Sensex has been ending up in red in totality for the past two days (infact it has been red entire month). You need to check up your data. I am not talking about the larger scheme of bull run in India currently, I was talking from the point of time when I posted my portfolio. A lot of large cap stocks were in red including Reliance (the most reliable stock?) which has fallen 3.29% in the past 5 days. Go google “Sensex” it was 314 points down today (today meaning 17 November because idk when you’ll publish this) and it was in red for the 2-3 days prior to today too. Apart from the larger scheme of bull run (which btw is over if you actually look into the market) going on, the market has been in red for the past 2 days. And while all 5 of my stocks have been in green and making major moves, 2 of my stocks moved up to the extent that they hit Upper circuit for two consecutive days.

Hope I could make myself clear. Also the bull run that you are talking about started early May and ended late October, if you see the trend people are withdrawing their money in general and Sensex has fallen 1757 points in red in the past month. There’s no bear run as well, economy is opening so the market is genuinely good but people are pulling their money out of stocks which have been overvalued for 6 months now.

I gave you facts and that with all sincerity, maybe you’d want to reconsider marking me casually enjoying my financial success and stating facts as “trollish” and “facts contested”

Now, the two wheeler auto sector is an interesting one. Commodity prices have skyrocketed, squeezing out the margin. At the same time, oil prices have gone up, leading to less people buying two wheelers, and consequently less volume. Cherry on top is the chip shortage. As the market leader in utility motorcycles, Hero MotoCorp has been hit harder than other discretionary brands like Royal Enfield.

Markets see this as well, the stock has been hammered hard. While it used to trade at 23-24 PE at peak earnings in 2018, now it is trading at 16-17 times earnings while earnings are bad. As always, history is our best guide in these situations.

Last time we had a similar commodity + oil boom was in 2007-08, immediately before the Financial Crisis. Hero faced similar challenges it faces right now. It was trudging sadly along at 16/17 times earnings, exactly like now, while the bull market was raging on in Indian equities. What happened afterwards ? As you can see, price action moved exactly similar to as it is doing now, bottoming out incidentally on the same week Sensex reached that fabled bull market top.

Now, of course, history doesn’t have to repeat, but it’s worth remembering what happened. As the commodity cycle ended with GFC, the upward journey began, which took it 6x in 9 years, with a steady dividend yield of around 3%, resulting in a CAGR of around 25% with dividends reinvested. I think investors would be reasonably pleased with such performance.

This time it’s different : the bear case

Let us summarise the bear arguments, of which there are chiefly three :

1) Two wheelers is already a mature market in India. Volume growth would not be as rapid as it used to be. Especially, utility motorcycles will go out of fashion as rural roads become more accessible.

2) Electric is the future, and Ola already has a product out. Moreover, there’s the family feud within Munjals, which means HMC can’t use the Hero brand name on their electric offerings.

3) This commodity supercycle has just begun. We are not at the edge of another financial crisis, in fact we are just emerging from one.

Not so different, the Bull case

1) Err, actually no. India has about 300 million registered motorcycles across the country, which is about 30% of the adult population. South East Asian countries at a stage of development better than us had similar numbers in 2000. Now, the ratio is about 80%. As rural Indian women come out more and more to work, the humble budget two wheeler is almost certainly going to see one last spurt in demand. Moreover, as rural infrastructure improves, food delivery and last mile e-commerce delivery services will spring up, necessitating more two wheelers. Moreover, Bangladesh, Africa, and Latin America are relatively virgin markets big enough for giant Indian manufacturers like Bajaj and Hero to coexist and profit.

2) Ola’s offering is a fundamentally flawed product. It doesn’t have any service network, which limits its reach to the urban networked apartment dweller. Unfortunately, the scooter doesn’t have either a removable battery or a swappable battery. The only solution is to install chargers in basements and garages, leading to a rising rent.

On the other hand, Hero is in fact one legacy brand which did take EV seriously. It already is Ather’s largest investor, cemented the lead in swappable/removable battery tech with their partnership with Gogoro, and plans to unveil a new product by March. Add to it their service network, and the results are likely to be impressive.

3) The commodity cycle is too hard to predict. If metal prices continue to go up, profit margins will come down, there’s no getting around that fact. However, if the economy continues to boom, demand will eventually come back. Moreover, Hero has been branching out into the premium segment as well with the Harley Davidson partnership. I personally think Buyers of RE are idiots in terms of fanboyism (Oil supertankers have a tighter turning radius than some of their bikes) , but buyers of HD are another level of loyal, so expect some pricing power and sweet moolah there as well. Moreover, as material technology develops, we might see composites replacing metals in some form. Most Composites, ABS for example, are petrochemicals. With higher EV adoption and consequently lower oil prices in the intermediate to long term, that may reduce input costs significantly.

4) Hero Fincorp is the NBFC subsidiary which doesn’t get enough attention. In addition to consumer financing, It has access to decades of rider data, which it can sell to general insurers. So far Hero Fincorp has been quite conservative and prudent and may add quite a bit of value for a mature company.

In Conclusion

I think at current prices, Hero is a reasonable buy for someone looking for a value stock. I personally don’t think it will grow at 25% EPS for a decade, like it did last time, but I do not see much downside either.

I am a law student who made quite a lot of money during the pandemic. I know other lawyers did too. I thought we’d discuss stocks here that could do good or are overhyped. Try to give reasons for what you think. Some stocks from my portfolio

1) Tata Power- I’ve been following India and it’s policies since years now and I know that if there’s one thing that the government is serious about, its green energy. India has gets sunny days on 300 days in a year which is a rarety among nations, India knows that it can not only produce for itself but also export and which is why energy stocks will grow. Tata power seems good because they are making the India’s largest electric charging infrastructure among other factors. They are getting a lot of international orders as well.

Adani green is a bit overpriced in my opinion and adani has a lot of debt. Moreover a lot of his investments are a in a huge coal mine in Australia. If that collapses, Adani will collapse so I don’t want to invest there.

Reliance I know will dominate but they do not have a separate energy stock (do not confuse it for Reliance power owned by Anil Ambani which might go into insolvency soon). If there was a different stock for Reliance Solar, I would have definitely invested.

2) Tata Motors- Japan, Germany etc all have become economic superpowers and a major role was played by the automobile industry. India knows that and with all the promotion of make in india tata will be favoured. Tata motors a week or two ago, released punch which already became their second highest selling mini SUV. They have all the R&D from JLR. Even without any kind of electric infrastructure they have done very good with their EV Nexon and Tigor, they’ll have early mover’s advantage. Even if Tesla comes to India, it will majorly unaffordable for a large sector of population. With the aggressive creation of electric charging infrastructure in india by tata power and the surge in petrol prices, I believe tata motors will benefit a lot.

3) IEX - Don’t have much to say, IEX basically has monopoly in what it does. And again energy sector. Moreover there’s negligible operational cost in IEX, it will never have debts.

4) Brigade- What DLF is to Gurgaon, Brigade is to Bangalore moreover they are making some huge moves in some very upcoming cities, I think they’ll do good. Also real estate sector has been down for 8 years now, i think it’s time to bounce back since pandemic is ending.

5) Trident- I can’t explain the reason in limited words but you’ll have to see their financial sheet to know why I have invested a major share of funds in it. I believe this is the penny stock which will make me rich. I have researched on it for a month, I have huge aspirations from the trident group.

Stock market investments are really risky, this was not a financial advice. My investments could go either way. There are external factors beyond our control. Do your own research before investing or consult your financial advisor.

I wanted to know if there are any other stocks that you think will do good. Lawyers are good at this. Try to refrain from naming stocks that are sentiment driven (like Tesla or most cryptocurrencies in general). I am a conservative investor and only invest in stocks that I trust after looking at the financial sheets. I would love to have a review of my portfolio and review yours too.