Wi 2018 04

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Value Research
April 2018
Volume XI, Number 10
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33 COVER STORY
Editor
Dhirendra Kumar
What top fund managers
Associate Editor
Vibhu Vats
Special Correspondent
Kumar Shankar Roy
are buying now
Data Support
Prasobh Nair
Design
Mukul Ojha, Kiran Sindhwal
Production
8 MONTHLY AGENDA 21 STOCK ADVISOR
Hira Lal
Data source for stocks

Health check of What’s important,
AceEquity
PSU banks what’s not
© 2018 Value Research India Pvt. Ltd.
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Total pages 64, including cover
4 Wealth Insight April 2018

Columns
7 10 WORDS WORTH WISDOM 24 INTERVIEW
EDIT
by DHIRENDRA
KUMAR
The changing
definition of
value
investing
The simplistic, ratio-based
ways of judging value are
no longer useful
Warren Buffett’s latest “PSU banks never fit

annual letter into our criteria”
44 Jinesh Gopani
Head - Equity, Axis Mutual Fund
STRAIGHT
TALK
by ANAND
TANDON 14 MARKET COMPASS 51 STOCK ANALYST’S CHOICE
Remembering Index watch Our scorecard

Ricardo Big moves
Amidst a looming
trade war, it’s worth The pledging tracker 54 STOCK SCREEN
recalling the principles Crashing big time Quality stocks available

of classical economics
cheap
27 VIS-A-VIS Attractive blue chips
Who’s riding pillion? High dividend-yield stocks
Reasonably priced
46 28 ANALYST’S DIARY growth stocks
OFFBEAT Slow and steady wins Discount to book value
by SANJEEV the race
PANDIYA On your mark, get set, 62 WORDS WORTH NOW
Macro- invest
shamonomics Capping the capex
Why over-reliance
on macroeconomics Making sense of IT
is risky
companies
DISCLAIMER
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April 2018 Wealth Insight 5

EDIT
The changing definition

of value investing
The simplistic, ratio-based ways of judging value are no longer useful
DHIRENDRA KUMAR
There are two opposite instincts that one-third or less of sellout value, he would say that
govern how people spend their money. One is to buy you’ve got a lot of edge going for you. Even with an
expensive things in order to signal status and the elderly alcoholic running a stodgy business, this
other is to get a good bargain. Ideally, we would like to significant excess of real value per share working for
combine both. That sounds like an impossibly good you means that all kinds of good things can happen to
deal but then the fun of getting a deal is the maximum you. You had a huge margin of safety—as he put it—by
when it’s good. having this big excess value going for you.”
It’s a basic human instinct to use the price of However, that was in the 1930s. Eventually that kind
something to judge its intrinsic value. People express of deep value became available only when companies
their wealth and their status in society by buying had something intrinsically wrong with them. In the
things that are more expensive. Whether it’s something 1992 letter to shareholders, Buffett wrote, “Whether
trivial like a shaving blade or some substantial expense appropriate or not, the term “value investing” is widely
like a car or even a massive layout on a house, rich used. Typically, it connotes the purchase of stocks
people spend more on the same kind of things. This having attributes such as a low ratio of price to book
behaviour is a part of human nature and really there’s value, a low price-earnings ratio, or a high dividend
nothing fundamentally wrong with it. People acquire yield. Unfortunately, such characteristics, even if they
wealth to signal status and it brings them a feeling of appear in combination, are far from determinative as to
fulfilment to be able to do so. In general, when we are whether an investor is indeed buying something for
not confident about the intrinsic worth of something, what it is worth and is therefore truly operating on the
we take its price as a signal. principle of obtaining value in his investments.
However, when it comes to investing, there’s trouble. Correspondingly, opposite characteristics – a high ratio
Are expensive things better? As far as investing goes, of price to book value, a high price-earnings ratio, and
the answer is supposed to be clear – cheaper things are a low dividend yield – are in no way inconsistent with a
better. The classic ‘value investing’ perspective is that “value” purchase. Growth benefits investors only when
investors should buy only stocks that are available the business in point can invest at incremental returns
cheaper than their intrinsic value. And what is intrinsic that are enticing – in other words, only when each
value? Well, that’s been evolving. dollar used to finance the growth creates over a dollar
There was the original concept, as formulated by the of long-term market value. In the case of a low-return
father of value investing, Benjamin Graham. Here’s business requiring incremental funds, growth hurts
how Warren Buffett’s partner Charlie Munger describes the investor.”
that: “Graham had this concept of value to a private In essence, what Munger and Buffett are saying that
owner—what the whole enterprise would sell for if it the simplistic, ratio-based ways of judging value are no
were available. And that was calculable in many cases. longer useful. All investing is both for value and
Then, if you could take the stock price and multiply it growth, for it’s only growth that can generate value in
by the number of shares and get something that was the future. The skill is in judging.

MONTHLY
AGENDA
Health check of PSU banks
State of non-performing assets

NPAs Book value NPAs Net NPA/
Company name (` cr) (` cr) (% of assets) Book value (%)
Bank of Maharashtra 10,670 6,903 12.2 155

Indian Overseas Bank 17,761 13,089 13.1 136
Corporation Bank 13,854 10,497 10.7 132
IDBI Bank 29,353 24,143 16.0 122
All data as on March 14, 2018
Oriental Bank 14,195 11,877 9.5 120
United Bank of India 7,365 6,610 12.0 111
Bank of India 36,117 32,414 10.3 111
PNB and PSU banks since the revelation Dena Bank 7,564 7,301 11.5 104
of the Nirav Modi scam Central Bank of India 15,311 15,264 9.5 100
zNifty 50 zNifty PSU Bank zPunjab National Bank
UCO Bank 11,923 11,906 10.9 100
1100
Allahabad Bank 13,647 15,039 9.0 91
1000 Andhra Bank 10,858 12,121 7.7 90
Union Bank of India 20,428 23,187 7.0 88
900
Syndicate Bank 11,410 14,026 5.4 81
800 Punjab & Sind Bank 4,439 5,904 7.2 75

Canara Bank 25,295 34,220 6.8 74
700 Punjab National Bank 34,076 48,997 7.6 70
Rebased to 1000 Bank of Baroda 19,852 40,637 5.0 49

600
Feb 14, 2018 Mar 14, 2018 Vijaya Bank 4,317 9,272 4.0 47
State Bank of India 1,02,370 2,28,061 5.6 45
Indian Bank 4,899 17,974 3.3 27
PSU banks vs the market over 10 years
zNifty 50 zNifty PSU Bank Net NPA(` cr) Median net Net NPA/
2500 Book value (` cr) NPA % Book value (%)
4,15,705
All listed PSU banks 8.97 71%
2000 5,89,441
53,692
All listed private banks 2.35 13%
1500
4,27,649
Highest gross NPA Lowest gross NPA

1000
IDBI Bank Indian Bank
500
Mar 2008
Rebased to 1000
Mar 2018 16.02% 3.30%

MONTHLY
AGENDA
How PSU bank stocks have fared

Market cap Mcap 10Y Change in 10Y
Company (` cr) ago (` cr) mcap (` cr) CAGR (%)
Bank of Baroda 33,560 10,480 23,080 9.7

Indian Bank 14,589 7,377 7,212 5.9
State Bank of India 2,21,844 1,08,256 1,13,588 4.1
Canara Bank
Central Bank of India
19,028
14,827
9,102
3,247
9,926
11,580
1.9
1.0
Then and now
Market cap in ` cr
Punjab National Bank 24,098 14,906 9,192 0.5 2008 2018
Vijaya Bank 6,304 2,408 3,896 0.2
Syndicate Bank 6,326 3,964 2,362 -2.2
IDBI Bank 19,515 7,048 12,467 -2.7
Union Bank of India 8,737 7,415 1,322 -3.6 Private
Corporation Bank 3,487 3,653 -166 -5.0 2,22,703 banks 12,98,368
UCO Bank 4,387 3,157 1,230 -5.1
Allahabad Bank 4,208 3,985 223 -5.7
Oriental Bank 3,503 4,818 -1,315 -6.2 Public
Andhra Bank 3,600 3,953 -352 -6.6 2,19,887 banks 4,13,054
Bank of India 12,213 14,731 -2,518 -9.5
Dena Bank 2,245 1,678 567 -10.2
Bank of Maharashtra 2,049 2,120 -71 -11.3
HDFC
Indian Overseas Bank 5,192 7,589 -2,397 -18.4 46,643 Bank 4,83,827
Best-performing PSB Worst-performing PSB
Bank Of Baroda Indian Overseas Bank
9.7% -18.4%
State
1,08,256 Bank 2,21,844
(10Y CAGR)

WORDS WORTH
WISDOM
Warren
Buffett’s
latest
annual
letter
W
arrren Buffett, the all-time star investor, all deals we reviewed in 2017, as prices for decent, but
whom numerous investors around the world far from spectacular, businesses hit an all-time high.
follow has never written a book. What we Indeed, price seemed almost irrelevant to an army of
know about him and about his investment approach optimistic purchasers.
comes down to us through this annual letter to Why the purchasing frenzy? In part, it’s because
Bekshire Hathaway’s shareholders. The 2017 letter of the CEO job self-selects for “can-do” types. If
Berkshire also is full of investment wisdom. Here are Wall Street analysts or board members urge
the most insightful excerpts. that brand of CEO to consider possible acquisi-
tions, it’s a bit like telling your ripening teen-
The folly of corporate acquisitions ager to be sure to have a normal sex life.
In our search for new stand-alone businesses, the key Once a CEO hungers for a deal, he or she will
qualities we seek are durable competitive strengths; never lack for forecasts that justify the purchase.
able and high-grade management; good returns on the Subordinates will be cheering, envisioning enlarged
net tangible assets required to operate the business; domains and the compensation levels that typically
opportunities for internal growth at attractive increase with corporate size. Investment bankers,
returns; and, finally, a sensible purchase price. smelling huge fees, will be applauding as well. (Don’t
That last requirement proved a barrier to virtually ask the barber whether you need a haircut.) If the his-

WORDS WORTH
WISDOM
torical performance of the target falls short of vali- There is simply no telling how far stocks can
dating its acquisition, large “synergies” will be fore- fall in a short period. Even if your borrowings
cast. Spreadsheets never disappoint. are small and your positions aren’t immediate-
The ample availability of extraordinarily cheap ly threatened by the plunging market, your
debt in 2017 further fueled purchase activity. After all, mind may well become rattled by scary head-
even a high-priced deal will usually boost per-share lines and breathless commentary. And an
earnings if it is debt-financed. At Berkshire, in con- unsettled mind will not make good decisions.
trast, we evaluate acquisitions on an all-equity basis, ...
knowing that our taste for overall debt is very low and When major declines occur, however, they offer
that to assign a large portion of our debt to any indi- extraordinary opportunities to those who are not
vidual business would generally be fallacious... We handicapped by debt. That’s the time to heed these
also never factor in, nor do we often find, synergies. lines from Kipling’s If:
Our aversion to leverage has dampened our “If you can keep your head when all about you are los-
returns over the years. But Charlie and I sleep well. ing theirs . . .
Both of us believe it is insane to risk what you If you can wait and not be tired by waiting . . .
have and need in order to obtain what you If you can think – and not make thoughts your aim . . .
don’t need. We held this view 50 years ago when we If you can trust yourself when all men doubt you . . .
each ran an investment partnership, funded by a few Yours is the Earth and everything that’s in it.”
friends and relatives who trusted us. We also hold it
today after a million or so “partners” have joined us The bet
at Berkshire. [Note: This excerpt is about Buffett’s $1 million dol-
...In the meantime, we will stick with our simple lar with Protégé Partners. Buffett bet that over a
guideline: The less the prudence with which others decade, the stock index would outperform a basket
conduct their affairs, the greater the prudence with of hedge funds. At the end of the 10-year period in
which we must conduct our own. 2016, the S&P 500 had returned 7.1 per cent annual-
ly. The basket of hedge funds had returned just 2.2
Investments per cent annualised. Initially, both Buffett and
Charlie and I view the marketable common Protégé put $320,000 each in Treasury bonds. They
stocks that Berkshire owns as interests in busi- estimated that the amount would be $1 million by
nesses, not as ticker symbols to be bought or 2018. Later, however, they moved the money to
sold based on their “chart” patterns, the “tar- Berkshire’s Class B shares.]
get” prices of analysts or the opinions of I made the bet for two reasons: (1) to leverage my
media pundits. Instead, we simply believe that outlay of $318,250 into a disproportionately larger sum
if the businesses of the investees are success- that – if things turned out as I expected – would be
ful (as we believe most will be) our investments distributed in early 2018 to Girls Inc. of Omaha; and
will be successful as well. Sometimes the payoffs (2) to publicize my conviction that my pick – a virtual-
to us will be modest; occasionally the cash register ly cost-free investment in an unmanaged S&P 500
will ring loudly. And sometimes I will make expensive index fund – would, over time, deliver better results
mistakes. Overall – and over time – we should get than those achieved by most investment professionals,
decent results. In America, equity investors have the however well-regarded and incentivized those “help-
wind at their back. ers” may be.
... Addressing this question is of enormous impor-
...Berkshire shares have suffered four truly major tance. American investors pay staggering sums annu-
dips. Here are the gory details: ally to advisors, often incurring several layers of con-
Percentage
sequential costs. In the aggregate, do these investors
Period High Low Decrease get their money’s worth? Indeed, again in the aggre-
March 1973-January 1975 93 38 (59.1%) gate, do investors get anything for their outlays?
Protégé Partners, my counterparty to the bet,
10/2/87-10/27/87 4,250 2,675 (37.1%)
picked five “funds-of-funds” that it expected to over-
6/19/98-3/10/2000 80,900 41,300 (48.9%) perform the S&P 500. That was not a small sample.
9/19/08-3/5/09 147,000 72,400 (50.7%) Those five funds-of-funds in turn owned interests in
more than 200 hedge funds.
This table offers the strongest argument I can mus- Essentially, Protégé, an advisory firm that knew its
ter against ever using borrowed money to own stocks. way around Wall Street, selected five investment

WORDS WORTH
WISDOM
experts who, in turn, employed several hundred other The five funds-of-funds got off to a fast start, each
investment experts, each managing his or her own beating the index fund in 2008. Then the roof fell in. In
hedge fund. This assemblage was an elite crew, loaded every one of the nine years that followed, the funds-of-
with brains, adrenaline and confidence. funds as a whole trailed the index fund.
The managers of the five funds-of-funds pos- Let me emphasize that there was nothing aberra-
sessed a further advantage: They could – and did – tional about stock-market behavior over the ten-year
rearrange their portfolios of hedge funds during the stretch. If a poll of investment “experts” had been
ten years, investing with new “stars” while exiting asked late in 2007 for a forecast of long-term com-
their positions in hedge funds whose managers had mon-stock returns, their guesses would have likely
lost their touch. averaged close to the 8.5% actually delivered by the
Every actor on Protégé’s side was highly incentiv- S&P 500. Making money in that environment should
ized: Both the fund-of-funds managers and the hedge- have been easy. Indeed, Wall Street “helpers” earned
fund managers they selected significantly shared in staggering sums. While this group prospered, however,
gains, even those achieved simply because the market many of their investors experienced a lost decade.
generally moves upwards. (In 100% of the 43 ten-year Performance comes, performance goes. Fees
periods since we took control of Berkshire, years with never falter.
gains by the S&P 500 exceeded loss years.) The bet illuminated another important investment
Those performance incentives, it should be empha- lesson: Though markets are generally rational, they
sized, were frosting on a huge and tasty cake: Even if occasionally do crazy things. Seizing the opportuni-
the funds lost money for their investors during the ties then offered does not require great intelli-
decade, their managers could grow very rich. That gence, a degree in economics or a familiarity
would occur because fixed fees averaging a staggering with Wall Street jargon such as alpha and beta.
2½% of assets or so were paid every year by the fund- What investors then need instead is an ability to
of-funds’ investors, with part of these fees going to the both disregard mob fears or enthusiasms and to
managers at the five funds-of-funds and the balance focus on a few simple fundamentals. A willing-
going to the 200-plus managers of the underlying ness to look unimaginative for a sustained peri-
hedge funds. od – or even to look foolish – is also essential.

WORDS WORTH
WISDOM
Stocks over bonds Investing is an activity in which con-

Originally, Protégé and I each funded our portion of sumption today is foregone in an attempt to
the ultimate $1 million prize by purchasing $500,000 allow greater consumption at a later date.
face amount of zero-coupon U.S. Treasury bonds “Risk” is the possibility that this objective
(sometimes called “strips”). These bonds cost each won’t be attained.
of us $318,250 – a bit less than 64¢ on the dollar – By that standard, purportedly “risk-free” long-
with the $500,000 payable in ten years. term bonds in 2012 were a far riskier investment than
As the name implies, the bonds we acquired paid a longterm investment in common stocks. At that
no interest, but (because of the discount at which time, even a 1% annual rate of inflation between 2012
they were purchased) delivered a 4.56% annual and 2017 would have decreased the purchasing-power
return if held to maturity. Protégé and I originally of the government bond that Protégé and I sold.
intended to do no more than tally the annual returns I want to quickly acknowledge that in any
and distribute $1 million to the winning charity upcoming day, week or even year, stocks will be
when the bonds matured late in 2017. riskier – far riskier – than short-term U.S.
After our purchase, however, some very strange bonds. As an investor’s investment horizon
things took place in the bond market. By November lengthens, however, a diversified portfolio of
2012, our bonds – now with about five years to go U.S. equities becomes progressively less risky
before they matured – were selling for 95.7% of their than bonds, assuming that the stocks are pur-
face value. At that price, their annual yield to matu- chased at a sensible multiple of earnings rela-
rity was less than 1%. Or, to be precise, .88%. tive to then-prevailing interest rates.
Given that pathetic return, our bonds had It is a terrible mistake for investors with long-
become a dumb – a really dumb – investment com- term horizons – among them, pension funds, college
pared to American equities. Over time, the S&P 500 endowments and savings-minded individuals – to
– which mirrors a huge cross-section of American measure their investment “risk” by their portfolio’s
business, appropriately weighted by market value – ratio of bonds to stocks. Often, high-grade bonds in
has earned far more than 10% annually on share- an investment portfolio increase its risk.
holders’ equity (net worth).
In November 2012, as we were considering all The need to be patient
this, the cash return from dividends on the S&P A final lesson from our bet: Stick with big, “easy”
500 was 2½% annually, about triple the yield on decisions and eschew activity. During the ten-
our U.S. Treasury bond. These dividend payments year bet, the 200-plus hedge-fund managers that were
were almost certain to grow. Beyond that, huge involved almost certainly made tens of thousands of
sums were being retained by the companies com- buy and sell decisions. Most of those managers
prising the 500. These businesses would use their undoubtedly thought hard about their decisions,
retained earnings to expand their operations and, each of which they believed would prove advanta-
frequently, to repurchase their shares as well. geous. In the process of investing, they studied
Either course would, over time, substantially 10-Ks, interviewed managements, read trade jour-
increase earnings-per-share. And – as has been nals and conferred with Wall Street analysts.
the case since 1776 – whatever its problems of the Protégé and I, meanwhile, leaning neither on
minute, the American economy was going to research, insights nor brilliance, made only one
move forward. investment decision during the ten years. We simply
Presented late in 2012 with the extraordinary val- decided to sell our bond investment at a price of
uation mismatch between bonds and equities, more than 100 times earnings (95.7 sale price/.88
Protégé and I agreed to sell the bonds we had bought yield), those being “earnings” that could not
five years earlier and use the proceeds to buy 11,200 increase during the ensuing five years.
Berkshire “B” shares. The result: Girls Inc. of We made the sale in order to move our money
Omaha found itself receiving $2,222,279 last month into a single security – Berkshire – that, in turn,
rather than the $1 million it had originally hoped for. owned a diversified group of solid businesses.
Berkshire, it should be emphasized, has not per- Fueled by retained earnings, Berkshire’s growth in
formed brilliantly since the 2012 substitution. But value was unlikely to be less than 8% annually, even
brilliance wasn’t needed: After all, Berkshire’s gain if we were to experience a so-so economy.
only had to beat that annual .88% bond bogey – hard- After that kindergarten-like analysis, Protégé and
ly a Herculean achievement. I made the switch and relaxed, confident that, over
... time, 8% was certain to beat .88%. By a lot. WI

MARKET
C MPASS INDEX WATCH
Nifty PSU Bank

–
Price to earnings
0.97
Price to book
0.78
Dividend yield (%)
3.72
Market cap
(` lakh cr)
Nifty PSU Bank Nifty Median

Top gainers/losers
NIFTY PSU Bank has underperformed Nifty 50 over five years.
Company name M-cap (` cr) 1-year change (%)
6800
IDBI Bank 20,611 5.6
5800
Andhra Bank 3,753 4.2
4800
Allahabad Bank 4,313 2.5
3800
Canara Bank 19,409 2.0
2800
Bank of India 12,379 1.4
1800
Mar ’13 Mar ’14 Mar ’15 Mar ’16 Mar ’17 Mar ’18 1.2
Syndicate Bank 6,399
Price/earnings is currently negative. Indian Bank 14,671 0.6
30 250 Punjab National Bank 24,086 -0.1
24 200 Oriental Bank 3,488 -0.4
18 150 State Bank of India 220,549 -0.6
12 100 Union Bank of India 8,682 -0.6
6 50 Bank of Baroda 33,180 -1.1
0 0
Mar ’13 Mar ’14 Mar ’15 Mar ’16 Mar ’17 Mar ’18
Valuations and dividend

Price/book value is at 4.9% discount to the five-year median P/B of 1.02.
Dividend
5 Company name P/E P/B yield (%)
4 Allahabad Bank 0.0 0.38 0.00
3 Andhra Bank 0.0 0.35 0.00
2 Bank of Baroda 40.2 0.90 0.83
1 Bank of India 0.0 0.51 0.00
0 Canara Bank 22.8 0.58 0.38

IDBI Bank 0.0 1.10 0.00
Dividend yield is 89 basis points lower than the five-year median of 1.67%. Indian Bank 10.1 0.94 1.97
5.5
Oriental Bank 0.0 0.41 0.00
4.5
Punjab National Bank 17.3 0.53 0.00
3.5 State Bank of India 55.3 1.19 1.02
2.5 Syndicate Bank 0.0 0.50 0.00
1.5 Union Bank of India 0.0 0.42 0.00
0 Data as on March 15, 2018

MARKET
C MPASS BIG MOVES: LARGE CAPS
Our large-cap universe has 113 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.
Price to earnings Net profit (` crore)
3M returns (%) 3Y avg RoE (%) 3Y earnings growth (%) 3M price (`) movement
-12.8 179.6 246.5

United Spirits 3032
Profit in Q3 fell by 8.8 per cent YoY, from `147.7
crore to `134.7 crore. -24.5 26.9 3476
-13.0 11.7 3212.2

NMDC
118
Mineral and metal companies corrected amidst trade-
war threats. 13.1 -23.0 135
-17.3 – -2068.6
SAIL 69
Mineral and metal companies corrected amidst trade-
war threats. -4.4 -197.8 83
-19.4 22.3 1632.3

Bharat Electronics 148
The stock fell amidst a market-wide correction.
15.9 13.8 184
-20.5 4.8 5131.4

157
Rural Electrification
Power-sector NPAs may see a spike in the future.
21.5 -1.4 125
-20.7 37.4 825.3

Bank of Baroda 133
PSU banks fell in the aftermath of the Nirav Modi
scam at PNB. 0.6 -40.7 168
-21.1 – -3879.9
Idea Cellular 98
The company posted a loss of `1,280 crore in the
December quarter amidst intense competition. 7.6 -210.9 78
-22.3 – -70.1
State Bank of India 319
PSU banks fell in the aftermath of the Nirav Modi
scam at PNB. 6.2 -116.2 248
-25.3
536
Bharti Airtel 114.1 1107.0
The company’s profit fell 39 per cent YoY in the
December quarter amidst intense competition. 8.7 -36.7
401
-31.6 37.8 755.9

Vakrangee
260
The company is under SEBI investigation for
manipulating its stock price. 33.5 36.4 381
Data as on March 19, 2018

MARKET
BIG MOVES: MID CAPS C MPASS
Our mid-cap universe has 259 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.
80.5 – -4844.0
Reliance Communications 23
The company plans to sell its wireless business to cut
its debt. -0.2 -285.6 13
67.7 29.7 443.5

3375
HEG
Restriction on the graphite production in China is
positive for the company. -0.7 75.9 2012
44.7 29.8 190.2

Venky’s (India) 4096
The company’s net profit increased by 66.4 per cent
in December quarter, to `69.4 crore. 13.7 119.3
2831
14.6 – -1452.0
Jai Prakash Associates 20
Rakesh Jhunjhunwala bought more than 1 per cent
stake in the company. -50.3 -245.3 17
-9.8 105.2 86.2

Infibeam Incorporation 165
Due to its expensive valuations, the stock tends to
fluctuate wildly. 0.0 – 148
-18.9 25.4 559.2

PC Jeweller
365
The stock fluctuated on the rumours of its promoters’
investment in the embattled Vakrangee. 17.8 17.8 450
-26.2 – -6402.1
Adani Power 26
Consolidated loss doubled to `1,291 crore in
December quarter from `668 crore YoY. -41.1 -285.8 35
-36.4
338
KIOCL 277.1 21.3
The company has become overheated in terms of
valuations. 0.0 –
215
-44.7 – -3120.0
181
Bank of India
The company’s gross NPA stood at 16.93 per cent in
the December quarter. -7.6 -210.3 100
-45.9 16.9 1396.0

178
Punjab National Bank
The company fell prey to a `12,700 crore scam
perpetrated by the jeweller Nirav Modi. 0.6 -26.8 96

MARKET
C MPASS BIG MOVES: SMALL CAPS
Our small-cap universe (minimum market capitalisation `400 crore) has 789 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.
391
146.4 – 0.59
Gala Print City
The stock went up without any apparent reason.
Investors should be careful. 3.8 60
159
114.9 238.0 8.9

248
Optiemus Infracom
The firm made a foray into Bangladesh.
6.5 -37.7
115
54.8 35.4 36.0

DB Realty 54
Vinod Goenka (chairman and MD) was acquitted in
the 2G case. -1.3 47.0 35
39.6 – -2915.9
Lanco Infratech 1.3
The stock has gone up in the near term but has
proved to be a wealth destroyer overall. -143.9 -206.5 0.9
-30.4 – -2005.5
Jaypee Infratech 10
The company is undergoing insolvency resolution.
-6.3 -294.6 15
-39.5 10.2 56.6

Hubtown
78
The stock corrected amidst a fall in small caps.
-1.2 20.3 128
-44.0 313.8 1.7

Millitoons Entertainment 29
The company’s valuations had become pricey.
0.5 319 52
-47.3 – -26.5
GTL Infrastructure
3
The company’s revenues and earnings can be
impacted by Aircel’s bankruptcy. 25.2 6
-60.8 -1159.8
Electrosteel Steels
The company is undergoing insolvency resolution.
-326.3 -166.2 6
2
-75.2 -104.2
188
Bombay Rayon Fashions
The company posted a net loss of `25.2 crore. Its
operating margins also contracted. -3.8 -235.0 47

MARKET
C MPASS
The pledging tracker

Here are companies in which promoter pledging has shown a marked rise or
fall between September and December 2017
P
romoter pledging is an important analytical
parameter. When promoters pledge shares, they
keep shares as collateral with a financial
institution, such as a bank, to raise money. It’s just
like mortgaging something for money. Later you pay
the loan back and get your thing released.
Pledging is not always bad. Many times promoters
pledge their stake for sound business reasons and later
release their pledged shares. But pledging takes an ugly
turn when the pledged stake is high and the promoter
is unable to pay back the dues. This may force the
financing institution to sell the pledged stake, which
can result in a sudden fall in the stock price.
Generally speaking, a high pledged stake also
indicates a bad management. Investors should stay
away from companies that have high levels of pledging.
The first table below mentions companies in which
pledging has gone up by 10 per cent or more in the last
quarter and the pledged stake is now at least 25 per
cent. The second table mentions companies in which
pledging has gone down by 10 per cent. WI
Increase in pledging
Mkt cap Pledged stake (%) Increase in Promoter 3M stock Debt to
Company name Industry (` crore) Dec-17 Sep-17 pledging (%) stake (%) return (%) Z-Score F-Score equity
Patel Engineering Construction 1,064 93.3 0.0 93.3 20.7 -11.8 1.9 5 2.0
Garden Silk Mills Textile 148 88.4 0.0 88.4 57.7 -1.5 1.7 7 -12.8
Reliance Capital Finance - NBFC 11,312 68.4 34.2 34.2 52.2 8.6 0.0 0 1.4
Inditrade Capital Finance - Stock Broking 160 33.6 0.0 33.6 71.8 -16.9 0.0 0 0.0
Mideast Integrated Steels Steel & Iron Products 713 29.1 0.0 29.1 65.5 -22.9 0.8 5 0.1
Axiscades Engineering IT - Software 545 46.1 18.0 28.1 66.1 -7.1 7.6 2 0.1
Arcotech Metal - Non Ferrous 421 45.2 19.3 26.0 74.4 -15.1 2.7 6 1.3
Cineline India Entertainment 219 25.8 0.0 25.8 69.3 -7.9 5.2 7 1.4
Elecon Engineering Industrial Equipments 908 37.0 13.3 23.7 58.6 -9.2 1.6 5 0.6
Bombay Rayon Fashions Textile 1,591 53.0 31.9 21.1 39.1 -78.3 1.1 1 2.2
Oasis Tradelink Trading 115 85.5 64.5 21.0 42.1 21.3 14.5 3 0.8
OK Play India Plastic Products 186 89.1 68.3 20.9 58.4 -30.8 1.6 7 2.2
Castex Technologies Auto Ancillary 166 66.7 49.9 16.7 46.9 -8.7 -0.5 4 3.6
Khaitan Chemicals Fertilizers 147 55.0 41.7 13.3 75.0 -24.9 1.9 6 1.9
Balasore Alloys Ferro & Silica Manganese 536 48.5 35.6 13.0 59.4 -26.3 2.2 8 0.3
Gopala Polyplast Plastic Products 125 29.0 16.4 12.5 39.0 -9.4 2.9 7 3.7
Satin Creditcare Finance - Term Lending 1,881 30.1 19.1 11.0 27.4 1.1 0.0 0 5.8
Sical Logistics Logistics 1,220 90.9 80.5 10.4 57.0 -2.5 1.2 7 1.7
Data as on March 14, 2018. For explanations of Z-Score and F-Score, see ‘Quality stocks available cheap’ in the ‘Stock Screen’ section.

MARKET
C MPASS
Decrease in pledging
Mkt cap Pledged stake (%) Decrease in Promoter 3M stock Debt to
Company name Industry (` crore) Dec-17 Sep-17 pledging (%) stake (%) return (%) Z-Score F-Score equity
AGC Networks Telecommunication 323 0.0 100.0 100.0 74.9 -24.2 0.1 6 2.4
Andhra Cements Cement 294 7.5 75.0 67.5 68.8 -5.7 -0.1 6 -14.3
Granules India Pharmaceuticals 2,796 31.6 78.1 46.5 44.9 -11.0 3.7 5 0.7
Ramky Infrastructure Engineering 1,123 46.2 89.2 43.0 67.8 -14.5 0.6 7 4.7
Future Lifestyle Fashions Miscellaneous 7,397 12.1 49.8 37.7 60.5 15.9 5.9 7 0.4
Reliance Communications Telecommunication 6,596 32.5 64.5 32.0 53.1 100.3 -0.7 2 1.5
Saurashtra Cement Cement 502 37.8 64.1 26.3 73.8 -7.1 3.6 5 0.1
Optiemus Infracom Trading 2,091 15.6 38.9 23.3 74.9 135.8 5.4 3 0.9
Crompton Greaves Cons Elect Domestic Appliances 14,172 42.5 65.0 22.5 34.4 -13.9 8.6 8 1.3
Bombay Burmah Trading Corp Agriculture 9,022 6.2 28.2 22.0 65.9 -12.5 3.1 4 1.0
Mercator Shipping 1,036 52.2 73.9 21.7 30.7 -1.4 0.5 8 1.2
Hindustan Motors Automobiles 164 0.0 17.5 17.5 32.3 3.7 -5.0 6 -0.3
Bannari Amman Sugars Sugar 2,025 0.0 16.7 16.7 58.7 -26.5 2.7 8 1.0
Kuantum Papers Paper 652 2.5 18.8 16.3 70.3 -10.1 2.8 9 1.1
Lyka Labs Pharmaceuticals 142 64.1 79.9 15.8 18.7 -10.6 0.3 5 1.7
Gokul Refoils and Solvent Solvent Extraction 191 0.0 15.3 15.3 74.5 -31.9 1.0 6 0.2
TGB Banquets And Hotels Hotels 104 68.1 83.2 15.1 31.9 -24.4 1.1 7 0.9
Prime Focus Entertainment 2,830 23.8 38.0 14.2 35.0 -11.7 1.3 9 0.5
Centrum Capital Finance - Investment 2,471 36.2 49.5 13.3 37.1 -21.3 0.0 0 0.6
Man Industries (India) Castings/Forgings 728 41.5 54.3 12.8 43.6 17.6 2.7 2 0.7
VIP Clothing Textile 494 0.0 12.8 12.8 52.7 -4.6 6.5 8 1.0
Vivimed Labs Pharmaceuticals 631 76.2 87.8 11.6 35.8 -28.5 2.1 8 1.1
Prakash Industries Steel & Iron Products 2,976 53.0 63.5 10.6 40.8 27.8 3.3 6 0.4
Zee Learn Educational Inst 1,222 67.9 78.4 10.5 62.6 -10.4 4.5 8 0.4
Data as on March 14, 2018. For explanations of Z-Score and F-Score, see ‘Quality stocks available cheap’ in the ‘Stock Screen’ section.
Crashing big time

Here are the companies that have fallen by 40 per cent or more since the
start of the ongoing bear phase, since February 1, 2018
Falling like ninepins Minimum market cap `100 crore. Data as on March 23, 2018
Latest market Returns since Latest market Returns since

Company name Industry cap (` cr) Feb 1 (%) Company Name Industry cap (` cr) Feb 1 (%)
Gitanjali Gems Diamond & Jewellery 120 -84.4 Lasa Supergenerics Pharmaceuticals 207 -47.6
Oscar Investments Finance - NBFC 133 -60.7 Urja Global Power Generation 260 -46.5
Dwitiya Trading Trading 256 -60.0 Lloyds Steels Industries Engineering 120 -43.4
Electrosteel Steels Steel & Iron Products 528 -55.3 KSK Energy Ventures Power Generation 384 -43.2
Sunstar Realty Dev. Construction 143 -54.8 Arrow Greentech Miscellaneous 317 -42.9
GTL Infrastructure Telecommunication 3,324 -52.6 Monotype India Finance 155 -42.9
Mohota Industries Textile 264 -52.4 Consolidated Construction Engineering 160 -42.7
Supreme Infra. India Engineering 154 -50.5 Punjab National Bank Bank - Public 23,480 -42.1
Garnet International Finance - Investment 535 -49.1 MIC Electronics Electric Equipment 110 -41.6
Diamond Power Infra. Cable 255 -48.5 PG Electroplast Consumer Durables 391 -40.9

What’s
important,
what’s not
Though it may sound counter-intuitive, not
paying attention to most events, no
matter how pressing they may seem, is
the key to long-term wealth creation in
the stock market

Stock Advisor
These three
graphs
Daily change in Sensex
clearly show 20%
that the daily
movement of 15
the markets
10
is just noise.
Paying 5
attention to
the daily 0
graph is not
just useless -5
but actually
harmful. -10
-15
1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2017
A
s an equity investor, it looks like that these ideas of focusing on a small amount of
your main job is to absorb and analyse filtered information that is relevant.
information and then use it to make My guess is that if you set out to monitor
investing decisions. However, the real job may all the news that is pouring out of the mass
be to ignore information. media and social media, you would have to
The reason, as we will see in this article, is deal with about 200-300 pieces of information
that excessive information hides knowledge every day, at a minimum. It’s easy to convince
and prevents understanding. Let’s understand yourself that all of it is important and all has
this. Taking a one day sample and projecting to be monitored. Look at the recent weeks. US
from that, it seems that each business news interest rates. Trump’s steel tariffs. Elections
channel in India (there are about seven of in the North East. PNB scam. By-elections in
them) covers about 60–100 news items a day. UP and Bihar. Oil prices. Trade-war threats.
Most of them are duplicates of the news on Each of these has been presented as
other channels, but perhaps 20–30 are unique. something that investors must monitor and
Add to that the enormous flow of facts and understand and react to, too. And, of course,
opinion on Twitter, Facebook and, for some there is no shortage of investors who reacted
people, on WhatsApp. And on top of that, to these. In response to most of these events,
there’s a large amount of foreign news that stock prices jumped around violently.
could impact Indian stocks. Not just that, in However, most of the time, there is no news
these days of interlinked markets, most of us in these news outlets that could be useful to
We cannot become
accept that events in some influential equity healthy by eating you as an investor. The opposite is also true –
markets directly impact other markets. It healthy food in there’s nothing here, which, if you miss, could
could all easily add up to hundreds of more addition to junk be harmful to your investments.
items to mentally process every single day. food. First, the junk To many people, this would seem like a
Our mental and cognitive bandwidth, as food must be surprising or even a shocking thing to say. It
well as the time available to us, is limited. If eliminated. In fact, seems almost axiomatic that the fate of equity
we spend these precious resources processing our new premium and other investments depends on what
this flow, then we cannot think about what we stock analysis and happens in the world and that news is the way
actually need to. Most of this information advisory service, we find out what is happening in the world.
flow is like junk food for the brain. We cannot
Value Research After all, the entire business-news media
Stock Advisor is
become healthy by eating healthy food in surely exists only to serve this need. In fact,
based exactly on
addition to junk food. First, the junk food these ideas of business news on TV seems far more
must be eliminated. In fact, our new premium focusing on a small dedicated to this idea than does business news
stock analysis and advisory service, Value amount of filtered in newspapers. The anchors always seems to
Research Stock Advisor (www. information that is be implying that whatever happened over the
valueresearchstocks.com) is based exactly on relevant. last couple of hours is the most important

Stock Advisor
Yearly change in Sensex Five-year change in Sensex

100% 50%
5Y rolling returns
80
40
60
30
40
20 20
0
10
-20
0
-40
-60 -10
1989 2018 1993 1998 2003 2008 2013 2018
thing that has ever happened. It’s as if the If you look at your would quickly learn the lesson that the next
whole of human history had been carefully actual investment time someone asks them, they should reply,
sorted in an ascending order of importance track record, you’ll “YES, OH MY GOD! THE INDUSTRY IS
and there was never a day in the past that was likely discover that GOING TO BE KILLED.” Conversely, the
more important than today. the strongest impact people who are talking about their specific
– positive or
Could that be true? Obviously not. To companies have an opposite, happy view to
negative – came
explain this, let’s discuss the US presidential propagate, regardless of the truth.
from things that
elections. Not the 2016 ones, which elected took months and Even the stock prices and indices
Donald Trump, but the ones in 2012 when years to develop and themselves hold almost no useful information
Barack Obama was re-elected. On the that you had a lot of on a day-to-day basis. For example, look at the
morning of November 7, 2012, in the hours time to understand accompanying graphs. The three graphs show
after Obama’s victory became certain, there them and react to daily, yearly and five-yearly graphs for a
took hold a view that this was going to be a them 25-year period. Compare what knowledge you
disaster for India. Supposedly, the reason was can derive about what the markets were
that Obama was going to ‘crack down’ on doing. You will immediately realise that
outsourcing and the prospects of Indian IT paying attention to the daily graph is not just
services firms were going to become much useless but actually harmful.
worse. It all appeared to start from a casual The collective message that is delivered to
comment from an IT CEO that Obama had the investor implies that monitoring the
probably seemed more concerned than hourly impact of short-term events on
Romney (Obama’s opponent in those investments is the most important thing an
elections) about job losses to outsourcing. investor should do. If you look at your actual
From there on, one commentator after investment track record, you’ll likely discover
another took this up, with each one trying to that the strongest impact – positive or
be competitive about being able to foresee an negative – came from things that took months
even stronger impact. It was like an echo and years to develop and that you had a lot of
chamber, with each echo shriller than the time to understand them and react to them. In
previous one. fact, it is probable that the worst investment
What would have happened if on that day a decisions you took were quick reactions to
TV anchor called up an IT executive and news that looked important at the moment.
asked if this could be a threat to Indian IT Which is exactly where Value Research
outsourcing and the executive had replied Stock Advisor (www.valueresearchstocks.
truthfully, “No, nothing will happen”? That com) comes in. Our premium service cuts
executive would never have made it to the TV. through the noise and maintains a short list
In fact, there may have been many who of stocks that we recommend – stocks that we
actually said that and were ignored. They are confident will stand the test of time. WI

INTERVIEW JINESH GOPANI
Head - Equity, Axis Mutual Fund
“PSU banks never fit

into our criteria”
H
ailing from the Gujarati
community, Jinesh Gopani
was brought up in an
environment where
‘stocks’, ‘markets’ and ‘profit’ were
common words. However, asset
management is not about trading;
it’s about investing and holding
stocks for the long haul, says the
head of equity and fund manager
of Axis Mutual Fund. Extremely
quality-conscious and a stickler for
growth-at-reasonable-price invest-
ment philosophy, Gopani, in an
interview with Wealth Insight’s
Kumar Shankar Roy shares why he
picks stocks with a beta less than
that of the market, how even a
company that goes into BIFR can
be a multi-bagger and why PSU
banks have never been a good fit
for his portfolios.
Since January 31, we have seen a

small correction in the market. Have
you aggressively bought stocks in the
ensuing phase?
Frankly speaking, we are sitting
on the sidelines. We feel the volatil-
ity is still high even now. There is
too much news flow. We don’t like a
volatile market because too much
of it is not good for the investor.
We are sitting on 5–6 per cent cash
and whatever new money is com-
ing, we are investing it judiciously.
We are not going all out.
Many investment managers have had

exposure to PSU banking stocks,
which have really dragged portfolios
of late. Did you buy them?
PSU banks never fit into our crite-
ria, barring one large bank. We

INTERVIEW
“Our simple thesis is that if you avoid bad stories, good stories will
make money for you. It is more like driving your car at 60 km/hour
and avoiding accidents. You will still reach your destination.”
look for strong management but for all companies. The March 2018 For our core portfolio, which forms
in PSU banks, the management quarter will be an important one to 80–90 per cent of our mutual fund
changes every three years. The watch out. Some companies are schemes, our universe is around
second concern is governance. We saying that sales did not come due 300 to 350 stocks. The philosophy
have already seen the PNB fraud. to GST and some are saying they from day one has been to have a
We had never expected this type witnessed a sales spike due to GST. qualitative approach towards
of fraud to occur. Thirdly, the So, you need a stable environment investing. A company’s quality,
return ratios of PSU banks show to see what is really happening. management, governance, growth
that it is becoming more and more record and potential, business
tough for them to go beyond sin- How would you describe your model and how secular the sector
gle-digit RoE. If the cost of capital investment style? of the company is, return ratios as
is 12–13 per cent and the RoE is 10 It would be close to GARP, i.e., well as cash flow are studied.
per cent, then you are actually los- growth at a reasonable price. When we do screening based on
ing money. Economic value gets Valuation depends on how you these parameters, we arrive at our
eroded. Hence, most PSU banks value a company and what the ten- stock universe.
never fit into our stock universe. ure of your investment is. Our job
We have stayed away from them is to identify great growth stories, How is your investment philosophy
and concentrated more on pri- and we do not mind paying a little different from others?
vate-sector banks. more for them in the near term. If From my philosophy point of view,
we believe that the stock can be a I like to buy quality businesses
PSU bank stocks are totally out of good compounding machine for which are leaders in their space.
favour right now. But are there any five plus years, we don’t mind if it They should also have a relatively
sectors in the market that may be out is a little expensive at present. better pricing power. The business
of favour now but can be good should have the ability to generate
contrarian plays? How do you value a stock? strong cash flows now or after
Large-cap IT could be one. Growth The ideal way to understand some years. Our forte has been to
is coming back and the manage- growth is in terms of turnover, buy such companies and stay with
ment commentary seems incre- profitability and return on equity. them. So, we buy with an invest-
mentally positive. Large-cap IT is Ultimately, your current valuation ment horizon of three–five years.
not very contrarian but has shades is important. For example, if a We are conscious of not having 100
of contra. company is growing at 20 per cent, companies in our portfolios. So, we
can it grow at 30 per cent? Is there like to restrict ourselves to 30–35
Are Corporate India’s earnings a market for it to grow at 30 per stocks at best, which form the core
reviving finally? Analysts are saying cent? If the company is delivering portfolio of our schemes.
that the December-quarter results an RoE of 20 per cent and is avail-
have shown green shoots. able at 20 times earnings, then we You look at a lot of data and
We should understand that the have to ascribe a higher value to qualitative factors as well. How do you
December quarter in 2017 is com- the growth. Price to earnings (P/E) strike a balance between the two?
pared with the demonetisation-af- and price to earnings to growth When we run the screener, we find
fected quarter in 2016. The base (PEG) are decent metrics. a lot of companies with hunger for
was very low in the December 2016 However, if the PEG exceeds a cer- growth. Good companies will
quarter. Hence, the December 2017 tain level, then we like to trim the always go for profitable and sus-
quarter looks optically good. stock in our portfolio. tainable growth. They also know
Having said all that, it is still bet- that ultimately they have to create
ter than the previous quarter. I How do you arrive at your investment wealth for themselves and their
would not say that it was very good universe? shareholders. Companies grow

INTERVIEW
because of the opportunity in their entered. We really liked its story. consumer-durable-focused NBFC.
sectors and GDP growth. Sectors Today, the company boasts of a We bought that company when its
like private banks, select NBFCs, `10,000–12,000 crore market cap. It market cap was `4,000–5,000 crore
consumption-oriented firms, auto has been delivering average 25 per and now it is almost around `90,000
etc., are good proxies for GDP cent growth in both top line and crore. Still, it is going very strong
growth. You have to be with such bottom line and an extremely good and it is one of the largest holdings
stories for a longer period of time RoE (70 per cent). in our portfolios.
to reap the rewards. Another investment success was
a two-wheeler company that we What are the key lessons that you
In your funds, does stock weight take spotted. It had a market cap of $1.5 have learned in your career?
precedence over stock selection? billion when we invested in it in When I was on the sell side, I met
India has become an over-re- 2010. Today, the stock has a market with many fund managers. This
searched market. Money is with value of $13–14 billion. We still gave me access to how they work. It
everyone. The question really is own it in our portfolio. The compa- was a great learning experience.
how long you can hold onto a stock ny’s brand name is so strong that Over the last 15–16 years, one
and how much conviction you have the resale value of the product is thing I have learnt is that it is only
with that name from a portfolio per- in the long-term that you create
spective. If you distribute your wealth for your investors. Long-
money equally in stocks, it will not term wealth is created only if you
add up to a lot. But if I limit myself “Long-term wealth is invest in quality companies, which
to 15–20 stocks and devote resources try to grow year after year and get
to stories I have more conviction
created only if you their businesses strategy right,
about and if I am right in my invest in quality without making any big mistake.
assessment, then the gains will be All these lessons helped me to
strongly reflected. That is where the companies, which try understand that our view should be
differential in terms of perfor-
mance will appear going forward.
to grow year after long term, instead of the short-term
quarterly perspectives that many
Our simple thesis is that if you year and get their have. So, when I moved to the buy
avoid bad stories, good stories will side, I started picking and choosing
make money for you. It is more like
businesses strategy only a few investment stories, rath-
driving your car at 60 km/hour and right, without making er than trying to look at more.
avoiding accidents. You will still There is no point in looking at all
reach your destination. any big mistakes.” the 3000-odd stocks that are listed.
The investible universe is much
Will you shed light on your notable smaller, 300–350 high-quality stocks.
investment successes? also high. The brand name has We have established good relation-
I will give you examples in the helped the company boost its bike ships with the luminaries of these
small-, mid-, and large-cap space. production from 5,000 a month to industries and we continue to learn
In the small-cap space, there 80,000 a month. This is phenome- a lot from them. At the end of the
was a `700 crore market-cap firm nal. Luckily, the brand clicked very day, this helps you a lot and sepa-
in the consumer-durables seg- well with the young population. rates the men from the boys!
ment. It had an impeccable man- Because India is a young country,
agement. Unfortunately, the com- there is a lot of scope for this type What about investment mistakes?
pany went into BIFR (Board for of company to grow even further We have made mistakes but we dis-
Industrial and Financial at 15–20 per cent. covered them very fast. Hence, we
Reconstruction) for some reason. On the large-cap side, two compa- would have exited them quickly.
It took 10 years for the company to nies come to my mind. There are Some EPC (engineering-procure-
come out of BIFR. The good thing two private-sector retail banks. ment-construction) companies and
was that the company did not take They have compounded at 20–25 per restaurant firms will be among
any loan and tried to manage the cent rate for the last eight-and-a- them. We thought they had scalable
situation from internal accruals. half years. They continue to deliver businesses but they did not do well.
When it came out of BIFR, the and navigate the bad-asset phase In the asset-management space, if
market cap went from `100 crore very well. Another great company, your success ratio is 70 per cent,
to `700 crore and that is where we which our team had spotted, is a then you are in the game. WI

Vis-à-vis
Who’s riding pillion?

Here is how Bajaj Auto, India’s largest two-wheeler maker by market
capitalisation, compares with Eicher Motors, the second largest
Bajaj Auto Eicher Motors
Bajaj Auto was founded by Jamnalal Bajaj in 1945. Founded in 1948, Eicher Motors was earlier known
Its iconic scooter the ‘Chetak’ had a waiting as Eicher Tractors. Eicher manufactured its first
period of more than 10 years. Today Bajaj Auto is motorcycle in 1901. Today it is known for its Bullet
a leader in automobile exports, contributing more and Royal Enfield motorcycles. The Royal Enfield
than 50 per cent of India’s motorcycle exports and brand is the oldest motorcycle brand that is still
70 per cent of three-wheeler exports. In the produced. Eicher Motors is a leader in the mid-size
performance segment (150 to 220 cc), it motorcycle segment (250 cc to 750 cc) and
commanded a market share of 45 per cent in FY17. commanded a market share of 95 per cent in FY17.
Financials All numbers in ` cr Financials All numbers in ` cr
Operating Net Net Total Cash from Market Operating Net Net Total Cash from Market
Revenue profit profit worth debt operations cap Revenue profit profit worth debt operations cap
23,568 5,648 3,790 17,857 120 3,267 85,588 8,779 2,845 1,777 5,300 44 1,709 78,185
Price chart P/E chart

1300
Bajaj Auto Eicher Motors 100
Bajaj Auto Eicher Motors
1000 75
700 50
400 Rebased to 100 25
100 0
March 2013 March 2018 March 2013 March 2018
20.10
29.40
21.90 4.50 1.86 0.01
15.80 18.20
39.90 12.10 0.35 0.01
Price to earnings Price to book Dividend yield (%) Debt to equity
Net margin (%) Operating margin (%)
Five-year annualised growth
43.00
49.60 32.90
33.20 34.10
24.00
4.00 6.60 5.10 4.40
Revenue (%) Operating profit (%) EPS (%)
Return on capital employed (%) ROE (%) FY17 data. Price-related data as on March 15, 2018.
!
Constituting 80 per cent of the total volumes, the two-wheeler segment dominates India’s auto
industry. In FY17, motorcycles accounted for 63 per cent and scooters 32 per cent of the two-wheeler
market. According to CRISIL, till FY20 the two-wheeler market would grow at 8–10 per cent, to more
than 23 million units from 19.9 million units in FY17.

ANALYST’S
DIARY
Slow and steady wins the race

Companies that have returned your
full invested capital by way of
dividends and earnings over time
I
n today’s actively traded markets, we often lose sight Let’s take BPCL. You could snap up BPCL shares at
of what really matters. What doesn’t matter is `72 apiece 10 years back. This government-regulated
making a quick buck in the market or jumping on a business that many investors don’t give a second look
hot stock. Stodgy-old companies can give you mouth- at has returned to its investors `164 in dividends in 10
watering results as well. We’ll show you two ways how. years. Think about it. And we’re not even talking about
the stock price here.
The dividend way Let’s take the example of another well-known
Very few investors look at the dividend policy of dividend master. Castrol has a historical record of a
companies when investing, yet dividends matter, high dividend payout. You could have picked up Castrol
especially if you’re a lazy investor who tends to buy at `32 apiece and get `78 in dividends over the last 10
and forget. A small group of companies (see the first years.
table) have returned your initial investment in
dividends faster than a fixed deposit. Here are the The earnings way
filters that we applied to arrive at these companies: We also noticed a small group of companies that are
z Market cap above `200 crore today earning (per share) what they were trading at 10
z Payback period of less than nine years. years back (see the second table). For instance,
Payback period is the time an investment takes to Vardhman Textiles’ earnings per share today is `102.
return your invested amount. The reason for taking the The stock was trading at `106 a decade ago. One can
payback period as less than nine years is that a normal assume that these stocks were significantly
fixed deposit returns your invested capital in about undervalued a decade back or their earnings went into
nine years, assuming an interest rate of 8 per cent. an overdrive or both. Here are the filters that we
We found 32 companies that have paid back your applied:
initial investment by way of dividends. They come z Market cap above `200 crore
from a diverse group of sectors and even include old- z Current stock price within 20 per cent of the TTM
economy companies like HPCL and BPCL. EPS. WI
Handsome dividends
Company name Industry Market cap Payback Stock price 10Y cumulative 10Y stock return Current dividend
(` crore) period (years) in 2008 (`) dividends (`) (%, CAGR) yield (%)
Anuh Pharma Pharmaceuticals 420 3 24.7 65.8 25.1 1.5
%DOPHU/DZULH &RPSDQ\ 'LYHUVLÀHG
(QJLQHHUV,QGLD (QJLQHHULQJ
&DVWURO,QGLD /XEULFDQWV
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$SFRWH[,QGXVWULHV &KHPLFDOV
3RO\0HGLFXUH 7UDGLQJ
Symphony Domestic Appliances 12522 5 4.0 71.2 86.3 0.3
Aarti Drugs Pharmaceuticals 1406 6 28.5 63.6 40.3 0.2
$FFHO\D.DOH6ROXWLRQV ,76RIWZDUH
+DZNLQV&RRNHUV 'RPHVWLF$SSOLDQFHV

ANALYST’S
DIARY
Company name Industry Market cap Payback Stock price 10Y cumulative 10Y stock return Current dividend
(` crore) period (years) in 2008 (`) dividends (`) (%, CAGR) yield (%)
0XQMDO$XWR,QGXVWULHV $XWR$QFLOODU\
6XGDUVKDQ&KHPLFDO,QGXVWULHV '\HV 3LJPHQWV
:LP3ODVW 3ODVWLF3URGXFWV
$971DWXUDO3URGXFWV &RQVXPHU)RRG
%KDUDW3HWUROHXP&RUSRUDWLRQ 5HÀQHULHV
&DSOLQ3RLQW/DERUDWRULHV 3KDUPDFHXWLFDOV
+LQGXVWDQ3HWUROHXP&RUSRUDWLRQ 5HÀQHULHV
JB Chemicals & Pharmaceuticals Pharmaceuticals 2571 7 50.6 72.5 27.5 0.3
2UELW([SRUWV 7H[WLOH
2ULHQWDO&DUERQ &KHPLFDOV &KHPLFDOV
6WULGHV6KDVXQ 3KDUPDFHXWLFDOV
Ajanta Pharma Pharmaceuticals 11774 8 10.8 37.7 64.7 1.0
$WXO$XWR $XWR7ZR 7KUHH:KHHOHUV
$YDQWL)HHGV &RQVXPHU)RRG
H&OHU[6HUYLFHV %32,7H6
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0DQDSSXUDP)LQDQFH )LQDQFH1%)&
56\VWHPV,QWHUQDWLRQDO ,76RIWZDUH 1$
5XEÀOD,QWHUQDWLRQDO 5XEEHU3URGXFWV
7RUUHQW3KDUPDFHXWLFDOV 3KDUPDFHXWLFDOV
967,QGXVWULHV &LJDUHWWHV7REDFFR
Data as on March 6, 2018.
Then stock price, now earnings

Company Name Industry Market cap Stock price TTM 10Y EPS 10Y stock Average 10Y
(` crore) 10Y ago (`) EPS (`) CAGR (%) returns (%, CAGR) ROE (%)
')0)RRGV &RQVXPHU)RRG 1$
&DSLWDO7UXVW )LQDQFH1%)& 1$
$VWUDO3RO\7HFKQLN 3ODVWLF3URGXFWV
6WHUOLQJ7RROV )DVWHQHUV
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9DUGKPDQ7H[WLOHV 7H[WLOH
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,QGLDQ7RQHUV 'HYHORSHUV &KHPLFDOV
7KLUXPDODL&KHPLFDOV &KHPLFDOV
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:HOVSXQ,QGLD 7H[WLOH
6ULNDODKDVWKL3LSHV &DVWLQJV)RUJLQJV
1LWLQ6SLQQHUV 7H[WLOH6SLQQLQJ
6,/,QYHVWPHQWV )LQDQFH1%)&
'KDPSXU6XJDU0LOOV 6XJDU 1$
6LQJHU,QGLD 'RPHVWLF$SSOLDQFHV 1$
Data as on March 6, 2018.

ANALYST’S
DIARY
On your mark, get set, invest

Here are some companies which are currently
overvalued but worthy of investment at lower prices
T
he Roman philosopher Seneca, who existed companies that clear our filters for profit growth and
around 4 BC, once said, “Luck is a matter of return on equity. The filters that we used are as
preparation meeting opportunity.” follows:
Though there was no stock market that z Net profit growth should be greater
time, the timelessness of this statement than 15 per cent in at least three out of
means that it is also true for today’s the last five years.
stock market. Many investors zReturn on equity should be
attribute success in the stock market more than 20 per cent in all five years.
to luck. It’s not luck but preparation zMarket capitalisation should
instead. be above `1,000 crore
The number of investible zNet profit should have never
opportunities naturally shrinks in a fallen year on year in any of the last
bull market. The intelligent investor five years.
is he who invests in good stocks when However, most of these companies
markets are down so that he can ride the are currently trading above their five-year
rally later. Hence, you should always be median P/Es. The ongoing correction in the
ready with investible opportunities. The list market could provide an opportunity to invest in
below could be a starting point. It mentions these companies if they clear your other checks. WI
Your investment wish list

Market cap Avg 5Y 2017 net profit Avg 5Y net
Company name Industry (` cr) 2017 ROE (%) ROE (%) growth (%) profit growth (%) P/E Median P/E
Page Industries Textile 24,076 44.5 56.0 15.0 24.5 73.5 64.0
Britannia Industries Consumer Food 58,497 37.0 53.4 7.3 36.7 60.7 41.7
Caplin Point Laboratories Pharmaceuticals 4,536 56.1 46.3 109.9 67.9 33.1 32.3
Avanti Feeds Consumer Food 10,362 42.9 41.6 42.6 57.0 24.6 16.2
Ajanta Pharma Pharmaceuticals 11,905 36.7 38.4 21.9 48.5 24.1 30.6
Dabur India FMCG 57,628 29.0 38.2 2.1 14.9 44.0 39.6
Mayur Uniquoters Miscellaneous 2,343 21.9 34.7 2.2 19.2 25.8 23.7
Marico Solvent Extraction 39,898 37.5 33.3 12.2 20.4 49.7 42.4
Gruh Finance Finance - Housing 20,183 30.4 32.1 21.8 19.8 57.4 41.4
Vinati Organics Chemicals 4,065 22.8 29.6 5.9 20.9 30.5 20.8
Kajaria Ceramics Ceramics 9,090 23.6 29.5 7.5 25.8 36.9 34.7
Indiabulls Housing Finance Finance - Housing 51,728 25.5 27.9 23.6 99.8 14.5 13.8*
Kovai Medical Center Healthcare Services 1,375 29.4 27.5 47.4 40.5 22.2 18.8
Relaxo Footwears Footwear 7,449 22.7 26.5 2.2 26.9 51.9 43.6
Abbott India Pharmaceuticals 11,956 21.4 25.4 8.4 18.5 35.1 35.2
V-Guard Industries Electric Equipment 10,139 27.6 25.7 35.9 26.0 66.8 36.1
Adani Ports Port 79,949 25.1 24.8 37.2 29.1 21.7 20.9
Berger Paints India Paints 23,892 26.8 24.8 27.1 21.3 51.2 51.4
Financial-year data. Market cap as of Mar 13, 2018. *The median P/E is for three years

ANALYST’S
DIARY
Capping the capex

Here are some manufacturing companies that are
growing without spending on new equipment and land
C
apital expenditure, or capex, is the expenditure it’s maintenance capex. If it outgrows depreciation,
made by a company on its physical assets such it’s growth capex.
as machinery and infrastructure. For many The obvious question that arises is if a company is
businesses, capex is an integral part. Take for instance just doing maintenance capex, is it really doing well?
a company in the business of power generation. In Yes, if the profits and cash flows are sound. In fact,
order to expand, it needs to keep buying more generating growth from existing establishment is a
equipment and land and hence keep doing capex. better sign of managerial competence and strength
Because capex directly correlates to of business model. Here are some
expansion, it is generally deemed to be companies which are engaging in just
a positive phenomenon. maintenance capex. Nevertheless,
Digging deeper into capex, we they have shown sound sales
can categorise it into two: growth and growth in operational
maintenance capex and growth cash flows (CFO).
capex. Maintenance capex is the In order to arrive at this
capital expenditure required to list, we applied the following
keep the current operations filters:
going. For instance, a power z Market capitalisation
plant may have to replace its greater than `100 crore
boiler, say, after 10 years. When z Total 10-year capex
the power plant replaces its greater than `30 crore
boiler, it doesn’t really expand z 10-year total depreciation
its operations but maintains should be 90 to 110 per cent of
them. Growth capex is the the 10-year capex
capital expenditure done to z 10-year sales and CFO growth
expand operations. So, if the greater than 8 per cent CAGR
power plant buys 10 more z CFO and net profit should be positive in at least
boilers, the expenditure so incurred is growth capex. eight out of the last 10 years
How do you know if a company is doing From this list, services companies were removed as
maintenance or growth capex? See the capex in light they normally don’t involve capex and are run on
of depreciation. If it is roughly equal to depreciation, human capital. WI
No need for growth capex

Latest market 10Y net 10Y total Total depreciation/ 10Y sales growth
Company name Industry cap (` cr) capex (` cr) depreciation (` cr) net capex (%) (% CAGR) 10Y CFO CAGR (%)
Bayer CropScience Pesticides & Agrochemicals 14,133 350.3 329.6 94 13.6 15.3
Abbott India Pharmaceuticals 11,956 145.8 135.1 93 18.4 22.4
Bombay Dyeing Textile 4,980 489.3 509.7 104 13.1 15.4
Munjal Showa Auto Ancillary 879 280.7 251.9 90 7.8 9.4
Multibase India Petrochemicals 764 6.3 6.6 105 15.1 36.9
Cupid Rubber Products 299 16.6 15.3 92 16.0 26.9
Donear Industries Textile 278 213.9 223.8 105 12.3 31.5
National Steel Steel 143 169.1 176.7 105 8.0 27.4
Rishiroop Trading 106 3.7 3.7 100 17.9 39.4
Financial-year data. Market cap as on March 12, 2018

ANALYST’S
DIARY
Making sense of IT companies

Industry-specific terminology that you need to know
to analyse IT companies
A
n IT company develops applications, which fixed, and material contract, where revenue is based
help its clients achieve operational efficiency. on the hours spent by employees.
IT companies derive their revenues primar- Here is some other key terms used in the industry:
ily from software development or from licensing of Constant-currency reporting: Majority of the business of
software. Over time, IT companies have expanded into IT companies comes from overseas. Hence, they report
areas like business process outsourcing, infrastruc- their revenues in constant-currency terms in order
ture management and product design. Recent technol- to eliminate the effects of exchange-rate fluctuations
ogies like cloud, data analytics, cybersecurity have while comparing financial performance of different
also started to contribute to their revenues. periods. For example, if an IT company’s sales rise by
The software provided by IT companies can 10 per cent in dollar terms during a year but the dollar
be of two types: application-based or cus- has fallen against the rupee, its sales growth will
tom-designed. Application-based soft- look lower. To avoid this misinformation, reve-
ware is standard software, which is sold nues are reported in constant currency. The
or licensed to the client. Custom-de- exchange rate is kept constant, either by
signed software is tailored according using the previous year’s exchange rate or
to the client’s needs. In addition to the latest year’s exchange rate and chang-
these, IT companies also provide ing earlier years’ numbers.
infrastructure-management services. (IÀFLHQF\DQGXWLOLVDWLRQ IT is a people-cen-
With such services they provide end- tric business, with employees delivering
to-end software support to clients from the services. The efficiency of operations is
installing the equipment to supplying the measured by the employee-utilisation rate, which
labour force. measures the time spent by employees on projects.
The contracts of software services are generally of While analysing the utilisation ratio, it should be seen
two kinds: fixed-price contract, where the revenues are whether unbillable (workforce employed on a project by
an IT company for which it is not paid. The lower the
That’s IT unbillable hours the better it is.) hours are included in
its calculations or not.
Company Name TCS Infosys Wipro HCL Tech
Attrition rate: The attrition rate tells us the per cent of
Operating revenues (` cr) 1,17,966 68,484 55,448 47,568 employees who left the company in a period. The lower
2SHUDWLQJSURÀW` cr) 32,311 18,604 11,321 10,385 the attrition rate, the better it is.
1HWSURÀW` cr) 26,357 14,383 8,518 8,604

Key threats
Net worth (` cr) 85,676 68,862 50,997 32,930 IT stocks tend to react sharply to the following two
Cash & equivalent (` cr) 45,785 32,595 34,474 10,190
aspects:
Rupee appreciation: IT companies earn most of their
Market cap (` cr) 5,50,741 2,58,031 1,33,065 1,33,916 revenues in foreign currencies like dollars, euros and
Price to earnings 21.6 16.2 15.7 14.9 if the value of the rupee appreciates as compared to
these currencies, their realisations fall.
RoCE (%) 43.9 30.6 18.7 34.3
H1B visa issue: By virtue of H1B visa, Indian IT compa-
RoE (%) 33.6 22.0 17.6 28.5 nies send Indian employees to the US for assignments,
Utilisation rate (%) 84.9 75.0 71.5 85.7 since this is cheaper than hiring a US-based employee.
Recently, the US government hiked minimum wages
Attrition rate (%) 11.5 17.1 16.3 16.9 paid to H1B visa holders in order to curb this practice
Employee headcount 3,87,223 2,00,364 1,37,688 1,15,973 and to promote the hiring of US employees. These
Financial-year data. Price-related data as on March 15, 2017. changes are supposed to increase the payroll costs for
Indian IT companies. WI

COVER STORY
What top
fund managers
are buying now
T
he markets have been on a roller-coaster ride for In these difficult times, it would be interesting to see
much of this year, falling one day and then what star fund managers are doing. We bring to you
recouping the next. Constant flow of negative top five fund managers by the assets they manage and
news has also kept the markets nervous. Fears of a the stocks that they have bought and sold in the last
rising inflation sent stocks crashing earlier. Now fears three months. Do note that the stocks mentioned in
of a trade war between the US and China have sent the following pages are not recommendations. Neither
global stocks in a tumble, with the Nifty 50 cracking should you blindly follow any fund manager; his
below the 10,000 mark. On the bright side, having priorities may not be yours. But this is an excellent
corrected by about 10 per cent from its peak, the resource to kick-start your own search for investible
market now offers many opportunities. opportunities available now.

COVER STORY SANKARAN NAREN, ED & CIO, ICICI Prudential Mutual Fund `65,622 cr
Equity assets managed
Mr Contrarian
Going against the market sentiment and
buying what’s not hot lie at the heart of
Sankaran Naren’s investment style
Sports division, has sta

started reporting higher
profitability. Naren invested
inve `545 crore in Zee.
Amidst the ongoing competition
co in telecom for
market supremacy, Naren has placed his bet on
Idea Cellular, buying `339 crore worth of stock.
What he sold: Mid and ssmall caps

Naren’s sold off many of his mid and small caps.
prune his large-cap
Interestingly, he did not p
stocks as much. He also cut his position in
pharma, exiting Sanofi, Abbot India, Unichem
scandal-embroiled Fortis
Labs and the scandal-em
Healthcare. He pruned his position in Ipca Labs and
S
ankaran Naren is well-known as a contrarian Biocon. In February, Biocon reported getting six
with a long history of successful calls that he observations from the USFDA for its Malaysia facility,
made against the prevailing market sentiment.
In the tech boom of 2000, he found value outside tech What he’s loading up on: Ashiana Housing
stocks. In the bull run of 2007, he looked for value Naren is building up stake in this retirement
outside infrastructure, metals, and oil and gas. He homebuilder. He has acquired a 2.2 per cent stake in
searches out sectors with a lot of negative news and Ashiana Housing – his only pick in the small-cap
large institutional selling. Such stocks often offer space. In a related vote of confidence for Ashiana, the
more value for long-term investors. World Bank’s investment arm IFC said it will invest
$23 million in a project by Ashiana.
What he’s buying: Power Grid, Zee and Idea
True to his contrarian knack, Naren has picked up An interesting pick: Eicher Motors
Power Grid. This dominant power-infrastructure Trading at a P/E of near 40x, this is Naren’s second-
company that most investors would give a pass is largest investment, right after Power Grid. Eicher is a
Naren’s top buy. He has invested `1,215 crore in it in top-quality stock that ticks all the boxes: buzzing
the last three months. Power Grid continues to offer revenue and bottom-line growth, exports that promise
fantastic value at 12 times earnings. to make the company a global brand and returns on
Naren also loaded up on Zee Entertainment. This capital of 44 per cent in the last five years – numbers
entertainment powerhouse, post the sale of its Ten most automobile manufacturers cannot beat.

COVER STORY
Recent big buys Recent big sells

Current stake Current stake
Company Industry Amount (` cr) % of equity (% of equity) Company Industry Amount (` cr) % of equity (% of equity)
LARGE CAPS LARGE CAPS

Power Grid Corporation Power Distribution 1,215 1.17 2.48 HDFC NBFC 1,068 0.35 0.51
Zee Entertainment TV Broadcasting 545 0.96 1.00 Biocon Pharmaceuticals 103 0.33 0.62
Idea Cellular Telecommunication 339 0.88 0.93 Steel Authority Of India Steel & Iron 101 0.27 0.01
Hindalco Industries Metal 462 0.82 2.75 Britannia Industries Consumer Food 154 0.27 1.04
Eicher Motors Automobile 582 0.76 1.18 Petronet LNG Industrial Gases 89 0.24 0.03
MID CAPS MID CAPS
Union Bank of India Bank - Public 265 2.07 2.51 Apollo Tyres Tyres & Allied 203 1.34 1.80
Tata Motors DVR Automobiles 215 1.82 7.84 IDFC NBFC 114 1.20 2.24
PVR Entertainment 45 0.68 4.05 Prism Cement Diversified 69 1.02 0.00
Federal Bank Bank - Private 139 0.65 2.46 Tata Power Power Generation 168 0.67 2.30
GE Shipping Shipping 28 0.49 5.60 Ipca Laboratories Pharmaceuticals 45 0.60 2.22
SMALL CAPS SMALL CAPS
Ashiana Housing Real Estate 39 2.21 2.21 Supreme Infrastructure Construction 8 2.75 0.71
Entertainment Network TV Broadcasting 34 0.98 1.61 WPIL Pumps 15 2.26 0.19
VRL Logistics Logistics 19 0.50 2.37 Unichem Laboratories Pharmaceuticals 49 1.73 0.00
HT Media Publishing 37 1.51 0.00
Healthcare Global Miscellaneous 20 0.73 0.00
Recent first-time buys Sold out

Amount Current stake Amount
Company Industry (` cr) (% of equity) Company Industry (` cr) % of equity

Bajaj Finance NBFC 126 0.13 HDFC Standard Life Insurance Insurance 95 -0.12
M&M Financial Services NBFC 31 0.11 MID CAPS
Bharti Infratel Telecommunication 60 0.09 Prism Cement Diversified 69 -1.02
Titan Company Jewellery 23 0.03 Coffee Day Enterprises Hotel & Restaurants 35 -0.57
MID CAPS Abbott India Pharmaceuticals 53 -0.45
Voltas Air Conditioners 76 0.37 Fortis Healthcare Healthcare Services 15 -0.19
Galaxy Surfactants Chemical 16 0.28 Berger Paints Paints 26 -0.11
Syndicate Bank Bank - Public 10 0.11 Sanofi India Pharmaceuticals 1.3 -0.01
Karur Vysya Bank Bank - Private 7 0.08 SMALL CAPS
SMALL CAPS Unichem Laboratories Pharmaceuticals 49 -1.73
Ashiana Housing Real Estate 39 2.21 HT Media Publishing 37 -1.51
Gammon Infrastructure Construction 5 -1.35
Healthcare Global Miscellaneous 20 -0.73
Greenply Industries Wood Products 27 -0.62
Sagar Cements Cement 13 -0.60
Indo Count Inds. Textile 10 -0.42
Tamil Nadu Newsprint Paper Products 6 -0.21
INOX Leisure Entertainment 5 -0.17
Zydus Wellness Consumer Food 2 -0.05
The data capture the activity between November 30, 2017 and February 28, 2018. Current stake as on February 28, 2018.

COVER STORY PRASHANT JAIN, ED & CIO, HDFC Mutual Fund `65,344 cr
Playing market cycles

With a deep understanding of market
cycles, Prashant Jain is known for
positioning his funds according to the
next cycle much before others
P
rashant Jain has a history of being ahead of the
markets. He has been able to do this by
positioning his funds for the next cycle. The
markets in India have moved in cycles that play out
over six–eight years. Real estate, engineering and
construction companies, which were once market
darlings in the bull run of 2007, now languish at a
fraction of their peaks. FMCG and NBFCs are today’s
favourites. What’s next? Ask Prashant Jain.
What he’s buying: Refineries and power firms

Jain has picked up stakes in all the three major
refineries of the country – HPCL, BPCL and IOC.
He has also hiked stake in power-related stocks –
Power Grid and NTPC – and power-sector finance
companies, REC and PFC.
What he sold: HSIL and L&T Infotech

Ceramic-fittings manufacturer HSIL got the boot. HSIL
trades close to its five-year highs and is also pricey –
trading at 34 times earnings compared to its historical
average of 19 times. Jain has completely exited HSIL.
He also exited mid-cap tech company L&T Infotech,
which is close to its lifetime highs and trades at 22
times earnings – more expensive than some top-tier
tech companies.
What he’s loading up on: State Bank of India

Being the largest bank in the country, State Bank
couldn’t help but get embroiled in one scam after
another. While the bank loses, new investors gain from
lower valuations. Down more than 25 per cent since
January this year, State Bank now trades at a P/B ratio
of 1.15x – far from the highs of 1.6x it commanded in
the last one year alone.
An interesting pick: Punjab National Bank

Many value-oriented fund managers, including
Prashant Jain, have picked up the beleaguered
Punjab National Bank, which has lost 50 per cent
since the announcement of the `14,000 crore Nirav
Modi scam.

COVER STORY


Power Grid Corporation Power Distribution 590 0.56 2.29 Aurobindo Pharma Pharmaceuticals 62 0.16 2.83
Oracle Financial IT - Software 132 0.40 1.00 Infosys IT - Software 356 0.15 2.09
NTPC Power Generation 539 0.38 1.81 Larsen & Toubro Engineering 287 0.15 2.89
SBI Bank - Public 817 0.32 2.36 Maruti Suzuki India Automobiles 371 0.13 0.04
ICICI Bank Bank - Private 520 0.26 3.01 MID CAPS
MID CAPS Prism Cement Cement 204 3.40 4.40
Apollo Tyres Tyres & Allied 207 1.36 1.36 Century Textiles Diversified 387 2.54 0.36
PFC NBFC 265 0.89 2.71 Tata Motors DVR Automobiles 142 1.18 0.43
Syndicate Bank Bank - Public 76 0.86 0.86 Tata Global Beverages Tea/Coffee 199 1.09 0.16
PNB Bank - Public 356 0.85 3.24 Info Edge BPO/ITeS 124 0.81 2.66
REC NBFC 153 0.51 2.09 SMALL CAPS
SMALL CAPS HSIL Sanitaryware 166 4.58 0.00
Future Supply Chain Logistics 66 2.43 2.43 Sarla Performance Fibers Textile 6 1.21 0.00
Sagar Cements Cement 25 1.47 7.67 ITD Cementation Construction 18 0.50 0.56
Just Dial Miscellaneous 46 1.34 8.99 Merck Pharmaceuticals 12 0.49 0.00
S Chand & Co Publishing 14 0.78 7.11 APL Apollo Tubes Steel & Iron 24 0.47 3.22
Ashoka Buildcon Construction 24 0.53 3.15


BPCL Refineries 238 0.23 None
HPCL Refineries 129 0.20 MID CAPS
Idea Cellular Telecommunication 65 0.17 Larsen & Toubro Infotech IT - Software 66 0.37
Divi’s Laboratories Pharmaceuticals 22 0.08 SMALL CAPS
LIC Housing Finance NBFC 7 0.03 HSIL Sanitaryware 166 4.58
IOCL Refineries 27 0.01 Sarla Performance Fibers Textile 6 1.21
MID CAPS Merck Pharmaceuticals 12 0.49
Apollo Tyres Tyres & Allied 207 1.36
Syndicate Bank Bank - Public 76 0.86
Federal Bank Bank - Private 19 0.10
SMALL CAPS
Future Supply Chain Logistics 66 2.43

COVER STORY CHIRAG SETALVAD, Senior Fund Manager, HDFC Mutual Fund ` 38,285 cr
Picking the ‘un-hot’

Chirag Setalvad likes to invest in non-glamorous
companies that have sound cash flows and are
backed by competent managements
C
hirag Setalvad is a bottom-up investor. He looks for quality
businesses with decent cash flows and run by honest
management. His typical holding period ranges from three–10
years. Setalvad stays away from stocks that are glamorous, the ‘hot
stocks’, which, according to him, produce poor returns in the long
run. Instead, he prefers to stick with neglected sectors. Such sectors
offer two distinct advantages: earnings pick-up in the future and the low
valuations take care of the downside.
What he’s buying: Banks and pharma stocks

Setalvad added banks and finance stocks to his funds,
loading up on HDFC, HDFC Bank and ICICI Bank. He
also added pharma names like Aurobindo, Merck and
Glenmark.
What he sold: Financials, large and mid caps

Though Setalvad added the above financial stocks, he
pruned others like IndusInd Bank, Bajaj Finance and
Yes Bank. He also cut his position in Reliance
Industries, Oracle Financial Services and Lakshmi
Machine Works.
What he’s loading up on: Dilip Buildcon

This road construction company reported an
average annual revenue and bottom-line growth of
35 per cent and 26 per cent. It has bagged orders
worth `13,900 crore this financial year, taking its
order book to over `24,000 crore. The opportunity
in the road sector is vast, with the government
committing to develop roads at a fast clip. The
NHAI has a target award of 8,000 km in FY18, of
which 4,000 kilometres of awards have already
been achieved. A fast-growing market for Dilip
should hold it in good stead. The stock trades at
22x earnings.
An interesting pick:
Crompton Greaves Consumer Electricals
Trading close to 50x earnings, Crompton
Greaves is one of Setalvad’s largest additions.
Crompton is a consumer-electric company that
sells fans, lights, etc. The government’s push
towards rural electrification and affordable
housing make Crompton a key beneficiary.

COVER STORY


Aurobindo Pharma Pharmaceuticals 62 0.16 2.41 Oracle Financial IT - Software 132 0.40 0.00
Hero Motocorp Automobile 85 0.12 0.31 Indusind Bank Bank - Private 338 0.33 0.35
HDFC Finance - Housing 203 0.07 0.27 Yes Bank Bank - Private 190 0.25 0.32
ICICI Bank Bank - Private 109 0.05 0.44 Bajaj Finance NBFC 201 0.20 0.03
HDFC Bank Bank - Private 165 0.03 0.33 Reliance Industries Refineries 565 0.10 0.04
MID CAPS MID CAPS
Dilip Buildcon Construction 244 1.91 2.35 TI Financial Holdings Cycles 439 3.85 3.03
Arvind Textile 193 1.73 1.73 Lakshmi Machine Textile 233 3.55 0.00
Sundram Fasteners Trading 190 1.69 6.98 DB Corporation Publishing 118 1.96 1.48
Crompton Greaves Cons. Cons. Durables 246 1.65 1.76 Blue Star Air Conditioners 51 0.73 4.64
Max Financial Services Finance - Others 176 1.16 2.25 PFC NBFC 186 0.65 0.00
Atul Auto Automobile 38 4.05 7.89 Max India Investment 17 0.59 0.31
Power Mech Construction 32 2.52 4.06 Greenply Industries Wood Products 23 0.57 8.37
Greenlam Industries Laminates 46 1.64 9.01 Elgi Equipments Compressors 16 0.32 0.80
Merck Pharmaceuticals 31 1.41 1.41
Goodyear India Tyres & Allied 30 1.26 1.26


None Oracle Financial IT - Software 132 0.40
MID CAPS Havells India Electric Equipment 25 0.07
Arvind Textile 193 1.73 MID CAPS
Symphony Consumer Durables 171 1.43 Lakshmi Machine Textile 233 3.55
Glenmark Pharma Pharmaceuticals 174 1.03 PFC NBFC 186 0.65
Chambal Fertilisers Fertilizers 35 0.55 Graphite India Electrodes 1 0.01
Shaily Engineering Plastic Products 26 3.28 None
Merck Pharmaceuticals 31 1.41
Goodyear India Tyres & Allied 30 1.26
Amber Enterprises Air Conditioners 18 0.46

COVER STORY MAHESH PATIL, Co-CIO - Equity, Aditya Birla Sun Life Mutual Fund ` 36,339 cr
Steely discipline
Banking on a process-driven
approach, Mahesh Patil is an expert
picker of growth opportunities
M
ahesh Patil emphasises discipline and a process-
oriented approach to investing. He invests in
companies in which he sees growth opportunities.
These opportunities tend to appear if the penetration of a
product or service is low, if companies are innovative or if
they have a moat. Patil also looks at the management. Does
it have the vision and the ability to grab opportunities
before it? Here is what he is currently doing.
What he’s buying: Steel and construction

Patil has picked up many steel-themed plays. He picked up
NMDC, the iron-ore miner – a new entry in his funds. He
also bought shares of Tata Steel, Jindal Steel and Power,
and Jindal Saw. The steel industry is looking up at
strengthening demand and higher prices. He has also
loaded up on engineering and construction stocks,
which include L&T, NCC and India Cements.
What he sold: Finance and

pharmaceuticals
Patil sold off many finance stocks. He exited
HDFC Standard Life, Bajaj Finserv and
Shriram Transport Finance, and pruned stakes
in Kotak Mahindra Bank, Federal Bank and Max
Financial Services. However, he raised his stake in
Axis Bank and Equitas Holdings. He also cut his
position in pharma, exiting the beleaguered Sun Pharma,
Glenmark Pharma and Fortis Healthcare.
What he’s loading up on: NMDC

Patil loaded up on NMDC, buying `200 crore worth of
stock, a new entry in his funds. NMDC, an iron-ore miner,
is seeing happy days, with steel prices and demand both
moving strong. The company will continue to see better
days ahead, with steel prices expected to remain up for
some time.
An interesting pick: Punjab National Bank

Patil exited many finance-related stocks, either in full
or in part. The only other finance stocks that he added
include Axis Bank and Equitas Holdings. Like other value
investors, Patil has picked up the scam-ridden public-sector
bank – a new entry in his portfolios.

COVER STORY


NMDC Mining 200 0.43 0.43 Hindalco Industries Metal 267 0.46 0.88
Tata Steel Steel & Iron 242 0.24 0.34 Hero Motocorp Automobile 135 0.19 0.16
Axis Bank Bank - Private 279 0.20 0.31 Kotak Mahindra Bank Bank - Private 323 0.16 0.16
Tata Motors Automobiles 186 0.15 0.64 Hindustan Zinc Metal 145 0.11 0.14
Larsen & Toubro Engineering 233 0.13 0.50 Infosys IT - Software 184 0.08 0.50
MID CAPS MID CAPS
NCC Construction 196 2.56 2.67 NLC India Power Generation 111 0.68 0.07
Equitas Holdings NBFC 75 1.52 1.52 Fortis Healthcare Healthcare Services 45 0.60 0.00
Bata India Retailing 92 0.97 1.69 Max Financial Services Finance - Others 63 0.41 1.81
NALCO Aluminium 89 0.59 0.67 Glenmark Pharma Pharmaceuticals 64 0.37 0.00
PNB Bank - Public 159 0.38 0.38 Federal Bank Bank - Private 63 0.29 1.27
Majesco IT - Software 36 2.49 2.49 Neuland Laboratories Pharmaceuticals 14 1.75 0.00
India Cements Cement 119 2.26 2.26 VIP Industries Personal Products 48 0.95 0.19
GHCL Chemicals 62 2.06 2.30 Sintex Plastics Plastic Products 29 0.63 0.29
Tamil Nadu Newsprint Paper Products 50 1.77 2.25 VA Tech Wabag Miscellaneous 18 0.55 0.29
Jindal Saw Steel & Iron 53 1.04 1.04


NMDC Mining 200 0.43 HDFC Standard Life Insurance Insurance 104 0.13
M&M Financial Services NBFC 52 0.18 Shriram Transport Finance NBFC 31 0.09
MID CAPS Sun Pharmaceutical Pharmaceuticals 107 0.08
PNB Bank - Public 159 0.38 Ashok Leyland Automobiles 31 0.07
Spicejet Airlines 24 0.29 Ambuja Cements Cement 28 0.05
Jindal Steel & Power Metal 25 0.19 Bajaj Finserv Investment 41 0.05
Persistent Systems IT - Software 10 0.17 MID CAPS
Equitas Holdings NBFC 75 1.52 Fortis Healthcare Healthcare Services 45 0.60
SMALL CAPS Glenmark Pharma Pharmaceuticals 64 0.37
Nath Bio Genes Agriculture 33 3.37 Reliance Nippon Life AMC Investment 53 0.32
Bharat Bijlee Electric Equipment 21 2.86 Apollo Tyres Tyres & Allied 33 0.22
Majesco IT - Software 36 2.49 Edelweiss Financial NBFC 45 0.17
India Cements Cement 119 2.26 Bank of India Bank - Public 36 0.17
Entertainment Network TV Broadcasting 37 1.05 HUDCO NBFC 24 0.14
Jindal Saw Steel & Iron 53 1.04 Canara Bank Bank - Public 30 0.11
Rane Holdings Finance - Investment 32 0.90 Century Textiles Diversified 4 0.05
Power Mech Projects Construction 5 0.37 SMALL CAPS
Neuland Lab Pharmaceuticals 14 1.75
Indian Terrain Textile 2 0.26

COVER STORY R JANAKIRAMAN,
VP and Portfolio Manager – Equities, Franklin Templeton India
` 30,529 cr
No small matter
Specialising in mid and small caps, R Janakiraman talks to all stakeholders
before investing in a company
J
anakiraman is a mid- and small-cap specialist.
He manages Franklin India Smaller Companies
and Prima Funds. While researching potential
investments, Janakiraman talks to everyone –
companies, its suppliers and customers, competitors
and even retired professionals. According to
Janakiraman, the dominant player in an industry
often creates value, while other me-too stocks of the
same industry just join the ride up.
What he’s buying: Idea, HPCL, Info Edge

Janakiraman has bought mobile operator Idea
Cellular and PSU refiner HPCL. The public-sector
refiner was acquired by the upstream oil major, Oil
and Natural Gas Corp (ONGC). In the mid-cap space,
Janakiraman loaded up on Info Edge. The company
is selling stake in its food delivery firm Zomato
Media Pvt Ltd to Chinese online giant Alibaba
Group for $50 million.
What he sold:
Indusind Bank, technology stocks
Janakiraman’s biggest stake cut was in IndusInd
bank, which is trading at close to 10-year highs and is
still expensive at a price to book of 4.6x. He also
reduced stakes in technology companies, completely
exiting Oracle Financial Services and pruning
position in Mindtree and Cyient.
What he’s loading up on: Idea Cellular

Janakiraman loaded up on Idea Cellular. He bought
more than `420 crore worth of shares of India’s third-
largest telecom operator. Idea is going to merge with
Vodafone, the country’s second largest. The Idea-Voda
combine will overtake Airtel and become number one
in a now four-player industry.
An interesting pick: Colgate-Palmolive

Colgate trades at 45 times earnings. The stock has not
gone anywhere in the last three years and the
company has lost around 4 per cent market share,
mostly to upstart Patanjali. Colgate’s counter-attack
with its own launches in Ayurveda has stemmed
market-share loss. The valuations though are eye-
watering. WI

COVER STORY


Idea Cellular Telecommunication 426 1.15 1.22 Indusind Bank Bank - Private 348 0.35 0.04
Colgate-Palmolive Personal Products 195 0.65 0.81 Oracle Financial IT - Software 120 0.35 0.00
HPCL Refineries 290 0.47 0.47 United Breweries Breweries 97 0.34 1.10
Kansai Nerolac Paints Paints 61 0.21 0.73 Havells India Electric Equipment 73 0.22 0.08
Hindalco Industries Metal 104 0.18 0.62 Hero Motocorp Automobile 107 0.15 0.20
MID CAPS MID CAPS
CG Power & Industrial Electric Equipment 63 1.12 1.12 MindTree IT - Software 117 0.96 0.67
Gujarat Pipavav Port Port 53 0.74 3.19 Jubilant FoodWorks Consumer Food 122 0.93 0.76
Info Edge BPO/ITeS 107 0.70 1.47 Cyient Limited IT - Software 56 0.83 3.83
Thermax Engineering 75 0.54 0.54 Aditya Birla Fashion Retailing 62 0.48 2.81
AIA Engineering Engineering 74 0.52 0.52 Mahanagar Gas Gas Marketing 31 0.31 0.35
Navneet Education Publishing 34 0.95 3.42 Healthcare Global Miscellaneous 58 2.11 4.36
Rallis India Pesticides 24 0.51 1.92 Sobha Real Estate 60 1.09 3.90
Repco Home Finance NBFC 16 0.40 7.20 Greaves Cotton Diesel Engines 27 0.92 0.00
Triveni Turbine Engineering 9 0.21 2.26 VRL Logistics Logistics 26 0.66 1.17
Dixon Technologies Cons. Durables 26 0.60 0.00


HPCL Refineries 290 0.47 Oracle Financial IT - Software 120 0.35
MID CAPS Bajaj Holdings NBFC 43 0.14
CG Power & Industrial Electric Equipment 63 1.12 Maruti Suzuki Automobiles 26 0.01
Thermax Engineering 75 0.54 MID CAPS
AIA Engineering Engineering 74 0.52 Blue Dart Express Courier Services 14 0.13
Dish TV India TV Broadcasting 28 0.34 SMALL CAPS
SMALL CAPS Greaves Cotton Diesel Engines 27 0.92
None Swaraj Engines Diesel Engines 19 0.78
Navkar Corporation Logistics 19 0.65
Dixon Technologies Consumer Durables 26 0.60

STRAIGHT TALK
Remembering Ricardo
Amidst a looming trade war, it’s worth recalling the
principles of classical economics
ANAND TANDON
David Ricardo (1772–1823), born to combination of products and that is what they would
Abraham Ricardo, was the third of 17 children. His do when no trade is allowed. For country A, it is
father was a successful stockbroker. David started possible to think in terms of an ‘opportunity cost’ –
working with his father at the age of 14, but a marriage every one unit of computer foregone allows two units
without parental approval led to his estrangement with of cheese to be produced. For country B, this would be
the family. He set up on his own and at the age of 43 1.5 units of cheese for every computer.
made ‘upwards of a million sterling’ by stock-market Let us take a case where the production is as per the
manipulation around news of the outcome of the Battle table below:
of Waterloo. He purchased a seat in Parliament and
used his term to pursue a reform agenda. Comparative advantage at work
Ricardo became interested in economics after
Without trade With trade
reading Adam Smith’s Wealth of Nations. His own Cheese Computer Cheese Computer
contributions were towards free trade, and among the
seminal ideas with which he is credited are ‘comparative Country A 1,000 250 1,500 0
advantage’ of international trade and ‘Ricardian Country B 375 250 0 500
equivalence’ between issuing debt or running a deficit.
Both these ideas are of importance during current Total 1,375 500 1,500 500
times – none more so than free trade.
Without trade, the world could produce 1,375 units of
Simple idea, complex outcome cheese and 500 computers. With trade and despite the
Ricardo’s idea of comparative advantage seems fact that A is better at producing both compared to B, it
deceptively simple. The theory simply states that even makes sense for A to produce cheese and for B to
if country A is better at producing everything compared specialise in computers, since the overall production is
to country B, both countries would still gain from higher! The essential point that is illustrated in this
specialising in producing what they do best. A simplistic simple model is that it is comparative advantage rather
example at an individual level can be specialisation of than absolute advantage that determines trades and
labour – a brain surgeon could possibly repair his specialisation. Country A above has higher productivity
dripping faucet but is better off using his time in than country B in both products. But between cheese
surgery and calling a plumber. and computer, its productivity is higher in cheese.
The comparative-advantage theory works as follows: Hence when it focuses on cheese, both countries gain
Let us assume that there are only two products – cheese from trade.
and computer – and two countries – A and B – that can A common argument against this theory is the
produce both. Assume that there is no trade. Country A ‘pauper labour’ argument – foreign competition is
can produce 1,500 units of cheese or 750 computers. unfair when it is based on low wages. One of the
Country B can produce 750 units of cheese or 500 units outcomes of this theory is that labour rates are a
of computers. Obviously, both can produce some function of productivity. If country B is less efficient as

STRAIGHT TALK
compared to A, it will also have lower Take the case of India. The government,
wages. What is important is that relative One of the key under the guise of its Make in India
to its own wages, country A is better off policy, has increased tariff barriers
producing cheese and importing legs for equity- across many items – steel and tyres are
computers (incidentally, do not get market rally examples. While this benefits both –
confused by the use of computer and earlier this government gets higher taxes and
cheese in the example; it could be rice and producers receive higher profits, it
airplane as well. There is no technology
year was penalises all user industries – and finally
superiority implied in the example). expectation of the consumer. Users of automobiles,
A corollary of this argument is that higher global trucks, air-conditioners, homes and
country B is running a sweat shop –
growth. That offices – in fact all of us – are paying a
where labourers are being exploited to ‘steel tax’ by stealth, as also a tyre tax,
produce items for export to country A. assumption etc. Since the beneficiaries are fewer
While it may seem iniquitous, the reality will now be than the consumers, this eventually
is that without trade, the labour rates in tested. worsens the overall economic outcome.
B would actually be lower. While The recent steps by the US government
comparison between labour rates to increase tariffs on imports into the US
between A and B may seem exploitative, can potentially have a similar deleterious
without trade, labour in B may actually starve. effect. Obviously, trade partners are not likely to take it
lying down and a trade ‘war’ is a distinct possibility.
So why protectionism? The existence of WTO softens the blow somewhat since
If the case for free trade is so compelling, why is it that it is not possible to take unilateral action without
we have a clamour for protection against imports inviting action under WTO rules. Despite that, a
across countries. The single biggest issue with the worsening global economic-trade climate cannot be
model is that it does not take into account income ruled out. While still a long way away, it may be a good
distribution within countries. Transitions can be time to dust-up and re-read history and outcome of the
painful and while removing trade barriers can increase Smoot–Hawley tariffs – often blamed for worsening the
overall economic growth of a country, there will be Great Depression. One of the key legs for equity-
sections that will lose out heavily – those that are losing market rally earlier this year was expectation of higher
protection. In most cases, lobbying by these sectors global growth. That assumption will now be tested. WI
forces government action in the form of import tariffs. Anand Tandon is an independent analyst.

OFFBEAT
Macroshamonomics
Why over-reliance on macroeconomics is risky
SANJEEV PANDIYA
There was a time when ‘doctors’ used created have yet to play out on their after-effects, when
to bleed patients with mental-health problems (on the the current process of deleveraging could uncover
diagnosis that ‘the devil has got them’). That used to fingers of instability, which nobody has even imagined,
count as medical ‘science’ at some point in human let alone seen.
history. One day, historians will look back at economists Hayek has said long ago that markets and (individual)
and put the same inverted commas around the entrepreneurial action is the best driver of economic
description. growth and revival. In today’s world, most such
In recent history, few professions have disappointed initiatives are innovative/ technological breakthroughs,
as many people, and as spectacularly, as economics. which can be sudden disruptors of existing industries
One can talk about the legal profession, perhaps, and or creators of new ones.
politics, that old suspect, but then nobody claimed Macroeconomists have been running a Faustian
grandly to be the answer to the world’s conspiracy to protect the reputation of
problems the way that economics has. their models rather than question their
From being the moral compass of the Macroeconomics efficacy. Just like the Great Depression
world to being the prescriptor of public is particularly was born out of serious policy errors of
policy, even governance, to the current pernicious when fiscal and monetary policy, the aftermath
fad of deciding the models of human of the Great Recession may have seen
happiness, economics has evolved in fits used in public grievous errors from the usage of
and starts, always interesting, always policy because outdated models in a world where
ambitious but always wanting. politicans will technological innovation (even more
The Great Recession has laid bare
many of these claims. Mathematical
quote economists than entrepreneurial initiative) is the
driver of economic growth.
models, which claimed to lay out precise to justify and This has been seen in other academic
boundary conditions, have failed push through a areas where there are large gaps in the
miserably in a large number of areas:
flawed policy data and huge uncertainty in the cause–
credit-rating models, CDS pricing, option effect relationships between driving and
pricing (Black Swan effect). This list is independent variables. In string theory,
definitely incomplete; there is not an area for example, there are these ‘fads’ that
of economic endeavour that has not suffered the effects build up among physicists and the observed facts no
of dis-preparedness by economic players, who believed longer seem to matter. Simply because no set of facts
in classical economics. Keynesians have been using fills up completely the unknowable gaps, leaving
older models to argue that keeping interest rates low and enough space for your favourite theory (espoused by a
creating new money will revive aggregate demand, in celebrity theorist) – a phenomenon also seen in a much
turn reviving the economy, to the point that rates were lower discipline, politics.
taken negative on 40 per cent of the world’s bonds, Such ‘purges’ are nearly political developments, like
destroying the savings impulse. The distortions so Mao’s Great Leap Forward or the rise of Nazism. Any

OFFBEAT
thought process contrary to the establishmentarian can be vastly more complex and unpredictable than the
philosophy is crushed. And the establishment is behaviour of atomic particles. So the normative
dominated by some celebrity economist, who has a dynamic stochastic general equilibrium (DSGE) models
vested interest in the survival of his espoused of macroeconomics do not work, except patchily. And
viewpoint. In case of macroeconomics, the mathematical there is no way to tell when they will work or not.
elegance of the model had to be maintained at all costs, Particularly the not.
even if it meant assuming away reality. Like Paul This creates a peculiar problem for the user of
Krugman has been cheerleading the quantitative- macroeconomic models. He must consider himself
easing operation in the US, regularly pointing out that educated in macroeconomics and hence must think he
all the money-printing has not (yet) resulted in the ‘knows’ what is going to happen. But if macroeconomics
onset of inflation. That’s like blowing a balloon and itself does not know, then how can the user tell when he
then celebrating the fact that it has not yet burst and does not know? So he thinks he knows and then does
hence will never burst. The effects of the gigantic things in that belief. If he were doubtful, he would not
bubble in bonds have still to play out yet, but I mention jump off the top floor.
this as an example of how the consensus can be In that, macroeconomics turns out to be a pernicious
hijacked by a celebrity economist, who drives public sham and very dangerous mis-education that does not
policy in a particular direction, with no possibility of even post a disclaimer to the user to jump at his own
any mid-course evaluation. risk. It is particularly pernicious when used in public
But physics will still remain a science, principally policy because politicians will quote economists to
because observations don’t change in different justify and push through a flawed policy – a case of the
experiments with similar conditions. In particular, the blind leading the blind but in a Pied Piper fashion. The
observed (i.e., inanimate objects) does not change trouble is in calling it a ‘science’. Education, yes,
because it is being observed. On the other hand, maybe. Art, definitely yes. But an all-things-to-all-
macroeconomics is trying to model individual human people science that everyone can and should know, that
behaviour and study its agglomerates. Given that should come with a lot of disclaimers. WI
human beings have individual minds, their behaviour The author teaches, trades and writes at spandiya.blogspot.com

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Our scorecard
O Performance
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Recommendation date price (`) price (`) invested (`) Total return (% per annum)
Jul-11 Asian Paints 295 1,109 37,585 22.9

Bosch 6,917 17,780 25,705 15.9
Castrol India 122 206 16,883 10.1
Colgate-Palmolive 458 1,046 22,827 14.9
CRISIL 693 1,950 39,000 18.4
Cummins India 481 751 15,618 9.5
Exide Industries 149 215 14,399 6.8
ITC 123 261 21,175 14.0
Larsen & Toubro 730 1,313 17,985 10.2
Nestle India 3,888 7,924 20,381 12.3
NMDC 258 119 4,653 -7.2
Pidilite Industries 159 912 57,213 30.6
Titan Company 229 883 38,583 22.4
Aug-11 Lupin 461 778 16,899 9.1
Opto Circuits 213 8 390 -38.1
Sep-11 Bank of Baroda 152 137 9,062 -0.8
Castrol India 127 206 16,222 9.7
Power Grid Corporation 103 195 19,001 12.5
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Tata Coffee 70 120 17,029 9.2
Torrent Power 211 242 11,436 3.3
Zee Entertainment Ent. 123 574 46,496 27.1
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Graphite India 78 753 97,161 44.0
Zylog Systems 197 3 173 -45.4
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Tata Consultancy Services 1,087 2,875 26,455 19.3
Transformers & Rectifiers 20 28 14,263 5.8
Dec-11 Gujarat State Petronet 92 178 19,327 11.9
Noida Toll Bridge 23 12 5,343 -0.7
Tata Motors 180 342 20,736 11.8
Jan-12 GAIL 291 439 15,065 9.0
Mahindra Lifespace 245 435 17,741 11.9
MRF 6,859 70,080 102,106 45.3
Mar-12 Bajaj Finance 83 1,681 225,325 65.9
Gabriel India 23 141 62,176 36.7
Opto Circuits 221 8 376 -41.5
Apr-12 Shriram Transport Finance 581 1,404 24,141 16.9
TTK Prestige 2,647 6,390 24,141 16.4
May-12 Bata India 423 705 16,673 9.7
GSK Consumer Healthcare 2,770 6,600 23,826 17.0
Swaraj Engines 395 1,995 50,519 36.6
Jun-12 Ajanta Pharma 75 1,400 185,731 66.7
Elecon Engineering 53 79 14,892 9.0
Kirloskar Pneumatic 470 819 17,427 11.8
Aug-12 Hero Motocorp 2,082 3,501 16,815 12.8
Supreme Industries 237 1,198 50,623 35.7
VST Industries 1,695 2,965 17,494 13.4
Sep-12 Amara Raja Batteries 195 791 40,542 29.6
Redington India 71 137 19,188 14.1
Oct-12 Lupin 567 778 13,718 6.8
MindTree 172 806 46,883 35.1
Solar Industries 197 1,023 52,004 35.9
Nov-12 Grindwell Norton 130 496 38,156 29.8
KPIT Technologies 120 233 19,438 14.0
Mcleod Russel 306 147 4,803 -11.4
Dec-12 City Union Bank 48 176 39,303 28.7
Petronet LNG 79 236 29,968 24.3
Wockhardt 1,647 759 4,610 -12.9
Feb-13 Balkrishna Industries 145 1,081 74,492 48.3
KEC International 64 398 62,447 43.4
Torrent Pharmaceuticals 365 1,245 34,062 30.2
Mar-13 Emami 410 1,056 25,738 21.6
Gruh Finance 108 549 50,952 39.0
Returns for less than one year are absolute. Total returns include dividend income. Returns as on March 21, 2018. Transactional fees not taken into account.

Stock Ad sor

STOCK ANALYST’S
CHOICE
Apr-13 Berger Paints India 69 246 35,877 30.0

Innoventive Industries# 103 4 407 -62.8
May-13 Kaveri Seed Company 252 488 19,366 15.2
Navneet Education 57 144 25,131 23.7
V-Guard Industries 35 227 65,431 47.3
Aug-13 Cairn India## 296 285 9,650 2.9
Indraprastha Gas 62 293 47,393 41.1
Nesco 146 551 37,746 33.5
Nov-13 Bajaj Corp 237 459 19,330 20.3
HCL Technologies 581 944 16,252 14.3
Dec-13 Voltas 89 623 69,765 57.8
Feb-14 J&K Bank 135 59 4,393 -17.0
Tata Consultancy Services 2,213 2,875 12,988 8.7
Mar-14 Cummins India 433 751 17,326 17.6
Swaraj Engines 622 1,995 32,096 37.7
Apr-14 AIA Engineering 560 1,399 24,978 27.0
Godrej Consumer Products 382 1,083 28,357 30.5
May-14 Rallis India 167 224 13,402 9.2
Titan Company 256 883 34,550 37.9
Jun-14 Finolex Cables 164 653 39,817 44.4
NBCC 40 196 49,407 53.3
Aug-14 Gateway Distriparks 232 191 8,229 -2.2
GMDC 154 128 8,317 -2.7
V-Guard Industries 47 227 48,315 54.2
Sep-14 Finolex Industries 297 672 22,632 28.0
Hindustan Media Ventures 155 225 14,531 11.8
Oct-14 Mahindra Holidays & Resorts 199 284 14,246 11.8
Tata Coffee 93 120 12,862 8.7
Nov-14 Infosys 966 1,174 12,146 8.1
Tata Motors 482 342 7,400 -9.6
Jan-15 Apollo Tyres 208 265 12,766 8.8
Mar-15 Ipca Laboratories 681 665 9,769 -0.7
Voltas 256 623 24,326 34.1
Apr-15 Astral Poly Technik 449 849 18,902 23.6
VST Tillers Tractors 1,380 2,640 19,132 25.1
May-15 Just Dial 1,253 440 3,507 -30.0
Shriram Transport Finance 1,099 1,404 12,769 9.6
PORTFOLIO TOTAL 30,20,110 23.6

#
Stopped trading since Jun ‘13. Stopped trading since Apr ‘17. Returns for less than one year are absolute. Total returns include dividend income. Returns as on
##
March 21, 2018. Transactional fees not taken into account.

Stock Ad sor

STOCK
SCREEN
Ideas to delve deeper

S
ound investment methods outlast cycles and them to your portfolio. However, please note that they
fads and generate profits over the long run. are not our 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
Value Guru stocks make your own judgement on stock selection.
We believe that stocks listed in this section are a good Great investments are not easy to find, but practice,
starting point to start a close scrutiny before adding patience and sound principles are all that you need.
Key terms
Current ratio It is the ratio of a company’s current assets (the most liquid assets, Debt-equity ratio (DE Ratio) The debt-equity ratio is calculated as the ratio of
such as cash and cash equivalents, account receivables, etc.) to its current liabil- total outstanding borrowings of the company to its total equity capital. The DE ratio
ities (liabilities that are closest to maturity and hence need to be paid back first). essentially tells which companies use excessive leverage to achieve growth.
By comparing the latter with the former, an investor can get an idea of how liquid Conventionally, the DE ratio of less than two is considered safe.
a company’s assets are. However, in certain circumstances, a high current ratio Return on equity (RoE) This is measured by taking profit after tax as a percent-
could be due to the fact that the company is facing problems in recovering its age of net worth of the company. It indicates how efficiently the company has been
receivables. Alternatively, it could be facing a problem in selling its inventory. able to utilise investors’ money.
Net Current Asset Value (NCAV) A term created by Benjamin Graham. It is Net worth Net worth is the net value of the company that shareholders can claim
calculated by subtracting the total liabilities from a company’s current assets. in case of a bankruptcy. It is composed of broadly the equity capital and the
Universe companies (847) We have revised our universe. We checked if the reserves held by a company. One risk in using this indicator is that companies
companies traded on all the days for the last two quarters. We considered the could potentially inflate this figure by issuing more equity at regular intervals.
companies with a market capitalisation of more than `400 crore. Stock return (stk return) Stock return is calculated by taking the percentage
Price to book value (P/BV) Price to book value is the ratio of the price of a change in the price of the stock adjusted for bonus or split.
stock to the book value per share of the company. It shows how much premium Dividend yield (yield) This is defined as the percentage of the dividend paid per
investors are willing to pay for the underlying net assets of the company. share to the current market price of the stock. Since the denominator in this ratio
Price to earnings (P/E) The price-to-earnings ratio, or the P/E ratio, is simply is the market price, a stock’s dividend yield changes every day.
the ratio of the price of a stock to its earnings per share. It shows in multiples how Price-earnings to growth (PEG) This ratio demonstrates how high a price we are
much investors are willing to pay for the earnings. The thumb rule of valuing a stock paying for the growth that we are purchasing. It is the ratio of price to eanings to EPS
is that a high-growth stock will have a high P/E ratio, while a value stock will have growth of the stock. In all our analyses, we have taken five-year historic EPS growth.
a relatively lower P/E ratio.
Dividend payout ratio (DPR) This is the total dividend paid to the shareholders
Earnings per share (EPS) Earnings per share, or EPS, is calculated by dividing as a percentage of net profit
the company’s net profit with the total number of outstanding shares.
Operating profit margin (OPM) OPM is operating profit as a percentage of net
Earnings yield EBIT divided by enterprise value. Enterprise value is market cap sales.
added to total debt and less cash and equivalents.
Net profit margin (NPM) NPM is the net profit as a percentage of total
Net sales This is simply the income that a company derives by income (sales plus other income)
selling the goods and services that it produces.
Stock style It indicates the style of Growth Value
The downside of taking sales as an indicator of growth is that it may not be the stock. It is derived from a combina-
matched by a similarly scintillating bottom-line performance. A company may be tion of the stock’s valuation — growth Large
earning revenue at a high rate. But if it is doing so by incurring a very high cost, or value — and its market capitalisa-
the bottom line may not grow in proportion to the growth in the top line. tion — large, mid and small. For exam- Mid
Interest coverage ratio (ICR) This indicator is generally used to gauge whether a ple, on the right we have shown the
company has the ability to service its debt. The interest coverage ratio is calculated as stock style of a large-cap growth stock.
the ratio of operating profit to interest outgo. A company with ICR of more than two Small
implies that it can service more than twice its current interest charges.

STOCK
SCREEN
Quality stocks available cheap

The stocks listed below clear essential checks on solvency, accounting,
recent financial performance and valuations
REASONS TO INVEST THE FILTERS
Safety Z-Score greater than 2.99 PEG less than 1
Soundness F-Score greater than or equal to 8 P/E to median P/E less than 1.5
Good performance C-Score less than 4 Earnings yield greater than 5%
Reasonable valuations Banking and finance companies were removed from this analysis
as the metrics don’t apply to them.
Altman Z-Score: Predicts the likelihood of Modified C-Score: Tells the probability of Piotroski F-Score: Highlights financial Reasonable valuations: Valuation filters (PEG
financial distress. creative accounting. performance as compared to that in the and P/E) are listed in the box ‘The Filters’.
previous year.
Safe bets
For updated numbers, visit: www.ValueResearchOnline.com
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 (`)
Adani Ports
Shipping 6.1 9 3 6.9 19.5 0.7 75,393 364 452-317
Allsec Technologies
BPO Services
27.6 9 0 16.0 8.4 0.2 526 343 535-306
Ambika Cotton Mills
Cotton & Blended Yarn
6.8 8 3 11.1 12.5 0.7 737 1,291 1860-1200
Bhansali Engg Polymers

Thermoplastics
9.1 9 2 5.2 31.6 0.1 2,720 164 218-25
Bodal Chemicals
Organic Chemicals
6.4 8 2 11.5 12.7 0.3 1,527 125 194-121
Cheviot Company
Jute prod.
12.7 8 0 13.8 10.2 0.8 595 1,366 1735-960
Datamatics Global Services 10.2 8 0 13.1 7.2 0.3 668 113 153-92
Computer Software
DCM Shriram 3.5 8 1 13.2 9.5 0.3 7,379 454 628-276

Diversified
Federal-Mogul Goetze (I) 6.3 8 2 5.7 29.3 0.6 2,462 445 651-445
Auto Ancillaries
Himadri Speciality Chem 4.8 9 2 5.2 31.5 0.5 6,364 152 197-42
Coal & Lignite
Insecticides (India) 4.0 8 1 7.5 18.3 1.0 1,503 719 964-522

Pesticides

STOCK
SCREEN
For updated numbers, visit: www.ValueResearchOnline.com
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 (`)
Jubilant Life Sciences

Drugs & Pharma 3.3 8 1 6.6 20.0 0.6 12,782 803 1039-600
Kalyani Steels
Finished Steel
3.8 8 2 13.2 10.7 0.3 1,310 299 469-284
Kellton Tech Solutions
Computer Software
6.3 8 1 15.7 9.2 0.1 555 115 138-81
Kovai Medical Center

Health Services
9.2 9 1 7.8 21.2 0.8 1,312 1,199 1480-1024
KPR Mill
5.4 9 1 7.9 16.9 0.6 4,877 660 884-605
Maithan Alloys
Ferro Alloys
8.7 8 2 17.2 8.1 0.2 2,475 848 1026-383
Meghmani Organics 4.1 8 1 11.4 15.6 0.3 2,257 89 129-36

Pesticides
NR Agarwal Industries 3.3 9 1 12.3 8.1 0.1 727 431 600-223

Paper
Pokarna 3.1 8 2 11.2 12.5 0.4 595 192 324-190

Granite
Rico Auto Industries 3.5 8 0 6.3 23.0 0.7 1,051 78 111-48

Auto Ancillaries
Sandur Manganese
Minerals
6.7 9 1 20.1 9.5 0.2 928 1,057 1470-541
Seshasayee Paper
Paper
3.5 9 1 14.1 9.2 0.2 1,085 860 1225-642
Sharda Motor Industries

Auto Ancillaries
5.4 8 1 10.4 15.0 0.3 1,137 1,916 3140-1581
Shree Pushkar Chemicals

Dyes & Pigments
9.1 8 3 8.1 19.8 0.8 695 231 337-168
Skipper
Electronic Equipts.
4.3 8 1 8.7 19.9 1.0 2,411 228 292-151
Suven Life Sciences

Drugs & Pharma
8.3 9 0 9.4 16.2 0.5 2,204 174 251-155
Vardhman Textiles
3.9 9 0 9.9 12.4 0.3 7,129 1,241 1560-1128
West Coast Paper Mills

Paper
3.2 9 2 11.5 8.3 0.1 1,615 245 348-169
Data as on March 19, 2018. Indicates new entrants.

STOCK
SCREEN
Attractive blue chips

Investing in blue chips at reasonable valuations is one of the simplest
methods of wealth creation with limited pain
Liquidity Large and mid caps
Large companies in respective businesses Annualised earnings growth of more than 20% over the past five years
Strong balance sheets Debt-equity ratio of less than two
Liked by institutions Interest coverage ratio should be more than two
Five-year average return on equity above 20%
Average ROE should not have fallen more than 20 per cent in any year
PEG of less than 1.5
Solid foundation
Stock Debt-equity Int coverage 5Y avg 5Y EPS Mkt cap Share 52-week
Company style P/E PEG ratio ratio RoE (%) growth (%) (` cr) price (`) high/low (`)
Aarti Industries
Organic Chemicals
30.7 1.3 1.1 4.5 22.0 23.3 9,383 1,141 1209-751
Adani Ports
Shipping
19.5 0.7 1.3 4.0 24.8 26.5 75,393 364 452-317
Ajanta Pharma
Drugs & Pharma
25.1 0.5 0.0 186.7 40.2 45.6 12,244 1,391 1853-1120
Aurobindo Pharma
Drugs & Pharma
13.8 0.3 0.4 46.8 28.8 32.7 33,565 573 809-503
Avanti Feeds
Marine Foods
23.4 0.5 0.0 70.1 43.0 46.4 10,473 2,297 2940-692
Bharat Petroleum Corp

Crude Oil & Natural Gas
13.1 0.4 1.2 19.3 23.7 34.0 93,169 431 552-399
Century Plyboards (India)

Wood
40.8 1.3 0.9 9.1 29.5 30.3 7,214 325 363-235
PI Industries
Pesticides
29.0 0.9 0.1 59.1 29.6 30.6 11,477 831 1034-675
UPL
Inorganic Chem.
17.6 0.7 0.9 3.5 24.0 21.0 35,675 702 903-673
Data as on March 19, 2018. EPS growth rates are annualised.

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
Cushion against volatility Stocks with sustained per Dividend payout ratio of Stocks with a current
Higher total return share dividend and amount less than 40% dividend yield of more
Generate regular tax-free income over the past five years than 3%
Dear dividend
Stock Dividend Dividend Dividend pay- Earnings Mkt cap Share 52-week
Company style P/E PEG per share (`) yield (%) out ratio (%) yield (%) (` cr) price (`) high/low (`)
Cosmo Films
Plastic Films
7.6 0.2 10.0 3.8 21.9 10.6 513 265 470-261
Hindustan Petroleum Corp 8.5 0.2 30.0 5.6 37.0 13.8 54,545 358 493-327
Crude Oil & Natural Gas
The Karnataka Bank 7.3 0.6 4.0 3.4 25.0 NA 3,321 119 181-108
Banking
PTC India Fin Services 7.1 0.6 1.5 5.6 27.9 10.7 1,734 27 51-26
Misc. Fin.services
PTC India 8.2 0.4 3.0 3.3 21.4 5.2 2,723 92 130-85
Electricity Distribn.
Redington (India) 10.9 1.5 4.3 3.2 37.0 13.1 5,348 135 210-106
Computer Hardware
RSWM 28.0 -2.9 12.5 3.5 28.3 6.1 833 355 460-295
Rural Electrification Corp 4.8 0.7 9.7 7.7 30.2 11.2 24,785 127 224-122
SIDCs/SFCs
Data as on March 19, 2018. EPS growth rates are annualised. Indicates new entrants.
For real-time, customisable stock screens, subscribe to
Stock Ad sor

STOCK
SCREEN
Reasonably priced growth stocks

Growth investing is about picking companies that are fast growing their
bottom lines. But make sure that the valuations are not overheated.
All-weather style Earnings growth of:

At least 20% in the Stocks with a P/E
Companies with strong fundamentals
At least 20% in the past trailing 12 months YoY of less than 15
Greater stability vis-a-vis value or growth five years

At least 20% in latest
quarter YoY
On fast track
Stock Median Quarterly EPS TTM EPS EPS growth Mrkt cap Share 52-week
Company style P/E P/E PEG growth (%) growth (%) 5Y (%) (` cr) price (`) high/low (`)
8K Miles Software
Computer Software 12.9 29.2 0.1 66.8 96.1 88.9 2,036 662 1030-365
Andhra Petrochemicals
Organic Chemicals 13.9 0.0 0.2 360.9 279.7 89.7 458 54 78-23
Astra Microwave Products
Communication Equipt. 11.8 17.3 0.5 92.4 51.4 24.3 723 83 149-82
Crest Ventures
Misc. Fin.services 5.3 6.7 0.1 108.9 64.3 54.4 502 194 298-134
Datamatics Global
Computer Software
7.1 8.6 0.3 26.8 43.4 27.4 660 112 153-92
DCM Shriram
Diversified
9.4 10.0 0.3 56.1 72.3 36.0 7,262 449 628-276
Dewan Housing Fin Corp

Housing Finance
5.2 8.1 0.1 24.8 242.9 45.8 15,918 505 679-346
Dhampur Sugar Mills

Sugar
3.5 0.0 0.1 22.8 21.2 39.8 1,022 155 331-144
DLF
Real Estate
8.8 44.0 0.2 4,068.8 1,128.1 35.0 38,464 215 274-141
Everest Kanto Cylinder 4.8 0.0 0.2 226.1 286.9 30.9 511 45 78-30
Metal Tanks & Fabrications
Gujarat Narmada Valley 8.7 6.9 0.4 241.3 107.2 21.3 6,406 414 549-253
Nitrogenous Fertilizer.
IG Petrochemicals 14.8 11.7 0.5 74.9 65.4 32.7 2,094 682 837-334
Organic Chemicals
IL&FS Engineering 3.0 0.0 0.1 117.8 217.4 22.8 455 35 60-31
Construction

STOCK
SCREEN
Stock Median Industry Quarterly EPS TTM EPS EPS growth Mrkt cap Share 52-week
Company style P/E P/E P/E growth (%) growth (%) 5Y (%) (` cr) price (`) high/low (`)
Indiabulls Housing Finance

Housing Finance
14.0 13.5 0.5 54.6 32.6 27.4 51,120 1,189 1440-898
JK Paper
Paper
10.0 10.5 0.2 72.9 80.0 48.1 2,426 137 170-89
KSE
Oil cakes & Animal Feed
13.0 8.6 0.1 287.2 732.2 156.6 789 2,466 2861-762
Kuantum Papers
Paper
9.0 3.7 0.2 23.7 52.4 44.4 653 700 1032-390
National Aluminium Co
Aluminium
9.5 14.7 0.6 401.5 156.9 23.5 12,815 66 98-61
NLC India
Electricity Generation
3.7 8.1 0.3 54.9 233.0 24.1 14,338 94 123-88
PTC India
8.1 9.7 0.4 38.5 34.7 22.7 2,717 91 130-85
Electricity Distribn.
Renaissance Jewellery
9.3 5.0 0.2 29.6 49.8 38.3 583 320 412-137
Gems & Jewellery
Sandur Manganese
9.6 9.5 0.2 123.9 1,426.2 38.1 936 1,078 1470-541
Minerals
SMS Pharmaceuticals
14.4 16.0 0.6 26.4 24.6 27.9 648 76 121-65
Drugs & Pharma
Sunflag Iron & Steel Co

14.3 11.2 0.3 214.7 78.2 46.2 1,496 83 100-34
Finished Steel
SVP Global Ventures

7.11 8.9 0.0 114.2 292.9 42.4 455 360 620-230
Trading
Tata Metaliks
13.0 6.5 0.1 105.9 26.9 89.6 1,883 740 976-505
Pig Iron
Thirumalai Chemicals
12.9 8.4 0.1 176.4 88.4 138.3 1,909 1,858 2440-811
Organic Chemicals
Vardhman Holdings
6.1 10.2 0.2 487.0 493.2 74.8 1,329 4,149 6200-2655
Data as on March 19, 2018. EPS growth rates are annualised. Indicates new entrants.
Stock Ad sor

STOCK
SCREEN
Discount to book value

Stocks available at a discount to their book value indicate bargain and
inherent value, provided the business fundamentals are sound
Really cheap Price at least 10 per Return on net worth Debt-equity ratio of Companies must
Relatively undervalued cent below the book of more than 10% in less than 1.5% have a five-year
Companies with assets value the most recent year earnings growth of
more than 10%
Bargain hunt
Stock Dividend Debt-equity Mkt cap Share 52-week
Company style P/B P/E PEG yield (%) ratio RoE (%) (` cr) price (`) high/low (`)
Balasore Alloys
Ferro Alloys
0.8 4.4 0.1 1.4 0.3 18.6 491 55 100-43
Century Enka
Synthetic Yarn
0.8 8.9 0.4 2.2 0.1 11.1 680 309 454-292
Claris Lifesciences
Drugs & Pharma
0.7 1.4 0.0 0.5 0.0 14.0 2,164 397 426-308
Cosmo Films
Plastic Films
0.9 7.6 0.2 3.8 1.1 17.7 515 265 470-263
HT Media
Books & Newspapers
0.8 7.8 0.5 0.5 0.5 11.2 2,000 86 118-79
Orient Paper & Industries

Paper
0.5 10.0 0.7 1.3 0.8 11.1 816 38 175-37
Polyplex Corporation
Plastic Films
0.6 11.4 0.3 1.4 0.3 14.9 1,562 484 602-389
Vivimed Labs
Drugs & Pharma
0.7 3.5 0.2 0.5 1.5 36.8 635 77 154-67
Data as on March 19, 2018. Indicates new entrants.
Stock Ad sor

WORDS WORTH
NOW
This was a major breach of trust [data leak

to an analytics firm]. I am really sorry this
happened. Our responsibility is now to
make sure this doesn’t happen again.
Mark Zuckerberg, CEO, Facebook, The Economic Times, March 23, 2018
We are 10th in the series of We uphold the use of social media

descending order of the exports that and it has empowered every citizen
are receding US and ours is only 2 who can ask us questions directly
percent of the total exports going to now. But abuse of
US. So immediately there is definitely social media that
no impact but yes, we have an issue too by using foreign
of principle. What is being imposed firms will not be
is not something which is WTO acceptable.
compliant. We will look forward Ravi Shankar Prasad, IT and law minister,
for any measures which are WTO BusinessLine, March 22, 2018
compliant because that can be argued

and discussed.
Aruna Sharma, Steel Secretary, Mint, March 13, 2018 Countries with large domestic
economies can easily withstand
In so-called trade war, driven by tariff threats. The
reciprocal increases of world needs access
import tariffs, nobody to the fastest-
wins. One generally finds growing large
losers on both sides. economy – India.
Anand Mahindra, Chairman,
Christine Lagarde, MD, IMF, Mahindra Group, Business
Mint, March 8, 2018 Standard, March 11, 2018
Most of us who are in the manufacturing business either connected with

infrastructure products or connected with automotive are seeing
huge bump up in demand creating the necessity to expand
capacities. I think a big capex cycle is beginning to start at least in
these sectors... It feels very good. For the first time we are seeing
capacities running full-up, demand increasing beyond what we had
planned for and therefore a need for a lot of new capacities.
Baba Kalyani, Chairman and MD, Bharat Forge, Mint, March 16, 2018

Franklin India Prima Plus invests
predominantly in wealth-creating
companies that run large and
established businesses with some
exposure to small or mid-sized
companies that have high growth
potential.
Over 4,74,000 unique investors^ in this fund.

Call your Mutual Fund Distributor or visit
www.franklintempletonindia.com
“Apple and Apple logo are trademarks of Apple Inc., registered in the
Follow us at: Download our App now U.S. and other countries. App Store is a service mark of Apple Inc.” âs on December 31, 2017
“Android is a trademark of Google Inc.”

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Total pages 64, including cover

4 Wealth Insight April 2018

Warren Buffett’s latest “PSU banks never fit

Remembering Index watch Our scorecard

recalling the principles Crashing big time Quality stocks available

April 2018 Wealth Insight 5

The changing definition

April 2018 Wealth Insight 7

Health check of PSU banks

State of non-performing assets

Bank of Maharashtra 10,670 6,903 12.2 155

800 Punjab & Sind Bank 4,439 5,904 7.2 75

Rebased to 1000 Bank of Baroda 19,852 40,637 5.0 49

Highest gross NPA Lowest gross NPA

Mar 2018 16.02% 3.30%

How PSU bank stocks have fared

Bank of Baroda 33,560 10,480 23,080 9.7

April 2018 Wealth Insight 9

10 Wealth Insight April 2018

April 2018 Wealth Insight 11

12 Wealth Insight April 2018

Stocks over bonds Investing is an activity in which con-

April 2018 Wealth Insight 13

Nifty PSU Bank

Nifty PSU Bank Nifty Median

Price/earnings is currently negative. Indian Bank 14,671 0.6

30 250 Punjab National Bank 24,086 -0.1

24 200 Oriental Bank 3,488 -0.4

18 150 State Bank of India 220,549 -0.6

12 100 Union Bank of India 8,682 -0.6

6 50 Bank of Baroda 33,180 -1.1

Valuations and dividend

3 Andhra Bank 0.0 0.35 0.00

2 Bank of Baroda 40.2 0.90 0.83

1 Bank of India 0.0 0.51 0.00

0 Canara Bank 22.8 0.58 0.38

14 Wealth Insight April 2018

-12.8 179.6 246.5

-13.0 11.7 3212.2

-19.4 22.3 1632.3

-20.5 4.8 5131.4

-20.7 37.4 825.3

-31.6 37.8 755.9

Data as on March 19, 2018

16 Wealth Insight April 2018

67.7 29.7 443.5

44.7 29.8 190.2

-9.8 105.2 86.2

-18.9 25.4 559.2

-45.9 16.9 1396.0

April 2018 Wealth Insight 17

114.9 238.0 8.9

54.8 35.4 36.0

-39.5 10.2 56.6

-44.0 313.8 1.7

18 Wealth Insight April 2018

The pledging tracker

April 2018 Wealth Insight 19

Crashing big time

Latest market Returns since Latest market Returns since

1HWSURÀW` cr) 26,357 14,383 8,518 8,604