Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Its 2009 once again

with 17 comments

Hi Amit,
If you are given chance, what are your recommendation in Sri Lanka market. I selected Nestle Lanka ( PE 29), Chevron, Piramal Glass, Tokyo Cement and United Motors. Pl share your insight.
PS: Finally opened Bank account in SL. Trading account in a week time.

Dear Karthik

All the best for the venture and wish you success.

Just some high level numbers:

Sri Lanka GDP 60 Billion USD
Sri Lanka Per capita (divided by 20 million population)
3000 USD per capita

India’s per capita is 1500 USD

Astounding !! after 20 – 30 years of civil war and genocide, Sri Lanka is 2 times richer per capita ! Just shows where your, mine and everyone else’s tax went from India over past 70 years, in Switzerland, okay I may be exaggerating, not all but just 92% of the revenue collection, legal + illegal.

Market Cap / GDP looks awesome for Sri Lanka !
20 Billion USD Market Cap / GDP of 60 Billion = 33%. You will get many winners.

In India I believe Market Cap to GDP is well over 100%, Investors make lot of money when this ratio is below 50%.

Below were India’s numbers. In 2014 it should be around 120-130%, that can break the compounding machine on a downturn – and we do not want the compounding machine to ever stop or go in reverse!
Market Cap to GDP ratio as a percentage.

Country name       2009    2010    2011    2012
India                     86.4     94.6     54.0     68.0

http://www.advisorperspectives.com/dshort/updates/Market-Cap-to-GDP.php

I would invest in Sri Lanka in FMCG companies with over 50% market share. Nestle, Chevron fit the bill perfectly.

Why should you also not invest in Bangladesh as well ? Similar numbers for Market Cap / GDP, infact per capita is just 600$ i.e. even less than half that of India and population is also 7-8 times that of Sri Lanka with about 10 good companies listed where you can invest and go to sleep with nary a worry.

Just until last month I was averse to Investing in Bata Bangladesh because revenue growth is only 12%-14% per annum. Then I checked out Bata India, surmised that if BIG money is willing to give 41 PE multiple to same company with 20% market share in India, then why not buy same company at 13PE wiith 40% market share in that country. Bata Bangladesh is just for 920 Taka, EPS 60-70 Taka, Dividend 30 Taka. Infact its land bank market price is more than its market cap, which can also one day be unlocked, currently big part of it is given to farmers as CSR initiative. Both Bata India and Bata Bangladesh are equivalent in growth rates, zero debt position. One is twice as strong in terms of market share. So if established names are available at 15-25 times earnings, I believe they will even out perform hand picked small and mid caps. I have no doubt that with this policy we would miss great 60% CAGR runs in companies like Gulshan, Superhouse, Muthoot Finance, La Opala which can break the 100- 1000 chart in 3-4 years (while you can do that with part of your portfolio), but over all you will do very well with this approach until they also to get re-rated like Indian counterparts. With rush on the front door, we will happily and very willingly hand over these blue chips share certificates to the future generation of bold, pioneer and herdy investors at 40-60 PE multiple. 

I only set sail to buy relatively cheaper but well respected companies in other countries. However a serendipitous gift that fell into the hands as a consequence of investing in multiple countries is a truly weak correlation amongst stocks, while one market makes a top, other is only half way in the middle or making a bottom, capital allocation is more efficient. One can stay in stocks and never need to call a top of market, and re-allocate capital.

In my classroom I remember nobody could answer the question posed by my professor except one person:

What is the first Objective of a Company ?

Growth, expansion, work for profits, work for shareholders, employees, produce products with utility etc. are secondary.

Survival is the answer. Same applies for an investor. The real game is to be in the markets always, to survive all market cycles. 

Remember that all research reports, regardless of PE multiple, 15 or 60, will continue to lure prospective investors for these blue chips with a perpetually boring blanket commandment “Investors with horizon of 5 or more years can consider Nestle Sri Lanka, Bata Bangladesh or X as good investments and expect 20% compounding”. Just compare the PE multiple against India and buy at a discount, there is no reason why these countries will not grow as fast. Meanwhile for your solitude and patience earn 3-4% yield and 15-20% or more compounding. Once the bridge comes we will cross and plan the next course, meanwhile get 10 times richer over the next 10 summers. Indeed it is 2009 with certain companies.

Disclosure: Invested in all companies above except La Opala.

EDIT: Spent a few hours today in combing through Sri Lanka. Looks great, all hospitals trading around 10-12 times earnings. There are several other gems. Conglomerates and FMCG companies like Emami in India are selling for 10-12 times earnings. Thanks for the initiative, I’ll start the paperwork to get an account opened. Will update after some more research and once I buy something.

Written by amitdipsite

June 28, 2014 at 10:59 pm

Posted in Uncategorized

17 Responses

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  1. Hi Karthikraja

    Which Bank and which Broker did you choose ?

    Thanks

    Amit Arora

    June 29, 2014 at 2:05 am

  2. Hi Amit,

    from which institution did you take brokerage account for investing in Bangladesh?

    Thanks,
    Mohan.

    Mohan

    June 29, 2014 at 2:40 am

  3. Dear Mohan

    Combank – Custodian Bank, Lanka Bangla – Broker

    Complete list

    http://www.dsebd.org/search_all.php

    All the best

    Amit Arora

    June 29, 2014 at 2:54 am

  4. hi Amit,

    You still tracking Puneet Resin. Any view ?

    LuckyHaa

    June 30, 2014 at 6:56 am

  5. Hi Amit,

    Always admire your ability to stay ahead of the curve!
    Very much fascinated by the idea of investing overseas and I think it is the step in the right direction!

    Some questions:
    – Is there is one reliable broker which specializes in most of the SAARC countries; similarly another reliable broker offering services in for most of the Asia Pacific ones (Thailand, Philippines etc.), and another catering to most of the African countries? Something on the lines of Kotak Securities offering services to invest in 24 countries, unfortunately they don't have our target countries:(- Just hoping to reduce administrative work and focus on stock research in these countries.

    – How your experience has been currency conversion in these countries, administrative responsibility post the purchase, and eventually selling out after having profit/loss (repatriation to investor's country)

    – How long usually the process takes to start and then actually be able to make the first investment?

    – Which legal set-up would you suggest: As an individual investor or partnership? Something that is easier to get started but at the same time has lesser administrative work post establishing.

    – Any other information source (only about how to invest rather than doing research that we can do) to invest overseas (specifically in our target countries) would you suggest us to look into?: As an individual investor, despite having initiative, at least I have limited knowledge, experience, and time to know the regulatory processes/ administrative formalities etc.?

    Look forward to hearing!
    Michael

    Michael W.

    June 30, 2014 at 2:44 pm

  6. Dear Mike

    Thanks for your thoughts.

    – Stanchart is present in a lot of countries but they may not invest for an individual, only an institution. That can cut down on time required to invest in each country.

    – Smooth, 2% cost per conversation as usual, I have never sold and repatriated so far

    – Takes about 1 month to start investing

    – Individual is the best from Capital Gains and also from Custodian/Broker costs for foreign investors

    I have only invested so far in Nepal, Bangladesh , Kenya and now Sri Lanka. Source is to start from Stock Exchange of the respective country

    All the best

    Amit Arora

    July 4, 2014 at 9:11 am

  7. I did earlier invest in Australia, NZ, the UK but now only investing in developing countries.

    Amit Arora

    July 4, 2014 at 9:12 am

  8. Thanks for taking time to get back, Amit.

    Much appreciated!

    Michael W.

    July 5, 2014 at 11:35 am

  9. Michael

    African Alliance should take care of most of African investing. They are present in most of the countries

    http://www.africanalliance.com/contact?referal=Contact%20Us

    Good luck

    Amit Arora

    July 6, 2014 at 7:41 am

  10. Thanks for this, Amit.

    I'll share if come across any useful detail regarding overseas investing for everyone's benefit on this blog. Hope it works out well for you.

    Michael W.

    July 7, 2014 at 1:15 pm

  11. Hi Amit,
    Somehow i missed the posts from you. ( blame Blogger for that or my laziness). I opened ICICI Bank, colombo branch. you need to verify your credentials at any Indian ICICI bank and get a verification seal on it. Then send you Application form, your SIA account at ICICI will be opened in 2-3 days. Once you have SIA account number, you can choose any broker. I did select as Bartleet Religaer as my broker. in a week time, CDS and Trading account is opened. All brokers charge same brokerage since it is regulated. I can send more details on this process if you need it.

    Karthikraja K

    July 22, 2014 at 4:46 am

  12. Srilanka's Mtrade (Mobile app ) is really good. Indian brokers also should come with that options.

    Karthikraja K

    July 22, 2014 at 6:24 am

  13. Maiden Purchase Today in Colombo Stock Exchange
    Nestle @ 2100 (LKR)

    Karthikraja K

    July 30, 2014 at 10:47 am

  14. Amit, As per your Global Parent with Population calcualation. Nestle Lanka does not have growth in MCAP because it already reached it.
    206 Billion USD (Global Nestle)  * 0.28% Sri Lanka population = 7498 crores LKR ( Current market cap of 11229 crores LKR).
    Please advice

    Karthikraja K

    September 4, 2014 at 2:57 pm

  15. Yes my Dear Karthik

    It is fairly valued on this parameter and may not provide super-normal returns on this count, result likely to be only aligned with revenues/profits/dividends. No PE rerating, also market is already saturated. But one won't do bad either. Index like returns.

    Regards

    Amit Arora

    September 5, 2014 at 10:37 pm

  16. thank you Amit for your guidance.
    I like to keep Nestle for say 20 years from Now. what will be Tentative CAGR expected? I just make sure that i am not missing India Opprtunity. Already received Dividend from Chevron with 10% with holding tax. Sweet part is they are sending warrant details to my address by post.
    How to value chevron for Future growth. thank you for the super Guidance. Pakistan possses lot of Opprtunity like Gillete, Azko, Honda, Shell with great Yields. Please share your thoughts. Standard securities from pakistan has very good Screener with easy approach for account opening. But the issue is Standard charted account opening is difficult.

    Karthikraja K

    September 6, 2014 at 5:45 am

  17. Hi Karthik,
    Is SIA account in Srilanka opened in your name ? Were you able to transfer Forex from your indian account to it ?
    My ICICI branch are asking me beneficiary address, which is in India & they're claiming they can't transfer money for that.

    Thanks,
    Prasad

    Prasad

    September 16, 2014 at 8:14 am


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