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Wednesday, February 20, 2019

Are you Fearful of Market Crash? Its time to be Greedy!

Dear Reader,

Since Jan 2018, broader markets i.e. Small Cap and Mid Cap indices are in bear phase. Over last few weeks, we have seen small & mid cap stocks getting butchered with fall in stock prices on almost daily basis. At current scenario, when Small & Mid Cap Index is down by 35% and 24.7% respectively from their peak made in January last year and significantly underperformed Sensex & Nifty, no body want to touch this space. Most of the liquidity in small & mid caps has dried up and found its way to large caps over last 13 months. At this juncture, large caps looks fairly valued or expensive in terms of valuations, however small & mid cap companies look attractive and can reward long term investors in big way. In fact, some of the worst times to get into the market turned out to be the best times for long term investors and same seems to be applicable now for small & mid caps.

Its always wise to be greedy when others are fearful. Fall in stock prices of small and mid cap companies by 40% to 60% from their peaks use to happen during panic times, if a particular company delivers 3x to 5x or even 10x type of returns on your investments in period of 3 to 7 years, it can easily fall by 40% to 60% or even more from its 52 week high during tough times which arises due to profit / loss booking, series of negative events / news flows and severe sell off due to panic across markets. Below are some of the major reasons of severe fall in stocks prices of small & mid cap stocks since beginning of 2018:

i) Rejig in Portfolio by Mutual Funds to meet guidelines defined by SEBI
ii) Introduction of Additional Surveillance Measures by SEBI to curb volatility
iii) Auditors exit from various companies on fear of stringent action from authorities
iv) Unfavourable macros with increasing crude oil prices and depreciating rupee
v) Trade war fears between US and China, rising interest rates, continuous selling by FIIs
vi) Panic in market due to liquidity concerns, IL&FS default on debt repayments
vii) Political uncertainty with setback of BJP in assembly elections in 3 key states
viii) Concerns in market due to severe sell off in large caps stocks like Zee, Tata Motors
ix) Panic arising due to stock prices of ADAG companies falling line nine pins
x) Nervousness in Dalal street with rise in geopolitical tensions post Pulwama attack

Small Cap Index has not delivered negative returns for 2 consecutive years in past 16 years

We believe this is a blessing in disguise because for the first time in many years, several small companies having robust business fundamentals are available at attractive valuations. Do you know in last 16 years, small cap index have not given negative returns for 2 consecutive years. In 2018, BSE Small Cap Index has given negative returns of -23.4% and since beginning of this year, index is down by another -11.2%. Below is the table which indicates Small Cap Index returns YoY since 1st April 2003 (the data is available from April 2003 onwards only in BSE).
Whenever, Small Cap Index delivered significantly high negative returns in a particular year during last 16 years, it has delivered double digit positive returns the very next year. While Nifty and Sensex which are hovering near their life time high and are down by roughly 9% from their peak, Small & Mid Cap Index have underperformed by wide margin and is down by 35% and 25respectively from their peak made in Jan 2018. The divergence between Sensex / Nifty and Small & Mid Cap Index will not last for long going forward considering valuations gap emerging between large caps in comparison to mid & small cap stocks.

Tide to turn favourable sooner than later for small cap stocks

If you analyse the bear phase of stock markets cycle since 1990, you will find that such bear phase has not lasted for more than 15 months. Small cap index which made high in Jan 2018 with end of its bull run has already corrected by -35% from its peak of 20,184 in last 13 months. Taking clues from history, we believe we are close to end of bear cycle in broader market after which stock prices of small and mid-caps will start recovering by going up and further up.

Below is the monthly chart of BSE Small Cap Index since 2005. The chart illustrate that the last decade bull run which started in 2003 made a peak in Jan 2008 and later went into bear phase with continuous fall in stock prices of small caps for next 15 months, i.e. from Jan 2008 to March 2009 and later stock prices of small caps recovered and went through correction and consolidation phase. Similarly, bull run in small caps which started in 2014 made its peak in Jan 2018 and moved into bear territory later. This month i.e. Feb’19 is the 14th month of bear phase experienced by broader markets – small & mid caps. If history of small cap index repeats itself (have very high probability), we are near to end of bear phase after which stock prices of small caps will start moving northward.

With fear of losing capital and dampened sentiments towards broader markets, small cap stocks are falling like nine pins these days. We have observed a lot of hopelessness towards broader market as Investors who started investing in equities during 2017 and 2018 are not willing to invest in this space due to pain of high negative returns in their portfolio and negative sentiments towards broader markets.

Series of negative developments have made Investors taking back seat in terms of investing in broader markets. Earlier, Yes Bank and DHFL were dumped by Investors due to RBI measures and liquidity concerns, followed by severe correction in Essel group stocks like Zee, Dish TV etc due to high debt concerns and recently ADAG group stocks spoiled market sentiments. Recent episode of Reliance Communication opting for insolvency with NCLT has collapsed the ADAG group companies stock prices as lenders started selling collateral shares of these companies. Collapse in stock prices of such well known and bigger companies butchered investors faith and interest towards investing in small and mid cap companies.

Usually bottom is made during these panic times which we are witnessing currently with series of negative news flow. Once broader market start factoring all these negatives along with uncertainty of upcoming election, the focus will shift towards individual company's earnings growth and current valuations which will drive stock prices up in coming quarters.

Greed which was seen in broader market (small & mid caps) in the year 2016 and 2017 has turned to fear these days. During last few weeks, we have received many mails from our members seeking advise in terms of which Hidden Gems / Value Picks stocks they continue to hold and which ones to exit. Are you also fearful? This is the time to do opposite of the herd, its time to be greedy when others are fearful. If you are not investing in equities during these opportune times and taking the back seat, you are making a bigger mistake. Are you not following the herd mentality? If you have invested in markets during 2016 and 2017 when valuations of companies were significantly higher compared to today’s valuation, why you have stopped investing now?

Remember, in the long run, you do not make decent returns on your investments by following the herd i.e. when everyone is buying stocks; instead you get handsome returns on our investments by investing in stocks at significantly low prices as no one else is buying, and by selling to them when they come back in herd due to greed in future.

You might be thinking, when stock prices are falling almost on daily basis, why to invest to risk your investments. Agree! If you are not a long-term investor and thinking to make quick bucks by timing the market, it could be risky. Hence, we advise to invest only keeping a longer time horizon, minimum 2 to 5years or more. In fact, to make enormous wealth from equities, you should have horizon of 10 to 20 years so that you can experience 2 to 3 market cycles and reap maximum reward during bull phase of equity markets. We do not believe in timing the market and hence advise our members to follow a discipline approach, but it’s wise to turn aggressive in terms of equity investing during panic times which we are experiencing now.

“The first rule of investment is ‘buy low and sell high’, but many people fear to buy low because of the fear of the stock dropping even lower. Then you may ask: ‘When is the time to buy low?’ The answer is: When there is maximum pessimism.”
Sir John Templeton

We believe above article has helped you giving complete insight of equity market cycles specifically small caps during bull and bear phase and benefit of investing in them during extreme pessimism / painful periods with long term horizon. Also make you understand, why its more important to be a disciplined investor who keep on investing in systematic way irrespective of market conditions and not an emotional investor who usually buy stocks during bull phase when stock prices are moving higher because of greed and sell them in panic during bear phase due to severe fall in stock prices, making mistake of buying high and selling low.

We are pleased to inform you that we decided to pass on the maximum benefits to our members during such opportune time of Investing. Do continue your Investing journey in a disciplined way for long term instead of stopping just because to severe fall in stock prices. You can avail our subscription services at best discounted prices which is applicable only during offers period. Click on SUBSCRIBE! link to subscribe to our services online using debit / credit card or net banking facility.

SARAL GYAN
SUBSCRIPTION SERVICE
APPLICABLE 
DISCOUNTED PRICE
PAY ONLINE 
CARD / NET BANKING 
Hidden GemsRs. 10,000 9,000
Value PicksRs. 6,000 5,400
Wealth-BuilderRs. 20,000 18,000
15% @ 90 DaysRs. 4,000 (No Discount) 
Combo 1: HG + VP + WB + 15%Rs. 40,000 28,000
Combo 2: HG + VP + 15%Rs. 20,000 15,000
Combo 3: HG + VPRs. 16,000 13,000
Combo 4: HG + 15%Rs. 14,000 11,500
Combo 5: VP + 15%Rs. 10,000 8,500

Please note that above discounted prices on our services are applicable only for limited period after which these discounts will not be applicable.

Valuable freebies which you will receive post activation of your subscription under Hidden Gems, Value Picks or Wealth-Builder services are as under:

1. Portfolio of 10 Small and Mid Cap Stocks for 2019 (1st Jan'19) - Read More
2. Existing Portfolio Health Check Up under Wealth-Builder subscription - Read More
3. Special Report - 6 Hidden Gems Stocks to Buy / Accumulate (30th Sep'18) - Read More
4. Special Report - 6 Value Picks Stocks to Buy / Accumulate (02nd Oct'18) - Read More
5. Saral Gyan eBook - "How to Grow your Savings?" worth Rs. 599 for Free. - Read More

In case if you are not comfortable in subscribing online, you can make the payment through cheque deposit / NEFT transfer in any of our bank and writing back to us sharing transaction details. Click here to know about our other payment option and bank details.

Do write back to us in case of any queries.

Regards,
Team - Saral Gyan

6 High Quality Small & Mid Caps You Can't Afford to Miss!

Dear Reader,

The ongoing market turmoil is one of the rare opportunity to get quality stocks at bargain prices. Remember, such opportunities do not last for long! Since beginning of 2018, we have seen severe correction in broader indices. As on date, BSE Small Cap & BSE Mid Cap Index is down by 34% & 23% respectively from their all time high made in January last yearSteep fall in broader indices have hurt sentiments and created panic for many of retail investors who got into market during last couple of years. Its important to know, whether you would be able to hold on your equity investments, think to exit if stock market tanks further or accumulate good companies available at reasonable to attractive valuations after a long time. 

Its always wise to be greedy when others are fearful. Fall in stock prices of small and mid cap companies by 40% to 60% from their peaks use to happen during panic times, if a particular company delivers 3x to 5x or even 10x type of returns on your investments in period of 3 to 7 years, it can easily fall by 40% to 60% or even more from its 52 week high during tough times which arises due to profit / loss booking, series of negative events / news flows and severe sell off due to panic across markets. Below are some of the major reasons of severe fall in stocks prices of small & mid cap stocks since beginning of 2018:

i) Rejig in Portfolio by Mutual Funds to meet guidelines defined by SEBI
ii) Introduction of Additional Surveillance Measures by SEBI to curb volatility
iii) Auditors exit from various companies on fear of stringent action from authorities
iv) Unfavourable macros with increasing crude oil prices and depreciating rupee
v) Trade war fears between US and China, rising interest rates, continuous selling by FIIs
vi) Panic in market due to liquidity concerns, IL&FS default on debt repayments
vii) Political uncertainty with setback of BJP in assembly elections in 3 key states
viii) Concerns in market due to severe sell off in large caps stocks like Zee, Tata Motors
ix) Panic arising due to stock prices of ADAG companies falling line nine pins

Its important to understand that long term gains come in equities with such short term pain. We have seen such a severe correction in small and mid cap stocks after 2011. With fall in stock prices during this year,  valuations of many small and mid caps become attractive to reasonable. In fact, many good companies are available at valuations which look very attractive considering the earning growth these companies are expected to deliver over next 2 years. This is not the time to sell in panic, but to accumulate good companies available at discounted valuations. Moreover, once the market bottoms out and form a base, we can see renewed buying interest in small & mid caps. Bad sentiments will not last for ever, its time for long term investors (2-5 years) to start accumulating good quality stocks which after a long time are becoming available at attractive valuations.

“The first rule of investment is ‘buy low and sell high’, but many people fear to buy low because of the fear of the stock dropping even lower. Then you may ask: ‘When is the time to buy low?’ The answer is: When there is maximum pessimism.”
Sir John Templeton

We reviewed all our past recommendations released under Hidden Gems and Value Picks service in Oct 2018 when we saw severe fall in stock prices like that of this month and short-listed 6 Hidden Gems and 6 Value Picks stocks which offer good long term investment opportunity and have potential to give excellent returns on your investment during next 2 – 3 years. 

We released our "Special Report - 6 Hidden Gems Stocks to Buy / Accumulate" on 30th Sept 2018 and mailed it to our Hidden Gems members. Similarly, we also released our "Special Report - 6 Value Picks Stocks to Buy / Accumulate" on 02nd Oct 2018 and shared it with our Value Picks members.

While short listing 6 stocks under each service i.e. Hidden Gems and Value Picks, we evaluated each company on the basis of I-B-M-V-E-D parameters (Industry, Business, Management, Valuations, Earnings Growth & Debt Management) and rated every parameter using a rating scale – E,V,G,F,P (E=Excellent, V=Very Good, G=Good, F=Fair, P=Poor)

One of the important key to successful investing is to pick the right business at decent valuations. We finalized these 12 stocks with a long term view (2-3 years) and find them superior over other Hidden Gems and Value Picks stocks in terms of valuations, earning visibility, debt management (Loan book growth, NPAs, Capital Adequacy & Other Imp Financial Ratio’s in case of NBFC / HFC) and integrity of promoters towards their business and interest of minority shareholders.

The 6 Hidden Gems stocks which we finalized have a market capital below 600 crores and seen a price correction between 25% to 50% from their 52 week high without any major change in business fundamentals. We believe these stocks will outperform giving much better returns compared to broader indices in medium to long term. Our members can add these stocks in their portfolio with long term view (2 to 3 years). We suggest our members to start investing in these 6 Hidden Gems stocks with initial allocation of 2-3% and increase allocation gradually to 4-5% in staggered way in case stock prices of these companies falls by another 10% to 20% or more during ongoing market correction.

The 6 Value Picks stocks which we finalized have a market capital between 500 crore to 5000 crores and seen a price correction between 40% to 50% from their 52 week high without any major changes in business fundamentals. We believe these stocks will outperform giving much better returns compared to broader indices in medium to long term. Our members can add these stocks in their portfolio with long term view (2 to 3 years). We suggest our members to start investing in these 6 Value Picks stocks with initial allocation of 2-3% and increase allocation gradually to 4-5% in staggered way only in case stock prices of these companies falls by another 10% to 20% or more during ongoing market correction.

Important parameters which we looked into while finalizing stocks are as under:

1. Industry – Operating in Industry / sector which is expected to grow > 10% CAGR during next 3 years
2. Business – Leadership position in the business or one of its business segment in certain geography
3. Management – Prudent & trustworthy management keeping interest of minority share holders
4. Valuations – Reasonable / attractive valuations compared to peer group companies
5. Earnings – Consistent past performance & strong earning visibility with planned / recent expansion
6. Debt Management – Company is able to generate cash flows with low or reducing debt on books

If you wish to receive our Special Reports - 6 Hidden Gems Stocks to Buy / Accumulate, you can subscribe to our Hidden Gems service and for our Special Report - 6 Value Picks Stocks to Buy / Accumulate, you can subscribe to our Value Picks service. To get access to both the reports, you need to opt for combo plan of both the services.

If you have patience and want to add extra power in your portfolio, start investing some portion of your savings in fundamentally strong small and mid cap companies - Hidden Gems and Value Picks.

Moreover, if you have invested in stocks and believe that your investments are not performing well, subscribe to our Wealth-Builder service and get your portfolio reviewed by us. We will review fundamentals of the companies you are holding and guide you which stocks to hold and which to exit. We will also review your equity investments across sectors and companies to ensure that your portfolio allocation is right and outperforms major indices giving you better returns in medium to long term.

Start building your equity portfolio by making educated investment decisions, subscribe to our Hidden GemsValue PicksWealth-Builder annual subscription services.

Below are the details of our services:

1. Hidden Gems (Unexplored Multibagger Small Cap Stocks): Based on fundamental analysis, our equity analysts release one Hidden Gem research report every month with buy recommendation and share it with all Hidden Gems members. Stock finalized as Hidden Gem belongs to small / micro caps space with market cap of less than 500 Crores, expected returns from Hidden Gems is above 100% in period of 12 - 24 months. Once target is achieved, we inform our members whether they should continue to hold the stock or need to do partial / full profit booking. If fundamentals are intact and valuations are reasonable, we suggest to continue to hold the stock for long term for multibagger returns. Annual subscription charge of Hidden Gems is INR 10,000 9,000 under which you will receive total 12 Hidden Gems research reports (one on monthly basis). Click here to read more about Hidden Gems.

2. Value Picks (Mid Caps with Plenty of Upside Potential): Our equity analysts team consider Warren Buffet approach to short list stocks from mid cap segment as Value Picks. Market cap of Value Pick will range from 1000 crores to 10,000 crores. Holding period of Value Picks is 12 - 24 months and one can expect returns of 40-60%. Annual subscription charge of Value Picks is INR 6,000 5,400 under which you will receive total 12 Value Picks research reports (one on monthly basis). Click here to read more about Value Picks.

3. 15% @ 90 Days (Buy to Sell Stocks for Short Term Gain): Based on technical analysis, our team recommends one stock every month to our members. It’s a short term call under which you can expect returns of 15% within period of 90 Days. Annual subscription charge of 15% @ 90 Days is INR 4,000 under which you will receive 12 stock recommendations. We suggest lower allocation in 15% @ 90 Days stocks and higher allocation in Hidden Gems and Value Picks which are our portfolio stocks based on fundamental analysis.​ 15% @ 90 Days stocks recommendations are based on buy to sell and gain strategy, hence we suggest our members to book complete profits once target is achieved and exit in case target is not achieved or stock has broken its 2nd support level as per report. Click here to read more about 15% @ 90 Days.

4. Wealth-Builder (An Offline Portfolio Management Service): Wealth-Builder is our model portfolio of Rs. 10 lakhs and currently we are holding 15 stocks in our portfolio. We suggest higher allocation in our Wealth-Builder stocks which includes best of our Hidden Gems and Value Picks released during last couple of years. Our team suggest all our Wealth-Builder members to invest in the stocks which are part of our Wealth-Builder portfolio. Every month our team updates our Wealth-Builder members which stocks they need to buy / sell / hold with % allocation of these stocks in their portfolio, the suggested changes need to be replicated in the same proportion. Annual subscription charge of Wealth-Builder is INR 20,000 18,000 under which you will receive total 12-18 portfolio updates. We also review existing equity portfolio of our members and advise them which stocks they should continue to hold and which to exit based of fundamental analysis under Wealth-Builder service. We also check sector wise / stock wise allocation and guide if any stock needs to be increased or decreased based on current portfolio allocation. Our Wealth-Builder service is suitable for those investors who have an existing portfolio of at least 2 to 3 lakhs or planning to invest similar amount or more in equity market. Click here to read more about Wealth-Builder.

We do update our members in terms of profit booking / exits depending upon various factors like overall Industry / Sector outlook, fundamentals of the company, management action plan and annual performance in terms of top line, bottom line, operating margins and other important parameters.

We are pleased to inform you that we decided to pass on the maximum benefits to our members during such opportune time of Investing. Do continue your Investing journey in a disciplined way for long term instead of stopping just because to severe fall in stock prices. You can avail our subscription services at best discounted prices which is applicable only during offers period. Click on SUBSCRIBE! link to subscribe to our services online using debit / credit card or net banking facility.

SARAL GYAN
SUBSCRIPTION SERVICE
APPLICABLE 
DISCOUNTED PRICE
PAY ONLINE 
CARD / NET BANKING 
Hidden GemsRs. 10,000 9,000
Value PicksRs. 6,000 5,400
Wealth-BuilderRs. 20,000 18,000
15% @ 90 DaysRs. 4,000 (No Discount) 
Combo 1: HG + VP + WB + 15%Rs. 40,000 28,000
Combo 2: HG + VP + 15%Rs. 20,000 15,000
Combo 3: HG + VPRs. 16,000 13,000
Combo 4: HG + 15%Rs. 14,000 11,500
Combo 5: VP + 15%Rs. 10,000 8,500

Please note that above discounted prices on our services are applicable only for limited period after which these discounts will not be applicable.

In case if you are not comfortable in subscribing online, you can make the payment through cheque deposit / NEFT transfer in any of our bank and writing back to us sharing transaction details. Click here to know about our other payment option and bank details.

Do write to us in case of any queries, we will be delighted to assist you.

Also Read: 

1. Multibagger Small Caps: Hidden Gems - SIP Returns @ 156.8%
2. Grab Techno-Funda Stock Pick 2019 Report for Free

Wish you happy & safe Investing.

Regards,
Team - Saral Gyan

Monday, February 18, 2019

BSE Small Cap Index down by 35%. Is it Time to be Greedy?

Dear Reader,

Since Jan 2018, broader markets i.e. Small Cap and Mid Cap indices are in bear phase. Over last few weeks, we have seen small & mid cap stocks getting butchered with fall in stock prices on almost daily basis. At current scenario, when Small & Mid Cap Index is down by 35% and 24.7% respectively from their peak made in January last year and significantly underperformed Sensex & Nifty, no body want to touch this space. Most of the liquidity in small & mid caps has dried up and found its way to large caps over last 13 months. At this juncture, large caps looks fairly valued or expensive in terms of valuations, however small & mid cap companies look attractive and can reward long term investors in big way. In fact, some of the worst times to get into the market turned out to be the best times for long term investors and same seems to be applicable now for small & mid caps.

Its always wise to be greedy when others are fearful. Fall in stock prices of small and mid cap companies by 40% to 60% from their peaks use to happen during panic times, if a particular company delivers 3x to 5x or even 10x type of returns on your investments in period of 3 to 7 years, it can easily fall by 40% to 60% or even more from its 52 week high during tough times which arises due to profit / loss booking, series of negative events / news flows and severe sell off due to panic across markets. Below are some of the major reasons of severe fall in stocks prices of small & mid cap stocks since beginning of 2018:

i) Rejig in Portfolio by Mutual Funds to meet guidelines defined by SEBI
ii) Introduction of Additional Surveillance Measures by SEBI to curb volatility
iii) Auditors exit from various companies on fear of stringent action from authorities
iv) Unfavourable macros with increasing crude oil prices and depreciating rupee
v) Trade war fears between US and China, rising interest rates, continuous selling by FIIs
vi) Panic in market due to liquidity concerns, IL&FS default on debt repayments
vii) Political uncertainty with setback of BJP in assembly elections in 3 key states
viii) Concerns in market due to severe sell off in large caps stocks like Zee, Tata Motors
ix) Panic arising due to stock prices of ADAG companies falling line nine pins
x) Nervousness in Dalal street with rise in geopolitical tensions post Pulwama attack

Small Cap Index has not delivered negative returns for 2 consecutive years in past 16 years

We believe this is a blessing in disguise because for the first time in many years, several small companies having robust business fundamentals are available at attractive valuations. Do you know in last 16 years, small cap index have not given negative returns for 2 consecutive years. In 2018, BSE Small Cap Index has given negative returns of -23.4% and since beginning of this year, index is down by another -11.2%. Below is the table which indicates Small Cap Index returns YoY since 1st April 2003 (the data is available from April 2003 onwards only in BSE).
Whenever, Small Cap Index delivered significantly high negative returns in a particular year during last 16 years, it has delivered double digit positive returns the very next year. While Nifty and Sensex which are hovering near their life time high and are down by roughly 9% from their peak, Small & Mid Cap Index have underperformed by wide margin and is down by 35% and 25respectively from their peak made in Jan 2018. The divergence between Sensex / Nifty and Small & Mid Cap Index will not last for long going forward considering valuations gap emerging between large caps in comparison to mid & small cap stocks.

Tide to turn favourable sooner than later for small cap stocks

If you analyse the bear phase of stock markets cycle since 1990, you will find that such bear phase has not lasted for more than 15 months. Small cap index which made high in Jan 2018 with end of its bull run has already corrected by -35% from its peak of 20,184 in last 13 months. Taking clues from history, we believe we are close to end of bear cycle in broader market after which stock prices of small and mid-caps will start recovering by going up and further up.

Below is the monthly chart of BSE Small Cap Index since 2005. The chart illustrate that the last decade bull run which started in 2003 made a peak in Jan 2008 and later went into bear phase with continuous fall in stock prices of small caps for next 15 months, i.e. from Jan 2008 to March 2009 and later stock prices of small caps recovered and went through correction and consolidation phase. Similarly, bull run in small caps which started in 2014 made its peak in Jan 2018 and moved into bear territory later. This month i.e. Feb’19 is the 14th month of bear phase experienced by broader markets – small & mid caps. If history of small cap index repeats itself (have very high probability), we are near to end of bear phase after which stock prices of small caps will start moving northward.

With fear of losing capital and dampened sentiments towards broader markets, small cap stocks are falling like nine pins these days. We have observed a lot of hopelessness towards broader market as Investors who started investing in equities during 2017 and 2018 are not willing to invest in this space due to pain of high negative returns in their portfolio and negative sentiments towards broader markets.

Series of negative developments have made Investors taking back seat in terms of investing in broader markets. Earlier, Yes Bank and DHFL were dumped by Investors due to RBI measures and liquidity concerns, followed by severe correction in Essel group stocks like Zee, Dish TV etc due to high debt concerns and recently ADAG group stocks spoiled market sentiments. Recent episode of Reliance Communication opting for insolvency with NCLT has collapsed the ADAG group companies stock prices as lenders started selling collateral shares of these companies. Collapse in stock prices of such well known and bigger companies butchered investors faith and interest towards investing in small and mid cap companies.

Usually bottom is made during these panic times which we are witnessing currently with series of negative news flow. Once broader market start factoring all these negatives along with uncertainty of upcoming election, the focus will shift towards individual company's earnings growth and current valuations which will drive stock prices up in coming quarters.

Greed which was seen in broader market (small & mid caps) in the year 2016 and 2017 has turned to fear these days. During last few weeks, we have received many mails from our members seeking advise in terms of which Hidden Gems / Value Picks stocks they continue to hold and which ones to exit. Are you also fearful? This is the time to do opposite of the herd, its time to be greedy when others are fearful. If you are not investing in equities during these opportune times and taking the back seat, you are making a bigger mistake. Are you not following the herd mentality? If you have invested in markets during 2016 and 2017 when valuations of companies were significantly higher compared to today’s valuation, why you have stopped investing now?

Remember, in the long run, you do not make decent returns on your investments by following the herd i.e. when everyone is buying stocks; instead you get handsome returns on our investments by investing in stocks at significantly low prices as no one else is buying, and by selling to them when they come back in herd due to greed in future.

You might be thinking, when stock prices are falling almost on daily basis, why to invest to risk your investments. Agree! If you are not a long-term investor and thinking to make quick bucks by timing the market, it could be risky. Hence, we advise to invest only keeping a longer time horizon, minimum 2 to 5years or more. In fact, to make enormous wealth from equities, you should have horizon of 10 to 20 years so that you can experience 2 to 3 market cycles and reap maximum reward during bull phase of equity markets. We do not believe in timing the market and hence advise our members to follow a discipline approach, but it’s wise to turn aggressive in terms of equity investing during panic times which we are experiencing now.

“The first rule of investment is ‘buy low and sell high’, but many people fear to buy low because of the fear of the stock dropping even lower. Then you may ask: ‘When is the time to buy low?’ The answer is: When there is maximum pessimism.”
Sir John Templeton

We believe above article has helped you giving complete insight of equity market cycles specifically small caps during bull and bear phase and benefit of investing in them during extreme pessimism / painful periods with long term horizon. Also make you understand, why its more important to be a disciplined investor who keep on investing in systematic way irrespective of market conditions and not an emotional investor who usually buy stocks during bull phase when stock prices are moving higher because of greed and sell them in panic during bear phase due to severe fall in stock prices, making mistake of buying high and selling low.

We are pleased to inform you that we decided to pass on the maximum benefits to our members during such opportune time of Investing. Do continue your Investing journey in a disciplined way for long term instead of stopping just because to severe fall in stock prices. You can avail our subscription services at best discounted prices which is applicable only during offers period. Click on SUBSCRIBE! link to subscribe to our services online using debit / credit card or net banking facility.

SARAL GYAN
SUBSCRIPTION SERVICE
APPLICABLE 
DISCOUNTED PRICE
PAY ONLINE 
CARD / NET BANKING 
Hidden GemsRs. 10,000 9,000
Value PicksRs. 6,000 5,400
Wealth-BuilderRs. 20,000 18,000
15% @ 90 DaysRs. 4,000 (No Discount) 
Combo 1: HG + VP + WB + 15%Rs. 40,000 28,000
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Saturday, February 16, 2019

Kovai Medical - Down by 52%! Still a 7-Bagger Stock in 7 Yrs

Dear Reader,

Our equity analysts published Hidden Gem - Oct 2011 research report and shared it with all Hidden Gems members. Hidden Gem stock of Oct'11 was Kovai Medical Center & Hospital Ltd and Hidden Gem research report was published on 27th Oct'11 with buy recommendation at average price of Rs. 107.

KMCH stock made its life time high of Rs. 1480 in July 2017 and closed at Rs. 710 yesterday giving absolute returns of 564% to our members. Even after severe correction of 52% from its high, Kovai Medical is still a 7-Bagger stock for our Hidden Gems members in period of 7 years.

In Dec'18 quarter, n
et profit of Kovai Medical Center & Hospital rose 18.19% to Rs 17.15 crore against Rs 14.51 crore during the previous quarter ended Dec 2017. Sales rose 10.50% to Rs 165.17 crore in the quarter ended Dec 2018 as against Rs 149.47 crore during the previous quarter ended Dec 2017.


Company has delivered robust profit growth of 22.2% over 5 years. Moreover, company has a good return on equity (ROE) of 26.4% during last 5 years.


Kovai Medical is a classic example which illustrates the pain of investing in equities for short term but benefits in long run. The stock price which went up to Rs. 1480 during 2017 is down by 52% in last 1.5 years, however even after such a severe correction in stock price, the company is still giving 564% returns to Hidden Gems members who invested in it in Oct 2011, as on date its CAGR returns of 29.8% for 7 year and 3 months period, much better than any other asset class.  

You can understand the current state where stock prices of more than 80% of listed companies in broader market are down by 40% to 60% or even more but the companies which have sound business is still rewarding long term investors. If you have invested in right set of companies, do not worry a lot of notional losses in your portfolio and continue investing keeping a long term view. Remember, market sentiments and volatility decide the stock price movement in short term, however its only earning growth of the company which decides the stock price movement in long term. 

We firmly believe that current market situation is one of the most opportune time to invest in good quality small & mid cap companies. We do not believe in timing the market and hence advise our members to follow a discipline approach, but it’s wise to turn aggressive in terms of equity investing during panic times which we are experiencing now.

“The first rule of investment is ‘buy low and sell high’, but many people fear to buy low because of the fear of the stock dropping even lower. Then you may ask: ‘When is the time to buy low?’ The answer is: When there is maximum pessimism.”
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Below is the summary of Kovai Medical Center & Hospital Ltd published in our Hidden Gem research report - Oct'11.

Company Background

Kovai Medical Center and Hospital is 700-bed multi-disciplinary super-specialty hospital located in the NH 47, opposite to Airport, Coimbatore. The hospital has more than 50 medical disciplines managed by highly qualified and trained full time medical specialists providing round the clock service. Over 1000 in patients and out patients are treated every day at the hospital.


KMCH is equipped with state-of-the art medical equipments such as MRI, 64 slice Volume CT Scanner, 4D Ultra Sound Scanner, Flat panel Cath Lab, Cardiac Electro-physiology Lab, Bone mineral Densitometer, Mammography, Laser equipments, Video endoscope, Operating Microscope, Auto analyzer, Computer Assisted Navigation for hip and knee replacements, ESWL for the removal of urinary stones etc.

KMCH is located on an 20 acres plot in a serene, clean and hygienic atmosphere. It has a very good ambience. The hospital is equipped with 11 operation theatres, and Super speciality procedures like Open heart surgeries and other Cardiac surgeries, Kidney transplants, Knee replacements, Hip replacements and Complex Neuro surgeries are done regularly at the hospital. Angiograms, Angioplasties, Stenting (Sirolimus stent - A drug eluted stent which has no relapse rate) are being done with good success rate. The hospital also has an excellent facility for providing Emergency and trauma care for treating various emergencies such as Cardiac arrests, Road Traffic Accidents (RTA), Snake bites, severe burn injuries, poisonous case, stab injuries and mass casualities.

KMCH is the only center in south India which has introduced a new technique known as GDC coils and clipping of Brain Aneurysms. KMCH has made a breakthrough in the treatment of Stroke Management and Uterine Fibroids with the latest technique in Interventional procedures. The state-of-the-art Fertility Center at KMCH is well equipped to do the Assisted Conception program like IVF, ICSI to the International standards. Most advanced treatment techniques are adopted here.

KMCH is recognized for organ transplant programmes by the Government of Tamil Nadu. Several Kidney transplants and corneal transplants from live donors and cadavers have been done. KMCH is also recognized by the Tamil Nadu Government to do Heart and Lung transplants.

KMCH has specialized clinics like Asthma clinic, Diabetic clinic, Slim clinic, Pain clinic, De-addiction clinic, Painless labour clinic, Andrology clinic, Diet clinic etc., Various specialized procedures like Chemoembolisation, stenting, fallopian tube recanalisation, Chemotherapy, Blood component therapy, Arthroscopic surgeries, Laparoscopic and Thorocoscopic surgeries are regularly done at the hospital. The hospital has a separate department for artificial limb manufacture.

There are 3 satellite centers attached to KMCH:

1. City Center (Ram Nagar)
2. Erode Speciality Hospital (100 bed)
3. Erode Center (100 bed) with both in-patient and out patient facilities.

It has a rural health center at Veeriampalayam to serve the rural community and the under privileged.

Hospital is recognized for Diplomate of National Board (Post Graduate Programmes) in departments like General surgery, Anaesthesiology, Cardiology, Cardiothoracic surgery and Obstetrics & Gynaecology. Hospital is recognized for training doctors in AFRCS programme in General Surgery.

State of the art Cancer treatment facility at KMCH


The state of the art cancer treatment center at the Kovai Medical Center & Hospital is headed by Dr.V.Kannan, a highly reputed radiation oncology specialist in India. He was the chief of radiation oncology services at Hinduja Hospital in Mumbai. Dr Kannan has now taken charge as Director of the KMCH Comprehensive Cancer Center.

KMCH comprehensive cancer center offers radiotherapy, chemotherapy and surgeries for the Cancer patients. It will be of international standard of care in terms of investigations and modern treatments including Radiotherapy.

The new facility is equipped with the latest Linear Accelerator the "Varian Triology with Rapid Arch" offering therapies like SRS, Image Guided Radiation Therapy, Intensity Modulated Radiation Therapy besides routine Radiation therapy. These Radiotherapy facilities at the cancer center of KMCH will match the best in the world that will have provision to perform 4 dimensional CT scan which accurately assess respiratory problems and movement of tumours in order to plan treatment of patients.

Recent Developments (as on 27 Oct'11)

Expansion Plan will increase Revenue & Profitability in FY 2012-13

In the year 2011 KMCH has invested Rs 200 Cr for expansion plans, equipment and providing specialty services. As per the planned expansion by the next year, it will start medical college so as to provide all paramedical courses for post graduation programmes. With the above plan under implementation the loan book has grown to Rs 192 Cr up by 78% on comparison to last year impacting profit margins of the company.

There will be significant rise in revenue and profitability once KMCH turns into a full-fledged medical college & hospital with all medical facilities available inside one campus.

Health Insurance – Another Key Factor for Growth

Insurance service is a potential area for growth with regard to healthcare services. In South India, Tamil Nadu has done well in this area and is on second position, next to Andhra Pradesh. In terms of insurance, both private insurance and government funded insurance schemes have shown rapid growth. Each year, there is 20-30% growth in private insurance claims. The insurance scheme has made a positive impact and effectively reduced the cost of healthcare services. Currently 20-25% of revenue is reported from the Insurance segment which is expected to go around 40-45% in coming years.

Financial Performance (as on 27th Oct'11)

Kovai Medical Center & Hospital net profit rises 200.00% in the June 2011 quarter

Net profit of Kovai Medical Center & Hospital rose 200.00% to Rs 2.43 crore in the quarter ended June 2011 as against Rs 0.81 crore during the previous quarter ended June 2010. Sales rose 38.53% to Rs 51.13 crore in the quarter ended June 2011 as against Rs 36.91 crore during the previous quarter ended June 2010

Kovai Medical Center & Hospital net profit rises 51.75% in the March 2011 quarter

Net profit of Kovai Medical Center & Hospital rose 51.75% to Rs 3.90 crore in the quarter ended March 2011 as against Rs 2.57 crore during the previous quarter ended March 2010. Sales rose 38.43% to Rs 47.94 crore in the quarter ended March 2011 as against Rs 34.63 crore during the previous quarter ended March 2010.

For the audited full year, net profit rose 4.40% to Rs 12.10 crore in the year ended March 2011 as against Rs 11.59 crore during the previous year ended March 2010. Sales rose 34.27% to Rs 174.64 crore in the year ended March 2011 as against Rs 130.07 crore during the previous year ended March 2010.

Sector Outlook

The Indian healthcare sector is predicted to reach US$ 280 billion by 2020, contributing an expected Gross Domestic Product (GDP) spend of 8 per cent by 2012 from 5.5 per cent in 2009, according to a report by an industry body. Growing population, increasing lifestyle related health issues, cheaper treatment costs, thrust in medical tourism, improving health insurance penetration, increasing disposable income, government initiatives and focus on Public Private Partnership (PPP) models are some of the driving factors for the growth of healthcare sector in India.

Some of the key players in the Indian healthcare industry who are helping in making the sector buyout include Apollo Hospitals Enterprise Ltd., Fortis Healthcare Ltd, Max Hospitals and Aravind Eye Hospitals.

Challenges and Opportunities

Owing to the fact that the healthcare sector is one of the largest service sector industries in India with an estimated revenue of US$ 35 billion, the industry has also emerged as on the of most challenging sectors as well.

 India would require another 1.75 million beds by the end of 2025 to reach a ratio of two beds per 1000 population.

 An additional 0.7 million doctors are needed to reach a doctor population ratio of 1:1000 by 2025.

 Although the health insurance sector is projected to grow to US$3.8 billion, the health insurance penetration rate still has a lot more scope to grow with only 2 per cent of the total population being insured at present.

The government recognised the significant challenges and potential in the sector and provided priority status to healthcare in the Eleventh Five Year Plan. Further, the sector is expected to witness added growth through a well-defined partnership between the government and the private sector.

Government initiatives in the public health sector have recorded some noteworthy successes over time with focus on investments related to better medical infrastructure, rural health facilities etc.

Government Policies

 100 per cent FDI is permitted for health and medical services under the automatic route.

 The National Rural Health Mission (NHRM) had allocated US$ 10.15 billion for the upgradation and capacity enhancement of healthcare facilities.

Moreover, in order to meet revised cost of construction, in March 2010 the Government allocated an additional US$ 1.23 billion for six upcoming AIIMS-like institutes and upgradation of 13 existing Government Medical Colleges.

Meanwhile, the total healthcare infrastructure expenditure is expected to reach US$ 14.2 billion in 2013, registering an increase of 50 per cent as compared to the 2006 figure, according to a report by KPMG.

Major Investments

The sector is undergoing significant changes driven by the continuing phase of rapid economic growth, with emerging markets, such as medical device manufacturers and diagnostic chains attracting increasing amounts of investments.


 Hospitals chain Apollo Hospitals Enterprise Ltd plans to invest around US$ 204.04 million- US$ 226.70 million over the next two years.

 Wockhardt Hospitals plans to invest up to US$ 158.32 million to double its bed capacity to 2,000 by 2013.

 Hospitals chain Fortis Healthcare plans to invest US$ 146.81 million and add 2,100 new beds.

 The BCG Group plans to build a multidisciplinary health facility, BCG Health square in Palarivattam in Kochi, Kerala, by August 2011. The company’s long-term plan is to set a 750,000 sq ft health village with an estimated cost of US$ 88.91 million.

 GE Healthcare will invest US$ 50 million to set up more facilities for developing diagnostic services.

 Manipal Hospitals plans to invest US$ 45.23 million in the next three years to double its capacity to 8,000 beds.

PPP Model

Private healthcare is emerging as one of the fasting growing sectors in India, with hospital chains exploring the markets in metros and tier II cities, private players seeking accreditation and developing new healthcare models. Further, the private and public sectors across various states such as Gujarat and Uttarakhand have launched innovative initiatives to attract PPP investments into healthcare.

While the government is exploring potential to establish state-funded healthcare insurance schemes for supporting healthcare delivery for the poorer sections of the population, the corporate segment is catering to the growing need of the general public for quality care. Thus, through a sustainable partnership, development and delivery of low cost, affordable, basic healthcare services, PPP models may help in improving the infrastructure and healthcare provision in the country.

Investment Rationale & Key Developments

 Rural healthcare sector in the country is also witnessing an upsurge. The rural health sector has added around 15,000 health sub-centres and 28,000 nurses and midwives during the last five years, according to the Rural Health Survey Report 2009, released by the Ministry of Health. The number of primary health centres has increased by 84 per cent, taking the number to 20,107, according to the report.

 Indian health insurance market represents one the fastest growing and second largest non-life insurance segment in the country, according to a report by research firm RNCOS. The health insurance premium is expected to grow at a Compound Annual Growth rate (CAGR) of over 25 per cent for the period spanning from 2009-10 to 2013-14, according to the report.

 India’s share in the global medical tourism industry is predicted to be around 3 per cent by the end of 2013, according to a report ‘Booming Medical Tourism in India’ by research firm RNCOS, released in December 2010. The sector is expected to generate around US$ 3 billion in revenues by 2013, with the number of medical tourists to grow at a CAGR of over 19 per cent during 2011-2013 to reach 1.3 million by 2013.

 Indian medical technology industry is expected to reach US$ 14 billion by 2020 from US$ 2.7 billion in 2008, according to a report by PwC and an industry body.

 The country’s first healthcare Special Economic Zone (SEZ), Frontier Mediville, is being set up by Frontier Lifeline Hospital at Elavoor, near Chennai.

 Major healthcare players such as Fortis and Apollo are expanding to tier-II and tier-III cities, along with urban cities, due to substantial demand for high-quality and specialty healthcare services in these cities.

 Healthcare majors such as Apollo, Max Healthcare and Manipal Group are targeting new segments such as primary care and diagnostics. Demographics, health awareness and increasing capacity to spend are the key drivers of the preventive healthcare segment in India.

 Computer-based bio-surveillance projects generating data about diseases and creating databases on healthcare in rural areas are gaining popularity in India with various organisations such as Narayana Hrudayalaya and the Mazumdar Shaw Cancer Centre entering into this sector.

Saral Gyan Recommendation (as on 27th Oct'11)

i) With Investment of Rs 200 Crore for expansion plans, equipment and providing specialty services, KMCH management is looking aggressive and more focused to achieve new milestones going forward. Company offers best treatment using modern facilities and new technologies in south region which distinguish KMCH from other hospitals.

ii) As per the planned expansion by the next year, KMCH will start medical college so as to provide all paramedical courses for post graduation programmes. This will not only add revenues but also improves the profit margins of the company.

iii) The Management holds 47.46% (June 2011 - Increased holding by 1.35% during last one year) equity in the company and is continuously increasing its stake at current valuations which gives confidence of growth prospects in coming quarters.

iv) Stock is available at low valuations, currently trading at a P/E ratio of 9, whereas peer stocks trade at a double digit PE multiple. Moreover, visibility of increased in earnings in FY 2012-13 make KMCH a good buy at current market price for investors who can hold it for period of 18-24 months.

v) On operating profits KMCH has out performed it performance for the quarter ended March 2011. EBIDTA witnessed a growth of 33% on yoy basis and 42% for full year 2011. Margins for the March quarter witnessed the highest ever at 21.6% vs 18.6% when compared for the same quarter last year. On consolidated basis EBIDTA margins stood at 21.2% vs 20%. KMCH’s profitability witnessed pressure mainly due to higher than expected interest cost from Rs 4.84 Crore in 2010 to Rs 11.11 Crore in 2011.

vi) At current market price of Rs 115.70, dividend yield works out to be 1.08%. On equity of Rs. 10.94 crore the estimated annualized EPS for FY 2011-12 & FY 2012-13 works out to Rs. 13.7 and Rs. 18.5 respectively. Book value per share is Rs. 46.38 and at CMP of Rs. 115.70, stock price to book value is 2.49. Currently, the scrip is trading at 8.5X FY 2011-12 and 6.5X FY 2012-13 estimated earnings which seem to be cheap in healthcare space.

Considering growth potential of Indian Hospital Industry, attractive valuations of KMPH and its expansion plans, Saral Gyan Team recommends “BUY” for Kovai Medical Center and Hospital for a target price of Rs. 245 over a period of 18-24 months.

Buying Strategy:

 60% at current market price of 115.70
 40% at price range of 97-102 (If stock price falls during market correction)

To Read/Download Hidden Gem - Oct'11 Research Report - Click Here 

As on date, Kovai Medical Center & Hospital is giving returns of 564% and is almost a 7-Bagger stock for our Hidden Gems members in 7 years. Moreover, there are total 43 Hidden Gems stocks out of 72 published by our equity analysts till Dec'17 which have given returns in the range of 100% to 1900% to our members during last 8 years.

Through Hidden Gems and Value Picks, we are providing you opportunities to invest in such small / mid cap stocks today. Infosys, Pantaloon, Dabur, Glenmark were the small cap stocks in past and today are the well known companies falling under mid and large cap space.

The stocks we reveal through Hidden Gems & Value Picks are companies that are either under-researched or not covered by other brokers and research firms. We keep on updating our subscribers on our past recommendations suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future growth outlook.

Time has shown that smart investors have made their fortune by investing in equities in long term. None other asset class can match giving you such extra ordinary returns. Yes, its important for you to invest in right set of companies at right price with medium to long term perspective. If you think to invest in stocks for period of 6 months or 12 months, we suggest you to stay out of stock market because you are not investing, you are betting on volatility of stock market which could be risky.

Do write to us in case of any queries, we will be delighted to assist you.

Wish you happy & safe Investing.

Regards,
Team - Saral Gyan