Team-BHP - Guide: Investing in shares of the automotive sector

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Originally Posted by Fx14 (Post 5522216)

There are a couple of ETFs that I noticed - AUTOBEES and ICICIAUTO.

Not sure if there are more.

Thank you for bringing this to my notice, I realized I do not have the latest list of ETFs traded in NSE.

But both these ETFs have very poor liquidity & this need to be kept in mind if anyone is investing in these. Comparatively AutoBEEs have better liquidity than ICICIAUTO.

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Originally Posted by SmartCat (Post 4212882)

Good companies pay out significant percentage of their profits as dividends to shareholders. Remember that when it comes to accounting, everything can be faked (Eg: Satyam). But dividends paid out is REAL MONEY, and can never be faked.

While this maybe true but it may not be a great indicator of returns on investment maybe in the short term. Pardon my broken English here as I am still in learning mode but what I have vaguely understood is that companies like Vedanta for eg have a significant amount of shareholders who are the promoters eg ~60% while the rest for public and other entities. If they declare they are large dividend which they did in the last few months a majority of the chunk goes to the promoters who themselves hold a fat size of the shares thus benefiting in the payout.

The stock price now for Vedanta has taken a tumble and is at it's lowest in the past few months. So what I have learned that just judging from the dividend payout is not a good idea for returns atleast in the short term. Maybe Vedanta may recover in 1-2 years and people like me may have to wait for the share value to increase significantly but considering the current status of Vedanta one cannot expect another dividend soon and the recovery process will take time. Please correct me if I am wrong.

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Originally Posted by sumeethaldankar (Post 5633544)

While this maybe true but it may not be a great indicator of returns on investment maybe in the short term. Please correct me if I am wrong.

No contest actually. You are mostly right. There might be very little correlation between dividend payouts and returns. Some of biggest multibaggers did not pay much dividends (as a percentage of profit). But the reason why I pick companies with high dividend payout ratio is because it filters out dodgy promoters. This is especially useful for investors who explore the world of midcaps, smallcaps and microcaps.

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If they declare they are large dividend which they did in the last few months a majority of the chunk goes to the promoters who themselves hold a fat size of the shares thus benefiting in the payout.

This is by design and there is nothing wrong with it. Any positive action related to a stock, the promoters gain more in absolute terms simply because they have a higher holdings. For eg:

- If Vedanta stock goes up 10%, the promoter's gains more in notional value than an individual investor.
- Similarly, if Vedanta pays Rs. 5,000 cr as dividends, the promoter will pocket significantly higher cash than an individual investor.

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The stock price now for Vedanta has taken a tumble and is at it's lowest in the past few months. So what I have learned that just judging from the dividend payout is not a good idea for returns atleast in the short term. Maybe Vedanta may recover in 1-2 years and people like me may have to wait for the share value to increase significantly but considering the current status of Vedanta one cannot expect another dividend soon and the recovery process will take time.

Vedanta is a commodity stock and you have to invest keeping an eye on commodity prices (copper, zinc, aluminum, iron ore etc). Vedanta stock price will recover when commodity prices recover.

Avoid investing in commodity stocks because it is more complex than investing in other sector stocks.