Hello👋 This week, we analyzed historical data & explained why “Buying the dip” makes sense. We also covered why it is the time to be bullish on New-age companies followed by what else is trending in markets & curated reads.
1. Market snapshot📈
This was a super volatile week on the back of news flow around Russia & Ukraine tension. This culminated with a 5% NIFTY fall on Thursday and a decent recovery on Friday ⚡
Everyone says – buy the dip. – in the last 18 years, there have been 45 instances where the NIFTY index has fallen 4% or more in a day including the one we saw on Thursday. We analyzed data of index returns post the previous 44 instances to see avg returns post such fall. Check out the summary of the same in the table below:
- Of the previous 44 instances, average returns post such fall is 0.2%, 2.0%, 5.6% 15.5% and 32.3% for the time periods of 1 week, 1 month, 3 months, 6 months and 1 year respectively.
- You might see more correction after a week on half the occasions, but the probability of gains keep increasing with time.
So, we can say with fair confidence that such steep falls are good buying!
Check out the full data table for 44 such corrections and market reactions here.
2. Time to be bullish on New-age companies?💯
NSE surprised the markets with news that might have disappointed many old school investors⚡
NSE in its press release came up with the updated list of companies to be included/excluded from the index. Interestingly, Nykaa, Paytm, & Zomato are included in the “Nifty next 50” list – paving the path to them being potential candidates for inclusion in NIFTY 50 👀
But lately, there has been a lot of skepticism on loss-making new-age tech companies, as they don’t fit the traditional criteria well (based on metrics such as P/E & P/S)
Does this mean, these companies are not strategically important & one should avoid reading & analyzing them?
No, a “Big” NO! ….But why? 🧐
➡️Because Tech will change the world 🏫: Covid has given us a good reality check. During a pandemic, not even the most powerful country- the US had sufficient basic medical amenities like ventilator beds, medical gowns, or surgical masks with itself.
Not just in medical infrastructure, same is the case with education (no infrastructure for every citizen to be educated even after easy internet access), transportation (No high-speed trains, delivery drones, supersonic aircraft, flying cars), manufacturing (dependent on other countries for products) and Real estate (even now, not everyone has a house to live in).
The only solution to this is – Building innovative products & technologies. And who is building this innovative ecosystem? New-age companies.
The more successful new-age businesses a country will have, the more dominant positioning it might gain globally as it will become effective & efficient in terms of convenience & accessibility.
For perspective- Facebook’s (which was again a new company that got listed at ~60+ P/E) revenue is ~1.6% of the total US GDP.
Just imagine, if Facebook did not exist, would there have been a similar kind of flexible & fast ecosystem? I don’t think so! Not just Facebook, look at innovative startups like Matrimony or shaadi.com. In a country like India, people’s life would never have gotten advanced & easy like finding their life partners on a website if these startups didn’t actually build it.
So one should definitely take the exposure in these new-age companies. But its crucial to understand:
- Whether the company is losing money for the right or wrong reasons: Nowadays, analyzing the earnings individually is not relevant because businesses spend/reinvest heavily on intangibles like brand building, R&D. So, spending for the right reasons leads to outsized payoffs in the future.
E.g: Amazon incurred losses for many years as it used to reinvest all the profits back. In fact, Matrimony also used to incur high losses but now has started generating profits, with the largest market share and a decent level of return on capital employed.
- Judging these companies based on traditional measures like P/E, P/B doesn’t make sense due to a higher focus on intangible assets and high P/E doesn’t necessarily mean wealth destruction❎ Check out the explanation here.
3. What else is trendin’?🤙🏻
✔️Automobile companies are finally seeing some ease in semiconductor shortages: Especially, Maruti said chip shortage is getting better & supply in the industry is expected to eventually improve leading to better dispatches of vehicles😌
✔️Meta is launching reels on Facebook in over 150+ countries: Total number of users on Facebook is continuously declining, it lost about half a million users in Q4FY21 itself. This clearly indicates that the company is not relevant to the younger crowd anymore as there are many alternatives like TikTok, giving tough competition to Facebook!
So to retain the users & increase engagement, Meta is launching reels. It will be very interesting to watch whether this strategy works well or not! 💁🏻♀️
✔️From going to negative value during covid, Crude oil breaches the $100/Barrel level for the 1st time in the last 7 years😱This is due to the Russia-Ukraine war as Russia controls ~1/3rd of global oil supply and currently is not supplying to the world against the high demand.
4. Good reads 📚
4.1 Markets have been choppy, but that should not deter a serious investor. A thread by us stating 10 reasons why one should not panic and go long on India!
4.2 An article on How do investors fail
4.3 Understanding the Russia-Ukraine crisis from a geographical perspective here
4.4 “Now you get it” by Morgan Housel who explains how the grass is always greener on the other side when you are not the one experiencing it!
5. Multipie Adda: Last week at Multipie 🔄
Some selected highlights:
- Want to know when is the right time to sell your winning stocks? Check this post.
- Mukesh has compiled a list of companies where profits have grown in the last 5 years but the stock price hasn’t moved. Tap here to see the list.
- One of the community members presented a case study of Rajesh Exports Ltd. writing Fiction with Finance. Check it out.
- Abhishek shared some charts showing how markets performed every time a war started. Click here to see his insights on the same.
See you next week. Until then, happy investing!