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COVER STORY

ast five years saw 212 stocks achieving this level and on a lower side almost 20% of total active stocks gave ten times appreciation during this same period. These numbers are substantial and indicate a strong uptrend in economy; but the crucial question is that will this trend continue?

Appreciation in Five years We analyzed about 4900 stock to find their appreciation during the last five years (1-1-03 to 14-12-07). Out of these stocks, there are 212 such stocks that would have multiplied your money from Rs 1 lakh to more than Rs 50 lakhs!
Source: CMIE

Some Leading Stocks that have risen multifold over last five years -

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Leading Gainers

Source: CMIE January,2008 [12]

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Major Gaining Sectors (Sector wise number of companies* in the list of 212 companies that have appreciated over 50 times during last five years)

* 71 companies are in other industries Source: CMIE

It is easy to understand at this point of time that why major gainers were Real Estate, Engineering, Infrastructure, Finance and Power. All these sectors are direct indicators of our growth and reaffirm that engineering, infrastructure, construction, and power are the drivers of our economy.

Should we invest for as long as five years in a stock?


If a company has management of proven capabilities, it operates in a sector with sustainable growth, has low external threats, is not excessively dependent on global markets, and is able to maintain its competitive advantage, then one can definitely take a long term call for as long as the sector remains positive. In fact it is not necessary for one to do course on economy of finance to identify such multi-baggers, what all it needs is an ability to foresee the trends in market. For example, when economy rises and income levels of people increases, their first priority is

a house. This had become evident five years back that with more and more people earning more than their fathers with new economy opportunities in IT, BPO, media, entertainment, finance and retail, the income levels were set to remain in uptrend. If one had seen the construction works of Ansal and Unitech, it would have been easy to assess that they will be long term winners. There were very few established brands in housing and if one had narrowed down housing for long term investment, then these two were outstanding and obvious choices. The results would have been fabulous, Unitech appreciating 1407 times and Ansal Properties 201 times in just five years! Can you imagine this kind of returns from established companies?

Which it better - invest for short term or for long term?


A simple analogous question will clarify this issue - how much time and efforts you are willing to invest in stock markets? A full time employed
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person can normally spend about one hour a day. By spending one hour, or even less than that, people would expect doubling their mony in few months and making lakhs of rupees. Now, compare this with their salary and time spend on job! A person earning 20000 a month spending 10 hrs a day expects another 20000 a month spending few minutes a day? In current scenario, stocks are moving up 5 to 20% in a single day, which is more than what a bank would pay you over a period of one year! It has become a fad for people to hunt such opportunities. Ispat Industries, RNRL, RPL, Ashok Laylend, Essar Oil, and many more have climbed up by more than 100% in just few months with very high intraday volatility. In case of Ispat, the delivery volumes have been as low as 10% of its total traded volumes, indicating high levels of speculation. These stocks and such strategies are good for people who closely watch the markets and are experts in technical analysis. Staying invested for long term

COVER STORY has other benefits too. Many shortterm traders make more money for their brokers than they make for themselves (that is the reason you will not find any brokerage report recommending to stay invested for a number of years). Additionally, you save tax when you invest and hold for more than one year. For laymen with little time to spare for stock markets, longer term investments are better options. Even if one considers the returns from very long term investment of say five years, they are above all kind of benchmarks. In our study, almost 20% of the total stocks have multiplied 10 times in their value reflecting an annualized return of 58.5%, and the 212 stocks that have appreciated over 50 times represent annualized returns of 118.7 %. In comparison the Nifty has given an annualized return of 40% rising from 1115 to 6048 over the same period. One has to make his own decision whether he has the time and skills to reap the benefits in short term or can patiently stay invested over a long term horizon. Just remember the comparison between a job income and stock market income as mentioned above. adding to its networth from the very beginning, hence it is mostly undervalued in the markets. This is the most profitable to time to invest in it, once it starts performing, the masses in market will notice that and its price will rise to a level where supernormal returns are not possible. For example we had assessed in beginning of 2007 that global trade of India is going to grow substantially in commodities. Now, in order to convert this strategic view into an investment opportunity, we searched for companies that will gain from India's global commodities trade and zeroed down on State Trading Corporation of India. It is the top trading agencies handling the bulk of commodities trade with added plus points of massive assets. Few people had shown interest in our report pointing out that it's a PSU with no extra ordinary future. We recommended it at Rs 152 on 5th April 2007, and the price as on 14th Dec 2007 was Rs 971, after it hit a high of Rs 1744. potential in the company, it will no more be undervalued and though investing in at that time will also be profitable but it will not be supernormal returns. Look at the graphs given at the beginning of this article, the initial 12 years of all those stocks show a non moving price line which is almost at the bottom for a very long time. This is the time that we are mentioning as the crucial entry point. Once the price is in upward trajectory, the returns will come down to normal level.

What makes Long Term investments highly profitable?


Out of the 212 companies that appreciated more than 50 times, 95 companies have appreciated by over 100 times during the last five years.

Is long term filled with Uncertainties?


This is the most serious issue that prevents people from making long term investments, but the facts are mostly in favour of it. Majority of the known successful investors have risen to their glorious richness by patiently staying invested for a number of years, even decades sometimes. Be it Warren Buffet, Peter Lynch, or near home - Rakesh Jhunjhunwala, all are very long term investors. They trade short term also but that is to augment their main stream income from short term opportunities. People who set up businesses do not do it with the intention of making profits in months or 1-2 years and then closing it down. They have a long term vision, and look at any successful business, it doesn't start

Sesa Goa appreciated 112 times during last five years. But, if we consider the last four years, its appreciation was only 13 times! The reason is that while on 1st Jan 2003 its price was Rs 34.75, on 1st Jan 2004, the price had increased to Rs 298. Entry at Rs 34.75 will obviously be much more profitable than at Rs 298. It is the early entry that makes all the difference in returns.

Can one still make such profits?


With Sensex crossing 20,000, such thoughts are obvious. The answer lies in sustainability of India's growth. If economy grows at 8-10% for next 5-10 years, the long term investors will be able replicate what we have mentioned above. From 1 lakh to 50 lakhs can be repeated in next five years. There are strong drivers of our economy that indicate that Indian economy will remain in high growth phase for a long term that may be a 10 to 20 years cycle. We are at the beginning of our growth journey, not at its top. Our current situation is

This means 152% returns per year. There is a single ability that makes such supernormal returns possible - identifying the opportunities at nascent stage. In the early stage of a business, as long as the company has not shown any performance, it will be highly underpriced, especially if market is unaware of its potential. As explained earlier, once a large number of people have come to know of
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COVER STORY what it was of developed countries at their start of growth cycle. The major growth drivers are mentioned below in brief 1. Policy driven growth o Competent Government o No Government can afford to backtrack. o Government has to maintain momentum o Peoples' expectations are increasing 2. Growing worker population India's demographic trend points to sharp increases in input factors, 54% of its population is below 25 years and the total labour force is estimated to double in next twenty years. India's demographic advantage means that its high growth will continue longer term while China will slow 3. Huge Domestic Markets o Growing Middle Class o Growing Income 4. Infrastructure o 150% jump in Investment in 11th Five Year Plan o Competent Companies to build Infrastructure 5. Potential To Enhance Equity Ownership 6. Nation's Capabilities o Access to Capital o Abundant Human Resources o We have large number of skilled labour, it is available at low cost, English language abilities help in global business, Educational infrastructure is of high quality, and more and more people are coming out as entrepreneurs. With these trend setting growth drivers, one can safely take long term calls on Indian economy. trailers, and prime movers. The company offers packing, warehousing, loading, transporting, unloading, unpacking, and stacking services. It also provides various export and import related services. The company A long term bullish sector Logistics is an integral input for growth of an economy Over 35 years old company Group also owns TCI and GATI has one of the largest network of over 250 offices with access to 800 depots The only listed company doing turnkey transportation work of Power projects Share prices are consolidating from last two years 1980. ABC India is based in Kolkata, India. It is a member of the TCI-Boruka Group which is a leading transport operator in India. By virtue of being a member of the TCI-Bhoruka Group, the company presently has access to over 800 depots all over India. The company's clientele ranges from small retailers to large public sector undertakings. Apart from the transport division, ABCIL also runs a specialised Project division which distinguishes the company from other transport operators. Apart from having over 250 offices, it has huge assets and landed properties which are not reflected in its valuations. It is also going to ride on the power sector boom in India as ABC India is the only listed company in India that is doing turnkey transportation work of complete power projects. The company has recently bagged a prestigious order for hydel power project and is also working on various turnkey power projects all over India. It is a very thinly traded stock and has yet to be noticed by markets. Its sales are almost constant for last 10 years and operating profit margins are very low at below 1% and have been

MULTIBAGGERS AT TAKEOFF We are discussing some stocks that are in line with our long term investment strategies discussed above.

1. ABC India (CMP Rs:71)


BC India Limited provides logistic services principally in India. It owns a fleet of trucks, hydraulic

cargo. The company was incorporated under the name Assam Bengal Carriers Limited in 1972 and changed its name to ABC India Limited in

specializes in surface transportation, international freight forwarding and integrated logistics services. The company's Custom House Agent gives License to facilitate the customs clearance of imported or exported
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COVER STORY declining over a number of years. But, the management is working on putting it on fast track and looking at the performance of group company, Gati, one can be assured of similar performance from ABC in future. In a key development, Mahendra Agarwal, CEO and MD of Gati has joined ABC as a director. segment produces polyester/nylon yarn and chips. The company's overseas operations include a textile mill in Malaysia; and offices in Singapore and Dubai. JCT Limited is based in New Delhi, India. Prompted by the textile boom, which is very much on the cards, we have chosen JCT Ltd., a very low-priced share, which has turned a corner with its huge C/F losses that are likely to be wiped out this year and has retuned from the red to the black in FY06 and is expected to fare even better in The C/F losses are yet to be wiped off. Due to the high crude oil prices, the prices of all principal raw material i.e. caprolactum, which is the basic raw material for nylon yarn continued to remain high and could not be passed on to the consumers resulting in its margin remaining under pressure. JCT also has huge land bank at Phagwara. The stock is currently traded at around Rs.12, which is almost its bottom. In such a booming market, such a low-priced pick is an attractive buying opportunity to reap a good harvest in future. The share is sure to give more than many times appreciation looking to its size of business, expansion and return into the black.

2. JCT Ltd (CMP Rs 12)


CT Limited, together with its subsidiaries, manufactures textiles in India. It operates in two segments,

3. Jet Airways (CMP Rs 972)


et Airways (India) Limited provides air transportation services in India and internationally. It also offers

Textiles and Filament. The Textile segment manufactures cloth; yarn and fents; and rags and chindies. The fabric produced by this segment caters to sportswear, active-wear, work-wear, and other segments. The Filament

FY07-08. JCT Ltd. will prove to be a dark horse in near future. Future Plans: JCT has chalked out an ambitious capex plan for expanding its existing capacities. (A) Phagwara Textile Mills - It plans to modernize all its existing machineries. (B) Mahiarpur Nylon Filament Plant - New polymerization plant with a capacity of 45 TPD with captive power of 6 MW has already been installed to provide better synergies. (C) Synthetic Fabrics - This will be a 100% greenfield project at Phagwara as there are no manufacturers of this kind of sports wear and fashion fabrics throughout Asia. When it starts production, the company's turnover will exceed Rs.1000 cr.
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New plant for sports and defense clothing Deals with Nike Carbon credits Sick unit selling Entering into retail sector Collaboration with an MNC New power plants installed of 17MW Profit of Rs 80 crores in 2009-10

cargo services to courier companies. The company operated a fleet of 67 aircraft comprising 6 Boeing 777-300 ER; 50 737-400/700/800/900 aircraft, 4 airbus A330-200 aircraft, and 7 ATR 72-500 turboprop aircraft. It also operated approximately 350 daily flights to 44 destinations in India, as well as international flights to Nepal, Sri Lanka, Singapore, Malaysia, the United Kingdom, Thailand, Belgium, Canada, and the United States. Jet Airways (India) Limited was founded in 1993 and is based in Mumbai, India.

COVER STORY In the recent past Indian civil aviation sector has grown manifold. The rapid growth of Indian economy has result$15 billion. India's civil aviation market has been severely underserved for several decades. Less than 0.01% of the population used air transportation and, until last year, this country of over a billion people had only 150 large jets. Meanwhile, India's strong economy in recent years has lifted people's disposable incomes, while increasing urbanization. In addition, more diverse business investments in non-metropolitan regions have brought new demand for air services. "The opening up of the skies had led to similar boom situations in other markets, like the United States in the 1980s and Europe in the 1990s," says Dinesh Keskar, vice-president of sales at Boeing. Despite the temporary setback in terms of profitability, most industry watchers remain bullish about long term prospects for the airline industry. Kiran Rao, vice-president, sales (India and Africa) at Airbus Industrie says the growth phase in Indian aviation will continue into the near future. Both Boeing and Airbus have revised their India forecasts in the past year. Silicon Valley, designing and manufacturing various ICs, had turned an entrepreneur to set up semiconductor design companies and sold them to

Only 0.01% of the population uses air transportation - huge market opportunities Sector growing at 20% Markets similar to US boom of 1980s Growth of economy to fuel demand for business air travel Rising income levels will further boost leisure travel Developing business in non-metro cities creating new routes and air travel demand Markets are consolidating and price wars are expected to end leading to profitable operations of ed in a spillover effect on the airline industry in India. Several new players have entered the industry and many more are about to enter the arena. The arrival of cheap airline carriers in India has spiced up the whole affair. Suddenly the air travel is no more the monopoly of the rich and the mighty. Now it has become a common man's vehicle and revolutionized the way a common Indian traveler used to travel. India's civil aviation passenger growth stands at 20% -- among the highest in the world -- saturating most metro airports and a handful of fastgrowing smaller cities. Many airlines are bulking up on capacity as well: Ten Indian carriers recently placed orders for about 400 aircraft worth

Largest chip and complete product designer in India Established brand Reputed clients like IBM, Panasonic Huge market potential Innovative and market oriented products

4 .MosChip Semiconductor Technology (CMP Rs 31)


When Ram Reddy and Dayakar Reddy chose to return to India in1999

larger companies in the last 18 years. Dayakar Reddy, graduated in electronics engineering from California State University, San Jose, has filed for 12 patents in his 10- year stint Cirrus Logic and later turned into an entrepreneur in his own right. But, grappling against odds, these two engineers made this Hyderabad-based firm MosChip Semiconductor a stand-alone success. Now, Moschip has achieved the distinction of being the first India's fabless design firm to have shipped two million units from its suite of peripheral component

to set up a chip design company, everyone thought the company would have to be aborted because semiconductor and India just didn't go together. Ram Reddy spent over 23 years the
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interconnect (PCI) controller chips since this product was launched four years back. These chips, which connect peripherals to a PC are high performance connectivity solutions for

COVER STORY consumer, industrial and computing applications and are used right from printers to handheld devices when they have to be connected to PCs Today, with customers including IBM-GES, Panasonic among others, its 80-strong team of engineers is product centric-thinking and designing products that working across different operating systems and multiple platforms of various hardware configurations. Says Dayakar Reddy, co-founder and managing director of Moschip, "The remarkable record of the our product (MCS9800) which has crossed the two million mark shows the confidence our customers have in us. We are seeing a continued growth in demand for these products as well our other products which have become major design-wins." This suite of products are also being used in point of sale ( POS) machines, industrial automation, set top boxes, vending/banking kiosks, GSM/GPRS modems, gaming motherboards and CTV systems. Basically the company develops system software to enable the complete functionality of ICs. It focuses on product design and development utilizing standard cell approach portable to multi foundries for processing. After the design is done here the products are fabricated in fabs in Taiwan and sold worldwide through its Santa Clara office in the US. "Today, we are able to design end to end solutions - right from conceptualizing the design to production stage by talking to customers, getting an idea of the market need and refining features of the products. These become customized products and we are also able to create intellectual property (IP) for customers," Reddy pointed out. Although India is seeing a number of design houses working on chip designs - right from well established companies (like Wipro, Sasken and MindTree) and start-ups (like Insilica, Qualcore), most of them are in the services side of the chip design. Moschip is unarguably the largest and one of the very few firms that designs and completes the product here and sends it for manufacture in Taiwan and markets it on its own. Its performance is not at all reflected by its stock price because its true growth will happen once its products gain mass volumes. It has been showing increasing sales since last few years, though its bottom line still has to come out of red. The stock has been languishing between Rs 20 to 50 for last five years, which is not strange considering that the company is at its early stage. Just consider this one product of Moschip to understand its potential Moschip has recently unveiled a chip for digital home solutions that can be used in a variety of applications that need network connectivity and high performance to run their unique softproduct. The product can be used in several potential application markets such as USB servers, print servers, NAS servers, surveillance applications, industrial automation, POS and access control. The product has been developed in India and thus the cost incurred is significantly below the industry norms. The company estimates that the market opportunity for this product in all the verticals is about Rs.1,020.27 crore. Even if the company captures a fraction of this market (they should not have difficulty as they have significant cost advantage), it will be able to boost its sales tremendously which was just Rs 5.2 crore for FY07. And we have considered just one of company's numerous successful products. It can be very imagined by any one that what will be the revenue once the development and production of Moschip reaches high volumes.

5. MAX India (CMP Rs 247)

ax India Limited and its subsidiaries primarily operate in

ware applications. The product will enable virtualisation of peripheral devices over Ethernet. Design of such complex ASIC's from India are almost non-existant. Company has several customers in US & Far-East who are actively designing systems using this
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the health care, life insurance, and clinical research sectors in India. The company's life insurance activities include the provision of individual and group insurance products. Individual insurance products comprise unit-linked, protection, savings,

COVER STORY retirement, and children's endowment insurance; and group insurance products consist of group term life, employee deposit linked insurance, credit shield, group gratuity, and unit linked group gratuity, as well as a range of other insurance products, such as rural and bancassurance. Its healthcare activities comprise the operation of various specialized centers and provision of a range of medical services in the National Capital Territory of Delhi. It operates Max Devki Devi Heart & Vascular Institute for cardiac care and allied services; Max Institute of Neuro Sciences for neuro-surgical operations; Max Institute of Orthopaedics, an orthopeaedics and joint replacement center; Max Institute of Obstetrics and Gynaecology; Max Institute of Paedeatrics; and Max Eye Care. The company provides clinical research services during the various phases of drug development and discovery, which include study management, project management, data base management, monitoring services, and clinical trial pharmacy supply chain management services to the pharmaceutical, medical device, biotechnoloto the hitherto underserved/under penetrated life insurance and healthcare sectors. The life insurance venture, Max New York Life (MNYL), aided by industry's most productive agent force is set to reclaim market share. Added impetuses are a change to multi-channel distribution approach and a high growth in ULIP portfolio which is amongst the best in the country on account of longer tenors. With hospital beds likely doubling in the next 4-5 years, superior margins (>20%), increasing rate of medical tourism and a strong brand and franchisee network, the healthcare business, Max Healthcare (MHC) too is set to see golden times ahead. A confluence of booming economy, rising life expectancy, shift in disease profile to lifestyle-related ones, medical tourism opportunity and growing health insurance penetration are poised to drive an accelerated growth in India's healthcare sector. The private healthcare sector is expected to grow to $35.9bn in size by 2012 from $15.5bn in FY06. The growth will be driven by increased hospitalization cases as well as higher average billing per case.

Low penetration level of life insurance inIndiahence ample scope forgrowth More productive workforce which will lead tohigher margins Value unlocking from various subsidiaries incoming years With change in lifestyle and increasingconsumerism, the incidence of lifestyle diseases has increased which will leadto higher medical care expenses Medical Tourism is on fast growth track asIndiahas emerged as a centre forquality medical care at a low cost gy, and contact research organizations worldwide. In addition, Max India engages in activities relating to sourcing, training, and placing healthcare personnel in India and abroad. With a formidable presence in insurance and healthcare, two of the fastest growing sectors, Max India is a unique play on India's increasing economic prosperity and changing lifestyle. The buoyant economy will provide a strong growth momentum

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