As you know on Groww meets we bring different stars from YouTube Who come and tell you about stocks About the equity market and mutual funds And because of that, with us today we have Bhushan He runs a channel of his own with the name Aryaa Money He will help us learn different things today I welcome you to the Groww YouTube channel I would also like to welcome everyone watching, thanks to you too So I will set the context for today's video Many people are at home and the share market is very volatile Everyone wants to invest at this time But before investing one thing people talk about is Warren Buffett Or about Rakesh Jhunjhunwala And all these famous investors They talk about fundamental analysis So today even we will talk about fundamental analysis And we will try to learn from you how the fundamental analysis of a stock can be done So can you tell us a little about the market, which is very volatile right now Amidst that many people say there isn't a point of conducting a fundamental analysis You should start trading How would you like to tell the investors that only through fundamental analysis, you can make a good investment The first thing is that Like you are saying you would like to learn Even I am learning in the market, it is a never ending process So I will explain to you how much I understand of the market If you have to do the fundamental analysis in the market Only through fundamental analysis can you make money in the long term If you want to trade and make money through trading Trading is primarily price driven And the long term investment This is primarily valuation driven If these fundamentals didn't work, neither would Warren Buffett be able to make money Nor would Peter lynch be able to make money all the names mentioned The people in the market, all of them make money by fundamental analysis Fundamental analysis is their core strength Now the chaos in the market, does fundamental analysis work On my channel, sir, for the past 1 and a half – 2 years i said on my Aryaa money channel We have to see the market valuation before Before entering the market The main way to look at the market valuation That is by thinking the share market has blood pressure Now like a person has blood pressure In the same way even the share market has blood pressure Now that blood pressure is the price to earning ratio, which is quite simple Now here, the A division in the Nifty share market This A division has blood pressure which means that The P/E of the Nifty, for the past many years If we look at the record, it hasn't gone below 10 or higher than 30 If we see the P/E of 10, then on a price of 10 we are getting Rs 1 earning Which means that there is a 10% earning which is more than banks And if the P/E is 30 By giving 30 we are getting Rs 1 Which means that we have an earning of around 3% which means that the market has become expensive So if we look at the track record for the past 2 years For the past two years, the P/E of nifty That was around 28 The market was at a more expensive valuation and when it is expensive So it looks around to see how it can fall So they have got a reason now In 2009 The market had gone down But it didn't go as down as it did in 2008 Now for 2 years, the market at higher valuation After trading there When it got a reason to come down It has done corrections and come down And its average P/E in Nifty Is around 19-20, it has reached and stopped there It means that the valuation of the market is neither expensive Neither is too cheap Now it is in the middle, at a medium valuation If you have to invest, the way to invest While starting, it is very important for us to do a fundamental analysis Because if we want to take some share First I would like to clear that you shouldn't say take a share We should say that we want to buy a business If we want to follow Warren Buffett, then he says that I don't buy a share, I buy a business Like if I invest in any business So why am I investing in any business, I will understand this from fundamental analysis Now consider that there is a company Like if I give you an example If I take a company, consider Pia industries Now if I want to buy in Pia industries, why do I want to buy If I come to sell you a business You should think that if anyone comes to sell you any business The person who has come to sell any business, why do we want to take that First we should understand that business Now when we understand it After understanding the business, at what valuation you want to take it is the next thing If you understand the business If there is growth in this business If there is a sustainable competitive advantage Then only we can take that business for a longer term, if we want to invest for the longer term We should understand the business and the business analysis To understand the business model, means to do the fundamental analysis So if we understand the business model, we can do the fundamental analysis So as you said, we should never say that we are buying a share or two We are buying an ownership in the company's business And we will only do that when the business is good, otherwise why would we do it And if we put in money without thinking We are trading, we aren't investing So after this there is another question which is used a lot in fundamental analysis which is intrinsic value Every stock has an intrinsic value So how can we normally calculate that and what is the relevane of that In the investing world And how important is intrinsic value for us The concept of intrinsic value sounds very difficult If we hear the term intrinsic value We hear about a lot of formulae, like Benjamin graham recently gave a formula We hear about discounted cash flow Now we will understand in simple, what the meaning of intrinsic value is If I explain that to you I am giving you a machine to print notes Would you like to have it? That will print notes for you Anyone will be ready to buy a machine that prints notes But before buying this machine A big question that comes to mind Anyone will buy it Everyone gets that thought But how many notes this machine is going to print for you And of how much It is a very important question If anyone tells us that they are giving us a machine that prints notes First question we will ask is how many notes are going to be printed If they tells us that notes of 2000 are going to be printed Notes of 2000 are going to be printed And in one month, they will print 5 notes It means that in one month it can give you 10, 000 rupees If in one month it is giving Rs 10, 000 How much is it giving in one year One year's earning is Rs 10, 000 so in one year 1, 20, 000 So for this year it is 1, 20, 000 so consider Consider the machine is saying that it will work for 10 years after that it will get spoilt It won't be able to work In one year you are making 1, 20, 000 So how much will you make in ten years 12 lakhs If you are buying this machine at 15 lakhs You are facing a loss So you think that you have gotten a machine that prints money Because of that you buy it at 15 lakhs, then that is not a smart thing to do So here, the machine that prints notes is the company And that company makes earnings And the share price of the company Now you will see that the share of some company's don'r work The basic reason for that is the company isn't making that many earnings So the thing about the machine that prints notes You understood intrinsic value In one year you are making a certain amount In ten years, you will make a certain amount So for the cashflow I am getting in 10 years, how much am I paying for that To do this simple calculation is looking at the intrinsic value The company's earnings plays a very big role here As you said, earning plays a very big role Apart from this what can other factors be So many times it can happen that you chose a good company with a good intrinsic value But there are some factors on the macro level That wrongs the perception of it At this time, should the investor stay with the company by looking at the intrinsic value So here you have to understand that earning plays a very important role here But what is the source of that earning If we understand this, if we go back to the first question, what is the business model Consider there is a company, that is growing by 20% What is it doing? We have to understand this And the work it is doing Will it be able to do that work at the same speed in the coming time Let us consider a company in the market Let us consider a cyclical company Their earnings are quite good So it is cyclical by nature, cyclical means If it is joined with that, then it is associated with the market If there is some trouble in the economy, then it is facing the trouble But such a business If we have to follow Warren Buffett, then we will understand Sustainable competitive advantage Which means that it should have such a sustainable competitive advantage Based on which It will continue its earning growth Which means that if we are thinking about earning If we are making that much earnings in the future So the reason because of which we get that earning If you understand this business model Consider, Britannia industries Now Britannia industries What is this earning joined with All of us in India who consume and eat biscuits So the population in India, has it increased or reduced Has the population in India increased or decreased It has always increased And what do you think, is it going to increase in the coming time It will increase You are absolutely right This is the consumption story If the consumption increases Think that if Britannia industries If it is your own company, would you take it Many people would like to take that because There is such a competitive advantage If we analyse the biscuit market The big market shares are with whom, Parle And with Britannia, Parle isn't listen So Britannia which is sitting there And the earning of which we can calculate in the future If the population increases, the consumption of biscuits increases So here, to analyse We can think about it They can analyse that it is linked with the population So here, sustainable competitive advantage, when the earning is predictable, this is a very important word Here the earning is predictable Like if Warren Buffett invests here He now invested in Coca cola In every meeting he names Coca Cola If we look at any meeting of his He would have kept a can of Coca cola next to him or drinking it He has that much faith in that company Because he has bought that company He didn't buy the share So if you have bought Britannia industries So if you have bought the company that makes Parachute So the sustainable competitive advantage it has, with which Its earning growth will stay the same in the future as well And by how much percentage will it stay, where we can place a guess There if we invest By keeping the valuation of the market in mind, then we can make good money But here the rest of the factors They work very less here The rest of the factors That are joined with cyclical companies So you asked a very important question, which macro economic factor should you look at The overall market valuation, if you're taking Britannia Or Coca Cola, if you're taking Britannia If you are taking the share of Marico If you're taking the products of Godrej So here, before buying the share, it is important for you to see the price earning ratio of Nifty, which is at the macro level First you have to see the price earning ratio of Nifty If the market is at an expensive valuation No matter how good the companies are They will eventually come down Because the share can be overvalued there as well Like a fire starts in the jungle The dry and wet things are going to burn So here, if the market is at a high valuation For those companies that have a sustainable competitive advantage There you have to invest lesser, and now when the market came to 20 It went to 18, then there The companies that have the growth story Where we can predict There should invest, it is very simple Which means that you should first choose a good company After that try to predict its earnings And then you should decide whether you should buy it or not So here, in any company We are not giving the reccommendation to buy or sell, even the names Bhushan gave were only an example so identify your risk here first And then decide, so all the examples we take in videos It is only for educational purposes So Bhushan, there is another question, whenever we talk about fundamental analysis or predictability The examples you took were from the FMCG sector That are linked with consumption a lot But these different factors, like if we talk about P/E ratio or any other factors When we go into different sectors Then they change So just by looking at the P/E ratio can you invest in one sector Maybe not in another Like if I talk about banking maybe the P/E ratio isn't as relevant there So if we talk about the fundamental analysis sector to sector How do all these parameters change If you can tell us this with some examples, it would be quite helpful The thing is, why did I talk about consumption so much India is a consumption story India is a very big consumption storey Amazon is trying to grow their business here so much Why is anyone wanting to do their business in India Because India has people, and whoever has people, everyone listens to them So there are a lot of people here and people want to sell their products here So there is consumption in India and if you get the record of consumption in India They are stocks that trade at a high peak It is said, if I talk about Asian paints It was working at a P/E higher than 64 At that time it seemed like a very expensive stock compared to the normal fundamental valuation But that share, if we look at it until today It has consistently giving a compounding rate of higher than 10% to its investors.
how? And at that P/E multiple Sorry I took Asian paints name, I wanted to tell you about Nestle, Asian paints has the same story But Nestle in 1994 was working at a P/E of higher than 60 At that time it seemed expensive But the whole discussion comes back to that point It has a sustainable competitive advantage and a growth story for the future That's why depsite the company having a P/E higher than 60 That share if we look at the data until today It was able to give returns higher than 12-13% Because it was able to bring that much growth in its earnings The bottom line is that The price earning ratio is linked with earning And how well the earning can grow It is a very big factor, if you look at the banking sector now I told you before itself Nifty's price earning ratio is very important, it hasn't gone up in so many year, which means that this ratio We should give it a high importance I have said even on my channel that you should give it the highest importance Warren Buffett gives importance to market cap to GDP ratio It is considered very important If the market cap is higher than the GDP then it is considered expensive If we look at the investment trend until now Whenever we felt that the market cap to GDP ratio is expensive The cash reserves have become a lot Until last year we were hearing that Warren Buffett was sitting on 120 billion dollars Why was that? Because the market was expensive Now as soon as the market fell They will invest more And if they earn more money then we will say that Warren Buffett is very intelligent He had said this in the fortune magazine of 2001 When he was asked how he invests, he said that there is an indicator Like there is market cap to GDP ratio According to that ratio I get to know whether the market is cheap or expensinve So there was a big fall in the market in 2000 Which we call tech bubble So after that when their market valuation became cheaper So there Warren Buffett invested more money So if you look at his cash pile up in the past 2-3 years, it was increasing So after the cash pile up increases Now they are getting an opportunity, so they are investing So the story that he identified, that is when he invested If you look at old videos Even in black and white videos, he was asked in one of them Tech companies are growing so well Wouldn't you want to invest there? He said the places he has invested in, he is getting good returns Why should I invest there Now we will come to the question If the price earning ratio of nifty is expensive You have to remember what history says and there is a reason for it These companies as I said are joined with the economy Now if the economy doesn't do well So if it has come to a high valuation By investing in the market, you can't make that many returns Now if the market has gone down to 20 Like you said, if there is a bank, then you have to see in the bank Like you said in banks, P/E won't work So there P/E alone won't be the only factor, we have to look at other things which are How many Non performing assets are there for the bank After that, the CASA ratio for the bank, current accounts and savings account We have to see that story of the bank But banks is a risky business I am repeating that again and again Consider that I tell you that I am going to sell bank shares So take the business of the bank and compare it to such a business Which is fully set And which is going to give you earnings in your business I am saying this again, as Sir said, I am giving an example There is a bank business and with that consider there is a toothpaste business Now the business of the bank is fully dependent on loans, who gave loans and how much Now the bank has given more loans to retailers and corporate people, you have to do the analysis Now if the loan group of the retailers is good, then its a good thing If their corporate loan book is more And if it gets defaulted like the people run away If the corporate loan gets defaulted a lot Like in Yes bank, it took a turn for the worse So these are the factors you have to see in a bank, how their retail loan book is How its growth is If we are buying banks, then we are buying that business So there is a chance for the money to drown there But the people who are using paste People using toothpaste, now that Coronavirus is going on Aren't we brushing our teeth? The people who have this sustainable competitive advantage We have to compare it upfront This is the business I have of banks and one of toothpaste If I am going to get the same earnings from both of them The same earnings Which business will I take more interest in, since we took Buffett's name I will tell you again, he was asked If you were asked to restart, how many businesses would you buy He said three are enough Three are enough If there is no earning there Consider that the business has saturated a lot There is going to be no earning or expansion there So those cyclical companies There you have to keep these parameters in mind Now oil It is sometimes up, sometimes down and recently it went to a negative rate as well So the people whose business is dependent on this There we have to keep the other things in mind But the ordinary man who understand this business There if we invest, I am trying to tell you a simple thing, if we invest there We can make good money I would like to say something more, if there is a common investor We don't know anything about it And you won't know how to do valuation Neither are you able to analyse these other things We can talk about a simple thing, buy the nifty index And make a systematic investment there And with that make an investment in gold In the coming time No matter how much of an expert a person is No one can say with a 100% guarantee what can happen in the coming time You will be shocked to hear You look at the records, like you know it is said that you will make good returns in the long term If you look at the record for the past ten years, the index of the Indian share market Nifty Its return has been around 6.
5% Now the return of gold has been around 12% Now if you look at the past 20 years record The returns for equity improves a little but still the gold return is better Will you move forward by thinking that the gold returns will be good We don't know that, it can be opposite in the future So here in the coming time No one knows what is going to happen Now if we talk about America In the American market in 1974, Richard Nixon he removed this gold standard Now the rate of gold was free So if we analyse the American data from 1974 until now What is the return gold has given The return has been around 3000% So from that even if we remove 500 That comes to around 2800% So who gave more returns? Gold But the thing that is going wrong here is We are only seeing the index In that if we add dividends Their index returns are more than 11000% Which means that the share market left gold a lot behind But they had to give it time It is a matter of time Now since 1937 Why am I saying this? I would like to tell the viewers We are told many times that the share market increases in the long term Because our history is limited Listen a little carefully If we look at the index of the American market from 1937 So the high that it touched for the past 12 years, it hasn't reached there Now if I talk about Japan, the high it touched in 1990 After that they are trying to this day to reach that high of 1990 So any market can go into consolidation for a longer time So there those fundamentals will come into effect for everyone The companies that have a sustainable competitive advantage If it can go, then the GDP or the economic situation Without seeing, the strength that they keep amongst them Those companies go further So if the common investor wants to invest in gold With an SIP or with Groww So select index fund or gold fund If they do an SIP with that, it can earn a return Which means that you should keep your portfolio diversified Invest a little in equity, if you understand And keep some in gold to keep your portfolio good So I would like to ask you the last question Which is very important Tell our viewers about those three red flags To avoid a company, if we see those red flags Then you should avoid such companies The first red flag will be pledge The amount of shares pledged by the promoter of the company The thing that happened with Satyam What came forward after that, is that the promoter pledged many shares The second is the debt of the company On which is the company making its growth We came to its business model Now the company that is working more on debt If something goes wrong Then its bad And not only the company, the bank along with it goes down So this will be the next red flag Which we have to see about the company The red flags are the pledged shares, the second one is The amount of debt on the company The third will be that in the market share of the company, the decline The decline there will be a big red flag Like for example, Kodak at one time was a big player In its business, there was some disruption So we have to pay attention there, business model If you understand it, then you understand the stock market The person who understands the business model and systematically invests in the market, understands it So as Bhushan said, three red flags are very important like pledge Second, debt The debt shouldn't be much and third Which was a very important thing that any company's market share It shouldn't be less in the market Business model, there is a growth engine in the earning How is it getting it, if you look at the retail book of banks If you understand the business model Then you understand the red flag there The most important thing is for you to understand the business model If you understand that then you learn the fundamental analysis So thank you very much, Bhushan To come to our show today Me and my viewers have learnt a lot from you And you explained it to us with very simple and realistic examples What is good and what is bad and how you can understand the busines So I would like to tell you again at the end of the video All the videos we bring are for educational purposes only So that the right information can reach you How you can choose a good investment and make good returns in the longer horizon For which it is very important for you to do a fundamental analysis Understand your risk And then make your investment and then make good returns in the longer horizon All the examples are for educational purposes Thank you very much Bhushan If you haven't yet subscribed to our channel Please subscribe to the Groww channel We will continue to bring these videos in the coming weeks Happy investing!.