Yesterday, in my report titled, ‘Stock picking vs market timing’, I emphasized why stock picking is more important than timing the stock.
If you are a pure technical analysis-based trader or investor, timing is everything. You tend to ignore everything that is fundamental as you approach the market with the premise that all fundamentals are reflected in the price. This is a wrong approach!
To prove my point, I only need to ask you a simple question: How many billionaire technical fund managers can you name? I know you will struggle. On the other hand, there are scores of billionaire fundamental analysis-based fund managers.
So what should be your approach? My best advice is that you should use your technical knowledge to support your fundamental research (I’m saying this as a practitioner of technical analysis for over 4 decades where I have personally met or learned directly under the creators of the popularly used technical studies).
I can prove this with many examples. But I will use the case of Tanla Platforms to prove it. It is not just because I am personally invested in Tanla that I discuss a lot about it - since I have studied the scrip so well, explaining it comes to me effortlessly like a reflex reaction.
In the previous post, I also emphasized value investing, momentum investing, and riding the coattails of insiders. I will give you use case real examples of using Tanla as a case for you to apply in other scrips that you also hold.
Meanwhile, let me clarify one more point here. Technical analysis or observations are more important for a momentum investor than a value investor. Let me clarify. As a value investor, if you invested in Amazon for the last 20 years or in Tanla platforms for the last three years at any price and held it long enough ignoring all technicals, you still made money. Please don’t misunderstand me. I am not comparing nor elevating Tanla to the level of Amazon. I am just citing examples. Tanla is no comparison to Amazon in size and scope, as of now.
Riding the coattails of insiders is a very important thing for investors. I have stated the following example many times in the past. If you have been a very early investor in Amazon, say the beginning of Jun 1998, you would have had much more shares by the end of 1999. In less than one and a half years, your 1000 shares became 12,000 shares.
How did that happen? On 2 Jun 1998, Amazon gave a 2 for 1 split which was followed by a 3 for 1 split on 5 Jan 1999, which was further split on 02 Sep 1999 for 2 for 1. So do your math to find out how your 1000 shares became 12,000 in less than one and half years.
What does this tell you? Jeff Bezos knew exactly what he was doing and where his company is going? Before the lift-off, he wanted to hold as much stock of his own company as he can. Never in the last 23 years, has Amazon given any bonus shares or split again.
Similar things happened with Tanla. Though Tanla’s history dates back to 1999, the company in its new avatar starts only in 2017. So, I was lucky to be associated with the company from around that time onwards. Early investors from 2000 onwards went through a long period of listless and lackluster price action. Many were so disillusioned that they stopped following the scrip actively and simply held on to their losses. Many exited at cost prices or close to it, not realizing the immense future potential they forfeited.
People with a deep-seated cynical and pedantic mindset can be too caught up with what Tanla did or didn’t do during the earlier days when Tanla had a different business model. These people compete to confuse present-day investors, missing out on what lies ahead. Very often, Tanla shareholders face down these pseudo-pundits on social media and question their ulterior motives while Tanla and its stock grow from strength to strength, least perturbed by these petulant stone-pelters.
When I started looking at the scrip, the main promoter holding was only 27% and I felt that was a bit low for an ambitious promoter-led company. But very soon, I started seeing efforts by the main promoter to acquire more shares. The first move came from the main promoter, Mr. Uday Reddy, acquiring almost 6% of the shares from Mr. Gautam Sabharwal, Director - Global Business Development of Tanla. I don’t know the circumstances surrounding the transfer of shares to Mr. Reddy - that is not relevant here. By Sep 2017, Gautum was classified as a non-promoter. By Mar 2019, his name was no more in the SHP meaning that his holding was less than 1%.
I estimate that this selling of shares from Gautam to Uday might have taken place between Rs 35-40. Concurrently, from FY17 and FY21, Mr. Reddy acquired 9,999,999 shares at Rs 32.87 and 7,950,858 shares at Rs 40 through warrants issued by the company, besides buying shares from the open market. Close watchers of the scrip like me even feared if Mr. Reddy would honor the purchase of the warrants at Rs. 40 as market prices were trading below that.
To prove his commitment, Mr. Reddy even paid for the warrants, much earlier than the stipulated date. Since then, we repeatedly witnessed Mr. Reddy buying shares on the open market. The issuance of the warrants no doubt increases the paid-up capital of the company and dilutes the existing shareholders - but remember there is a big difference in the shares being allocated to the primary promoter as opposed to the general public. When a promoter increases his shareholding, whether buyback or buying in the open market or issuing warrants, you need to sit up and notice. Finally, the coup d'état on the share prices took place with the 13.54% buyback at Rs 81 in Jul 2020.
A lot of people who didn’t understand the upcoming developments in the company in terms of business development and new commercial engagements mindlessly surrendered their shares in the buyback not benefitting from the meteoric rise in the scrip over the last two years. The buyback was a great success for existing shareholders and especially Mr. Reddy. Further to the buyback, Mr. Reddy had continued to buy shares at much higher levels now taking his family holdings to 43.74% (the promoter increased his holding on the last day of 2021). It is again following the nuances of the company that was important.
Let me emphasize this specific disclaimer: I have no inside information regarding the company. All that I have gathered, has been pieced together - sewn together - all from publicly available information using mosaic theory. To date, I have not even met a C-suite officer from the company. But, I have already floated a fund overseas (with an FPI certification as well as other regulatory licenses), where foreigners can conveniently invest in Tanla Platforms.
Now, let’s turn our attention to ‘timing the market’. From a technical point, the buy-back level at Rs. 81 and prices up to Rs. 89 was very crucial. I wrote to my close associates and friends very extensively about that around that time. I went out on a limb to even boldly proclaim that “you will never see low prices again”.
How did I get that conviction at that time? The fundamental buildup was all there with the Blackstone involvement, Karix acquisition, Trubloq introduction, insider buying, but the technicals just added fuel to the fire. The long-term rounding bottom combined with the 14-year breakout was the icing on the cake. So, timing matters at certain levels and it comes with long-term consolidation and deep fundamental observation. We got that opportunity again at prices close to Rs. 750 and the final breakout at Rs. 1030.
So, what type of stock is Tanla now? Personally, I think it is a hybrid - a nice combination of growth and value. You can no more label Tanla as a momentum stock. It is a value stock as well (yes, yes, I know that the value classicists and purists might vehemently disagree with my classification and I will not get drawn into a debate on value semantics). Tanla is a consistent dividend-paying stock. The cash flows will keep flowing. If Tanla will continue to grow the way it is growing, I would rather prefer Tanla not to pay me any dividends - I cannot deploy money as effectively as Tanla is currently doing in its capital allocation activities.
Future commercial partnerships and inorganic growth pursuits will matter a lot for Tanla’s future. As for me, I will dedicate myself to discovering more Tanla-esque stocks and I am sure there are many such hidden gems in India. But I doubt anything will come to me at a price like Tanla again.
So, there we go. Thanks for reading Breezy Briefings. If you enjoyed this, I'd really appreciate it if you could take a second and tell a friend. Honestly. It makes such a big difference.
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund. Currently, he is setting up a hedge fund where foreign citizens can invest in Indian growth stocks like Tanla operating in hyper-growth markets like CPaaS.
Thanks a lot very informative yet useful article, looking forward to read many more in coming days
Great info.Thanki