What the Hell is Happening?

Gitanjali 30Jun13I’ve written about my position in Gitanjali Gems earlier (here, here and here). If you go back to those posts, you’d see how I’d likened that stock’s ascent to a Diwali rocket. I guess the sad truth is that now the rocket having spent it’s glory in a sparkling display of fireworks is now descending to terra firma in tattered parts. Bearish international reports on gold must have induced some FIIs to sell off tipping the cart. Given that the June expiry was neigh, brokers seem to have stumbled triggering margin calls to fund leveraged positions that were rapidly turning out of money. Poor people like me can only pontificate and sagely philosophize that apart of 1/3rd of their sales coming from low margin gold sales, nothing much is wrong with the business model of the company. Once the churn is over, the stock will resume it’s upward climb. My position is still in the money since I was sitting on an almost five bagger on this one. I feel like a complete ass however – there was a good deal of time to act between the finmin’s announcement to increase import duties on gold and the stock tanking. If I really am a long believer in the scalability of the retail and Bollywood advertising (therefore costly!) driven sales model of Gitanjali, could I not have sold at around the top (not as a deja vu moment, but as a result of a logical reaction to finmin’s tightening of the Indian gold scene)??? Things are always easier said when in hindsight, but this one I genuinely regret. I do remember thinking about this a couple of times and dismissing the thought telling myself that they mostly sell jewellery and not gold, so shouldn’t be a problem. I hadn’t bothered to check inventory unfortunately. And therein lies the rub. 😦

Tata Coffee_30Jun13The other stock that I have been staring at for quite some time this weekend is that of Tata Coffee. I mean since when have better known counters started dislaying a pattern that looks like a square wave? remember all those electronic waveforms – saw tooth (quite common in Indian markets), sine wave (maybe long term commodity plays show this – haven’t checked) and now this square wave, like the 555 timer output waveform!! This Grand Canyonish stock chart also seems to suggest of brokerage firms triggering massive scale sell offs due to margin pressure on their client positions. It may not be related with the global price of coffee at all. Thinking if this is a cup to sip at all – not personally in the mood to do any research about the stock.

Followup post on Tata Coffee: 

– you may be aware of this, but I wasn’t. Kotak Mahindra Prime, one of the largest institutional investors into Tata Coffee sold a big deal as did one individual investor.

– this again triggered some margin calls and ergo the price is now really lying low. 

– if it falls a little bit more – say 935 – 950, it might be a good position to take.

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Moment of Truth?

There are these points in time which are like moments of truth in investing/trading/speculating that I hate the most. The point where you have to take a decision and use whatever intuition, experience, awareness and knowledge that you have accumulated in your investing career till date. Where is a crystal ball when you need one?

One such moment of truth that I am facing is what to do with my Gitanjali Gems holding. The chart below shows where the share price has come from historically. Looks like the 200 DMA line has been a good support in recent times and given that it is now poised on the 200 DMA makes me pensive.

 

 

 

 

 

What should I do?

  • Nothing
  • Buy more
  • Sell

 

 

 

 

 I asked this question to some people whose opinion I value. One of the response was:

If you think it is a long term play – book some partial profits and hold on to the rest. If you have made looks like 200% then if you sell 1/3 you have recovered your capital..

Sound advise perhaps – and there definitely is a good school of thought which believes in taking out the capital invested and letting the profits run. Only in my case if I were to do this, I’d add my hurdle rate (my long term expectated rate of return that I wish to earn) to 100% and take out that % of my capital – ensuring that not only do I get my capital back but also the time value of money component. But my big problem with this approach is that once I have done that I am really back to square one. The feeling of having secured my capital is illusionary since I intend to remain invested in the markets for a looooong time to come. Who knows, I could end up sqaundering this recovered captial on a dud investment which could erode it quickly, stop losses notwithstanding. The truth is that I’d have to find another ‘sparkling’ idea like this one – or at least one that fetches me my expected rate of annualized return. That’s tough in today’s times for someone like me who cannot devote much time to studying the market. Caught between the ‘rock’ and a hard place I guess. Ultimately I have decided to do nothing and see if its breaks the 200 DMA conclusively. If it does then I guess I would fold completely.

Vikram’s new Diwali

We live in an age that’s called Vikram. Meaning one that has a strong stride or momentum. The stock markets certainly looked like that leading into the onset of Samvat 2067, the Hindu new year that befell most parts of India this Diwali. Astrologers, who are in demand during such auspicious times dole out their forecasts busily. Actually, astrologers are quite active in India during other times as well. They can predict market movements as well. There are intra-day prophecies, NIFTY vedic tips, astrological commodity futures, currency trading, etc. ‘Astrotraders’ idolise W. D. Gann and perhaps follow his theories. I read an astro forecast of the market technicals just before typing this post and the head reeled!

The head had reeled in a similar way during previous Diwali owing to the incessant din of firecrackers in the area where I (also) stay in Bombay. This year, suprisingly was quite sedate in comparision. Is that an indicator? I know not. Many people I know logged in during the special one hour Muhurat trading window that remains open on this holiday and did some token trades. Many traders in India believe that if the one hour Muhurat trading closes positive, then the year ahead is going to be gainful. That certainly seems to be a popular indicator. The intra-hour chart of this year’s Muhurat trading is above – please draw out your conclusions and your chequebooks accordingly!

I am sure many Muhurat eyes must have travelled to the fireworks on the Coal India Limited counter. It had listed a day before Diwali and as I and everyone else expected, the listing was a bang. I winged out with a 40% gain in 15 days. As I had written in a previous post, I had expected to make a modest 15% which was easily surpassed. It was money on the table really – like the time when the Ambanis had decided to split up and create listed baby Reliances for some serious value unlocking. Except that in case of reasonably priced, popular and monopolistic businesses, the bang for the buck comes in double quick time. On my part I continued to stare at Gitanjali Gems chart and given the festive spirit could not resist putting up the two images above – one is the price chart of GG and the other is the trajectory of a Diwali rocket. Which is which?

I did not put in any trades nor did I unwind any – just skimmed and glossed over the tickers and then sat down for Laxmi (Goddess of wealth a la Copia-the Roman & Renenet-the Egyptian ) Puja. To many, such astrological prognostications may seem utter madness. I, on my part certainly do believe in astrology but not in its predictive powers about the collective writ of humanity (and even some machines) that is the market. But then a few days after Diwali, I read somewhere that Leos would benefit the most this year if they wore yellow (which I did by chance) and faced north during Laxmi Puja (I faced east). So, if I go by that then I will remain flat this year? 🙂

Here’s wishing you a very profitable trading year ahead. More importantly, here’s wishing you that you increase your knowledge and learn many new things about investing/trading this year. That’s key to making money, I feel.

Gitanjali Gems Limited

The light is shattered into gold on every cloud, my darling, and it scatters gems in profusion.

Mirth spreads from leaf to leaf, my darling, and gladness without measure.

The heaven’s river has drowned its banks and the flood of joy is abroad

 – from Rabindranath Tagore’s anthology of poems called Gitanjali 

I had picked up Gitanjali Gems on 29Apr’10 and have been holding it since then. The point of my purchase is shown as the green star on the chart alongside. The timing looks awesome but I don’t really care – I’ve gone through the motions quite a few number of times by now. What I am really focused on and trying to discover is a personal method that helps me to know the right time to sell. If I can reach that stage of ‘enlightenment’ by my next birthday, I would have really matured as an investor – in my opinion. Coming back to Gitanjali Gems, it has been an awesome climb, right? In all of 6 months! So is it time to say bye to bling bling? I don’t think so. Why? I like it! Reason enough? It better be!

Take a look at its website and you’d be forgiven to think that u’d landed at some Bollywood portal given that Neha Dhupia, Salman Khan, Katrina Kaif and Kareena Kapoor glitter through in huge 4” by 8.5″ sized banner frames!  At least in my browser window. As if personifying Nakshatra, D’damas, Gili and Asmi. And that’s the point – the company has been so successful in transforming these product names into integrated brands with massive recall. There’s Sangini and Vivaaha as well. Shahrukh Khan is also hidden somewhere in the inner pages of the website – try that ‘treasure hunt’ search if you have nothing else to do and are fully invested in this company.

The CMP of 285 currently discounts it’s trailing 12 month earnings 12 times. It was 5 times when I had purchased it. The company is selling for INR 2,400 crores which is about 530 million USD. Given that it has ambitions of becoming a global brand, that number does not look out of whack, especially when you consider that the mcap/sales ratio of it’s sterling competitor, Titan Industries is 3.3 as compared to 0.71 for Gitanjali. Moreover, Titan Industries’ Tanishq is more into gold as opposed to diamonds. And how does that matter? The shine of diamonds is more than the glow of gold – i.e. margins in diamond retail is more than gold jewelley. Gold has appreciated 17% (in INR terms) in the past one year while diamonds have become dearer by 25%. But since Gitanjali has stake in Tanzania’s bloody mines the raw material price spike will not hurt as much. I think going forward more and more people will start comparing Titan to Gitaljali (if they are not doing so already) and perhaps that will make some difference. The labour required to cut is more than the effort needed to goldsmith. Not high at all, I’d guess. Speaking of global ambitions, the company has recently acquired an Italian jewellery and design firm,

It spent INR 25 crores servicing its debt in 1Q11 which is approximately 2.5% of what it sold. In that sense, the big question mark is the retail foray. Why get into making malls and infrastructure when diamonds are forever? Will they add more leverage to their balance sheet? My hunch is that the Italian Job and/or the SEZ fling will increase the interest costs for the company – let’s see.

I think I will hold on given that this position of mine has perked up 144% in double quick time, so even if it corrects I’ll be cool. The technicals are shooting up full steam ahead and the share has seen a near parabolic climb recently. So some steam will definitely get let out. My investment logic was never based on such crappy observations that Indians are getting urbanized and therefore they’ll shun traditional gold ornaments and stud themselves with diamonds. The market leader in branded diamond jewellery was available at a market cap of INR 980 crores only. So while it was not some Grahamian deep discount discovery but there indeed was lot of money on the table to pick up. Now, however, it looks like a traditional and boring growth story. But even a slow and steady rise of 15% per annum will make it a 3 bagger for me in 18 months or so! The anticipated deluge of US hot money notwithstanding. If that target is reached much sooner, then I’ll jump out. But wait. Is this not a retail stock? And don’t retail companies, especially ones with a glittering track record and market leaders in their segment get high multiples? If we assume an EPS of 30 for close of next financial year, it’s forward P/E comes to 9.5 only. Plebian, male names sell at such high forward P/Es. When will India and Indians give equal opportunity to females, I wonder. Look at the table below to see what I mean. Gitanjali means an offering/anthology of songs. Would it have made any difference to its valuation if Mehul Choksi would have called his company Upanishad Jewels? ( = anthology of teachings from Vedic Hinduism) Or maybe his choosing the name Gitanjali might have been quite a prescient flash then? I don’t know what these boring boys are doing with jewels and diamonds – let’s leave them for pretty girls like Gitanjali and focus on making money instead.

And please do not ask me why I did not buy this stock when it was INR 34 (Mar 2009) if I am really as smart as I pretend to be.

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