The best PROFIT MARGIN Industry to ever EXIST🎯

Often talking about picking multibagger companies, we drive into fancy industries like AI, energy, tech, etc. usually the biggest losers are also found in same industries. But in the world of FOMO, few of the most unpopular industries get missed from the eyes of MANY investors. This involves “institutional investors” as well as retail.

Hearing this industry will definitely make you think “Bagal mein chora - Gav mein dhindora” - AMC businesses, yes the companies that invest your money into stockmarket.

Well 2-3 years back, we had picked an AMC stock in our long term portfolio - “UTI AMC”

There were three key rationale points to add an AMC business in my portfolio :

1. CRAZY profit margins (50%/60% OPM)

2. NO debt requirements, NOT capital intensive business but due to regulatory requirements it had an entry barrier.

3. One of my friend (Analyst at a big AMC company) talked to me about potential in the sector considering increasing retail participation.

He elaborated to me about opportunity quoting - 50% US population were investing in Mutual Funds and during that time India was just at single digit people investing in Mutual Funds. He also had some data which pointed out that this industry is showing some signs of BOOM.

This got me interested in the industry and I went into studying that even with such outstanding business model, UTI AMC was listed on a DISCOUNT during its IPO… Not only that the whole industry was undervalued in terms of PE and PB ratios🔻

THE SONE PAR SUHAGA MOVEMENT :

JOURNEY of finding Multibaggers is not limited to having GOOD business but also at good discounted price. As I said these businesses were already very undervalued but as Russia Ukraine war came these stocks crashed the most, Yes you heard it right “CRASHED” by almost 50%-60%.

Just as I panicked, I read this amazing book : “Value Investing and Behavioral finance” by Parag Parikh. One of its chapter highlighted buying quality businesses on discounts during the downturn cycle. Let me elaborate :

Any industry when it goes through a downturn its due to a FUNDAMENTAL crisis like regulatory problems, Raw Material crisis, demand drop, etc. In case with Mutual Fund (AMC) industry, it was the drop in demand. As during the war situations market started consolidating, people forgot about their SIPs and thrill around stocks was gone. A Data was released - 90% demat accounts created after 2020 crash had became inactive.

This all ultimately resulted in muted growth for AMC companies, and stock prices crashing upto 50-60% discounts.

Now there are some crisis which factor irreversible recovery like fraud or bankruptcy and some are recoverable crisis, meaning cyclical business downturns, temporary regulatory problems from government, Raw Materials getting expensive pushing down profit margins down in short term, etc. In case of AMC business, it was simple cyclical downturn and it was not as if companies had no sales just the growth was muted till next bull market takes place and investor’s participation increases.

“Harr Industry ka DIN aata hai :)” The cycle eventually changed as India went into massive bullmarket around end of 2023, not just our content but also few of our stocks like UTI AMC outperformed as quarter on quarter earnings kept growing. One can argue that we could have invested in HDFC AMC, yes agreed a better option during the time but we have moved on from greed🤓.

For now our outlook for AMC business remains best time for SWING TRADING, infact in recent dip we had given an AMC stock to Squad Members and it has already delivered some upswing as quarterly results came very positive 📈. Although don’t buy at all time high, make quick technical levels and go through valuations once before adding stock at current levels for swing too🤝

While we think best returns in AMC could be found by accumulating stock during the bear market or crisis in industry, the discount on such stocks are more than sales like big billion days 🎯

Hope every reader makes the most out of next crisis in this industry, this blog was to share our experience and learning on this industry. Next blog will be on an industry which is going through similar level of correction that AMC industry went 1.5 years back but due to different reason and we feel it can make good wealth in long term, cheers🍻

Regards,

Team GROWTHSQUAD

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