Mental suicide, psychological recovery
While the books and quarterly results have not yet been out on the Indian financial stocks hard hit post demonetization, we have not even seen the amount of provisions required in March 2017 or June 2017 and the rounded bottom for this sector (the so flogged at NBFCs). As per my post in the previous week Bharat Financial and Repco as leaders (that I wrote on the 21st of December https://lifeandequities.wordpress.com/2016/12/21/sensex-blues/) have shown signs of revival (market tickers). I hold all housing finance companies and actually buying more.
Asian Paints, a blue chip bell weather fell 31% from 1227 to 850 post demonetization, who cares if another NBFC stock fell by 40% but it seems to have become the season to label investors that invested in NBFCs are high risk takers who must now pay the price. Market it appears committed a mental suicide on the sector and now waking up, one man at a time. I love the stocks whose only fault is that they are “micro caps” and don’t move needle for the funds. I also like the fact that many investors spurn them as the minimum holding period is 3+ years in micro caps.
Here is an eye opening paragraph from the annual letter that I started writing which is relevant to NBFC / MFI discussion for NBFC bashers.
Someone who invested in Bharat Financial every month, SIP, in 2012, 2013, 2014, 2015, 2016 for 60 months would be in deep profits even after 50% down quote from 950 INR to 550 INR. Roughly 35% CAGR. However, if one invested only at the peak of 2016, then, you get the sad story.If someone bought it in 2014, then results would be 100% gain despite current correction. I bet you cannot say the same for Asian Paints. You see, I can slice the time periods any which way to support my story.
Similarly, someone who applied for an IPO in Equitas MFI in April 2016 at 110 INR is still up 35% as on 29th December 2016. What you hear in media or social media is a distorted and short term version of reality, you need to think independently and think long term. TV, news and “so called” long term investment articles are not that long term. This is further validated by portfolio turnover in all India based Mutual Funds from HDFC to Reliance which have portfolio churn over 100% and up to 300%, hardly a sign of long term mindset.
So, the general public opinion now doing the rounds that NBFC is a bad place to be in, is this correct? In my opinion it is nothing but a hyperbole and over reaction of over engaged and opinion of rather more-active-than-desirable people in equity markets.
Note that in 2017 will be a year of accumulating Housing Finance companies in India for me of all shapes and sizes and NBFCs. The only sector that I have sold is MFIs in India due to uncertainty, the top four MFIs by market cap. So, if you do the math and stick to NBFCs with a diversified portfolio, you cannot but get rich.
Disclosure: invested in all stocks mentioned