Retail Investor Vows for 2023

While most of the blogs and analysts are busy predicting performance of equities and other asset classes for 2023 , we have decided to focus on what an individual retail investor should do for 2023.

Future performance of equities is always uncertain and depends upon a lot of complex parameters which are beyond our control. But our own decisions are well within our control. Hence , we have decided to focus on our own decision making process rather than crystal grazing the future.

VOWS FOR 2023 –

• PE Ratio –
  • Before buying a stock , I will check the PE Ratio and compare it with company’s peers and sectoral PE.
  • I will check the company’s historical PE Chart and will not buy a stock if it is above the mean PE.
  • I will not buy a stock where major PE expansion has recently taken place and all operating leverages are played out and reflected in the price.
• ROE and ROCE –
  • Before buying a stock , I will check the ROE and ROCE and compare them with company’s peers and sectoral ROE and ROCE.
  • I will check historical ROE and ROCE graph and make sure that they are consistently high above the sectoral and peer company’s ROE and ROCE.
• Growth –
  • I will look for companies which have displayed consistent and healthy growth in both top and bottom lines over a period of several years.
  • I will avoid companies which have grown exponentially for last 2-3 years as eventually the growth flattens out
• Dividends –
  • I will look for companies which are maintaining high payout ratios consistently over a period of last several years.
• Profit Margins –
  • I will avoid companies which are showing sudden abnormally high profit margins as more often than not , this is already priced in.
  • I will look for companies which are able to maintain healthy profit margins that are above the industry average over a prolonged period.
• Debt –
  • I will not be afraid to look at companies which have strong balance sheets but have availed heavy debt for CAPEX .
  • I know that low debt to equity ratio is good for a company but I will understand that companies require capital for growth and a high Debt to Equity ratio doesn’t necessarily point towards negativity.
  • I will make sure to go through all historical and current credit ratings
• Receivables and Debtor days –
  • I will avoid companies with increasing receivables and debtor days .
• Equity dilution and pledging –
  • I will avoid companies which dilute equity frequently and where promoters have pledged their shares.
• Promoter buying –
  • I will look for companies where promoter shareholding is consistently increasing over several years.
• Annual Report –
  • I will make sure to thoroughly read historical and current Annual Reports .
  • In Annual Report , I will focus on Management Discussions and Analysis section and check whether the company is walking the talk .
  • I will also focus on promoter remunerations and percentage of promoter remuneration to the net profit.
  • I will focus on related party transactions and loans , credit facilities , guarantees , royalties extended to related parties.

Sectoral View –

• Finance Sector
  • In Finance Sector, I will not focus on growth but I will concentrate on Gross NPAs and provisioning taken by the company.
  • I will focus on companies which have invested heavily in technologies and will be able to service large geographically diversified, small ticket customer base at low cost.
• IT Sector –
  • I will not allow myself to be blown by fancy names like AI ,ML , Computer Vision , Blockchain, Deep learning etc. These things are not new and IT companies are using them since long.
  • I will not compulsively look at boutique small cap IT companies with fancy stories and bad balance sheets.
  • I know that cash-rich large and mid-cap IT companies are perfectly capable of delivering consistent growth over next several years.
• Commodities and Metals –
  • I know that commodities and metal cycle has already played out.
  • I will only buy good commodities and metal companies if they are available at around 5 PE and near book.
• Pharma –
  • I will avoid noise and I know that despite hype created around API businesses , still it is a commodity business and I will refrain to attach high PE ratio .
  • I will avoid buying pharma company based on some new molecules launch and rather focus on diversified well managed companies.
• Consumer Staples –
  • I know that Indian consumption story is still very much intact and I will assign my core portfolio to this sector .
• Capital goods and Industry –
  • I know despite various news coming about launch of large infra-projects and awarding large defense contracts, this sector will mostly remain sideways for next few years .
• Auto and Auto Ancillaries-
  • I will try and find good bargain hunts in this sector.
• EV and Solar/Renewable Energy –
  • I know most of the companies in this sector are trading at irrational and very high prices and sooner or later, they will correct back to mean. During this period , I will keep my patience and try to further analyse and decode the sector.

Economic view –

• I will not try to fetch any imaginary inference from rising Global Interest Rates , Global Recession and Global Inflation.
• I know that correlation between global economy and Indian economy is not linear and is of complex nature . Hence, I will just discount it for time-being , avoid noise and focus on quality stock picking.

The information provided by Finance Voyager is for information purposes only and is not intended for advice. Finance Voyager also does not make any recommendation or endorsement as to any investment, advisor or other service or product. The information is only for educational purposes and not buy or sell recommendations.