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October 2020
Volume XIV, Number 4 28 COVER STORY
EDITORIAL POLICY
Funds’ favourite
The goal of Wealth Insight, as with
all publications from Value
Research, is not just limited to
generating profitable ideas for its
mid and small caps

readers; but to also help them in
generating a few of their own. We
aim to bring independent, unbiased
and meticulously- researched
stories that will help you in taking
better-informed investment
decisions, encouraging you to
indulge in a bit of research on your
own as well.
All our stories are backed by
quantitative data. To this, we add
rigorous qualitative research
obtained by speaking to a wide
variety of stakeholders. We firmly
stick to our belief of fundamental
research and value-oriented
approach as the best way to earn
wealth in the stock market. Equally
important to us is our unwaveringly
focus on long term planning.
Simplicity is the hallmark of
our style. Our writing style is
simple and so is the presentation
of ideas, but that should not be
construed to mean that we
over-simplify.
Read, learn and earn – and let’s
grow and evolve as we undertake
this voyage together.
Editor
Dhirendra Kumar
Senior Editor
Vibhu Vats
Copyediting
Debjani Chattopadhyay and
Rachael Rajan
12 STOCK ADVISOR 38 INTERVIEW
Research & Analysis

Danish Khanna and
Three levels of stock ‘Investors should think
Rajan Gulati
Design
recommendations of value and growth as
Mukul Ojha
Production
Value Research Stock Advisor has a diversification tool
three subsets of its stock-
Hira Lal
Data source for stocks recommendation list. Together, they rather than a timing
AceEquity help you finetune your investments
and enhance your returns.
device’
9DOXH5HVHDUFK,QGLD3YW/WG VETRI SUBRAMANIAM, Group President &
Wealth Insight is owned by Value Head of Equity, UTI Mutual Fund
Research India Pvt. Ltd., 5, Commercial
Complex, Chitra Vihar,
Delhi 110 092.
Editor: Dhirendra Kumar.

Printed and published by Dhirendra
Kumar on behalf of Value Research India
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Printed at Option Printofast, 46,
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Total pages 64, including cover
4 Wealth Insight October 2020

Columns
7 8 INSIGHT 26 STOCK STORY
EDIT Experiencing the Lots of action, little

by DHIRENDRA KUMAR market value creation
The digitally The story of mergers,
disabled investor 10 WORDS WORTH WISDOM
demergers and value
destruction in the
While digital revolution has
increased the information flow, that has not Revisiting value Future Group
helped investors but actually harmed them investing
Quotes on value investing
from investing greats
44
MAIN STREET
by SAURABH MUKHERJEA
The investor’s dilemma
Why most investors never manage
to invest in great companies and
stay invested for the long run
43 IN FOCUS
Guide to investing
overseas
48 Rajeev Thakkar, CIO,
PPFAS Mutual Fund
by ANAND TANDON
STRAIGHT TALK
14 MONTHLY AGENDA
Changing caps
Why inflation may
Companies that have
not be dead
turned bigger and changed
The quantity of money in
circulation, a rebound in oil prices and weakening of their market-cap buckets
the dollar can result in the return of inflationary times over the last six months.
16 MARKET COMPASS
Index watch 54 STOCK SCREEN
Big moves Quality stocks

available cheap
Market barometer
Discount to book value
Tracking IPOs
High dividend-yield
stocks
23 ANALYST’S DIARY Reasonably priced
52 Dogs of the Sensex growth stocks
EVERYDAY ECONOMICS Bidding adieu Attractive blue chips
by PUJA MEHRA
Riding on rural India
While rural India has started to
25 VIS-A-VIS 62 WORDS WORTH NOW
show signs of recovery, it can’t ICICI Lombard vs

alone propel the economic growth New India Assurance
',6&/$,0(5
The contents of Wealth Insight published by Value Research India Private Limited (the ‘Magazine’) are not intended to serve as professional advice or guidance and the Magazine takes no responsibility or liability, express or implied, whatsoever for any investment
decisions made or taken by the readers of this Magazine based on its contents thereof. You are strongly advised to verify the contents before taking any investment or other decision based on the contents of this Magazine. The Magazine is meant for general reading
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to the jurisdiction of Delhi courts only. ALL RIGHTS RESERVED
October 2020 Wealth Insight 5

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EDIT
The digitally disabled investor

While digital revolution has increased the information flow,
that has not helped investors but actually harmed them
DHIRENDRA KUMAR
‘Digitally enabled’ is the typical buzz- what to pay attention to. The reason is that the human
phrase of our time. However, step back and ask an mind has a huge tendency to see patterns and
honest question. Is the digital era in investing a boon connections everywhere. We like to see patterns not
for equity investors or a disaster? It’s a fact that we because they actually exist but because we believe that
can sit down on our computers or just pull out our they have predictive value. If we believe that stocks
phones and then do everything regarding researching, fell on ‘COVID fears’, then the utility of that is if the
buying or selling stocks. next time the said ‘COVID fears’ loom, it could trigger
This is the digital miracle of investing. It’s much us to act in a certain way.
faster and much more convenient, but is it better? Do It’s clear not just anecdotally but from data as well
investors have higher returns compared to the non- that people transact too much. There is a constant
digital days? Do they face less risk? To many investors sense of urgency. The unsaid story here is an implicit
and advisors, the answer is quite self-evident. The belief that opportunities come in a short and constant
digital era has brought with it more ways of going supply. If you don’t exploit everything that looks like
wrong than ever. an opportunity, then you might run out of opportunities.
The comparison is not with the pre-digital days but Believe me, this is an illusion. A wrong action is far
rather than with the more recent fully-digital days. more damaging than a missed opportunity. There will
There’s an enormous amount of information flowing be more, many more, in the future. The message of the
through, and an overwhelming feeling that all of it digital age is that the short-term events matter to
needs to be analysed to be a successful investor. Not investors and if you, as an investor, don’t pay attention
just that, there’s an impression that since there is so to them then you are doing it wrong. This is absurd.
much information available, you are constantly on the Let me give you a counter-argument. I get a lot of
verge of failing if you do not act upon it. mail from people asking me for investment advice and
A good proportion of the modern, digitally enabled for ways out of their investment problems. These
majority of stock investors watch the prices of their problems always – always – arise out of things that the
stocks continuously, eyes glued at a screen (TV or investor did or didn’t do over many years and
computer or phone) for any trigger on which they can sometimes decades. Moreover, solving those issues
act. They are focused not just on the price but also always involves taking actions that need to be sustained
other bits of news about the company, the sector, the over years. I never come across someone who has
markets, the economy or indeed anything that the problems with an investment portfolio because he or
business channel anchors or their WhatsApp friends she didn’t stay glued to the breaking news and react to
may decide is worth talking about on a given day. events rapidly. Rather, the opposite is true. Many
This is not a useful way of either making investments investors do badly because they pay too much attention
or monitoring them. There is such a thing as too much to the news and react too much to events.
information and too much news, and it’s probably just For the most part, today’s investor is not digitally
as important to know what to ignore, as it is to know enabled but digitally disabled.

INSIGHT
Experiencing the
market
Stk mkt requires much beyond than just qualification/reading
few books/quotes fm Warren Buffett/Charlie Munger. They are all
good but not sufficient. They can give you base knowledge but
Niteen S Dharmawat implementation is key and that comes with real experience. The
@niteen_india market teaches you that.
Followers
11.9K
Time gives that humbleness when you experience something like
year 2001 or 2008. Similarly, you can read 100s of books on
2008 but remember “it is the wearer knows where the shoe
pinches” or as Peter Bernstein rightly said “If you have not
experienced 2008, you still have not lost your investment
virginity”
Why Follow
Niteen S Dharmawat is a
SEBI-registered advisor and Nothing against professional qualifications, reading books,
one of the partners at Aurum quoting great investors left right and center. They are all good.
Capital. He actively engages But if they make you biased then leaving you with a lot of room
with investors and strongly for error. Be simple, keep basics clear. (objective is not to offend
believes in the importance anyone)
of experience of the markets
being crucial to success as
an investor – that no amount
I witnessed some1 getting bankrupt for 2nd time whom newbies
of education or knowledge
see with respect just because of the size of the orders and their
can be quite as useful as
move. Understand here anyone can go bankrupt if they are not
experiencing a crash, keeping
disciplined, orderly, esp those who are “Ms<+ 'kkuk” (over smart), as
your cool and emerging at the
they say in Pune.
other end as a winner. Niteen
also keeps track of trends and
provides useful insights into
key developments. The pace of disruption is very fast. What used to take decade
could happen now in a year. What used to be new edge few
years ago are not existing. Will put enormous pressure on human
beings to remain relevant.
Tractor sales going up. Just one of those important indicators

about rural economy.

WORDS WORTH
WISDOM
Revisiting value investing

Amid the rally in the markets worldwide, it’s worthwhile that investors revisit the
wisdom of value investing. The following quotes from investing greats will help
you keep your emotions in check.
Confronted with a challenge to
nd
distill the secret of sound
investment into three
words, we venture the
motto, MARGIN OF
SAFETY.
BENJAMIN GRAHAM
Never count on making a good

sale. Have the purchasee
price be so attractive
that even a mediocre
sale gives good
results.
WARREN BUFFETT
All intelligent investing is

value investing – acquiring Value investing is at itss
more than core the marriage of a
you are paying for. contrarian streak and
CHARLIE MUNGER a calculator.
SETH KLARMAN
People tend to like to buy companies
that are doing well. They hate To buy when others are despondently
companies that are doing badly.y So,, selling and to sell when others are
you look at the ones that aree euphorically buying
depressed and then you takes the greatest
say well, maybe these courage but provides the
he
things can come back. greatest profit.
WALTER SCHLOSS JOHN TEMPLETON

WORDS WORTH
WISDOM
Great investors are not unemotional The secret to investing

ng
but are inversely emotional – they is to figure out the
get worried when the market
ket value of something
is up and feel good when – and then pay a
everyone is worried. lot less.
BILL MILLER JOEL GREENBLATT
Being a value investor

tor
means you look at
the downside beforee
looking at the
upside.
LI LIU
The desire to performm

all the time is
usually a barrier to
performing over
time.
ROBERT OLSTEIN
In essence, the stock market

represents three separate
categories of business. They are,
adjusted for inflation, those with
For all my emphasis on the shrinking intrinsic value, those
virtues of patience in value with approximately stable
investment, it has to goo intrinsic value, and those with
hand in hand with steadily growing intrinsic value.
minute attention to thee The preference, always, would be
to buy a long-term franchise
detail, with conviction
at a substantial
and determination. discount from
Otherwise, patience is just growing intrinsic
futile endurance. value.
PETER CUNDILL MICHAEL BURRY

www.valueresearchstocks.com
Three levels of stock

recommendations
Value Research Stock Advisor has three subsets of its stock-recommendation
list. Together, they help you finetune your investments and enhance your returns.
Dhirendra Kumar have access to as a member of Best Buys Now
I
Value Research Stock Advisor. These are a part of the main list.
n a perfect world, we would The main reason why we created
have just one small list of Recommended stocks this was that 35–40 stocks are gen-
stock recommendations and The recommended stocks are our erally too many to cope with for
you would just gradually master ‘buy’ list. All other groups most investors, especially new
build positions in each of are a part of this. Our stock recom- members. This list does not mean
those stocks. As time goes by, you mendations are the result of a that the remaining stocks in our
would have a nice cost-averaged multi-step process that starts with list have been ‘de-recommended’ in
portfolio, ideally positioned to gen- continuous monitoring of a large any way. Over a period of time,
erate outsized returns as their number of listed stocks, detailed they’re just as desirable invest-
value increases. evaluation of business prospects, ments as the ‘Best Buys’. However,
However, as equity investors management quality and many they narrow down the focus to just
know better than anyone else, the other parameters. Obviously, these 12 stocks at a time, making it easy
world is not perfect. As time goes stocks are a tiny subset of the to build a portfolio.
by, profits go up and down, business entire market and yet are not a Best Buys are meant to exploit
prospects improve or decline, pan- small number. Although we started the fact that the markets work on
demics come and (hopefully) go, the Stock Advisor service with 10 both ends of the spectrum. At
and thus stocks become more or stocks three years ago, we have times, a sound business may be
less attractive. It’s notable that slowly added to the list and cur- beaten down on account of tempo-
when stocks become more or less rently have 39 stocks on this ‘buy’ rary reasons, which makes valua-
attractive, this is often not a perma- list. All these stocks are continu- tions attractive. Generally speak-
nent situation. Stocks change their ously revalidated and if we find ing, if your investible surplus is
attractiveness far more often and anything that is not worthy of not large enough to do justice to the
more quickly than the fundamental investment, then they are removed entire list, then you could focus just
desirability of investing in them. from the list. on the Best Buys.
This is exactly where the subsets This is the base list. Then we
of our recommendation system have our ‘Best Buys Now’, which Re-recommendations
come from. Let’s examine the dif- was added a few months back. Sometimes we issue a recommenda-
ferent sets of stocks that you will tion of a stock that is already on
our recommended list. This sounds
A re-recommendation essentially means that we are like a strange thing to do but it
re-emphasising that a stock is worth investing in because serves a very useful purpose for our
members.
there is now a significant upgrading of the original logic that A re-recommendation essentially
made us recommend it means that we are re-emphasising
that a stock is worth investing in

other is the proposition that it
offers at its current price. We could
re-recommend a stock when either
of these (or more likely, both)
becomes even more attractive than
it was when we originally recom-
mended it.
What you should do

So, when you become a member of
Value Research Stock Advisor, you
will find these subsets of the main
list being extremely useful in fine-
tuning your investment strategy. If
you are a beginner and/or have
limited funds, stay focused on the
Best Buys Now list and keep build-
ing up your holdings continuously.
When we re-recommend a stock,
we are clearly signalling that it is
yet more attractive. If you have, for
If you are a beginner and/or

have limited funds, stay focused
on the Best Buys Now list and
keep building up your holdings
continuously
any reason, stopped investing in it,

correct that mistake now. Start
investing in it. If you were still
investing in it, then by all means,
increase your outlay on it.
Re-recommendation means that it’s
exceptionally attractive and it
would serve you well to invest more
vigorously in it. Neither Best Buys
nor re-recommendation is a de-em-
phasis on the full list. However,
they definitely help you in fine-tun-
ing things, so go ahead and do that.
Does all this whet your appetite
because there is now a significant worthy of investing in. for committing to equity investing
upgrading of the original logic that We are all aware that the desir- the way it should be? I certainly
made us recommend it. Something ability of a stock is a combination hope so. Head straight for www.val-
more has happened that has made of two factors. One of these is the ueresearchstocks.com and start
it even more attractive, even more innate quality of the stock and the your membership right now. WI
Value Research Stock Advisor is a premium service where you get promising stocks along with their full analyses.
We also actively track the underlying companies for you and keep you posted on the major developments in
them, including when to sell a stock. Additionally, members get exclusive access to a range of tools and data
which they can use to study any other stock. You can subscribe to the service at www.valueresearchstocks.com.

MONTHLY
AGENDA
Changing caps
Companies that have turned bigger and changed their market-cap buckets
over the last six months. According to Value Research’s criterion, the top 70
per cent companies by market cap are large caps; the next 20 per cent,
mid caps; the next 9 per cent, small caps; and the remaining, micro caps.
4PKJHW[VSHYNLJHW
Market cap (` cr)
Company name Mar 2, 2020 Sep 15, 2020 Return (%) Commentary
Adani Green Bagged a `45,000-crore solar contract from

Energy 24,281 1,04,891 332.0 SECI.
Received approval to conduct the phase-IV

Cipla 32,548 59,854 83.9 trial of COVID-19 drug favipiravir.
Aurobindo Plans to launch 50 new products in the US

Pharma 28,995 47,930 65.3 in FY21.
Tata Consumer Increased demand for its products due to the

Products 21,320 50,218 60.5 lockdown and a preference for home-cooking.
Launched its favipiravir drug for mild to

Lupin 28,507 45,368 59.1 moderate COVID-19 infections.
Cadila Recently completed the phase-1 trial of the

Healthcare 25,563 38,395 50.2 COVID-19 vaccine in India.
Riding the digitisation wave thanks to a bas-

Info Edge 32,861 45,413 31.7 ket of marquee brands.
Reported a profit for the March quarter after

IDBI Bank 30,778 39,031 26.8 13 consecutive quarterly losses.
Motherson Sumi Received a good response for its NCD

Systems 31,911 38,179 19.6 issue and raised `2,130 crore.
:THSSJHW[VTPKJHW
Market cap (` cr)
Gained big on account of a low float after its

Ruchi Soya 1,913 15,853 728.8 acquisition by Patanjali.

MONTHLY
AGENDA
Market cap (` cr)
Posted a 77 per cent increase in June quar-

Laurus Labs 4,426 14,386 224.2 ter profits YoY.
Alok Shifted focus from textile to manufacturing

Industries 2,794 16,509 163.1 PPE kits and protective gear.
Dixon Poised to benefit from import substitution

Technologies 4,559 11,567 153.7 and contract manufacturing.
Granules Subsidiary received USFDA approval for a

India 4,105 9,128 128.4 medicine that had sales of about $33 million.
Indiamart Consolidated profits increased 129% YoY for

Intermesh 7,002 14,856 112.0 the June quarter.
Essel Profits (exclusive of exceptional items)

Propack 4,893 9,213 88.2 jumped by 114% YoY in Q1FY21.
Glenmark The first drugmaker to launch favipiravir in

Pharma 7,734 13,924 80.0 India; profits doubled in the June quarter YoY.
Bagged a `7,796-crore project from

ITI 6,660 12,101 76.2 ASCON, the Army’s network backbone.
Deepak Imposition of anti-dumping duty on phenol

Nitrite 6,892 11,697 69.7 imports from Thailand and the US.
Astrazeneca Its parent is a front-runner in developing

Pharma 6,623 10,881 64.3 COVID-19 vaccine.
Jubilant Life Supply-chain shifts to India are positive for

Sciences 7,814 12,703 62.6 chemicals companies.
Navin Signed a `2,900-crore contract with a glob-

Fluorine 6,814 10,798 58.4 al company.
Fine Supply-chain shifts to India are positive for

Organic 6,496 9,547 47.0 chemicals companies.
Benefitted from the rally in healthcare

P&G Health 6,704 9,388 40.0 stocks.
Bombay Burmah Owns 51 per cent in Britannia. Profit

Trading 7,606 9,714 27.7 increased by 26% YoY in Q4FY20.
KEC
International 7,896 9,088 15.1 Bagged orders worth `1,192 crore.

MARKET
C MPASS INDEX WATCH
S&P BSE PSU

The S&P BSE PSU index has underperformed the Sensex since September 2017. Currently, it’s trading at a
hefty discount to its long-term medians. The index’s price-to-book ratio is at a 35.3 per cent discount to its
five-year median and its price-to-earnings ratio is at a 55.4 per cent discount. Such lower levels have
resulted in a premium of 0.65 percentage point in the index’s dividend yield vis-a-vis the five-year median.
2LÙ\TILYZ 0UKL_TV]LTLU[ 7:<:LUZL_4LKPHU

11500
10.3
Price to earnings
0.8
Price to book
10000
8500
7000
3.72
Dividend yield (%) Market cap
12.7 (` lakh cr)
5500
4000
Sep ’15 Sep ’16 Sep ’17
Sensex rebased to index
Sep ’18 Sep ’19 Sep’20
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Sep ’15 Sep ’16 Sep ’17 Sep ’18 Sep ’19 Aug ’20
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Dividend 12
Company name P/B P/E yield (%) 1Y return (%)
5
Bharat Petroleum 2.3 25.2 4.01 -0.6 Sep ’15 Sep ’16 Sep ’17 Sep ’18 Sep ’19 Sep ’20
A negative P/E indicates a loss
Bharat Electronics 2.3 14.2 2.77 -11.0
Power Grid 1.8 10.5 5.87 -13.3
NTPC 0.7 15.1 3.51 -26.4
+P]PKLUK`PLSK
6.25%
Hindustan Petroleum 0.9 7.2 4.95 -31.9
5.00
GAIL (India) 0.8 4.7 7.03 -34.5
State Bank of India 0.7 7.7 0.00 -38.4 3.75 3.07%
Coal India 2.2 5.3 9.72 -39.1 2.50
Indian Oil 0.7 – 5.34 -41.4 1.25
ONGC 0.4 21.9 3.02 -46.7 0
Data as on September 21, 2020 Sep ’15 Sep ’16 Sep ’17 Sep ’18 Sep ’19 Sep ’20

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

3M returns (%) 3Y avg RoE (%) 3Y earnings growth (%) 3M price (`) movement
665
61.3 880 56
Adani Green Energy 412
With a solar portfolio of 12.3 GW, it has been ranked as the
largest solar power-generation company in the world. -22.2 -12.3
805
51.5 19 3,902
Tech Mahindra
The growing adoption of digital technologies amid the COVID crisis
is positive for Indian IT companies. 21.2 10.8
531
288
49.2 28 2,453
JSW Steel
Metal companies’ share prices recovered amid resurgent
domestic demand for steel and benign input costs. 19.8 -6.3 193
47.5
811
HCL Technologies 19 11,762
As per the management, operating margin in the coming quarter is
expected to be better than the forecast. 25.0 10.3 550
3,347
45.9 56 1,596
Divi’s Laboratories
The company’s net profit increased by 80.6 per cent YoY in
Q1FY21. 18.6 9.1 2,293
2,706
44.0 30 1,581
L&T Infotech
The company’s net profit jumped by 17 per cent YoY in Q1FY21.
32.6 16.4
1,879
148
42.8 – -15,925
Tata Motors
As announced by the management, its total debt will be near
zero in the next three years. -15.4 -233.0 104
1,314
29.7 – -4,281
Interglobe Aviation
1,013
It is open to raising capital through QIP to deal with the COVID-
led slowdown. 13.4 -153.1
613
26.7 13 3,536
Indusind Bank
The stock has partially recovered on value-buying after
taking a beating in March. 14.9 25.8
484
20.6 – -8,858
IDBI Bank
Reported a net profit of `144 crore in Q1FY21. The bank is
planning to raise equity of about `6,000 crore. -50.6 6.6 37
31
Our large-cap universe has 81 large companies, making the top 70 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly in the last three months.
Data as on September 18, 2020.

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

1,494
186.3 39 412
Laurus Labs
Its Q1FY21 net profit zoomed 1,047 per cent YoY, to `172
crore. 11.2 26.5 522
226
156.1 – -68
Indiabulls Ventures
American fintech investor Ribbit Capital and others are
planning to take a 5.5 per cent stake in the company. 18.7 -181.2
88
5,006
117.0 77 191
Indiamart Intermesh
The popularity of digital transactions amid the pandemic is
helping the B2B marketplace company. 24.0 62.8 2,307
292
92.6 57 151
Adani Enterprises
The company will acquire a controlling stake in Mumbai Airport
from the GVK group. 3.2 -37.1
151
83.6
370
Emami 54 309
Reduction in promoter pledge and the launch of
newer products are positive triggers. 15.7 2.8 201
80.1
365
Granules India 25 364
Pharma companies have emerged as new market
favourites. 14.2 36.9
203
9,398
68.6 110 99
Dixon Technologies
The government’s focus on domestic electronics manufacturing is
expected to benefit the company. 22.8 26.3 5,575
19.5 11 2,453
Hindustan Aeronautics
Rising tensions with China are pushing up defence stocks as the
government may increase defence spending. 20.7 3.2 842
704
-50.2 – -22,791
Yes Bank
28
The bank is trying to stabilise operations ever since the SBI-led
consortium infused capital. -14.5 5.4 14
-56.8 2 7,670
Ruchi Soya Inds.
With a free float of less than 1 per cent, its stock price
movement has been erratic. -27.1 91.0 1,201 519
Our mid-cap universe has 179 mid-sized companies, making the next 20 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly in the last three months.
Data as on September 18, 2020.

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

265
299.1 – -55
Tanla Solutions
The work-from-home culture is benefitting this digital and
cloud communications player. 4.5 -204.3
66
25
289.1 – -2,351
CG Power & Industrial Solutions
Led by the Murugappa Group, Tube Investments is picking up a
controlling stake in the company. -17.3 -229.6
7
208.3
378
Ramco Systems 55 22
It has signed a multi-million-dollar agreement with a Malaysian
utilities and infrastructure group. 2.4 47.5 123
1,194
159.9 60 26
Neuland Laboratories
The company’s Q1FY21 net profit rose by 166 per cent YoY.
3.6 -29.8 459
101
149.6 35 56
Indo Count Inds.
The stock raced amid a market-wide rally.
9.2 -32.2 40
134.6 34 30
BLS International Services 101
Despite the ongoing downturn in the travel industry, its PBT
stood at `3.9 crore in Q1FY21. 37.9 -25.6
43
129.1 507 1
Vikas Multicorp
Speciality chemical companies are expected to benefit
from the supply-chain shift from China. – – 5
10
114.3 – -5
5Paisa Capital 380
With people staying at home, retail trading activity has increased
substantially, thereby benefitting broking firms. -27.0 9.8
177
87.5 – -10,811
Reliance Communications
2
The stock raced amid a market-wide rally.
-50.8 -414.7
1
211
-68.0 – -176
Omaxe
Its share price fell because of high promoter pledging and
invocation of pledged shares by a lender. 3.8 -227.6 67
Our small-cap universe (minimum market capitalisation `500 crore) has 616 small-cap companies, making the last 10 per cent of the total market capitalisation.
The list mentions the stocks that have fluctuated most wildly in the last three months. Data as on September 18, 2020.

MARKET
C MPASS
Market barometer
Here are some charts that will help you make sense of the current market
in terms of valuations and return potential
Sensex’s movement
In ’000
45 Max 41,953 The Sensex is the most convenient
indicator to tell the state of the Indian
market. The 10-year graph presented
38 Current alongside shows the secular run in the
38,846 markets. However, this rally was
31 punctuated by several bearish phases.
The most prominent ones include the
24 following: a bear market driven by
weakening economic fundamentals in
2011, Chinese growth concerns in
17
2015, demonetisation blues in 2016,
and the sell-off in 2018 due to US–
10 China trade war and rise in US interest
Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Min
rates. Lately, the markets have sharply
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20
15,175 recovered from the COVID-19 shock.
Sensex’s price to earnings

30 Max 28.6 The price-to-earnings ratio of the Sensex
is a simple market-valuation ratio. A
Current 28.6 general guideline to help understand the
27
valuation is:
P/E > 24 = Dangerously
24
overvalued
P/E > 20 < 24 = Overvalued
21
Median 20.0 P/E > 16 < 20 = Fairly valued
P/E > 12 < 16 = Undervalued
18 P/E < 12 = Highly underval-
ued (mouthwater-
ing valuations)
15
Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep This graph is based on standalone data of Sensex companies. If one
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 Min 16.4 takes the consolidated data, the P/E will be lower. The sudden jump
in the P/E is due to a dip in profitability caused by COVID-19.
Sensex’s price to book value

4.0 Max 3.82 The price-to-book-value ratio tells us how
many times an investor is ready to pay
for a rupee of net assets.
3.6
Since book value is stable and less
volatile than earnings, some consider it
3.2
better than the P/E as a measure of
2.8
Median 2.96 valuation.
Current 2.94 If
P/B > Median P/B = Overvalued
2.4
P/B < Median P/B = Undervalued
2.0
Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 Min 2.36

MARKET
C MPASS
Sensex’s dividend yield

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

85% Max 82 This measure is Buffett’s personal
favourite. He said, “It is probably the
single best measure of where valuations
80 Current 80 stand at any given moment.”
Median 79 Here we have considered the market
75 capitalisation of all the listed companies
on the BSE.
If
70
Market cap > GDP = Market
overvalued
65 Market cap < GDP = Market
undervalued
The GDP fell by 23.9 per cent YoY in Q1 FY21 due to
60 Min 63 COVID-19.
2013 2014 2015 2016 2017 2018 2019 2020
10Y G-sec yield vs Sensex’s earnings yield

5% Max 3.94 The spread between G-sec yield and
Sensex’s earnings yield is another
valuation measure. G-sec yield is the
4
Median 2.83 yield of the 10-year government bond.
Sensex’s earnings yield is the inverse of
Current 2.51 the Sensex’s P/E ratio. The greater the
3 deviation from the median in either
direction, the greater the degree of
overvaluation or the undervaluation of
2
the Sensex.
If
1 Spread > Median = Overvaluation
Spread < Median = Undervaluation
0 Min 0.79
Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep All data as on September 18, 2020.
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 GDP data as of June 2020.

MARKET
C MPASS
Tracking IPOs
Here is how the S&P BSE IPO index has performed over the last one year
and how its current constituents have fared
HIGHEST 076PUKL_]Z[OL:LUZL_ HIGHEST
LISTING-DAY GAIN The IPO index has underperformed for much of the last one year. SUBSCRIBED IPO
Happiest Minds Ujjivan Small Finance
111.4% 160 z IPO index z Sensex 165.7 TIMES
HIGHEST
LISTING-DAY LOSS LOWEST
140 SUBSCRIBED IPO
SBI Cards
Sterling & Wilson Solar
124
-12.8% 120 0.9 TIMES
HIGHEST
POST-LISTING GAIN BIGGEST
100
Indiamart Intermesh IPO
315.2% 96
SBI Cards
HIGHEST
80
`7,571 cr
POST-LISTING LOSS
Rebased to 100 TOTAL SUM
Sterling & Wilson Solar 60 RAISED
-66.3% Sep 2019 Sep 2020
`14,544 cr
2L`MPN\YLZ
Out of the 12 listed IPOs, four have lost value since their listing.
Subscription Issue size Issue Listing price Listing Current Change post Sensex Current
Company name ratio (times) (` cr) price (`) Listing date (`) gain (%) price (`) listing (%) change (%) P/E
Happiest Minds 151.0 386 166 17-Sep-2020 351 111.4 352 0.3 -3.4 72.1
Route Mobile 73.3 609 350 21-Sep-2020 708 102.3 826 16.6 -1.0 80.6
IRCTC 112.0 645 320 14-Oct-2019 644 101.3 1,373 113.1 -1.4 50.5
Rossari Biotech 79.4 496 425 23-Jul-2020 670 57.6 771 15.1 -1.2 61.3
Ujjivan Small Finance 165.7 750 37 12-Dec-2019 58 56.8 32 -44.6 -7.2 17.7
CSB Bank 86.9 410 195 04-Dec-2019 275 41.0 220 -20.0 -7.8 80.4
$IÁH,QGLD $XJ
Indiamart Intermesh 36.2 476 973 04-Jul-2019 1,180 21.3 4,899 315.2 -5.6 75.4
6SDQGDQD6SKRRUW\ $XJ
Prince Pipes 2.2 352 178 30-Dec-2019 160 -10.1 229 43.3 -9.4 25.1
6WHUOLQJDQG:LOVRQ6RODU $XJ
SBI Cards 26.5 7571 755 16-Mar-2020 658 -12.8 821 24.7 20.0 61.9
CAMS* 46.9 2,244 1,230 01-10-2020 – – – – – –
Chemcon Speciality* 149.3 318 340 01-10-2020 – – – – – –
Data as on September 23, 2020. *Not listed yet and not a part of the index.

ANALYST’S
DIARY
Dogs of the Sensex

Here is what happened when we applied the renowned stock-picking
method ‘Dogs of the Dow’ to the Sensex
;OL+VNZOV^
I
n the US markets, ‘Dogs of the Dow’ is a famous
stock-picking method. First published in 1991, this
Dogs of the Sensex outperformed the Sensex for a few years after 2010
strategy aims at beating the Dow Jones index by
and then they started underperforming.
selecting high-dividend-yielding stocks from the index
itself. We wanted to check if this strategy will work in 0UKL_WLYMVYTHUJL
India also, so we devised the ‘Dogs of the Sensex’. 225000 Dogs of Sensex Sensex (rebased)
195000
>OH[HYL[OLº+VNZ»& 165000
One of the oldest and widely followed indices in the
135000
world, the Dow includes many US bluechip companies.
Most of these pay dividends on a regular basis and 105000
don’t prefer reducing them as they believe that 75000
dividends represent their actual worth. March 2010 March 2020
According to Dogs of the Dow strategy, at the (UU\HSYL[\YUZ
beginning of every year, money is invested equally in 30% Dogs of Sensex Sensex
the top 10 dividend-yielding companies from the 30
15
companies of the Dow. This is done by rebalancing the
portfolio at the beginning of each calendar year and 0
thereafter reallocating the money to the 10 highest- -15
dividend-yielding companies. -30
The logic behind this strategy is that in contrast to -45
dividends, stock prices are more volatile and tend to 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
fluctuate throughout the business cycle. This may FY data. Rebalancing done on 1st April every year.
imply that companies with high-dividend yields may
be near the bottom of their business cycles, which Dogs for all 10 years. But its 10-year return has been
may result in a steep appreciation in their share -11 per cent compounded annually. Apart from this,
prices as the cycle turns. Thus, the rationale is that an Coal India has been a part of the Dogs portfolio since
investor should generate high returns by reinvesting April 2012. Until 2020, it has delivered an annual
in these high-dividend-yielding companies every year. return of -10.5 per cent.
This strategy has been able to beat the Dow on average
over the last 10 years. ;HRLH^H`ZMYVT[OLZ[\K`
The charts depict the performance of the ‘Dogs of This analysis signifies that a strategy that is successful
the Sensex’ vis-à-vis the Sensex. Here are some key on a particular index or asset may not produce similar
observations: results when applied to another. Similarly, a strategy
z In the last seven out of 10 years, Dogs of the Sensex that may provide superior returns in the USA may not
underperformed the broader index. It gave a total work in India, owing to differences in the dynamics of
return of 15.2 per cent in 10 years as compared to 60 both the financial markets.
per cent of the Sensex. Lastly, the stock-price movement is a function of
z In the first two years post 2010, the strategy provided growth in both earnings and dividends. Therefore,
superior returns as compared to the Sensex. However, being low on one aspect may not produce the desired
post 2014, it managed to beat the Sensex only once. results. Investing in high-dividend-yielding stocks
z PSU stocks have featured regularly in the Dogs of should not be the only consideration when it comes
the Sensex as they tend to have high dividend yields to investing in a company. An investor must look at
and have also underperformed since 2014. The PSU the long-term prospects of the company to make the
index has been down by more than 35 per cent since right decision. WI
May 2014. For instance, ONGC has been part of the By Danish Khanna

ANALYST’S
DIARY
Bidding adieu
Why companies delist, how they do so and what all companies are currently
there in the delisting pipeline
W
hile the market is all set to welcome many
IPOs, some companies are trying to delist ;/,+,30:;05.796*,::
from the stock exchanges. Delisting can be
of two types: voluntary and compulsory delisting.
Under compulsory delisting, the securities of a
company are removed from a stock exchange as a
penalty if the company fails to comply with various
rules listed in the listing agreement. On the other
hand, as the name suggests, in the case of voluntary
delisting, a company decides on its own to remove its
7KHSURPRWHU·VSURSRVDOWRGHOLVWWKHVKDUHV
securities from a stock exchange.
LVSUHVHQWHGWRWKHERDUG
>O`JVTWHUPLZ]VS\U[HYPS`KLSPZ[
Companies can opt for voluntary delisting because of 7KHERDUGDSSURYHVWKHSURSRVDO
several reasons. At times, some companies want to
avoid incurring extra costs related to complying with 7KHIORRUSULFHLVLQWLPDWHGDVSHU6(%,·VJXLGHOLQHV
all the regulations of stock exchanges. Therefore, by
following the delisting route, they can enjoy financial
as well as operational flexibility. On the other hand, 6KDUHKROGHUV·DSSURYDOLVUHFHLYHGDWOHDVWSHUFHQW
some companies think that the market value of their RIVKDUHKROGHUVVKRXOGDJUHHRQGHOLVWLQJ
shares is lower than their fair value. So, they take this
route as an opportunity to buy back all the shares and 5HYHUVHERRNEXLOGLQJLVFRQGXFWHGWKHVKDUHKROGHUV
cease to be a public company. Many a time, companies ELGWKHSULFHDWZKLFKWKH\ZDQWWRVHOOWKHLUVKDUHV
delist as they find that the costs of complying with all
the listing requirements do not justify the benefits
they derive as a listed company.
7KHH[LWSULFHLVGHFODUHG
For successful delisting, at least 90 per cent of the
shares are to be tendered. This paves the way for 6KDUHVDUHGHOLVWHGIURPVWRFNH[FKDQJHV
minority shareholders to ask for a premium over price,
which they deem to be the correct intrinsic value of the
company. On the other hand, if an institutional >OH[»Z[OLWYLTP\T&
shareholder has a significant stake in the company, Here are the premiums over the floor prices for various companies that
then it can ask for a premium owing to its high holding. have delisted in the last five years.
As of now, two companies are trying to delist:
Delisted Offer/floor Delisting Premium to
Hexaware Technologies and Allcargo Logistics. While Company date price (`) price (`) offer price (%)
for Hexaware, reverse book-building has already been Manjushree Technopack Mar 24, 2015 378.49 455.00 20.2
done and the company is yet to come out with an exit
Essar Ports Dec 31, 2015 93.66 133.00 42.0
price, Allcargo is yet to start this process. The offer
price quoted by these two companies are `264.97 and Essar Oil* Feb 17, 2016 146.05 262.80 79.9
`92.58, respectively. If you are a shareholder in them, Polaris Consulting Aug 1, 2018 370.00 480.00 29.7
you might want to pay close attention to how the Electrosteel Steels** Dec 20, 2018 9.54 9.54 0.0
process unravels and what premium the companies
,QÀQLWH&RPSXWHU6ROXWLRQV 'HF
are willing to pay.
*Minority shareholders were paid an additonal `75.48 over the delisting price of `262.8
The table details how the delisting process has
on account of the sale of the company.
fared for other companies in the last five years. WI **Electrosteel Steels offer was made by Vedanta to acquire and delist the company as a
By Danish Khanna resolution plan in NCLT. So, there was no premium given to the shareholders.

Vis-à-vis
For peace of mind

New India Assurance and ICICI Lombard are the only two listed general-
insurance pure plays. Here is how they compare with each other.
ICICI Lombard New India Assurance
Listed in 2017, it is the biggest private general Founded by Sir Dorabji Tata in 1919 and now owned
insurer with a market share of around 7 per cent by the government, it is India’s largest general
as of FY20. It issued 2.6 crore policies in FY20, out insurer with a market share of 14.1 per cent as of
of which 96.5 per cent were issued electronically. FY20. In FY20, it issued around three crore policies
The major contributors to its premium are motor across all product segments. The major contributors
own damage (28 per cent of the FY20 gross written to its premium are fire (31 per cent of gross written
premium), motor third party (23 per cent), and premium during FY20), motor third party (20 per
health, travel and personal accident (25 per cent). cent) and motor own damage (14 per cent).
-PUHUJPHSZ All numbers in ` cr -PUHUJPHSZ All numbers in ` cr

Gross Gross
written Investment Net Net Market written Investment Net Net Market
premium book profit worth cap premium book profit worth cap
13,425 28,118 1,282 6,533 56,902 31,751 68,594 1,427 16,176 16,924
7YPJLJOHY[ 7,JOHY[
250
ICICI Lombard New India Assurance 125
ICICI Lombard New India Assurance
200 100
150 75
100 50
50 Rebased to 100 25
0 0
November 2017 September 2020 November 2017 September 2020
A zero P/E means a loss
99.7 102.1 44.4 0.3 8.7 2.5

11.6 2.8 0.9 2.1
P/E Dividend yield (%) M-cap/ Solvency
book value ratio (times)
-P]L`LHYHUU\HSPZLKNYV^[O
25.1
7.2
20.9 3.2 14.4 13.0 20.1 0.03 16.3 6.1
Investment Gross written Net profit Net worth
Combined ratio (%) Return on equity (%) book premium
Gross written premium: The total premium to be collected by an insurer before any deductions. Investment book: Investments in various asset classes. Combined ratio: A combined ratio of
less than 100 shows that an insurer is getting more money from premiums than it’s paying for claims and overheads, indicating a profitable enterprise and vice versa.
Price data as of September 22, 2020. 5Y growth data as of FY20. Other data as of June 2020.

India’s general-insurance industry is the 15th largest globally, with a market size of $26.1 billion in terms
of premiums paid. When compared with other big countries, the penetration of general insurance in
India is low, with a per capita premium of just $19. The sector’s growth has been driven by the rising
middle class, rural-to-urban migration, growth of the formal sector and higher disposable incomes. WI

STOCK STORY Future Group
Lots of action, little value creation

Kishore Biyani’s Future Group has indulged in a spree of restructuring of the group’s firms, yet all that has
failed to create shareholder value. Here is the story of this group.
N
ot all great stories have a project management, retail
happy ending and the formats, just to name a few.
story of Future Group While the 2000s were all about
exemplifies this. Once expansion, the 2010s saw the
famous as the ‘Retail King of continuous restructuring of group
India’, Kishore Biyani has companies. Dabbling in debt, the
recently sold off almost all his group had to sell off Pantaloon
businesses to Reliance Industries Retail to Aditya Birla Group in
for `24,713 crore. Future Retail, 2012. In the same year, its
Future Lifestyle Fashions, Future financial-services business,
Supply Chain, Future Consumer Future Capital Holdings, was also
and Future Market Networks are sold off to Warburg Pincus. In
to be merged into Future 2013, two group companies, Future
Enterprise, following which Retail and Future Ventures,
Reliance Retail Ventures Limited demerged their fashion lifestyle
will acquire the relevant business business into a separate entity,
segments. Biyani will be left with Future Lifestyle Fashions. This
manufacturing and distribution of was followed by a merger of its
FMCG goods (part of Future retail business with Bharti Retail
Consumer), integrated fashion Enterprises in 2015. Following the
sourcing, insurance joint merger, the front-end retail
ventures, joint venture with NTC business was listed as Future
mills. It will also retain Praxis Retail, while the back-end
Home Retail. infrastructure and investment
For Biyani, things did not get business was renamed Future
bad overnight. Mounting debts, Enterprises. Restructuring still
coupled with a high promoter-level didn’t stop here. The group further
pledge, had been putting a strain came out with the IPO of Future
on the company’s balance sheet. Supply Chain and the demerger of
What added to its woes was the its home retail business into
COVID-19-led disruption. With Praxis Home Retail in 2017.
cash flows evaporating, the group All these restructuring
companies were grappling to activities were aimed at unlocking
service the debts. The Retail King shareholder value. However, our
was left with the only choice to analysis shows that if someone
take the exit route. had invested `1 lakh in Pantaloons
Biyani first ventured into the Retail in 2005, then today, the
apparel industry in the 1980s with investor would have had his stakes
men’s apparel. In 1997, he opened in six different companies after so
an apparel store under the brand many mergers, demergers and
name of Pantaloons. A decade acquisitions. Nevertheless, the
later in 2001, Big Bazaar came into combined value of his investment
being. For the group, the 2000s would have been less than `50,000.
were a decade of expansion and While the group may have
diversification as it made a foray progressed, the overall value has
into several businesses, including, declined. WI
financial services, insurance, By Rajan Gulati

STOCK STORY
Promoter pledging in
Restructuring in the group Future Group Companies
Future Group Promoter % of promoter
holding holding
`1 lakh IPO in
1992 IPO in
(%) pledged
2011
55% holding
Future Lifestyle Fashions
Pantaloon Future
Retail IPO in 2008
Demerger
in 2011
2012 Future Ventures
Capital
Holding 46 100
(Fashion brands, home products, 2012
FMCG, rural distribution)
Agre Sold to Future Market Networks
Developers Pantaloon Warburg
(Formerly Retail chain
Pincus
Future Mall
Management,
a mall and
sold to Aditya
Birla. The
remaining
72 98
project business Merger/
management rechristened as demerger of
entity) ‘Future Retail’. business Future Supply Chain Solutions
entities in
2012 2013
Name
change 48 98
Future
Market Future Retail Future Ventures Future Lifestyle
Network (Big Bazaar, (FMCG, food Fashion Future Consumer
Food Bazaar, processing, rural (Central, Brand
Hometown, etc.) distribution) Factory, aLL and
22.5% stake sale in

2013
other brands)
45 92
life insurance arm Name changed
to Future
2015 Consumer Future Enterprises
Front-end
business
Merger with
Bharti Retail business Back-end
business
50 87
Future Retail Future
(Listed in 2016) Enterprises Future Retail
IPO of subsidiary
Demerged
home retail
business in
Future Supply
in 2017
42 75
2017
Chain
Praxis Home Future Praxis Home Retail
Retail Retail `49,721*
`1 lakh invested in Pantaloon Retail on Sep 15, 2005. *Worth of shares held in various companies post restructuring:
Aditya Birla Fashion Retail `7,480; Future Market Network `326; Future Enterprises `3,638; Future Enterprises DVR
`396; Future Lifestyle Fashion `9,352; Future Reail `27,803; Praxis Home Retail `727.
62 -
Data as of June ’20. For Praxis data as of Dec ’20.

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COVER STORY
Funds’
favourite
mid and
small caps

Rajan Gulati
The two tables at the end list mid and small caps
where funds have raised their equity stake by at
I
t appears that the season for mid and small least 2 percentage points. These tables can act as
caps is back. Since April this year, the BSE your research list for mid and small caps.
MidCap index has returned 33 per cent and
the BSE SmallCap, 49 per cent. The recent SEBI How we selected the top funds
mandate that multi-cap funds must invest at least We evaluated the total returns of all mid- and
25 per cent each in mid and small caps is also a small-cap funds as per the following weights: 50
shot in the arm for these companies, although it per cent weight to five-year returns, 30 per cent to
remains to be seen how things shape up in the three-year returns and 20 per cent to one-year
coming months. However, before you jump onto returns. Then we picked the top three funds each
the bandwagon, here is a cautionary note. from the mid-cap and the small-cap spaces. We also
If you see the five-year returns of the mid- and ensured that the funds have reasonably high assets
small-cap indices until February 2020, they stood as per the standards of their respective categories.
around 6 per cent and 4 per cent, respectively.
This means a prolonged phase of How we analysed their activity
underperformance from these companies. For our purposes, what mattered was what these
However, indices have the tendency to cloak funds did between March 2020 and August 2020
individual performance. There have indeed been rather than how they stand presently, so we
good performers within the indices during this assessed the following:
period. So, stock selection matters a lot with mid
and small caps, both due to their large number TOP BUYS: Stocks that a fund bought the most on a
and the difference in fundamentals. This space is net basis.
notorious for corporate-governance lapses, TOP SELLS: Stocks that a fund sold the most on a
opaque financials and sudden shocks. net basis.
Thus, it is extremely important to focus on MAJOR NEW ENTRANTS: Stocks that weren’t there in
the right companies in the mid- and small-cap the portfolio in February 2020 but appeared after
space. And what could be a better way to do so that. Note that the amounts mentioned in this list
than studying the activity of the top funds? In also include the gains made during the period. So,
this story, we have analysed the activity of top it’s possible that a stock appears both in top buys
six mid- and small-cap funds to find out what and new entrants. While top buys mention the net
bets they have made in the last six months, buy amount, new entrants state the amounts
ending August 2020. The outbreak of the inclusive of gains.
pandemic has changed business dynamics like MAJOR EXITS: Stocks that were completely sold out,
never before, so it would be worthwhile checking along with the peak value of the assets invested
how these top funds have positioned themselves in them during February 2020 to July 2020. A
for the coming times. Even more important is to stock appearing in top sells can also appear under
assess how the managers of these funds are major exits if it was sold out. The values under
thinking at the moment. the two can be different as top sells indicate the
We also bring you the combined activity of all amount sold and major exits show the maximum
mutual funds in the mid- and small-cap space. amount invested during the period.

COVER STORY
AXIS MIDCAP FUND AUM `6,307 cr (as of Aug ’20)
Cash is king
Over the last six months, the fund has preferred to keep a large portion of
its assets in debt or cash. It has also selectively bought and sold.
T
his fund has kept around stretched valuations. IGL, the top ;67)<@:
15–20 per cent of its assets exit, was added more to the
Endurance Technologies 108
in debt investments over the portfolio during the March fall but
past six months until August. Its was sold off later as the price Coforge (formerly NIIT Tech) 103
investments in the likes of recovered. Although the company
Coforge, Coromandel and PI enjoys a monopoly in gas Gujarat State Petronet 98
Industries depict the sectoral distribution in the NCR region, its Cholamandalam Investment
tailwinds that these companies further growth remains a concern. & Finance Co. 94
are enjoying. IT is experiencing In view of the maximum impact of
an uptick because of the growing COVID-19 on the hospitality and ACC 81
use of digital services as travel sectors, the fund sold off
employees are working from Indian Hotels as well.
Coromandel International 76
home. Agri-chemical companies In terms of sectors, even though PI Industries 69
are benefiting from a robust rural the fund rotated its investments in
economy. And chemical financials, a severe drop in Crompton Greaves
MANAGED BY
companies are benefiting Consumer Electricals 68
Shreyash Devalkar these stocks in March as
from supply-chain shifts compared to other sectors
Balkrishna Industries 64
from China to India. has led to the sector weight
Its biggest buy over the coming down. On the other 3M India 63
last six months is hand, improved sentiment
Endurance Tech, an auto- towards healthcare and Supreme Industries 60
component maker. Auto lifting of the ban to export
companies have seen a hydroxychloroquine to the ;67:,33:
renewed interest on the US has led to an increase in
Indraprastha Gas -112
back of rising popularity of this sector’s weight to
personal mobility. around 15 per cent as Indian Hotels -66
The fund mainly of August from
exited stocks that about 10 per cent
4(1695,>,5;9(5;:
had run up quite a in February
bit and had 2020. Coforge (formerly NIIT Tech) 133
Gujarat State Petronet 94
ACC 86
:LJ[VYHSHSSVJH[PVUIn %
100 Crompton Greaves Consumer
90 Electricals 77
80
70 Others Coromandel International 76
60 Technology 3M India 67
50 Services
40 4(169,?0;:
Healthcare
30
Financial
Indraprastha Gas 177
20
10 Chemicals Indian Hotels Co. 95
0
Jan ’20 Aug ’20 Max Financial Services 65
Data between Mar ’20 and Aug ’20. All numbers in ` cr.

COVER STORY
AXIS SMALLCAP FUND AUM `2,720 cr (as of Aug ’20)
Betting big on construction

The fund has the highest allocation to the construction sector. In the last six
months, it has added more of it. Its biggest buy is, however, a coffee producer.
T
he fund is quite bullish on a chemical player. IT has been
;67)<@:
the construction space. doing well and hasn’t been
Many of its recent stock affected much by the pandemic. CCL Products 76
purchases, such as Jindal Steel, Chemical companies have caught Jindal Steel & Power 68
Brigade Enterprises, PNC Infra investor attention owing to
and KNR Construction, belong to supply-side issues from China. Brigade Enterprises 51
this sector. Further, companies Navin Fluorine, a speciality
belonging to the construction chemical company, also features
PNC Infratech 46
sector accounted for the largest among the fund’s new entrants. Narayana Hrudayalaya 34
part (around 22 per cent) of its The fund has sold out Gulf Oil
AUM by the end of August. By Lubricants. This move might be Tata Elxsi 30
comparison, the BSE SmallCap made in view of the subdued
Galaxy Surfactants 29
Index has a weight of roughly 8 demand for oil and related
per cent to this sector. MANAGED BY products in the near to PI Industries 29
The fund’s biggest buy Anupam Tiwari medium term.
over the last six months In terms of sector-wise KNR Constructions 27
was in CCL Products, a exposure, the fund is Blue Star 26
coffee producer. Since underweight on the sectors
people are staying more at that have experienced a
home owing to the positive change in investor ;67:,33:
pandemic, CCL Products is sentiment, such as
Gulf Oil Lubricants -46
expected to benefit from healthcare and technology.
higher coffee consumption Healthcare has the second-
in the western largest weight (about 4(1695,>,5;9(5;:
markets. The 14 per cent) in the
fund has also BSE SmallCap just
CCL Products 87
bought Tata after chemicals, Jindal Steel & Power 66
Elxsi, an IT which has around
company, and 15 per cent PI Industries 31
PI Industries, weight.
Supreme Industries 28
Metropolis Healthcare 31
:LJ[VYHSHSSVJH[PVUIn % Navin Fluorine International 31
100
90
Others
80
Technology
4(169,?0;:
70 Healthcare Gulf Oil Lubricants 46
60 FMCG Data between Mar ’20 and Aug ’20. All numbers in ` cr.
50
Financial
40
30 Chemicals
20
10 Construction
0
Jan ’20 Aug ’20

COVER STORY
DSP MIDCAP FUND AUM `7,883 cr (as of Aug ’20)
Nothing new
The fund has not added a new company over the last six months. It has,
however, taken some contra calls on its existing holdings.
O
ut of the six funds analysed on the back of a good monsoon
;67)<@:
in this story, only this one and record kharif sowing.
did not take any substantial The fund’s top investments, Bharat Forge 127
new position over the last six Bharat Forge and Cholamandalam Cholamandalam
months until August. Investment, appear to be
Investment & Finance Co. 127
The fund is bullish on contrarian bets. Although slowing
chemicals (15 per cent of AUM as global auto sales have affected Gujarat State Petronet 89
of August), financials (16 per cent) Bharat Forge, the company’s
and healthcare (14 per cent) presence in the industrial sector – Sheela Foam 81
sectors. While the chemical MANAGED BY
including defence and Bata India 75
sector has benefitted from Vinit Sambre aerospace, power, oil and
the supply-chain shift from gas, construction and
China to India, the healthcare mining, railways, and ;67:,33:
sector is a beneficiary of the others – ensures its
PI Industries -92
ongoing health emergency. revenue stability.
Given the fact that the sales But NBFCs are Motherson Sumi Systems -83
of auto and auto ancillaries facing a tough time.
are likely to be affected amid As loans were under Jubilant FoodWorks -74
the COVID-19-led global moratorium until Cummins India -67
slowdown, the fund has the August-end, the
chucked out Motherson Sumi future of NBFCs will
Systems. Also, it has either greatly depend 4(169,?0;:
reduced its stakes or on the
Motherson Sumi Systems 95
exited from agro- economic
chemical companies recovery Bayer CropScience 68
like PI Industries and and their
Bayer Crop Science, ability to Aarti Industries 61
even after the rural raise Apollo Tyres 63
sector witnessed capital at
economic recovery lower costs. ACC 50
100
90
80
70 Others
60 FMCG
Engineering
50 Automobile
40
Healthcare
30
20 Financial
10 Chemicals
0
Jan ’20 Aug ’20

COVER STORY
KOTAK EMERGING EQUITY FUND AUM `7,300 cr (as of Aug ’20)
Maintaining the status quo

Continuing with its pre-COVID portfolio, the fund has added to its existing
holdings and booked profits on the stocks that had run up
T
top holding, Supreme Industries, a
he fund largely stayed with ;67)<@:
its pre-COVID portfolio and plastic furniture and pipes
did not take any specific manufacturer. Pharma and agro-
SKF India 80
calls based on the sectors that chemical companies have been the Supreme Industries 79
could see long-term changes. It Street’s darling since the outbreak
exited Indusind Bank, Future of COVID-19. Probably M&M Financial 66
Retail and others as these uncomfortable with valuations in
Page Industries 64
companies faced company-specific the pharma and agro-chemical
issues in the recent past. On the sectors, the fund cut its position in
MANAGED BY
other hand, each of its stocks like Coromandel
Pankaj Tibrewal and Laurus Labs. ;67:,33:
new entrants accounted
for less than 1 per cent of The fund is overweight Tata Consumer Products -43
its AUM as of August, on the chemical and Coromandel International -41
depicting the fund’s construction sectors, with
cautious stance. both accounting for around Laurus Labs -40
Instead of putting new 18 and 12 per cent of its
Indraprastha Gas -36
money in trend stocks AUM, respectively, as
belonging to healthcare, IT compared to just 4 per
and chemicals, the fund cent for both in the 4(1695,>,5;9(5;:
deployed most of it BSE MidCap
Blue Star 66
towards contrarian index. The fund
bets in auto ancillary remains JK Cement 64
(SKF India), underweight on
financials (Mahindra healthcare, which Amber Enterprises 43
& Mahindra accounted for
Financial) and around 8 per cent 4(169,?0;:
retail (Page of its AUM in
Indusind Bank 79
Industries). In August as
fact, it added the compared to 17 per Future Retail 40
most towards its cent of the index. Data between Mar ’20 and Aug ’20. All numbers in ` cr.
100
90
80 Others
70 Textiles
60 Healthcare
50 Financial
40 Engineering
30
20 Construction
10 Chemicals
0
Jan ’20 Aug ’20

COVER STORY
NIPPON INDIA SMALL CAP FUND AUM `9,285 cr (as of Aug ’20)
Riding on the growth in chemicals

The fund has profited from a rally in the chemical sector and has
maintained a high allocation to it over the last six months
T
he fund has maintained a chemicals company, and KRBL, a
;67)<@:
steady capital allocation, basmati rice producer, to benefit
with no drastic changes in from this trend. Honeywell Automation 95
the sector allocation over the last The fund’s second-highest Bayer CropScience 86
six months. The chemical sector allocation is in the engineering
continues to dominate its sector. It has also bought KRBL 76
MANAGED BY
AUM, with an allocation Honeywell Automation,
Samir Rachh Indian Energy Exchange 67
of 17.7 per cent. an MNC.
Companies in this sector In terms of sector-wise eClerx Services 62
are deriving benefits from exposure, the fund
the supply-chain shift to increased its allocation to Varroc Engineering 47
India from China. Even healthcare to 6 per cent of
though the fund has AUM in August 2020 from
reduced its position in just over 3 per cent six
;67:,33:
Deepak Nitrite, a months ago. Nevertheless, Thermax -72
chemical company, it the contribution of this
Deepak Nitrite -72
remains the fund’s sector remains low as
top holding. compared to the Sheela Foam -69
A good monsoon, index representation
lower spread of of around 14 per MCX -64
infection in rural cent. Rising
Indian Hotels Co. -57
areas and valuations in
government subsidy pharma and
transfer have healthcare 4(1695,>,5;9(5;:
boosted the rural companies could Bayer CropScience 132
economy, thereby be one of the
helping agricultural reasons behind eClerx Services 83
companies. The fund the fund’s limited
KRBL 76
invested in Bayer exposure to this
CropScience, an agro- sector. Persistent Systems 68
Varroc Engineering’ 58
100 4(169,?0;:
90
Others Thermax 75
80
70 Healthcare Sheela Foam 66
60 Construction
Indian Hotels 49
50 FMCG
40 Financial
30
20 Engineering
10 Chemicals
0
Jan ’20 Aug ’20

COVER STORY
SBI SMALL CAP FUND AUM `5,039 cr (as of Aug ’20)
A very busy phase

Buying into the chemical and services spaces, the fund has made
significant changes to its holdings during the last six months
T ;67)<@:
his fund has engaged in a lot secured and considered less risky.
of activity over the last six The fund is underweight on
PI Industries 195
months. It has built a robust healthcare, accounting for 4 per
position in the chemicals space cent of the AUM as compared to City Union Bank 165
during March–August 2020. By roughly 14 per cent in the BSE
investing in the likes of PI SmallCap. Rich valuations of V-Guard Industries 128
Industries, Navin Fluorine, pharma companies could be the Elgi Equipments 127
Rossari Biotech and others, it has reason for this.
increased its chemical-sector Rossari Biotech 109
4(1695,>,5;9(5;:
allocation to 12 per cent of the
PI Industries 211 Chalet Hotel 108
AUM in August from 6 per cent six
months ago. The chemicals sector City Union Bank 176 Techno Electric & Engineering 104
in India is going through a
transformation buoyed by the Navin Fluorine 154 Navin Fluorine 101
shutdown of Chinese units due to
V-Guard Industries 129 Lemon Tree Hotels 99
environmental concerns followed
by a supply-chain shift to India. Rossari Biotech 112 Great Eastern Shipping 94
The fund also took contrarian bets
by investing in Chalet Hotels and Star Cement 102 Star Cement Ltd 84
Lemon Tree. With consumers Info Edge 82
eClerx Services 85
staying at home, the hospitality
sector has borne the brunt. Info Edge 81 Blue Star 75
When it comes to exits, the fund
made a mix of sectoral and ;67:,33:
4(169,?0;:
individual stock calls. It completely IndoStar Capital -122
exited from NBFCs like IndoStar IndoStar Capital 120
Capital and CanFin Homes. Dixon Technologies -102
NIIT 78
Smaller NBFCs are at a heightened NIIT -86
risk if defaults on loans rise post NHPC 57
moratorium. Also, capital- NHPC -55
raising has become
CanFin Homes 58
really difficult for most
NBFCs, with lenders
sticking to a few top-
100
quality NBFCs. 90
However, the fund
80
made a stock-specific
70 Others
call in City Union Cons Durable
Bank, which has seen a 60
Financial
steep fall in 50
Services
valuations. This 40
30 FMCG
bank mainly gives
out working-capital 20 Chemicals
loans, which are 10 Engineering
MANAGED BY 0
Jan ’20 Aug ’20
R Srinivasan

COVER STORY
Funds’ favourite mid caps

Mid caps in which funds’ equity holdings have gone up by at least 2 percentage points between Mar ’20 and Aug ’20.
Mutual fund holding Debt to
(% of equity) equity ROE (%) P/B
Company Change 5Y profit FY20 Current Returns (%)
Sector|M-cap (` cr) Mar-20 Aug-20 (% pt) growth (%) 5Y avg 5Y median 1Y 3Y 5Y
Metropolis Healthcare 0.0 27.3 16.8
Healthcare | 9,096
5.8 13.7 8.0 13.6 30.1 14.2 43.3 - -
Phoenix Mills 1.1 10.0 2.1

Realty | 10,229
9.7 14.5 4.8 32.7 9.3 2.9 -17.1 6.2 12.3
Page Industries 0.0 43.0 26.2

Textile | 20,388
8.1 11.9 3.8 11.9 46.5 28.4 -19.3 -1.3 6.7
PI Industries 0.2 18.6 6.1

Chemicals | 29,504
17.2 20.6 3.4 13.1 24.5 7.4 55.6 36.2 24.9
Indiamart Intermesh 0.0 71.9 42.1

Retailing | 13,867
2.5 5.9 3.4 46.2 14.4 25.5 182.8 - -
JM Financial - 14.5 1.2

Finance | 7,580
4.1 7.3 3.2 16.6 18.0 1.5 6.8 -18.5 13.1
Jindal Steel & Power 1.0 -1.3 0.5

Iron & Steel | 17,881
7.0 10.2 3.2 11.5 -6.8 0.5 61.3 4.6 21.9
Endurance Technologies 0.2 20.3 5.0

Automobile & Ancillaries | 15,289
5.8 8.8 3.1 17.4 21.0 6.5 9.8 0.8 -
MindTree 0.0 19.6 6.2

IT | 20,923
3.7 6.4 2.7 3.3 21.6 4.6 78.2 39.8 12.4
CESC 1.3 13.3 0.9

Power | 8,474
18.4 20.9 2.5 32.8 10.3 1.0 -24.1 -15.6 3.1
Hindustan Aeronautics 0.4 22.6 1.9

Aviation | 26,709
0.7 3.1 2.4 3.6 19.7 2.1 5.7 - -
Minda Industries 0.5 9.9 4.5

Automobile & Ancillaries | 9,146
6.6 8.8 2.3 24.1 22.6 5.0 0.3 5.4 57.4
Cholamandalam Fin Holdings - 27.4 1.4

Finance | 7,636
23.0 25.0 2.0 11.2 29.2 5.4 -9.7 -22.8 0.1
Price-related data as on September 22, 2020. Other data as of FY20.
Funds’ favourite small caps

Small caps in which funds’ equity holdings have gone up by at least 2 percentage points between Mar ’20 and Aug ’20.
Andhra Paper 0.0 24.5 0.8
0.0 8.0 8.0 -55.6 -12.4 -6.5
Paper | 793 285.5 17.2 2.5
Indian Energy Exchange 0.0 47.3 13.5

12.3 17.3 5.0 52.8 - -
Power | 5,843 14.2 47.8 12.5

COVER STORY

CCL Products 0.4 18.8 3.7
7.3 12.2 4.9 7.7 -5.1 4.4
Agri | 3,505 12.0 22.0 4.8
Ceat 0.6 7.5 1.3

6.2 10.5 4.2 1.9
0.6 -19.8 -6.2
Auto & Ancillaries | 3,693 -7.5 12.1
Arvind Fashions 2.0 -46.7 3.1

10.5 14.5 3.9 2.4
-64.0 - -
Retailing | 1,247 -210.8 -10.6
Wheels India 0.8 7.3 1.5

18.2 21.6 3.4 3.4
-32.8 -17.4 -7.3
Auto & Ancillaries | 978 9.7 11.2
Persistent Systems 0.0 14.5 3.6

22.6 25.9 3.3 2.7
91.6 22.2 11.1
IT | 8,837 3.2 16.4
Radico Khaitan 0.3 15.8 3.5

10.7 13.7 3.0 2.9
31.8 35.7 37.3
Alcohol | 5,620 27.5 12.6
Sheela Foam 0.2 23.6 7.4

19.4 22.2 2.9 9.0
15.1 -0.3 -
FMCG | 7,105 35.4 27.2
TCI Express 0.0 29.7 9.1

6.6 9.5 2.9 9.7
29.0 15.4 -
Logistics | 3,096 871.6 23.9
KPIT Technologies 0.0 14.7 2.7

10.0 12.7 2.7 2.2
15.4 - -
IT | 2,859 2235.9 8.7
GE Shipping 0.7 3.0 0.5

19.5 22.2 2.7 0.7
-7.7 -14.7 -7.7
Logistics | 3,601 -22.7 5.3
Brigade Enterprises 1.7 5.0 1.5

16.3 18.9 2.6 1.4
-12.6 -1.5 13.4
Realty | 3,497 -0.7 8.9
Matrimony.com 0.0 13.8 5.6

1.1 3.6 2.6 4.9
5.3 - -
IT | 1,305 64.9 29.1
Nath Bio Genes 0.1 9.5 0.9

6.2 8.5 2.3 1.4
-21.8 -12.4 30.1
Agri | 525 14.7 9.0
Narayana Hrudayalaya 0.6 11.1 6.6

14.0 16.2 2.3 4.9
43.4 3.4 -
Healthcare | 6,782 83.2 7.5
Garden Reach Shipbuilders 0.0 15.7 1.9

10.8 13.0 2.2 2.1
13.8 - -
Ship Building | 2,002 30.3 10.3
TeamLease Services 0.1 6.8 6.4

10.0 12.2 2.2 9.1
-18.1 12.4 -
Miscellaneous | 3,896 3.8 14.7
Mahindra Lifespace 0.1 -9.4 0.7

10.7 12.6 2.0 1.1
-39.9 -23.4 -13.5
Realty | 1,194 -190.3 1.2
Vaibhav Global 0.1 26.9 7.6

7.6 9.5 1.9 3.8
108.9 46.4 36.7
Retailing | 5,805 13.0 20.7
Price-related data as on September 22, 2020. Other data as of FY20.

For Arvind Fashion and TCI Express, profit growth is for the last four years.
For KPIT Technologies, profit growth is for the last two years and average ROE for the last three years.

INTERVIEW VETRI SUBRAMANIAM
Group President & Head of Equity, UTI Mutual Fund
‘Investors should
think of value
and growth as a
diversification
tool rather than a
timing device’
T
he run-up in the market since April this year
quickly withdrew the bargain opportunities
that the crash in March had created. This is
accompanied by clear signs of stress in the
economy. To make sense of market valuations and to
find out which pockets in the market now offer value,
we spoke to Vetri Subramaniam of UTI Mutual Fund.
He manages UTI Value Opportunities Fund, which has
assets of over `4,000 crore.
After crashing in March, the market staged a smart

recovery. How have you handled the recent volatility in the
market across your equity portfolios? What changes did you
make in the last six months to adjust to the new normal?
Our portfolio turnover ratio (PTR) as of August 2020
was 0.27 (trailing 12 months); this is virtually
unchanged from a year ago. The peak number in the
last one-year period was 0.32 (trailing 12 months) as of
March 2020. The PTR indicates that there has been no
exceptional change in portfolio strategy due to or
during this period of the pandemic.
We think the intrinsic value of a company is the
present value of cash flows generated over a period of
time. Cash flows of many companies have been
impacted due to the pandemic and the resulting
lockdowns in the March and June quarter but, in most
cases, the impact is limited to only a few quarters.
Therefore, the impact on the overall value would be
limited. Of course, some businesses have been
impacted more than others and face potential
structural headwinds. However, as an investor, we
recognise that companies that have a healthy balance
sheet and navigate the downturn successfully in

INTERVIEW
deeply impacted areas could emerge stronger due to market is in the fair-valuation zone based on the P/B.
the supply disruption. The stock market is arguably doing better than the
We have been adding exposure to companies which economy but it reflects the fortunes of larger and
are cash-rich and available at reasonable valuations. better-capitalised businesses. These companies are
The focus is to look for survivors of the current likely to benefit from the troubles faced by smaller
downturn as they will be the ones which are first to companies with limited access to capital and could
bounce back when the economy recovers. At a sector potentially gain market share from weaker peers or
level, we have added exposure to automobile space as unorganised-sector players. Further, many companies
the valuations were comfortable. We have also added to in the stock market have a significant global footprint
the exposures in the industrial/construction sector. and operate in businesses that have been less
impacted. The market has been discerning in that
Amid these uncertain times, popular valuation indicators companies with leverage have tended to
are all pointing in different directions. What’s your metrics underperform, led from the front by companies in the
of ascertaining the market’s valuation? How would you financial sector, which is by definition a leveraged
describe the current market in terms of valuations, in business. Companies with leverage have been forced to
aggregate terms? raise equity and deleverage.
Our preferred metrics to judge valuation have been
trailing price-to-earnings (P/E) and price-to-book Which sectors/pockets currently appear overvalued to you?
(P/B). Earnings metrics, be they trailing or Which are more reasonably valued?
forward P/E, are currently distorted due We find valuation in the consumer-staples
to the impact of the lockdown. As “We area very demanding and that has
regards P/B for the Nifty 50, it is have been remained an underweight sector for
now in line with the long-term a long period in our portfolio.
average, signalling that it is in
adding exposure to Relative to growth prospects, we
the fair-value zone. We are also companies which are cash- find valuations more reasonable
aware that the return on equity rich and available at in the automobile sector.
(ROE) of the Nifty 50 is reasonable valuations. The focus Financials pose a conundrum
currently at a multi-year low is to look for survivors of the at this point. Many companies
but that reflects the impact on current downturn as they will be have raised capital and
earnings, which should improve provisioning, but the economy
as we see incremental normalcy
the ones which are first to is not back up to normal and it
in the economy. bounce back when the is an inherently leveraged
economy recovers.” business. The market remains
When do you see a broader economic concerned about this area but
recovery? Has the market discounted it or incrementally, we are constructive on
overestimated it? What are the chances of the sector due to valuations. We think
another crash? banks and NBFCs that have adequate capital,
The data points to the fact that the economy was prudent provisioning and enjoy the trust of
slowing down from late 2018. And then COVID-19 depositors and bond markets are likely to emerge
brought both supply and demand to a halt due to the even stronger from this difficult period.
lockdowns. That said, from the worst point, most
economic indicators are pulling back towards What’s your stock-selection criteria for UTI Value
normalcy. Based on the choice of the indicator, the Opportunities Fund? What kind of stocks do you avoid?
economy is back to 80–90 per cent of the year-ago level. Our investment approach is anchored to intrinsic
In certain areas such as travel, hospitality, value rather than treating value as merely a statistical
entertainment and retail, the level of operation is factor. Our stock-picking uses a barbell strategy – held
sharply lower, whereas activity in agriculture and together by the principle of buying what the market
rural-related areas has turned positive year on year. underestimates. The market may be underestimating
We do not have a crystal ball to predict market the scope for a turnaround and it may also be
crashes or surges. History provides enough evidence underestimating the scope for growth and opportunity
that such sharp moves happen in the market. Rather for capital reinvestment at an attractive rate.
than focus on prediction, it is better to remain The principle to keep in mind in all investing is that
vigilant. Our investment process keeps us prepared we want to buy with a margin of safety but we also
and is also our guide to navigate such periods. The want to stay invested in a good company while it

INTERVIEW
compounds. To do otherwise defeats the purpose of rebalance the portfolio but right now the valuation-
investing. To ensure that, we stay true to our mandate. differential signal is neutral.
We target to keep the P/B of the portfolio at a discount
(currently around 30 per cent) to the benchmark Nifty How would you differentiate between value traps and value
500 index and target 40 per cent of the portfolio to be opportunities in the current times, when the market has
invested in companies which are likely to experience an raced but the economy has hit a low?
improvement in return on asset (ROA)/return on Value traps arise when the businesses have limited or
capital employed (ROCE). We also expect the P/E to be no terminal value and return on incremental
less than the benchmark but this can be more volatile investment is falling or is below the cost of capital.
as it gets skewed by losses or low profits in companies This is a challenge for many businesses. In investing,
experiencing cyclical challenges. when value is interpreted as a mere statistical factor
We do not buy stocks that are expensive relative to (cheap valuations), this risk is being entirely ignored.
their growth prospects. The implied growth in the This challenge is acute in companies facing
valuations can be tested relative to their historical technological changes and obsolescence or changing
trajectory or comparable examples. We avoid debt- regulatory and societal attitudes on account of
heavy companies and those with strained cash flows pollution and health perceptions. Furthermore, value
in cyclically challenged areas. We prefer pure-play traps also arise in companies that have cash-flow
companies over companies with conglomerate problems and debt-heavy balance sheets as they
structures. could fall by the wayside during a
challenging business environment.
After the run-up in larger companies, “We As Howard Marks said, the choice
mid and small caps have also started find valuation in is not really between value and
to move. How do you see the mid- the consumer-staples growth but between value today
and small-cap space in terms of area very demanding and and value tomorrow. It is for the
value, given the that has remained an same reasons that while
underperformance over the last underweight sector for a long thinking about value
couple of years and against the opportunities, we need to
backdrop of the disruption period in our portfolio. Relative to think about the attractiveness
caused by the pandemic? growth prospects, we find of the business in the future,
Mid-cap valuations (Nifty valuations more reasonable its ability to deploy capital at
Midcap 100) are in neutral in the automobile sector. an attractive rate of return and
territory vs large-cap stocks Financials pose a the ability to survive a difficult
(Nifty 50). Therefore, we do not
conundrum at this period. Finally, the agency
see any top-down valuation problem could also create a value
opportunity to rebalance the
point.” trap — the interests of management
portfolio. We are open to making and promoters need to be aligned with
investments in mid- or small-cap companies if those of the minority shareholders.
the bottom-up case is supported by valuations.
Given the benign outlook for rates and likely Value stocks require patience. Amid a slowdown, does
improvement in economic indicators from a weak holding them become all the more painful against growth
base, this segment of the market has performed well stocks, which can bounce back more quickly? How would
this year. The stark underperformance of mid-cap you convince an investor to still follow the value theme?
stocks vs large-cap stocks is a function of the observed All investing requires patience and the ability to hold
time period. The mid-cap index has sharply through difficult times. Market cycles and drawdowns
underperformed the large-cap index over a three-year affect investments across all asset classes. We believe
period and marginally underperformed over five our intrinsic value approach is an all-weather strategy.
years. But over seven years, mid caps have It is executed with a clearly articulated investment
outperformed and over 10 years, performance is in line process and we share the framework for monitoring our
with large caps. To us, the key metric is the process with all investors. This will hopefully enable
attractiveness of valuation at a stock and index level them to understand us better and give them the
rather than merely underperformance. Index-level confidence to hold on during challenging periods.
valuations reflect investor pessimism and optimism Finally, we also believe that investors should think of
towards the asset class. At such extreme points of value and growth in their portfolio as a diversification
valuation differential, there is an opportunity to tool rather than as a timing device. WI

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RAJEEV THAKKAR CIO, PPFAS MUTUAL FUND IN FOCUS
Guide to investing overseas

FOCUS QUESTION The recent run-up in the tech-heavy NASDAQ has
drawn investor attention to international equity. What are the pitfalls
that an Indian investor should avoid while buying overseas stocks
directly? What guidelines would you give for stock selection and
portfolio management as far as overseas stocks are concerned?
F
irstly, the recent run-up in 1. Exchange rate spreads Investors should keep in mind the
stock prices should not be Banks typically give unfavourable taxation provisions for dividends,
the criterion for investing exchange rates for small amounts capital gains, etc., both in the
in global stocks. Equity of remittances abroad. One has to foreign country and in India before
investing, whether in India or choose the bank carefully and investing.
abroad, works well only if the work out the fund-transfer 5. Impact of currency movement
investment horizon is long term modalities and negotiate the rates on portfolio valuation
in nature. There can be severe in advance. Else, a maybe 2 per Typically, rupee depreciation adds
volatility in stock prices and the cent fee/spread for remittance to the returns from foreign stocks.
technology-related shares have would be akin to an entry load However, if the rupee were to
had their fair share and more of and would not be in the investor’s appreciate, it would reduce the
this volatility. interest. value of the foreign stocks. Foreign-
Investment in global stocks is 2. Tax collected at source exchange volatility affects the
recommended for diversification Investors should be prepared to pay portfolio
and for a larger opportunity set 5 per cent of the remittance value. WI
rather than for chasing past amount (in excess of `7 lakh) as tax
returns. The criteria for stock collected at source. This can be
selection should be the same as for claimed in the income-tax returns.
any other equity share: 3. Inheritance tax
z Good quality management Depending on the country of
z Business with quality investment, there can be a fairly
characteristics (high ROCE, low steep inheritance tax in the
debt, reasonable margins, growth unfortunate circumstance of the
prospects) investor passing away.
z Some entry barriers/moat/ 4. Taxes in a foreign country as
differentiation in the business well as in India
model
z Reasonable valuation Overseas investments
From a portfolio perspective, of Parag Parikh Long
individual and sectoral stock Term Equity Fund
weightages should be kept in mind. Net Market
asset (%) value (` cr)
One should not be overexposed to a Amazon.com Inc.
particular stock or sector. 8.51 384
Investors can choose to invest Alphabet Inc Class C
7.08 319
directly in overseas stocks or via
Facebook Co
mutual funds in India. While 5.96 269
investing via mutual funds for Suzuki Motor Corporation
foreign stocks is very similar to (Japan)
3.75 169
investing in mutual funds for Microsoft Corportion
Indian stocks, direct stock investing 3.29 148
requires special care and attention The fund is managed by Rajeev
Thakkar and invests part of its
to the following factors: corpus in overseas stocks

MAIN STREET
The investor’s dilemma

Why most investors never manage to invest in great
companies and stay invested for the long run
SAURABH MUKHERJEA
Ever since equity investing became a 7H`VMMTH[YP_MVY[OLWYPZVULY»ZKPSLTTH

mainstream activity in the Western world around a
Most likely outcome
century or so ago, ‘growth at a reasonable price’ PRISONER 1
(GARP) investing for the foreseeable future has been QUADRANT 1 QUADRANT 2
seen as a sensible way of investing not least because it
Outcome: Prisoner 1 confesses,
does not force investors to make the more extreme Outcome: Both prisoners betray
while Prisoner 2 remains silent,
CONFESS
each other by confessing the
choices that ‘value’ or ‘growth’ investing do. However, in which case prisoner 1 is
crime and end up serving a
acquitted, whereas Prisoner 2
if one delves into GARP a little deeper, the definitions seven-year sentence.
serves a 10-year sentence.
of ‘growth’, ‘reasonable price’ and ‘foreseeable future’
allow further bifurcations into ‘growth investing’
versus ‘value investing’ and ‘short-term horizon’ versus PRISONER 2
‘long-term horizon’. This in turn gives rise to what we CONFESS DON’T CONFESS
call the ‘investor’s dilemma’. One can understand this
DON’T CONFESS
Outcome: Prisoner 2 confesses,

further by drawing parallels between the investor’s Outcome: Both prisoners
while Prisoner 1 remains silent, in
choose to remain silent and
dilemma and the classical game-theory conundrum, which case Prisoner 2 is acquitted,
serve a shorter sentence
whereas Prisoner 1 serves a
the prisoner’s dilemma. of just one year.
10-year sentence.
The classical prisoner’s dilemma… QUADRANT 3 QUADRANT 4

“Two people commit a crime together and are then
Most desirable outcome (Nash equilibrium)
caught by the police. Due to the lack of evidence, the
prisoners cannot be charged with something substantial Source: Marcellus Investment Managers
and should be released after serving a short sentence of
one year. The police officer gets an idea and decides to partner, which will earn freedom for the confessor and
keep the two prisoners in separate cells. Both are given condemn the other partner to a 10-year-long sentence.
the option of confessing to the crime and betraying their However, they are also told that if both end up confess-
ing, then they will each serve a seven-year-long sentence.
The stock The pay-off matrix, first created by the Nobel Prize-
winning economist John Nash is given in the matrix
market is ‘Pay-off matrix for the prisoner’s dilemma’.
filled with This celebrated game focuses on the human tenden-
individuals who cy to choose the option best suited for oneself and
know the price of throw everyone else under the bus. Not knowing, what
everything but the his teammate would do, Prisoner 1 thinks he is better
off confessing (Quadrant 2). Prisoner 2 also undergoes
value of nothing. a similar thought process and ends up confessing the
Phillip Fisher (1975) crime (Quadrant 3). Hence, despite knowing that a one-

MAIN STREET
7H`VMMTH[YP_MVY[OLPU]LZ[VY»ZKPSLTTH
Most likely outcome
COMPANY
QUADRANT 1 (wrong time QUADRANT 2 (wrong stock
DELUSIONAL COMPOUNDER
horizon & wrong stock) but right time horizon)
Outcome: Investors with a short-term Outcome: Delusional Com-
horizon have a penchant for investing pounders seldom outperform
in companies trading at low price the market indices and continue
multiples and hence fall prey to De- to trade at depressed price
lusional Compounders (value traps). multiples. Investors, as a result,
Such companies may or may not give witness massive wealth erosion
a positive return over the short term. over the long term.
INVESTOR
SHORT-TERM HORIZON LONG-TERM HORIZON
CONSISTENT COMPOUNDER
Outcome: Even if investors invest Outcome: Investors in Con-
in the Consistent Compounders, sistent Compounders end up
they may still end up losing creating wealth over the long
money if they invest with a term as the share price growth is
short-term horizon. backed by earnings growth.
QUADRANT 3 (wrong time QUADRANT 4 (right time

horizon but right stock) horizon & right stock)
Most desirable outcome (Nash equilibrium)

Source: Marcellus Investment Managers
year sentence (and therefore Quadrant 4) is an ideal Compounders have, almost by definition, superior capi-
situation (i.e., the Nash equilibrium), both prisoners tal allocation. Such companies consistently deliver very
end up confessing – as each one tries to optimise his high earnings growth alongside respectable standards
situation – and thus end up in Quadrant 1. of corporate governance. This combination leads such
companies to trade at elevated price multi-
…is similar to the investor’s dilemma ples, for example, HDFC Bank, Asian
An investor often finds himself in a simi- Paints, Bajaj Finance, Nestle, etc.
lar scenario in the world of investing. In the investor’s dilemma matrix,
Whilst the prisoners knew that keeping Quadrant 4 is the Nash equilibrium,
their mouth shut was the ideal option, where investors should invest in
they chose to confess because in doing so Consistent Compounders with a long-
lay personal gain. Despite knowing that term horizon. Nevertheless, investors
investing in one type of security for the more often than not end up in Quadrant 1,
long term will earn profits, investors i.e., they invest in the low-quality compa-
often choose to refrain from investing in nies and have a short time horizon. So
them. The matrix ‘Pay-off matrix for the why do investors end up in Quadrant 1
investor’s dilemma’ more appropriately Most than in Quadrant 4?
describes options faced by investors (on people
the vertical axis) and companies (on the overestimate A. It is easier to ‘trade’ than ‘invest’
horizontal axis).
Delusional Compounders are compa-
what they can do The Bill Gates’ quote on this page is espe-
cially important in the world of investing.
nies with a track record of capital misallo- in one year and If there is a company that is run by an
cation. Such companies have very low underestimate unusually capable promoter, who under-
earnings growth. The combination of cap- what they can do stands capital allocation, it makes sense
ital misallocation, low earnings growth
and poor corporate governance leads them
in ten years. to remain invested in such a company for
the long term. As explained in my best-
to trade at depressed price multiples. Bill Gates, Co-founder of selling book Coffee Can Investing, buying
On the other hand, Consistent Microsoft (1995) and holding great companies over long

MAIN STREET
time periods has several benefits: earning-growth potential and trading at

Higher probability of profits: Stock markets depressed price multiples. However, such
can be volatile in the short term. Only a companies are seldom available. Most
person who can correctly predict a bull or investors tend to focus on price multiples
a bear run should invest for the short for investing in a company and ignore the
term. However, for the rest of us, empiri- potential earnings growth a company
cal evidence suggests that the probability may generate.
of making a profit increases dispropor- From the chart ‘Growth vs value com-
tionately by investing for the long term. panies’, it is apparent that earnings
Lower transaction costs: Although brokerage growth is a much more sustainable source
costs have fallen in India over the past 20 If you are a of share-price growth as multiples cannot
years, they can still make a difference in long-term continue to expand perpetually. Growth
the returns over the long term. A portfolio
worth `1 lakh compounded at 20 per cent
investor, owning companies give far higher returns than
value companies across all the periods. In
CAGR for 10 years would eventually shares in a good fact, returns get magnified by investing in
become `6.19 lakh. However, if the whole company is a those companies having high growth
portfolio is churned every year and the much larger rates along with high ROCEs.
transaction cost plus price impact cost is
around 50 bps, then the portfolio would
determinant of Whilst Marcellus’ objective is to create
wealth for its clients, the bare minimum
compound to only `5.94 lakh over 10 years. your investment an investor should strive to generate is
This difference of `25,000 is equivalent to performance inflation-beating returns. The investor is
25 per cent of the initial corpus. than whether the essentially becoming poorer if she is gen-
Lower taxes: In India, the short- and long-
term capital-gains taxes are 15 per cent
shares were erating returns lower than inflation. The
chart ‘Inflation-beating potential of high
and 10 per cent, respectively. The more a cheap when you ROCE companies’ shows percentage of
portfolio churns, the greater the amount bought them. companies within each basket which can
of tax leakage. Once this money is paid generate a return greater than 7 per cent.
Terry Smith, Chief Executive The chart suggests that by investing in
out as taxes, the investor loses its com-
of Fundsmith (2015) companies with high earning-growth
pounding effect forever.
rates and high ROCEs, returns higher
B. It is easier to focus on P/E multiples than inflation are guaranteed over the
than on earnings growth long term. At the other end of the spectrum, only 71
The price of a company’s share is mainly a function of per cent of the value companies can generate returns
two factors: ‘earnings’ and ‘price multiple’. The most higher than inflation and that too if the investor stays
ideal companies to invest in are the ones with high invested in the long term. This again proves that an
.YV^[O]Z]HS\LJVTWHUPLZ
Share-price returns (% pa)
45 Q1 in ROCE in growth companies Growth companies Value companies
30
15
-15
-30
-45
1Y (FY18-19) 3Y (FY16-19) 5Y (FY14-19) 7Y (FY12-19) 10Y (FY09-19)
Source: Marcellus Investment Manager, Ace Equity. Note: Growth companies are those with P/E > 15 and PAT CAGR > 15 per cent. Value Companies are those with P/E < 15 and PAT
CAGR < 15 per cent. Q1 in ROCE companies are growth companies which are in the first quartile when ranked by ROCE. Banks and NBFCs have not been considered. Companies with
P/E < 15 and PAT CAGR > 15 per cent have not been allocated to any specific bucket.

MAIN STREET
0UMSH[PVUILH[PUNWV[LU[PHSVMOPNO96*,JVTWHUPLZ
Per cent of companies giving return over 7 per cent
125 Q1 in ROCE in growth companies Growth companies Value companies
100
75
50
25
0
1 year 3 years 5 years 7 years 10 years
Source: Marcellus Investment Manager, Ace Equity. Note: Growth companies are those with P/E > 15 and PAT CAGR > 15 per cent. Value Companies are those with P/E < 15 and PAT
CAGR < 15 per cent. Q1 in ROCE companies are growth companies which are in the first quartile when ranked by ROCE. Banks and NBFCs have not been considered. Companies with
P/E < 15 and PAT CAGR > 15 per cent have not been allocated to any specific bucket. Inflation in India over the last 15 years has averaged around 7 per cent.
investor should invest his corpus in for example, ex-staff members, suppli-
growth companies rather than in compa- ers, distributors, customers, ex-regula-
nies with low price multiples and no tors, ex-auditors, etc.
growth.
Investment Implications
C. Good vs bad corporate governance Whilst every investor knows that Quadrant
Whilst nobody wants to invest in compa- 1 contains companies like HDFC Bank,
nies whose corporate governance is Asian Paints, Bajaj Finance, etc., many
flawed, even institutional investors end end up accumulating companies in the
up investing in some of companies with other three quadrants. Like the prisoner in
poor corporate governance. At Marcellus, prisoner’s dilemma, the investor falls prey
we believe that the following are essen-
It has been to investing in sub-optimal companies
tial checks that should to be conducted to far safer to because he convinces himself that the
identify companies which are marred by steal large sums Consistent Compounders are trading at
bad corporate governance: with a pen than very high multiples. As a result, the bulk
Forensic check of the financial statements: of the market cap of the Indian market
We study the accounts of our potential
small sums with ends up being accounted for by Delusional
investee companies in depth and look for a gun. Compounders, even as the bulk of the
inconsistencies in their financials. Warren Buffet (1997) returns from the Indian stock market come
Typically, companies with questionable from the Consistent Compounders. WI
corporate governance tend to have done Disclosure: Marcellus Investment
some transaction in the past which has benefited the Managers has investment in Asian Paints, HDFC Bank,
promoters at the cost of minority shareholders. Bajaj Finance and Nestle in several of its portfolios.
Primary data-point checks: To assess the promoter’s Saurabh Mukherjea is the CIO at Marcellus Investment Managers
integrity, we find it useful to talk to around 20 people (www.marcellus.in) and the author of ‘The Victory Project:
in the broad ecosystem surrounding a listed company, Six Steps to Peak Potential’.
Mutual Fund Investments are subject to market risk.

Check Value Research Fund Ratings before investing.

STRAIGHT TALK
Why inflation
may not be dead
The quantity of money in circulation, a rebound in oil prices and weakening
of the dollar can result in the return of inflationary times
ANAND TANDON
In an earlier column, I had argued that matically as ‘MV = PY’. Here, ‘M’ represents the quan-
one of the fallouts of increased nationalism around the tity of money in circulation (usually measured by M2
globe will be the end of deflation. For most OECD in the US and M3 in India – these terms are calculated
countries, inflation has been dead for so long that most differently but that is not important to understand the
young economists possibly do not even factor it in their matter at hand). ‘V’ represents the velocity of money –
forecasts and assumptions. In India, inflation was the frequency with which a unit of currency changes
raging till about 2013, so the experience is still rather hands within a given period. ‘P’ is the general price
fresh. Despite that, post the setting up of the Monetary level and ‘Y’, the economic output. Effectively, the right
Policy Committee, it has been assumed, rather glibly, side of the equation represents nominal GDP. The
that inflation will now largely be contained and quantity theory postulates that if money supply is
movements outside the target range on the upside will, increased without a rise in the output of goods and
at best, be short term. This assumption may prove services, inflation will rise.
erroneous in the not-too-distant future. Post 2008, central banks around the world expanded
their balance sheets, thereby increasing one measure
The ‘quantity theory of money’ of ‘M’. However, there was no sign of inflation. This
The quantity theory of money can be expressed mathe- was explained by the reluctance of banks to lend. It has
9PZPUNº4»I\[MHSSPUNº=»
In the US, while the quantity of money in circulation (‘M’) was increased over the last two years, the unwillingness of the US banks to lend resulted in low
velocity (‘V’) and thus the inflation remained muted.
4TVUL`Z[VJR =LSVJP[`VM[OL4TVUL`Z[VJR
4000 Change from year ago, $ bn 2.2 Ratio
3200 2.0
1.8
2400
1.6
1600
1.4
800
1.2
0 1.0
Nov 1981 Aug 2020 Jan 1959 Apr 2020
Source: Board of Governors of the Federal Reserve System (US). www.fred.stlouisfed.org Source: Federal Reserve Bank of St. Louis. www.fred.stlouisfed.org

STRAIGHT TALK
always been assumed that given the money to lend,

banks would automatically do so. In an environment
where balance sheets of banks and borrowers were
both broken, this assumption did not hold. Consequently,
‘V’ fell, and inflation showed no signs of life.
COVID provided another opportunity for the US Fed
(and other OECD central banks) to expand balance
sheet to shore up its economy. This time, it has been
accompanied by governmental guarantees against loan
losses. First, the balance sheets of banks are now sig-
nificantly repaired. Secondly, with sovereign guaran-
tees to back them, banks have no risk of loan default.
So, lend they will. Consequently, it is reasonable to
assume that credit growth will not be constrained – in
fact, credit will grow. As economies return to ‘normal’,
the sharp drop in ‘V’ is likely to get reversed. But with
‘M’ at an all-time high and little likelihood of signifi-
cant growth in real output (real output will likely take
another 12–18 months to reach pre-COVID levels), the
chances of an increase in inflation are significant.
Significant debt has been raised in the developed
world below or near zero interest rates. How will the
market respond to this possible rise in inflation and
perhaps interest rates? The US Fed has already indicat-
ed that if needed, they may ‘fix’ the yield curve, i.e., fix
rates so that the term structure of interest rates doesn’t
change. This would be as anti-market a step as any and increasing taxes. Consequently, a quick jump in infla-
will take away whatever signalling power interest rates tion is far more likely, especially if benign fuel prices
have in determining asset prices. were to rise again.
The scenario in India is not very different but more The graph of NYMEX crude above shows the impact
muted. First, interest rates are nowhere close to zero. COVID has had on crude prices. Demand fell dramati-
And the RBI balance sheet, while having expanded cally as COVID-induced lockdown cut demand for
rapidly, is not yet filled with low-quality paper. transportation fuel. This is rapidly reversing. Chinese
However, India has moved much faster in closing its crude imports are up 26 per cent YoY. US demand in the
markets to imports and kept fuel prices high by week ended 4th September was at 18.67 million barrels
4VUL`Z\WWS`¶[OL0UKPHUZJLUHYPV
In India, the money supply hasn’t grown as steeply as the US. The velocity and the inflation are low. But a rise in fuel prices can result in a jump in inflation.
4VUL`]LSVJP[` 4VUL`Z\WWS`4NYV^[OHUKPUMSH[PVU
1.30 Ratio 20 Money supply M3 (YoY, %) CPI
1.25
15
1.20
Correlation = 0.77
1.15 10
1.10
5
1.05
1.00 0
Jun 2011 Jun 2020 Feb 2013 Aug 2020
Source: B&K Research, Bloomberg

STRAIGHT TALK
9LJV]LY`PUJY\KLVPS 9PZPUNPUMSH[PVUL_WLJ[H[PVU
After crashing due to the lockdown, crude-oil prices are recovering. The Due to the uncertainty created by US elections, inflation expectations are
US demand of petroleum products is also coming back, so is the back at the pre-COVID levels.
production. The production of shale gas, a key substitute of crude, is
2.4 % 86\HDUIRUZDUGLQÁDWLRQH[SHFWDWLRQUDWH
depressed owing to the low prices.
*Y\KLVPSWYPJLZ 2.0
$160
$120
$100 1.6
$80
$60
1.2
$40
0.8
$20
2000 2005 2010 2015 2020 Jan 2018 Jul 2020
Source: www.macrotrends.net Source: Federal Reserve Bank of St. Louis
>LLRS`<:WYVK\J[Z\WWSPLKVMWL[YVSL\TWYVK\J[Z per day, against a peak of 21.6 million barrels/day

24000 Thousand barrels per day reached in August 2019, a drop of just over 15 per cent.
22000 Supply has been cut by OPEC (plus Russia) by just
20000 short of 8 million barrels/day, and US production has
18000 fallen by an amount almost similar to the US demand.
US shale, a key reason why oil prices have been
16000
depressed, was showing signs of slowdown even before
14000
COVID. Lower prices don’t favour new drilling and the
12000
count of rigs involved has fallen dramatically, even as
Jan 2010 Sep 2020
production has not.
Source: U.S. Energy Information Administration
With demand rebounding fast, and US production
likely to remain constrained, it is possible that large
<:MPLSKWYVK\J[PVUVMJY\KLVPS
producing countries will look for higher prices before
400 Mn barrels
they ramp up production. A quick turnaround in crude
350 prices cannot be ruled out.
300
250 Political risks – rising
200 US election risks remain elevated, with chances of a
150 Democrat-dominated governing structure remaining a
high probability event. The more radical elements of
100
Jan 1970 Jun 2020 the party continue to propound MMT (modern mone-
Source: U.S. Energy Information Administration tary theory) – a ‘theory’ advocating unlimited printing
of fiat currency. If this does not erode the value of the
<:ZOHSLVPSWYVK\J[PVUNYV^[O US dollar and lead to inflation, one wonders what will.
2 YoY chg in 7 major regions, mn barrels/day US inflation expectations have almost reached pre-
COVID levels.
1 Most of this will actually be good for value stocks,
especially those that require large capital to produce.
0
Typically, inflationary situations would benefit sectors
-1 like power, fertilisers, and oil and gas – the last also
benefitting from a possible uptick in crude. It may be
-2 time to start dusting up one’s value screens and unload-
Jan 2007 Jul 2020 ing a bit of growth. WI
Source: US Energy Information Administration (EIA) Anand Tandon is an independent analyst.

TH
ANNIVERSARY
ISSUE
On stands October 15, 2020

EVERYDAY
ECONOMICS
Riding on rural India

While rural India has started to show signs of recovery,
it can’t alone propel the economic growth
PUJA MEHRA
The release of the GDP estimates positions. The ability to bounce back to pre-COVID lev-
that showed growth contracted 23.9 per cent in the els of consumption, investment and production may
three months from April to June has set off a great not be possible for a section of the economy. With relief
deal of commentary on the health of the economy and and help, some may be able to return to their feet. But
the extent of the damage from the COVID crisis and there could be some irreversible, permanent damage.
the related lockdowns. Most people unfamiliar with The extent of that damage and the pace at which the
economics assume that the estimates imply that a rest are able to get back to the full speed of economic
fourth of the Indian economy has got wiped out. This activity will determine how soon and how well or
is misleading. The first thing to note is that this is a robustly the economy will bounce back.
preliminary estimate. It will be refined and revised Economists have given a variety of projections of
over the next many months in accordance with the how this recovery will take shape. It is fashionable for
standard calendar as more information becomes avail- them to employ shapes of alphabets to describe the
able. Second, what the estimate shows is the impact of rebound. A quick dip and equally rapid bounce back
the lockdown. As economic activity was brought to a of the GDP growth rate, the graph plot – with quarters
halt – with most non-essential shops, factories, pro- on the horizontal axis and the GDP growth rates on
duction, transport, services, trade, investment and the vertical axis – of which resembles the alphabet ‘V’,
consumption shutting down – the GDP was bound to is called a V-shaped recovery. The optimistic projec-
be lower than that in the same months of the last year. tions are suggesting such a rebound should be expect-
Since the lockdown was announced in March, the first ed. The plot for a slower recovery tends to look like a
quarter saw the strictest lockdown. As the lockdown is ‘U’, making it a U-shaped recovery. On the extreme, a
unwound, and the level of economic graph for prolonged weakness reminds
activity gradually returns to normal, Economic trends of the alphabet ‘L’. Many projections
are also suggesting that the economy
GDP will pick up.
The question to be concerned about
are usually not so may go through such a phase of
is if the GDP can return to the level it simple and linear. delayed recovery.
was at before the lockdown. Since many Inter-linkages Meanwhile, several indicators sug-
businesses have had to pay salaries, between sectors gest that the rural economy is showing
a recovery already, even as urban India
rent, water and power bills and other
overhead fixed costs despite zero or low
and entities, spill- remains sluggish. There are reasons
sales and revenues, it is likely that their overs, how for this. It did not face as strict a lock-
finances would have become weaker. impulses get down as urban India. Much of the mea-
Many may have even become insolvent. transmitted – a gre government relief spending has
been directed towards it. The monsoon
The same is true for individuals – pro-
fessionals, self-employed, daily
whole gamut of rains are likely to have been a positive
wage-earners or salaried – with dynamics tend to for farm produce, although it remains
stretched or severely strained financial be at play. to be seen what will happen to farm

EVERYDAY
ECONOMICS
incomes. The proxies for tracking rural consumption, es after the lockdown was announced. This sudden
such as consumer non-durables, are performing better surge in the supply of labour is likely to keep wages in
than those for urban consumption, such as consumer check in rural areas. Therefore, the potential upside in
durables. All these trends have generated the hope that spending will be limited unless wages rise in a lasting
the recovery in the rest of the economy can ride on the way. That will require demand for labour from the con-
resilience of rural India. struction and real-estate sector to revive. Even pre-
But economic trends are usually not so simple and COVID, the financial sector’s problems had spilled over
linear. Inter-linkages between sectors and entities, into the real-estate and construction sector, reducing
spill-overs, how impulses get transmitted – a whole activity. The lockdown has brought construction activi-
gamut of dynamics tend to be at play. Growth in one ty to a near halt, reducing drastically the demand for
part of the economy can usually not sustain the whole labour and, in turn, in all likelihood hurting rural
economy. Take for example the trend seen since demon- wages. Over the last five years, an increase in real rural
etisation was rolled out. In many sectors, the formal indebtedness has been observed in the data. It is more
sector companies benefitted as they gained market pronounced among the landed than the landless. As a
share. But this has not proved to be beneficial for the result, the landed are unlikely to be in a position to pay
overall economy as it is at the cost of the beleaguered high wages. It means rural wages may not rise sustain-
informal sector. Often mistaken as an expansion of the ably once the current agricultural season is over. The
formal part of the economy, this is not organic growth HSBC analysis shows that generally wage rises are
of informal set-ups into formal businesses. The bigger driven by economic growth – not the other way round.
companies gain market share because the informal This is true for both rural and urban wages since the
ones could not survive and become distressed. urban construction wages pull up the rural wage rates
Similarly, if the rural recovery is likely to sustain by attracting the excess labour out of the villages.
and if it can be relied upon to power the overall eco- We must remember that the economy cannot run on
nomic recovery becomes a key factor to watch out for. just one wheel. The rural economy cannot be expected
HSBC’s Chief India Economist recently put out a good to tow the load of the entire country. WI
analysis on the prospects of the rural recovery. It is
Puja Mehra is a Delhi-based journalist and the author of
estimated that roughly about 30 million migrant work- The Lost Decade 2008–18: How the India Growth Story Devolved into
ers returned from urban areas to their homes in villag- Growth Without a Story

STOCK
SCREEN
Ideas to delve deeper

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

STOCK
SCREEN
Quality stocks available cheap

The stocks listed below clear essential checks on solvency, accounting,
recent financial performance and valuations No. of companies that
cleared the filters
REASONS TO INVEST THE FILTERS 897

Safety Market cap greater than C-Score less than 4
503
Soundness `500 cr PEG less than 1
79
Good performance Z-Score greater than 2.99 P/E to median P/E less
Reasonable valuations F-Score greater than or equal than 1.5 71
to 7 Earnings yield greater than 5% 21
Banking and finance companies were removed from this analysis as the metrics don’t apply to them.
Safe bets
Company Stock Altman Piotroski Modified Earnings Market Share 52-week
Industry style Z-Score F-Score C-Score yield (%) P/E PEG cap (` cr) price (`) high/low (`)
Bharat Rasayan
Pesticides 16.9 9 2 5.5 24.1 0.60 3,913 9,264 11700-4500
Confidence Petroleum
Storage & Distribn. 7.3 8 2 8.2 18.5 0.66 557 21 37-13
Deepak Nitrite
Organic Chemicals 7.2 9 2 6.8 19.8 0.31 11,442 848 888-286
Ester Industries
Plastic Packaging goods 4.6 9 3 21.7 5.7 0.07 601 73 83-22
Garware Polyester
Plastic Films 3.4 9 2 22.0 8.0 0.16 583 255 282-132
Genus Power Infrastructures
Electronic Components 3.2 8 2 19.0 9.5 0.79 673 26 32-13
Globus Spirits
Liquors 3.4 9 3 10.2 12.6 0.26 773 273 286-61
Granules
Drugs & Pharma 6.0 9 0 5.3 23.9 0.79 8,690 353 385-95
Gujarat Gas
Indl.Gases 5.2 9 0 5.0 20.3 0.92 20,758 307 335-168
Heidelberg Cement India
Cement 3.6 8 1 10.5 17.1 0.13 4,068 179 218-122
Huhtamaki PPL
Paper prod. 4.5 8 1 7.7 13.1 0.64 2,016 266 338-162
IOL Chemicals & Pharma
Drugs & Pharma 8.9 8 2 13.3 10.8 0.23 4,343 743 899-146
KPR Mill
Cotton & Blended Yarn 5.4 8 1 9.5 12.1 0.91 4,187 605 715-312

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

Industry style Z-Score F-Score C-Score yield (%) P/E PEG cap (` cr) price (`) high/low (`)
KRBL
Other Agri.prod. 6.1 8 3 12.1 10.8 0.97 5,939 253 340-92
Lincoln Pharmaceuticals
Drugs & Pharma
5.2 8 3 14.2 9.3 0.39 503 250 283-85
Mahanagar Gas
Crude Oil & Natural Gas
7.1 8 0 11.2 12.6 0.77 8,425 851 1247-664
Nesco
Diversified
11.5 8 1 8.3 15.6 0.98 3,865 545 817-380
RPG Life Sciences

Drugs & Pharma
6.9 9 2 7.0 21.2 0.29 629 382 429-143
Shree Digvijay Cement Co

Cement
5.9 9 3 11.3 13.4 0.33 685 48 60-15
Transpek Industry
Inorganic Chem.
4.8 8 2 9.8 13.6 0.50 994 1,787 2032-1077
Vidhi Spl Food Ingredients

Dyes & Pigments
7.0 8 1 8.0 16.5 0.44 545 111 114-38
Data as on September 22, 2020. New entrants.
Discount to book value

Stocks available at a discount to their book value indicate bargain and
inherent value, provided the business fundamentals are sound
No. of companies that
REASONS TO INVEST THE FILTERS
897
Really cheap Market cap greater than Companies must have a five-year
Relatively undervalued `500 cr earnings growth of more than 745
Companies with assets Debt-equity ratio of less than 1.5 10%
Price at least 10 per cent below 470
times
Return on net worth of more than the book value
275
10% in the most recent year
27
Bargain hunt
Company Stock 5Y EPS Dividend Debt-equity Market cap Share 52-week
Industry style P/E P/B growth (%) yield (%) ratio RoE (%) (` cr) price (`) high/low (`)
Andhra Paper
Paper
6.2 0.8 99 0.0 0.0 24.5 789 196 452-112
Andhra Sugars
Diversified
4.4 0.7 113 6.9 0.2 18.0 788 293 392-117

STOCK
SCREEN
Apar Industries
Electronic Equipts.
15.6 1.0 22 3.3 0.3 11.4 1,102 288 597-239
Bengal & Assam Company
Diversified
4.9 0.4 36 1.3 0.5 16.6 1,310 1,160 1849-855
CESC
Electricity Generation
6.8 0.9 46 3.1 1.5 13.3 8,623 646 855-365
Cosmo Films
Plastic Films
5.7 1.0 26 3.8 1.1 16.1 761 393 491-186
Dalmia Bharat Sugar
Sugar
3.8 0.6 165 1.6 0.8 12.7 1,011 126 156-40
Dhampur Sugar Mills
Sugar
4.2 0.6 32 4.5 1.5 22.5 892 134 246-66
GAIL
4.4 0.8 24 7.6 0.1 15.3 37,953 84 149-65
GHCL
Soda Ash
4.8 0.7 18 1.9 0.6 19.6 1,492 158 227-69
Gujarat Industries Power

4.7 0.4 11 4.1 0.2 10.3 1,060 69 87-44
Hindustan Petroleum Corp

6.9 0.8 12 5.4 1.4 10.1 27,528 180 329-150
India Glycols
Organic Chemicals
10.0 0.8 23 2.2 1.0 14.8 845 272 397-175
JK Paper
Paper 4.6 0.7 85 4.4 0.8 21.3 1,616 92 152-62
Nava Bharat Ventures

Diversified 3.1 0.2 14 2.7 0.8 13.5 988 56 95-32
Parag Milk Foods

Dairy products 11.7 0.9 11 0.5 0.4 10.8 810 95 177-49
Polyplex Corporation
Plastic Films 5.7 0.6 191 2.5 0.3 17.0 2,151 680 879-288
Prakash Industries
Diversified 7.8 0.2 26 3.1 0.2 19.9 661 39 65-19
Rail Vikas Nigam

Construction 5.6 0.8 31 5.9 0.7 14.6 3,993 19 29-10
Sandur Manganese
Minerals 5.2 0.7 113 1.1 0.0 24.5 593 659 922-295
Sarda Energy & Minerals

Finished Steel 6.8 0.4 17 2.3 0.8 12.4 778 219 298-98

STOCK
SCREEN
Seshasayee Paper
Paper
5.3 0.8 62 2.9 0.0 18.1 862 136 222-80
Tata Chemicals
Soda Ash
1.0 0.5 65 3.9 0.6 57.1 7,080 279 780-197
Technocraft Industries
Steel Tubes & Pipes
6.5 0.8 11 0.0 0.8 15.5 812 352 425-144
Welspun Corp
Steel Tubes & Pipes
4.8 0.8 28 10.1 0.3 14.9 2,718 104 234-55
Welspun Enterprises
Construction
6.2 0.6 204 3.2 0.5 11.3 934 63 103-33
West Coast Paper Mills
Paper
4.9 0.9 114 2.8 0.3 30.6 1,165 178 283-100
Data as on September 22, 2020. EPS growth rates are annualised. New entrants.
High dividend-yield stocks

Good dividends are not just a bonus in addition to stock returns, they also
accumulate to become sizeable in the long run
REASONS TO INVEST THE FILTERS
Cushion against volatility Market cap greater than Stocks with a current dividend 897
Higher total return `500 cr yield of more than 3%
720
Generate regular tax-free Dividend payout ratio of less Stocks with sustained per
income than 40% share dividend and amount 41
over the past five years
23
Dear dividend
Company Stock Dividend Dividend Dividend Earnings Market cap Share 52-week
Industry style P/E PEG per share (`) yield (%) pay-out ratio (%) yield (%) (` cr) price (`) high/low (`)
Andhra Sugars
Diversified 4.5 0.07 20.0 6.9 26.7 25.3 794 293 392-117
Apar Industries
Electronic Equipts.
15.6 0.70 9.5 3.3 26.9 23.5 1,102 288 597-239
Bharat Electronics
Electronic Equipts.
13.5 1.59 2.8 3.0 37.4 10.9 22,465 92 122-56
CESC
6.8 0.21 20.0 3.1 20.4 13.8 8,562 646 855-365
Cochin Shipyard
Shipping
7.4 0.29 16.6 5.4 34.6 38.5 4,087 311 492-209

STOCK
SCREEN
Company Stock Dividend Dividend Dividend Earnings Market cap Share 52-week
Industry style P/E PEG per share (`) yield (%) pay-out ratio (%) yield (%) (` cr) price (`) high/low (`)
Cosmo Films
Plastic Films 5.8 0.22 15.0 3.8 25.7 18.4 763 393 491-186
Garware Polyester
Plastic Films 8.1 0.16 10.0 4.0 28.5 22.0 591 253 282-132
GFL
Organic Chemicals
– – 3.5 4.3 2.9 -1.1 890 81 164-59
Gujarat Industries Power Co

4.7 0.43 2.9 4.1 17.2 23.2 1,060 69 87-44
Gujarat Mineral Dev Corp

Coal & Lignite
5.5 -0.42 2.0 4.8 28.9 11.7 1,336 42 73-29
Housing & Urban Dev Corp

Housing Finance
3.9 0.15 3.1 10.0 36.3 10.1 6,206 31 46-18
Ingersoll-Rand
Pumps & Compressors
25.6 6.26 3.0 4.7 11.7 5.6 1,885 598 730-591
Jain Irrigation Systems

Plastic tubes & pipes
– – 1.0 6.9 21.6 -9.5 720 15 24-3
Jindal Saw
Steel Tubes & Pipes
4.8 0.06 2.0 3.2 11.5 14.3 1,968 62 103-40
JK Paper
Paper
4.6 0.05 4.0 4.4 15.0 22.0 1,622 92 152-62
Kirloskar Oil Engines

Auto Ancillaries
11.6 3.26 4.0 3.8 31.2 13.5 1,537 106 197-76
Lumax Auto Technologies

Auto Ancillaries
25.1 -7.81 3.0 3.2 35.2 6.1 651 95 122-48
NTPC
15.1 5.30 3.2 3.6 26.9 8.6 86,775 88 125-73
PNB Gilts
Invest.Services
1.7 0.04 3.0 7.4 29.0 7.7 734 41 49-20
Redington
Computer Hardware
8.5 1.73 4.3 3.9 32.5 20.0 4,206 108 140-59
Srikalahasthi Pipes
Pig Iron
5.0 0.70 7.0 4.5 17.4 25.2 731 158 234-96
Tamil Nadu Newsprint

Paper
21.7 -0.73 6.0 5.8 31.9 9.2 715 103 215-87
Welspun Enterprises
Construction
6.2 0.03 2.0 3.2 19.9 24.0 931 63 103-33
Data as on September 22, 2020. New entrants.
STOCK
SCREEN
Reasonably priced growth stocks

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

At least 20% in the trailing 12
897
Companies with strong `500 cr months YoY
fundamentals Earnings growth of:

At least 20% in latest quarter
YoY 42
Greater stability vis-a-vis
At least 20% in the past five Stocks with a P/E of less
value or growth years 17
than 15
On fast track
Company Stock 5Y median Quarterly EPS TTM EPS 5Y EPS Market cap Share 52-week
Industry style P/E P/E PEG growth (%) growth (%) growth (%) (` cr) price (`) high/low (`)
Alembic
Drugs & Pharma 7.1 26.1 0.23 141 63 26 2,715 106 123-25
Chambal Fertilisers & Chem

Nitrogenous Fertilizer.
4.5 12.6 0.13 80 126 33 6,160 148 186-94
Cosmo Films 5.7 7.0 0.22 69 68 26 761 393 491-186

Plastic Films
Dalmia Bharat Sugar 3.8 5.3 0.02 131 55 165 1,011 126 156-40
Sugar
Dolat Investments 10.9 17.7 0.13 65 48 84 869 49 84-27

Invest.Services
E.I.D. Parry 9.7 15.5 0.18 206 64 79 5,109 288 325-102

Sugar
Ester Industries 5.7 11.2 0.07 23 120 74 601 73 83-22

Plastic Packaging goods
Eveready Industries 5.1 27.4 0.18 262 439 29 1,003 138 158-34
Dry Cells
Fertilisers & Chem Trav 2.9 11.4 0.14 233 226 21 2,802 43 55-21
Other Fertilisers
Globus Spirits 12.6 18.4 0.26 161 246 88 773 273 286-61
Liquors
IOL Chemicals & Pharma 10.8 12.8 0.23 45 29 42 4,343 743 899-146
Drugs & Pharma
Ion Exchange 10.3 13.3 0.34 29 42 30 1,000 693 1071-502

Industrial Machinery

STOCK
SCREEN
Company Stock 5Y median Quarterly EPS TTM EPS 5Y EPS Market cap Share 52-week
Industry style P/E P/E PEG growth (%) growth (%) growth (%) (` cr) price (`) high/low (`)
Manappuram Finance
Hire Purchase 7.8 11.4 0.19 39 55 40 12,256 147 195-74
Muthoot Finance
Misc. Fin.services 11.8 11.9 0.32 53 61 36 40,248 1,015 1406-477
PNB Gilts
Invest.Services
1.7 7.1 0.04 530 200 49 734 41 49-20
Torrent Power
Electricity Distribn.
12.3 12.6 0.60 35 34 20 15,618 326 369-232
Triveni Engineering & Ind

Diversified
4.7 7.9 0.17 156 88 30 1,826 74 88-29
Attractive blue chips

Investing in blue chips at reasonable valuations is one of the simplest
methods of wealth creation with limited pain
REASONS TO INVEST THE FILTERS cleared the filters
Liquidity Large and mid caps
258
Large companies in respective businesses Debt-equity ratio of less than two
220
Strong balance sheets Interest coverage ratio should be more than two
Liked by institutions Five-year average ROE of more than 20% 173
Annualised earnings growth of more than 20% over 85
the past five years
PEG of less than 1.5 14
Five-year average return on equity above 20% 9
Solid foundation 5
Company Stock Debt-equity Interest 5Y avg 5Y EPS Market cap Share 52-week
Industry style P/E PEG ratio coverage ratio RoE (%) growth (%) (` cr) price (`) high/low (`)
Coromandel International
Other Fertilisers
18.7 0.70 0.4 6.9 21 26 23,473 801 839-400
Gujarat Gas
Indl.Gases
20.6 0.94 0.6 6.9 21 21 21,099 307 335-168
Gujarat State Petronet

7.0 0.17 0.7 7.6 30 29 11,253 199 264-146
KEC International
Power Projects
14.7 0.55 0.8 3.0 20 27 8,055 313 360-154
Petronet LNG
12.5 0.51 0.0 8.7 21 24 33,008 220 302-170

WORDS WORTH
NOW
SEBI must blacklist these board members and

officers (found guilty of governance deficit). The
shareholders must vote them out. They must claw
back 100% of the compensation or the fee received
by the officers during the incident tenure.
Narayana Murthy Co-founder, Infosys, Mint, September 22, 2020
The concept of international cooperation or globalisation We don’t know if we can term

as we have known is undergoing a transition. We are it ‘growing’ [sales] recovery.
moving to a definition where the concept of self-reliance Sales last month were less than
is gaining momentum in the world. what they were four years ago.
Uday Kotak President, CII, Mint, September 16, 2020 It is difficult to predict full-
year industry sales. There is a
high degree of capacity under-
I’m confident that the demand outlook will continue to gradually improve utilisation. Currently, we are
over the next few quarters. Hopefully there will be a convergence of some also constrained by supply as
level of herd immunity and availability of a vaccine some time in the Jan- we have safety protocols and
March quarter. The gap between the stronger and weaker physical distancing measures
players will further accentuate while availability in the in our factories. In our supply
form of direct distribution, trusted brands, value pricing chain, there are frequent
and digital adoption will be key drivers of growth in the disruptions. The demand could
FMCG sector. be deferred demand from the
Saugata Gupta CEO, Marico, The Economic Times, September 14, 2020 lockdown period or festive
season buying. We will discover
whether it is sustainable after
It’s not a duopoly, it is actually a 3+1 market—three players in the private Diwali or in 2021.
sector and one (owned by the government). We have a very robust market. Kenichi Ayukawa MD, Maruti Suzuki India,
Let us also understand that in the entire world, stabilized markets have the The Economic Times, September 21, 2020
3+1 equation. So, it is not unusual for India. With regards to calling some
operators weak and some strong, I don’t agree with these definitions. I think
everybody is doing their best to provide services, so I am not
really worried on that front. As far as their economics are
concerned, telecom services providers are free to increase
tariffs, which have been under forbearance since last 16
years. We are not interfering in the tariff plans at all.
R S Sharma Chairman, TRAI, Mint, September 14, 2020
The government is working on setting up a single window system for clearances

and approvals of industry. This will eliminate the need for investors to visit multiple
platforms/offices to gather information and obtain clearances from different stakeholders
and provide time-bound approvals and real-time status update to investors.
Piyush Goyal Commerce minister, Financial Express, September 17, 2020

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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS,

• Long Term wealth creation

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mid and small caps

Research & Analysis

Editor: Dhirendra Kumar.

4 Wealth Insight October 2020

EDIT Experiencing the Lots of action, little

Index watch 54 STOCK SCREEN

Big moves Quality stocks

show signs of recovery, it can’t ICICI Lombard vs

October 2020 Wealth Insight 5

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The digitally disabled investor

October 2020 Wealth Insight 7

Tractor sales going up. Just one of those important indicators

8 Wealth Insight October 2020

Revisiting value investing

Never count on making a good

All intelligent investing is

10 Wealth Insight October 2020

Great investors are not unemotional The secret to investing

Being a value investor

The desire to performm

In essence, the stock market

October 2020 Wealth Insight 11

Three levels of stock

12 Wealth Insight October 2020

What you should do

If you are a beginner and/or

any reason, stopped investing in it,

October 2020 Wealth Insight 13

Adani Green Bagged a `45,000-crore solar contract from

Received approval to conduct the phase-IV

Aurobindo Plans to launch 50 new products in the US

Tata Consumer Increased demand for its products due to the

Launched its favipiravir drug for mild to

Cadila Recently completed the phase-1 trial of the

Riding the digitisation wave thanks to a bas-

Reported a profit for the March quarter after

Motherson Sumi Received a good response for its NCD

Gained big on account of a low float after its

14 Wealth Insight October 2020

Posted a 77 per cent increase in June quar-

Alok Shifted focus from textile to manufacturing

Dixon Poised to benefit from import substitution

Granules Subsidiary received USFDA approval for a

Indiamart Consolidated profits increased 129% YoY for

Essel Profits (exclusive of exceptional items)

Glenmark The first drugmaker to launch favipiravir in

Bagged a `7,796-crore project from

Deepak Imposition of anti-dumping duty on phenol

Astrazeneca Its parent is a front-runner in developing

Jubilant Life Supply-chain shifts to India are positive for

Navin Signed a `2,900-crore contract with a glob-

Fine Supply-chain shifts to India are positive for

Benefitted from the rally in healthcare

Bombay Burmah Owns 51 per cent in Britannia. Profit

October 2020 Wealth Insight 15

S&P BSE PSU

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