Knowledge Faqs with Gaurav Jain (Knowledge Yagya- 04)

4 min read

Here are some questions asked by the viewers in the Yagya dated 27th July 2021. These questions can provide you insights on some grounds. Please read these questions for knowledge purposes only and make any investment decisions only based on your research or the advice of your financial advisor.

Q Difference between Premium Valuation and Overvaluation?
Gaurav Jain:

• A high-quality company that gives consistent growth is good with governance, possesses moat, etc which is difficult to replace with the competitor then its valuation will be on the premium side.
• The premium value will be compared with the industry.
• It will be consistently up and it will be always on the higher side. Ex. HDFC Life, etc.
• Overvaluation is something the companies valuation is on the higher side which is not deserved.
• The premium valuated company can also be overvalued and a normal company as well. For eg., Zomato Stock is considered overvalued by some market analysts.

Q What is value unlocking?
Gaurav Jain:

• Most of them feel that when the Reliance Jio will get listed and if you are holding reliance shares then they will also get the Reliance Jio shares which are not correct.
• The parent company’s valuation increases if their subsidiaries are listed and their valuation has increased after listing. That’s how to value unlocking happens.

Q Is it good to exit from small-cap and midcap?
Gaurav Jain:

• It is very difficult to predict in short term.
• Seeing the current market most of the mindset is that it is better to exit from the market when it is high priced. But what if the market doesn’t fall.
• It is always better to have a look at your asset allocation.
• It is recommended to the aggressive investor to have an equity asset allocation maximum of 50%.
• If the investor is moderate the equity allocation should be around 30%-35%.
• It is always recommended to have proper asset allocation as per the profile and stick to it.
• Asset allocation should not be changed as per the market.

Q What is the advantage and disadvantage of unlisted shares?
Gaurav Jain:

• Unlisted shares are the shares that are not listed in the market which can be acquired from the employees.
• Even though the company is not listed but the third party is ready to take the shares.
• But there is no price discovery then the prices will be decided mutually or it will be done based on the valuation done in the last round.
• It is recommended to avoid an unlisted market as there is no liquidity.
• It is very difficult to have detailed research about the company unless you are working there.
• Even though there can be good gains if it gets listed afterward.

Q Why do people prefer index funds over mutual funds these days?
Gaurav Jain:

• Most of the investor who wants to start it for the first time especially during the lockdown. And as they don’t have a clue on how to invest and which fund to invest in and how to review. So it is recommended that to start the investment from the index funds as they are simple and cost-efficient nor there are any complications.

Q Zomato at current valuation?
Gaurav Jain:

• Doing the valuation of these startups is very difficult.
• It is all about scalability how big it can happen.
• Now they have a sizeable amount of money as well.
• Company and brand both are good and also having good tie-ups with restaurants.
• As they want to do a lot of things in the food industry.
• But ultimately it’s a loss-making company also they are not giving the timeline to cover these losses.
• Hence it is very risky it is just like investing in a startup.
• There could be chances that it will grow or it may not.
• It is a big step in the capital market which is listed and is a loss-making company. This is due to a change in SEBI rules.
• Apart from Info Edge, no other investor has sold the stakes. Hence they also believe in the story of Zomato.
• So the company is planning for expansion. But this will be a high-risk high return bet.

Q View on Dr. Reddy stock?
Gaurav Jain:

• This is a good company in the pharma sector.
• Pharma is well-governed, also having good domestic business.
Pharma as an industry is an export-oriented industry. When it is export-oriented the growth is company-specific.
• Domestic pharma growth on the domestic side is 10% to 12%.
Dr. Reddy’s revenue is majorly from export.

Q In Mid Cap and Small Cap Stocks, If the order book looks healthy and forwards PE is less based on future EPS and cash flow, doesn’t it make sense to hold?
Gaurav Jain:

• Need to see and decide the allocation of the fund.
• If you see cash flow earning and future earnings still the cycles are going on.
• Last year the cycle was going on chemical, pharma, IT sector, etc.
• This doesn’t mean the sectors will keep on growing. So we need to understand the allocation of that sector.
• If there is a 20% allocation in the pharma sector and it has grown to 35% and there is more expected to grow then this can go wrong.

Q How good is REIT?
Gaurav Jain:

• It is said that the dividend is expected from 4% – 5%.
• The risk profile is lower.
• Due to the covid situation, it has gone down because commercial properties have been impacted due to work from home.
• It is expected that Rental income will be impacted in the coming period.

Q Do we get dividends on mutual funds?
Gaurav Jain:

• Dividends in mutual funds are having a different concept.
• The dividend can be given as a capital gain.
• In Growth Plan. the dividend coming from the stock is also getting reinvested.

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