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Wonder, Wealth & Abundance

Go micro

with 28 comments

ant

That is Ant Man.

Be off the radar.

Find micro caps.

Turn more stones than others.

You need an edge to make supernormal returns in the markets. You generally cannot exploit a) information asymmetry but b) processing/analytical or c) behavioural with mid or large caps. The last i.e. c) being the most sustainable edge with longest durability. Eventually the game runs out with information asymmetry.

So, my goal has always been to exploit a) as much as possible. In fact I went to far off places to seek alpha with a) including Middle east, Fiji, Kenya, Nigeria, Nepal, ended up investing in a couple of these markets. It continues to work.

With lots of connecting dots over time and experience one can exploit b) intuitively like pattern matching. But c) can take you to play the game in billions not just millions. Which is when others are losing their head you keep yours.

We saw this in India when everyone dumped financial stocks in November-December 2016 post demonitisation. Most of these companies are up 50-60% within previous 30 days.

Like: Manappuram, Muthoot, Bharat Financial, Repco, DHFL, GIC etc. Almost a panic buying is seen in these companies.

What went wrong ?

Madness in herds and waking up alone. Human mind when acting in herd is so predictable, so repeatable, so sure shot to be exploited for its biases.

I was trying to search for some tweets of NBFC bashers, but they have since been deleted since. I know the tweet I was looking for that was made on 28th of December 2016. Moving on, nobody can predict short term movements.  Feels good to be absolved of staying invested in NBFCs, for now, not sure about future! (Mind you I don’t delete past posts).

At this juncture I feel IT sector is a good contrarian bet as its disliked with Trump in office, and also select SMEs.

Disclosure: Invested in all stocks mentioned.

 

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Written by amitdipsite

February 2, 2017 at 10:55 am

Posted in Uncategorized

28 Responses

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  1. Another Excellent Blog Amit, I am also with you on IT. I have been saying it on tweeter that IT should be surprise pack and that if IT does has cyclical issue with h1b visa then BPO jobs might be next maybe and business will flight tooth and nail on that one.
    Interesting you looked at Fiji. Quite small market. I have looked at Fiji market and PNG as well myself. In Fiji I have family connection and I am bit sceptical of there management style of some companies but happy to be proved wrong. FMF and RGB looked interesting. Also fiji is currently offering effective tax rate of 10% if you list your company on stock exchange so that might see few more listing in near future but how long is government going to extend that arrangement will be interesting.

    And in PNG CPL group looks good but high ownership by chairman and related companies it has some business in Australia in pharmacy distribution sector will be interesting to see how it grows.

    Shaishav

    February 3, 2017 at 12:40 am

    • Dear Shaishav

      Thanks for your views. Let me know cheap IT companies below 5,000 Crores INR Market Cap.

      I will throw in first name, Sonata Software. 40% business from Intellectual Property, 60% commodity, Debt Free, Consolidated PE of 12 on 16 Rs EPS, 4.5% dividend yield

      Cheers

      amitdipsite

      February 3, 2017 at 12:50 am

  2. Dear Amit,

    Thank you for your reply and recommendation. I was looking at Vedavaag System at 35 level 6 to 8 months ago but did follow up on my own research a lesson learn hard way. It is still a good bet some big investors have bought at 71 level. But still looks good growing revenue trading at P/E of around 15-17 with 106 Crores INR. Most of the business is in India and growing. Doesn’t pay dividend yet. It Has been around for a while(One of the reason I didn’t follow through) but seems to have turned a leaf in last few years.

    I have used google screen few weeks ago and came up with few that looked interesting like R Systems, But don’t have fund to invest so haven’t done research on them but currently hold Mindtree from 400rs level and added HCL tech at 700 level.

    Shaishav

    February 3, 2017 at 1:18 am

  3. True, great returns are possible only if you stand away from the crowd, else you’ll just be close to the index. Also, oil got beaten badly and some oil and related stocks are still languishing as if the entire oil industry is going to shut down soon

    Shan

    February 3, 2017 at 1:34 am

    • Yes, OIL, Fossil Fuel, will be around even 100 years from now, it may become like wax / candle in terms of usage, but for mainstream Solar or some other Tech, will kill the Oil industry in few decades.

      amitdipsite

      February 3, 2017 at 3:55 am

  4. Dear Amit, Also SQS india BFSI looks interesting most of business is in Europe. HQ and listed in Germany. And looking at quarterly they seem to have lost bit of money in exchange hedges this years needs bit more research at 700 crores odd. If you haven’t all ready.

    Shaishav

    February 3, 2017 at 3:07 am

    • Dear Shaishav

      Thank you. SQS India, Accelya and Sonata I have already. Can’t lose money here.

      Cheers
      Amit

      amitdipsite

      February 3, 2017 at 3:52 am

  5. Have you looked at some of the IT firms listed on the SME platform such as Fourth Dimension Consulting, NINTec etc. Any views there.

    Garvit

    February 3, 2017 at 4:35 am

    • NINTec does not have much history, so hard to predict, looks richly valued ATM. All the best. With IT firms I prefer relatively large companies in India. I am invested in Micro Caps in the UK and Australia which are product companies with IP and not merely service providers.

      amitdipsite

      February 3, 2017 at 9:26 am

      • Hi Amit,
        it would be nice if you can disclose the microcaps you invested in UK.

        Thanks,
        Gouri

        Gouri

        February 4, 2017 at 7:52 am

  6. Dear Amit, check out Larsen & Toubro Infotech. Listed last year and L&T still owns 85%. Low float, almost no analyst coverage, 12 PE, 45% ROE, no debt. High payout ratio each year resulting in 5% dividend yield at current price, which puts a nice floor under the stock. 75% business is already offshore so less impact from the Trump policy.

    Mohit

    February 3, 2017 at 7:45 am

  7. Dear Amit, Can you please share the SME stocks that you are tracking?

    P V Venugopal

    February 3, 2017 at 8:05 am

    • TEJNAKSH, AKME STAR HOUSING and a few more where I have yet to buy

      amitdipsite

      February 3, 2017 at 9:23 am

      • Have been tracking Tejnaksh for a while. It has had a fantastic run for the last 12 months. Almost up 10x. Maybe it has run ahead too much. Though Mcap is still very small relative to the opportunity.

        Garvit

        February 3, 2017 at 12:27 pm

        • Quite right, as per my reading of DRHP, AR they will not be able to grow without more equity dilution. Its capex intensive business in its current state.

          amitdipsite

          February 3, 2017 at 8:06 pm

      • Dear Amit, Thanks for the reply. Can you please check Sakar Healthcare which is listed on NSE SME platform in Oct, 2016? They got best SME growth IPO award from CFO (capial finance Intl) last month. Generally how do you get information about these SME companies? Nothing much available in public domain except for AR’s.

        P V Venugopal

        February 4, 2017 at 1:19 pm

  8. Good post. Thanks for sharing. any specific IT companies you are preferring in Oz and is that the only one sector you preferring? And in India only finance and sme sector?

    Achin Jain

    February 4, 2017 at 5:32 am

    • Dear Achin, I cannot disclose Australian stocks. Thanks,

      Amit

      amitdipsite

      February 4, 2017 at 7:55 am

    • Hi Achin, Hasen tech HSN if you haven’t already on ASX. On forward p/e it’s not bad plus they have bought business in USA so it will add 5% to earning. I am not invested yet but looking at it. It has had a good run over last few. If you are TA you might be able to tell a good entry point 😉

      Shaishav

      February 5, 2017 at 3:50 am

      • Dea Shaishav, thanks. HSN is 700M odd market cap. Thus not a microcap. I was looking at HIT. Have a look. this blog post is titled “Go Micro”. HSN 3.6 looks fine for support or else 3.1ish.

        Thanks Amit. Anything on other part of query pls.

        Achin Jain

        February 6, 2017 at 4:41 am

        • Dear Achin,

          Thank you for your recommendation and advise. Another one I was looking at was ADA again not a micro cap around $188M but has IP income. Yes HIT looks good. I just don’t like the industry they operate in, but indeed it does look good.

          Shaishav

          February 7, 2017 at 2:48 am

  9. Nice report

    bhavesh furia

    February 5, 2017 at 2:12 pm

  10. Sir,

    Any view on Take Solutions, though not traditional IT player but have some intellectual property.

    Regards,

    sarvdeep123

    February 7, 2017 at 8:49 am

    • Studying it Sarvdeep

      Best regards

      amitdipsite

      February 7, 2017 at 6:51 pm

    • Sarvdeep, Take solutions has a lot of IP, and quite reasonable, good management too, added some personally, Thanks

      amitdipsite

      February 11, 2017 at 5:44 am

  11. What about Virinchi? Almost a new player in IT industry though a small portion of their portfolio….

    Puru Ji

    February 11, 2017 at 2:48 am


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