Gold Platinum Ratio

The gold – platinum breached unity recently for the first time in the past 30 months. I have plotted the prices of gold, platinum and the gold/platinum ratio for the past 10 years. It does look like the 70s rally in gold may just get repeated this time as well.  Last time we saw this convergence, the ratio quickly fell down and it was more a case of platinum retracing its sharp fall of 2008 and tearing away from gold. Gold rose as well but platinum rose faster. This time around, what will happen? Many folks are of the opinion that the ratio will shoot up as a result of gold continuing its upward march vis-a-vis platinum.

It seems that platinum is a cyclical asset while gold is more seen as a heat sink, attracting the risk averse wielder of capital. Since industrial demand is down and many catalytic convertors seems to be idling around, platinum appears to have lost its sheen. Platinum has indeed been a 5 bagger during the first 8 years of the past decade, so a reversal to the mean (given its cyclicality) is expected. But the question to goldbugs is – will 1.0 the new near term median level for the gold-platinum ratio? Or will this p/g ratio retrace its recent climb and get down in the region of 0.5 which seems to be its last decade’s resting level. If the latter, then gold surely has ample room to rise.

HDFC Bank – Intraday as well as Long Term Opportunity

HDFC Bank is sitting nearly on its 200 SMA (see chart at bottom of this post) and also roughly at its horizontal support. Tomorrow (10Aug) there will surely be a bounce back and this share, among others, should perk up a bit. Though it is very much possible that the market may slide back again after a few sessions as the medium term bias does look -ive. But HDFC Bank is a good thing to buy around these days if you have sticky money and can wait on it for a few years.

Hell, even if you have 5k, 10k, anything at hand and have a good 10+ years of working life ahead of you – please do buy. You don’t need expert advise in times like these. Another tip is that you are the kind that uses Equity Linked Savings Scheme (ELSS) for their tax saving purposes, please buy now for the current FY. Unless you believe that the market has started a nice, long downward slide, there is no point in doing a SIP if you can catch plunges like these. Lets wait for the bounce tomorrow/day-after and then if the market droops down a bit more, that could be a good time to buy. While some people are feeling relieved that the 5,000 level was held, some others are of the opinion that some more depression is left in the market and that it could fall down to 4700 – 4800 territory.

One silver lining: stock of Allcargo Global Logistics Ltd. It bounced up 4% today!! Pretty sure it will go up tomorrow as well – lets see. I own the stock 😉

Yet Another Lap

OK. So I was a bit late in posting about my 36th lap around the Sun, but better late than never. Well, the 36th lap and the moment aross the chequered flag has been well, very chequered indeed! A very different 5th of the 8th for me this time around. 😐 I think I just grew up.

Let me first recount and take stock of my previous year’s resolutions (click 5Aug’10) and see how I fared.


Gift myself more time Achieved!
Trimmer and fitter Failed!!
Giving Gave (but as expected, only to myself 😉 )
Know when to sell Failed!! (am sitting on a pile of crap)
Pay more attn to sonny boy Well. Umm. Lets just say that the traffic lights project failed to take off. Sorry.
Read > 12 books this year Achieved.
Do not read Atlas Shrugged Achieved!! Tried to get someone to read it, but failed there!!
Stop idolizing Jessie Livermore Achieved! I held back and stayed mostly in cash this year
Increase monthly views to The Third I by 30% Failed miserably!!!
Stop paying people money to visit my website Achieved. This was easy considering that the stock market had wiped out all my money at hand anyways!!

So net net, I managed a 6/10 score last year. Good,eh!! 🙂 Remember, I am the judge and the jury here.

And whats it for this year:

  1. Complete the traffic lights project (typed extremely sheepishly)
  2. Read yet another 12 books this year
  3. Lose weight by at least 8%. I am horrified at what I have become compared to what I was. 🙂
  4. Practise CAS: Control anger; Accomodate and be Sensitive.
  5. be more spiritual
  6. increase ticket size of investments. Dont be afraid to trade big. Its all about %s anyways.
  7. be regular on The Third I

That’s it. Trying to be a tad modest this year.

Godrej Industries Limited – 1Q12

My core holding, Godrej Industries Ltd. (GIL) continues to inch up amidst all this talk about desi rate hikes, debt ceiling, Greco-Roman excesses and Obama’s insomnia. Over the last one year, the stock is up 15.7% compared to the NIFTY. The company announced its 1Q12 results on 30Jul11 covering the following points:

  • The agri business has grown 40% yoy while the other core business of Chemicals is up 28% yoy. Both in revenue terms.
  • A 46.34% growth in consolidated net profit at INR 71.33 crores. The consolidated net sales increased 35.85% at INR 1,307.42 crores for 1Q12.
  • Godrej Properties witnessed revenue growth of 83 per cent despite a difficult quarter for the real estate sector

So to me, the results look very good indeed. In my previous post on GIL (dated 31Oct’10), I’d written about the integration challenges that GIL will face as it goes about acquiring companies. Well, the recent Godrej – Hershey breakup just adds to the fears. I guess global majors may be seeing low barriers to entry in the yummy Indian food sector and therefore itch to go solo. I’m thinking – how expensive would it really be to set up a sales & distribution & marketing infrastructure when denominated in GBP or USD? I don’t know but it may not be a large sum for a global foods major who has decided about getting serious in India. I know I may be trying to justify but typically I do not fall in love with the stocks I own!!

Another update I wanted to share was about the general notion that holding companies are duds because they trade at a massive discount to the market value of the assets that they own. Last month there was a lot of buzz about these holding companies – thankfully the general downward bias of the markets stopped spikes of manic proportions. As of now, I don’t give a rats ass about holding companies other than GIL obviously. Speaking of which I did start wondering about who moved my cheese when I came across this video clip of an interview of Basant Maheshwari on CNBC-TV18!! This is what he had to say about the Godrej gang of shares.

Godrej Industries did very well for 4 – 5 years because investors who wanted to buy Godrej Properties, couldn’t buy Godrej Properties. The only option was to buy Godrej Industries, but now if Godrej Properties is listed and I am bullish on Godrej Properties, I’ll go and buy Godrej Properties. Why will I buy Godrej Industries?

And these are the nuggets of wisdom I picked up from this interview:

  • Embedded values in holding companies always remain valuable!!
  • Investors make money in a cheap stock only when the cheap stock becomes expensive. So it has to bloody well move. There is no point in holding up your capital on a sloth.
  • If you are playing for the valuation gap i.e. the discount factor of the holding company to aggregate market value of its assets, then that’s wrong since the discount will always continue to exist.
  • Key play should be in holding companies which A) consolidate the earnings of their subsidiaries; B) the subsidiaries pay dividend and C) the holding company has a majority holding. C being the cause of point A  really.
  • Buy those kind of holding companies whose subsidiaries are not listed such that the act of taking them public monetises  the discount factor and unlocks value.
  • A holding company that receives discount from its subsidiaries usually does not go into too steep a discount. That is because if the dividend yield of the subsidiary is X% and the holding company is at a Y% discount then the dividend/income yield on the holding company’s portion of investion would be X%/(1 – Y%). The market will flatten this discrepancy by reducing the discount.
  • The reason why discount is justified is because if a holding company decides to monetize its assets and sell of all its holdings, it will still have to pay taxes on the income recieved. Therefore, the logic for discounting holding company’s asset values is correct.
  • Finally, if you are bullish on the holding company you have to be bullish on the underlying assets. If those assets are listed, it always makes sense to buy the underlying assets directly.

Now this has me thinking. Need to investigate and read up more to figure out what to do.

Finally, This is how some people are valuing the company: 9 times multiple for core businesses of GIL + 40% haircut to the market value of GIL’s stake in Godrej Properties and Godrej Consumer Products Limited. Adding all of this up gives a Sum Of The Parts valuation of ~240 – 250. Given CMP of 225 – 230, the company looks fairly priced. From the short term technicals perspective, 240 looks like a good resting place for the stock. From the longer term perspective, which is mine, the play is to ride the business growth and hope for a measured EPS expansion in the quarters to come.

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