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Value Research
November 2018
Volume XII, Number 5 28 COVER STORY
EDITORIAL POLICY
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Research, is not just limited to
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aim to bring independent, unbiased
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rigorous qualitative research
obtained by speaking to a wide
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wealth in the stock market. Equally
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our style. Our writing style is
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of ideas, but that should not be
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over-simplify.
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QUALITY STOCKS
this voyage together.
AVAILABLE CHEAP
Editor
Dhirendra Kumar
Associate Editor
Vibhu Vats
Special Correspondents
Kumar Shankar Roy
Data Support
Prasobh Nair
Design
Mukul Ojha, Kiran Sindhwal
25 INTERVIEW 47 STOCK ADVISOR
Production
Hira Lal
‘Investing should Better to read annual
Data source for stocks
AceEquity
be like playing test reports than Playboy
cricket’
V. Balasubramanian, Chief Portfolio
9DOXH5HVHDUFK,QGLD3YW/WG
Strategist (Equity), Mahindra Mutual Fund
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Total pages 64, including cover
4 Wealth Insight November 2018

Columns
7 22 VALUE GURU
EDIT
by DHIRENDRA
KUMAR
Optionality and
opportunity
The weak markets today provide an
option to investors
to improve their returns later
38
MAINSTREET
by SAURABH
MUKHERJEA Withstanding market volatility
The hero delusion
Considering one person to
the Warren Buffett Way
be the sole cause of events,
good or bad, is a mistake
8 MONTHLY AGENDA 44 VIS-A-VIS
Do NBFCs yield to Fulfilling the dream of a

40 the yields? home
OFFBEAT
by SANJEEV PANDIYA
10 WORDS WORTH WISDOM 51 STOCK SCREEN
Dealing with the Schloss’s investment Quality stocks available
‘crisis’
While the RBI’s response to wisdom in 16 points cheap
the recent rupee depreciation is Reasonably priced
surprising to many, it’s the
consumer behaviour that 12 MARKET COMPASS growth stocks
needs to change
Index watch Discount to book value
Big moves Attractive blue chips
42 Tracking Chirag High dividend-yield
TAKING STOCK
Setalvad stocks
by MALINI BHUPTA Give thumbs up to
Politics doesn’t downturns 62 WORDS WORTH NOW
matter’
History suggests that Indian
markets have remained unfazed 19 ANALYST’S DIARY
by the government at the
Centre, whether coalition or
Getting rid of debt
single-party Dividend stars
DISCLAIMER
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
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November 2018 Wealth Insight 5

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EDIT
Optionality and opportunity

The weak markets today provide an option to investors
to improve their returns later
DHIRENDRA KUMAR
‘Optionality’ is one of the concepts opinion and taking a call on so many diverse factors.
frequently written about by Nassim Nicholas Taleb, We could be wrong on any one of them. If we are
the great philosopher cum derivatives trader. This is wrong, then the investment may work out badly and
surely a combination of professions unique in human it’s value may decline. No matter how wonderfully
history. This combination makes Taleb uniquely skilled we are at our research, we could be wrong on
qualified to write about the philosophy behind anything. In fact, we could be wrong on many things
investing. If one wants to understand markets and and all of us often are.
investing deeply, reading his books could be one of That’s where ‘optionality’ comes in. As investors,
the best things you could do. we have to somehow make choices that limit the
Taleb derives the word ‘optionality’ from options in inevitable downside risk of equity investing, while
the financial sense, but the concept is much wider. In leaving our upside unfettered. Two of the best ways
investing, an option is defined as an instrument that of doing this are diversification and value investing.
gives the investor the right, but but not the obligation, I’m sure that didn’t come as a surprise to you but
to buy an underlying security at a predetermined price. what is actually surprising is how many investors
Of course, the the dominant use of options in India is tend to forget about this.
in speculative punting. However, properly speaking, Which is where we come to today’s situation in the
they’re something that can be used to limit the downside equity market. There are way too many investors
risk while keeping the upside potential open. who, at an intellectual level, understand and
What Taleb points at while talking about this appreciate this, but at a psychological level are unable
concept of optionality is that this is true of all to take advantage of it. The weak markets that we are
investing, as well as a lot more in life. In a way, all of seeing are nothing but an opportunity. They present
investment research is about limiting your downside to us investors not risk but optionality. If we choose
risk while enhancing the chances of making gains. In good stocks, then we are assured that we are buying
fact, this is the key difference between the speculator them at a relatively good value. That puts a cushion
and the real investor. Take a look at the cover story of under us in case we fall, hence our cover story.
this issue, ‘25 quality stocks available cheap’. You The occasional market fall that comes to equities is
may take it to be about an opportunistic action of actually not a bad time to be somehow tolerated while
taking advantage of the market crash and definitely, we wait for the good time. This is the good time. This
it’s that, but there’s more, too. is actually the time when you will make your gains
However, there’s a deeper theme to this. When we while later you will simply encash them. As you read
invest in equity, there are so many variables which our cover story, don’t forget this even for a moment.
we have to consider – the company, the business, the
management, the technology, the industry, the
economy, the market and so much else. Deciding that
an investment is worthwhile involves having an

MONTHLY
AGENDA
Do NBFCs yield to the yields?

Here are some historical graphs that show the movement of NBFCs with
10-year government-bond yields, along with their correlation
T
he latest round of market mayhem
can be attributed to non-banking
finance companies (NBFCs), which
had proved to be wealth creators in the
last two-three years. The reason for their
fall are two-fold: the default by IL&FS
group companies and a tightening
liquidity scenario, which has caused the
yields to increase.
Because the margins of NBFCs are
dependent on the interest rates in the
economy, we wanted to see how NBFC
stocks have moved with the yields on
the 10-year government bonds. The
graphs below suggest that while the
correlation between stock prices and
yields is negative, it isn’t strong. WI
10Y government-bond yield Left axis: Index level/stock price. Right axis: 10Y bond yield
Financial Services Index

15000 10
12000 8
9000 6
6000 4
Correlation
-0.20
3000 2
0 0
October 2008 October 2018
Bajaj Finance Can Fin Homes

3500 9.5 750 9.5
2800 8.5 600 8.5
2100 7.5 450 7.5
1400 Correlation 6.5 300 Correlation 6.5
700 -0.34 5.5 150

-0.50 5.5
0 4.5 0 4.5
October 2008 October 2018 October 2008 October 2018

MONTHLY
AGENDA
Dewan Housing Finance GIC Housing Finance

750 9.5 750 9.5
600 8.5 600 8.5
450 7.5 450 7.5

Correlation Correlation
300
150
-0.29 6.5
5.5
300
150
-0.42 6.5
5.5
0 4.5 0 4.5
Gruh Finance HDFC

400 9.5 2500 9.5
320 8.5 2000 8.5
240 7.5 1500 Correlation 7.5
-0.21
Correlation
-0.26
160 6.5 1000 6.5
80 5.5 500 5.5
0 4.5 0 4.5
Indiabulls Housing Finance LIC Housing Finance

1500 9.5 400 9.5
1200 8.5 340 8.5
900 Correlation 7.5 280 7.5

Correlation
600
-0.69 6.5 220
-0.32 6.5
300 5.5 160 5.5
0 4.5 100 4.5

July 2013 October 2018 October 2008 October 2018
PNB Housing Finance Repco Home Finance

1800 9.5 400 9.5
1500 8.5 340 8.5
1200 7.5 280 7.5
900 6.5 220 6.5

Correlation Correlation
-0.02 -0.65
600 5.5 160 5.5
300 4.5 100 4.5

November 2016 October 2018 April 2013 October 2018

WORDS WORTH
WISDOM
Schloss’s 1 Price is the most important factor to

use in relation to value.
investment
wisdom in 2 Try to establish the value of the
company. Remember that a share
of stock represents a part of a busi-
ness and is not just a piece of paper.
16 points
Walter J. Schloss was a legendary
3 Use book value as a starting point
to try and establish the value of the
enterprise. Be sure that debt does not
value investor and disciple of equal 100% of the equity (capital and
Benjamin Graham. Warren Buffett surplus for the common stock).
called him a ‘superinvestor’.
Schloss encapsulated his
investment methodology in 16 4 Have patience. Stocks don’t go up
immediately.
points. Here they are.
5 Don’t buy on tips or for a quick
move. Let the professionals do that,
if they can. Don’t sell on bad news.
6 Don’t be afraid to be
a loner but be sure
that you are correct in
your judgment. You
can’t be 100% certain
but try to look for
weaknesses in your
thinking. Buy on a
scale and sell on a
scale up.
10 Wealth Insight August 2018

WORDS WORTH
WISDOM
7 Have the courage of your convictions

once you have made a decision. 12 Listen to suggestions from peo-
ple you respect. This doesn’t
mean you have to accept them.
Remember, it’s your money and gener-
8 Have a philosophy of
investment and try
to follow it.
ally it is harder to keep money than to
make it. Once you lose a lot of money,
it is hard to make it back.
9 Don’t be in too much of a hurry to

sell. If the stock reaches a price that
you think is a fair one, then you can sell
13 Try not to let your emotions
affect your judgment. Fear and
greed are probably the worst emotions
but often because a stock goes up say to have in connection with the pur-
50%, people say sell it and button up chase and sale of stocks.
your profit. Before selling, try to reevalu-
ate the company again and see where
the stock sells in relation to its book
value. Be aware of the level of the stock 14 Remember the word ‘compound-
ing’. For example, if you can
make 12% a year and reinvest the
market. Are yields low and P/E ratios
high? Is the stock market historically money back, you will double your
high? Are people very optimistic, etc.? money in six years, taxes excluded.
Remember the rule of 72. Your rate of
10 When buying a stock, I find it return into 72 will tell you the number
helpful to buy near the low of the of years to double your money.
past few years. A stock may go as high
as 125 and then decline to 60 and you
think it’s attractive. Three years before
the stock sold at 20 which shows that
there is some vulnerability in it.
15 Prefer stocks over
bonds. Bonds will
limit your gains and
11 Try to buy assets at a discount
rather than buying earnings.
Earnings can change dramatically in a
inflation will reduce
your purchasing power.
short time. Usually assets change
16
slowly. One has to know much more Be careful of leverage. It can go
about a company if one buys earnings. against you.

MARKET
C MPASS INDEX WATCH
Nifty Financial Services

35.5
Price to earnings
3.4
Price to book
0.75
Dividend yield (%)
21.4Market cap
(` lakh cr)
Nifty Financial Services Nifty Median

Top gainers/losers
Nifty Financial Services has outperformed Nifty 50 over five years.
Company name M-cap (` cr) 1Y change (%)
12000
ICICI Bank 2,05,239 18.4
10400
Bajaj Finance 1,30,971 16.1
8800 Axis Bank 1,51,421 14.7
7200 Bajaj Finserv 94,761 11.6
5600 HDFC Bank 5,34,278 9.1

State Bank of India 2,48,193 8.4
4000
Oct ’13 Oct ’14 Oct ’15 Oct ’16 Oct ’17 Oct ’18 Kotak Mahindra Bank 2,16,998 7.9
Bharat Financial 14,279 3.8
Price/earnings is at 68.6% premium to its five-year median of 21.1
Shriram Transport 24,536 0.1
42
HDFC 2,98,612 -0.3
36
M&M Financial 25,088 -4.0
30 Bajaj Holdings 28,953 -10.0
24 ICICI Pru Life Insurance 47,725 -18.4
18 Indiabulls Housing 41,750 -23.7

IIFL Holdings 14,931 -26.3
12
Oct ’13 Oct ’14 Oct ’15 Oct ’16 Oct ’17 Oct ’18 REC 20,579 -31.7
-36.2
Price/book value is at 9.9% premium to its five-year median of 3.1 Max Financial Services 10,157
4.20 Power Finance Corp 20,487 -37.1

Edelweiss Financial 15,269 -40.6
3.70
3.20
2.70 Valuations
2.20 Company P/B Company P/B
Axis Bank 2.4 IIFL Holdings 2.8
1.70
Oct ’13 Oct ’14 Oct ’15 Oct ’16 Oct ’17 Oct ’18 Bajaj Finance 7.5 Indiabulls Housing 2.9
Bajaj Finserv 4.2 Kotak Mahindra 4.2
Dividend yield is 29 basis points lower than the five-year median of 1.04%.
Bajaj Holdings 1.3 M&M Financial 2.6
1.95
Bharat Financial 4.7 Max Financial 5.0
1.60 Edelweiss Financial 2.2 Power Finance Corp 0.5
1.25 HDFC Bank 4.6 REC 0.6

HDFC 4.4 Shriram Transport 1.9
0.90
ICICI Bank 2.0 State Bank of India 1.2
0.55 ICICI Pru Life 7.2
0.20
Oct ’13 Oct ’14 Oct ’15 Oct ’16 Oct ’17 Oct ’18 Data as on October 10, 2018

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

3M returns (%) 3Y avg RoE (%) 3Y earnings growth (%) 3M price (`) movement
-12.1 9 4,463
Piramal Enterprises
The company converted its debentures into 85,280
shares, which led to equity dilution. 12.3 344 2457
2159
-12.1 46 2,878
Bajaj Finance
Concerns over liquidity crunch have led to fears of
slowdown in loan growth. 21.1 44 2347
2062
-12.8 45 1,688
Bandhan Bank
The RBI restricted the bank from opening new
branches without its approval. 20.8 – 556
485
-18.3 10 4,091
Indiabulls Housing Finance
The stock fell amidst a sector-wide correction.
27.5 27 1156
944
-20.2 41 1,813
Godrej Consumer Products
The company sold entire stake in its UK business to
focus on emerging markets. 25.0 25 839
669
-22.2 5 23,629
Indian Oil Corp.
The government asked oil marketers to take hit of `1
on oil prices. 18.8 36 157
122
-31.7 6 9,468
BPCL
376
The government asked oil marketers to take hit of `1
on oil prices. 28.4 15 257
-32.6 14 2,115
Tata Motors
Jaguar Land Rover reported 12.3 per cent decline in
11.4 -47
273
sales in September 2018 YoY.
184
-33.0 20 1,459
Interglobe Aviation
1081
Continuous rise in crude-oil prices is a concern for the
company. 74.3
724
-38.1 12 4,519
Yes Bank
362
The RBI rejected Yes Bank’s plea for the extension of
Rana Kapoor’s term by three years. 18.8 29
224
Our large-cap universe has 91 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 9, 2018

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

45.0 – -2,461
Adani Power
Gujarat government has approached the Supreme Court to
provide relief to power companies. -72.4 -217.6 17
24
-17.7 83 360
Indiabulls Ventures
Having seen a big rally, the stock has corrected in the
ongoing downturn. 23.3 36.3
479 395
-32.6 15 1,110
IIFL Holdings
Concerns over tightening liquidity have hit NBFC
stocks. 21.6 30.6 670
451
-34.0 11 891
JM Financial
stocks. 20.1 30.6 120
79
-36.9
55
Vodafone Idea – -3,397
Intense competition from Reliance Jio has led to huge losses
and a dip in the company’s operating margins. 7.6 -201.7
34
-36.9 19 512
235
Reliance Nippon Life Asset Management
The reduction in the expense ratio by SEBI is negative
for asset-management companies. 23.9 13.8
148
-38.2 5 1,224
Reliance Capital 383
Being the holding company of Reliance AMC, it may
be affected by a reduction in expense ratio. 8.9 3.7
237
292
-49.0 16 917
Edelweiss Financial Services
stocks. 13.1 42.4
149
68
-55.4 – -6,050
Central Bank of India
The bank’s Q1 loss grew to `1,522 crore against `577
crore last year. -20.2 -313.9
30
-60.9
622
DHFL 7 1,347
The selling of DHFL’s commercial paper by DSP Mutual Fund at
higher yields has raised concerns about company’s bonds. 24.0 27.7
243
Our mid-cap universe has 220 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.

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

92.7 634 4
Atlas Jewellery India
The company reported a profit of `6.6 crore in
comparison to loss of `1.7 crore in Q1. -4.1 9.7 284
147
83.9 18 53
Sadhana Nitro Chem
The company reported a 3,620 per cent rise in Q1 profits
YoY. 41.1 124.1 1020
555
69.0 77 15
SORIL Infra Resources
The company approved a preferential issue of `550
crore to promoter and non-promoter entity. 21.3 1.5 240
405
-39.6 7 526
54
Vakrangee
Ministry of Corporate Affairs is investigating the company’s last
three years’ financial statements. 30.0 16.5 33
455
-55.7 7 68
Shreyas Shipping & Logistics
The company reported a 68 per cent drop in profits in
Q1 YoY. 26.9 -9.8
202
444
-59.5 7 59
Ashapura Intimates Fashion
The company’s chairman and managing director
Harshad Thakkar has gone missing. 26.4 76.9
180
-60.8 – -9
Infibeam Avenues
The company allegedly gave interest-free loan to one
of its subsidiaries which is already in a debt trap. 4.6 106.8 150
59
16
-61.8 – -698
Jai Prakash Associates
The Supreme Court barred the company from bidding
for Jaypee Infratech, which is facing insolvency. -50.3 16.4
6
382
-63.0 49 8
8K Miles Software Services
The company’s broker fraudulently sold promoters’
shares worth 8.42 per cent of the total equity. 36.6 117.0
142
282
-70.6 28 27
Optiemus Infracom
The stock fell amidst a correction in small caps.
6.5 -4.9
83
Our small-cap universe (minimum market capitalisation `500 crore) has 653 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 9, 2018

MARKET
C MPASS
Tracking Chirag Setalvad

By tracking influential investors, you can get some idea about where to invest
now. Here are the stock moves that Chirag Setalvad has made in his funds.
Increasing Decreasing
conviction conviction
Top 10 companies where Top 10 companies where
his investments as per cent his investments as per cent
of equity have gone up in of equity have gone down in
the last six months the last six months
Increase (% Decrease (%
of eq) of eq)
Amount Amount
invested (` cr) invested (` cr)
Tamil Nadu 5.36 Capital First

-2.84
Newsprint
104 -161
Shaily 5.15 Dhanuka -1.02
Engineering Agritech
57 -27
Mahindra 4.84 Blue Star
-0.90
Holidays
208 -67
Mcleod Russel
4.77 DB Corporation
-0.82
Chirag Setalvad is Senior Fund Manager at HDFC Mutual
Fund. He manages over `50,000 crore across seven 72 -49
funds: Children’s Gift Fund, Hybrid Equity Fund, Long Term
Advantage Fund, Mid-Cap Opportunities Fund, Multi Asset TI Financial 4.64 VIP Industries
-0.82
Fund, Retirement Savings Fund (includes three plans: Holdings
Equity, Hybrid Equity and Hybrid Debt) and Small Cap Fund. 139 -37
The equity-oriented funds managed by him have given
annualised returns ranging from 15 to 22 per cent.
SKF India
4.11 Hindustan
Construction
-0.70
370 Co. -9
New entrants
7RSFRPSDQLHVLQZKLFKKHKDVLQYHVWHGIRUWKHÀUVWWLPHRYHUWKH Advanced 3.89 KNR -0.62
last six months Enzyme Constructions
281
Amount invested (` crore) 102 -29
% of equity bought
PNC Infratech
3.63 Mahindra -0.43
80 Logistics
151 -17
128 21
26 143 36 86 21 Aarti Industries
2.96 Max India
-0.31
11
279 -8
8.17 3.61 3.20 2.06 2.05 1.85 1.00 0.89 0.87 0.78 KEC 2.96 Wockhardt
-0.23
International
264 -20
Sharda INOX Firstsource Taj GVK Kirloskar Vijaya Kaveri EIH Fine Lemon
Cropchem Leisure Solutions Hotels & Ferrous Bank Seed Organic Tree
Resorts Inds. Company Industries Hotels

MARKET
C MPASS
Top holdings by per cent of equity

His top 10 holdings in terms of per cent of equity
% of equity Held since Amount invested (` cr)

Greenlam Industries 9.1 Mar-15 225
SKF India 9.0 May-09 828
Redington India 9.0 Mar-15 378
Carborundum Universal 9.0 Apr-07 630
VST Industries 8.9 May-09 452
Vesuvius India 8.9 Apr-07 214
Oriental Carbon & Chem 8.9 Aug-15 100
Jagran Prakashan 8.8 Jul-07 329
Navneet Education 8.5 Sep-12 271
Shaily Engg Plastics 8.4 Dec-17 81
Stake build-up
Companies in which he has raised his stake since 2007
Top holdings by amount invested Net Current
His top 10 holdings in terms of absolute investment Total Buy Sell value stake
Company transactions count count (` cr) Buy % (% of equity)
Amount invested ` cr Held since Current stake (% of eq)
Indian Hotels 24 24 0 652 100.0 4.4
HDFC Bank 1,878 Jan-08 0.3
SKF India 34 31 3 620 91.2 9.0
Infosys 1,215 Apr-07 0.4 Punjab National Bank 47 37 10 774 78.7 0.7
Balkrishna Industries 1,212 Apr-07 4.6 Federal Bank 53 41 12 708 77.4 3.5
Voltas 1,063 Apr-08 5.2 Aurobindo Pharma 83 60 23 653 72.3 1.9
HDFC 1,028 May-08 0.3 Bank Of Baroda 64 44 20 1,143 68.8 0.9
ICICI Bank 1,019 Apr-07 0.5 HDFC Bank 94 63 31 1,773 67.0 0.3
Balkrishna Industries 27 18 9 1,105 66.7 4.6
Sundram Fasteners 959 Apr-07 6.9
Axis Bank 82 54 28 788 65.9 0.3
Aarti Industries 901 Aug-14 8.1
Tata Chemicals 23 15 8 526 65.2 2.7
ITC 883 Apr-07 0.2 Bharat Electronics 45 28 17 1,507 62.2 1.0
Larsen & Toubro 857 Apr-07 0.4 Larsen & Toubro 77 47 30 838 61.0 0.4
KEC International 38 23 15 592 60.5 6.6
Complete exits HDFC 55 33 22 983 60.0 0.3
Top 10 exits in terms of per cent of equity over the last one year
Stake cut-off
Lakshmi Machine Works 3.56 Companies in which he has reduced his stake since 2007
Max India 0.90 Net Current
Total Buy Sell value stake
VIP Industries 0.82 Company transactions count count (` cr) Sell % (% of equity)
Colgate-Palmolive 23 6 17 -26 73.9 0.0
Hindustan Const Co. 0.70
LIC Housing Finance 19 7.0 12.0 -42 63.2 0.0
Solara Active Pharma 0.70
Emami 43 16 27 -75 62.8 0.0
Power Finance Corpn. 0.65 Havells India 16 6.0 10.0 -71 62.5 0.0
Adani Ports 0.47 Pidilite Industries 45 17 28 -121 62.2 0.0
TTK Prestige 33 13 20 -43 60.6 0.0
Mahindra Logistics 0.43
Tata Consultancy Services 65 26 39 -37 60.0 0.0
Oracle Fin Ser Soft 0.40
Hindustan Unilever 20 8.0 12.0 -46 60.0 0.0
Capacite Infraprojects 0.37 All six-month and one-year data as of August 2018

MARKET
C MPASS
Give thumbs up to downturns

By investing during market downturns, you not only earn more returns but
also reduce the risk of losses over the long term
A The magic of bear markets

mong many things that are curious about the
stock market is investor behaviour in bull and
Value of `1 lakh
bear markets. Investors invest more in bull
5Y 10Y
markets, when stock prices have already raced, and
cut down on investing in bear markets, when stock If purchased after market corrected by more than 15% `1,82,608 `4,71,373
prices are down and hence stocks are trading at a
If purchased after market rose by more than 15% `1,58,516 `3,37,665
bargain. It’s not that investors don’t know this fact.
In fact, it’s an oft-repeated investment cliche. Yet by Absolute difference 15% 40%
some quirk, investor behaviour tends to be just
opposite of what it should be. Does this mean that in order to invest you should
The graphs below show risk and returns across always wait for the market to correct? No, because
various time frames in various market scenarios. you don’t know when the correction might happen. In
Maximum returns at the least probability of loss are a secular bull run, you can miss out on the
obtained when the market has corrected. This shows opportunity if you wait for a deep correction. The
that investing in market downturns has indeed proved right method is to continue investing through all
more profitable over the long term, that too at lower phases. As the numbers show, over the long term,
risk. In fact, over 10 years, the probability of negative even if you invest at higher levels, you earn decent
returns is almost zero if you invest during a correction. returns. However, don’t make the mistake of
The ongoing downturn is yet another opportunity to discontinuing investing if the market corrects. That’s
improve your returns. It’s not the time to run away when you will make most returns. WI
from the market but to continue investing.
Sensex returns across market phases

Median (%, CAGR)
1Y 3Y 5Y 10Y
If purchased at any point of time 13.4 10.3 10.7 14.7
If purchased after market corrected by more than 10% 18.6 15.7 12.2 16.8
If purchased after market rose by more than 10% 11.8 7.9 9.7 13.2
Probability of loss across market phases

Probability of loss (%)
1Y 3Y 5Y 10Y
If purchased at any point of time 29.9 13.2 10.2 2.4
Sensex returns taken since 1980

ANALYST’S
DIARY
Getting rid of debt

Decreasing debt means improving profitability and stability
D
ebt is a curious financial instrument. If used Having realised this, many companies proactively
well, it can give boost to a company’s bring down their debt levels. Lower debt means less
profitability. If misused (intentionally or interest outgo and hence better profitability.
unintentionally), it comes back to haunt the The table mentions some companies that have
promoters and investors. History is full of cut their debt and increased their interest-
examples when debt has gone out of control coverage ratios in at least four of the last
and companies have gone bust when they five years. It also means that the
failed to meet their debt obligations. company’s operations are becoming
Aggressive managements justify strong enough to fund its growth and
taking enormous debt for acquisitions expansion.
and expansion. But the high rate of The Z-Score measures the
failure of acquisitions suggests that probability of going bankrupt. It
such they fail to create shareholder should be above three for a company to
value in the long run. But the high debt be called ‘safe’. As one can see, the
taken drags down the acquiring company companies in the table have high Z-scores,
for many years to come. Overall, it appears that which indicates that decreasing debt has also
debt creates more problems than it solves. contributed towards their stability. WI
Cutting debt
Market Total debt (` cr) Debt to Interest
Company name Sector cap (` cr) 2018 2017 2016 2015 2014 equity Z-Score cover (x)
United Breweries Alcohol 31,057 312 594 806 836 1,232 0.1 15.4 13.8
0,QGLD 'LYHUVLÀHG
Balkrishna Industries Auto Ancillaries 20,348 867 1,391 1,898 2,358 2,439 0.2 9.7 76.3
Relaxo Footwears FMCG 8,182 153 178 236 239 198 0.2 14.2 29.4
Sheela Foam FMCG 7,806 48 59 115 146 188 0.1 15.0 23.3
Finolex Cables Electricals 7,136 1 1 51 127 147 0.0 17.1 332.1
KPR Mill Textile 4,597 648 779 883 824 962 0.4 5.8 8.7
Galaxy Surfactants FMCG 4,193 348 393 410 451 417 0.5 6.8 8.2
Suven Life Sciences Healthcare 3,286 28 71 83 109 91 0.0 11.5 43.3
Dixon Technologies Consumer Durables 2,745 45 47 77 80 94 0.1 6.3 7.6
Shriram Pistons Capital Goods 2,600 179 226 289 310 381 0.2 5.5 13.8
Nocil Chemicals 2,402 5 15 32 150 154 0.0 8.2 209.8
VRL Logistics Logistics 2,388 81 185 262 443 505 0.1 12.9 12.6
Nilkamal Plastic Products 2,369 93 83 105 209 324 0.1 7.5 12.6
Ahluwalia Contracts Realty 1,976 30 90 142 173 239 0.0 7.6 8.0
Ramco Industries Construction Materials 1,626 213 336 363 413 408 0.1 4.2 6.2
Seshasayee Paper Paper 1,342 149 171 302 329 389 0.2 3.7 13.2
6XU\D5RVKQL 'LYHUVLÀHG
Grauer & Weil Chemicals 1,149 7 20 27 68 97 0.0 7.9 36.5
Action Construction Capital Goods 1,078 78 114 124 138 150 0.2 5.6 6.5
HBL Power Systems Auto Ancillaries 776 366 479 549 686 734 0.5 3.1 2.3
Century Enka Textile 563 47 53 70 152 195 0.1 4.6 33.1
Deccan Cements Construction Materials 529 36 70 79 191 239 0.1 4.2 11.4

ANALYST’S
DIARY
Dividend stars
Here are some companies that have paid increasingly higher dividends in the
last five years
D
ividends have their own aura. While capital increasing with time. As the profits of a company
appreciation in stocks is what most investors rise, it should also distribute more to its
crave for, nobody minds good dividends. shareholders. Stagnant dividends don’t contribute
Frequently, you will find someone who has held onto a meaningfully to wealth creation.
stock for many years and now the dividends alone are The table below mentions some dividend stars –
more than the invested capital! Some investors believe companies whose dividends per share and dividend-
that dividends are the only ‘real’ income from owning payout ratios have gone up in at least four of the last
stocks as capital appreciation is not in their hand. five years. The dividend-payout ratio tells us the per
But for dividends to turn magical, they should be cent of profits distributed as dividends. WI
Shining bright
Market Dividend/share (`) Latest dividend Dividend
Company name Sector cap (` cr) 2018 2017 2016 2015 2014 payout ratio (%) yield (%) Z-Score
Balmer Lawrie Inv. Finance 872 24.0 17.0 12.5 12.5 12.0 99.3 6.1 -
Sonata Software IT 3,393 10.5 9.0 9.0 7.0 3.8 56.6 3.3 12.2
Reliance Infrastructure Power 8,638 9.5 9.5 8.5 8.0 7.5 18.7 2.9 0.2
Hindustan Zinc Non - Ferrous Metals 1,17,358 8.0 29.4 27.8 4.4 3.5 36.4 2.9 13.6
Redington Trading 3,536 2.4 4.3 2.1 1.9 0.9 19.9 2.7 4.0
Trident Textile 2,940 1.5 1.5 0.9 0.6 0.3 28.3 2.6 2.0
'&06KULUDP 'LYHUVLÀHG
Control Print Consumer Durables 563 6.5 6.0 6.0 4.0 2.5 33.9 1.9 17.8
Skipper Capital Goods 963 1.7 1.6 1.4 1.3 0.2 14.4 1.8 3.0
CRISIL* Ratings 11,764 28.0 27.0 23.0 20.0 19.0 65.9 1.7 34.6
NBCC Realty 9,639 0.8 0.8 1.0 0.6 0.5 42.4 1.6 2.2
Godrej Consumer FMCG 73,131 15.0 15.0 5.8 5.5 5.3 62.5 1.4 8.4
Jamna Auto Auto Ancillaries 2,853 0.9 0.7 0.6 0.2 0.1 27.0 1.2 8.9
Grauer & Weil Chemicals 1,149 0.6 0.4 0.3 0.2 0.2 21.3 1.2 7.5
APL Apollo Tubes Iron & Steel 2,960 14.0 12.0 10.0 6.0 5.0 21.0 1.1 4.7
Maruti Suzuki Auto Ancillaries 2,20,006 80.0 75.0 35.0 25.0 12.0 30.7 1.1 10.4
Granules India Healthcare 2,341 1.0 0.9 0.7 0.5 0.4 19.1 1.1 2.8
Alicon Castalloy Auto Ancillaries 835 6.3 4.3 3.8 3.0 2.5 21.6 1.0 3.2
Igarashi Motors Capital Goods 2,021 6.0 6.6 5.5 4.4 3.0 27.7 0.9 13.3
Sundaram Finance Finance 15,075 12.0 11.5 11.0 10.5 10.0 18.7 0.9 -
Voltas Consumer Durables 16,854 4.0 3.5 2.6 2.3 1.9 23.1 0.8 5.3
Lakshmi Machine Works Textile 6,324 40.0 35.0 40.0 37.5 30.0 20.4 0.7 5.5
Gujarat Gas Trading 8,473 4.0 3.0 2.5 5.0 2.1 18.8 0.6 2.6
Berger Paints Chemicals 27,611 1.8 1.8 1.7 1.3 1.1 37.9 0.6 8.6
Solar Industries Chemicals 9,143 6.0 5.0 4.5 3.4 2.4 24.6 0.6 9.2
Dollar Industries Textile 1,570 1.6 1.0 0.3 0.0 0.3 14.3 0.6 5.7
Dr. Lal Pathlabs Healthcare 8,037 4.5 3.0 2.5 1.5 1.1 22.0 0.5 75.0
6FKDHIÁHU,QGLD $XWR$QFLOODULHV
Advanced Enzyme Healthcare 2,150 0.5 0.4 0.2 0.1 0.1 6.2 0.3 11.0
Data as on October 12, 2018. *Dividend data for 2017 to 2012. For explanation of the Z-Score, see the ‘Stock Screen’ section.

VALUE GURU

VALUE GURU
Withstanding market
volatility the Warren
Buffett Way
Warren Buffett explains why market volatility is
good for long-term investors
T
he market has caused a lot of you were and how you and GM
heart pain in the recent days. have this love affair. You have got
Many emerging large caps all these feelings. The stock doesn’t
have once again become mid caps know you own it. The stock just
and many mid caps have turned sits there; it doesn’t care what you
into small caps. In these tough paid or the fact that you own it.”
days, it pays to heed the advice of
the world’s best investor. Read Why you should root for a lower
about how Buffett thinks of market?
markets and what he does in The fall in markets in the recent
volatile times. days has caused many heartburns.
While it may have caused a dent in
The stock doesn’t know you your portfolio, think about how
own it prices have come down for many
How often is it that a stock nose- stocks. This is not to say that cur-
dives just after you have bought it rent prices are close to the fair
or the markets start falling right value of stocks but that the frothy
after you buy a large position in a enthusiasm has been cut out. Many
stock? This is the reality of invest- IPOs, for instance, that saw their
ing. Stocks will go down after you stocks being oversubscribed many
purchase them and up after you times over are now available much
sell. The trick is not to get too both- cheaper absent the enthusiasm
ered about these fluctuations, rath- around them. Many good-quality
er accept them as inevitable. mid caps are now available reason-
Says Buffett, “I have no idea ably cheaper today than they were
where the market is going to go. I in a long time.
prefer it going down. But my pref- Here’s Buffett explaining why
erences have nothing to do with it. you should root for a lower market.
The market knows nothing about “Practically anybody in this room
my feelings. That is one of the first is probably more likely to be a net
things you have to learn about a buyer of stocks over the next ten
stock. You buy 100 shares of years than they are a net seller, so
General Motors (GM). Now all of a everyone of you should prefer
sudden you have this feeling about lower prices. If you are a net eater
GM. It goes down, you may be mad of hamburger over the next ten
at it. You may say, ‘Well, if it just years, you want hamburger to go
goes up for what I paid for it, my down unless you are a cattle pro-
life will be wonderful again’. Or if ducer. If you are going to be a
it goes up, you may say how smart buyer of Coca-Cola and you don’t

VALUE GURU
“Charlie and I spend no time thinking about where the market’s going...
There are always going to be some good and bad things happening. I’ve
seen more people lose more money by getting focused too much on one
factor. We’ve never bought something due to macroeconomic concerns.”
own Coke stock, you hope the price never will. It is not something I them the future. Long ago, kings
of Coke goes down. You are look- think about at all. When it goes would hire people to read sheep
ing for it to be on sale this weekend down, I look harder at what I might guts. There’s always been a market
at your supermarket. You want it buy that day because I know there for people who pretend to know the
to be down on the weekends not up is more likely to be some merchan- future. Listening to today’s fore-
on the weekends when you tend dise there to use my money effec- casters is just as crazy as when the
the supermarket. tively in.” king hired the guy to look at the
The NYSE is one big supermar- sheep guts. It happens over and
ket of companies. And if you are You should not look for market over and over.”
going to be buying stocks, what forecasts
you want to have happen? You Many investors search for the What you should do then?
want to have those stocks go down, trend of the markets before buying Heed Buffett’s advice on market
way down; you will make better or selling stocks. There are many movements, “Charlie and I haven’t
buys then. Later on twenty or thir- ‘television gurus’ that profess to the faintest idea where it goes next
ty years from now when you are in tell where the markets are likely to week, next month or next year. We
a period when you are dis-saving, head. In reality, no market expert are not in that business. It isn’t our
or when your heirs dis-save for ever knows in which direction the game. We see thousands of compa-
you, then you may care about high- markets will move. You would do nies priced every day. We ignore
er prices.” much better if you ignore what 99% of what we see. Every now and
these experts say. then, we find an attractive price for
Where does this come from? Here’s Buffett on these market a business. When we buy it, we
Buffett’s deep-rooted desire for a experts. “People have always had would be happy if the market was
lower market is a lesson he learnt this craving to have someone tell closed for a few years; you wouldn’t
early in his career, picking it up get a price quote daily if you owned
from his teacher Benjamin a farm. We look at expected yield,
Graham. Here he’s talking about cost of taxes. If you buy a farm, you
what converted him to root for would look at the cost of fertilizers,
lower stock prices. “There is what a farm produces relative to
Chapter 8 in Graham’s Intelligent the purchase price, price per acre,
Investor about the attitude toward production per acre, etc. We make
stock market fluctuations, that and judgements.”
Chapter 20 on the Margin of Safety
are the two most important essays The last word
ever written on investing as far as Buffett says, “Charlie and I spend
I am concerned. Because when I no time thinking about where the
read Chapter 8 when I was 19, I fig- market’s going. We do know when
ured out what I just said was obvi- we’re getting good value [when
ous, but I didn’t figure it out we’re buying a stock or business].
myself. It was explained to me. I There are always going to be some
probably would have gone another good and bad things happening. I’ve
100 years and still thought it was seen more people lose more money
good when my stocks were going by getting focused too much on one
up. We want things to go down, but factor. We’ve never bought some-
I have no idea what the stock mar- thing due to macroeconomic con-
ket is going to do. I never do and I cerns.” WI

V. BALASUBRAMANIAN INTERVIEW
Chief Portfolio Strategist (Equity), Mahindra Mutual Fund
‘Investing should be
like playing test cricket’
From the painstakingly tough reading sessions about listed companies
in those voluminous BSE bulletins in the mid-90s to having instant
information at few pushes on his phone today, V Balasubramanian has
seen the Indian stock market evolve over the last four decades. But
his passion for stocks has only grown. As Chief Portfolio Strategist
(Equity) of Mahindra Mutual Fund, he brings to table simple, yet
profound, investing lessons, with a dash of cricket that any retail
investor can relate to.
Ask him about expensive valuations of consumer stocks and he
doesn’t mince words with the usual earnings-growth justification.
Instead, Bala talks about how Chennai Super Kings took M S Dhoni.
He was the costliest player at that time and he remains costliest. But
look at the value he has generated, much more than what they
expected, he argues. When we quiz him about long-term investing,
Bala talks about test cricket, where it makes sense to stick around for
five days. It doesn’t make sense to hit a six and get out on the next ball,
he quips. Here is his full interview with Kumar Shankar Roy.
Tell us a bit about how you came to the stock market and
portfolio management.
When I was young I had only two passions. I loved
sports and I liked mathematics and English as
subjects in school. When I turned 20-22, I got
passionate about the stock market. I didn’t know
anything about it. No one in my family knew
what the stock market was. They
understood it as a gamble. Hence, the
advice was not to get carried away
by it. But I was fascinated by
what was happening at the
stock exchanges. As my office
was close to the Madras Stock
Exchange, I used to interact
with the people there.
I started my stock-
market journey in 1984, and
ever since I have never
looked back because I am very
passionate about what I am doing.
Around 1984, there was no Internet.

Information was not freely available. So, how
did you go about doing research and analysis?

INTERVIEW
It was difficult. Even till 1995, we For me, any investment is a the movement in boring stocks is
used to go and get a BSE bulletin. long-term strategy. You invest super slow. But then the fall is
It would have 26 alphabetical money for the future. You do not also not substantial. But those are
volumes that covered historical invest money today for taking it the stocks that generate superior
financial data. The only thing you out tomorrow. If you are in test wealth on a long-term basis.
could get was that and you knew cricket, it makes sense to stick
that there is this company and around for five days. It doesn’t Do you use growth parameters to
this is the last year’s balance make sense to hit a six and get out select these boring stocks?
sheet. Beyond that, you didn’t on the next ball. Because then you It can be growth or value or at
know anything at all. There was lose five days and you have to sit times a combination of both.
no management discussion. in the dressing room and cannot
Everything was by hearsay. And do anything when others are So, you don’t look at volatility.
that time, there were some people playing. After you get out, there We look at the company. There are
who were privy to information. can be beautiful times you cannot opportunities. You try to make use
Slowly, things changed. The birth make use of. of the volatility and pick the right
of NSE totally changed the Opportunities come often, but stock at the price you want.
dimension of the market. Then then the best thing to remember Sometimes the stock can be very
there was no looking back. And in investments is that you look for good but it is very expensive. You
now we have become one of the high-quality companies based on may not be comfortable with the
most transparent markets. research. You look for growth as price. It is not just that you like a
well as value. But beyond a point stock, so you make an investment.
So your early investments were in
personal capacity.
Until 1990, it was all personal
investment. In 1990, I joined Indian
“Opportunities come often, but then the
Bank Mutual Fund and I was there best thing to remember in investments is
till 2002. After that I had the
opportunity to work in the
that you look for high-quality companies
Treasury of the bank before I based on research. You look for growth as
joined IDBI Mutual Fund. I am now
at Mahindra. The learning curve
well as value. But beyond a point value
has been steep and quite long. doesn’t make sense; it is relative. Patience
How was the learning curve in terms in good-quality stocks creates wealth.”
of the lessons that you drew from this
journey?
It’s a continuous process. Even value doesn’t make sense; it is The entry price also matters a lot.
today I am learning something. In relative. Patience in good-quality If you pay a higher price, the
the market, there are endless tricks, stocks creates wealth. waiting period becomes more.
endless happenings. The best thing Probably your assumptions come
I have learned is how to learn from Over the past 30 years, the market right but your rate of return may
mistakes. One of my strengths is has risen significantly. Will it be the not match your expectations.
that I don’t repeat my mistakes. same in the next 30-40 years?
I am confident that the market How do you assess the management?
So what are the things you do not do will grow. I never expected the When you assess the management,
while managing your investments? Sensex to be at 38,000 in 1990. In a it need not only be larger groups.
Quite a few. Don’t look at your period of 28 years, it has grown by Small caps can also have superior
investments as stock-related; look 38 times. management quality. A company
at them as portfolio-related. That that has displayed superior
is the biggest thing I have learned. You often look for boring stocks. Why? corporate governance for a long
Earlier my focus used to be on an I call a stock boring because it time is definitely worth watching.
individual stock. Now it is the doesn’t move on a day-to-day basis
overall investment approach that as you would like. The movements Is entering cyclical companies at the
matters. are not orderly. It is possible that right time also important?

INTERVIEW
Definitely, but you will have to be management of a company. So as a

spot on there. You have to be there caretaker of people’s money, how do
at the early stages of the cycle to you approach such a situation?
reap its full benefit. We just look at the management
quality. Who comes there, who is
If a stock drops by 30 pert cent in one the successor? Look at the
day, what do you do? processes, the way they structure
If the stock falls because there is a their businesses, internal
serious issue, you will have to processes, how they manage their
revisit your assumptions and your people, how they manage their
model. There can be opportunities money, how they manage
in that fall also but you have to do opportunities or a lack of them.
your homework again. The power These determine the company’s
of a good company lies in cashing success as they become the
in on the opportunities that the company’s culture.
market or economy throws. Panic
may provide you opportunities but
“If you stay close to There is a lot of performance pressure.
one should weigh that properly. If the benchmark, the How do you keep yourself cool?
the reason for the fall appears to I don’t look at other’s
be impacting only the short-term best return you can performance. As long as we are
prospects of a company, I may
look for entry point.
get is the giving more than benchmark
returns, we are competitive. If
benchmark return your underlying thesis is right,
Do you like to stay close to the
benchmark?
minus expenses. then I am sure that performance
will come. Maybe the waiting
Staying close to the benchmark This is as good as period will be more but the
will at best give you benchmark- returns eventually arrive.
like returns. There are chances it investing in an ETF
may not give you those also. or an index fund.” In terms of portfolio construction, how
If you stay close to the do you decide on stock weights?
benchmark, the best return you can Weight is the biggest
get is the benchmark return minus much more than what they had differentiator in terms of return.
expenses. This is as good as expected. Generally, I do not have a
investing in an ETF or an index Quality is always pricey. If the structure that a few stocks are
fund. So there is no point in fundamentals are good and if the given very high weights. I try to
tracking a benchmark. We do look company has a good corporate- avoid huge differences in weights
at the benchmark very closely; it’s governance history, one may have among stocks.
not that we ignore it. But the skill to pay a slightly higher price for
lies in beating the benchmark. The that. Quality companies generally Do you monitor portfolio on a day-to-
focus should be on how to beat the fare well in a falling market day basis?
market. If the benchmark indices because of their ability to show Yes, we do monitor our portfolios
have 200 stocks, then you cannot superior financial performance in daily. There will always be cases
buy all 200 stocks. So at no point I tough times also. Historically, of imbalances because the market
limit myself to the benchmark. these companies have always is so dynamic. But then we are not
traded at a premium. in a hurry. We try to correct when
What is your view on the expensive the flows happen.
valuations of consumption-related When you analyse such a stock, do
stocks? you ascribe a price for the During bullish periods, when so much
Let me give you an example. Look management? money is coming in, doesn’t it get
at the way Chennai Super Kings Definitely. You fix a price for the scary? Doesn’t it cause an imbalance?
took Dhoni. He was the costliest quality of the management. Yes, it may cause an imbalance. The
player at that time and he still allocation approach will be
remains costliest. But look at the Sometimes there is a tussle between different during these times. We
value he has generated, which is the promoters and the executive should be ready for such phases. WI

COVER STORY
QUALITY STOCKS
AVAILABLE CHEAP

COVER STORY
A
fter years of going just up, the market’s crash landing this
year has caused much pain for investors. The fall has been so
broad-based that there have been few hiding places. The Nifty
500 index is down close to 10 per cent. The fall in mid caps and
small caps has been more pronounced. The Nifty Midcap Index is
down 23 per cent while the Smallcap index is down 35 per cent.
The good news is that when markets go down and stocks become
cheaper, you get more bang for your buck. If you go about buying
in the market today, you are likely to find more stocks for your
investable amount. Lower markets also throw up many high-
quality stocks that become more rationally valued than they were
in a long time.
In this issue of Wealth Insight, we present a list of quality stocks
that are available cheap today. In order to arrive at this list, we
searched for companies that have lost at least 20 per cent of their
market value since the Budget and among them, stocks that are
trading lower than their five-year median P/E ratios.
Other filters that we applied include the following:
z Net profit should have increased by at least 8 per cent annually
in the last five years, in line with the rate of inflation (of 8 per
cent).
z Profits in each of the last five years
z Return on equity of at least 15 per cent in four out of five years
z Current P/E should be lower than the five-year median P/E
z Z-Score more than three, F-Score equal to or more than six and
C-Score less than four (for non-banking financial companies,
Z-Score, F-Score and C-Score are not applicable)
The table on the next page lists the stocks that cleared these
filters. The following pages feature select stocks from the ones that
cleared the filters. Please note that the stocks mentioned in this
cover story aren’t our recommendations. Research them
thoroughly before investing in them.

COVER STORY
Opportunities amidst the fall

Market cap 5Y profit growth 5Y median 5Y median Ret. since 5Y
Company name Sector (` cr) (%, CAGR) ROE (%) TTM P/E P/E Z-Score F-Score C-Score Budget (%) CAGR (%)
Adani Ports Logistics 65,225 18.4 23.5 18.1 21.4 6.5 7 1 -26.8 15.8
Avanti Feeds FMCG 5,079 72.8 46.4 13.2 17.3 13.6 7 3 -49.5 95.9
Bharat Forge Auto Ancillaries 25,817 20.2 18.9 33.7 37.0 4.8 7 1 -22.6 33.2
Can Fin Homes Finance 3,182 41.0 19.0 10.3 20.5 – – – -46.9 56.8
Century Plyboards Const. Materials 3,771 23.6 31.1 22.5 27.8 5.1 6 2 -47.2 43.9
Coromandel International Chemicals 11,075 8.9 17.3 16.3 20.3 3.2 6 1 -31.5 11.1
DFM Foods FMCG 1,127 29.9 25.2 43.9 62.6 6.7 8 2 -31.9 47.8
GIC Housing Finance Finance 1,264 16.7 17.9 6.5 11.1 – – – -44.7 17.6
Grauer & Weil Chemicals 1,085 26.3 18.0 16.1 16.4 7.4 8 1 -28.2 62.4
Hero MotoCorp Automobiles 57,598 11.6 37.5 15.6 20.5 9.0 7 2 -22.2 6.8
IIFL Holdings Finance 13,233 33.0 20.4 13.5 14.1 – – – -43.2 54.0
Indiabulls Housing Finance 38,232 24.8 29.1 9.3 12.6 – – – -36.0 33.2
Interglobe Aviation* Aviation 29,338 23.3 68.0 20.1 20.1 6.6 8 2 -37.2 -
JM Financial Finance 6,331 37.2 17.3 9.8 13.0 – – – -54.1 25.1
LIC Housing Finance 20,742 13.8 18.7 9.9 14.9 – – – -23.1 16.6
Mahanagar Gas Gas Transmission 7,798 9.9 22.3 16.2 19.7 7.8 8 0 -22.7 -
Maithan Alloys Ferro Manganese 1,508 46.0 22.0 5.1 6.7 6.9 8 1 -42.0 76.6
Mayur Uniquoters Miscellaneous 1,630 17.3 23.2 17.3 24.0 11.0 7 1 -27.1 23.3
Minda Corporation* Auto Ancillaries 2,723 91.7 20.5 17.4 22.5 3.5 6 0 -40.1 17.1
Repco Home Finance* Finance 2,303 20.8 16.5 10.4 24.9 – – – -41.3 5.4
Suprajit Engineering Auto Ancillaries 3,166 24.1 23.4 21.9 32.4 5.6 6 1 -24.5 46.1
Supreme Industries Plastic Products 12,569 8.1 25.0 25.7 30.1 10.9 6 2 -24.5 22.0
Swaraj Engines Auto Ancillaries 1,694 7.7 25.2 20.7 24.7 13.2 7 2 -29.1 25.5
Vesuvius India Capital Goods 2,133 11.1 15.7 23.6 24.5 8.8 6 1 -24.7 24.4
Yes Bank Bank 55,861 26.6 19.9 12.4 17.4 – – – -32.2 28.6
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COVER STORY
ADANI PORTS Bharat Forge is best known for its

Game of margins automotive forgings – chassis,
crankshafts, axle beams and
Returns since
Budget (%) -26.8 5-year
CAGR (%) 15.8 connecting rods, among many
Adani Ports is the country’s other components. A little lesser-
leading port operator, with 10 known fact is that the company is
ports and terminals under present in oil and gas, wind power,
operations that account for 24 per mining, construction, railways
cent of India’s total port capacity. and aerospace-equipment
Some of its marquee ports include verticals. Even lesser-known fact
Dahej, Mundra, Hazira and about it is that it also
Visakhapatnam. manufactures components for
per cent. In 2002, it entered into tanks and fighter jets.
a technical collaboration with The stock has been a market
the Thai Union, which is the favourite for most of this year. The
world’s largest seafood market expected higher earnings
manufacturer, processor and growth on account of increased
exporter. Shrimp-feed demand of heavy-duty Class 8
manufacturing contributed 83 trucks in the US. Expectations of
Copyright© 2012 Adani Group
per cent to Avanti’s total higher earnings have made the

revenues in FY18, while 17 per stock trade at a premium median
cent of its revenue came from valuation of 40x in the last one
the shrimp-processing segment. year – one of the highest in the
The recent fall in its stock automotive-component space.
The major part of Adani’s stock price was a result of a slowdown
hit this year can be traced to the in shrimp demand in the US,
company’s tepid June 2018 quarter leading to a downward pressure
results, where it reported a decline on prices in international and
in consolidated net profit by 9 per domestic markets. Due to the US–
cent. It also reported an 8.6 per cent China trade war, along with
hit on the top line. Cargo volumes Christmas around the corner, the
were up 9 per cent in the quarter. demand for shrimp from India is
Higher capacity utilisation, expected to increase. The recent
mechanisation and automation led budget push by the government
to operating-margin expansion. The of `10,000 crore to the aqua-
company has guided that margins culture sector and the company’s
are likely to expand ahead. plans to enter into the fish-feed The stock also hit a bump on
The correction in the stock hit segment provide it with news of a slowdown in demand for
the price by a fifth. At 18 times reasonable growth opportunities. the Class 8 trucks in the US.
earnings, Adani now trades at Even after a significant fall of Orders slipped to 42,800 units in
lower than its five-year median around 50 per cent since Budget, September this year after the
valuation of 21 times. Avanti has compounded company registered orders of
shareholder wealth at a rate of 96 more than 50,000 units both in
AVANTI FEEDS per cent per annum during the July and August. The bump
Profiting from aqua culture last five years. notwithstanding, the medium-
Returns since
CAGR (%) 95.9 BHARAT FORGE
term demand for the trucks is
positive and is expected to
Avanti Feeds is a leader in Not just about forging positively impact earnings. The
shrimp-feed market, with a company, in the meantime, has
domestic market share of 43
Returns since
CAGR (%) 33.2 increased the share of non-
Bharat Forge is even present in oil and gas, wind power, mining,
construction, railways and aerospace-equipment verticals

COVER STORY
automotive revenues to total exposed to South India.

revenues with the benefit of The company also has one of
de-risking itself from the the lowest NPAs, at 0.44 per cent,
automotive space. which is a by-product of its
conservative lending policies and
CAN FIN HOMES higher share of salaried
A roof over head professionals (73 per cent) and
lower loan-to-value ratios in case
Returns since
CAGR (%) 56.8 of loan against property.
Promoted by Canara Bank in 1987, As of June 30, 2018, it had a
Can Fin Homes is a housing- capital-adequacy ratio of 18.7 per
finance company which operates cent, which is well above the
through a network of 152 branches regulatory requirement of 12 per is trying to gain market share at
and 21 affordable-housing loan cent. The company has compounded the cost of margins, the fruits of
centres. Its has recognised shareholder wealth by 58 per cent which will be reaped in future.
affordable housing as its key focus annually in the last five years. All these factors sent its stock
area, which is also reflected in its southwards by around 47 per cent
average ticket size of `18 lakh CENTURY PLYWOOD since Budget. The benefits from
(lower income-group loans). As of The plywood centurion the implementation of GST and
June 30, 2018, it had a loan book of e-way bill have yet to be realised,
`16,000 crore, with a customer base
Returns since
CAGR (%) 43.9 while the demand for housing, a
of 1.3 lakh. Home loans constitute Century Plywood is one of the recognised name and newly
90 per cent of its loan book. It also most prominent companies in the incorporated MDF division
offers loan against property, plywood sector. It recently entered provide it with a room for growth.
builder loans and staff loans. into the MDF (medium-density The stock has not made any
At 7.7 per cent, the company fiberboard) segment, which is wealth for its investors in the last
enjoys cost of funds lower than gradually gaining traction. three years. Still it has
most of its peers. It procures 52 Century is one of the largest compounded investor wealth by 44
per cent of its funding players in the organised market, per cent in the last five years.
requirements from the market, accounting for almost 25 per cent
which may temporarily increase of the market. COROMANDEL INTERNATIONAL
its cost of funds due to the Lately, the company has faced a Green shoots
ongoing liquidity crunch. tough time in most of its
Recently, it has fallen more than segments. Plywood, which
Returns since
CAGR (%) 11.1
most of its peers, which can be contributes around 66 per cent of Coromandel International is a
attributed to higher exposure to the company’s revenues, is Murugappa group company,
market borrowings. Seventy-two suffering from a lower realisation manufacturing farm nutrients and
per cent of its loan book is due to sale of low-grade products. crop-protection products. It has 16
Laminates, which contribute 21 per cent share in phosphatic
per cent of its revenues, have fertilisers and is the market leader
witnessed a steep increase in in Andhra Pradesh and Telangana.
prices of raw materials, The company’s key markets
translating into lower margins. include Andhra Pradesh,
MDF, which is a newly Telangana, Maharashtra,
incorporated segment, contributes Karnataka, West Bengal and
5 per cent to the company’s Odisha. Monsoon rains and
revenues and is facing excess acreage in these regions impact 93
capacity in the market due to per cent of Coromandel’s NPK
intense competition, leading to (nitrogen, phosphorus and
price cuts. Currently, the company potassium) fertiliser volumes and
Century Plywood is one of the largest players in the organised

market, accounting for almost 25 per cent of the market

COVER STORY
While many of us may not have heard about DFM foods, most of us
are aware of Crax and Natkhat snacks manufactured by the company.
DFM foods has been manufacturing Crax since 1984.
73 per cent of its overall volumes. Hero MotoCorp is the country’s
In a positive for the company, largest motorcycle manufacturer.
overall acreage (area under It sells two out of every three
cultivation) has increased in its motorcycles in the up to 110 cc
markets. It has increased 5 per segment. The stock has lost a fifth
cent in Telangana, 7 per cent in of its market value since the
Karnataka and 11 per cent in West Budget. Announcement by the
Bengal, while falling 2 per cent in arch-rival Bajaj Auto that it is
Maharashtra and 1 per cent in looking once again at the 110 cc
Andhra Pradesh. Acreage of segment has put the stock price
soybean is up 6 per cent, paddy up under pressure. Rising input costs
2 per cent and sugarcane up 4 per are another concern. The
cent. This is good news for the advance policy. The `5 and `10 mandatory third-party insurance
company as these three crops are packs account for around 90 per also adds to the cost. The
high fertiliser-consuming crops. cent of its sales. Crax accounts for announcement by Bajaj comes at a
more than 63 per cent of its total time when Hero has not been
revenue and its overdependence successful to make inroads in
on Crax is a potential risk. Many either the premium segment or
children buy Crax for the surprise scooters. Competitors like Bajaj
toy inside it, which also accounts and TVS have flourishing business
for a large portion of its raw- in the premium segment while
material costs. erstwhile partner Honda has
The recent rise in crude-oil captured the scooter market.
prices has increased its packaging
cost, while depreciation in the
rupee has also increased the cost of
importing toys and machines. The
Coromandel is down by a third company’s operations are heavily
from its year highs this year. concentrated in North India, which
Valuations at 16.67x are close to its accounts for 75 per cent of its
yearly lows and below its five-year revenue. The company is trying to
median of 20 times. diversify into other regions at
lower margins, which may depress
DFM FOODS its profits in the future.
The CraX factor All these concerns have led
DFM’s stock price to fall by 32 per Hero is looking to add to its
Returns since
CAGR (%) 47.8 cent since Budget. Still the premium segment with as many
While many of us may not have company has compounded as four new launches in the next
heard about DFM foods, most of shareholder wealth at a rate of 48 couple of quarters. A big positive
us are aware of Crax and Natkhat per cent per annum in the last five for the company as it looks to
snacks manufactured by the years. Further capacity expansion, expand its premium segment is
company. DFM foods has been small size and untapped the strong volume growth in the
manufacturing Crax since 1984. It geographies provide the company 110 cc segment in the recent
also sells cheese balls, various ample growth opportunities. months. September 2018 saw its
types of mixtures and potato highest-ever sales of motorcycles
sticks (Fritts). HERO MOTOCORP in a month and highest-ever half-
The company’s negative Poised for a heroic comeback yearly sales. The price correction
working-capital cycle is a in the meantime has resulted in
by-product of its 100 per cent
Returns since
CAGR (%) 6.8 Hero trading at close to its five-

COVER STORY
year low P/E band, making it an book growth of 20–25 per cent in the likely to be the last man standing
attractive large-cap stock at medium term. In the last one year, when all other airlines go into red.
current valuations. IBHF has traded at a median P/B of The prospect of losses should
3.8x and has even commanded peak stabilise ticket prices at some time.
INDIABULLS HOUSING FINANCE valuations of 4.6x. After the If the ongoing troubles at the
Bear attack meltdown in the sector, it now competitor Jet result in winding
trades at a P/B of 2.2x. up of the cash-starved airline,
Returns since
CAGR (%) 33.2 Interglobe will be one of the
Indiabulls Housing is the second- INTERGLOBE AVIATION biggest beneficiaries. Interglobe’s
largest housing-finance company The high-flyer upcoming long-distance
in India by market cap, with a total international operations, expected
loan book of `1.26 lakh crore as of
Returns since
CAGR (%) - to be low-cost as well, should see
June ’18. It mainly caters to The country’s largest airline has the company make gains.
middle-class population and has an been in a bumpy ride for some
average ticket size of around `24 time. Higher crude price, up more JM FINANCIAL
lakh. Seventy-nine per cent of its than 45 per cent in the last one Just another challenge
total loan book consists of retail year, and a depreciating rupee,
mortgage loans, while the down 13.5 per cent in the last one
Returns since
CAGR (%) 25.1
remaining 21 per cent comprises year, has pummelled the stock this Incorporated in 1973, JM Financial
corporate-mortgage loans. year. The recent trend of flash is a holding company operating in
The company reported a 21 per sales of tickets by incumbents has multiple businesses, which
cent jump in net profit in the kept the realisations in check. include lending, investment
September 2018 quarter over the banking, broking, wealth
previous year, driven by strong management, asset management
loan-book growth of 29 per cent, to and asset reconstruction. Its
`1,28,900 crore. Spreads at 3.24 per prime segment is its lending
cent were in its guided range. The business, which contributes 70 per
liquidity concerns affecting the cent and 68 per cent to its
sector as a whole are not an issue revenues and profits, respectively.
with IBHF as the company The lending business
maintains around 12–15 per cent constitutes real-estate developer
of its balance sheet in liquid loans, home loans and corporate
assets. According to the company, loans, which include working-
cash and liquid investments to the capital loans, loans to promoters
tune of `21,250 crore, consisting of Lower ticket prices mean lower against securities and short-term
high-quality mutual fund units profits. Even though Interglobe is bridge loans to acquire companies.
and government securities, can be the largest operator in the Real-estate developer loans
liquidated in seven days if needed. industry, it has little choice but to constitute 67 per cent of the
The company has guided loan follow other airlines in company’s `16,500 crore loan book
announcing ticket sales.
The combined effect of higher
fuel costs and lower ticket prices
saw Interglobe’s net profit nosedive
97 per cent in Q1 this year. With the
operating environment not
changed much, the September 2018
quarter numbers could remain
depressed as well.
The silver lining about
Interglobe is that it is the most
efficient airline in the country. It is
If the ongoing troubles at Jet result in winding up of the cash-starved

airline, Interglobe will be one of the biggest beneficiaries

COVER STORY
All of Maithan Alloys’ domestic clients have been its customers for
more then seven years, which indicates long-term relationships and
customer stickiness
as of June ’18. These loans have an cent in Q1FY19 to less than 1 per
average tenure of around three- cent in the coming quarters.
four years, while the company’s
corporate-lending loans are short- MAITHAN ALLOYS
duration loans, ranging from 1.5 to The manganese master
two years.
In comparison to the slightly
Returns since
CAGR (%) 76.6
long-term nature of its assets Maithan Alloys started its
(loans given), the company’s commercial production in 1997. It
borrowings are of short-term is the lowest-cost and largest
nature. Thirty-three per cent of its manganese-alloy manufacturer in
borrowings are from commercial India. It manufactures and exports
paper, which is a short-duration loans; 16 per cent consists of loan ferromanganese, silicomanganese,
borrowing instrument with a against property and other non- ferrosilicon, etc. Its products are
maturity of maximum nine core loans; developer loans primarily used in steel
months. This may create problem comprise 5 per cent. manufacturing. For instance,
for the company due to the ongoing Concerns over the rising share 10–15 kg of ferro-alloys are
liquidity crunch in the market. Its of non-core loans, declining spreads required for producing a tonne of
other businesses are also cyclical and high valuations, along with the steel. Its domestic and
in nature and may suffer if market volatility in its sector has seen LIC international business both
conditions worsen. Housing’s stock lose close to a constitute around 50 per cent to its
The company has high net fourth of its value since the Budget. revenues. Its domestic customer
interest margin of 6.1 per cent, While core home-loan growth has base includes reputed clients like
return on assets of more than 4.5 remained at 10 per cent (YoY), the SAIL, JSW, JSPL and Jindal
per cent, NPA of 0.5 per cent, and share of non-core products has Stainless. All its domestic clients
capital adequacy of more than 20 steadily increased over the last have been its customers for more
per cent. Its long track record of many quarters, going up from 16 then seven years, which indicates
more than 40 years is a proof of per cent in FY17 to 21 per cent in long-term relationships and
its ability to survive downturns. Q1FY19. The company has customer stickiness.
Even after a recent fall of 54 per witnessed a fall in spreads from 1.95 The recent developments on
cent, the company has per cent in the last quarter of FY17 trade war, strong dollar and rising
compounded its investor wealth at to 1.31 per cent in the first quarter crude prices have led to renewed
25 per cent annually over the last of this year. Current spreads are concerns of a global growth
five years. close to their historical lows of 1.1 slowdown, which may lead to
per cent. Net interest margin in the reduced demand for steel and its
LIC HOUSING FINANCE last quarter (Q1FY19) was down 15 products. The recent-quarter
Business problems basis points to around 2.34 per cent. numbers also witnessed a flat
The company hiked its prime
Returns since
CAGR (%) 16.6 lending rate in August this year,
Promoted by Life Insurance which should help margins in the
Corporation, LIC Housing was next quarter. This sluggishness in
incorporated in 1989. It mainly core loans and falling spreads has
caters to middle-class population, in turn resulted in falling
with 87 per cent of its customers valuations. Its current P/B of 1.65x
being salaried. Its loan ticket size is is now significantly lower than its
around `23 lakh, with a loan book five-year median of 2.6x. The
of `1.69 lakh crore as of June ’18. management has guided 15 per cent
Seventy-nine per cent of its total growth in home loans this year and
loan book consists of housing aims to reduce NPAs from 1.21 per

COVER STORY
growth of just 6 per cent in products manufacturer that makes

revenues in comparison to the household plastic products like
previous year, which was well tables, chairs, packaging films and
below its annual revenue growth industrial-use products like PVC
of 40 per cent in FY18. pipes and storage and material
Also, the company currently handling crates. Its handling
operates at 95 per cent capacity, volumes of over 3.2 lakh tonne
which may constrain its ability to make it the country’s largest
meet additional demand in the short plastic processor.
term. However, it is planning to Supreme’s industrial and
increase its capacity to 1.5 times by consumer divisions have been
FY21 and two times by FY22, which segment. Its net NPAs of 2.4 per driving growth for the company,
will be entirely funded by internal cent are amongst the highest, growing by 37 per cent and 24 per
accruals. Its high dependence on the while its provision-coverage ratio cent, respectively (June 2018
steel sector is a potential risk factor. of 40 per cent is one of the lowest quarter). These verticals also
Even after the recent fall of 42 when compared to its peers. reported the highest growth in
per cent, Maithan has created Repco is highly concentrated in segment profits. Supreme has
serious wealth for its shareholders, South India, which accounts for reduced its volume guidance for
compounding it at a rate of 76 per more than 87 per cent of its loan FY19 from the earlier 12–15 per
cent in the last five years. book. Tamil Nadu alone accounts for cent to 10–12 per cent.
59 per cent of its loan book. Its low-
REPCO HOME FINANCE ticket size of `14 lakh also reflects its
Doing it differently niche focus on small households. The
company has one of the highest net
Returns since
CAGR (%) 5.4 interest margins of 4.7 per cent,
Incorporated in 2000, Repco Home which is a by-product of lending to
finance is a housing-finance lower income segments. In the past
company, with a niche focus on two- one year, its business in Tamil Nadu
and three-tier cities. It is mainly suffered due to Supreme Court ban
present in areas where formal on unapproved properties and high
sources of lending are minimal, so sand prices. The situation now has
it faces minimal competition from started to normalise and will help it Supreme has been a stock-market
mainstream banks. to regain its growth momentum. favourite for some time. In the last
The company mainly provides Further, diversification in non- one year alone, the stock has traded
loans to self-employed individuals. South regions and a low base still at a median valuation of 37 times
Such loans account for more than provide the company significant earnings and even peak valuations
57 per cent of its total loan book. growth opportunities. It is not of 47 times. The correction in the
Unlike its peers, which provide highly dependent on market market has seen Supreme lose one-
loans for purchasing residential borrowings, which account for third from its peak price this year.
property, around 45 per cent of around 20 per cent of its funding Valuations too have cooled down to
Repco’s loans are given for self- requirement. It also had a capital 25 times earnings.
construction of homes. adequacy of 23 per cent as of June
As of June 30, the company 18, which provides it with an SWARAJ ENGINES
had a total loan book of `10,074 ability to sustain through the Powering M&M
crores (82 per cent home loans ongoing liquidity crunch.
and 18 per cent loans against
Returns since
CAGR (%) 25.5
property). Currently, it is SUPREME INDUSTRIES Swaraj Engines, known for its diesel
diversifying away from loan Supreme by nature engines, was originally promoted by
against property and lowering its Punjab Tractors and Kirloskar Oil
ticket size for non-housing loans
Returns since
CAGR (%) 22.0 Engines in 1985. Later, in 2007,
due to increasing NPAs in this Supreme Industries is a plastic- Punjab Tractors was acquired by
Repco mainly provides loans to self-employed individuals. Such loans

account for more than 57 per cent of its total loan book.

COVER STORY
Rana Kapoor has long been credited as the man behind the success of
Yes Bank. His aggressive management style has been behind Yes
Bank’s growth in the recent years
Incorporated in 1991, Vesuvius India YES BANK
is a subsidiary of Vesuvius UK, Hit by RBI’s no
which is the world leader in molten
metal-flow engineering. Vesuvius
Returns since
CAGR (%) 28.6
India is a manufacturer and trader
of refractories, with around 50 per
cent market share in the steel-
refractory segment (refractory is a
material primarily used in
moulding or shaping steel and can
resist very high temperatures).
The company has zero debt on
Mahindra and Mahindra (M&M). its balance sheet, with its cash
Currently, Swaraj is jointly accounting for around 16 per cent
promoted by M&M (33.3 per cent of its market cap. Its performance
stake) and Kirloskar Industries (17.4 is directly related to the growth of
per cent stake). Since 2007, it has the steel industry, which makes
witnessed a dramatic turnaround in the company cyclical in nature.
its operations, increasing its market Steel companies are also going Yes Bank’s woes started in the
share from 9 per cent in 2007 to 17 through a rough phase, with three later part of this year when the
per cent in 2017. RBI found that it had under-
M&M is also the largest tractor reported NPAs to the tune of
manufacturer, with market share `10,532 crore for FY16 and FY17.
of around 43 per cent in tractors. This was followed by the RBI’s
Swaraj caters to around 80 per marching orders for Rana Kapoor,
cent of M&M Swaraj brand CEO and co-founder. It cut his
tractors. It has recently suffered a tenure to January 31, 2019, much
decline of 60 basis points (0.6 per earlier than the three-year
cent) in its operating margin due extension Kapoor got from
to higher cost of inputs. Further, shareholders in June this year.
more than 9 per cent deficit in Rana Kapoor has long been
monsoon and an expected fall in credited as the man behind the
volume growth to lower double success of Yes Bank. His
digits collectively have lead to its aggressive management style has
stock price fall by 29 per cent since been behind the bank’s growth in
the Budget. But its strong the recent years.
branding, market positioning, The bank’s future is now
negative working-capital cycle and of Vesuvius’ clients already facing clouded with uncertainty. There’s
plans for capacity expansion make insolvency proceedings. The regular infighting between
it a promising case. recent correction of 25 per cent in co-founder groups. Will its
Even after the recent fall, stock price is the result of the accounting come under the
Swaraj’s stock has compounded slowdown seen in the steel scanner? Who will be held for the
shareholder wealth at a rate of 24 industry, leading to a fall of close under-reporting of NPAs?
per cent in the last five years. to 7 per cent both in its trailing Yes Bank is likely to announce
12-month revenue and profits. Rana’s successor by December 15
VESUVIUS INDIA Still the company has managed and will forward its choice to the
Steely fundamentals to compound its shareholder RBI for approval. Given the current
wealth at a yearly rate of 24 per uncertainties, the stock could
Returns since
CAGR (%) 24.4 cent during the last five years. remain under pressure. WI

MAIN STREET
The hero delusion

Considering one person to be the sole cause of events,
good or bad, is a mistake
SAURABH MUKHERJEA
Over the past decade, psychologists In the 1970s, India was awful at one-day
have used neural imaging to show that the human internationals (ODIs). Then, in the early 1980s, we
brain has to work hard even to make simple decisions started improving and won the World Cup in 1983.
such as choosing between various flavours of ice After that, the steady trend of improvement in our
cream. Furthermore, even whilst making such win–loss ratio in ODIs continued. In fact, the
straightforward decisions, the brain does not make improvement continues to this day.
the same decision when faced with the same choice in Along the way, we have had several successful
identical circumstances! Thankfully, evolution has captains. In spite of these leaders having had several
given us a method to reduce all this hassle – heuristics high points in their career and in spite of the
or mental thumb rules or shortcuts underlying 40-year win–loss trend being
which help us simplify complex positive, each of these leaders went
decisions into simple ones. For instance, We have an through phases where they were seen
faced with two equally well-qualified emotional need as less than ideal. During these phases,
applicants for a role, our thumb rule to dramatise and they were slammed for all sorts of
will tell us to hire the person with work reasons – loss of form, advancing age,
experience in more demanding roles. personalise a decadent lifestyles, etc. Our success is a
The very fact that we survive suggests trend that is, in combination of many factors that have
that most of these thumb rules work reality, shaped the sport over the years – from
more often than not. They help us our coaching facilities to the fitness
simplify complex decisions and thus underpinned by regime and the diet of our players, a
save our mental firepower for decisions steady, larger role for technology and, finally,
more critical than choosing between institutional the financial package of the players.
flavours of ice cream. However, There is no way that India could have
sometimes these thumb rules let us improvements produced a player as fit as Virat Kohli
down and we land in hot water. in the 1970s. In the India that we grew
up in, enabling facilities like high-
Hero worship is a dangerous mental shortcut quality gyms didn’t even exist outside of five-star
In a diverse country like India where most institutions hotels. Kohli is part of the same structural time trend
are weak, where the rule of law is enforced unevenly that has given us a wonderful Under-19 World Cup
and where trust between economic agents tends to be winning team, with players who are streets ahead of
low, we have a strong tendency towards hero worship. the age-group opposition.
In fact, there is an obsession in the Indian media However, it is hard to enjoy a narrative around a
about the heroic Indian cricket captain. A Martian structural time trend. We need the glory and glamour
reading the Indian press would believe that Indian of a dashing leader either leading us to victory or
cricket’s success at any point in time hinges largely on cruelly betraying our trust. We have an emotional
the abilities (or lack thereof) of the cricket captain. need to dramatise and personalise a trend that is, in

MAIN STREET
reality, underpinned by steady, We gravitate complacent, it neglected its customers,

institutional improvements.
towards its culture became stodgy and more. In
fact, these things may not have changed
Investment implications companies much, if at all. Rather, company
Some of us tend to use ‘hero worship’ as where the performance, good or bad, creates an
a framework for thinking about
business, i.e., we gravitate towards
promoter/CEO is overall impression – a halo – that shapes
how we perceive its strategy, leaders,
companies where the promoter/CEO is a clean, capable employees, culture, and other elements.
a clean, capable and hard-working – and hard-working And then there are some investors who
basically, a god-like figure who delivers
outstanding results. Phil Rosenzweig of
– a god-like extend this framework to politics, i.e.,
they look for a leader who can lead the
IMD has shredded this thought figure who nation to greater glory. They will point
framework into little pieces. Rosenzweig delivers you towards a ‘before and after’ time
worked at HP for seven years before
teaching at Harvard first and then at
outstanding trend, i.e., before the hero arrived our
shirts were off-white and then thanks to
IMD. As he highlights in The McKinsey results the hero’s cleansing effect, our shirts
Quarterly (2007, number 1): became dazzling white. Rather than
How does the halo effect manifest arguing with the believers, I prefer to tune
itself in the business world? Imagine a company that is into a Tina Turner hit from Mad Max: Beyond
doing well, with rising sales, high profits, and a sharply Thunderdome (1985):
increasing stock price. The tendency is to infer that the We don’t need another hero,
company has a sound strategy, a visionary leader, We don’t need to know the way home,
motivated employees, an excellent customer orientation, All we want is life beyond the Thunderdome,
a vibrant culture and so on. But when the same Looking for something we can rely on,
company suffers a decline – if sales fall and profits There’s got to be something better out there. WI
shrink – many people are quick to conclude that the Saurabh Mukherjea is the co-author of Coffee Can Investing and the
company’s strategy went wrong, its people became founder of Marcellus Investment Managers.

OFFBEAT
Dealing with the ‘crisis’

While the RBI’s response to the recent rupee depreciation is surprising to
many, it’s the consumer behaviour that needs change
SANJEEV PANDIYA
Normally, an interest-rate hike is a approaching about 40–45 per cent uptick and threatening
big negative for equity markets, so why did the markets to go up to 70 per cent at the peak of $100. And India
react so surprisingly to the RBI’s (surprising) refusal to loses $1.2 billion for every dollar that oil go ups – that’s
raise interest rates? But let’s start at the beginning. $18 billion extra per annum over the last year’s outgo.
There’s this principle called the impossible trinity, This has pushed up India’s current account deficit to
which says that you cannot allow free capital flows an expected 2.8 per cent of GDP, not fun.
(India has partially freed capital flows), an independent The dollar has appreciated 14 per cent so far, well
monetary policy (which India is moving towards, with above the 8 per cent it should have done (two years’
a clear inflation-targeting mandate given to a relatively inflation of 4 per cent each, counted from 68, works
‘independent’ Monetary Policy out to 73.44, somewhat the current
Committee) and keep your exchange rate
under control.
There’s a reward level). But currency markets are feeling
the pain, spoiled by the excess flows of
So keeping this textbook economics for good 2017, and used to the overvaluation of
in mind, the MPC said like a sarkari behaviour and a the rupee.
babu that its given mandate is to keep At a time of generally tighter money,
inflation under control and that has been
punishment for the Indian markets are throwing a
behaving. And since managing the rupee bad behaviour. tantrum. So far, they have been used to
(levels) is not its job, there’s a market to Good behaviour, looking to the RBI to save them, like
take care of that. Raghuram Rajan came in last time with
Now, that has not been the historical
in the current his FCNR bonds. The talk was all about
image of the RBI. In fact, the public has context, would be ‘defending the rupee’ and looking to the
always counted on the RBI to ‘rescue’ to shift to the RBI to ‘save them’.
them by reading the tea leaves to figure But imports are just around 20 per
out their ‘comfort’. Just last year, the
Metro, save on cent of GDP and interest rates are a
rupee was pushed to the wall by Donald your oil bill and blunt tool that will affect the entire
Trump’s weak-dollar insistence, when he buy the market country. Why increase interest rates
threatened to put India under and slow down all investment activity
surveillance for being a ‘currency
at 10,300. (and levered consumption, such as it
manipulator’. The RBI found it difficult is), especially at a time when liquidity
to absorb all the $20 billion that came in during and trust are suffering in the aftermath of the IL&FS
January–March 2017 and had to let the rupee appreciate. blowout? Besides, overall inflation is pretty benign
It stayed that way for precisely a year. That resulted in (thanks to lower fruit and vegetable prices, an odd
a massive over-appreciation of the rupee, almost 20 per contributor), especially in an election year, when
cent to its real effective exchange rate. growth is important to spruce up the government’s
Then came the current ‘oil-price shock’. In report card. Besides, it simply was not the RBIs’ job
percentage terms, it qualifies to be called a shock, (as per its mandate), even though it had the image of

OFFBEAT
being the protector of the rupee value. So free capital

flows should now take care of the rupee’s value, since
inflation had been protected by the RBI. Since the
country had taken care of its fundamentals (and the
government did its bit by keeping the fiscal deficit
under control), the rupee would find suitors on its
own, either through its exporters or through capital
flows. Right?
We don’t know. In the short term, the markets threw
a real tantrum as if they had been deserted by the RBI.
And they have threatened to jump out of the window if
Mommy does not pay attention. The threat is of an FII
pullout (do FIIs panic like our retail investors?) and
sheer panic, since RBI seems comfortable with the
current levels of the RBI.
That’s not really true. Very rarely, but the RBI
indicated a ‘comfortable’ level of `72.50 and most banks
have indicated a range of 69–73 for the rupee. So what’s
cooking? Who is going to win this ‘tantrum battle’. Will
Mommy call the bluff of the recalcitrant kid, or will
the kid really jump off the windowsill? that the (oil) markets were giving. The government
In dispute is the role of the RBI and, rarely, would rush to protect its spoilt child – the Indian
whether the government should play Mommy to the middle and corporate classes – and subsidise their oil
markets. If unnecessary imports are the problem (and bill from its own kitty, and push up general inflation
a lot of that might include fuel oil, not just the old through the expansion of its own fiscal deficit. It’s
suspects like gold, electronics, etc.), then you should important that this government has not done any such
clamp down on those through customs duty. Why thing, retaining the Modi image for doing the right
should 20 per cent of the economy (the importing thing in the face of political odds.
economy) hold up the entire economy and demand So then why did the Modi government lighten the
that we increase rates to bring in capital flows, which message to masses by reducing the excise duty? Ah
by the way, somebody has to pay. well, nobody’s perfect, especially in an election year.
For a long time, the government held its nerves, But remember, it’s temporary and could come back
passing through the price signals coming from the oil after the elections. Be prepared, high oil prices are not
market that demand is overheating through global going down unless there’s a structural shift of energy
growth and inventories are reducing. This demands a demand out of oil. Unlike previous cycles, Big Oil is not
change of behaviour from the people who are fooled into investing into new capacity this time, only
consuming too much. In a world with lots of alternate to see oil prices go through the floor by the time the
(energy) options, I don’t know why we must stick to oilfield comes up. You will only see marginal and
old habits and then crib about paying for them. If you balancing investments, and of course, shale will invest
want to still run that big SUV and don’t take the Metro in shorter gestation projects. But the most likely cause
(or better, shift permanently to an EV), then don’t of the next crack in the oil market will be a pronounced
blame Modi for it. shift to electric vehicles, which will be faster than you
Like in all economics, there’s a reward for good can imagine.
behaviour and a punishment for bad behaviour. Good Without knowing this, I shifted last year out of my
behaviour, in the current context, would be to shift to car and tried to make do with Delhi’s public transport
the Metro, save on your oil bill and buy the market at – just an experiment to see whether it affected my
10,300. Bad behaviour would be to pay through your productivity. Amazingly, it improved my productivity.
nose at the petrol pump, lose your savings and The new DTC buses are amazing. I get reading and
therefore sell the Nifty to 10,300 in order to fund the oil YouTube time, no traffic hassles, and at 1 per cent of
bill. Take your pick, which part of the economy do you the cost of running my car. Try it. The whole of Europe
want to be in? is going the same way! WI
Previous governments used to distort the message The author teaches, trades and writes at spandiya.blogspot.com

TAKING STOCK
Politics doesn’t matter

History suggests that Indian markets have remained unfazed by the
government at the Centre, whether coalition or single-party
MALINI BHUPTA
It is that time of the year again when coalitions at the Centre. The nature of the formation at
strategists will begin to write reams on what will the Lok Sabha need not translate into better stock-
happen to financial markets as the world’s largest market returns, contrary to what many may want
democracy heads into elections in 2019. What surprises people to believe today.
me is that each time equity strategists fan out into the One would have thought that a minority government
country and visit districts in some of the most hotly or a wobbly coalition would not bode well for investors,
contested states and come back with very interesting but surprisingly equity-market returns have not reacted
anecdotes on what the local tea-stall owner said about particularly negatively to such developments. Between
the government of the day or how roads had or hadn’t December 1989 and November 1990, when the Janata Dal
improved in the hinterland. And after government headed by V P Singh and his
the optics, these analysts/strategists supposedly ‘socialist’ finance minister
come out with their prognosis on what Even though was at the helm, the Sensex returned
could the outcome of the election be, Prime Minister 73.43 per cent, shows a research done by
basis which they ‘modify’ their view on Narendra Modi DHFL Pramerica Mutual Fund. The next
the financial markets and the returns best phase (in terms of returns) for the
they could generate for investors. A continues to markets came during the regime of the
foreign brokerage I know had kept a retain his Congress-led P V Narasimha Rao
positive stance on India for four years, popularity government that was in power between
which it changed last month, as Indian June 1991 and May 1996. Interestingly,
markets appeared too expensive. rankings, the this was a minority government and
Over the last 39 years since the BSE BJP is unlikely to during this time, the Sensex returned
Sensex came into being, India has seen repeat the same 24.46 per cent. And during the previous
all kinds of governments – coalitions National Democratic Alliance’s regime
and single regimes. And there is no feat in 2019 as it (with Atal Bihari Vajpayee as the prime
pattern that has emerged over this period did in 2014 minister) between March 1998 and May
to suggest that a ‘stable’ government 2004, the Sensex returned an annualised
portends better for the markets than the 3.31 per cent.
governments that collapsed in a matter of months or That any particular formation does not affect the
even days. It would be safe to say that India’s economy market’s performance may not go down well with many
and financial markets remain unfazed by politics, a few who believe that a ‘stable’ government alone is good for
blips here and there notwithstanding. Don’t believe me; the markets. Experts have often said that good
let the data speak for itself. economics does not make for good politics. And this
Data show that there is little correlation between particular BJP government, led by Prime Minister
political ideologies and stock-market returns. And now Narendra Modi, could encounter some reversals,
for the shocker – markets returns are not particularly thanks to rather disruptive reforms it has undertaken
impacted by either stable single party rule or unstable during its tenure, like the roll-out of GST in 2017 and

TAKING STOCK
Movement of India’s stock market under various governments

Government-headed by Start End Tenure Market returns (%)
Janata Party - Mr. Morarji Desai April-79 July-79 4 months (*) 15.86
Janata Party - Mr. Charan Singh July-79 June-80 1 year 5.43
Congress - Mrs. Indira Gandhi July-80 October-84 4 years 3 months 20.28
Congress - Mr. Rajiv Gandhi November-84 November-89 5 years 20.82
Janata Dal - Mr. V.P. Singh December-89 November-90 11 months 73.43
Janata Dal - Mr. Chandrashekar November-90 June-91 8 months 6.15
Congress - Mr. P.V. Narasimha Rao June-91 May-96 4 years 11 months 24.46
NDA - Mr. Atal Bihari Vajpayee May-96 May-96 13 days 2.30
United Front - Mr. H.D. Deve Gowda June-96 April-97 11 months 3.10
United Front - Mr. I.K. Gujral April-97 March-98 10 months 1.30
NDA - Mr. Atal Bihari Vajpayee March-98 May-04 6 years 2 months 3.31
UPA - Dr. Manmohan Singh May-04 May-14 10 years 17.66
NDA - Mr. Narendra Modi May-14 Till date 4 years 5 months 10.68
Notes: (1) Market returns calculated as CAGR returns by the BSE Sensitive Index during the respective periods. (*) (2) The BSE Sensitive Index was instituted in April 1979. Therefore, the four-
month period of the Janata Party denotes the time when the Index was available. The Janata government took over in March 1977. Source: ‘How important is an election result to a stock market
investor’, DHFL Pramerica Mutual Fund.
demonetisation in 2016. Most experts have now termed cent new first-time voters. Like many other equity
demonetisation as ‘much ado about nothing’. strategists, Mahesh Nandurkar of CLSA also doesn’t
Seeing the rising discontent in some sections of expect BJP to reach the magic figure of 272 seats in 2019
society that have been impacted by these disruptive on its own.
reforms, the BJP’s rhetoric has switched from ‘Achche Crystal-ball gazing may make news, but unfortunately
Din’ to ‘Who Else?’ Many believe that a ‘Maha it doesn’t bear much impact on the economy. E A
Gathbandhan’ would prove to be a disaster for India’s Sundaram, Chief Investment Officer of DHFL Pramerica
economy. In reality, markets don’t dance to the tunes of Mutual Fund, says the building blocks for a robust stock-
political parties. History shows that the highest returns market returns are the following factors:
have, in fact, been generated while coalition governments z An economy and political system that encourage
with support from the Left have been in power. private enterprise
Even though Prime Minister Narendra Modi z A system where rule of law is followed
continues to retain his popularity rankings, the BJP is z An ecosystem where entrepreneurship is encouraged
unlikely to repeat the same feat in 2019 as it did in 2014. and where it thrives
The BJP won 147 seats from its key states – Madhya z Proper regulatory framework, both in banking
Pradesh, Gujarat, Uttar Pradesh and Rajasthan – which system and capital-market system
were 52 per cent of all seats won. In 2014, eight states z A promise of a long-term economic growth and
accounted for 201 seats. According to CLSA, if the corporate profitability
BJP’s vote share dropped by 5 percentage points, then India is an economy that is already blessed with
its tally in its eight states would fall by 39 seats. The these. Investors must now buy right and sit tight! WI
brokerage doesn’t make provision for addition of 10 per The author is the editor of Value Research Stock Advisor

Vis-à-vis
Fulfilling the dream of a home

Here is how LIC Housing Finance and Gruh Finance, two similar-sized
home-loan providers by market cap, stand in comparison with each other
LIC Housing Finance Gruh Finance
Promoted by Life Insurance Corporation, LIC Promoted by HDFC and Aga Khan Fund for
Housing was incorporated in 1989. It provide loans Economic Development, Gruh Finance was
to retail customers and developers for the purchase established in 1986. It provides loans for purchase,
and construction of residential property. It mainly construction, extension, repair and renovation. Its
caters to the middle-class population, with 87 per small ticket size of just `7.8 lakh is a reflection of its
cent of its customers being salaried. Its home-loan niche focus. It caters to rural population and small
ticket size was around `23 lakh in 2018. As of June households. As of June 30, 2018, it had a retail
30, 2018, the company had 275 marketing offices. network of 194 branches in 11 states.
Financials Financials
NII Net profit Net worth Loan book M-cap Cost of NII Net profit Net worth Loan book Mkt cap Cost of
(` cr) (` cr) (` cr) (` cr) (` cr) CAR (%) funds (%) (` cr) (` cr) (` cr) (` cr) (` cr) CAR (%) funds (%)
3,938 2,087 12,793 1,68,652 20,038 15.49 8.3 770 406 1,381 15,857 19,679 18.9 7.5
NII: Net interest income | CAR: Capital-adequacy ratio
Price chart P/B chart

690 LIC Housing Finance Gruh Finance 24 LIC Housing Finance Gruh Finance
530 18
370 12
210 6
50 Rebased to 100 0
29.1 1.5 13.6 1.71 6.6

16.8
12.5 22.8 0.61 8.8
Price to book Net margin (%) Dividend yield (%) Operating
expenses as %
1.3 2.5 of loan book
Five-year annualised growth (%)
ROE (%) ROA (%)
22.9 21.0 23.0
17.3 16.7
13.5
4.4
2.38 0.43 0 NII growth EPS Loan book growth
Net interest margin (%) Net NPA (%) FY18 data. Price-related data as on October 8, 2018. Loan book as of Jun 2018.

The housing finance industry has grown at a rate of 20 per cent in the last five years, driven by lower
interest rates, government-launched Pradhan Mantri Awas Yojana, rising middle-class population and
increased migration towards urban areas. Recently, a liquidity crunch triggered by a default by IL&FS
has led to a short-term liquidity crunch, which has hit hard the stocks of housing financiers.

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Stock Advisor
Better to read annual

reports than Playboy
Stock research is incomplete without going
through the annual report

Stock Advisor
Vikas Vardhan
I
f you are a cricket enthusiast, you can surely make
out the difference between a T20 and a test-match
commentary. A T20 match commentary gives a ball-
by-ball description of the shots played and the runs
scored. On the contrary, a test-match commentary is
slightly slow-paced and discusses the strategy of players
and the teams, how they played in the last match, their
future potential, etc. While a T20 commentary reminds
us of quarterly results, test matches are the equivalent
of companies’ annual reports.
Like T20 matches, quarterly results are more
glamorous and attract attention in the market, while
the release of annual reports is not celebrated, though
they are equally, if not more, important as quarterly
results. Going through an annual report should be an
inherent part of the investment process and merely reports. We use the annual report to initiate
relying on quarterly results may lead to missing out investment ideas and for us, quarterly results act as a
on important information. performance tracker.
Annual reports are one of the most reliable sources For instance, take a company that shows 20 per cent
to gather company-specific information in an growth in earnings for two quarters. This is the
exhaustive manner. Ideally, annual reports serve two performance of the company, which is an outcome of
purposes. First, they help generate ideas and take a certain strategy. An annual report will tell you what
investment actions and, second, they help identify red the company has done to achieve this growth, what its
flags and early signs of trouble when everything strategy was and whether this performance will
seems to be going well. To summarise, annual reports sustain for long or not.
act like an anchor to your investment decision.
Qualitative information in annual reports
Annual reports act as an anchor Annual reports are a repository of qualitative
“Other guys read Playboy, I read annual reports,” said information which is crucial in making an investment
Warren Buffett in an interview when asked about how decision. Such information includes the following:
he discovered and got conviction in PetroChina, one Management discussion and analysis (MD&A) and
of his best investments, which yielded more then 50 chairman’s speech: These two sections narrate the
per cent over five years. aspirations of a company and where it wants to be in
Warren Buffett has always built his conviction and the future. It describes the core competence of a
based his investment decisions on annual reports. He company and where the company is spending to build
and his team read hundreds of annual reports in a capabilities. Not only does MD&A give an idea about
year. Obviously, a retail investor cannot think of the future strategy of a company, it also tells you if
reading on such a scale but it is desirable that one the management really walks the talk. Read older
should go through the annual reports of the reports and you can check if the company has stuck to
companies in which one has invested or is considering its plans or strayed away frequently from its path.
to invest. For instance, a few years ago, the management of
We, at Value Research Stock Advisor, have a similar one of our recommended companies stated that it
approach to investments. Our proprietary non- wanted to reduce exposure to a fast-growing segment
negotiables (which act as a filter) and Risk Score because it looked risky. Today, without falling for the
(which we prepare for every company under temptation of fast growth, it has reduced that
consideration) are derived thoroughly from annual exposure to this segment from 22 per cent in FY13 to 8
Annual reports serve two purposes: first, they help generate

ideas and take investment actions and, second, they help
identify red flags and early signs of trouble

Stock Advisor
Earnings are accounting profits wherein actual cash may or

may not have been received for the sale made. The company may
manipulate its revenue by showing sales and corresponding
debtors in its book.
collusion between the company and the auditor. Such

corporate-governance issues severely hit the stock
price. Educomp’s stock has corrected over 90 per cent
from its peak value and is a penny stock now.
Other scattered bits: Annual reports may also have some
passing comments on unscrupulous accounting
activities, which should not be overlooked. For
instance, consider high related-party transactions,
wherein a company might be selling or purchasing
goods from the promoter’s private firm to give it an
undue advantage. Such instances should be closely
inspected. Other things like serial resignations of the
top management or key personnels should also be
thoroughly investigated.
per cent in FY18. The historical context gives the Quantitative information in annual reports
comfort in reading the current statements made by While many financial websites provide data on listed
the management. companies, annual reports are still important. Here is
Management compensation and board members: some crucial quantitative information that you can
Management compensation will tell you how greedy get from annual reports:
managers get when the times are not good. If the Cash flow statement: Earnings are accounting profits
management is taking out huge salaries, even in lean wherein actual cash may or may not have been received
periods, it may not have shareholder interest as its top for the sale made. The company may manipulate its
priority. An ideal compensation which sets the revenue by showing sales and corresponding debtors in
management’s direction right is one where the fixed its book. The cash-flow statement shows the actual cash
component is low and the larger part depends on the the company has received or spent. This statement is
profits. Similarly, look for board composition. Do all difficult to manipulate. In the Indian context, annual
board members regularly attend company meetings? reports are also important because the cash-flow
An ideal composition is where there are several statement is disclosed only in it.
independent directors.
Auditor’s report: Companies appoint an external auditor
to audit their accounts. The auditor reports whether
the company has complied with the rules and
regulations in maintaining its books. If there is
anything questionable, the auditor can raise a
concern. Moreover, looking at the history of auditors
can throw light on the company’s mala fide intentions.
For instance, if auditors have been changed frequently
or they have resigned unexpectedly, this is a sign of
trouble in making.
Take the case of Educomp. It was found in the
company’s annual report that that the auditor’s
address was just next to the company’s registered
address, that too on the same floor. This smacked of a

Stock Advisor
Though the balance sheet is now mandated to be published half-

yearly, due to absence of detailed schedules, it can hide many
things. Schedules, which are available only in the annual report,
are where crucial details are found
I have a personal anecdote which helped me realise should take a note of it.
the importance of cash flows. In April 2012, while I Detailed financials of subsidiaries: Quarterly results do give
was researching on some companies, I wondered if consolidated statements but do not give the break-up
there is any company which had delivered a for subsidiaries. In the annual report, you can get the
sequential growth in earnings per share for the past 20 broad break-up of the financials of subsidiaries and
quarters (five years) without any fall. That is when I how money is moved through them. There may be cases
discovered Amar Remedies and was mesmerised by its where the money is poured into a loss-making entity
performance. Naturally, curiosity set in and I analysed just to benefit the promoters.
the company deeper. Its income statement was very
attractive, but the cash-flow statement revealed the Summing it up
truth. The company was selling on credit and was not In India, where certain reporting is anonymous and
realising any cash for the same. I stayed away from done at annual frequency, reading the annual report is
this company. Soon enough, the company went in for a must to build conviction in a stock. Quarterly results
liquidation in December 2013.
Schedules to the income statement and balance sheet:
Though the balance sheet is now mandated to be
published half-yearly, due to absence of detailed
schedules, it can hide many things. Schedules, which
are available only in the annual report, are where
crucial details are found. For example, take total debt.
Usually, debt is classified as long-term debt and
short-term debt but there could be a large component
of debt (called ‘current maturities of debt’) which
does not appear under both these categories and is
hidden under other current assets. In absence of
schedules, one cannot make out the actual total debt
of the company.
Similarly, on the asset side, there is an item called
loans and advances. It sums up all the advances a
company has paid and loans given to any party. Paying are equally important, but they should not be studied
an advance for taxes or expenditures is OK but if the in isolation but in conjunction with the annual report.
advance is made to a related party or the promoter As a retail investor, the annual report may scare
without sufficient interest, then it may be a way to you and look complicated. If you do not understand
siphon off money. We found this trend in the annual accounting, one way to start is by reading the message
report of Birla Power, a penny stock now. The debt from the management.
taken for a power project was used to provide money What if you do not understand the annual report as
to the group companies. it looks very complex and doesn’t make sense? Simply
Contingent liabilities: Contingent liabilities are expenses, drop that company. Probably, the company is too
charges or any other liabilities which may arise in the complex and hence better avoided.
future and are dependent on uncertain events. These As far as the subscribers of Value Research Stock
events include pending cases in the court or warranties Advisor are concerned, they can rest assured that we
given to customers, etc. If a negative outcome can erode are avid readers of annual reports and quarterly
a substantial portion of the company’s net worth, one results and enjoy reading them. WI

STOCK
SCREEN
Ideas to delve deeper

S
ound investment methods outlast cycles and However, please note that they are not our
fads and generate profits over the long run. recommendations.
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 1,023

Safety Market cap greater than C-Score less than 4 596
Soundness `500 cr PEG less than 1
113
Good performance Z-Score greater than 2.99 P/E to median P/E less
F-Score greater than or equal than 1.5 106
Reasonable valuations
to 7 Earnings yield greater than 5% 40
Banking and finance companies were removed from this analysis as the metrics don’t apply to them.
Safe bets
Stock Altman Piotroski Modified Earnings Market Share 52-week
Company style Z-Score F-Score C-Score yield (%) P/E PEG cap (` cr) price (`) high/low (`)
HEG
Engineering 12.1 8 3 15.8 9.5 0.10 17,666 4,422 4955-1165
Manali Petrochemicals
Chemicals
5.1 9 3 19.5 8.7 0.34 601 35 56-30
Graphite India
Engineering
15.7 8 2 14.1 11.3 0.19 19,746 1,013 1127-432
UPL
Chemicals
3.6 8 2 8.6 15.8 0.68 32,552 638 850-537
Escorts
Automobile
5.2 9 2 9.1 19.0 0.83 7,646 618 1018-541
International Paper APPM

FMCG
4.0 9 1 9.1 18.3 0.34 1,900 477 591-277
Sunflag Iron & Steel Co 3.5 8 3 18.5 7.4 0.08 1,071 59 100-48
Metals
Goa Carbon 4.9 8 3 11.5 16.0 0.21 648 705 1215-397

Energy
Suven Life Sciences 10.4 8 3 8.6 18.9 0.72 3,169 248 338-161
Healthcare
VenkyS (India) 6.6 9 2 10.8 15.9 0.20 3,479 2,475 4725-1787

FMCG
National Aluminium Co 4.1 8 2 20.9 6.7 0.23 12,757 66 98-57

Metals
Quick Heal Technologies 32.6 8 1 17.5 13.8 0.16 1,326 188 404-181
Technology

STOCK
SCREEN

DCM Shriram
Diversified 3.9 9 2 14.4 9.1 0.51 5,985 384 628-237
Himadri Speciality Chem
Energy
4.9 9 3 7.9 19.6 0.19 5,266 126 197-106
Bhansali Engg Polymers
Chemicals
13.4 9 2 7.2 22.4 0.19 2,233 135 225-107
Zee Media Corporation

Services
6.0 9 2 7.0 18.9 1.00 1,226 26 50-22
Gujarat Narmada Valley

Chemicals
3.5 9 2 25.2 5.8 0.21 5,265 338 549-315
Maithan Alloys
Metals
6.9 8 1 32.1 5.2 0.10 1,559 536 1026-490
Star Cement 4.6 8 1 7.7 14.4 0.90 4,528 108 152-80

Construction
Tata Metaliks 3.9 8 0 13.0 9.2 0.23 1,473 578 976-545

Metals
Phillips Carbon Black 3.1 8 1 9.5 13.5 0.33 3,762 218 319-157
Chemicals
Meghmani Organics 4.2 9 2 17.9 9.8 0.12 1,972 77 129-69

Chemicals
HIL 4.6 9 1 9.8 16.2 0.84 1,554 2,094 2606-1180

Construction
NR Agarwal Industries 3.8 8 1 13.5 8.5 0.09 833 488 616-267

FMCG
Insecticides (India) 3.6 8 1 14.8 9.6 0.50 841 406 950-361

Chemicals
Action Const Equipment 5.4 9 2 8.6 18.3 0.33 1,198 103 204-69
Construction
Federal-Mogul Goetze (I) 7.0 8 2 6.4 26.6 0.17 2,285 413 592-392
Automobile
KNR Construction 4.3 8 2 9.4 9.3 0.23 2,599 184 349-165

Construction
Shemaroo Entertainment 12.7 8 2 10.2 16.1 0.82 1,205 437 595-373

Services
NRB Bearings 3.4 8 1 8.7 15.0 0.78 1,564 161 193-131

Engineering
Sharda Motor Industries 5.1 8 3 15.7 11.9 0.53 953 1,601 2754-1426
Automobile

STOCK
SCREEN

Cigniti Technologies 4.6 8 2 7.2 13.7 0.26 1,056 383 492-222

Technology
Ahluwalia Contracts (India) 7.6 8 2 10.5 17.4 0.45 1,983 296 443-260
Construction
Sandesh 7.1 8 2 28.6 8.6 0.99 636 839 1509-800

FMCG
Andhra Petrochemicals 8.3 8 3 11.0 10.6 0.09 762 90 99-36

Chemicals
Beekay Steel Industries 4.6 8 1 17.8 7.4 0.08 648 340 556-228
Metals
Confidence Petroleum India 7.9 8 0 6.3 27.7 0.46 919 34 57-21

Services
DIL 4.0 8 0 13.3 13.3 0.15 740 806 1123-255

Healthcare
Grauer & Weil (India) 7.7 8 1 8.8 17.9 0.76 1,209 53 86-42
Chemicals
Sandur Manganese
Metals
8.1 9 1 27.5 7.3 0.30 1,031 1,178 1470-771
Data as on October 17, 2018. New entrants.
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
1,023
Companies with strong `500 cr months YoY
fundamentals Earnings growth of:

At least 20% in latest quarter
194
YoY
Greater stability vis-a-vis
At least 20% in the past five Stocks with a P/E of less
value or growth years
than 15 65
On fast track
Stock 5Y median Quarterly EPS TTM EPS 5Y EPS Market cap Share 52-week
Company style P/E P/E PEG growth (%) growth (%) growth (%) (` cr) price (`) high/low (`)
HEG
Engineering
9.5 16.4 0.10 9,237.6 6,416 108 17,666 4,422 4955-1165
JK Paper
FMCG
10.2 10.3 0.16 50.0 36 146 3,015 170 194-97
Bajaj Holdings
Financial
8.8 8.2 0.46 32.2 33 31 28,740 2,577 3248-2451

STOCK
SCREEN
Magma Fincorp
Financial 10.9 11.8 1.17 54.0 1,860 26 2,760 102 194-97
Jain Irrigation Systems
Chemicals 13.4 34.9 0.13 71.5 46 42 3,274 66 150-55
Indiabulls Housing Fin
Financial 7.8 12.4 0.27 20.6 31 29 33,660 789 1440-766
Manali Petrochemicals
Chemicals 8.7 9.7 0.34 646.5 108 32 601 35 56-30
Graphite India
Engineering 11.3 18.6 0.19 2,759.9 1,228 85 19,746 1,013 1127-432
PNC Infratech
Services 10.7 16.8 0.23 243.9 85 20 3,458 136 228-122
Capital First
Financial 12.9 29.3 0.24 55.2 39 47 4,671 472 902-437
Yes Bank
Financial 11.8 17.1 0.43 29.5 21 20 53,518 232 404-165
L&T Finance Holdings

Financial 14.3 17.1 0.81 56.3 36 21 24,144 120 214-115
Sunflag Iron & Steel Co

Metals
7.4 10.8 0.08 59.4 99 73 1,071 59 100-48
Tata Power Company

Energy
5.0 27.7 0.06 379.1 240 77 19,583 73 102-60
Tata Steel
Metals
4.6 14.0 0.13 91.5 10,371 32 66,786 555 756-493
JSW Steel
Metals
11.0 18.8 0.16 276.4 234 67 87,431 362 428-238
Reliance Capital
Financial
4.6 10.5 0.50 172.0 173 21 6,272 248 626-222
IIFL Holdings
Financial
14.0 13.9 0.41 34.3 31 35 13,731 431 874-383
PPAP Automotive
Automobile
13.7 13.4 0.15 49.3 51 99 551 393 723-351
KEC International
Engineering
14.8 19.8 0.18 37.9 44 67 7,182 279 443-240
NOCIL 13.8 12.2 0.34 45.7 70 74 2,558 155 236-139

Chemicals
National Aluminium Co 6.7 13.4 0.23 432.8 187 83 12,757 66 98-57

Metals

STOCK
SCREEN
JMC Projects (India)

Construction 13.1 17.0 0.30 22.1 61 38 1,435 86 141-67
Kolte Patil Developers
Construction 12.9 16.6 1.85 63.5 48 22 1,761 229 405-205
Bhageria Industries
Chemicals 12.9 5.6 0.16 163.7 24 77 675 308 365-208
West Coast Paper Mills
FMCG 9.2 13.5 0.14 56.5 52 267 2,332 353 400-178
Thirumalai Chemicals
Chemicals 7.1 11.8 0.13 21.7 126 55 1,270 124 244-102
Rane (Madras)
Automobile
10.9 25.4 0.45 346.9 137 36 570 490 1050-421
DLF
Construction
5.7 41.5 0.12 56.1 702 59 25,775 144 274-143
India Glycols
Chemicals
9.8 17.5 0.58 411.0 193 27 1,290 416 621-315
Gujarat Narmada Valley

Chemicals
5.8 8.5 0.21 178.8 69 36 5,265 338 549-315
GM Breweries
FMCG
11.8 13.9 0.30 23.4 92 37 1,043 571 966-509
Bharat Bijlee
Engineering
8.3 39.2 0.14 431.0 511 102 643 1,136 1790-964
Maharashtra Seamless
Metals
12.0 17.0 0.68 169.4 65 31 3,149 471 552-407
Technocraft Industries (I)

Metals
12.3 9.8 1.25 46.2 38.8 34.7 1,427 581 630-421
Firstsource Solutions 12.3 10.0 0.71 34.2 27.3 28.3 4,292 62 84-36
Services
Gujarat Ambuja Exports 12.5 7.9 0.72 215.0 91.6 24.7 2,699 239 310-146
FMCG
Chennai Petroleum Corp 3.7 5.3 0.16 365.9 74.5 27.0 3,805 256 481-221
Energy
Prakash Industries 3.7 8.9 0.14 169.6 254.3 32.1 1,829 112 276-101
Diversified
Centrum Capital 4.7 62.1 0.05 3,863.1 742.3 133.5 1,724 41 67-30
Financial
Phillips Carbon Black 13.5 25.1 0.33 102.5 111.8 36.7 3,762 218 319-157
Chemicals

STOCK
SCREEN
Meghmani Organics
Chemicals 9.8 12.1 0.12 93.8 98.7 93.4 1,972 77 129-69
Himachal Futuristic Comm
Communication 14.9 11.5 0.55 73.0 68.4 35.6 2,590 21 37-18
NR Agarwal Industries
FMCG 8.5 8.3 0.09 35.6 66.3 95.4 833 488 616-267
Rain Industries
Construction 5.7 8.8 0.21 94.6 158.4 39.6 6,248 186 475-149
GNA Axles
Automobile 14.4 22.3 0.23 26.4 63.7 23.0 773 360 579-306
Sequent Scientific
Healthcare 3.0 52.5 0.06 46.6 31,545.9 38.7 1,263 52 119-43
Zuari Agro Chemicals
Chemicals 13.1 19.3 0.54 69.6 2,021.3 24.9 1,025 245 690-195
Sanwaria Consumer
FMCG 7.7 11.2 0.23 72.8 118.0 31.6 873 12 34-10
BL Kashyap & Sons

Construction 9.7 62.5 0.24 123.9 347.8 35.3 541 25 72-24
Gujarat Alkalies
Chemicals
7.0 7.1 0.30 92.1 96.4 23.4 4,358 599 935-432
Balaji Amines
Chemicals
13.3 11.2 0.41 48.6 51.5 32.6 1,651 507 782-408
LG Balakrishnan
Automobile
14.9 14.1 0.72 96.0 32.6 20.6 1,344 423 671-351
Renaissance Jewellery
Cons Durable
8.2 5.1 0.41 36.4 48.3 25.7 538 286 412-167
Cigniti Technologies
Technology
13.7 30.0 0.26 764.8 118.1 55.5 1,056 383 492-222
Andhra Petrochemicals
Chemicals
10.6 14.2 0.09 4,952.1 1,262.2 51.2 762 90 99-36
Beekay Steel Industries

Metals
7.4 9.1 0.08 77.1 106.7 30.1 648 340 556-228
DIL
Healthcare
13.3 25.7 0.15 478.9 443.0 98.8 740 806 1123-255
Dolat Investments 15.0 18.0 0.29 351.0 861.1 47.9 524 30 41-7
Financial
KSE 9.8 10.4 0.13 52.5 194.5 86.1 737 2,304 4000-1515
FMCG

STOCK
SCREEN
Sandur Manganese
Metals 7.3 11.0 0.30 182.1 102.8 27.7 1,031 1,178 1470-771
Satia Industries
FMCG 8.2 5.5 0.05 78.2 67.4 44.9 633 633 719-125
Stovec Industries
Engineering
14.1 19.0 0.45 28.3 31.9 50.9 508 2,435 3875-2211
Ultramarine & Pigments

Chemicals
13.8 13.9 0.39 68.2 44.0 40.1 695 238 435-211
WPIL 12.5 22.5 0.40 354.4 181.3 42.6 830 850 987-501
Engineering
Data as on October 17, 2018. EPS growth rates are annualised. Median P/E is for less than five years if five-year data are not available. 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
REASONS TO INVEST THE FILTERS
1,023
Really cheap Market cap greater than Companies must have a five-
Relatively undervalued `500 cr year earnings growth of more 814
Companies with assets Debt-equity ratio of less than than 10%
Price at least 10 per cent 571
1.5 times
Return on net worth of more below the book value
426
than 10% in the most recent
year 23
Bargain hunt
Stock Dividend Debt-equity Market cap Share 52-week
Company style P/B P/E PEG yield (%) ratio RoE (%) (` cr) price (`) high/low (`)
Ajmera Realty & Infra India

Construction
0.96 6.8 0.16 2.1 0.9 15.9 551 155 366-145
Bharat Road Network

Construction
0.94 31.0 - 0.4 1.0 11.5 1,105 129 210-128
BSE
Financial
0.99 13.8 -0.19 5.6 0.0 22.4 3,303 638 1000-624
Chennai Petroleum Corp

Energy
0.95 3.7 0.16 7.2 1.1 24.5 3,805 256 481-221
Dhampur Sugar Mills

FMCG
0.98 8.3 0.08 2.0 1.4 15.9 1,012 153 331-72

STOCK
SCREEN
Stock Dividend Debt-equity Market cap Share 52-week
Company style P/B P/E PEG yield (%) ratio RoE (%) (` cr) price (`) high/low (`)
DLF
Construction
0.75 5.7 0.12 1.4 0.5 14.5 25,775 144 274-143
Eros International Media

Services
0.32 3.1 0.32 0.0 0.3 11.0 738 77 260-60
Hinduja Global Solutions

Services
0.92 7.3 0.62 1.5 0.4 13.6 1,407 667 1038-572
Hindustan Media Ventures

FMCG
0.78 7.6 1.03 0.8 0.1 14.8 1,043 145 275-140
HT Media
FMCG
0.43 4.0 0.38 0.8 0.5 15.0 1,096 47 118-43
Indiabulls Real Estate

Construction
0.65 1.9 0.04 0.0 0.9 39.4 3,774 84 263-80
Indian Metals
Metals
0.61 6.5 0.24 5.4 0.7 16.4 751 280 799-243
Kiri Industries
Chemicals
0.92 3.9 0.18 0.0 0.1 11.2 1,332 424 682-399
Kuantum Papers
FMCG
0.76 7.2 0.18 0.4 0.5 11.1 538 616 1032-504
NLC India
Energy
0.97 8.9 1.27 5.3 1.0 15.4 12,985 85 119-65
PC Jeweller
Cons Durable
0.55 3.9 0.30 0.9 0.3 14.9 2,228 56 601-53
Polyplex Corporation
Chemicals
0.63 8.1 0.09 7.7 0.3 11.7 1,669 522 668-406
Prakash Industries
Diversified 0.64 3.7 0.14 0.0 0.3 14.5 1,829 112 276-101
Renaissance Jewellery
Cons Durable 0.94 8.2 0.41 0.0 0.6 11.9 538 286 412-167
Sandesh
FMCG 0.93 8.6 0.99 0.6 0.0 12.8 636 839 1509-800
Sarda Energy & Minerals

Metals 0.77 6.1 1.03 1.7 0.9 14.0 1,088 301 642-295
Srikalahasthi Pipes
Metals 0.71 6.6 0.06 3.3 0.3 14.8 849 182 449-171
Thomas Cook (India)

Services 0.89 1.3 0.01 0.2 0.0 120.8 7,751 210 303-193

STOCK
SCREEN
Attractive blue chips

Investing in blue chips at reasonable valuations is one of the simplest
methods of wealth creation with limited pain
REASONS TO INVEST THE FILTERS cleared the filters
Liquidity Large and mid caps
326
Large companies in respective businesses Debt-equity ratio of less than two
Strong balance sheets Interest coverage ratio should be more than 270
Liked by institutions two 212
Average ROE should not have fallen more than
91
20 per cent in any year
Annualised earnings growth of more than 20% 41
over the past five years 23
PEG of less than 1.5 10
Five-year average return on equity above 20%
Solid foundation
Stock Debt-equity Interest 5Y avg 5Y EPS Market cap Share 52-week
Company style P/E PEG ratio coverage ratio RoE (%) growth (%) (` cr) price (`) high/low (`)
Aarti Industries
Chemicals
29.7 1.18 1.3 4.3 22.8 31.5 10,191 1,252 1445-875
Abbott India
Healthcare
35.7 1.50 0.0 163.6 25.1 29.4 15,544 7,294 8820-4142
Aurobindo Pharma
Healthcare
18.8 0.47 0.4 42.7 31.0 21.6 44,309 756 827-527
Avanti Feeds
FMCG
14.7 0.20 0.0 147.7 48.7 71.5 5,681 418 980-355
Hero Motocorp 15.4 1.30 0.0 171.2 36.6 28.1 56,221 2,808 3883-2692
Automobile
Minda Industries 24.9 0.41 0.4 12.6 20.4 58.7 8,287 317 459-266
Automobile
Natco Pharma 17.0 0.27 0.1 58.6 21.9 54.2 13,302 717 1050-636
Healthcare
Rajesh Exports 12.0 0.53 1.2 3.5 20.9 22.8 16,477 558 874-542
Cons Durable
Sundram Fasteners 29.8 0.91 0.5 15.8 20.9 43.1 11,417 541 689-470
Engineering
Tata Elxsi 21.6 0.49 0.0 456.5 39.1 44.3 6,178 991 1491-821
Technology
Data as on October 17, 2018. EPS growth rates are annualised. New entrants.

STOCK
SCREEN
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 sustained per 1,023
Higher total return `500 cr share dividend and amount
889
Generate regular tax-free Dividend payout ratio of less over the past five years
income than 40% 20
Stocks with a current dividend
11
yield of more than 3%
Dear dividend
Stock Dividend Dividend Dividend Earnings Market cap Share 52-week
Company style P/E PEG per share (`) yield (%) pay-out ratio (%) yield (%) (` cr) price (`) high/low (`)
BSE
Financial
13.8 -0.2 36.0 5.6 27.0 53.0 3,303 638 1000-624
Gujarat Industries Power

Energy
4.6 1.3 2.7 3.7 24.6 22.6 1,110 74 146-68
Gujarat Mineral Dev Corp 6.4 -2.3 3.5 3.7 31.5 21.6 3,042 96 181-84
Energy
IRB Infrastructure Dev 4.8 0.4 5.0 4.0 19.1 14.3 4,428 126 286-120
Construction
Moil 10.1 -33.8 5.5 3.2 36.0 29.3 4,441 173 286-155
Metals
NLC India 8.9 1.3 4.5 5.3 35.2 9.3 12,985 85 119-65
Energy
ONGC 9.4 2.8 6.6 3.0 38.3 11.4 2,08,027 162 213-145
Energy
PTC India 7.1 0.4 4.0 5.3 33.3 4.0 2,230 75 128-64
Energy
Reliance Capital 4.6 0.5 11.0 4.4 21.2 13.6 6,272 248 626-222
Financial
Reliance Infrastructure 6.5 -0.6 9.5 3.0 18.7 23.2 8,328 317 590-275
Energy
Srikalahasthi Pipes 6.6 0.1 6.0 3.3 19.0 27.0 849 182 449-171
Metals

WORDS WORTH
NOW
I again say that Aadhaar challenge still stands.

My Aadhaar is still public and nobody has been
able to do any harm. I still maintain that Aadhaar
disclosure does not increase digital vulnerability.
R S Sharma TRAI chief, Financial Express, October 12, 2018
Where the IL&FS issue is The Fed is going wild. They’re

concerned, I would blame it entirely raising interest rates and it’s
on the rating agency. Even till as ridiculous... That’s not the
late as August they were enjoying problem (trade stand-off with
AA and AAA rating and all of a China). The problem in my
sudden it was reduced to junk. opinion is the Fed... I think the
Ashok Kumar Pradhan MD & CEO, United Bank of Fed has gone crazy.
India, BusinessLine, October 15, 2018 Donald Trump US President, Business
Standard, October 12, 2018
...When a country like the US

will see higher growth, inflation
rising, unemployment at rock Trade is very critical because
bottom, clearly there will be that is what has lifted people
monetary tightening and interest out of extreme poverty. I am a
rates will impact financing flows globalist. That is my job. That
and financing costs and this will is our only chance of ending
determine capital flows. We need extreme poverty. We need more
to prepare for that and now is the trade, not less trade.
time... Measures can still be taken Jim Yong Kim President, World Bank,
and shock absorbers put in to deal Financial Express, October 12, 2018
with this new reality.
Christine Lagarde MD, IMF, The Economic Times,
October 12, 2018 Calibrated tightening means that in the
current rate cycle, a cut
in the policy repo rate
is off the table, and
we are not obliged to
increase the rate at
every policy meeting.
Urjit Patel RBI Governor,
Financial Express,
October 20, 2018

WHEN YOU REAP THE BENEFITS,
SOW A NEW SEED.
REACH FOR BETTER™
IN LIFE. AND YOUR INVESTMENTS.
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Total pages 64, including cover

4 Wealth Insight November 2018

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Do NBFCs yield to Fulfilling the dream of a

November 2018 Wealth Insight 5

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Optionality and opportunity

November 2018 Wealth Insight 7

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Do NBFCs yield to the yields?

Financial Services Index

Bajaj Finance Can Fin Homes

2800 8.5 600 8.5

2100 7.5 450 7.5

1400 Correlation 6.5 300 Correlation 6.5

700 -0.34 5.5 150

8 Wealth Insight November 2018

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Dewan Housing Finance GIC Housing Finance

600 8.5 600 8.5

450 7.5 450 7.5

Gruh Finance HDFC

320 8.5 2000 8.5

240 7.5 1500 Correlation 7.5

80 5.5 500 5.5

Indiabulls Housing Finance LIC Housing Finance

1200 8.5 340 8.5

900 Correlation 7.5 280 7.5

300 5.5 160 5.5

0 4.5 100 4.5

PNB Housing Finance Repco Home Finance

1500 8.5 340 8.5

1200 7.5 280 7.5

900 6.5 220 6.5

300 4.5 100 4.5

November 2018 Wealth Insight 9

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Schloss’s 1 Price is the most important factor to

10 Wealth Insight August 2018

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7 Have the courage of your convictions

9 Don’t be in too much of a hurry to

November 2018 Wealth Insight 11

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Nifty Financial Services

Nifty Financial Services Nifty Median

5600 HDFC Bank 5,34,278 9.1

18 Indiabulls Housing 41,750 -23.7

4.20 Power Finance Corp 20,487 -37.1

1.25 HDFC Bank 4.6 REC 0.6

12 Wealth Insight November 2018

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Large caps Price to earnings Net profit (` crore)

November 2018 Wealth Insight 13

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Mid caps Price to earnings Net profit (` crore)

14 Wealth Insight November 2018

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Small caps Price to earnings Net profit (` crore)

November 2018 Wealth Insight 15

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