The year 2016 has been challenging for all value investing professionals in India. We started the year with markets falling down and then we had straight 6 months of rise and then now we are sitting at 8200 levels down from 8900 seen earlier this year. By average our old funds sat almost 35% on cash, we started new fund on 21st September and from that day market had fallen 8% and we are still sitting on 50% cash.

When markets are going up handsomely every month and we see no broad based value in it, it requires a great deal of self-restraint to avoid the temptation to buy something or anything. ‘Swing at something you mug’ is a common advise given to professional fund managers by their investors. But as we had indicated earlier, we are not in a business of betting on the ‘ups’ and ‘downs’ which is similar to betting on black or red in casino.

We are seeing a lot of change in the valuation spectrum of many businesses we like, thus stopping us to buy more when stocks had fallen down. Let me share with you example, Kitex Garments second quarter results jolted its short term future prospects. Analysts who were following Kitex Garments 3 months back were expecting their 2017 profits in range of Rs 130 crore – 156 crore and today are expecting Rs 126 crore – Rs 143 crore, almost down by 7% – 8%. These same analysts were expecting its 2018 earnings in range of Rs 150 crore – Rs 203 crore three months back and now they are expecting its profits in range of Rs 150 crore – Rs 174 crore, broadly 10% earnings got downgraded.

kitex garment logoThese earnings downgrade put pressure on its valuation spectrum and if we factor in those expectations, then valuation spectrum for Kitex Garment for 2018 is Rs 322 – Rs 429 per share. Today they are trading at discounted price but not at those steep discounts anymore. This is because Kitex Garments 90% exposure to USA markets, and there is uncertainty prevailing about what will be Trump’s stand on imports of garments. We do know that there will be massive policy changes expected under his regime. We are watching this space closely.

What do you think about Kitex Garments future prospects under Trump’s regime?

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we tell you to take professional advice before going ahead with our views.