We often speak about our extensive techstack called FG Exotech with a series of subsystems like Turbo™, Glocom™ and Agreement in Motion™ Systems that helps us identify every attractive opportunity in the Global as well as Indian market.
These are a combination of top down and bottom up systems and identify opportunities like the entry into the Metals space in June 2020, Global Marine space in early 2021, Agri and Energy space from Jan 2022 and Exiting China Tech in Feb 2021.
The systems give us an indication to increase exposure to the Indian Capital Goods & Industrial Machinery space, in early October 2021. That's when we started increasing exposure to that space from 8% in October 2021 to 22% currently.
The call worked out beautifully giving us great alpha (ie above market returns) from stocks like CG Power and Industrial Solution, Schaeffler India, Elgi Equipment, SKF India, Cummins etc. to name a few. These gave us returns in the range of 30-300%. Within a span of 10-12 months, some to them went up almost 2-4 times.
Why did our systems like the sector?
Reason One: It was coming out of a long period of sub optimal business conditions as well as below par returns. We always keep a watch for turning points in beaten down sectors.
Capital Goods stocks had a significant run in the 5-year period from 2001 to late 2007, followed by a massive correction by March 2009. Since then, for over a decade, the sector got lost in a secular bear market. Between 2010 and 2020, the sector gave a CAGR of just 2.6% compared to a 9.3% CAGR for the Nifty.
|
BSE Capital Goods Index CAGR |
Nifty 500 Index CAGR |
Sep 2001-Dec 2007 |
79.0% |
42.6% |
Jan 2010-Dec-2020 |
2.6% |
9.3% |
Jan 2010-Dec 2021 |
6.1% |
10.9% |
Hence, after being an underperformer for a very long period, plus with more companies as well as the government entering a strong capex cycle, it was possible that the sector will now enter a period of outperformance. Plus, from a valuation standpoint, the sector valuations were quite inexpensive. More on this below.
The sector enjoyed peak valuations (P/E of 50x and EV/EBIDTA of 35x) by 2007. Thereafter, valuations fell and again rose up to a P/E of 48x and EV/EBIDTA of 21x by 2015. Thereafter, valuations kept falling year after year and started witnessing a uptick only from 2021. Even, the earnings growth which was a negative 1% and 31% in CY19 and CY20, started showing strong numbers in 2021 and ended CY21 with an earnings growth of 300+%, driving valuations upwards. Our systems were able to catch this up move.
Second, this is inherently a cyclical sector with user industries getting into over capacity situations, cutting back on capex and then after a few years increasing spending once again. With the opening up of the economy since late 2020, the capital goods sector started witnessing strong traction due to healthy order inflows across companies, rising execution levels in key projects, the improving liquidity situation, and spending by the central government.
The Third boost was from the government, both directly and indirectly. The Central government introduced the Production Linked Incentive (PLI) that incentiveised domestic manufacturing.
Plus the 'PM Gati Shakti Master Plan' to create comprehensive infrastructure development plan including roads, power, telecom, etc helped revive the capex cycle, driving further growth in the sector.
A further boost was from global companies making a shift toward a "China plus" strategy to reduce their dependence on that country and India is one of the biggest potential beneficiaries of the shift. This also boosted the capex cycle in certain industries.
Fourth, was the internal work done by the companies in the sector. Most companies in the capital goods space gradually resolved their supply chain and labour issues, improved private corporate balance sheets and improved their capacity utilizations. They were much leaner and once the orders began to flow in, they were in a position to show good profitability.
Lastly, we saw that Capital Goods was a relatively safe haven compared to other sectors which faced margin pressures due to a huge increase in prices of raw materials, coal, electricity , oil and supply constraints plus sluggish demand.
How did this recommendation from our systems do?
Since we started increasing exposure to Capital Goods i.e. from Oct 2021 to August 2022, the BSE Capital Goods index is up 20.8%, as compared to the NIFTY 500 index return of just 1.8% and the stocks we have held are up 2-4 times, adding strong alpha to our portfolios.
Economists Think Dollar's Fall May Explain the Recent ‘Rally’ by Steve Liesman
Einstein taught us about relativity in nature. Now come Devina Mehra and Shankar Sharma of First Global to teach us about relativity in financial markets -- and raise some serious questions about just what is driving stock prices.
First Global reports are quite credible and, on occasion, more than that.
What prompts this mention is Intel's earnings report and the fact that First Global has had a pretty good bead on the company and its stock.
AMD up again following First Global upgrade to ‘buy’ (AMD) By Tomi Kilgore
Analyst Kuldeep Koul at First Global upgraded Advanced Micro Devices (AMD) to "buy" from "outperform," given the "exceptional traction" that the chipmaker's Opteron line of processors has been able to get.
Baidu Climbs on First Global’s ‘Outperform’ Outlook
Baidu Inc., the operator of China’s most-used Internet search engine, rose to the highest price in two weeks after First Global rated the shares “outperform? in new coverage.
Personality counts: Walmart's frugal, but Target charms
"It's better to take a slight hit on [profit] margins and keep on moving and inventing," says First Global Securities. And at least for now, Target is inventing in a way that appeals to consumers with money to spend.
Dead Batteries
At 11 times trailing earnings, Energizer is cheaper; Gillette's multiple is 25. But cheaper doesn't mean better, says First Global.
Bipinchandra Dugam @bipinchandra90
@devinamehra @firtglobalsec
invested in both GFF-GTS and Super I50. Thank you very much for such wonderful investing experience with completely new approach. In my 15years of investing first product I felt which close to what customer want.
Shishir Kapadia @shishirkapadia1
@firstglobalsec @devinamehra
by far you are the best, I have not come across transparency, acumen, global expertise, exposure, protection of capital, delivering return from any fund/ fund managers. Invested very small size in 3 products will keep on increasing it over the period
Piyush Bhargava @PiyushB88762654
@devinamehra @firstglobalsec
Thanks you team FG specially Devina, my investment doubled in less than 3 years in SDPB As a investors & PMS distributor of your product looking to have a long-term relationship with the company.
@KarmathNaveen the person with whom I always interact
Sumeet Goel @GoelSumeet
Very happy & relaxed to be invested with first global pms
Shishir Kapadia@shishirkapadia1
Congratulations on super performance, above all transparency and systematic process are unmatchable.
One must opt this, if person consider him/her self as an investor. Very happy to be part of this since invested. FG has managed worst year (ie 2022) so efficiently and skillfully.
SY @SachinY95185924
With so much of volatility in the market, risk management is very important part & considering that FG is doing awesome work!!! Kudos to you Chief
Amit Shukla @amitTalksHere
Truly outstanding. As a retail subscriber to #fghum #smallcase, I can vouch for the Nifty beating returns (8% vs 3%) in last 1 year. Keep up the awesome work @firstglobalsec
We can load above testimonials on site as a scroller, and just below that we can add a section for compliments . Below tweets are comments and praises are related to our content, performance and some our direct compliments to you.
ADIT PATEL @ADITPAT11226924
Good team...
Special mention @KarmathNaveen .. he is soo helpful anytime of the day or night..
Hindustani @highmettle
Bought Peace with FG-Hum.Moving all funds from DIY investing to well managed and diversified PF at low cost.
It has doubled almost, excellent pick.Every small investor must invest in her FG-HUM Smallcase.
Suresh Nair @Suresh_Nair_23
I have 8 small cases and your has been the most rewarding ones .. thank you Devina.
Sayed Masood @SayedM375
There is absolutely no doubt that she is one of the best investors of India in modern times but more importantly, she shares the most sincere and sane advice with retail investors.
SY @SachinY95185924
Wow Superb Returns🔥 Congratulations Chief for being Number 1 among all PMS!!!
You are one of the sharpest mind in Global Stock Market
AnupamM @moitraanupam
Congratulations Devina, results talk in itself!
Abhishek @simplyabhi21
Congratulations ma’am @devinamehra ! The consistency you have in maintaining the top rank position is outstanding! 👏
Mihir Shah @Mihir41Shah
We are learning More about markets (& Life ) thanks to U than we learnt in our Professional courses.A BIg Thank You, Wish all get Teachers Like You!!
Sumit Sharma @MediaSumit
"The ability to be comfortable with being outside consensus is a superpower in investing...and in life." Devina ji hits the nail on its head!
Majid Ahamed @MajidAhamed1
Congratulations @devinamehra mam! All the best for long term returns as well.
Vinay Kumar @VinayKu05949123
This is the wonderful session I have ever attended till date. One of the most fruitful hour of my life. Devina madam, ur clarity on financial mkts is simply superb.The way u portray the facts supported by "data" about stock mkts is really astonishing.I will listen again.Thanks.
VIJAY @drippingashes
I loved to read your journey, insight and philosophy. It's a pleasure to read and know of your takes on market and life.
MNC🏹 @Focus_SME
Check & follow @devinamehra's timeline for lots of post debunking such rosy stories. Also, she gives amazing 🤩 sector directions/hints.
KLN Murthy @KLNMurthy2016
Good actionable insights, great article!
Suresh Nair @gkumarsuresh
Devina Madam is simply terrific... good knowledge, straight and simple thinking.
Very difficult to emulate such traits. I listen her past interviews from youtube.
Respect...!!!!
DD @AliensDelight
One of the brightest minds in the world of finance :)
Radhakrishnan Chonat @RCxNair
📣 Calling all investors! Just had an incredible interview with @devinamehra, Chairperson and MD of First Global. We discussed the importance of global diversification, effective asset allocation, and the risks of sitting on the sidelines. Trust me, you don't want to miss this!
siddarthmohta @siddarthmohta
Excellent performance. Flexibility is the key as you have mentioned it earlier also. Cannot have finite rules for infinite mkt opportunities.
Boom (বুম)@Booombaastic
To be honest, the insights which Devina madam brings in is very enriching..have learnt a lot from them...
Himanssh Kukreja @Himansh02428907
One of the most accurate analysts :)
I always look forward to you interviews mam
Abhijeet Deshpande @AbhijeetD2018
Madam, It is always a treat to read your insight, not only on business but on other topics also!!
Dada.AI @dada_on_twit
Thanks for this wisdom ma'am. Always love hearing your thoughts on everything equity. :-)
adil @zinndadil
Excellent points!
Can clearly feel this thread is a product of marination of many books and years of experience. 👍
Kamal thakur @Kamalgt10
Superb !!
Your knowledge, analysis & articulation is simply great 👍
Tanay @Tanay36232730
Follower on Twitter and Subsciber on YouTube of First Global, really helping me in my investment desicion. Thanks
Copyright 2019, All Rights Reserved. Developed By : Hvantage Technologies Inc. Maintain By : Aarav Infotech