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Sectors in Focus

Major Corporate Developments This Week

1. Grasim board approved rights issue up to Rs. 4,000 crores; issue price Rs. 1,812/ share.
2. IEX: Company's Q3 overall volume at 28,326 MU, up 16.9% year-on-year.
3. Power Finance Corp raises FY24 market borrowing plan to Rs. 1.05 lk cr from Rs. 80,000 cr.
4. KPI Green arm bagged order of 3 MW solar power plant under captive power producer segment.
5. Suzlon Energy secured order for 225 MW for its 3 MW series from Everrenew Energy.
6. GAIL and Vitol Asia sign LNG deal for 1 mtpa LNG for 10 years starting 2026.
7. BEML won a contract worth Rs. 329 crores from the Defence Ministry.
8. Surya Roshni gets order worth Rs. 72 cr from Odisha Urban Infrastructure Development Fund.
9. L&T completed sale of its entire stake in L&T Infrastructure Engineering to STUP Consultants.
10. Torrent Power signed 4 MoUs with Government of Gujarat entailing investments of Rs. 47,350 cr.
11. DCM Shriram inked MoU with Govt. of Gujarat to invest Rs. 12,000 cr in manufacturing of chemical & petrochemical products in Bharuch.
12. NHPC signed MoU with Gujarat Power Corporation to invest Rs 4,000 cr In Kuppa Pumped Storage Project (750 MW).
13. Bajaj Finance - AUM crossed the Rs. 3 lakh crore-threshold for the first time in Dec quarter
14. Persistent Systems announced a multi-year Strategic Collaboration Agreement with Amazon Web Services (AWS) to accelerate the pace of innovation and development of generative AI solutions for clients.
15. Jupiter Wagons: Company gets Rs 473 crore order from Defence Ministry.
16. Lupin: US FDA approves company’s ANDA for Dapagliflozin and Saxagliptin
17. RVNL: Rail Vikas JV received LOA for Rs 123 cr order to redevelop Varkala Sivagiri railway station.

TechnoFunda Investing Quote from Legends -

A disciplined investor is a wealthy investor because they have learned that market fluctuations are normal and that patience pays off. In this quote, Buffett touches on the psychological nerve of most investment failures. Humans are by nature irrational beings and are often tempted to make trades when they think the market is working against them. In contrast, it is the well-tempered investor that learns to not watch the market. This is the person that ultimately ends up reaping the most rewards over the long term. Buffett extols that to build more wealth does not require you to be necessarily smarter than another investor, but rather that you become more disciplined with your reaction towards the irrationality of the market. “You don’t need to be a rocket scientist,” goes a similar Buffett quote. “Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”

📚 Book I'm Reading This Week ​​​​​​Margin of Safety by Seth Klarman "Margin of Safety," Seth Klarman presents a compelling argument for value investing—a strategy that involves purchasing securities at a price lower than their inherent value. He emphasizes the necessity of a 'margin of safety' to guard against the unforeseen, given the inherent imprecision of valuation and the unpredictable nature of the market. The book advocates for a disciplined, risk-averse investment approach that focuses on long-term wealth accumulation rather than speculative gains. Klarman details how to recognize undervalued investment opportunities and advises on portfolio management, stressing that a true understanding of investment risks, diversification, and the ability to remain level-headed when the market shows volatility are key to investment success. List of All Books I have Shared →

TechnoFunda 101 - Power Capsules

Learn technical as well as fundamental concept in a simple way

Understanding and using PE Ratio

In the realm of investing, the Price-to-Earnings (PE) ratio stands as a beacon of valuation, guiding investors through the dense fog of market prices and inherent business value. With its roots in the simplicity of comparison, the PE ratio juxtaposes the price of a share to a company's earnings per share (EPS), serving as a preliminary litmus test for investment opportunities.

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The Essence of PE Ratio

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The PE ratio is more than a mere figure; it’s a tapestry woven with threads of financial data, each strand offering a glimpse into the company's fiscal health. Accounting earnings, closely related to cash flow, provide a more real-time reflection than other valuation metrics. Accessible across a vast spectrum of financial information sources, the ease of calculating the PE ratio makes it an attractive starting point for investors.

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Applying the Price to Earnings Formula

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Simple yet profound, the formula:

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Price to Earnings = Current Market Price / Earnings per share

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paves the way for comparative analysis. Benchmarks abound; be it another company in the same sector, historical averages, or broader market indices, each offers a vista to gauge value. However, tread cautiously, acknowledging the headwinds of differing capital structures, risk appetites, growth trajectories, and reinvestment prerequisites, all of which shape the landscape of the PE ratio.

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Decoding a Stock’s Story through Its P/E

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Contrasting a stock's PE against its historical self can unravel tales of market irrationality or changing economic tides. A stock's consistent growth coupled with a subdued PE ratio compared to its history might signal an investment opportunity. Cautiously optimistic, one must still explore the reasons behind the lowered PE to ascertain that the market has not revised its outlook due to underlying business challenges.

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Navigating the P/E Drawbacks

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Bear in mind that a standalone PE ratio is devoid of context; it needs the grounding of comparison. Yet, these relative measures can be skewed by the chosen benchmark—industry norms, peers, or even market averages. Therefore, seeking an absolute understanding becomes imperative.

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Peering Behind the PE Curtain

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Why would a company merit a higher PE ratio? Growth prospects, risk profile, and capital needs offer clues. Fast-growing, low-risk companies with minimal reinvestment demands may command higher PEs, reflecting a premium for the anticipated higher future cash flow. Conversely, high-risk or capital-intensive companies often field lower PEs, as each dollar of earnings is more costly to produce.

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Distortions in the PE Landscape

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Beware of the subtle distortions that can cloud the PE ratio's clarity:

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Asset Sales: Earnings inflated by one-time asset sales can deflate the PE ratio. Adjust for these anomalies to avoid overstating earnings.

One-off Charges: Restructuring or unusual charges can suppress earnings and artificially inflate PE. Normalizing earnings by adding back these charges can give a truer PE ratio.

Cyclicality: Beware the lure of low PEs in cyclical industries at earnings peaks, as they foreshadow potential earnings declines.

Accounting Practices: The treatment of cash flow generating assets, such as R&D expenses or capitalizing versus expensing, can skew earnings and thus the PE ratio.

In conclusion, the PE ratio offers a compass for valuation, but it is not infallible. Understanding its nuances, acknowledging its limitations, and applying it judiciously within the broader context of industry conditions, company-specific circumstances, and economic signals, investors can harness the PE ratio as a potent tool in the arsenal of fundamental analysis. Use it wisely, and it may reveal the intrinsic worth hidden beneath the market's undulations.

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🚀 My Content For This Week 🎬 YouTube: TOP SECTORS TO INVEST IN 2024 AND BEYOND​ 📋 Twitter: Vivek Mashrani, CFA @MashraniVivek Welcome to the world of Profit & Loss statement Let's learn about all the different components of a Profit & Loss statement... Ready for the ride? Let's get started!... #technofunda #investing #finance #StockMarkets 2:57 PM • Jan 6, 2024 2 Retweets 4 Likes Read 2 replies ​ ​

🎙️ My Weekly Podcast For You

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Keep Compounding...

Vivek Mashrani, CFA Founder, TechnoFunda Investing

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