The 2017 Morningstar Investment Conference was held in Mumbai on October 10-11. At the conference, Charandeep Singh, Founder and Managing Director at GIRIK Capital shares how he picks winners.
You follow the dictum “follow the money”. But you use a model by which you identify these stocks and ride new stocks. Tell us more.
When we set up our asset management company about nine years ago, we wanted to be stand out in our ability to find the next large winner or winners. But how would six or seven people sitting in a room do that? How would you find winners out of 4,000- 5,000 companies when you are a small team with limited resources?
The CAN SLIM model inspired us –invented by William O'Neil in the U.S. We have put into the automated technology-driven screeners, all the listed companies in India. And we run these screeners daily.
Here’s what it stands for:
C - Current EPS. It should be outsized, enlarged, year-over-year and quarter-over-quarter.
A - Actual earnings over the last three years. It should be in the 18%-25% range. Below that, we don't necessarily look at it.
N – Novelty or Newness. This is very relevant and we think has the maximum impact on finding a winner. New products. New management. Even an IPO since new listings provide a lot of room for growth in price. A lot of these stories are under-owned and under-appreciated by the large funds. They tend to come much later.
S - Shares outstanding. They should be limited in supply and tight. They should not be large issuers of capital. Not serial diluters.
L - Leadership. Which is the set of stocks out of these 5,000 relative to one another making lifetime highs. This is an extremely relevant point. It sounds very counterintuitive, but this part tells us that you need to focus on the leadership. You need to look for value at a 52-week high. Most people tend to look the other way, right? We tend to screen for this.
I - Institutional sponsorship. I think in the Indian context it just means are there some smart money investors already in there?
M - Market direction. This is something we don't pay as much emphasis to. Is the market in an uptrend or a downtrend? This may actually help you time your purchases a little better.
This helps you screen the hot stocks of tomorrow?
Of course, we do a lot of fundamental work after the CAN SLIM screening process is run. But the kind of names this throws up when they are thrown up have already gone up 4 or 5 times. The typical human mind will say, okay, it was Rs 25 three months ago, it's now Rs 100. How can you buy this? But some of the biggest gainers – Eicher Motors went from Rs 1,000 to Rs 10,000; now it's Rs 30,000.
You will find your biggest winners here in my view. And you know, we've tried to put this in a technology-driven process. It is run daily at the press of a button. We've been working on this for a decade now. So, we keep making serial improvements to it.
How does your model help you make a sell decision?
Normally we sell into what we call euphoria. This could come up in many ways.
We look at stocks that have done very well and normally enter into these when they are not well covered by sell-side research analysts or gain much coverage in the media either. They are sort of out of favour in a sense, even though they're making 52-week highs. But many times, when we're into these positions after a couple of years, we find that there is a sense of over-ownership. A lot of people have got into these stocks. The CEO is coming on magazine covers. There is an interview a day. They are on CNBC or other channels regularly. We call that the magazine cover syndrome.
When there's a whole bunch of euphoria, we start lighting up our positions because we think a lot is built into the price at that point. Similarly, if you look at a lot of research coverage from the sell side, we tend to think that a lot of – if the numbers are so well-known, it's in the price.
Based on your model, give us your assessment of where the market is placed right now.
We are so process-driven that we don't necessarily like to be preemptive about the market.
It is ultimately a bottom-up stock picker game, it's about finding great businesses at the right price, that's the essence of it, that doesn't change. This method helps you get to that multi-bagger. The aim of doing this is finding those winners, those 7x, 8x, 10x in three, four, five years or faster. So, the market direction is one element of it. I would say that's something we focus the least on, to be very honest.
How do you play demographics as an investor?
In India the power of demographics is so large; there is such a large underserved population.
If you look at the fundamentals of this bull market, what are they based on - food, clothing, shelter, financial services, very simple things. In that regards, we are a very simple market. There is nothing so complex about it. There is a basic want and need for goods and services. As per capita moves upwards, as we double over the next decade or so, there will be sea change in what people are consuming. People will want more and more. Everybody wants more and more and better; better quality of services, a better home, better food, more nutrition, simple things like that.
We really believe in keeping it simple.
As an investor, there are going to be so many opportunities. These days there's an opportunity every month. Look at D-Mart, it did not exist to the capital markets and now… What does it provide? A simple service at a very competitive cost in the most efficient manner possible; a very scalable, well-executed business model. And all of a sudden you have around Rs 60,000 crore odd of market cap created from something so simple. There could be so many more stories like this. We just have to be open to those.
Businesses have a moat, but these moats can be breached easily because of technology. Do you agree?
Of course, technology can breach moats, no doubt about it. But as far as technology and India are concerned, we are an adaptor. We are a user at this point. The entrepreneurs and the companies seem very technology adaptor-oriented, very process-driven, creating efficiency out of simple – providing simple processes and improving processes and delivering to the consumer in a very simple way and an improved way. I don't think we are there in terms of being disruptive. The Indian market is very simple at this point.
Which company do you prefer, Amazon or Google?
Amazon, because I use it so much.
You don't use search?
I do. But Google is Google. It's like waking – it’s like bread and butter. Amazon has got so much oomph to it, I think. New products and new things to look at every day.
Nifty, first at 9,000 or 11,000?
I'm a diehard believer in bull. You asked me 15,000; I'd say 15000. So, you know, you're being very kind when you say 11,000.
Over one year - Dow at 22,000 or Sensex at 32,000. Where would you invest?
Sensex at 32,000. I would still stick with what I know best.
