Wealth-Insight - Nov 2020

Subscription copy of [[email protected]]. Redistribution prohibited.
Give your investments the glitter it deserves.

Presenting HDFC Multi-Asset Fund.
HDFC Multi-Asset Fund invests in a diverse portfolio of equity, debt and gold related instruments. With this
fund, you could not only aim to get the growth of equity and stability of debt, but also the benefits of gold to
hedge against market uncertainties and inflation. So add some glitter to your portfolio and invest in HDFC
Multi-Asset Fund.
To know more, contact your Mutual Fund Distributor /

Registered Investment Adviser or give a missed call on 73974 12345
This product is suitable for investors who are
Riskometer
seeking*:
y To generate long-term capital
appreciation/income
y Investments in a diversified portfolio of
equity and equity related instruments,
debt & money market instruments and
gold related instruments
*Investors should consult their financial advisers, if in doubt about whether the product is suitable for them.
MULTI-ASSET FUND
(An Open-ended Scheme Investing in Equity
And Equity Related Instruments, Debt & Money
Market Instruments And Gold Related Instruments)
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS,

READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
A debt fund
for all seasons.
ICICI Prudential
All Seasons Bond Fund
To invest, consult your Financial Advisor
Download Visit
IPRUTOUCH App www.iciciprumf.com
ICICI Prudential All Seasons Bond Fund (An open ended dynamic debt scheme
investing across duration) is suitable for investors who are seeking*:
• All duration savings

Investors
• A debt scheme that invests in debt and money market instruments with a view to
understand that
maximise income while maintaining optimum balance of yield, safety and liquidity
their principal will
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them. be at Moderate risk
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

November 2020
Volume XIV, Number 5 24 COVER STORY
EDITORIAL POLICY
The goal of Wealth Insight, as with
all publications from Value
Research, is not just limited to
generating profitable ideas for its
readers; but to also help them in
generating a few of their own. We
aim to bring independent, unbiased
and meticulously- researched
stories that will help you in taking
better-informed investment
decisions, encouraging you to
indulge in a bit of research on your
own as well.
All our stories are backed by
quantitative data. To this, we add
rigorous qualitative research
Buy it. Shut it.

obtained by speaking to a wide
variety of stakeholders. We firmly
stick to our belief of fundamental
research and value-oriented
approach as the best way to earn
wealth in the stock market. Equally
Forget about it.

important to us is our unwaveringly
focus on long term planning.
Simplicity is the hallmark of
our style. Our writing style is
simple and so is the presentation
of ideas, but that should not be
construed to mean that we
over-simplify.
Does it work?
Read, learn and earn – and let’s
grow and evolve as we undertake
this voyage together.
Editor
Dhirendra Kumar
Senior Editor
Vibhu Vats
Copyediting
Debjani Chattopadhyay and
Rachael Rajan
12 STOCK ADVISOR 46 INTERVIEW
Research & Analysis

Arul Selvan, Danish Khanna
Studying vs doing ‘Only quality companies
and Rajan Gulati
Design
The last six months have been the
worst of times and they’ve been
are able to sustain
Mukul Ojha
Production the best of times profitable growth’
Hira Lal
Data source for stocks ANUPAM TIWARI,
AceEquity Fund Manager, Axis Small Cap Fund
9DOXH5HVHDUFK,QGLD3YW/WG
Wealth Insight is owned by Value
Research India Pvt. Ltd., 5, Commercial
Complex, Chitra Vihar,
Delhi 110 092.
Editor: Dhirendra Kumar.

Printed and published by Dhirendra
Kumar on behalf of Value Research India
Pvt. Ltd. Published at 5, Commercial
Complex, Chitra Vihar, Delhi 110 092.
Printed at Option Printofast, 46,
Patparganj Industrial Area, Delhi-110092
Advertising Contact:
Venkat K Naidu +91-9664048666
Biswa Ranjan Palo +91-9664075875
Subscription:
0120-4201008 / 4571008
09868891830 / 9560200520
Total pages 64, including cover
4 Wealth Insight November 2020

Columns
7 8 INSIGHT
EDIT Naresh Katariya

by DHIRENDRA KUMAR @KhivrajNaresh
Long vs short
Investors’ short-term
orientation has resulted in the
10 WORDS WORTH WISDOM
professing of the buy-and-hold Best quotes of

strategy. But it is not the right answer. Howard Marks
48
MAIN STREET
by SAURABH MUKHERJEA
Spotting the liar in
the boardroom 45 IN FOCUS
Using the CIA’s questioning Does the IT rally

techniques to keep a check on companies have legs?
Kunal Sangoi, Fund
Manager, Aditya Birla SL
50 Digital India Fund
EVERYDAY ECONOMICS
by PUJA MEHRA
Fair market value
While auctions are a useful
method for price discovery,
14 MARKET COMPASS
they should go beyond material gains to ensure Big moves

the welfare of the disadvantaged
Tracking IPOs
Market barometer
54 STOCK SCREEN
Quality stocks
20 ANALYST’S DIARY
available cheap
And the struggle Discount to book value
continues…
High dividend-yield
An exceptional story stocks
Staying solid Reasonably priced
growth stocks
52 Attractive blue chips
STRAIGHT TALK
by ANAND TANDON
The innovative State 62 WORDS WORTH NOW
Is the role of the State in creating

and sustaining innovation
underappreciated and unpaid for?
',6&/$,0(5
The contents of Wealth Insight published by Value Research India Private Limited (the ‘Magazine’) are not intended to serve as professional advice or guidance and the Magazine takes no responsibility or liability, express or implied, whatsoever for any investment
decisions made or taken by the readers of this Magazine based on its contents thereof. You are strongly advised to verify the contents before taking any investment or other decision based on the contents of this Magazine. The Magazine is meant for general reading
purposes only and is not meant to serve as a professional guide for investors. The readers of this Magazine should exercise due caution and/or seek independent professional advice before entering into any commercial or business relationship or making any
investment decision or entering into any financial obligation based on any information, statement or opinion which is contained, provided or expressed in this Magazine.
The Magazine contains information, statements, opinions, statistics and materials that have been obtained from sources believed to be reliable and the publishers of the Magazine have made best efforts to avoid any errors and omissions, however the
publishers of this Magazine make no guarantees and warranties whatsoever, express or implied, regarding the timeliness, completeness, accuracy, adequacy, fullness, functionality and/or reliability of the information, statistics, statements, opinions and
materials contained and/or expressed in this Magazine or of the results obtained, direct or consequential, from the use of such information, statistics, statements, opinions and materials. The publishers of this Magazine do not certify and/or endorse any
opinions contained, provided, published or expressed in this Magazine.Reproduction of this publication in any form or by any means whatsoever without prior written permission of the publishers of this Magazine is strictly prohibited. All disputes shall be subject
to the jurisdiction of Delhi courts only. ALL RIGHTS RESERVED
November 2020 Wealth Insight 5

5($621672237)25
6,372383
$LP WR UH
$LPWRUHDFK\RXU¿QDQFLDOJRDOVIDVWHU
$LPWRFUHDWHPRUHZHDOWK
,QFUHDVH\RXULQYHVWPHQW
ZLWKLQFUHDVLQJLQFRPH
DXWRPDWLFDOO\
6\VWHPDWLF,QYHVWPHQW3ODQ 6,3IDFLOLW\LVJHQHUDOO\DYDLODEOHLQ'DLO\0RQWKO\ 4XDUWHUO\IUHTXHQF\

³9LVLWKHUHKWWSVOLFPILQIR.<&UHGUHVVDOWROHDUQPRUHDERXW.<&UHTXLUHPHQWV6(%,5HJLVWHUHG0XWXDO)XQGVDQG*ULHYDQFHUHGUHVVDO´
&RQQHFWZLWKXV /,&0XWXDO /,&0XWXDO FRPSDQ\/,&0XWXDO ZZZOLFPIFRP
0878$/)81',19(670(176$5(68%-(&7720$5.(75,6.65($'$//6&+(0(5(/$7(''2&80(176&$5()8//<

EDIT
Long vs short
Investors’ short-term orientation has resulted in the professing
of the buy-and-hold strategy. But it is not the right answer.
DHIRENDRA KUMAR
Some years back, I wrote a column in Time passes, things change, good businesses go bad
The Economic Times about the high returns made by and bad businesses become good. When we invest in a
investors because they were dead. Here’s what I wrote stock, we do not just expect a good business to just stay
at the time: “Being dead may be a good investing good, we also expect it to become a great business.
strategy. Some years ago, Fidelity Investments However, expectations may not always come true.
conducted a study in the US to find out what kind of Something unexpected could happen, as has been so
investor accounts had the best returns. It turned out vividly demonstrated in recent months. Alternatively,
that the highest returns were from investors who our own original opinion may turn out to be wrong,
completely forgot about their investments for years, especially in India, where corporate transparency
even decades. Not just that, they also discovered that a leaves something to be desired. Or uncomfortable facts
good proportion of these investors had died a long time can come to light about a company, as we have seen in
ago. That’s right. As far as managing your investment so many cases. Government regulations are yet
portfolio goes, the most profitable strategy may be to do another source of uncertainty in so many industries.
exactly what a dead person would do – which is nothing.” These factors are known to every investor and yet
A little later, I heard of a US-based mutual fund investors often ignore them. To counter this very
named Voya Corporate Leaders Trust Fund, which human tendency, our cover story walks you through
has not made any changes to its holdings since 1935! vivid examples from the past when great companies
That sounds unbelievable but it’s true. The fund was had misleading bad phases temporarily as well as
started in 1935. It’s initial fund managers selected 30 companies that appeared to be good investments but
stocks which they thought were the best companies at that turned out to be not true. Real-life examples
that time (‘Corporate Leaders’) and bought equal should be far more powerful in convincing you than
amounts of the shares of each. Over the next 82 just a thesis and a theory.
years, no deliberate change has been made to this So why is there so much emphasis on buy and hold?
mutual fund’s portfolio. Some changes have happened Why do examples like the two above strike such a
automatically as companies have merged or been chord? The answer should be pretty obvious if you,
acquired. Over 80+ years till 2017, Voya had multiplied like me, have carefully observed investor behaviour
the original value by 3,600 times (10.6 per cent), while over the years: being too short-term is a far more
the S&P 500 index was 200 times (6.7 per cent). common investor fault than being too long-term. Buy
I’m sure you are surprised that I’m reminding you and hold appears to work because investors who do
of the times in the past when I have written things that not practise buy and hold actually act far too often,
are diametrically opposed to what this issue’s cover act far too much and on flimsy grounds.
story is. If you turn to this story, you will see a well- As you will see in our analysis, the human tendency
worked out thesis on why the idea of ‘buy and forget’, is to buy and hold where we should not but not buy
which has a long history in stock investing, is not and hold where we should. The two mistakes are the
really a great idea and why investors should avoid it. two sides of the same coin.

INSIGHT
Analysis for the

thinking investor
End of an era? For decades, Bank Nifty either moved in
tandem with Nifty, or ahead of Nifty. Not so in H1 FY21.
PS: Top-4 Private Banks have over 75% weight-age in Bank
Naresh Katariya Nifty Index
@KhivrajNaresh
I wonder about edges I have in investing. 1 new edge: to
ignore rear-view analysis, painting doomsday economy. In fact,
Followers
several industries r growing YoY (Sept): Tractors, Power, Fert,
10K GST EWay Bills, Petrol, Cars, JCBs, TV Ads, Appliances,

Containers/Steel/Cement freight on Rail
Analysts have come in favor/against SEBI's Regs on Multicap

Funds, saying Smallcaps cant absorb so much flows.
Why Follow One aspect overlooked is the structural tailwind for smallcaps
from a stable INR (which has been the case last 6 months)
Naresh Katariya is a value
investor and a certified risk Another aspect in favor of Smallcaps is the drop in Interest
manager with experience in Rates. Borrowing costs for quality NBFCs r dropping (at multi-
global capital markets. He decade lows currently), and that's usually acted as tailwind
describes himself as a “firm for Smallcaps. SEBI Regs may just be another tailwind for
believer in India’s return to ongoing Smallcap outperformance
greatness”, which is good
news for investors who Like most, have been pondering if we r close to a top in Gold.
haven’t given up on India’s 1 signal is level of retail interest: Google Search Volumes for
growth story yet. While Gold ETF is still below 2011 peak, though we have more
Katariya is not hyper-active investors & far more QE. Who's then driving this bull run? Esp
on Twitter, his posts give since Jewelry demand is also down?
food for thought, and point to
interesting trends using data. Crux of the market situation: Bankruptcies are shooting up (Biz
His tweets are not limited to weakness), while direct FED buying High Yield Bonds is
observations of the Indian mitigating pain in traded markets. Who ultimately prevails - Biz
equity market, and investors Cycle or the FED? Of course, in near term, Don't Fight The FED!
in US equity or in gold will
find they can benefit from his For investors wondering about consistent FII Selling, Investors
insights as well. have been pulling out from rest of the world (ex-US). FIIs
could say to Indian investors: "Pls don't take it personally"
For investors looking for reasons for ongoing rally globally,

decreasing rate of infections may provide some insights.
After the concerns on exp growth of Virus abates, when does
market start grappling with 2nd order impacts?

WORDS WORTH Best quotes of HOWARD MARKS,
WISDOM Co-founder and Co-chairman, Oaktree Capital
‘Nothing goes in one direction forever

… Cycles always prevail eventually …
Just about everything is cyclical’
Howard Marks is an
iconic investor, who is
known for his insightful
‘memos’. Here is what
Warren Buffett said
about him: “When I see
memos from Howard
Marks in my mail,
they’re the first thing I
open and read. I always
learn something, and
that goes double for his
book.” Marks features in
the Forbes listing of the
400 richest Americans.
In August 2020, his net
worth was $2.1 billion
or about `15,750 crore.
Skepticism and pessimism Investment

aren’t synonymous. success doesn’t
Skepticism calls for pessimism come from “buying
when optimism is excessive. good things,” but
But it also calls for optimism rather from “buying
when pessimism is excessive. things well.”
WORDS WORTH
WISDOM
For investing to be
reliably successful,
an accurate estimate of
intrinsic value is the
indispensable starting The process of A hugely profitable
point. Without it, any intelligently investment that
hope for consistent building a portfolio doesn’t begin with
success as an investor is consists of buying the discomfort is usually an
just that: hope. best investments, making oxymoron.
room for them by selling
lesser ones, and staying
clear of the worst.
There are three

ingredients for
success—aggressiveness, Not only should
Return alone—and timing and skill—and if the lonely and
especially return you have enough uncomfortable position
over short periods of aggressiveness at the be tolerated, it should be
time—says very little right time, you don’t need celebrated.
about the quality of that much skill.
investment decisions.
The biggest
investing errors We have to practice
come not from factors When everyone defensive investing,
that are informational or believes something is since many of the
analytical, but from risky, their unwillingness to outcomes are likely to go
those that are buy usually reduces its against us. It’s more
psychological. price to the point where it’s important to ensure
not risky at all. Broadly survival under negative
negative opinion can make outcomes than it is to
it the least risky thing since guarantee maximum
all optimism has been returns under favorable
driven out of its price. ones.
www.valueresearchstocks.com
Studying vs doing
The last six months have been the worst of times
and they’ve been the best of times
Dhirendra Kumar we would have had we not had this be a concern for the thousands of
O
virus crisis. It’s an old saying that members that our service quickly
ver the last few months, adversity is the greatest teacher. To grew to.
Value Research Stock that, one must add, ‘only if you are One of the things that highlights
Advisor has had a trial prepared to learn’. our method is an enormous focus
by fire, much like every- When we launched Stock Advisor on monitoring our selections for
one who is either invest- three years ago, we were 100 per what might be going wrong. Our
ing or analysing stocks or investing cent confident of our stock-selec- team of analysts are obsessed with
for any other reason. Even though tion methodology and technique. whether they are wrong. This is a
the experience of facing the When I say 100 per cent confident, I difficult culture to maintain
Chinese virus was unpleasant and don’t mean that we thought that 100 because it goes against all human
even frightening, I think I can say per cent of the recommended instinct. However, we are conscious
with confidence now that it was a stocks would do well but that as a of the fact that this is important for
good experience. set, we would have many more win- the eventual success of our mem-
Obviously, not good in the sense ners than losers. That actually bers in making successful invest-
of pleasant or happy but good in worked out well for us and our ments and getting outsize returns.
the sense that it did us at Value stock selection did just as we had This made us well-equipped to
Research a great deal of good and hoped it would. There were a few cope with events when the pandem-
as a team of stock analysts, we are bad apples but a majority of our ic hit and the initial reaction of the
all the better for it. Now that the ideas worked well. In many ways, stock market was one of panic.
dust is beginning to settle, I can say our style and selections were differ- That’s because one, we were confi-
with certainty that in the years to ent from what analysts generally dent of our investment thesis for
come, we will be able to do a better recommend but that’s really none each stock. And two, more impor-
job of serving our members than of our concern, nor did it prove to tantly, we have no compunctions

about admitting to ourselves that
One of the things that highlights Might the same be true of ana-
events have overtaken our estimates our method is an enormous focus lysing stocks? I say this with some
and we need to make changes. And on monitoring our selections for hesitation because it implies some-
we did do that. We put some of our thing very uncomfortable. It means
favourite stocks on hold because what might be going wrong. Our that only those who have run a
their business had been hit in a team of analysts are obsessed business can analyse a business.
very fundamental way by the virus. Now it so happens that there are
There is little doubt that this with whether they are wrong. practically no new-generation pro-
pandemic will be a huge setback for fessional stock analysts who have
the world economy and for the lives pher, trader and probabilist, has run a business themselves. They
of people. There is also little doubt said that you can only learn some- have analysed businesses, but they
now that sporadic outbreaks and thing from someone who has done do not have a first-hand feel for
lockdowns will continue for a long that thing. He actually said that in what running a good business takes
time, months or perhaps years. The the form of one of his customary and what is the difference between
question for us reading this maga- insults to academics, a profession a good business and a bad business,
zine and for other Value Research which he holds in deep contempt. or more importantly, a good man-
members is how best can we deal He said, “The only thing you can agement and a bad management. I
with this in terms of our personal learn from a business school profes- find that many a time, I overrule or
savings and investments. sor is how to become a business contradict the highly experienced
In any upheaval, there are losers school professor.” The point is a and qualified analysts on my team
and there are winners. The ques- very sharp one, for he is laying because I’m thinking like a busi-
tion is, how can we increase the waste to almost the entire concept nessman, having run Value
chances of enhancing our savings of a business education. Since a Research all these years.
and returns by choosing winners? business-school professor has never It’s not an advantage that can be
run a business, it’s a skill which he produced out of thin air, but it’s
Doers rule does not know and therefore cannot one that I hope that our members
Nassim Nicholas Taleb, the philoso- possibly teach. can benefit from. WI
Value Research Stock Advisor is a premium service where you get promising stocks along with their full analyses.
We also actively track the underlying companies for you and keep you posted on the major developments in
them, including when to sell a stock. Additionally, members get exclusive access to a range of tools and data
which they can use to study any other stock. You can subscribe to the service at www.valueresearchstocks.com.

MARKET
C MPASS BIG MOVES
Large caps Price to earnings Net profit (` crore)

3M returns (%) 3Y avg RoE (%) 3Y earnings growth (%) 3M price (`) movement
689
97.8 921 56
Adani Green Energy
348
The stock has been riding on the clean-energy theme.
-22.2 -12.3
319
56.2 31 2,453
JSW Steel
The share price rose on the back of a growing demand for steel
and an uptick in prices. 19.8 -6.3
204
1,373
40.6 – -4,281
Interglobe Aviation
As the economy returns to normalcy, the aviation sector
will also see higher demand. 13.4 -153.1 977
37.8
2,965
L&T Infotech 32 1,581
The company reported a 27 per cent YoY rise in Q2FY21 net profit.
32.6 16.4
2,152
3,087
33.9 51 1,596
Divi’s Laboratories
The company reported an 81 per cent YoY rise in Q1FY21 net
profit. 18.6 9.1
2,305
130
24.0 – -15,925
Tata Motors
The management has hinted at becoming debt-free in the next
three years. -15.4 -233.0
105
10.0 85 623
Tata Consumer Products 478
The stock price has been in an uptrend ever since the food
portfolio of Tata Chemicals got merged with the company. 6.8 9.0 435
-6.4 – -5,165
Vedanta
106
The stock share price fell sharply as the company’s delisting
failed. 9.8 -175.1
99
430
-20.1 22 2,999
BPCL
The government has extended the deadline for selling its
stake for the fourth time. 17.1 -35.8 343
556
-27.2 – -44,189
Bharti Airtel
The company needs to raise tariffs so as to maintain a
sustainable business. -12.9 -367.9 405
Our large-cap universe has 80 large companies, making the top 70 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly in the last three months.
Data as on October 20, 2020.

MARKET
BIG MOVES C MPASS
Mid caps Price to earnings Net profit (` crore)

337
156.0 43 412
Laurus Labs
Its Q1FY21 rose by more than 10 times YoY, driven by
strong API business growth. 11.2 26.5
132
4,888
136.7 76 191
Indiamart Intermesh
COVID-19 has led to an accelerated shift towards
e-commerce, benefiting the company. 24.0 62.8
2,065
224
99.9 – -68
Dhani Services
Formerly known as Indiabulls Ventures, it raised `147 crore
by issuing equity to foreign investors. 10.1 -181.2 112
322
94.2 60 151
Adani Enterprises
It is all set to acquire a controlling stake in the Mumbai
airport. 3.2 -37.1
166
1,207
59.6 26 348
Persistent Systems
The company reported an 11 per cent YoY rise in PBT
for Q1FY21. 15.5 4.7
756
-5.5 – -94,850
Vodafone Idea
Vodafone won `20,000-crore arbitration case against the
Indian government in a retrospective tax dispute. -92.7 -467.6 9
9
-24.3 10 2,453
Hindustan Aeronautics
The stock fell following the government’s announcement of
20.7 3.2
717
15 per cent stake sale in the company. 948
-27.9 – -8,505
Alok Industries
The stock has been volatile ever since Reliance Industries has
put its acquisition bid for the company. -33.0 35.3 30
22
-36.2
17
Central Bank of India – -1,106
The stock price dropped amid a low free float and a lacklustre
response towards QIP. -25.7 5.1
11
835
-37.3 2 7,670
Ruchi Soya Inds.
The stock has been volatile due to low free float, ever
since it came out of insolvency -27.1 91.0 524
Our mid-cap universe has 181 mid-sized companies, making the next 20 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly in the last three months.
Data as on October 20, 2020.

MARKET
C MPASS BIG MOVES
Small caps Price to earnings Net profit (` crore)

490
331.5 67 22
Ramco Systems
The company has won a series of big orders.
2.4 47.5
114
141
267.0 52 56
Indo Count Inds.
The company’s Q2FY21 net profit increased by eight times YoY.
9.2 -32.2
39
197.4
285
Tanla Solutions – -55
The company launched a blockchain platform.
-7.5 -204.3 96
24
187.9 – -2,351
CG Power & Industrial Solutions
Murugappa Group-led Tube Investments is all set to acquire
the company. -85.4 -229.6 8
49
147.0 – -263
Mukand
To reduce debt, the company is selling its JV stake in
Mukand Sumi Special Steel to promoter group entities. 26.3 -276.5 20
314
121.5 15 61
Globus Spirits
The company reported a better-than-expected operating
margin of 18 per cent in Q1FY21. 6.5 50.9
142
112.4 16 109
Nucleus Software Exports
Its Q1FY21 net profit more than doubled to `36.3 crore
on the back of strong operational performance. 14.9 18.6 291 618
111.6 35 204
Aarti Drugs
The company approved a 3:1 bonus share issue.
20.3 40.8 778
368
57.0 20 -0
RattanIndia Infrastructure
-0.1 24.4
The stock rose amid a market-wide rally. 6
-15.9 342 1
Vikas Multicorp
The stock price has been volatile amid a rally in speciality-
chemical companies. 1.7 – 8 7
Our small-cap universe (minimum market capitalisation `500 crore) has 625 small-cap companies, making the last 10 per cent of the total market capitalisation.
The list mentions the stocks that have fluctuated most wildly in the last three months. Data as on October 20, 2020.

MARKET
C MPASS
Tracking IPOs
Here is how the S&P BSE IPO index has performed over the last one year
and how its current constituents have fared
HIGHEST 076PUKL_]Z[OL:LUZL_ HIGHEST
LISTING-DAY GAIN After a brief period of underperformance, the IPO index has again started SUBSCRIBED IPO
Chemcon Speciality outperforming the Sensex. Ujjivan Small Finance
115% 140 z IPO index z Sensex 165.7 TIMES
HIGHEST 130
LISTING-DAY LOSS LOWEST
SUBSCRIBED IPO
SBI Cards 120 113
Prince Pipes & Fittings
-12.8% 110
2.2 TIMES
HIGHEST 110
POST-LISTING GAIN BIGGEST
Prince Pipes & Fittings 90 IPO
46.4% 80
105 SBI Cards
`7,571 cr
HIGHEST 70
POST-LISTING LOSS
TOTAL SUM
Ujjivan Small Finance 60 Rebased to 100 RAISED
-45.0% October 2019 October 2020
`15,695 cr
2L`MPN\YLZ
Subscription Issue size Issue Listing price Listing Current Change post Sensex Current
Company name ratio (times) (` cr) price (`) Listing date (`) gain (%) price (`) listing (%) change (%) P/E
Chemcon Speciality Chemicals 149.3 318 340 01-Oct-2020 731 115.0 431.6 -41.0 5.2 32.4
Happiest Minds Technologies 151.0 386 166 17-Sep-2020 351 111.4 319.3 -9.0 4.4 65.4
Route Mobile 73.3 609 350 21-Sep-2020 708 102.3 751.7 6.2 7.0 73.4
Rossari Biotech 79.4 496 425 23-Jul-2020 670 57.6 790.1 17.9 6.7 62.9
Ujjivan Small Finance Bank 165.7 750 37 12-Dec-2019 58 56.8 31.9 -45.0 0.3 17.8
Mazagon Dock Shipbuilders 157.4 444 145 12-Oct-2020 216 49.1 171.6 -20.7 0.3 7.3
CSB Bank 86.9 410 195 04-Dec-2019 275 41.0 229.3 -16.6 -0.4 43.7
Computer Age Mgmt Services 46.9 2244 1230 01-Oct-2020 1,518 23.4 1337.1 -11.9 5.2 37.6
Prince Pipes & Fittings 2.2 352 178 30-Dec-2019 160 -10.1 234.3 46.4 -2.0 26.5
Angel Broking 3.9 600 306 05-Oct-2020 275 -10.1 238.7 -13.2 4.4 23.7
UTI Asset Management Company 2.3 1515 554 12-Oct-2020 490 -11.5 487.0 -0.7 0.3 22.6
SBI Cards & Payment Services 26.5 7571 755 16-Mar-2020 658 -12.8 894.8 36.0 29.7 75.3
Equitas Small Finance Bank* 2.0 518 32-33 02-Nov-2020

Data as on October 21, 2020. *Not listed yet and not a part of the index.

MARKET
C MPASS
Market barometer
Here are some charts that will help you make sense of the current market
in terms of valuations and return potential
Sensex’s movement
In ’000
45 Max 41,953 The Sensex is the most convenient
indicator to tell the state of the Indian
Current market. The 10-year graph presented
39
40,544 alongside shows the secular run in the
markets. However, this rally was
33 punctuated by several bearish phases.
The most prominent ones include the
27 following: a bear market driven by
weakening economic fundamentals in
2011, Chinese growth concerns in
21
2015, demonetisation blues in 2016,
and the sell-off in 2018 due to US–
15 China trade war and rise in US interest
Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Min
rates. Lately, the markets have sharply
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20
15,175 recovered from the COVID-19 shock.
Sensex’s price to earnings

30 Max 29.4 The price-to-earnings ratio of the Sensex
is a simple market-valuation ratio. A
Current 29.4 general guideline to help understand the
27
valuation is:
P/E > 24 = Dangerously
24
overvalued
P/E > 20 < 24 = Overvalued
21 P/E > 16 < 20 = Fairly valued
P/E > 12 < 16 = Undervalued
18 P/E < 12 = Highly underval-
Median 20.0 ued (mouthwater-
ing valuations)
15
Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct This graph is based on standalone data of Sensex companies. If one
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 Min 16.4 takes the consolidated data, the P/E will be lower. The sudden jump
in the P/E is due to a dip in profitability caused by COVID-19.
Sensex’s price to book value

4.0 Max 3.82 The price-to-book-value ratio tells us how
many times an investor is ready to pay
for a rupee of net assets.
3.6
Since book value is stable and less
volatile than earnings, some consider it
3.2
Current 3.00 better than the P/E as a measure of
Median 2.96 valuation.
2.8
If
P/B > Median P/B = Overvalued
2.4
P/B < Median P/B = Undervalued
2.0
Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 Min 2.36

MARKET
C MPASS
Sensex’s dividend yield

2.0% Max 1.80 Dividend yield is nothing but the return
an investor gets in the form of dividend
on his investment. It is measured as
1.75 dividend per share divided by price
per share.
1.50 Generally speaking, when stocks are
cheap, dividend yields are high.
If
1.25 Median 1.34
Dividend yield >
Median dividend yield = Undervalued
1.0 Dividend yield <
Median dividend yield = Overvalued
Current0.99
0.75 Min 0.99
Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20
Market cap to GDP

85% Max 83 This measure is Buffett’s personal
favourite. He said, “It is probably the
Current 83 single best measure of where valuations
80 stand at any given moment.”
Median 79 Here we have considered the market
75 capitalisation of all the listed companies
on the BSE.
If
70
Market cap > GDP = Market
overvalued
65 Market cap < GDP = Market
undervalued
The GDP fell by 23.9 per cent YoY in Q1 FY21 due to
60 Min 63 COVID-19.
2013 2014 2015 2016 2017 2018 2019 2020
10Y G-sec yield vs Sensex’s earnings yield

4.0% Max 3.94 The spread between G-sec yield and
Sensex’s earnings yield is another
valuation measure. G-sec yield is the
3.2
Median 2.79 yield of the 10-year government bond.
Sensex’s earnings yield is the inverse of
Current 2.53 the Sensex’s P/E ratio. The greater the
2.4 deviation from the median in either
direction, the greater the degree of
overvaluation or the undervaluation of
1.6
the Sensex.
If
0.8 Spread > Median = Overvaluation
Spread < Median = Undervaluation
0 Min 0.79
Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct All data as on October 20, 2020.
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 GDP data as of June 2020.

ANALYST’S
DIARY
And the struggle

continues…
The stalling of the IBC
process due to the pandemic
could increase problems for
banks with high corporate
exposures
W
ith COVID-19 wreaking havoc on the Indian with a recovery rate of 30 per cent, which was still
economy, the government has come up with way better than that of any other route. In fact, during
several measures to provide relief to 2018–19, the `70,000 crore of debt recovered through
different sections of the society. In a bid to protect this process was almost twice the total amount
borrowers, it launched some initiatives, with a pause recovered through all other recovery methods. So,
in the initiation of proceedings under the Insolvency undoubtedly, the IBC process is not only the fastest
and Bankruptcy Code (IBC) being one of them. way for realising corporate debts but also the most
effective way in terms of the quantum of recovery.
>OH[PZ[OL0)*&
The IBC, which is effectively a recovery mechanism, ;OLNV]LYUTLU[»ZJHYYV[ZHUKºIHU»HWWYVHJO
raises money by taking over a company and auctioning Amid the pandemic, the government took two
it either as a whole entity or in parts in order to repay initiatives to provide relief to debtors. One, it removed
creditors of the company. As on June 30, 2020, out of the disincentives faced by banks if they chose to give
3,911 companies which underwent the IBC process, 30 borrowers more time to repay their debts (in the hope
per cent of the cases witnessed creditors successfully that it would spur many lenders to be benevolent).
realising their money (see the chart ‘Status of IBC And two, it temporarily cut off access to the most
cases). The graph ‘IBC vs other recovery mechanisms’ efficient and preferred route for banks to recover their
helps understand how effective the IBC process is as money—the IBC process. Initially, the duration of this
compared to other recovery mechanisms. temporary suspension was six months till September
Between April 2020 and June 2020, in the midst of 24, 2020. However, now, it has been extended by
the pandemic, the IBC process yielded `8,876 crore, another three months. And in theory, it can be

ANALYST’S
DIARY
extended by a further period of three months. In that *VTWHYPZVUVMKPMMLYLU[YLJV]LY`TLJOHUPZTZ

case, the total duration will be one year. As compared to other popular debt-recovery mechanisms, IBC has seen
superior recovery rates.
0TWHJ[VUIHURZHUK]LUKVYZ
It is important to note that the IBC process is IBC 42.5%
currently applicable only to corporate debts. This
means that this process is not followed for the SARFAESI 14.5%
recovery of individual debts (unless it is a personal
guarantee for a corporate debt). And therefore, there
Lok Adalat 5.3%
is no such moratorium on the recovery of individual
debts through other methods such as SARFAESI, Debt Debt Recovery
Recovery Tribunals, etc. Further, the relief measure Tribunals 3.5%
Source: www.ibbi.gov.in
undertaken by the government protects corporates not
only from banks but also from vendors who have
supplied goods and services to companies but have not :LJ[VY^PZLIYLHR\WVMWLUKPUNJHZLZPU0)*
yet been paid. These vendors are now prevented from Among the pending cases, manufacturing and real estate command a
utilising the provisions of the IBC. (See the chart major share.
‘Sector-wise break-up of the pending cases in IBC’.)
2.2% 39.4% Manufacturing
Real estate & const.
/V^ZOV\SKPU]LZ[VYZYLHJ[& 2.5% Others
Since the main beneficiaries of this measure are
Wholesale & retail trade
corporate debtors, investors should be wary of the 3.9%
Electricity
banks which have significant exposure to corporate
9.9% Transport, storage & comm.
entities. Even non-financial institutions which operate
Hotels & restaurants
in the B2B segment could potentially be affected 10.0% 32.2%
because of the non-payment of dues. Retail-oriented Source: RBI
banks and companies operating in the B2C segment
are least likely to be affected by this measure. The :LJ[VY^PZLIYLHR\WVMIHURSVHUZ
chart ‘Sector-wise break-up of bank loans’ gives an The suspension of IBC can impact banks’ industial loan-book.
idea about aggregate lending patterns. The chart In ` cr
‘Banks with the highest exposure to corporate loans’ July 2020

mentions the most vulnerable banks now. 11,69,273 28,21,316 25,47,228 25,31,234 28,28,526
Investors should look out for any early warning
signs which indicate any difficulty in the actual July 2019
realisation of money. The importance of monitoring 11,08,988 27,98,360 23,12,871 22,75,540 27,16,953
the working-capital cycle and cash-flow statements
cannot be overemphasised. Unless careful scrutiny, as July 2018
well as diligent analysis, is made, the possibility of 10,38,519 26,37,052 20,07,545 19,44,478 25,32,437
being blindsided cannot be ruled out. WI Agriculture Industry Services Personal loans Priority sector
By Arul Selvan
Source: RBI
:[H[\ZVM0)*JHZLZ )HURZ^P[O[OLOPNOL_WVZ\YL[VJVYWVYH[LSVHUZ
The percentage of the resolved + liquidation cases stands at a decent These banks are most likely to be impacted by the suspension of the
30.8 per cent. IBC process.
6.4% % of assets
Resolved
5.6%
Withdrawn
53.9%
Pending 24.4%
Liquidation
9.7% 76 55 50 46 35
Appeal/review/settled
Data as of June 2020 Source: www.ibbi.gov.in Yes Bank IDFC Bank IDBI Bank SBI Kotak Bank

ANALYST’S
DIARY
An exceptional story
Here are some companies whose profits have been hit by a large
exceptional loss, which can distort their financial picture
E
xceptional items are incidental gains or losses
that occur in the course of a company’s
business operations. Some examples of
exceptional items include a one-time gain following
the sale of a big asset, loss of investments in
subsidiaries, write-down of inventories and so on.
While smaller exceptionals don’t have much impact,
large ones can really distort the financial picture.
Exceptional losses could make a huge dent in a
company’s profits. In addition, such events could also
deteriorate its net worth.
Here we have zeroed in on companies that have faced
the brunt of exceptional items, which have eaten up at
least half of their profits before taxes over the last
three years. For some companies, these one-off losses because although these one-time events may result in
have significantly impacted their net worth (ignoring high losses in one year, the company’s return on
the tax effect) as reflected by the per cent increase in it equity and return on assets may look promising in the
if these companies had not booked the losses. coming time owing to its reduced net worth or assets
It is prudent to check the nature and implications but no change in fundamentals. WI
of these items in a company’s financial report. This is By Danish Khanna
,_JLW[PVUHSS`WHPUM\S
The following companies have exceptional items of at least 50 per cent of their profit before tax.
% of PBT before PBT after Net worth without
Exceptional exceptionals exceptionals exceptionals Net worth exceptionals % increase
Company name loss (` cr) to PBT (` cr) (` cr) (` cr) (` cr) in net worth Nature of exceptionals
Dish TV India -3,478 6,092 57 -3,421 3,850 7,328 90.3 Impairment of goodwill
Reliance Power -7,157 746 960 -6,198 11,869 19,026 60.3 Impairment of assets
Den Networks -211 680 31 -180 2,603 2,814 8.1 Impairment of PPE and trade receivables
Tata Steel Long Products -161 556 29 -132 2,017 2,178 8.0 Provision for coal block performance
Subex -306 204 150 -156 515 821 59.4 Impairment of goodwill
Chalet Hotels -130 192 68 -62 1,555 1,685 8.4 Provisions
Jai Corp -152 160 95 -57 1,265 1,417 12.0 Provisions for land advances
Mahindra Lifespace Developers -135 109 123 -11 1,701 1,836 7.9 Impairment of investments
Texmaco Rail & Engineering -150 94 159 9 1,027 1,177 14.6 Impairment of assets
Reliance Infrastructure -4,019 86 4,662 643 9,792 13,812 41.0 Loss on sale of loans
Quess Corp -664 78 853 189 2,276 2,940 29.2 Impairment of goodwill
Tata Communications -764 59 1,292 528 -1,278 -515 59.7 Provisions towards licence fees
Minda Corporation -276 56 495 220 975 1,251 28.3 Impairment of PPE and goodwill
Electrosteel Castings -184 55 337 153 2,880 3,064 6.4 Write-off of advances to Electrosteel Steels
Jindal Poly Films -673 54 1,244 571 1,854 2,528 36.3 Write-off of investments in subsidiary
PBT: Profit before tax. Data as on October 12, 2020

ANALYST’S
DIARY
Staying solid
Companies that have never diluted their ownership through corporate
actions but have still delivered strong performance
P
ost their IPOs, companies can raise capital diluted their capital base much through corporate
through different means, including rights issue, actions since they got listed. The owners of these
issuance of warrants and preferential share companies have rarely come to the capital market to
allotments. These actions, however, can dilute the raise capital and relied mostly on internal accruals
existing shareholding of a company. We wanted to for business growth. Thereafter, we zeroed in on
look for those companies that have not seen any companies wherein promoters holding has remained
substantial change in their ownership base since their consistent throughout the past 10 years with a
IPO and have also delivered strong performance. Of negligible or decreasing pledge. This indicates that
course, corporate actions like stock splits and bonus the owners have not used the business to pursue other
issues have not been taken into account as these do personal ventures and remained committed to the
not dilute the shareholders’ equity in the business. growth of their main businesses.
We began with identifying companies that have not We further refined the list by picking those
companies that have generated cash consistently from
2LLWPUNH^H`MYVTKPS\[PVU operations during the past 10 years. Volatile cash
flows from operations depict that the management has
The following companies have never diluted their capital base through
corporate actions. not been able to run the business smoothly and may
have to rely on external borrowings, thereby putting
5Y avg 5Y profit Promoter 10Y stock price
Company name ROE (%) growth (%) holding (%) return (% pa) pressure on the balance sheet. Lastly, we narrowed
3M 24.8 24.4 75.0 17.5
down our search on those companies that have
managed to deliver an average ROE of more than 15
Asian Paints 27.4 13.8 52.8 22.8
per cent over the last five years while increasing their
Bajaj Auto 23.6 11.7 53.7 7.1 year-on-year profits by more than 10 per cent.
CCL Products 22.0 12.0 45.9 23.1 The table lists the 16 listed companies that have
Gillette 31.4 37.5 75.0 10.8 rarely diluted their share capital but
delivered strong fundamental
Hawkins Cookers 54.5 17.7 56.0 16.6
growth. WI
Honeywell Automation 19.5 33.9 75.0 28.3 By Rajan Gulati
KNR Construction 18.1 27.8 55.0 21.3
Nesco 20.1 16.0 68.5 15.6
Nestle 41.0 10.7 62.8 17.1
Sudarshan Chemical 25.1 21.6 42.7 22.2
Sundram Fasteners 23.3 19.9 49.5 20.4
Tata Elxsi 36.0 20.2 44.5 26.1
VIP Industries 23.5 19.1 53.5 8.3
VST Industries 37.4 14.8 32.2 19.0
Price data as of October 12, 2020. ROE and profit growth as of March 2020. Promoter
holding as of June 2020.

COVER STORY

Buy it. Shut it.
Forget about it.
Does it work?
Rajan Gulati and Danish Khanna Won’t you be tempted to book profits? What if it crashes
amid a market fall? Wouldn’t you like to realise your
W
e often come across people who have held onto hard-earned gains?
some stock for the long term and multiplied All in all, you will require not just superior analytical
their money manifold. There are also classic skills to spot a company that can be held forever but also
examples of some ace investors making lakhs and prodigious amounts of courage and sheer ‘luck’. How
crores out of just one stock. These stories fascinate all many of us can boast of them? And what about the
of us. They drive us towards the elixir of that one great stocks that will go in the other direction and perish? It’s
company which is all that you will ever need on your only in hindsight that you know which were the winners
journey to becoming a millionaire. and losers. So, people who actually profit from the buy-
But most investors aren’t long-term investors; they and-forget model are those who really have forgotten
often sell out prematurely. This behaviour is often about the stock and the company does well.
attributed to the human psychology. However, the In this story, we will study five long-term wealth
reality is much more complex. Buy it and forget about it creators. As you will see, all of them had their fair
– this simple advice is rather flawed. Yes, you read it share of problems. Even if you had spotted them early,
right. While you will frequently find stock gurus you had to be absolutely resolute not to sell them during
recommending stocks that you can hold forever, doing those phases.
so is not just improbable but may also be unfruitful. In the second part of the story, we will see how top
That’s because the business and economy is too performers of a particular year find it difficult to
dynamic for any one company to keep growing at the sustain their performance. We will also study examples
same pace forever. Inevitably, it will hit some roadblock of several companies which looked like good stories at a
that will halt its ascent. Even if it keeps doing well over time and then turned sour. We will try to analyse the
the long term, this advance will be punctuated by a reasons for their failure. This suggests that today’s stars
number of events that will force you to change your may very well be tomorrow’s duds. This fact again
mind and sell the stock. For instance, it may face makes the buy-and-forget strategy questionable.
sectoral headwinds or some crisis or may simply fall Finally, we will see what it actually takes to profit
behind the competition. If the stock goes nowhere for from a long-term compounder. As you will realise, the
several years, what will you do? What if it shoots up? right answer is seldom buy-and-forget.

COVER STORY
DIVI’S LABORATORIES
Growth on steroids
Among Indian pharma companies, Divi’s has a niche positioning, which has
allowed it to grow faster than peers
A
n API (active pharma ingredient; a name by producing generic drugs, Divi’s
raw material for medicines) and focused on manufacturing drugs for global
contract manufacturer, as well as a pharma companies and earning their
researcher for global pharma firms, Divi’s trust. This relationship was built over the
Labs was founded by Dr Murali Divi in years, making Divi’s the third largest
1990. Since its listing in 2003, Divi’s has pharmaceutical company in India by
given excellent returns of around 39 per market cap. It is also one of most
cent till October 2020. While the majority expensively valued pharma stocks in
of Indian pharma companies made their terms of the price-to-earnings ratio.
2003–04
Not all IPOs are meant just
for listing-day gains
As far as IPOs are concerned, most retail
investors have a very clear strategy. They
first check the grey market premium. If
it is above 50 per cent or so, they apply
for the IPO. If they get an allotment, they
take the listing-day gains and sell out.
Divi’s got listed at 25 per cent premium to
its issue price in March 2003. No doubt,
25 per cent for a day looked great. But
what happened next looked much better.
MARCH–MAY 2003: Stock price doubled from
the listing price
MARCH–JUNE 2003: Its price tripled from the
listing price
MARCH–SEPTEMBER 2003: The price became
five times
MARCH–MARCH 2004: The price increased by
more than nine times
In the first year of its listing, Divi’s
returned more than nine times. So, those
investors who had sold out after taking
their miniscule 25 per cent returns
missed out on the stupendous gain.
`8.8
2003 2004 2011

COVER STORY
`3,087
2017 onwards
Gaining favour
The company turned around
swiftly. It resolved the
observations raised by the
USFDA for its Visakhapatnam
plant and by November 2017,
the import alert was lifted.
Ever since then, Divi’s has
become the Street’s favourite.
The stock has delivered way
better returns than its peers
and compounded by more
than 50 per cent YoY since its
lows in 2017. Moreover, with
the government now pushing
2016–17 for domestic API
The USFDA comes knocking manufacturing and
The years between 2015 and 2020 have been tumultuous investors focusing on
for Indian pharma companies as their profits took a defensive sectors like
beating on account of drug-price control in the US pharma, the company
market, heightened checks by the USFDA (the US drugs has emerged as one
regulator) and fierce competition. Since January 2015, of the most
the BSE Healthcare index has given an annual return of expensive pharma
just around 5.2 per cent. However, for Divi’s, everything stocks. As on
was going well. As the company earned the trust of October 19,
global pharma majors, Divi’s was considered a safer bet. 2020, it
But towards the end of December 2016, the company’s traded at a
Visakhapatnam plant came under fire by the USFDA as P/E of
the regulator made some adverse observations. The 51.8.
stock price tumbled and fell by around 50 per cent before
hitting a bottom in May 2017. The stock fell to a P/E of
under 20 in May 2017. But the company’s
underlying business fundamentals were
still strong, the company’s relationships
with global pharma majors formed
a strong moat and it controlled a
substantial market share (40–
70 per cent) for the APIs it
produced.
2016 2017 2020

COVER STORY
HDFC BANK
The serial wealth creator

HDFC Bank is one of the most prolific success stories in the Indian banking
space, which has been marred by high percentages of bad loans
H
DFC Bank is one of the most loved stocks in the
Indian stock market. And why not? The company
has given a tremendous return of around 22.6 per
cent since January 2000. The bank, which got its banking
licence along with the likes of ICICI Bank, UTI Bank
(now Axis Bank) and others during the 1990s, has become
2008–09
the hallmark of corporate governance and shareholder- Global Financial Crisis
focused business. The bank’s success lies not in taking tests investors’
several right moves but limiting the wrong ones. temperament
Poor lending practices in the US
resulted in the Global Financial
Crisis in 2008–09, which had a spill-
over effect around the world. The
Sensex started falling from its peak
in January 2008 and reached the
bottom in March 2009, correcting by
more than 50 per cent. During the
period, HDFC Bank also corrected
by more than 40 per cent. However,
as far as the business was
concerned, the bank was going
strong. It reported a gross NPA of
1.98 per cent in March 2009, lower
than most of its peers. For long-term
investors of the bank, it was time to
2003–2008 decide whether the crisis could
Riding on the Indian growth story affect the banking business
When India’s consumption-led economy started booming in the 2000s, fundamentally or the banks could
HDFC Bank, led by its focus on retail banking, multiplied its stock emerge stronger. In other words,
price by almost eight times from 2003 to 2008. It was one of the best they had to decide whether it was
times for emerging markets like India as these markets were witnessing time to sell or buy more.
close to double-digit GDP growth. During that time, the Sensex gave
tremendous annualised returns of around 44 per cent. Low
credit penetration in India, coupled with a low market
share of private sector banks, paved the way for
private players to grow.
`17.4
2000 2003 2008 2009

COVER STORY
`1,224
2009–20
The one-way road
With future events becoming apparent in hindsight, investors
should have bought the stock back in 2009. The bank’s stock
price gave around 27 per cent annualised return from
March 2009 to February 2020. In the past decade, India
faced a bad-loan crisis. The crisis was accentuated in
2015-16 when the RBI forced banks to recognise its
non-performing loans through asset-quality
review. However, amid all, HDFC Bank’s
balance sheet stayed pristine.
Along the way, private banks took
market share away from public-
sector banks (PSB) as PSBs
struggled more with bad
loans.
2020 and beyond

Uncertainty or opportunity?
With the Indian stock market facing the wrath of the COVID-19-led lockdown and economic downturn, HDFC
Bank’s stock price corrected by more than 30 per cent in March 2020. Although the recovery after the fall was
swift, the bank’s stock price still lags behind the recovery in the broader index. With the moratorium having
ended in September, there is a degree of uncertainty over loan books of banks, which has kept the street cautious
about investing in banking stocks. In today’s time, private banks account for about 35 per cent of the total
banking in India and the total credit penetration still remains low. Private banks in India have a long runway for
growth. So, now the question comes, will investors buy into the Indian banking story?
2011 2020

COVER STORY
HINDUSTAN UNILEVER (HUL)
The march of the FMCG hulk

A change in strategy, coupled with a slew of initiatives, helped the stock
gain momentum after a long period of lull
T
his FMCG behemoth has a strong defensive stock. But it has delivered a year-
presence in the Indian household on on-year return of around 11 per cent since
the back of brands like Lifebuoy, January 2000, a far cry from its MNC peer
Pepsodent, Lux, Sunsilk and so on. Trading Nestle’s 18.6 per cent during the same
at a P/E of 73.8 as of October 16, 2020, it is period. Further, if we narrow down our time
one of the most richly valued and the bluest period, HUL gave exactly zero return during
of blue-chip stocks. It is also a classic 2000–10. What happened?
2000–10 2006–10
The Kumbhkaran decade Putting the house in order
During the past decade, the stock price Realising that its strategy had not produced
of HUL just went nowhere. The desired results, HUL embarked on resetting its
company’s revenue only doubled from business in 2006–07 by initiating several internal
about `10,000 crore in 2000 during the and external changes. In 2008, Nitin Paranjpe
10-year period. Once a powerhouse in was appointed as the new CEO under the broad
the FMCG sector, HUL seemed to have oversight of Harish Manwani, the then non-
lost its sheen, owing to a series of executive chairman of HUL. In a bid to expand
strategic missteps. its distribution network substantially in both
In 2001, the company put its resources urban and rural areas, the company launched
towards 30 ‘Power Brands’ out of 110 innovative campaigns. It partnered with Tata
brands. In addition, it focused on margin Docomo, which paid HUL a distribution fee to
instead of volume growth. But all these take its SIM cards to rural India, thereby
strategies did not yield the desired benefiting both the companies.
results. With India not being a Further, HUL shifted its focus from margin to
homogeneous market and different states volume growth and launched a multitude of
having different tastes, cultures and new products, which were supported by
languages, HUL required a multi- innovative and targeted marketing campaigns.
pronged strategy around brands and During the period between December 2006 and
marketing. Further, the company’s focus March 2009, the company grew its revenue by
on margin instead of volume growth more than 60 per cent while maintaining the
resulted in it losing market share to operating margin. Although HUL started
home-grown brands like Marico, Dabur, improving its performance year on year, its
Godrej Consumer and others, which stock price remained subdued, largely owing to
further led to lower bargaining power. the global financial crisis in 2009.
`239
2000 2006 2010

COVER STORY
`2,172
2010 onwards
Get set, go
From 2007–08, the Street started noticing
measures undertaken by HUL and post 2010, its
share price started getting re-rated. From January 2010
till today, the company has given a compounded YoY return
of around 21.4 per cent, beating the Sensex’s 8 per cent by a
wide margin.
HUL has built upon its measures and continuously developed an edge
over its competitors. It has leveraged digital to market its products better,
advanced its distribution channel and successfully launched several products. In the
past decade, its profits more than tripled. For lay investors with little knowledge
about the company, HUL was a dud back in 2010 but today, it’s a rockstar.
2011 2020

COVER STORY
INFOSYS
A roller-coaster ride
Time and again, the company’s potential has been questioned, yet it has
emerged out as a long-term winner
T
he poster child of
India’s capitalism,
Narayana Murthy-
led Infosys has been a
front-runner in India’s IT
revolution. Since
January 2000, it has
delivered a compounded
return of 12.2 per cent.
However, this return has
come with its share of
volatility. The first test of
investors’ temperament
came in 2000.
2000–03 2003
What goes up comes down Losing hope
Infosys got listed on the bourses in While still coming out from the shadow of the tech bubble
1993. During the period between 1995 burst, the company’s stock again fell by more than 30 per
and 2000, the company’s stock price cent within a few days in April 2003. A downward revision
went up by more than 200 times. Back of profitability guidance by the management, coupled
in the 1990s, investors across the with a growing concern over pricing power and the
world went crazy about any company commoditisation of the IT businesses, led to this sudden
that had anything to do with the drop. Further, the Iraq-US war and the outbreak of the
internet. They expected these SARS virus added fuel to the crisis. The situation was
companies to grow at a rapid pace for such that a long-term investor who had entered
an extended period of time. But like at the peak of the internet bubble would
every bubble, this IT bubble, too, had surely have given up the hope of any
to burst some day. And finally, it burst recovery in the stock price.
in 2000. Infosys fell by more than 60
per cent from its peak in March 2000
before hitting a bottom in September
2001. Naive investors who had tried to
catch this rally by investing in
Infosys at its peak in March 2000 had
to wait for another five years to
recover losses from the IT crash, let
alone make any profits.
`0.9
1995 2000 2003

COVER STORY
`1,128
2013–17
The tumultuous years
In April 2013, the company experienced a single-day fall
of around 20 per cent on the back of weak profitability
guidance. The market was also pessimistic about the
execution capability of the company veteran S D
Shibulal. With the company suffering from a leadership
crisis, for the first time in its history, an outsider, Vishal
Sikka, was appointed the CEO. Sikka joined Infosys in
2014 and it seemed that the company was ready to ride
high on new digital technologies. Investors were highly
optimistic and the stock price moved up by more
than 40 per cent from the 2014 lows within a few
months. This boosted investors’ confidence in
the company. However, their enthusiasm
waned in 2017, when Sikka resigned
following a tussle with the promoters.
2019
Sound of the whistle
After the exit of Sikka, Salil Parekh joined the company
in 2018. It seemed that finally Infosys was on a stable footing.
He came from an IT services background and, unlike the last CEO, had a better understanding of the
company’s culture. But then in October 2019, a whistleblower complained about unethical practices by
the company to boost revenues and profits. The stock price tanked by 14 per cent in one day. Infosys,
which had always been known for high corporate-governance standards, now faced a corporate-
governance crisis. Fortunately, the company was found not guilty in an external audit report.
Investors who held onto Infosys’ stock or those who invested more in it during this time were richly
rewarded as the stock has risen more than 50 per cent since that fall.
2013 2017 2019 2020

COVER STORY
MARUTI SUZUKI
Speed breakers aplenty

After a mega run, the stock has got mired in the difficulties of the auto
sector and has been testing investors’ patience
M
aruti Suzuki exemplifies how a July 2003, the company gave a
government-owned company stupendous annualised return of 23.7
can leverage technology and per cent (as on October 19, 2020).
management skills from foreign Lately the Indian auto sector has been
partners to deliver outstanding facing challenges from electric vehicles,
products to consumers while creating ride-hailing services, self-driving cars,
wealth for stakeholders. Way back in etc. But this is not the first time that
1982, Maruti entered into a joint venture Maruti Suzuki is grappling with
with Japan’s Suzuki Motor and challenges. So, now the question is
launched the country’s most iconic car whether the company will be able to
Maruti 800 in 1983. Over the years, the retain investors’ confidence or these
company has managed to maintain business changes will prove to be a tall
around 50 per cent market share in the order for the company and investors will
four-wheeler. Following its listing in ultimately walk out.
2003–04
A rare IPO
The period 2003–04 was an era of disinvestment. The
Indian government was willing to cede control in its
enterprises. In fact, during Maruti’s IPO in 2003, the
government exercised its greenshoe option and
increased stake sale to 27.5 per cent from 25 per cent.
The IPO was a success, with Maruti’s stock price rising
more than 30 per cent on listing. However, Maruti
Suzuki wasn’t a listing-day story. It depicted India’s
aspirations and a growing middle class.
In less than a year since listing, the stock price more
than tripled. On several days, the stock price went up
by more than 5 per cent and the highest single-day gain
during the period was 13 per cent. Those who had sold
out during these days would have missed out on real
wealth creation.
`164
2003 2004 2011

COVER STORY
`6,849
2017–19
The worst downturn
The automobile sector is cyclical in nature. During good
times, companies can sell more and earn more profits as
their fixed costs remain the same. But then, demand eventually starts
to taper. Excess capacities are reduced and business operations are
trimmed until the demand picks up.
Maruti Suzuki faced such downturns during 2008-09 because of the
slowdown led by the global financial crisis and during 2013-14 when
the demand suffered as oil prices trended around $100 and rupee
depreciated against the dollar. However, the period 2017–19 was
different. In December 2017, the company’s share price touched an all-
time high of `10,000. But from there on, within 10 months, the price
corrected by more than 30 per cent. Rising oil prices, coupled with a
depreciating rupee, were responsible for the subdued demand.
Then came regulatory changes like the government-mandated
switch to BS-VI vehicles and safety regulations. These moves were
bound to increase the ownership costs of vehicles, further dampening
the demand. The share price almost halved in July 2019 from its last
peak in December 2017. It has yet to reach its lost heights.
2017 2019 2020

COVER STORY
Yesterday’s stars,
today’s duds
Data suggests that top performers frequently find it difficult to sustain
their performance. Worse, some of them even perish over time.
H
indsight is a wonderful thing. Only
if you could go into the future, all
your decisions of today would be
spot on. Looking at the past data, we can
easily discover the stars, but then those
stars may not be as bright tomorrow.
Worse, they may turn into a blackhole.
To assess how top performers at
different instances of time have done,
we conducted a study. We found the top
performers of all financial years from
2010 to 2019. A ‘top performer’ is one
that has returned at least 50 per cent in
a particular year. The top performers
of a particular year were clubbed
together in a portfolio. We then found
the total near-term and long-term
returns of those portfolios. The table
captures the outcomes.
As you can see in the table, after their
top-notch return numbers, the portfolios
of top performers tend to lose their sheen.
Their returns tend to taper. The maximum
return (as of October 13, 2020) that you
would have got from a portfolio is 11.5 per
cent annualised. The worst is -10.2 per cent. 9L[\YUZVM[OL[VW`LHYS`WLYMVYTLYZ
Why do top performers fail to deliver in After a blockbuster year, the returns from top performers tend to taper (In % pa)
the future? To be sure, some of them do, Periods 2011 2012 2013 2014 2015 2016 2017 2018 2019
but then there are many that go sideways Base year (mentioned in the column head) 80.3 78.7 78.7 85.3 120.9 108.9 88.1 95.5 67.8
or fall dramatically. Next, we will see Next one year from the base year 8.7 11.7 14.9 73.8 -5.5 39.6 11.1 -11.6 NA
examples of several companies that once
Next three years from the base year 7.4 30.6 18.4 23.4 8.8 8.0 -20.9 NA NA
looked promising but then turned out to
1H[WÀYH\HDUVIURPWKHEDVH\HDU 12.9 17.9 16.9 13.8 -9.5 NA NA NA NA
be nightmarish for investors. Through
Till now 7.7 11.5 8.1 8.9 -2.6 0.8 -9.0 -10.2 5.8
these examples, we will try to appreciate
the complexity of business. It is this No. of companies 41 23 29 65 188 23 175 112 32
complexity that makes buy-and-forget an Min market cap considered `1,000 cr. Minimum returns for a company in the base year is 50 per cent. All returns with
reference to the years mentioned in the column heads. Data as on October 13, 2020.
elusive way to profit from stocks.

COVER STORY
CORPORATE MISGOVERNANCE
By hook or by crook
Corporate misgovernance is a major reason for wealth destruction.
Unfortunately, it tends to remain beneath the surface until it’s too late.
more market share than the leader in carbonated-fruit-
98
1Y return (%) as a top
performer in FY15
juice segment, Appy Fizz. The auditor to the company,
Deloitte Haskins and Sells, resigned ahead of the
announcement of March 2018 results, citing the
management’s failure to provide sufficient information.
-99.6
Return since FY15
(%, as on Oct 13, ’20)
Later, the company’s managing directors and CFO were
arrested in a GST-fraud case.
Cox & Kings

With a history of over 250 years, it is one of the oldest
travel firms in the world. In FY15, the company sold one of
115
performer in FY15
its camping divisions for `883 crore and then raised `1,000
crore through QIP. This boosted the sentiment and resulted
in the doubling of the company’s stock price.
Problems started when the company failed to repay a
-95
Return since FY15
(%, as on Oct 13, ’20)
debt of `150 crore in June 2019. However, three months
ago, it had reported a cash balance of `1,890 crore on its DHFL
consolidated balance sheet and `723 crore on a standalone DHFL was once one of the most popular housing-finance
basis. This mismatch of cash flows came as a big surprise stocks. In 2014, this NBFC had a great run when its shares
for its investors, which resulted in the stock tanking by zoomed by more than 100 per cent on the back of great
more than 99 per cent in the next two years. Currently, quarterly results.
Enforcement Directorate is probing into money laundering The company’s problems started around the end of
and siphoning off of funds by the company’s top officials. 2018, when the IL&FS crisis hit the market. The crisis led
to a major liquidity crunch for NBFCs. The situation
worsened when DHFL delayed interest payments in June
56
performer in FY17
2019, followed by a series of defaults. A recent forensic
audit report has revealed that fake accounts and bogus
borrowers were used to divert the company’s funds to
entities having links with the promoters. At present, the
-98
Return since FY17
company owes more than `85,000 crore to its lenders and is
going through bankruptcy proceedings under NCLT.
(%, as on Oct 13, ’20)

Yes Bank
Manpasand Beverages Banks were the biggest beneficiaries of the government’s
This Baroda-based company sells fruit drinks/juices demonetisation drive in 2016 as they were responsible for
under the brand names ‘Mango Sip’ and ‘Fruit Up’. For the channelling money into the economy. Yes Bank also
quarter ended March 2016, the company reported a 90 per received deposits during this time, which increased the
cent increase in its revenue. Naturally, this piqued the bank’s assets without promoting or incurring any
interest of both private-equity and stock-market investors. expenses. This reflected in the bank’s share price post
Within two months, the company’s stock price increased demonetisation. However, the joy didn’t last long.
by around 50 per cent. The stock fell because of several reasons, starting with
However, there were several red flags observed in the the RBI’s asset-quality reviews in 2017 and 2018, which led
company’s claims. These included a high market share in to the doubling of its gross non-performing assets. This
the mango-juice category, which was already dominated was followed by the NBFC crisis in IL&FS and then in
by Frooti, Slice and Maaza, with a combined market share DHFL. The bank reported total exposure of 11.5 per cent to
of over 60 per cent. Also, the company claimed that it had IL&FS and DHFL as of September 2019.

COVER STORY
106
performer in FY15
84
performer in FY16
-92
Return since FY15
(%, as on Oct 13, ’20)
-71
Return since FY16
(%, as on Oct 13, ’20)
Meanwhile, the bank also saw some high-profile exits, However, in January 2018, the company was accused of
followed by the RBI’s rejection of a three-year extension to manipulating its share price. Thereafter, its stock started
MD & CEO Rana Kapoor. It also had huge exposure to falling and it lost `25,000-crore market capitalisation
some troubled companies, such as ADAG Group, Essel, within five days. Further, it was revealed that the company
Vodafone Idea and Jet Airways. The CBI filed a complaint had invested in PC Jewellers, which did not go well with
against Rana Kapoor for investing `3,700 crore in DHFL in investors. This was followed by a failed buyback offer in
exchange for kickbacks of `600 crore in the form of loans February 2018. Thereafter, investors lost faith in the
to DoIT Urban Ventures, wherein his daughters are management, while the company’s auditor,
directors. PricewaterhouseCoopers, resigned stating inadequate
disclosures by the company with regard to its election
books, bullion and jewellery business.
226
performer in FY15 63
-91 performer in FY17
PC Jewellers
Return since FY15
(%, as on Oct 13, ’20)
-70
Return since FY17
(%, as on Oct 13, ’20)
The company’s stock delivered a return of more than 200
per cent in FY15 and further raced following the CG Power & Industrial Solutions
implementation of GST as it was seen as a major disruption Reeling under high debt, Gautam Thapar demerged and
for unorganised players. sold his stake in the consumer-electronics company
However, soon after that, the stock took a beating on the Crompton Greaves in 2015. However, the business of
speculation that the company’s promoters were holding manufacturing power and industrial products was
back information on a business relationship with retained under CG Power & Industrial Solutions.
Vakrangee, which had come under the SEBI’s radar for Following the demerger in 2016, the share price of CG
alleged price and volume manipulation of its own stock. Power went up by more than 60 per cent in one year on the
Later, the company offered to buy back its stock but back of an expected turnaround. However, the company
withdrew the offer, which sent a negative message to its never attained a strong footing. Overseas business
investors. acquisitions made during 2005–13 yielded no results.
In December 2019, the SEBI ordered impounding of Rather, they increased debt on the balance sheet. The
over `8 crore from the company’s promoters on charges of promoters’ entire stake (34 per cent) in the company was
insider trading. pledged as of March 2017.
In August 2019, the company reported a financial fraud.
Vakrangee It informed exchanges about unauthorised transactions,
A unique technology-driven company, Vakrangee is which resulted in understatement of liabilities, advances
involved in the building of a network of last-mile retail and net worth. Following this, its share price tumbled. The
outlets providing banking services, ATM, e-commerce, company’s lenders sold the pledged shares. Later, an audit
logistics and Aadhaar services through its Vakrangee report claimed that Gautam Thapar had swindled around
Kendras. Owing to its business model, the company `3,000 crore from the company. The stock price lost more
emerged as a frontrunner in empowering banks to execute than 80 per cent during March 2016–20. However,
the government’s demonetisation move. This also reflected Murugappa Group-led Tube Investments is all set to
in its share price post demonetisation. acquire a 56 per cent stake in the company at `700 crore.

COVER STORY
HIGH DEBT
‘Debt’ knell
If high debt on a company’s balance sheet becomes unmanageable, it can
result in an adverse domino effect, culminating in bankruptcy
95
performer in FY14
launched an open offer to acquire an additional 25 per cent
to gain a controlling stake in the company. However, like
the other ADAG companies, this company also had its
share of troubles.
-97
Return since FY14
(%, as on Oct 13, ’20)
Because the initial investment by Reliance Infra went
mostly to the lenders, the company failed to deliver
warships timely under its contract with the government.
In 2018, its independent auditor raised concerns over the
Aban Offshore firm’s ability to continue as a going concern. The company
In 2013, Aban, the country’s biggest offshore oil-drilling faced a severe cash crunch, owing to no investments from
company, seemed to have a bright future. Crude-oil prices its parent and a failed second debt-restructuring
were around $100 per barrel, which made it viable to resolution. All of these resulted in bankruptcy proceedings
explore oil and pay rig rentals to oil drillers, like Aban. A against the company in 2019.
US–Iran nuclear deal was expected to remove sanctions on
Iran, where Aban was active, and would have helped the
company raise capital at a lower cost from the US and
European markets The company also bagged an order
133
performer in FY15
worth `1,110 crore from ONGC in 2013. The company had a
huge debt pile of around `14,000 crore, which it amassed
when it had acquired Sinvest, a Norwegian drilling
company, in 2006. Still, the future looked promising.
From June 2014, oil prices started crashing, halving
-89
Return since FY15
(%, as on Oct 13, ’20)
within a year. Low oil prices made exploration of oil and Suzlon Energy
gas unviable and rig rentals crashed. The company Suzlon Energy, a wind-turbine manufacturer, defaulted on
defaulted on its loan payments and was dragged to a its foreign-currency convertible bonds in 2012. With around
bankruptcy court. It later entered into a debt-resolution `17,800 crore in debt as of March 2014, it entered into a
scheme with lenders and was taken out of bankruptcy restructuring exercise with its lenders, which gave it time
proceedings. to repay its debt as well as avail working-capital funding. To
reduce its debt, the company sold off its German subsidiary
Senvion for one billion euros. Also, Dilip Shanghvi, Sun
69
performer in FY15
Pharma’s promoter, invested `1,850 crore in the company
for a 23 per cent stake. With the Indian government’s focus
on renewable energy, Suzlon’s stock price more than
doubled during 2014-2015.
-96
Return since FY15
(%, as on Oct 13, ’20)
However, the anticipated turnaround never came about.
Though debt reduced to around `11,500 crore in March 2019,
the company was not able to generate sufficient cash to run
its operations smoothly. In 2019, it defaulted on the payment
Reliance Naval and Engineering of $172 million to foreign-currency convertible bondholders.
In 2015, Reliance Infrastructure, through its subsidiary With the power industry facing headwinds in terms of
Reliance Defence Systems, bought an 18 per cent stake in thinning government tenders and delayed payments from
the already struggling shipbuilding company Pipavav discoms, the chances of a turnaround grew bleaker.
Defence and Offshore Engineering. This company was Moreover, solar began to attract more investments as
later renamed Reliance Naval and Engineering. The hopes compared to wind. In March 2020, the company’s lenders
of a turnaround led to a rise of 70 per cent in its stock agreed to restructure debt of `14,000 crore after the
price that year. Subsequently, Reliance Infrastructure promoters infused `392 crore.

COVER STORY
CHANGE IN BUSINESS ENVIRONMENT/STRATEGY FAILURE
Business not as usual

A change in business dynamics or a strategy failure can cause irreparable
damage, as exemplified by the following cases
123
performer in FY14
sheet. Later, in June 2019, Sintex defaulted on its
interest and principal payment of `89 crore.
-99 100
performer in FY15
Return since FY14
(%, as on Oct 13, ’20)
Reliance Communication
The entry of Reliance Infocomm, later renamed
Reliance Communication (RCom), in the Indian telecom
-93
Return since FY15
(%, as on Oct 13, ’20)
sector in 2002 marked a new era. At that time, its rivals
were charging `4–6 per minute even for incoming calls. Jet Airways
But RCom introduced free incoming-call facility, along India’s oldest private airline Jet Airways is a perfect
with a catchy jingle ‘Karlo Duniya Mutthi Mein’. In example of a riches-to-rags story. Ruling the Indian
April 2013, RCom signed a `12,000-crore deal with skies for almost 25 years, Jet enjoyed a market share of
Reliance Industries and thereafter, its share price rose almost 35 per cent in 2016. However, it headed for a
more than 86 per cent in two months. rough ride soon after.
However, the company’s choice of the CDMA The airline had a spectacular run before 2007, when
technology went against it as this technology generated it raised debt to purchase Air Sahara. This debt burden
less revenue than the GSM technology. As the company coincided with the 2008 financial crisis, because of
realised this, it invested heavily in GSM services, which the demand fell and oil prices skyrocketed. In
which led to piling up of debt. The stress in the telecom FY15, crude-oil price came down by 50 per cent,
sector, price war, heavy debt, plunging profits and poor resulting in the doubling of the airline’s share price.
sales led to RCom’s downfall. The company was forced Since the company operated in the premium segment
to shut its operations and NCLT proceedings were and faced stiff competition from low-cost carriers
started against the company. Indigo and SpiceJet, it landed in an airfare war. The
airline’s market share dropped and the company started
179
performer in FY15
posting losses. In 2019, the consortium of lenders led by
SBI approached NCLT to recover dues and the airline
flew its last flight in April 2019.
Recently, its lenders have approved a resolution plan
-98
by UK-based Kalrock Capital and UAE-based
entrepreneur Murari Lal Jalan to revive and operate
the airline.
Return since FY15
(%, as on Oct 13, ’20)
Sintex Industries Lakshmi Vilas Bank

The Sintex Group is famous for its water tanks. In 2017, In 2014, Lakshmi Vilas Bank was on a growth path. It
it spun off its flagship textile and plastic businesses to had appointed a new CEO during the year and wanted
derive value for shareholders. But in the next two to shed its ‘old-generation’ image. To give impetus to
years, the company’s textile business, which remained growth, it raised about `406 crore through rights. Till
a part of Sintex Industries, faced several headwinds. March 2015, the bank had managed to grow its loans
The company’s raw-material costs doubled owing to a book by around 17 per cent YoY through the preceding
twofold increase in cotton prices. On the other hand, three years while its gross NPA hovered around 2.75 per
subdued demand for cotton yarns started putting more cent as of March 2015. With the new government’s
pressure on the company’s already-stretched balance focus on financial inclusion and banking for all,

COVER STORY
103
performer in FY17
71
performer in FY17
-88
Return since FY17
(%, as on Oct 13, ’20)
-82
Return since FY17
(%, as on Oct 13, ’20)
Lakshmi Vilas Bank’s stock price more than doubled cent in March 2016. Expectations by the Street of a
between March 2014 and March 2015. swift clean-up of books, merger of smaller banks with
The real unravelling of the bank’s business model big banks and capital infusion by the government led
started happening in 2015-16, when the RBI decided to to a relief rally in the PNB stock. From its lows, the
conduct asset-quality review of Indian banks. To focus stock almost doubled in the next one year. A `2.1 lakh
on growth, the bank had joined many loan syndications crore recapitalisation of public-sector banks in 2017
with a small share. But as the RBI’s exercise started by the government further transpired into a rise in
revealing bad loans, the bank ended up having exposure the share price.
to several rotten accounts. Its gross NPAs, which stood But the bank’s bad-loan problems were far from over.
at 2.67 per cent as of March 2017, shot up to 9.98 per cent In 2018, PNB was hit by one of the biggest scams in the
by March 2018. The bank is now in a desperate need of Indian banking history. The bank found fraudulent
capital and is in talks with Clix Capital for a merger. letters of undertaking worth `10,000 crore issued in
favour of Nirav Modi and his firms. Also, the company’s
Future Retail gross NPA shot up to 18.4 per cent as of March 2018.
Post its merger with United Bank of India and
99
performer in FY18
Oriental Bank of Commerce, PNB became the second
largest bank in India. However, any hope of recovery
and forthcoming growth in the banking sector has been
further dampened due to the COVID-led economic
-86
Return since FY18
slowdown.
(%, as on Oct 13, ’20)
Post restructuring, Future Retail, which included Big

Bazaar, Easyday and Hypercity, got listed in August
112
performer in FY15
2016. The management came out with a vision 2047,
according to which it aimed to become a $1 trillion
company by 2047 by blending online and offline retail.
The company wanted to dominate the booming Indian
-82
Return since FY15
(%, as on Oct 13, ’20)
retail sector. Between January 2017 and January 2018,
the stock price more than tripled. Entertainment Network India
But everything came crashing in March 2020 as the A subsidiary of Bennett, Coleman and Company, ENI
pandemic led to a lockdown. With its stores closed, the was incorporated in 1999. It operates the famous FM
company couldn’t produce cash flows to service debt, channel Radio Mirchi. The shares of this broadcasting
which stood at 2.1 times of equity as of March 2020. The company performed well in FY14-15, when the cabinet
situation got worse due to the high promoter-level debt. cleared the Phase-III auction of FM radios in India.
As of June 2020, three-fourth of the promoters’ 41.7 per However, in later years, the company fell prey to
cent stake in the company was pledged. In the end, changing business dynamics. The revenues of radio
Kishore Biyani was forced to sell his company to broadcasters are highly dependent on advertisements.
Reliance Retail to pay up his lenders. Owing to a prolonged slowdown in the automobile and
real-estate sectors, which are major contributors of
Punjab National Bank advertisements to radio broadcasters, ENI’s revenues
In February 2016, the PNB stock hit a six-year low. The were highly affected. Besides, a shift in consumer
bank had come out with a list of 904 willful defaulters behaviour from FM radio to other sources of
that together owed it `11,000 crore. Its gross NPA entertainment, such as online platforms, also dented
doubled from the previous year and reached 12.9 per ENI’s profits.

COVER STORY
How to profit from a long-term multibagger

Rather than practise buy-and-forget, because you need the money or because the
valuations are overstretched or you no longer have
follow these guidelines to unlock the faith in the company.
real potential of a stock Learn to differentiate between temporary and
P
icking a long-term performer is no child’s play. permanent setbacks
You have to assess a number of factors: nature Businesses do undergo
and scalability of business, financial strength, transformations and face
competitive advantage and barriers to entry, challenges from time to time.
competence and integrity of promoters, culture and Your job as a stock investor is to
growth-orientation and so on. While it’s easy to say hone your skills of assessing
that all you need is a few great companies to win in what’s temporary and what’s
the investing game, it requires several years of long-lasting or even permanent. A permanent shift
experience to find the deserving candidates. The in business fundamentals can warrant a sell. Ride
next part is to stay invested in them. To do so, use through the period of temporary setbacks. You can
the following guidelines: even increase your stake in a good stock that goes
through a temporary rough patch.
Don’t follow buy-and-forget
Simply buying and forgetting Don’t run out of patience
about the stock works only if you A difficult phase for any
get lucky, provided you do have investor is when his stock goes
the courage required. As the data nowhere, while the rest of the
on top performers suggests, market is going up. During such
many don’t deserve to be left times, the temptation to switch
alone. So, don’t get carried away to a ‘better’ stock can become
by buy-and-forget success stories. For every winner, compelling. So, as a long-term
there are many more losers who followed this strategy. investor, your responsibility is not just to stand
notional losses or resist profit-booking but also to
Stay vigilant tolerate go-nowhere periods. Stocks seldom grow in
Never lose sight of how the a linear fashion. Many times, gains accumulate in
company in which you have short periods. If you are not invested during those
invested is doing. That doesn’t periods, your overall returns may suffer.
mean tracking its share price
daily but you should assess its Practise doing ‘nothing’
financial performance every six Because every day something is
months or so. Also, keep an eye happening in the stock market,
on the economic trends, consumer preferences, understand that you are
cultural shifts and sectoral disruption. In the highly predisposed to act. This activity
competitive world of today, few companies can is often counterproductive. As a
maintain a lasting edge. long-term investor, train
yourself to maintain distance
Don’t sell just because your stock has run up from the daily hullabaloo of the
For many investors, digesting a market. Don’t check your portfolio and stock prices
hefty gain on their stock is very frequently. Don’t fret about short-term market
difficult. They spend sleepless movements. See stock investing as investing in a
nights till they don’t realise business. Always invest with a long-term horizon
those gains. Good companies, and question yourself if you find yourself doing
however, can continue to do well something opportunistic to profit in the short term.
and create much more wealth in Remember that in the stock market, it’s not activity
the long run. So, large gains on your stocks should that builds wealth. It’s sitting on your hands with
not be the only reason to sell. You should sell your eyes wide open that works. WI

6XEVFULEH
1RZ
Insights into the Indian stock market and companies
Start my subscription from

Name (Mr/Mrs/Ms) BUY A NEW
Address SUBSCRIPTION
DIGITAL
3 months for `300
6DYH
State 1 year for `1,050
Pin Code
6DYH
Phone
PRINT*
E-mail
3 months for `356
Cheque Number
6DYH
Date
1 year for `1,395
Bank & Branch 6DYH
Delivery by courier
Payable to Value Research India Pvt. Ltd., New Delhi
www.vro.in +91-98688 91830 C-103, Sector 65, Noida - 201301

WhatsApp only [email protected]

6XEVFULEH
1RZ
Insights into Indian mutual funds
Start my subscription from

Name (Mr/Mrs/Ms) BUY A NEW
Address SUBSCRIPTION
DIGITAL
3 months for `270
6DYH
1 year for `1,026
State
6DYH
Pin Code
Phone PRINT*
E-mail 3 months for `382
Cheque Number 6DYH
Date 1 year for `1,494
Bank & Branch 6DYH

Delivery by courier
Payable to Value Research India Pvt. Ltd., New Delhi *Digital is complimentary. Savings
calculated with respect to the
single-issue price of `150.
www.vro.in +91-98688 91830 C-103, Sector 65, Noida - 201301

WhatsApp only [email protected]

KUNAL SANGOI Fund Manager, Aditya Birla SL Digital India Fund IN FOCUS
Does the IT rally have legs?

FOCUS QUESTION What is the reason behind the rally in IT stocks? What is
the near- to mid-term outlook for Indian IT? How comfortable are you with
the valuations of IT stocks now?
T
he rally in IT stocks has key trigger for increased digital two quarters, i.e. COVID vs. GFC,
been very sharp. However, adoption across businesses in where we are already seeing
when we look at the multiple verticals. companies benefiting from the
fundamental trends, we Secondly, the growth recovery broader digital spending trends
think this is very much justified. from the recession scare for the (seen in Q2 results and outlook
IT services spending is witnessing tech sector has been crunched to going ahead). Outsourcing industry
a demand revival supported by growth is estimated at 6–7 per cent
three key trends in the enterprise Over the near term, as per Gartner over CY20–22 vs 4–5
IT spending, viz., modernisation of per cent earlier as there could be a
core infrastructure, adoption of there could be some bounce like 2009. Offshore growth
public and hybrid cloud model, and consolidation. However, might rebound to high single digits
AI adoption. Indian IT services
firms have pivoted successfully to
over the medium term, with a stronger bounce in CY21/
FY22. Our thesis has been that the
these new technology spend areas, we think the growth sector will see expansion of
have their efficient supply chains outlook going into FY22/ valuation multiples as the growth
and have proved their execution reaccelerates and earnings upgrade
capability even during the tough CY21 is strong. cycle follows (as seen in Q1 and
lockdown period with work from now in Q2 quarterly results).
home. Digital revenues account for Over the near term, there could
over 40 per cent of sector revenues be some consolidation driven by
and should see 20–25 per cent volatility led by US elections and
revenue growth across leading strong sector outperformance
firms. In the past, Y2K (2000), recently. However, over the
Global Financial Crisis (2008) were medium term, we think the growth
triggers for the IT sector, which outlook going into FY22/CY21 is
saw a major rise in offshoring strong. The IT sector trades at P/E
spends. Similarly, the current of about 23-24 times one-year
COVID-19 pandemic is acting as a forward earnings, which appears
expensive versus its own historical
;VWOVSKPUNZVM(KP[`H average but is still lower when
)PYSH:3+PNP[HS0UKPH-\UK compared to some other
% of assets defensive sectors like
Infosys 24.28 consumer (P/E of 34
times) and pharma (P/E
Tech Mahindra 8.22
of 29 times). Secondly,
Bharti Airtel 6.26 Indian IT companies
TCS 5.84 generate healthy cash
HCL Technologies 5.14 flows, have high ROIC,
Majesco 4.95
and have consistently
increased the pay-out
Cyient Limited 4.83
ratios through
Honeywell Automation India 4.35 dividends/buybacks,
Apple Inc. (USA) 3.46 which make the IT
Persistent Systems 3.23 sector attractive to
Data as of September 2020 invest in. WI

INTERVIEW ANUPAM TIWARI
Fund Manager, Axis Small Cap Fund
‘Only quality companies are able

to sustain profitable growth’
With the BSE Small Cap index gaining over 17 per cent in
T
he recent market rally has given mid and
small caps a new lease of life. We speak to three months, how worried are you about the market
Anupam Tiwari, who manages Axis Small running up too fast, too soon? How do you see the current
Cap Fund, about the sustainability of the valuations in the mid- and small-cap space?
rally. He also tells us how he manages this fund, why Markets have seen a stellar recovery over the last six
he is bullish on construction and how the pandemic months as concerns over the impact of the
has impacted smaller companies. coronavirus have dissipated and markets look
forward to a strong recovery across the board. What’s
adding to much of the euphoria in the current rally
is the massive liquidity from all quarters, FPIs,
institutions and retail.
Mid and small caps have seen more stock-selective
moves driven by inherent fundamentals and their
ability to thrive in adverse market conditions.
Companies that have been able to weather challenges
despite smaller balance sheets have seen quick
recoveries. Current valuations, especially on earnings-
based metrics, show a distorted picture.
Please decode the impact of the pandemic on smaller

companies. What are the major threats and silver linings for
them?
Rather than identify companies on their size, it would
be prudent to talk about sectors. Sectors which cater to
essential items, including pharma and consumer
goods, have seen a limited impact. Rather these
companies have been able to adapt and cater to the
special needs of consumers during these times
through innovation and flexibility of their business
operations. Companies with high-legacy debt and rigid
business models have been the biggest losers over the
last six months.
With SEBI revising the criteria for multi-cap funds, what

sort of impact do you see on the mid- and small-cap
space? There are concerns around there not being
enough opportunities.
The circular on multi-cap funds has placed quite a
few fund managers on tenterhooks, given the sheer
quantum of funds they manage. The cause of
concern remains on largely how these portfolios
would pivot to meaningful mid- and small-cap
allocations while remaining liquid enough. The
number one problem in mid and small caps is that
when the going gets tough, large investors get stuck
because of the lack of liquidity. SEBI is yet to
address that issue. We will wait and see the

INTERVIEW
developments in this space and communicate to the long term? What would be your key dos and don’ts?
investors further when the time is right. The misconception remains that mid and small caps
are inherently more volatile as compared to their
How do you pick stocks for your fund? What sort of large-cap counterparts. The fact of the matter is that
companies do you avoid? unlike in the large caps, the probability of going
We believe India is a growth market. However, within wrong is far higher and that’s where investors should
the broad market, only ‘quality’ companies are able to remain vigilant and patient. If you can’t do that, then
sustain profitable growth and generate long-term you should consider mutual funds. All you need to give
returns for shareholders. The fundamental the fund manager is time. For mid and small caps, the
investment approach focused on identifying such consensus view on time is five years.
sustainable businesses while controlling risk is the The large-cap space today has 100 companies, mid-
best way to deliver returns in the Indian equity cap another 150 and small-cap has about 3,000 listed
market over the long term. names, of which about 500 are investable. India is a
The key components of the investment philosophy stock picker’s market and this fact resonates more so
are as follows: when it comes to the mid- and small-cap space. Active
z Long-term focus: Research stocks on the basis of management plays a vital role in weeding out stocks
their potential over market cycles (over three to five that do not meet essential long-term investing criteria.
years) Our quality bias helps us navigate the minefield of
z Fundamentals-based: Utilises a ‘bottom-up’ companies where investors often get trapped due to
approach to identify fundamentally sound short-term performance.
companies, while being agnostic of the
benchmark constituents Given the inherent volatility in mid and
z Quality assets: Rigorous search for The number small caps, what do you do to stay calm
quality companies with long-term one problem in and composed amid turbulent times?
sustainable growth and mid and small caps is How do you convince your investors
management track record
that when the going gets to stay put?
z High-conviction investing: A As I said earlier, as a category,
compact portfolio of stocks that tough, large investors get mid and small caps are as volatile
reflects the fund manager’s best stuck because of the lack as their large-cap peers. It is
ideas of liquidity. SEBI is yet individual stocks in the small-cap
z Active management: Exploit
opportunities such that portfolios
to address that space that are volatile for a variety
of reasons, including low float,
reflect the best investment possible at issue. unproven track records, future
all times within the ambit of the expectations and even the breadth of
mandate and strategy ownership by institutions and coverage.
z Integrated risk management: Risk Turbulent times are when investors make
management embedded within the investment process money if they invest right. We have seen this time and
time again in 2013, 2018 and today. Investors who
You are significantly overweight on the construction space. invested when the times were tough came out as
What makes you bullish about it? winners when the recovery took place. The easiest way
Our allocation strategy towards the construction to play the mid- and small-cap space is to keep that SIP
sector has been very stock-specific. The names we going and top up when the markets correct.
hold in our portfolios today offer opportunities in Picture this, say you like a company which is
niche businesses which have remained resilient to growing at 100 per cent a year, trading at a P/E of 100.
the external environment and have robust balance In one year, that P/E would drop to 50, assuming the
sheets to manage the upcoming return of price remains unchanged and the company meets
construction projects and expansion plans. We have earnings estimates. As fund managers, our job is to
also seen some of these companies raising fresh identify companies, business models and
capital as they look to fund future growth and invest managements that are capable of meeting analyst
in capex to cater to the likely growth that will come expectations and invest in those companies. If you do
as the economy reopens. a good enough job of identifying 25–50 names and
build a portfolio around them, you, as a fund manager,
How would you advise a stock investor who wants to build have succeeded in building a true wealth-creation
and manage a portfolio of quality mid and small caps for portfolio for your investors. WI

Get money
smart
Know the risks,
suitability, 2019-20 Price
return potential, `395
tax beneÀts and
how to invest
in various
investment
options
19-20
ent Yearbook 20
vings & Investm
Incorporating Sa
BUY NOW
<HV,ZDQWWREX\Your Guide to Best Investments
Name (Mr/Ms) Phone

Address E-mail
Cheque Number Date
Bank & Branch
Pin Code State
GO ONLINE WHATSAPP MAIL

www.valueresearchonline.com +91-9868891830 C-103, Sector 65,
WhatsApp only Noida - 201301
[email protected]

The key to
riches The Way to
Save
Get access to timeless
z

&
Price
`395
Prosper
investment wisdom
Understand the basics of
z

mutual fund investing The Best of Mutua
l Fund Insight
Find out how to monitor and

z

optimise your portfolio
Know how to avoid the
z

common follies of investing
BUY NOW
<HV,ZDQWWREX\The Way to Save & Prosper
Name (Mr/Ms) Phone

Address E-mail
Cheque Number Date
Bank & Branch
Pin Code State
GO ONLINE WHATSAPP MAIL

www.valueresearchonline.com +91-9868891830 C-103, Sector 65,
WhatsApp only Noida - 201301
[email protected]

MAIN STREET
Spotting the liar in

the boardroom
Using the CIA’s questioning techniques
to keep a check on companies
SAURABH MUKHERJEA
Marcellus’ forensic-accounting model When the CEO can’t clearly tell us

stratifies the Indian stock market into 10 deciles,
the story embedded in his own
wherein decile one contains the cleanest companies
and decile 10 contains companies which are almost financial statements and/or when
completely fabricating their financial statements. the CEO and the CFO tell us
Forensic accounting apart, can we spot them before different stories about the same set
they blow up? The answer is an emphatic ‘yes’ – a
of accounts, our antennae go up
mixture of adequate diligence on companies, combined
with the use of questioning techniques popularised by
the CIA, can be very effective in spotting liars. points faster than that thanks to efficiency improve-
The specific skill that intelligence officers are taught ments, and the growth in free cash flows is a little bit
is to go into L-squared mode (‘look and listen’) as soon as faster than profit growth due to an improvement in the
they ask a question because research shows that most of working capital) but the CEO also knows the story pret-
the ‘tells’ come within five seconds of the question being ty well (without having to refer to a PowerPoint deck).
asked. So, what are the ‘tells’ that we look out for? (We When the CEO can’t clearly tell us the story embedded
have ranked these by order of effectiveness, i.e., as you in his own financial statements and/or when the CEO
go down the list, the tells have a higher reliability rate.) and the CFO tell us different stories about the same set
of accounts, our antennae go up.
The story behind the numbers
Every set of financial statements has a story embedded Buying time
in it. In a genuine set of financial statements, not only Abraham Lincoln said, “No man has a good enough
does the story make sense (for example, revenue growth memory to be a successful liar.” We find that even when
is a few percentage points higher than the nominal faced with straightforward questions, a liar will need to
GDP growth, profitability growth is a few percentage buy time. Why? Because making things up takes time

MAIN STREET
and effort even though the human mind works 10 times

faster than we talk. Therefore, buying two seconds – by
giving long-winded answers or by using ‘no answer’
statements (like ‘that is a great question’ or ‘that’s a
legitimate concern’) or by repeating the question – is
actually the equivalent of 20 seconds of thinking time.
So, if we see a CEO who repeatedly buys time in a meet-
ing, we start worrying.
The ‘halo effect’

Often in response to our question, the CEO will begin
by making a statement which is intended to enhance
his status (in our eyes). So, for example, when we asked response began as: “I have been running this company
for 20 years and have met hundreds of major foreign
investors but none of them have raised this issue.” (That
masterly statement from the CEO contains status
enhancers, evasion and belittling of Marcellus.)
Anger
This is the most compelling tell. When the CEO loses it
and starts threatening us or abusing us, we are almost
100 per cent sure that his wicket is about to fall.
Between us, we have 30 years of experience of probing
companies and we have not found a single instance
where an abusive/threatening CEO or promoter has
lasted for more than five years after threatening us.
the CEO of an auto-ancillary company why his capex In isolation, each of these tells merely arouses suspi-
was equivalent to 10 per cent of his revenues in the last cion rather than confirming that the CEO is a liar.
three years, he began his answer by saying, “You have However, if we encounter three or more of these tells in
to realise my relationship with Japanese OEMs goes the same meeting, then our house rule is to move on to
back 30 years...” By making status-enhancing state- other, cleaner companies.
ments, the CEO is asserting his dominance over us and
using a time-tested trick – as shown by Stanley Milgram
in a legendary experiment (see https://explorable.
com/stanley-milgram-experiment), we are wired to
believe people in positions of power! If the CEO punc-
tuates the meeting with multiple status-enhancing
statements, it is time to think about an early flight
home and dinner with the family.
Belittling
If a CEO feels cornered and/or if his brain is getting
scrambled, he will take to belittling our questions. For
example, when we asked a promoter why he had pur-
chased six luxury cars using the company’s money, his If you want to read more about how to spot liars, a
good book to read is Spy the Lie by three ex-CIA opera-
tives – Philip Houston, Michael Floyd and Susan
When the CEO loses it and starts Carnicero. WI
threatening us or abusing us, we Saurabh Mukherjea is the author of The Victory Project: Six Steps to
are almost 100 per cent sure that Peak Potential and Coffee Can Investing: The Low Risk Route to
Stupendous Wealth. He’s also the founder of Marcellus Investment
his wicket is about to fall Managers.

EVERYDAY
ECONOMICS
Fair market value

While auctions are a useful method for price discovery, they should go
beyond material gains to ensure the welfare of the disadvantaged
PUJA MEHRA
We don’t usually realise it, but tists had famously managed to bag a licence to run cel-
auctions, as the prize committee that adjudicated this lular phones, which they then palmed off to
year’s Nobel Memorial Prize in Economic Sciences Southwestern Bell for a neat $41 million.
recorded in its statement, are everywhere and affect our Not before long, in 1993, the FCC decided to invite
everyday lives. Internet ads, cricket players for Indian proposals for airwaves auction design, creating over-
Premier League (IPL) teams, the spectrum for mobile night a market for the expertise of auction theorists
phones, allocation of landing slots to airplanes at air- and game theorists. Although auction theory, a branch
ports — just about everything gets priced through auc- of game theory, was developed back in the 1970s and
tions. In fact, auctions have come to be a common mode 1980s, much of the design of the mathematical models
of carrying out transactions in the modern economy. of the auctions by the FCC came from Milgrom and
Suitably, this year’s winners of the Nobel in Economics Wilson and their colleague Preston McAfee of the
are Stanford University professors Paul Milgrom and University of Texas, Austin. By the end of the sales, the
Robert Wilson. The two American economists are being auctions had helped the FCC raise more than $120 bil-
recognised for improving our understanding of auctions lion. After this resounding success, the auctions
in theory and in practice and for inventing new formats designed by these economists have been adapted and
for conducting auctions. Milgrom and Wilson are famous used by governments around the world for selling,
for having designed the auctions that were used by the among other things, telecom spectrum (including in
US government in 1994 for selling radio spectrum licenc- India), natural gas and electricity to the highest bid-
es to wireless telephone companies. [For ders. The amounts successful bidders
details, read: http://www.nasonline.org/ pay in these auctions naturally decide
publications/beyond-discovery/the-bid- The Federal how they price the services that they
ding-game.pdf] Communications then offer to consumers, which is what
The Federal Communications
Commission (FCC) makes their design rather interesting.
Commission (FCC) had estimated at the Despite doing well on revenue
onset that the airwave spectrum being had estimated at accrual, the 1994 FCC auction could
auctioned could fetch about $10 billion. the onset that the not deliver on the public-policy goal of
The expectation was received with a airwave spectrum diversification of ownership. In subse-
great deal of scepticism by the telecom-
being auctioned quent rounds, therefore, the FCC
munications industry players planning reserved blocks for small entrepre-
to bid for the licences on offer. After all, could fetch about neurs and firms owned by women and
the US government had no previous $10 billion. By the people from minority identities.
experience of selling something as end of the sales, Bidders in these special categories
valuable. Before this, spectrum was just
the FCC raised were also provided some concessions.
given away, including by a system of For instance, credits, wherein if they
lotteries, to just about anyone applying. more than $120 bid, say, $80 in a round, it was taken to
And so, a bunch of enterprising den- billion. be a bid for $100. Their deposit require-

EVERYDAY
ECONOMICS
ments were also much lower than other non-special same. Wilson developed the theory for auctions of this
category bidders. Bidders were provided a month’s type of objects with a common value. Milgrom built on
time to submit 10 per cent of their bid sum, with the it to give a general approach where every bidder has a
remaining amount to be paid seven years later. A nom- distinct private value for the item on auction.
inal interest was charged for this loan, creating a More recently, the two economists have been focused
common economics problem of moral hazard. If seven on finding the best strategies for accelerating the
years later, the auctioned item happened to lose value, deployment of fifth-generation, or ‘5G’, wireless tech-
becoming worth less than 90 per cent of the bid price, nology. The duo, after the prize was announced by the
then the winning bidders’ rational response was to Royal Swedish Academy of Sciences, has announced
default, since the loss was limited to the down pay- how they are applying their career’s work on auction
ment of only 10 per cent. Indeed, a majority of the design to find solutions for the problems posed by the
winners of the licences declared bankruptcy and COVID challenge. These include the optimal alloca-
wound up or sold their business to a larger company. tions of medical supplies that are scarce: personal
The design defect led to further corrections in the auc- protective equipment (PPE) and respirators. In the
tion formats subsequently. [For details, read: https:// early stages of the outbreak in the US, the states were
bit.ly/37fxIMa] competing against each other, bidding up the prices of
The complexity of designing auctions, as also pre- these essentials.
paring winning bids in an auction, comes from the One reason auctions are extremely valuable is that
various unknowns involved: how differently would the they remind us of the important role of markets in the
potential bidders put values on the item being auc- modern economy. In well-functioning markets, prices
tioned? Would they assess with some degree of accura- provide information about how much sellers and buy-
cy how their competitors are likely to bid? How may the ers value an item on sale. A `10,000 cell phone is nor-
conductors of auctions ensure a fair market and pre- mally not likely to be as well-made as a `40,000 one.
clude the possibility of collusion among bidders? Until the time something has a market, its material
Auction theorists have succeeded in formulating neat value is opaque and indeterminate. At the same time,
and precise algorithms and mathematical models fac- material value is not everything. As the FCC auctions
toring in bidders’ behaviours. In any auction, the bid- showed, modern societies may want to go beyond mate-
ders’ goal is to buy the item on sale paying the lowest rial gains to neutralise historic disadvantages faced by
price possible while ensuring this price does not exceed certain classes of people, such as women, by offering
the intrinsic value or the true worth of the item on special concessions. WI
auction. Items on auction can be of two types. One,
Puja Mehra is a Delhi-based journalist and the author of
where their value is uncertain before the start of the The Lost Decade 2008–18: How the India Growth Story Devolved into
auction, but by its end, all bidders’ value of it is the Growth Without a Story

STRAIGHT TALK
The innovative State

Is the role of the State in creating and sustaining innovation
underappreciated and unpaid for?
ANAND TANDON
There was a time when capitalism, as an mind – from a provider of support to private-sector
economic system, seemed to be the only game in town. innovation and enterprise to being a driver of
This was just after the collapse of the USSR – a time innovation with the greedy private sector being dragged
which seemed to signal a demise of communism as a along by its coattails, yet reaping most of the economic
viable alternative to capitalism. In its success, rewards. As a part of the endeavour to change the
capitalism seeded its downfall. As ‘greed is good’ ‘language’, Professor Mazzucato set up the Department
became the only capitalist mantra, markets were of ‘Economics of Innovation and Public Value’ at her
manipulated to ensure lack of competition. Competition institute. Her work has attracted several politicians
watchdogs, meant to prevent the creation of monopolies, across countries starting with Britain but increasingly,
used old definitions of market domination, while new American Democrats, from across the ‘pond’. Her
markets emerged along with monopolistic companies. TEDx lecture here (https://tinyurl.com/y3l8mq6z)
A ‘winner-takes-all’ market allowed serious income illustrates the crux of her argument.
disparities to become entrenched, building resentment
and a case for a pushback. Today, many young people The State as a venture capitalist
who are facing grim job prospects in countries where Mazzucato’s thesis in the book is that the role of the State
jobs were abundant just one generation ago don’t see in creating and sustaining innovation is underappreciated
capitalism as creating opportunities for a better future. and unpaid for. Private venture capitalists (VCs) take
This is providing proponents of a socialist form of credit for innovations when the highest risk, at the early
government an opportunity to find a voice and become stage of every innovation cycle, is borne by the State.
revisionists with regard to economic theory. Professor Once the technology has been established, VCs fund
Mariana Mazzucato is one such voice we are likely to
hear more of going forward.
Mazzucato’s argument is that
Changing the language repeated claims of public- sector
Mariana Mazzucato is a professor at University College inefficiency have negatively
London. Upset with the characterisation of the State as
slothful and wasteful, Mazzucato concluded that this
impacted its image and led to
perception needed to be challenged – starting with demands that it should limit itself
changing the language used to describe the State. Her to providing the framework for
work resulted in a book titled The Entrepreneurial innovation rather than engage in
State: Debunking Public vs. Private Sector Myths
published in 2011 and translated into several languages.
actively promoting innovation and
The book sought to reposition the State in the public research
STRAIGHT TALK
companies that benefit from these innovations and the private sector is hardly fair. Even so, NSF allows its
State is left paying the bills with no return for the risk it grantees to ‘retain the entire right, title and interest’ for
has undertaken. To illustrate her point, she takes the any inventions. Mazzucato’s solution of demanding
case of Apple and the US pharma industry. ‘return on’ scientific grants runs several risks. It
In the case of Apple, her contention is that all introduces an incentive to report lack of success while
technologies incorporated into the iPhone or iPad – the being funded by the government. It makes for audit
internet, GPS, touch screen, etc. – were funded and requirements to be imposed on grants. Finally, if
developed by DARPA (the Defense Advanced Research government funding of innovations is working, then
Projects Agency). Apple put these together to make a why fiddle with what is not broken? If, on the other
product which earned billions but didn’t even pay ‘fair’ hand, it is not, then what is there to gloat over? And to
taxes by squirrelling away its profits in tax havens suggest that changing the goalposts (demanding a share
globally. She also asserts that most path-breaking of a successful outcome) will not have changed the
developments in pharmaceutical research over the past incentives of grantees is to be naïve.
few decades have been funded by the National Science
Foundation (NSF)/National Institute of Health (NIH) Limited money availability
in the US and the science developed there is patented by Mazzucato suggests that State investments should be
private players. Consequently, even public-funded made in a way that will ‘socialise both risks and
medicines are priced in ways that don’t allow the reward’. She suggests that public investment be
general public to benefit from them. targeted at audacious goals where the private sector
Mazzucato’s argument is that repeated claims of will fear to tread and that successes should be shared
public-sector inefficiency have negatively impacted its by the government. In theory, it seems right especially
image and led to demands that it should limit itself to if one accepts that there are no constraints on the
providing the framework for innovations rather than amount of capital available to governments and that
engage in actively promoting innovation and research. losses don’t matter. Unfortunately, every investment
In reality, it is the private sector that shies away from has an opportunity cost and alternative use. Her
risk taking and needs the leadership of the public suggestion is also only one short step away from
sector to coax it into taking on innovative paths. concluding that public enterprises can also carry
Mazzucato’s arguments carry some weight but also ‘innovations’ to market, thereby socialising all rewards.
suffer from the ‘survivorship bias’. She cherry-picks
examples from those that help support her argument Return of the public sector
while ignoring those that would disprove the proposition. From an Indian perspective, it would appear that we are
DARPA did not fund the development of any of the already at the endpoint of where Professor Mazzucato
technologies mentioned for their use in consumer suggests economies should go. We have a range of
electronics. Steve Job’s genius lay in designing a product government enterprises – all set up at a time when the
and platform that consumers would pay private sector would not have had the
money for. To claim that there was no Many young appetite to do so. We should, therefore,
innovation in creating the Apple App expect remarkable innovations and
Store is to simply brush away the power
people who are return on capital coming out of these.
of ‘two-sided’ markets. The technologies facing grim job Alas, as we are so well aware, no
that Mazzucato claims were responsible prospects in public-sector company makes profit
for Apple’s success were available for countries where unless it operates in a heavily
many others to use. An extension of regulated market or has monopoly
Mazzucato’s argument would almost
jobs were pricing. Even then, profits are made
suggest that Tesla’s success as an abundant just one by price-gouging consumers, and the
automaker making a car that consumers generation ago overall contribution of public
want should be attributed to the roads don’t see investment is negative in most years.
built by the government. Using the US Mazzucato’s views are likely to
pharmaceutical industry as an example
capitalism as become more widespread over time
of private-sector inefficiency is unfair. It creating as capitalism becomes less popular.
is known to be a price-gouging industry opportunities for a Will it help increase societal welfare?
– not very well regarded for its innovative better future Only time will tell. WI
capacity. To use that as a proxy for the Anand Tandon is an independent analyst.

STOCK
SCREEN
Ideas to delve deeper

S
ound investment methods outlast cycles and However, please note that they are not our recommen-
fads and generate profits over the long run. dations.
Value Research presents stock screens based on Each stock screen explains the reason behind picking
time-tested principles. the stock, which over time will help you develop your
What are stock screens? These are a listing of attractive own investing rules. As we will be evolving such models
stocks based on the objective principles of sound and implementing changes to the methodology to be in
investment. We apply stock filters carefully crafted by line with economic and market cycles, the list will be
Value Research analysts on the universe of Indian stocks dynamic and updated periodically.
to identify these attractive stocks. The filters are devised In the following pages of ‘Stock Screen’, we present
to identify stocks of the following kinds: five categories that collectively list a number of
Quality stocks available cheap stocks. With these, you will be well-equipped to select
ttractive blue chips
A stocks to build your own portfolio after doing further
Stocks available at a steep discount to book value research. If you think that stock picking is a lot of
High dividend-yield stocks hard work, you can get started with these screens and
Growth stocks available at reasonable prices with time understand the way the ideas are shaping to
We believe that stocks listed in this section are a good make your own judgement on stock selection.
starting point to start a close scrutiny before adding Great investments are not easy to find, but practice,
them to your portfolio. patience and sound principles are all that you need.
Key terms
Universe companies In order to arrive at our universe of companies, we checked ICR of more than two implies that it can service more than twice its current
if the companies traded on all the days for the last two quarters. We considered interest charges.
the companies with a market capitalisation of more than `500 crore. Debt-equity ratio The debt-equity ratio is calculated as the ratio of total out-
Price to book value (P/B) Price to book value is the ratio of the price of a stock standing borrowings of the company to its total equity capital. It essentially tells us
to the book value per share of the company. It shows how much premium investors which companies use excessive leverage to achieve growth. Conventionally, the
are willing to pay for the underlying net assets of the company. debt-equity ratio of less than two is considered safe.
Price to earnings (P/E) The price-to-earnings ratio, or the P/E ratio, is simply Return on equity (RoE) This is measured by taking profit after tax as a percent-
the ratio of the price of a stock to its earnings per share. It shows in multiples how age of net worth of the company. It indicates how efficiently the company has been
much investors are willing to pay for the earnings. The thumb rule of valuing a stock able to utilise investors’ money.
is that a high-growth stock will have a high P/E ratio, while a value stock will have Stock return Stock return is calculated by taking the percentage change in the
a relatively lower P/E ratio. price of the stock adjusted for bonus or split.
Earnings per share (EPS) Earnings per share, or EPS, is calculated by dividing Dividend yield This is defined as the percentage of the dividend paid per share
the company’s net profit with the total number of outstanding shares. to the current market price of the stock. Since the denominator in this ratio is the
EPS growth Growth of the EPS over a specified time period – trailing 12 months market price, a stock’s dividend yield changes every day.
(TTM), a quarter or five years. Quarterly comparisons are on a year-on-year basis. Dividend-payout ratio This is the total dividend paid to the shareholders as a
For five years, the figures are annualised. percentage of net profit.
Price-earnings to growth (PEG) This ratio demonstrates how high a price we Altman Z-Score Developed by Edward Altman of New York University, the Z-Score
are paying for the growth that we are purchasing. It is the ratio of price to earnings predicts a company’s financial distress or the possibility of its going bankruptcy
to the EPS growth of the stock. In all our analyses, we have taken five-year historic within two years. A Z-Score of more than three is desirable.
EPS growth. Modified C-Score It tells the probability of financial manipulations. In order to
Earnings yield Earnings before interest and taxes (EBIT) divided by enterprise develop it, we have modified James Montier’s C-Score. A C-Score of less than four
value. Enterprise value is market cap added to total debt and less cash and is desirable.
equivalents. Piotroski F-Score Developed by Joseph Piotroski, the F-Score highlights financial
Dividend per share Total dividend declared during the year divided by the total performance as compared to that in the previous
number of outstanding shares. year. It thus points out to the current outperformer Growth Value
Net sales This is simply the income that a company derives by in terms of profitability and financial improvement.
selling the goods and services that it produces. The downside of taking sales as an An F-Score of seven or above is good. Large
indicator of growth is that it may not be matched by a similarly scintillating bot- Stock style It indicates the style of the stock. It
tom-line (net profit) performance. A company may be earning revenue at a high is derived from a combination of the stock’s valu- Mid
rate. But if it is doing so by incurring a very high cost, the bottom line may not grow ation — growth or value — and its market capital-
in proportion to the growth in the top line (sales). isation — large, mid and small. For example, on the Small
Interest-coverage ratio (ICR) This indicator is generally used to gauge right we have shown the stock style of a large-cap
whether a company has the ability to service its debt. The interest-coverage ratio growth stock.
is calculated as the ratio of operating profit to interest outgo. A company with an

STOCK
SCREEN
Quality stocks available cheap

The stocks listed below clear essential checks on solvency, accounting,
recent financial performance and valuations No. of companies that
cleared the filters
REASONS TO INVEST THE FILTERS 911

Safety Market cap greater than C-Score less than 4
510
Soundness `500 cr PEG less than 1
79
Good performance Z-Score greater than 2.99 P/E to median P/E less
Reasonable valuations F-Score greater than or equal than 1.5 70
to 7 Earnings yield greater than 5% 9
Banking and finance companies were removed from this analysis as the metrics don’t apply to them.
Safe bets
Company Stock Altman Piotroski Modified Earnings Market Share 52-week
Industry style Z-Score F-Score C-Score yield (%) P/E PEG cap (` cr) price (`) high/low (`)
Bharat Rasayan
Pesticides 15.9 9 2 5.6 23.3 0.58 3,784 8,905 11700-4500
Deepak Nitrite
Organic Chemicals
6.6 9 2 7.8 17.0 0.27 9,827 721 888-310
Ester Industries
Plastic Packaging goods
4.9 9 3 14.8 9.1 0.12 951 114 114-22
Garware Polyester
Plastic Films
3.4 9 2 21.8 8.1 0.16 588 255 282-132
Genus Power Infrastructures

Electronic Components
3.2 8 2 17.7 10.2 0.85 724 28 32-13
Globus Spirits
Liquors
4.1 9 1 9.6 14.7 0.30 905 316 342-61
Granules
Drugs & Pharma
6.3 9 0 5.9 22.1 0.69 9,553 386 407-103
Gujarat Gas 5.0 9 0 5.3 19.3 0.88 19,771 287 335-176

Indl.Gases
Heidelberg Cement 3.6 8 1 10.0 18.0 0.13 4,283 189 218-122

Cement
Huhtamaki PPL 4.7 8 1 6.9 14.8 0.73 2,275 301 338-162

Paper prod.
IOL Chemicals & Pharma 8.3 8 2 14.5 9.9 0.21 3,980 679 899-146
Drugs & Pharma
KPR Mill 5.6 8 1 8.9 13.1 0.98 4,512 656 715-312

Cotton & Blended Yarn
Mahanagar Gas 6.8 8 0 11.7 12.2 0.75 8,126 822 1247-664

Crude Oil & Natural Gas

STOCK
SCREEN
Company Stock Altman Piotroski Modified Earnings Market Share 52-week

Industry style Z-Score F-Score C-Score yield (%) P/E PEG cap (` cr) price (`) high/low (`)
Nesco
Diversified 10.8 8 1 8.8 14.8 0.93 3,654 520 817-380
Privi Speciality Chemicals
Organic Chemicals
3.8 8 0 7.8 13.2 0.61 2,115 545 756-355
RPG Life Sciences

Drugs & Pharma
6.7 9 2 7.2 20.7 0.29 614 370 429-143
Shree Digvijay Cement Co

Cement
6.3 9 3 9.9 15.1 0.38 771 55 60-16
Transpek Industry
Inorganic Chem.
5.0 8 2 9.3 14.4 0.53 1,058 1,891 2192-1077
Zen Technologies 49.2 9 3 5.8 15.2 0.51 636 80 97-21

Computer Software
Data as on October 21, 2020. New entrants.
Discount to book value

Stocks available at a discount to their book value indicate bargain and
inherent value, provided the business fundamentals are sound
No. of companies that
REASONS TO INVEST THE FILTERS
911
Really cheap Market cap greater than Companies must have a five-year
Relatively undervalued `500 cr earnings growth of more than 764
Companies with assets Debt-equity ratio of less than 1.5 10%
Price-to-book should be between 473
times
Return on net worth of more than 0.01 and 1
275
10% in the most recent year
28
Bargain hunt
Company Stock 5Y EPS Dividend Debt-equity Market cap Share 52-week
Industry style P/E P/B growth (%) yield (%) ratio RoE (%) (` cr) price (`) high/low (`)
Andhra Paper
Paper
5.9 0.8 99 0.0 0.0 24.5 742 185 361-112
Andhra Sugars
Diversified
4.3 0.7 113 7.0 0.2 18.0 775 286 392-117
Apar Industries 15.3 1.0 22 3.3 0.3 11.4 1,087 284 570-239
Electronic Equipts.
CESC 5.9 0.8 46 3.5 1.5 13.3 7,541 571 846-365

Electricity Generation

STOCK
SCREEN
Dalmia Bharat Sugar

Sugar
4.0 0.6 165 1.5 0.8 12.7 1,052 130 156-40
Dhampur Sugar Mills
Sugar
4.6 0.7 32 4.1 1.3 16.7 971 146 246-66
Filatex India
Synthetic Yarn
7.5 1.0 40 0.0 1.2 22.9 554 25 44-15
Future Retail
Retailing
– 0.9 53 0.0 0.7 19.0 4,048 75 404-61
GAIL
4.6 0.8 24 7.3 0.1 15.3 39,531 88 140-65
GHCL
Soda Ash
4.6 0.7 18 2.0 0.6 19.6 1,430 151 226-69
Godawari Power & Ispat
Sponge Iron
7.9 0.9 88 0.0 1.3 14.0 1,254 355 372-81
Gujarat Industries Power
4.6 0.4 11 4.3 0.2 10.3 1,022 68 87-44
Hindustan Petroleum Corp

6.7 0.8 12 5.5 1.4 10.1 27,071 178 328-150
India Glycols
Organic Chemicals
10.1 0.8 27 2.2 1.0 11.6 856 278 397-175
JK Paper
Paper
4.3 0.6 85 4.5 0.8 21.3 1,507 89 141-62
Majesco
Computer Software 1.4 0.8 43 0.2 0.0 14.7 2,627 877 910-168
Mangalam Cement
Cement 9.2 0.9 43 0.5 1.0 14.1 521 194 333-117
Nava Bharat Ventures

Diversified 2.9 0.2 14 2.8 0.8 13.5 934 53 95-32
Polyplex Corporation
Plastic Films 6.2 0.7 191 2.3 0.3 17.0 2,351 750 879-288
Rail Vikas Nigam

Construction 5.5 0.7 31 6.1 0.7 14.6 3,920 19 29-10
Sandur Manganese
Minerals 5.3 0.7 113 1.1 0.5 19.1 600 668 922-295
Seshasayee Paper
Paper 5.1 0.8 62 3.1 0.0 18.1 825 131 194-80
Tata Chemicals
Soda Ash 1.2 0.6 65 3.4 0.6 57.1 8,196 321 780-197

STOCK
SCREEN
Technocraft Industries
Steel Tubes & Pipes
6.9 0.9 16 0.0 0.7 14.2 856 350 399-144
Usha Martin
Other Metal prod.
15.1 0.5 16 0.0 0.5 41.9 670 22 35-10
Welspun Corp
Steel Tubes & Pipes
5.1 0.9 28 9.5 0.3 14.9 2,891 111 234-55
Welspun Enterprises
Construction
7.5 0.7 204 2.6 0.5 11.3 1,131 76 100-33
West Coast Paper Mills
Paper
4.5 0.8 201 3.1 0.5 32.7 1,058 161 258-100
Data as on October 21, 2020. EPS growth rates are annualised. New entrants.
High dividend-yield stocks

Good dividends are not just a bonus in addition to stock returns, they also
accumulate to become sizeable in the long run
REASONS TO INVEST THE FILTERS
Cushion against volatility Market cap greater than Stocks with a current dividend 911
Higher total return `500 cr yield of more than 3%
737
Generate regular tax-free Dividend payout ratio of less Stocks with sustained per
income than 40% share dividend and amount 37
over the past five years
23
Dear dividend
Company Stock Dividend Dividend Dividend Earnings Market cap Share 52-week
Industry style P/E PEG per share (`) yield (%) pay-out ratio (%) yield (%) (` cr) price (`) high/low (`)
Andhra Sugars
Diversified 4.3 0.07 20.0 7.0 26.7 25.7 775 286 392-117
Apar Industries
Electronic Equipts.
15.3 0.69 9.5 3.3 26.9 23.8 1,087 284 570-239
Bharat Electronics
Electronic Equipts.
13.5 1.61 2.8 3.0 37.4 10.8 22,526 92 122-56
CESC
5.9 0.18 20.0 3.5 20.4 14.6 7,541 571 846-365
Cochin Shipyard
Shipping
7.8 0.30 16.6 5.0 34.6 34.2 4,337 327 492-209
Cosmo Films
Plastic Films
6.6 0.26 15.0 3.3 25.7 16.9 873 450 491-186

STOCK
SCREEN
Company Stock Dividend Dividend Dividend Earnings Market cap Share 52-week
Industry style P/E PEG per share (`) yield (%) pay-out ratio (%) yield (%) (` cr) price (`) high/low (`)
Garware Polyester
Plastic Films 8.1 0.16 10.0 4.0 28.5 21.8 588 255 282-132
Gujarat Industries Power Co

4.6 0.41 2.9 4.3 17.2 23.9 1,022 68 87-44
Gujarat Mineral Dev Corp

Coal & Lignite
5.7 -0.44 2.0 4.6 28.9 11.3 1,388 44 73-29
Housing & Urban Dev Corp

Housing Finance
4.0 0.15 3.1 9.8 36.3 10.1 6,376 32 46-18
Jain Irrigation Systems

Plastic tubes & pipes
– – 1.0 7.1 21.6 -9.5 701 14 17-3
Jindal Saw
Steel Tubes & Pipes
4.9 0.06 2.0 3.2 11.5 14.2 2,024 63 103-40
JK Paper
Paper
4.3 0.05 4.0 4.5 15.0 22.8 1,507 89 141-62
Kirloskar Oil Engines 11.6 3.26 4.0 3.8 31.2 13.6 1,533 106 189-76
Auto Ancillaries
Lumax Auto Technologies 26.1 -8.17 3.0 3.0 35.2 5.8 677 99 122-48
Auto Ancillaries
NTPC 14.1 4.97 3.2 3.8 26.9 8.7 81,432 82 125-73

PNB Gilts 1.7 0.03 3.0 7.5 29.0 7.7 721 40 49-20
Invest.Services
Redington 9.9 1.97 4.3 3.4 32.5 17.6 4,912 126 140-59
Computer Hardware
Savita Oil Technologies 11.9 0.18 20.0 3.0 29.4 16.0 929 660 1043-475
Lubricants
Seshasayee Paper 5.1 0.09 4.0 3.1 13.8 44.0 825 131 194-80
Paper
Srikalahasthi Pipes 3.6 0.51 7.0 6.2 17.4 32.5 527 113 234-96
Pig Iron
Tamil Nadu Newsprint 21.7 -0.73 6.0 5.8 31.9 9.2 714 103 199-87
Paper
West Coast Paper Mills 4.5 0.02 5.0 3.1 8.9 18.5 1,058 161 258-100
Paper
Data as on October 21, 2020. New entrants.

STOCK
SCREEN
Reasonably priced growth stocks

Growth investing is about picking companies that are fast growing their
bottom lines. But make sure that the valuations are not overheated.
REASONS TO INVEST THE FILTERS cleared the filters
All-weather style Market cap greater than

At least 20% in the trailing 12
911
Companies with strong `500 cr months YoY
fundamentals Earnings growth of:

At least 20% in latest quarter
YoY 46
Greater stability vis-a-vis
At least 20% in the past five Stocks with a P/E of less
value or growth years 19
than 15
On fast track
Company Stock 5Y median Quarterly EPS TTM EPS 5Y EPS Market cap Share 52-week
Industry style P/E P/E PEG growth (%) growth (%) growth (%) (` cr) price (`) high/low (`)
Alembic
Drugs & Pharma 6.5 25.3 0.21 141 63 26 2,481 97 123-25
Chambal Fertilisers & Chem 5.1 12.6 0.15 80 126 33 6,917 166 186-94
Nitrogenous Fertilizer.
Cosmo Films 6.6 7.0 0.26 69 68 26 873 450 491-186

Plastic Films
Dalmia Bharat Sugar 4.0 5.3 0.02 131 55 165 1,052 130 156-40
Sugar
E.I.D. Parry 9.6 14.9 0.18 206 64 79 5,043 283 325-102

Sugar
Ester Industries 9.1 10.2 0.12 23 120 74 951 114 114-22

Plastic Packaging goods
Eveready Industries 5.0 26.9 0.17 262 439 30 982 136 158-40
Dry Cells
Fertilisers & Chem Trav 3.3 11.2 0.09 78 500 36 3,394 53 56-21
Other Fertilisers
Globus Spirits 14.7 18.1 0.30 161 246 58 905 316 342-61
Liquors
Gujarat Ambuja Exports 12.8 10.2 0.58 150 22 22 2,809 122 131-42
Other Agri.prod.
IOL Chemicals & Pharma 9.9 12.5 0.21 45 29 42 3,980 679 899-146
Drugs & Pharma
Ion Exchange 11.1 13.3 0.21 29 42 57 1,081 737 1071-502

Industrial Machinery
Majesco 1.4 64.1 0.00 11,992 3,668 43 2,627 877 910-168

Computer Software

STOCK
SCREEN
Company Stock 5Y median Quarterly EPS TTM EPS 5Y EPS Market cap Share 52-week
Industry style P/E P/E PEG growth (%) growth (%) growth (%) (` cr) price (`) high/low (`)
Manappuram Finance
Hire Purchase 9.0 11.4 0.22 39 55 40 14,135 167 195-74
Muthoot Finance
Misc. Fin.services 14.2 12.0 0.39 53 61 36 48,466 1,213 1406-477
PNB Gilts
Invest.Services 1.7 7.0 0.03 530 200 49 721 40 49-20
Tata Metaliks
Pig Iron 9.4 9.3 0.25 210 21 33 1,812 578 688-308
Torrent Power
Electricity Distribn.
11.6 12.6 0.56 35 34 20 14,707 306 369-232
Triveni Engineering & Ind
Diversified
4.8 7.8 0.17 156 88 30 1,848 75 88-29
Attractive blue chips

Investing in blue chips at reasonable valuations is one of the simplest
methods of wealth creation with limited pain No. of companies that
REASONS TO INVEST THE FILTERS 260

Liquidity Large and mid caps 223
Large companies in respective businesses Debt-equity ratio of less than two
175
Strong balance sheets Interest coverage ratio should be more than two
Liked by institutions Five-year average ROE of more than 20% 86
Annualised earnings growth of more than 20% over 15
the past five years
10
PEG of less than 1.5
Solid foundation Five-year average return on equity above 20% 5
Company Stock Debt-equity Interest 5Y avg 5Y EPS Market cap Share 52-week
Industry style P/E PEG ratio coverage ratio RoE (%) growth (%) (` cr) price (`) high/low (`)
Coromandel International
Other Fertilisers
16.8 0.63 0.4 6.9 21 26 21,025 713 839-414
Gujarat Gas
Indl.Gases
19.3 0.88 0.6 6.9 21 21 19,771 287 335-176
Gujarat State Petronet

6.6 0.16 0.7 7.6 30 29 10,692 190 264-146
KEC International
Power Projects
14.8 0.55 0.8 3.0 20 27 8,080 314 360-154
Petronet LNG
12.8 0.52 0.0 8.7 21 24 33,705 225 298-170

WORDS WORTH
NOW
I am very confused with the whole case [Supreme Court’s hearing on interest
moratorium]. Whether it’s lack of coordination or judicial overreach. I am running a
commercial organisation in this country. I have entered into a commercial contract
with a company. You have to honour my contract. They can have their discussions
with the government but you need to remember that I have a commercial contract in
a democratic country. And if you don’t pay me interest, how do I pay depositors? If
somebody says don’t pay the interest, then you have to compensate me. This is not the
best situation for credit discipline. Why did I release proforma NPAs, because I didn’t
want to give a misleading picture just because you tell me not to declare NPAs. I have
to give the shareholders the correct picture; if a company is an NPA, I have to say that.
Aditya Puri MD, HDFC Bank, The Economic Times, October 21, 2020
We have learned now I have always believed you have to invest in

that our people can work India when things look more challenging.
from home and be very That’s the best time to put your money to
productive. But they also work. The right sectors to invest in India now
need to connect with the include digital, e-commerce, technology,
rest of the organisation pharmaceuticals and consumer…
for the culture, sense of Uday Kotak MD & CEO, Kotak Mahindra Bank,
belonging. So, we will Financial Express, October 16, 2020
not be in a “no office”
or “no home” scenario. I
believe in a hybrid model ...We’re working towards...transformation of energy.
where people will have And we think again that the world is right and India
more flexibility and no is in the right mindset to completely, in the next few
judgement will be based decades, move away from fossil fuels to completely
on whether people choose renewable energy...We need to think in terms of
to work from home or the entire ecosystem that delivers future industries
office. The client will also and future services...So, we need as much thinking
tell us how they want us to about bricks as we have about clicks.
work… Mukesh Ambani Chairman, Reliance Industries, The Economic
Thierry Delaporte CEO & MD, Wipro, Times, October 20, 2020
Business Standard, October 14, 2020
The recession has been deep, one Covid and the fear of the
of the deepest since the Great future has created probably a
Depression. And for many developing higher savings rate—we have
countries and for the people in the people focusing on the long
poorest countries, term a little more.
it is truly a depression, Larry Fink CEO,
a catastrophic event. Blackrock Inc.,
Mint, October 15, 2020
David Malpass President,
World Bank, Mint,
October 16, 2020

www.kotakmf.com | Toll free Number : 1800 222 626 |
Kotak Balanced Advantage Fund - An open-ended dynamic asset allocation fund

It is suitable for investors who are seeking*:

Wealth-Insight - Nov 2020

Uploaded by

Copyright:

Available Formats

Wealth-Insight - Nov 2020

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Wealth-Insight - Nov 2020

Uploaded by

Copyright:

Available Formats

Subscription copy of [[email protected]]. Redistribution prohibited.

Give your investments the glitter it deserves.

To know more, contact your Mutual Fund Distributor /

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS,

• All duration savings

Subscription copy of [[email protected]]. Redistribution prohibited.

Buy it. Shut it.

Forget about it.

Research & Analysis

Editor: Dhirendra Kumar.

4 Wealth Insight November 2020

EDIT Naresh Katariya

professing of the buy-and-hold Best quotes of

Using the CIA’s questioning Does the IT rally

they should go beyond material gains to ensure Big moves

Is the role of the State in creating

November 2020 Wealth Insight 5

6\VWHPDWLF,QYHVWPHQW3ODQ 6,3IDFLOLW\LVJHQHUDOO\DYDLODEOHLQ'DLO\0RQWKO\ 4XDUWHUO\IUHTXHQF\

Subscription copy of [[email protected]]. Redistribution prohibited.

November 2020 Wealth Insight 7

Analysis for the

10K GST EWay Bills, Petrol, Cars, JCBs, TV Ads, Appliances,

Analysts have come in favor/against SEBI's Regs on Multicap

For investors looking for reasons for ongoing rally globally,

8 Wealth Insight November 2020

‘Nothing goes in one direction forever

Skepticism and pessimism Investment

There are three

12 Wealth Insight November 2020

November 2020 Wealth Insight 13

Large caps Price to earnings Net profit (` crore)

14 Wealth Insight November 2020

Mid caps Price to earnings Net profit (` crore)

November 2020 Wealth Insight 15

Small caps Price to earnings Net profit (` crore)

16 Wealth Insight November 2020

Equitas Small Finance Bank* 2.0 518 32-33 02-Nov-2020

November 2020 Wealth Insight 17

Sensex’s price to earnings

Sensex’s price to book value

18 Wealth Insight November 2020

Sensex’s dividend yield

Market cap to GDP

10Y G-sec yield vs Sensex’s earnings yield

November 2020 Wealth Insight 19

And the struggle

20 Wealth Insight November 2020

extended by a further period of three months. In that *VTWHYPZVUVMKPMMLYLU[YLJV]LY`TLJOHUPZTZ

‘Banks with the highest exposure to corporate loans’ July 2020

November 2020 Wealth Insight 21

22 Wealth Insight November 2020

Subscription copy of [[email protected]]. Redistribution prohibited.

Subscription copy of [[email protected]]. Redistribution prohibited.

November 2020 Wealth Insight 25

2003 2004 2011

26 Wealth Insight November 2020

2016 2017 2020

November 2020 Wealth Insight 27

The serial wealth creator

6\VWHPDWLF,QYHVWPHQW3ODQ 6,3IDFLOLW\LVJHQHUDOO\DYDLODEOHLQ'DLO\0RQWKO\ 4XDUWHUO\IUHTXHQF\

Bank & Branch 6DYH