Technical Analysis of Indian Equities by Nooresh

Proprietary Investors Conference – Edelweiss and Kotak Notes – Kenneth Andrade’s Talk and More

Recently I attended a couple of conferences for proprietary investors -Edelweiss #epic2015 and #KotakMidCapMeet15 focused on midcap companies. Both of which were very well conducted and saw participation of a lot of smart investors. It was a privilege to attend ! .

I cannot write about the company meetings at EdelWeiss or Kotak but did make a few notes on Nilesh Shah and Kenneth Andrade's talk. It is great to see Broking houses now focusing on Proprietary Investors/ Family Offices as a very important part of the Investment Circle.

Have tweeted some of the notes on Nilesh Shah's talk which is always funny with a lot of statistics but tends to be bullish long term given his MF CEO role.

I do not follow Mutual Funds or Fund Managers closely but Kenneth Andrade has picked up some amazing smallcaps which became large midcaps in the sideways period of 2010-2013.

A line in one of his interviews in January 2015 is interesting -

"In fixed income it seems to be a better place to be at this point in time. Equities will give you the volatility."

A lot of such talk by smart chaps made me focus more on midcaps/smallcaps instead of largecaps and has worked well for 2015 calendar year.

Am not good at making notes but i did try for Kenneth Andrade's Talk. But here are some my notes which are not exactly as he might have spoken. ( Evernote Premium does help a lot ) .

My views in italics and brackets.

Trends in BSE 500

  • We have been talking about earnings growth forever. ( My view remember Analysts talking 20% earnings growth in fy 14-fy16 now suddenly downgrading)
  • Profitability is back to 2011 levels.
  • Trends in BSE 500 financials shows ROE at 10.2% which is lowest in 15 years.
  • At the same time Debt/Equity is at 100%.
  • Lots of Leverage to start a Fresh Capex Cycle as ROE, Debt/Equity , Asset turns at extreme values.

Transition in Balance Sheets and Smallcap Cos.


  • Capex freeze by large companies.  ( Nilesh Shah mentioned about 65-67% capacity utilization of India Inc.)
  • Debt being restructured/written off.
  • 50% + Cos from the SmallCap Index are reducing Debt / Debt Free.
  • No solvency risk in debt free companies, One can debate valuations.
  • Smallcap Cos First to Restructure Debt / Last Year Balance Sheet Growth at 8% / Profits in this segment way off the mean.
  • Smallcaps Compress very Fast in Bear Markets and Expand very Fast in Bull Markets.


Smallcap Trends

  • Net Sales 10 yr CAGR - 17.6%
  • Net Profit 10 yr CAGR -1.9% ( now thats bad)
  • Total Assets 10 yr CAGR - 23.9%

How it all Evolves

  1. Existing Capacities become productive and profitable - Delveraging.
  2. Improves domestic avenues for funding
  3. Tax to GDP improve with corporate performance
  4. Pace of accretion to NW improves with lower credit costs.
  5. Start of Growth Cycle.

Re-Leverage Again

  • Banks will move to finding the next Credit Cycle. ( Here he showed a pie chart with 44% of credit to Industries as largest.)

Trend likely to play out

  • Easier to grow Retail Credit @30% cagr than to increase Corporate Credit.
  • Retail Credit Woes will have a secular downtrend.
  • Micro Finance Yields have fallen from 24% to sub 20% in 2 years.
  • Mudra Bank re-finance of SME Credit could be significant.
  • He also mentioned about how credit to micro segments was 20-50% p.a what if this changes to 12-15% ?
  • Availability of Credit to release equity employed in SMEs , in turn to the consumption pace. ( a lot of this money could also come to Equities. Can see it from DII flows)
  • He expects re-leveraging this time would be more through Retail Credit and SME unlike Corporate.
  • He mentioned about Banks could have a much extended recovery cycle this time. Also in the last bad cycle in 1990-2000 banks had lent to Commodities, Textiles and other sectors which actually became good assets in 2003-2007 cycle. This time its going to be difficult.

What Smaller Companies Can do ?

  • Organize an unorganized market.
  • Begin in niche - make it an industry.
  • Frugal - Cost and Availability of capital remains a challenge.


  • Build Monopolies.
  • Pick Scalable Industries.
  • Companies that work to make capital efficient.

There was a little more talk on this topic but some which i noted was.

He even gave an example of Tyre industry which consolidated from 15 companies to top 4-5 and now the largest company exports 1 billion dollar worth of tyres.

Another example to show importance of monopoly was the rush to Monpoly or Winner takes it All formula in Digital Businesses like Amazon , Facebook etc.

Industry Size and Potential is very important and for a company to last and be relevant. Low Debt helps survive.

One interesting note was - An equity investor is not supposed to fund the companys growth but to take money out of the Company - This is what Investors forget when buying leveraged companies.

The Opportunity

  • 2000 - Technology
  • 2007 - Materials & InfraStructure.
  • 20??- ??

We need to find leadership for next Phase.

He disappointed everyone by saying He has not found the leadership yet and sectors like Pharma cannot drive the economy , It doesnt in the World.

An interaction with a Foreign Investor

  • The Foreign Investor said it is amazing to see Indian entrepreneurship where there are 1000s of companies with 100mn -200 mn dollar turnover and offices/plants across 5 cities/states. Do not see this anywhere in the world.

Small Companies are always relevant in a Portfolio

  • Small companies grow faster because of low base.
  • Portfolios are built around the benchmark and outside of it.

gave an example of how Peter Lynch Fund had a lot of outperformance coz of out of index stocks.

A lot of fund managers today are also building the same.

Now there was a QnA session.

Did not note this down. But some notes.

  • Leverage destorys businesses in bad times.
  • In last cycle everyone focused on Future Cash Flows and got it terribly wrong . Banks are supposed to fund such ventures and not Investors - Bottomline - Focus on Cash Flows.
  • He likes to focus on companies where Sum Total of their Equity , Reserves and Debt is on the way down to ensure that it its capital efficient and in some cases returning profits through dividends. This is part of his checklist and suggests everyone to re-look into this checklist for every smallcap they own and keep tracking. There is a high mortality rate in midcaps/smallcaps so tracking is important. Focus on Low debt cos so that they do not burn out.

Infrastructure - We are over invested on Infra - ( He did not seemed to like the sector at all )

  • We have the highest density of roads in the world. But the problem is they are bad Quality.
  • We have maximum amount of landing strips but again bad quality.
  • Power used in agriculture is 20% ( highest in the world. )
  • 13 gw Power in China. India at 3 gw .
  • Most of the ports are at 60-80% capacity.
  • We have enough Infra but we need a maintenance spend and improve it.
  • Very little for equity investors in Infra cos barring a few exceptions here and there.

Question - How long will it take to clean the Balance Sheet. How long to reflate.

  • Banking will be extended cycle even from today.
  • Private Banks have overshadowed PSU in market cap and market share.
  • Huge fragmentation of Banking.
  • Even small private banks will be in pressure in next few years with new licences competing.
  • Buying expensive Banks is fine as they can recapitalize at higher book values.
  • Market share and niche is important.

Question on VCs and Investment in Startups.

  • I have been brought up on buying cash flows so cant answer that but let me try.
  • When the asking rate of capital is low a whole industry is created. Example Industrial Revolution backed by low interest rates.
  • The next decade asking rate of capital will be higher . Many companies will collapse themselves. Now it's about top line but some day investors will ask money back.

It was a one hour talk so there was obviously more but this is all i picked up.

My views and Conclusions

  • Somehow everyone around keeps talking about how Indian Markets are in a Bull Market and all that jargons. See this recent Post -  Are we in a Bull Market ? I dont Think So !!
  • So today is Nifty is closer to 7540 the high on Election Day of 2014. So it would be almost 18 months plus of no Returns if you bought Nifty on that day. The Returns have been in Midcaps and Smallcaps.
  • The talk above summarizes as to how it will take time to expand the Indian Economy and a roaring Bull Market is a little faraway.
  • Valuations are expensive but cannot be compared to 2007 or even 2010 as the ROEs are not at peak but at 15 year lows as well as profit growth is negative and not 20-25%. I would suggest reading this amazing note and all other memos by Samit Varthak of SageoneInvestments which details all financial ratios and valuations on a top 500 universe -  Indian Market Valuation analysis – SageOne Sept 2015.
  • But i believe there are a lot of particular stocks where money can be made with lower risks too and will also get opportunities in the future if one has patience and conviction.
  • Also we are moving towards a low interest economy as per Kenneth and others and your best bet to beat inflation is Equities and Financial Assets.
  • I do sound a little pessimistic in last few months unlike the always Optimistic Nooresh - maybe i have grown older faster coz of the greying hair. But i believe India is on verge of a Bull Market in the future and not faraway. I would sum it up as Indian Equities will get a Bull Market - It can only get Delayed not Denied.
  • So take the next few months as an opportunity to increase equity exposure when Nifty is down 17-18% and Bank Nifty down 20% and suddenly analysts/ market-men are realizing how tough the things are and reality from the huge expectation built up in 2014.
  • Go ahead increase Equity as a part of Networth in next few months. I would go little step ahead Go a little Lump Sum instead of SIP. Dig down more to midcaps/smallcaps too.

Disclosure -

  • This is not a Paid Post. ( If only brokers and business channels paid me exorbitantly to talk or write 🙂  what i would without an agenda.) .
  • I have no vested interests in talking about Kotak, Edelweiss broking and do not recommend any Mutual Funds as I do not have much expertise on MFs as of now. I do consult as a Technical Research Head for an institutional Broking Outfit - Asian Market Securities and am a SEBI Registered Investment Adviser.
  • I do have a view on Retail Broking and Institutional Broking as two different Sectors and their Transition. ( will soon write an article on it ).

Analyse India Big Value 3.0 – A Funda-Techno product for Equity Investors -

•    A diversified portfolio of 40-50 stocks created over a period of 12-18 months. Recommendations with a brief note and regular updates on covered stocks as well as allocation.
•    Focus on finding good risk-reward entries in quality stocks using a mix of fundamental analysis for selection and technical analysis for timing.
•    There are no promised / expected /possible returns or possible loss / expected loss etc but the target is 20-30% annual returns along with beating the benchmarks by a good margin and to control risks more importantly.
•    Service to be renewed in 18 months and updates continue till all the stocks are booked in portfolio.
•    No short term trades/derivatives etc majorly investments.
•    Big Value 1.0 and Big Value 2.0 did around 30-40% CAGR.
•    Read more here -

Article by Nooresh Merani

Nooresh has written 2753 articles.

You can follow Nooresh Tech on Facebook and Twitter here.

{ 2 comments… add one }
  • Jigs December 12, 2015, 15:51

    Thank you Nooresh for posting your notes.

  • Ab December 16, 2015, 03:15

    Nice 👍


Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.