not been as stable as we would have liked and has been consistently falling after its IPO. But we feel that at CMP of 18, it can be a decent bet for long term.)

As far as growth stocks are concerned (Yes Bank, Cairn India, GSPL & Sterlite Industries), we don’t expect such stocks to pay dividends (consistent or not) for a few years as they are in growth phases and would be reinvesting money in their own businesses.


Dead Monk’s Disclaimer – No matter how careful we are, as an investor, we will never be able to eliminate the risk of being wrong.

PS – Please do check ‘Stock Screenersin widget area on right side. These can be good starting points for shortlisting good stocks.

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Nifty Stocks and PEG Ratios

In our previous post, we saw that Indian markets are presently trading at PEG ratio of 0.97. We arrived at this figure by dividing current P/E of 16.7 by average growth rate (in last 18 years)of 17.1%.

For details, please check the post on Historical EPS Growth Rates & PEG Ratio of Indian markets.
In continuation of our analysis of PEG ratios, we calculated PEG ratios of a few Indian large cap stocks –
Click to enlarge
Some details/observations of our analysis are as follows –
  • We have chosen EPS growth rates to represent growth rates of a company. One can also use any other growth rates.
  • For each company, we have calculated 3 PEG Ratios –
    • Using latest EPS Growth Rates (2010-2011)
    • Using Average of all EPS growth rates in last 5 years
    • Using least positive EPS growth rates in last 5 years
  • Afterwards, we calculated another PEG for each company – Average PEG – which is an arithmetic average of previous three PEGs.
 
  • Normally, a PEG greater than 1 indicates an overvalued company, and less than 1 indicates an undervalued company. But we must understand that PEG is just a ratio and it should always be looked in conjunction with other ratios and numbers.
  • For instance, a company like Bharti has an average PEG of 0.33, which is quite an attractive number when looked at on a standalone basis. But if we consider that Bharti operates in a highly competitive industry; has loads of debt due to 3G fee payments and African expansion; has decreasing average revenues per user (ARPU) and has a negative PEG(!) for current fiscal, the number 0.33 may not look so attractive.
  • But there are also few companies like BHEL (0.59), PowerGrid (0.83), Tata Steel (0.40) and Tata Motors (0.42) which have considerable moat (competitive advantage & operations in industries having high entry barriers) and can be said to be available at good valuations. But once again, one should understand that stock like Tata Motors are rate sensitive and cyclical. And under current global circumstances, may slip further.
  • A company like Sterlite Industries (pegged by few as future RIL) is available at a ridiculous PEG of 0.19 (or 0.25, 0.08, 0.26). But that does not mean that it is going to become a future multibagger. Similarly, Maruti is available at PEG of 0.10(!)
  • Then there behemoths like SBI which may be available at outrageous mathematically calculated PEG of 6.6, but are worth investing as there current PEG stands at 0.54. But one should also consider rise in NPAs of SBI and other factors before investing.
So a Stable Investor understands that one should never rely on just one mathematical tool to arrive at any investment decision. Any number should always be looked in conjunction with other ratios and numbers.