Category: Investing Insight

Investing insight to make you a better investor.

IPOs: A Performance Update

We are not big fans of IPOs at StockViz (here, here). As an asset class, they are a bit like playing chutes-and-ladders. Even if you manage to roll into a few ladders, there are plenty of chutes that can take you down to zero.

To see if IPOs make sense as an investment, you should compare their returns to a broader index. On one hand, we have the S&P BSE IPO index that tracks the value of companies for two years after listing. And on the other, we have the BSE 100 index that tracks the top 100 stocks my market value. By comparing the returns of the two indices, we can get a fair idea of what we are getting into.

BSE IPO Index 2005-today

A buy-and-hold investor in the index at the beginning of 2005 would still be underwater after the bust of 2008. And to make matters worse, the BSE 100 index has trounced the IPO index.

BSEIPO-returns-c

BSE IPO Index 2005-2010

BSEIPO-returns-a

BSE IPO Index 2010-today

BSEIPO-returns-b

IPOs on NSE since 2013

8KMILES
2014-01-29
+130.05%
AGARIND
2014-05-26
-45.53%
AGRITECH
2014-01-28
-79.37%
ANKITMETAL
2013-03-14
-65.29%
ARCOTECH
2014-04-16
+109.74%
ATULAUTO
2013-06-26
+277.10%
BUTTERFLY
2014-04-28
-12.57%
CAPLIPOINT
2014-06-23
+123.21%
CASTROLIND
2014-03-14
+19.52%
CEREBRAINT
2013-06-26
-61.25%
CNOVAPETRO
2014-01-01
-9.73%
DUNCANSLTD
2013-07-05
+16.70%
FCEL
2013-07-04
+38.17%
FLFL
2013-10-01
-35.45%
GSCLCEMENT
2013-05-15
+71.76%
GULFCORP
2014-06-26
-13.61%
GULFOILLUB
2014-07-31
+17.04%
HATSUN
2014-06-20
+10.28%
IBULHSGFIN
2013-07-23
+38.09%
INTEGRA
2013-08-20
-64.66%
JPOLYINVST
2013-11-11
+40.20%
JUSTDIAL
2013-06-05
+183.46%
LYPSAGEMS
2013-11-05
+1.31%
MAKE
2014-06-30
+72.51%
MMWL
2014-03-26
+56.67%
MOHITIND
2013-03-14
-38.16%
NAKODA
2013-03-14
-58.05%
NATHBIOGEN
2014-01-28
+632.86%
NGCT
2013-11-12
-32.08%
NIBL
2013-04-09
+214.95%
ORBTEXP
2013-11-05
+112.96%
ORIENTCEM
2013-07-12
+105.70%
PFRL
2013-07-17
-33.22%
PILIND
2013-10-07
+230.77%
REPCOHOME
2013-04-01
+172.19%
SDBL
2014-03-18
-13.60%
SFCL
2013-10-24
+72.90%
SREEL
2014-01-01
-11.07%
SUJANATWR
2013-09-11
+103.87%
VIMALOIL
2013-05-21
+75.39%
VIVIDHA
2013-05-21
-3.51%
VMART
2013-02-20
+91.39%
WELENTRP
2014-07-11
+221.25%
WONDERLA
2014-05-09
+80.04%
The NSE does not have an IPO index. So we had a look at all the stocks listed since January 2013.

There have been twice as many winners as losers since 2013 and the chatter around the ‘IPO market heating up’ has been getting louder. However, investors would do well to keep the big picture in mind before jumping into that hot new IPO that their brokers are selling.

You can track the latest IPO news here.

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Two Relative Strength Index (RSI) Strategies that Do Not Work

Definition from StockCharts:

RSI oscillates between zero and 100. Traditionally, and according to Wilder, RSI is considered overbought when above 70 and oversold when below 30.

A naive implementation of it would be exit when RSI > 70. Lets see how it worked out vs. a simple buy-and-hold.

CNX 100-RSI-returns-2010

A simple B&H strategy was miles ahead of one that exited the market whenever RSI indicated “overbought.”

How about being long only when the index is an uptrend (> 200-day SMA) and RSI is not ‘overbought’ (< 70)?

CNX 100-RSIxSMA-returns-2010

Using RSI was a net negative – it under-performed both a buy-and-hold and a SMA-200 strategy.

Would it work on other indices?

NIFTY: NO

CNX NIFTY-RSI-returns-2010

CNX NIFTY-RSIxSMA-returns-2010

CNX BANK: NO

CNX BANK-RSI-returns-2010

CNX BANK-RSIxSMA-returns-2010

Conclusion

The naive RSI strategies described above are money losers. The gains are nowhere near enough to compensate for the losses. A simple buy-and-hold strategy ends up outperforming the RSI.

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FII Investments

Yesterday, we saw how FIIs have pumped in closed to $12 billion this year alone. Lets see what stocks they have been buying up.

Since September 2013

Increases
SRTRANSFIN
40.34
JSWSTEEL
22.23
HINDPETRO
12.5
POWERGRID
10.27
YESBANK
9.95
UPL
8.45
TECHM
6.47
ZEEL
6.01
PETRONET
5.7
AXISBANK
4.9
Decreases
DABUR
-1.02
BAJAJFINSV
-1.06
ACC
-1.17
CONCOR
-2.22
EXIDEIND
-2.55
BANKINDIA
-3.38
FEDERALBNK
-6.86
HINDALCO
-11.09
GLAXO
-21.24
MCDOWELL-N
-31.47
FIIs have been active across the board. With no single sector being overly favored…

Since March 2014

Increases
ZEEL
48.68
YESBANK
7.06
KOTAKBANK
3.41
TATASTEEL
2.96
CANBK
2.53
TATAGLOBAL
2.42
PETRONET
2.23
UNIONBANK
2.2
IDEA
2.12
HINDPETRO
1.85
Decreases
WIPRO
-0.73
CAIRN
-0.75
IDFC
-0.80
BAJAJFINSV
-0.99
CONCOR
-2.27
BHARATFORG
-2.29
EXIDEIND
-2.32
FEDERALBNK
-3.77
HINDALCO
-11.55
MCDOWELL-N
-29.26
… However, they seem to have made up their minds on getting out of CONCOR and FEDERALBNK. And do we see a concentration among banking stocks?

Investment Strategy Implications

The data is delayed due to quarterly reporting and we get to hear about activity in bits and pieces, days after they occur. No sure if playing a guessing game as to what FIIs will buy or sell next will add any alpha to your portfolio. Its just nice to know what they have been up to…

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Mutual Funds: A Tricky Business

There have been a couple of high profile exits from the asset management business recently. First, it was Fidelity that threw in the towel. And then it was Morgan Stanely’s turn. From where I stand, this is how I see it:

  1. The Mutual Fund business is all about accumulating Assets Under Management (AUM.)
  2. The breakeven is around Rs. 10,000 crore in AUM.
  3. Most investors focus on absolute returns so “beating a benchmark” is not rewarded with more flows.
  4. It is a distribution game. The fund house with the widest distribution network wins.
  5. The product is sold, not bought. Given the plethora of choices in the market, the average investor usually has no clue as to what is best for him. Schemes are sold on the basis of trust between the agent and the investor.
  6. The SEBI killed the distribution network by abolishing the entry load.
  7. The winners were the fund houses who had paid employees who could convert footfalls into sales.

LiveMint’s analysis back in Feb 2012:

Sources:

  • A cautionary tale of Morgan Stanley’s mutual funds in India (ET)
  • Morgan Stanley: Quit India (MoneyLife)
  • Fidelity’s exit, a slap on SEBI’s face (MoneyLife)
Related articles
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FII (FPI) and Mutual Fund Investment Charts

Foreign investors love the India Story

Just look at the amount of money pumped into India: $25,347.95 million so far this year alone.

fii-investments.2012-01-01.2014-08-31

And just into Equities: $11,960.36 million this year.

fii-investments-equities.2008-1-1.2014-08-31

Domestic Institutionals have a debt fixation

DIIs have bought up Rs. 3,99,840.60 crores into debt this year alone.

dii-investments.2012-01-01.2014-08-31

And have been net sellers of equities. Taking out a total of Rs. 452.30 crores this year and Rs. 22,507.20 crores since 2013.

dii-investments-equity.2008-1-1.2014-08-31

There are signs that domestic investors are finally joining the party. Here’s to hoping that a majority of those funds will come from fresh investments rather than from rotating out of debt into equity.

Also, these trends beg a question: Have our regulatory and tax system skewed incentives toward debt at the cost of equities?

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