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    6,000% return in 4 years; Delhi investor offers smart tips to pick multibaggers

    Synopsis

    Ashish Chugh says stock investing is about being able to look at the big picture.

    ETMarkets.com
    You need to lose some money in stocks to learn the ropes of the market. This wisdom comes from an investor who is known for picking multibaggers, some of which have swelled up to 6,000 per cent in last four years.

    Delhi-based investor Ashish Chugh says stock investing is about being able to look at the big picture, and not about nailing big returns very next quarter.

    He looks at the bears as taskmasters, who teach hard lessons. “Every investor needs to go through a bear market,” he insists.

    Known for his ability to spot potential multibaggers early, Chugh says he has learnt the tricks of the trade after “whatever money I made in a bull market was lost in a bear market.”

    Chugh’s preferred way of dealing with stocks is what he calls ‘Big Picture’ investing. “I am not too keen on identifying stocks that will deliver big the next good quarter. I am on the lookout for companies whose stock prices have got hammered because of one or two bad quarters but have good long-term outlook,” says he.

    Some of his ‘pet’ stocks have delivered big returns over the years: Natco has surged 67 times in less than 10 years, Avanti Feeds has grown 60 times, or 5,900 per cent, in four years.

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    Chugh took to stock investing seriously in the early 1990s, when a Rs 1,000 investment in the IPO of Cadila Hospital Products grew into Rs 13,000 in two months.

    “I was lucky to get allotment. This made me realise that stock market is a place where money does not just add up; it multiplies,” he recalls.

    Chugh says his best investment so far was Rs 11,000 he spent in 1992 to subscribe to The Stock Exchange Official Directory by BSE, a compendium in 18 volumes. This enabled him to get balance sheets and other information about all the companies listed on the BSE, which was not so easy to get at that time.

    Bears are true teachers
    A stock investor needs to go through a few bear markets to evolve as a better investor, says Chugh.
    “Bear markets change your perspective about investing. Most investors who have not seen or experienced a bear market would get seduced by rising stock prices and are focused entirely on returns and stock prices. Risk management is not important for them,” says the market veteran.

    Chugh is the founder and director of Hidden Gems Advisory.

    “A bear market makes you think and rethink your investment style and strategy, sobers you down and you evolve as a mature investor,” he says.

    Chugh says he started doing better after witnessing bear markets from 1996 to 1999 and from 2001 to 2003. “My entire focus on investing has since switched from chasing stock price to risk management.”

    Top multibagger picks
    This 49-year-old trader has a knack for spotting multibaggers among microcaps. He picks up stocks that are beaten down because of short-term negatives, but have inherent strength to bounce back once the negatives are out of the way.

    Many of the stocks he has picked over the years have risen 50 to 70 times. He picked up Natco Pharma when the stock got hammered down after the company acquired some drug stores in US.
    Valuations came to a point, where the stock was available at sub-Rs 200 crore market capitalisation with a PE value of less than 8. The company had huge underlying assets, leadership position in the oncology segment and was still discovering new molecules. Chugh knew he won’t go wrong on this. The stock has risen nearly 70 times since then.

    He picked up Greenply in 2009, when the construction sector was going through a rough patch and the leader of plywood and laminate sector was available at a PE value of less than 3 and a market cap of Rs 90 crore.

    The combined market cap of Greenply and Greenlam Industries (demerged company) have since risen to Rs 5.500 crore. Chugh raked in 45 times return.

    Top historical picks

    Image article boday


    Today's failure is tomorrow’s success
    “I have been a risk taker, and am not afraid of losing in market. You are bound to make mistakes when you want to be a contrarian and want to buy out-of-favour stocks. I am even prepared to see some of my investments go to zero. The ones that go up 5 to 10 times take care of the overall portfolio,” says Chugh.

    He says some of the prominent stocks that did not work for him include Selan Exploration, GVK Power, Deccan Gold.

    Chugh says he lost money in Selan because he failed to anticipate that crude prices could dip to $40-50 level and sustain there for long.

    He bought GVK Power with the hope that the company would sell off a few power plants and pare debt to manageable limits. GVK’s airport business also fascinated him. But problems worsened for GVK as it failed to pull off the asset sale for years and the debt swelled. These stocks are still not making money, but Chugh still plans to hold them.

    How to spot potential multibaggers
    Chugh says he believes in ‘Big Picture’ investing. He is not too keen on identifying stocks that will turn out good the very next quarter. Instead, he is on the lookout for companies whose stock prices have got hammered down because of one or two bad quarters, but they have good long-term outlook.

    He keeps an eagle eye on stocks that are beaten down below their intrinsic worth because of short-term negatives. “This has been a characteristic common to many of the multibaggers I bought in the past,” he says.

    Future growth is one of the important parameters. A value stock remains a value stock unless there is growth, says he.

    Cash flow is another important parameter he watches closely. Most investors think only about returns. But risk management is important because equity investing is less about returns and more about probabilities and risk management, he insists.

    Management quality is important
    Chugh says while investing in microcap companies, it is difficult to select a good management as they are not talked or written about too often.

    In a number of the multibaggers that he has discovered, the market had initially perceived their managements to be questionable, as these stocks were available at low PEs with small market caps. The perception changed after the stock prices grew 5 to 10 times and large HNI investors and then institutional investors got into these stocks.

    Chugh says for him a good management is one which is focused on the business, has high promoter holdings and shares the wealth with investors through share buybacks and dividends.

    Often, companies do not pay dividends because of high dividend distribution tax, but uses earnings for regular capital expenditure to scale up a business without equity dilutions. This also enhances shareholder value.

    Stocks you are eyeing right now
    Chugh refused to talk about his stocks due to Sebi regulations. However, he said: “I am sector agnostic in investing. I keep my eyes and ears open to anything that satisfies my investment criteria, which is about future growth, low valuations owing to curable, short-term negatives or past legacies. I am looking for companies that have done capex in last few years, but it has not started yielding results because of lack of adequate demand or teething startup problems. Profits would be lower today because of higher depreciation and interest cost, which is why there is lower investor interest in these stocks. This enables me to buy these stocks at lower prices.”

    The thesis: as and when demand picks up or the teething issues get resolved, revenues and profitability shoot up substantially due to operating leverage.

    At present, Chugh is looking for stocks in sectors such as ancillaries to housing, infrastructure, building material and rural plays, where the demand pickup is due.

    “I am looking for select plays in cement and e-commerce segments, and in the microcap space. One more theme I am working on is companies with great brands and brand recall. They did not do well in the past because of change in business dynamics and may be restructuring or reinventing their business models. Value migration from unorganised to organised space post GST is another theme that interests me,” Chugh said.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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