SUNDAY WEEKLY #29

Hello EveryFinions!

It is such a delight to be writing to you again after about 3 months. I have been super busy. First it was the CFA level 2 exam and then it was this super important project I was working on (details below). Finally, I got around to doing what I love doing the most - writing the Sunday Weekly.

A lot happened over the last 3 months – some remarkable (Bezos, Branson space travel) and some utterly catastrophic (the second wave in India). However, we swear to stay true to our hope for a tomorrow which is better than today.

IN THIS WEEK'S NEWSLETTER

• Quiz
• News in brief
• GAME : Price is right

• Our ginormous equity database

• Soundbites - That's what they said
• In crypto news
• Thought for the day
• Cover Story : On-chain analysis
• Read/Watch/Listen

QUIZ

Spreading your money on several different types of asset classes and assets is known as _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ?

NEWS IN BRIEF

• FMCG giant Hindustan Unilever Ltd posted profits growth of 10% and revenue growth of 13% year on year. On a sequential basis, profits were up 3.8%. This is especially good because the firm, like many others are battling inflationary pressures and keeping the bottom line growing without too much of a price increase can be a challenge. Volume growth came in at 9% despite local lockdowns in the quarter.

   

• Jubilant Food works prices posted smart gains (+10%) this week following its near 100% revenue and near 10X operating profit growth in the June quarter compared to the year ago period. On a like to like basis between June 2019 and June 2021 quarters, profits were marginally down. However, the company said that it saw 6.8 Million app downloads in the June quarter. Several brokerage houses now have a positive buy rating on the firm’s stocks.

   

• Speaking of food, Zomato listed in the bourses on Friday this week. The IPO received spectacular response from QIBs, non-institutional investors and retail investors alike. Issue price was fixed at Rs.76 while it listed on Friday at an opening price of Rs.137. Listing day gain as of close of trade was 64%.

   

• Microsoft can’t seem to get enough of India. It is reported to be in discussions with the Telengana government to establish one of its largest data centres with an investment of $2 - $2.5Bn in Hyderabad.

   

• IDFC bank was also on the news after RBI allowed the bank to exit as the promoter of IDFC First Bank. IDFC currently owns 100% of IDFC Financial Holdings ltd., which in turns holds IDFC first bank. Business standard reported that IDFC stands to benefit now from a reverse merger which could unlock shareholder value.

GAME : PRICE IS RIGHT

This is the Ola Scooter, about to be built in Tamil Nadu in what is touted to be THE LARGEST FACTORY in the world spread across 500 acres, pre-booking opened for this electric scooter last week. On day, the company received 1 Lakh pre-orders which is about half of the number of vehicles TVS motors sells in an entire month. It offers a top speed of 100 Km/h and a maximum range of 150 Km per charge. You can get 75Km range in just 18 minutes of charge! What do you think its launch price could be?

SPECIAL FEATURE

Our ginormous equity database

6 weeks ago, we set out to build a database containing fundamental and pricing data of stocks that are traded in India. This has been in the works for over 6 months, but we really got to business only over the last 6 weeks. Before I tell you what we have achieved, here is why we needed this.

• Qualitative equity analysis has its limitations – A lot of our focus went into qualitatively analysing businesses, their founders, products, customers, supply chain and everything else. This is the Graham-Buffett way of doing things, absolutely no doubt. However, times have changed. And so should the method. Today, it is possible to leverage technology to wade through massive swath of data and produce insights that could be deemed to be the starting point of a Graham-Buffett exercise.
• Machine learning techniques have come a super long way – I remember reading a book on bigdata and using Hadoop to work on large data structures almost a decade back. Today, one doesn’t need Hadoop. All you will need is data loaded on to a free open-source DB like Postgresql and Python to implement machine learning and neural network techniques to make predictions about the future. The superb libraries eco-system in Python including Keras, Tensor, Pytorch make going from data to insights lightning quick.
• Backtesting our investment strategies is key to building credibility – We have ideas and thoughts on how to approach equity investing. However, to demonstrate our ideas work, we will have to put them out and wait for years before the market vindicate us. Or the other solution is to backtest our approaches and verify for ourselves which of these could have worked. And for that we need data.

So, with that in mind, we set out to build a Postgresql database collecting income statement/cash flow/balance sheet data for companies listed in India and their prices. Sure enough, after 6 weeks of burning the midnight oil, we today have a database with fundamental data for over 1500 companies going back 10 years. Our pricing database has data for over 3000 companies going back to 30 years. All of this was gathered from freely available data sources. And this is a phenomenal achievement! And now to the hard part 🙂

What next?

We are testing out some interesting trading strategies using backtrader.py. We are also implementing some of the well-researched and documented factor models from Fama-French 3 factor model to US Barra equity Factor model. Our objective, like everybody else’s, is to find alpha. And in that search, on the road to El Dorado,we descend upon now.

Stay tuned, more updates coming in the next few months.

SOUNDBITES

That's what they said

• "I am supremely hopeful and confident about the Rise of New India. I can see that the spirit of India is more resurgent than ever before" - Mukesh Ambani, Chairman, Reliance Industries Limited (RIL) in an article on Times of India.

   

• “Import duties are the highest in the world by far of any large country. Moreover, clean energy vehicles are treated the same as diesel or petrol, which does not seem entirely consistent with the climate goals of India.” – Elon Musk on importing Tesla cars for sales in India.

   

• “The post-Covid bull market continues to reward retail investors for taking on equity risk. I would expect retail money to keep flowing.” - Mike Bailey, director of research at FBB Capital Partners in an interview with Bloomberg after the Dow Jones hit a historic record high of 35,000 points on Friday’s trade.

COVER STORY

On-chain Analysis

In the very long past, people in Japan believed that a giant underground Namazu (catfish) lived right underneath the Japanese islands. This giant catfish was held down and kept still by the god Takemikazuchi. When the god let his guards down, the Namazu moved its fins or its tail causing the ground above it to violently shake. Of course, no catfish lives under Japan. The several tectonic plates that sit under the Japanese islands make it the number one location for earthquakes in the world. But as far as the mythology is concerned, what is clear is this - it is in human nature to try and make sense of the world around us – no matter how complicated or inexplicable things are. The realm of cryptocurrency is one such.

Why do cryptocurrencies have value? How much is an Ether actually worth? What is the age of a bitcoin (from when it is mined)? Who transferred the first bitcoins over to whom? Who did they send it to? A lot of these questions can be answered by using a technique called on-chain analysis. In this week's cover story, we give you an introduction to on-chain analysis and some of the popular metrics that we follow to track Bitcoin.

IN CRYPTO NEWS

• Elon Musk said this week that Tesla is likely to accept Bitcoin again if more than 50% of mining is undertaken using renewal sources of energy.

   

• RBI deputy guv T Rabi Shankara said this week that the time for CBDCs (RBI’s Central Bank Digital Currency) is ‘nigh’ indicating that the central bank might launch pilots to test its own digital currency at the retail level soon! What exciting times we live in!

ANSWER TO QUIZ

Diversification

Is the concept of spreading your money on several different types of asset classes and assets. Diversification can help the portfolio achieve higher returns for the same level of risk (volatility). The only free lunch ever known in finance!

ANSWER TO PRICE IS RIGHT

₹ 1 Lakh

Is approximately what Ola’s electric scooter could end up costing. The final price has still not been announced yet. However, pre-orders are pouring in. People don’t care about the price. They want a piece of it! We predicted that this year is going to be about electric scooters in our predictions for 2021. You can read the whole article here.

READ/WATCH/LISTEN

• Edelweiss Holdings (the Swiss company) is headed by one of the most visionary leaders in the investment business – Tony Deden.  Anything that comes out of their workshop is a piece to read and reflect. Here is the latest one on resilience. -

  EDELWEISS JOURNAL

• Here is a take on what separates the rich and upper middle class -  MEDIUM

From the writer in me, to the reader in you ♥

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