BC MARKET CYCLE
Saved by @AnmolNarula11

Bull runs in small caps are usually fast and furious, and the cycle repeats itself every 3-4 years. Every time, retail is sold stories of business turnaround and stock charts look fantastic for meteoric wealth creation. For the class of 2020-21, here's a couple of past stars.

 These small cap stocks with 30-40 crore market cap went up 23X and 11x in a span of 24 months between April 16 and April 18. The story looked great then, but subsequently once liquidity and interest disappeared, the prices went right back to where they came from.
When in the thick of the action, it can be difficult to keep a level mindset. To keep the narrative believable, these companies are able to massage their top-line and bottom-line for a short period of time to show an imminent turnaround. Note the trends in these financials.
The company usually exhausts its ability to massage the financial statements very soon and the business health plummets dramatically. One collapsed so dramatically it has been selling fixed assets. The other one is Uniply Industries - a simple search on Twitter will suffice.
Newer small cap investors may be subscribed to many Twitter handles, Telegram channels, groups and even premium advisory services. Don't take anybody's word for the narrative being sold to you. On-the-ground-research and scuttlebutt can be plain fiction.
In small caps, liquidity (or the lack thereof) often drives the prices. Upper circuits happen frequently because there isn't enough liquidity. Supply can be snapped up in advance and offloaded slowly to retailers in the form of upper circuits by generating hype.
It doesn't take more than 10-20k shares worth 10-20 lakhs to send a share to upper circuit in many microcaps. Afterwards, it's easy convincing retailers with such a nice chart formation. Chaand bhi paas lagta hai.
Promoters are often themselves playing to increase market cap. Financial jugglery for more sales/profits is an established way to con banks into giving loans, which are siphoned off. The price rise is great too, you can offload or offer as collateral (if any bank will take it).
Advisory services and gurus on Twitter / social media also can use access to eager promoters to paint mind-blowing narratives on these companies. I use the word 'can' here because advisors and gurus always caveat their research, and everyone has the right to benefit of doubt.
This is in public interest - I have sat through several cycles of small caps shooting for the skies as a collective group, and leaving many retail investors swearing to never enter the markets ever again once the music ends.
Small caps can build wealth just like any category (with more risk of course). Some small caps I hold have grown to mid caps. Risk management and a leap of faith is necessary here, do check what/who your faith is on. Entries can always be made later when things are clearer.

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@leading_nowhere
Paying 50-100x earnings for 'blue ocean' sectors has become normalized with promise of changing trends and immense future opportunity. Stock markets look forward, if the future opportunity is great, in most cases that 100x valuation already factors a 30x valuation in 3 years.

For investors, the question of where the buck stops is difficult to answer, because the goal post keeps changing. 30x is reasonable for one business, for another 70x is acceptable. So why not everything in between too?

Not every business captures the opportunity available. There is many a slip between the cup and the lip, as my English teacher used to say. When investors have seen valuations creep from 20x to 100x in a matter of a year or two, it is easy to to keep dancing to the same music.

But like we used to play musical chairs in childhood, someone will be left standing too. And here the rules aren't that 1 person gets eliminated at a time, hundreds get crushed at the same time. In childhood, we had a 1/X chance of being caught standing when the music stopped.

The margin of safety was high till you got down to the last 3-4 people playing the game. Similarly, your margin of safety reduces dramatically when valuation becomes irrelevant. A few months of underperformance and suddenly things don't look so rosy any more.
VALUATION
Leading Nowhere
Leading Nowhere
@leading_nowhere
@sohamdas Depends on your style, of course, but absolutely correct.
WISE INVESTING
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Leading Nowhere
Leading Nowhere
@leading_nowhere
Insolvency resolutions suck for creditors, but this one takes the cake.

Listed company gave loan to related party, defaulted along with other dues. Related party creditor acquired the listed entity via insolvency.

Only losers are operational creditors w/ 88% haircut.


Company name is Covidh Technologies Ltd - really old bankrupt company. Not a significant event, just an observation.

Correction: Listed company *took* a loan from related party (in first tweet)
FINANCIAL SHENANIGANS
Leading Nowhere
Leading Nowhere
@leading_nowhere
Every annual report tells a story.

In small companies, you can read between the lines to get a feel of the management style and business economics.

I take Fredun Pharmaceuticals Ltd (FPL) to illustrate how to go about this (it's not pretty).

Let's go 👇 (1/n)

Please note that the main objective of this review is to get a preliminary understanding without doing a thesis.

It is oriented towards a "quick and dirty" review to decide if you want to dig deeper.

Review financials on a screener website before reading further. (2/n)


Now, you can already guess Fredun Pharmaceuticals is named after Fredun Medhora. His mother, Dr Daulat Medhora and his father, Nariman Medhora, are the original promoters of the company. Interestingly, Nariman Medhora has stepped down from active involvement in June 2021. (3/n)


Then we have Dr Daulat Medhora, who seems to have the qualifications and a decent background in the pharma industry. However, she is 76 years old and unlikely to be actively involved for much longer. (4/n)


That leaves Fredun Medhora, who does not have a technical or scientific background and his primary qualification is an MBA.

The biography provided in the AR describes the CV of an MBA student, nothing on the contribution or role in the company. (5/n)
FREDUN
Leading Nowhere
Leading Nowhere
@leading_nowhere
The anatomy of Private Equity (PE) funding in a public listed company.

A thread 👇 (1/n)

PG Electroplast Limited, a contract manufacturer of various kinds of electrical goods and appliances, recently announced an 80 crore fund-raise through preferential allotment of equity shares and compulsorily convertible debentures (CCD) to Baring PE and family funds. (2/n)


Such transactions are a great way to understand Private Equity deals in a public setting. Because of disclosure norms for listed companies, everything related to a fund infusion in a listed company is made available to the public. (3/n)

From a retail investor’s perspective, it is easy to focus only on WHO is investing. In this thread, I will try to look at such a transaction from the perspective of all stakeholders – the company, the PE investors, and the public shareholders. (4/n)

PG Electroplast sees an opportunity in the Productivity-Linked Incentives (PLI) by GoI. Under this scheme, companies making incremental investments into manufacturing facilities receive up to 6% of the incremental sales generated from such investment as an “incentive”. (5/n)
PRIVATE EQUITY

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@RanaPratp
@unseenvalue @sahil_vi It is mean reversion for company's performance. Crowd thinking usually takes a belated u turn after the prices have retreated significantly.
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Jiten Parmar
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@jitenkparmar
@Sanjay__Bakshi @katalystwealth Yes Sir. Extremely difficult to predict the top. Often top comes much before the best results. One needs to have some kind of strategy to exit. Maybe something like a multiple of replacement cost, P/B, historical upcycle margins, etc. But there is no exact science to predict top.
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Shyam Sekhar
Shyam Sekhar
@shyamsek
In past cycles, operators took vulgar companies and made them look good.

Now, they take good companies and make them trade at vulgar valuations.

That is the difference.
MARKET CYCLE
Not dead...yet.
Not dead...yet.
@passivefool
Lot of startups who are yet to make profits are filing for IPOs globally. I'm reading the filings and the language is terrible. A few tips on how to do it right.

Here are the right terms to use instead of the current antiquated language.

We are making losses.

"We've been consistently making negative profits and growing year on year."

We don't yet have a business model.

"We're innovation leaders in several fast growing market segments"

Losses will increase for the foreseeable future.

"Blockchain"

EBITDA is negative

"Our future adjusted EBITDA margin is consistently positive"

We Work got it right with their Community adjusted EBITDA
MARKET CYCLE
Jiten Parmar
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@jitenkparmar
A recently listed IPO (Sep 21). Promoter did OFS at X alongwith fresh issue. Made record for highest subscription ever. Company currently at more than 5X of OFS price.

Let's glance a bit on Financials.
1/2

Mcap - 3500 cr
Company does about 150 cr revenue. And about 15-20 cr in profits.

I am at a loss of words on valuations.

Maybe market is smart, promoters dumb and value investors like me dumber 🙂

My exp of almost 3 decades in the market tells me, this will end badly.
2/2
MARKET CYCLE

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1/23

Price is testing the same resistance repeatedly since long.
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2/23

1. Volume buildup (vol > when resistance point created) along with, increase in OI, increase in delivery % on HTF
2. On LTF, price stalling around breakout area for at least 1-2hr.
3. No major events.

3/23

Stock reaching breakout LVL with HL-HH
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4/23

Number of wide range green bars with high volumes.
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Consolidation below the resistance, volume of the candles & strong bullish candle closing at near highs just below the resistance

5/23
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