Wealth-Insight - Sep 2020

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September 2020
Volume XIV, Number 3 34 COVER STORY
EDITORIAL POLICY
Sensex @ What
38,000
The goal of Wealth Insight, as with
all publications from Value
Research, is not just limited to
generating profitable ideas for its to do
now?
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 44 INTERVIEW
Research & Analysis

Danish Khanna and
You can’t buy ‘We expect a large part of
Rajan Gulati
Design
conviction the economy to normalise
Mukul Ojha
Production
Stock investing is not about a list towards the second half
of tips but about having conviction
Hira Lal
Data source for stocks in what you are doing. That’s of the current fiscal’
AceEquity something you can learn but
not buy. S KRISHNAKUMAR, CIO – Equity,
Sundaram Mutual Fund
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Total pages 64, including cover
4 Wealth Insight September 2020

Columns
7 8 INSIGHT 18 MARKET COMPASS
EDIT Your personal-finance Index watch

by DHIRENDRA KUMAR guide Big moves
What you see and Change in
what you don’t 10 WORDS WORTH WISDOM promoter stake
Amid heightened market
volatility and uncertainty, Dealing with Pledging tracker
it’s even more crucial to maintain one’s balance uncertainty Institutional moves
and stick to the fundamentals
Insightful quotes from
investment greats
31 26 ANALYST’S DIARY
MAIN STREET
Margin masters
by SAURABH MUKHERJEA
A tricky situation
When fatigue begins Growth without fuel
to set in
How to spot when a great
company is turning lethargic
29 IN FOCUS
Value opportunities
14 MONTHLY AGENDA
vs value traps
Speculation is rife Taher Badshah,
How the rally has fuelled CIO – Equities,
risky trading practices Invesco Mutual Fund
42
EVERYDAY ECONOMICS
by PUJA MEHRA
Back to the drawing
board 16 STOCK STORY 53 STOCK SCREEN
The COVID-19 crisis has
sparked the debate on the future of economics The road to `14 lakh cr Quality stocks
and reimagining the subject market cap available cheap
How Reliance Industries Discount to book value
rediscovered its mojo High dividend-yield
48 through Jio and retail stocks
STRAIGHT TALK
by ANAND TANDON Reasonably priced

growth stocks
The right context
In order to understand the Attractive blue chips
prevailing power dynamics
between the US and China, a proper framework of
political philosophies and human nature is required 62 WORDS WORTH NOW
',6&/$,0(5
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September 2020 Wealth Insight 5

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EDIT
What you see and

what you don’t
Amid heightened market volatility and uncertainty, it’s even more crucial
to maintain one’s balance and stick to the fundamentals
DHIRENDRA KUMAR
The last five months have been so clues that some parameter or the other can be
confusing for most investors and certainly for most misleading. By and large, most experienced investors
analysts that sometimes I feel that some people may can detect such clues and take evasive action.
just have given up on equity investing and just kept However, at this point of time, a large proportion of
money in the bank. Those who had just started dipping the indicators can be specially misleading. There has
their toes into equities are likeliest to do so. Equity been severe price volatility and there is now severe
investing resembles the tale of the six blind men and earnings volatility. That itself makes valuations
the elephant. Every one of the blind people touches a unusually volatile. Moreover, the earnings volatility
different part of the elephant and comes away with a itself may have unusual characteristics. For many
different impression of what the animal is like. I’m companies, it will recover in the foreseeable future.
sure you’ve heard the story. For others, the situation is not yet clear. Some
This is the case even at the best of times. All of us companies will come out of this better as their
who analyse stocks and invest in them are like the competitors will be ‘covided’ worse than they will be.
blind men. We all have a different view of what the For this issue of Wealth Insight, our team has put
shape of the animal called a ‘good investment’ is like. together a 360-degree view of what is happening in the
Some of us come across the P/E ratio first and decide equity markets, which events and observations are
that’s all there is to it. Others get convinced that the relevant and which are irrelevant. Most importantly,
rate of growth of revenue is most important. Others one needs to accept the uncertainty and the lack of
swear on margins and so on. Punters think that there visibility. There is nothing exact in our actual
is nothing more to making money than to detect and experience as investors and analysts that has prepared
react to momentum. Unlike the elephant, this animal us to judge the events that are happening. However, we
is actually even more complex. can be certain of one thing – the principles of investing
In normal times, most of these people sort of get will not change. The principles of business will not
along. Investing at lower valuations does tend to be an change. Managements which have a track record of
advantage. A higher dividend yield does have a positive running their companies well and sharing wealth with
correlation to better investments. Higher growth of shareholders will continue to do so. Managements
revenues is definitely important. And yet, each has a which have a track record of doing the opposite will
counterpoint. Valuations can be low because a company continue to do the opposite.
is undervalued or because it’s on a decline and the As the volatility continues, we are continuously
market knows that. Dividend yield can be high because dedicated to exploring what is changing and how it
the company is generating a lot of distributable profits, will impact stocks while keeping an eye on what stays
or because of some external need of the promoter. the same. In a time like this, when everyone is
Growth is good, but it may be jacked up artificially, as screaming ‘change-change-change’ at every available
with so many startups. By itself, everything can be opportunity, maintaining one’s balance as an investor
misleading. In normal times, there are always other is the most important thing.

INSIGHT
Your personal-
finance guide
10 year SIP returns of the largest mid cap fund is almost 13%.
Investors who stayed put with their mid cap fund SIPs for 10
years would have got annualized return between 11%-14%
Mahesh
@invest_mutual
Never complicate stuff. The journey to financial freedom and
Followers wealth creation is unnecessarily complicated by folk with their
27.5K
own agenda for you.
Simple things done well will do the trick.
BUT, such things do not sound interesting.
#Investing
Why Follow
Use your emergency fund for ..........emergencies ONLY
Mahesh Mirpuri is an AMFI-
registered independent
financial intermediary with
High inflows in gilt funds last month.
over 25 years of experience in
the area of personal finance. Many queries now being received - why are NAVs down now??
His posts provide a clear- I ask them to understand more - what made you invest in these
sighted view of investment funds last month?
avenues available to investors, Answer - fantastic past returns and hope that yields will go down
while addressing what’s
happening in the broader
environment. His expertise on There is a lot of talk of teaching kinds about fin independence.
mutual funds and his overall In our days (being from a business background) we grew up in
knowledge are great things to an atmosphere where it was
have access to when investing
1. Save first
in volatile times like these.
2. No debt
3. Living well within means
4. Showing off was not cool
5. Learn accounting and read balance sheets
Many opportunities and investment instruments are available.

Have an open mind and study them.
Closing your mind will shut you out of great ideas.
#Biases #Investing

WORDS WORTH
WISDOM
Dealing with uncertainty

While the market has run up, experts are cautioning that the rally is not backed
by fundamentals. This has created uncertainty about the future course of the
market. The following quotes by investing greats will help you deal with it.
Face up to two In investing, nothing
unpleasant facts: the is certain. The best
future is never clear investments we have
and you pay a very high ever made, that in
price in the stock markett retrospect seem like
for a cherry consensus. free money, seemed
Uncertainty is the friend of the not at all that way
buyer of long-term values. when we made them.
WARREN BUFFETT
SETH KLARMAN
In the 20th century, the United States You must always be

endured two world wars and other prepared for the
traumatic and expensive military unexpected, including
conflicts; the Depression; a dozen or sudden, sharp downward
so recessions and financial panics; oil swings in markets and
shocks; a flu epidemic; and the the economy. Whatever
resignation of a disgraced president. adverse scenario you
Yet the Dow rose from 66 to 11,497. can contemplate,
WARREN BUFFETT
reality can be far
worse.
SETH KLARMAN
Assume life will be
really tough, and then
ask if you can handle The fundamental law
of investing is the
it. If the answer is yes,, uncertainty of the
you’ve won. future.
CHARLIE MUNGER PETER BERNSTEIN

WORDS WORTH
WISDOM
The most important lesson an People who

investor can learn is to be succeed in the
dispassionate when confronted by
unexpected and unfavorable
stock market also
outcomes. accept periodic
PETER BERNSTEIN losses, setbacks, and
unexpected occurrences.
Calamitous drops do not scare
them out of the game.
PETER LYNCH
If there’s one thingg

that’s certain in
business, it’s
uncertainty.
STEPHEN COVEY
Markets are constantly

in a state of uncertaintyy
and flux and money is
made by discounting
the obvious and bettingg
on the unexpected.
GEORGE SOROS
Survival as an investor over that

famous long course depends There are two
from the very first on kinds of
recognition that we do not know forecasters: those
what is going to happen. We who don’t know, and
nd
can speculate or calculate or
estimate, but we can never be those who don’t know they
certain. don’t know.
J K GALBRAITH
PETER BERNSTEIN

www.valueresearchstocks.com
You can’t buy

conviction
Stock investing is not about a list of tips but about having conviction
in what you are doing. That’s something you can learn but not buy.
Dhirendra Kumar those stocks. You could invest in Why do we do this? The answer
T
the full set, which is currently 40 is very simple: the list is not the
here’s a strange thing stocks, or you could use our Best service. So, what is the service? I
about Value Research Buys Now subset, which is 14. And suppose at the simplest level, if you
Stock Advisor, some- then, having made copies of the have complete confidence in us, you
thing which is missing two lists, you could cancel the ser- could just buy (or sell or hold) the
in any such service in vice and get a refund. If you ask stocks as per our recommendations
India and possibly the world. If for a refund within the first 15 and leave it at that. However, we
you take the service and do not days, we will give you the full don’t really want you to do that.
like it, you can ask for your money amount back. Moreover, the refund The other day I came across this
back. This comes as a great sur- process is completely hands-off; tweet by the well-known micro-cap
prise to those who are not familiar you do not have to explain to us investment manager Ian Cassel:
with Value Research’s philosophy why you don’t want to continue. I “You can borrow someone else’s
or, indeed, the details of our exist- mean you can explain, and we are stock ideas but you can’t borrow
ing publications. eager to hear what you say, but we their conviction. True conviction
On the face of it, our premium do not demand an explanation. If can only be obtained by trusting
Stock Advisor service is a list of you mail us and say that you have your own research over that of oth-
stock recommendations. You pay us already copied our list and since ers. Do the work so you know when
and become a member. Then you we are foolish enough to return to sell. Do the work so you can hold.
log in to the site and look at the list the money so you might as well Do the work so you can stand alone.”
and then you start investing in take it back, we’re fine with it. The idea is that you must do your

If you have bought a list from
someone or just sneaked out
our list by subscribing and
then cancelling, you don’t
know what’s going on. Your
own research. That sounds good, but instinct will be to sell and get providing a genuine advisory ser-
for those people who are not full- vice comes to the fore.
time investors, and especially for out. However, if you have If you have bought a list from
those who are just starting off, it’s absorbed and accepted the someone or just sneaked out our
not a realistic option. However, con- list by subscribing and then can-
viction is a must. The investor has logic that we have given for celling, you don’t know what’s
to be reasonably convinced that the why a stock is worthwhile, going on. Your instinct will be to
stocks that he is buying are worth sell and get out. However, if you
buying. Value Research’s reputation
then you will keep buying have absorbed and accepted the
and your trust plays a role, but only during the weak phase. logic that we have given for why a
as far as our inputs go. stock is worthwhile, then you will
Here’s what I mean. At Value keep buying during the weak
Research Stock Advisor, we do not to be many ups and downs. Some of phase. This is the only way in
expect you to invest in our recom- them will be worldwide, like the which you will eventually get
mendations mindlessly. We have impact of the Chinese virus, and oth- greater returns from stocks. We
been recommending stocks regu- ers will be more limited. ‘Limited’ are supplying you the inputs for
larly, including in the recent could mean just a sector or an indus- the conviction but the conviction
months, after the pandemic period try, or just a company. In many of must be yours alone.
began. We have also put some pre- these episodes, there could be a weak That’s why we do not care at all if
viously recommended stocks on period in the price of that stock. someone becomes a member with
hold. When we recommend a stock Typically, if a stock is worth buy- the intention of cancelling. Value
or change a previous recommenda- ing and is part of our recommend- Research Stock Advisor is almost
tion, we publish not just a report ed list, then it is even more attrac- three years old and these have been
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spection of our own reasons for kets are weak or that stock itself is well above 10,000 members and a
our actions. However, that’s just weak. This is contrary to the gener- vast majority of them have stayed
the beginning of the story. al trader behaviour and undeniably with us and renewed the service.
Generally speaking, we expect our contrary to human instinct. This is They haven’t cut and run
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Value Research Stock Advisor is a premium service where you get promising stocks along with their full analyses.
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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
(]LYHNLKHPS`[YHKPUN]VS\TL
On a quarter-on-quarter basis, trading volumes (no. of trades) have
shown a spurt across market caps.
Speculation
is rife
200 cr Jan 2020–Mar 2020 Apr 2020–Jun 2020
160 36%
120
80 41%
37%
40
0
Large Mid Small
Combined volumes of NSE and BSE
(]LYHNLKHPS`KLSP]LY`WLYJLU[HNLZ
The percentage of delivery volumes in the total trades has fallen quarter
on quarter, except for small caps, where they have risen slightly.
Jan 2020–Mar 2020 Apr 2020–Jun 2020
40.8%
38.1% 39.4%
31.7%
27.1% 25.2%
Large Mid Small

Combined volumes of NSE and BSE
9L[HPSWHY[PJPWH[PVUPUTPJYVJHWZ
Here are top 10 micro caps (m-cap < `500 cr) where retail participation
has gone up. Note that many of these companies have fallen from grace,
are penny stocks and have run up. These characteristics are likely to
have attracted retail investors.
Increase in retail Stock
shareholding price return
(% pt, Mar ’20 M-cap Stock price (%, Apr ’20
Name to Jun ’20) (` cr) (`) to Jun ’20)
Reliance Capital 13.8 113 4.5 183.3 With people working from home, they
Cox & Kings 12.6 10 0.5 270.4 are having more time at hand and
Reliance Home Finance 10.3 36 0.8 274.7 are trying their luck in the
Videocon Industries 10.1 47 1.4 104.3
markets. Ease of trading provided
RSWM 9.0 166 70.3 12.8
by many trading platforms may
be another factor. Investors need
Generic Pharmasec 8.1 281 13.0 -9.0
to have right, timely information
Riba Textiles 7.0 31 31.6 76.4
and then take a call.
UFO Moviez India 6.5 217 76.5 -2.0
SREI Infrastructure Finance 6.1 180 3.6 170.1 AJAY TYAGI, Chairman,
SEBI, The Economic Times,
Aarey Drugs & Pharma 6.0 31 13.3 38.0
July 13, 2020
M-cap and stock price as on April 1, 2020

MONTHLY
AGENDA
The lockdown and the recent rally /PNOYL[\YUZKYVWPUKLSP]LY`]VS\TLZ

Top 10 large, mid and small caps that have returned well but where
in the market have resulted in a delivery volumes have declined the most over the last one quarter
spike in trading and speculation, Stock return
(%, Apr ’20
Avg. daily delivery %
Jan ’20 to Apr ’20 to Difference
as illustrated by the Company

LARGE CAPS
to Jun ’20) Mar ’20 Jun ’20 (% pt)
data around Bandhan Bank 56.8 50 20 -30

Reliance Industries 54.6 57 29 -28
By Rajan Gulati Shree Cement 31.2 52 31 -22
Cipla 51.3 40 22 -18
Britannia Industries 33.9 47 31 -15
Maruti Suzuki 36.2 36 22 -14
Bajaj Auto 39.5 36 25 -11
Hero MotoCorp 59.9 37 27 -10
Mahindra & Mahindra 79.2 40 30 -10
Sun Pharma 34.3 32 22 -9
Min stock-price return 30 per cent
MID CAPS
Adani Gas 76.7 76 27 -49
Bayer CropScience 71.9 77 47 -30
Syngene International 65.8 81 56 -25
Lupin 54.6 44 21 -23
Alembic Pharmaceuticals 71.2 66 44 -22
Aditya Birla Capital 50.0 45 30 -15
Hindalco Industries 52.8 36 23 -13
Manappuram Finance 59.7 32 20 -12
UCO Bank 63.5 49 38 -11
Motherson Sumi Systems 55.0 35 25 -10
Min stock-price return 50 per cent
SMALL CAPS
Astec Lifesciences 97.8 76 32 -43
VST Tillers Tractors 98.1 75 40 -35
Ruchi Soya Industries 697.0 77 43 -33
Panacea Biotec 84.0 64 36 -28
Hathway Cable & Datacom 136.1 61 35 -26
Small caps that have
434 Total small

caps 125 returned over 50% during
Apr–Jun 2020
Vindhya Telelinks
E.I.D. Parry (India)
72.8
98.2
69
48
48
27
-21
-21
Balaji Amines 96.7 45 27 -17
37 Out of these 125 had a debt-to-equity ratio of more than 1 or

negative equity (excl. banking and finance companies)
HLE Glascoat
Bharat Dynamics
93.8
79.9
98
36
81
19
-16
-16
Total micro Micro caps that returned Min stock-price return 70 per cent
1550 caps (m-cap

< `500 cr) 227 over 100% during
April–June 2020
49 lakh 12 lakh
95 Out of these 227 had a debt-to-equity ratio of more than 1 or
negative equity (excl. banking and finance companies)
Total demat accounts at the end of
FY20, a decadal high
New demat accounts opened with
CDSL in March-April alone

STOCK STORY Reliance Industries
The road to `14 lakh cr market cap

The rise in the stock price of Reliance Industries over the last few months on the back of stake sale in Jio
Platforms has renewed investor interest in the company. Here is Reliance’s story.
R
eliance Industries is heartthrob. Over the last few Investments in Jio Platforms
the first-ever Indian months, Jio Platforms has The following investments in Jio Platforms have valued
company to cross helped Reliance raise over the company at `4,36,442 crore.
the `10 lakh crore `1.5 lakh crore. Amount Stake in Jio
Company name invested (` cr) Platforms (%)
market cap, with the one- Another feather in the
Facebook 43,574 9.98
year return (as on August company’s cap is its retail
Google 33,737 7.73
17, 2020) at over 67 per cent. business, which is growing
Until two years ago, the by leaps and bounds. Talks Vista Equity Partners 11,367 2.60
stock was a slowly growing are underway between the KKR 11,367 2.60
one. For some time, TCS had Future Group and Reliance PIF 11,367 2.60
overtaken Reliance in terms for a stake sale in the Mubadala 9,094 2.08
of the largest Indian former. For Reliance’s General Atlantic 6,598 1.51
company by market cap. But investors, a lot has happened Abu Dhabi Investment 5,684 1.30
then happened the over the last one year or so. Silver Lake 5,656 1.30
turnaround, thanks mostly It’s likely that a lot of steam Silver Lake and Co-investors 4,547 1.04
to Reliance Jio. Jio not just is still left. Here’s Reliance’s TPG 4,547 1.04
helped Reliance become net- journey to its current L Catterton 1,895 0.43
debt-free, it has also turned market cap of over `14 lakh Intel 1,895 0.43
an otherwise boring oil-and- crore. WI Qualcomm 730 0.17
gas stock into a Street By Rajan Gulati Total 1,52,058 34.84
FY10-11 FY11-12 FY12-13 FY13-14

Enters into partnerships in North With 1,300 Retail business crosses Retail business crosses 10 mn
America for shale-gas exploration
Strategic alliance with BP for domestic
stores,
Reliance
`10,000 cr square feet of retail space and
sales in FY13 breaks even on a net-profit basis
oil-and-gas exploration Retail
Forays into telecom, gets pan-India becomes a Buys back `3,366 Reliance Jio acquires the right to use
broadband wireless licence by acquiring leader in food, cr of stock spectrum in 14 key circles across India
95% stake in Infotel Broadband apparel and Renames Infotel in the 1,800 MHz band
consumer- Broadband Services as
Services for `4,202 cr electronics ‘Reliance Jio Infocomm
Enters into infrastructure-sharing
arrangements with other telecom players
retailing Ltd’, RJIL
Aug 7, 2010
`481

STOCK STORY
Changing revenue mix Aug 14, 2020

Telecom and retail operations have acquired a sizeable chunk in Reliance’s revenue mix `2,114
z 5HÀQLQJz Petchem z Oil and gas z Retail z Jio z Others In ` cr FY19-20
In talks with Saudi Aramco for a
21,465 10,263 11,270 30,612
17,250 stake sale of 20% in oil-to-
7,388 chemical division.
1,41,187
Completes rights issue of
63,155 75,726 `53,124 cr
2,666 3,09,081 Raises over around `1.52
2,15,431 2,23,547 1,16,829
lakh cr from global tech
companies and private-equity firms
2011 2016 2020 by selling stake in Jio Platforms.
Post the stake sale, owns about
65% in Jio.
Forms strategic partnerships with
11,784 Microsoft to grow cloud business
Reliance Retail: Growing footprint and with Facebook to grow digital
10,415
Reliance Retail has been increasing its number of stores at a fast clip. retail business through WhatsApp
Forms a new JV with BP to grow
7,573 the network of retail service
stations network and aviation fuel
business across India
3,245 3,616
2,621
1,466 1,691
1,300
2012 2013 2014 2015 2016 2017 2018 2019 2020
FY16-17
Jio adds 100 mn
FY15-16
Capex of over subscribers within 170
`1.12 lakh cr days of launch. Offers free
(US$17 bn) in FY16, voice calls.
the highest-ever by Jio Prime membership gains
FY14-15
any Indian corporate over 72 mn subscriptions
Beta testing of Jio FY18-19
Invests over Jio announces that it will start Retail business crosses
with over
`1 lakh cr 1.5 mn test users
charging customers
for data `1 lakh cr in revenue
during the and the store count of
financial year Launches 4G services Mar 9, 2020
across various smartphones under 10,000 `908
businesses the ‘LYF’ brand Jio crosses 300 mn
To boost its Sells 49.9% FY17-18 subscribers. Becomes the largest 4G
media business, stake in a US shale Constructs the world’s largest carrier in India.
acquires the oil and gas pipeline petcoke gasification unit at Enters into a series of content partnerships
control of joint venture for Jamnagar with Disney and Star India, among others
Network18 and
its subsidiary
$1.07 bn Jio earns a profit of `723 Invests in Hathway Cable and Datacom
and DEN Networks to expand the Jio Fiber
TV18 cr on turnover of business
`23,714 cr in its first The petchem business has a record
year of commercial operations
production of 37.7 MMT and the
Jio forges partnerships with highest-ever earnings
the likes of Balaji Telefilms,
Eros International and Saavn Wins $1.7 bn arbitration claim by the
to build entertainment and government over siphoning gas from
media-content offerings ONGC’s KG-D6 basin

MARKET
C MPASS INDEX WATCH
S&P BSE Metal

Recently, the metal sector has witnessed a rebound after sinking to new lows during the market meltdown
in March. The S&P Metal index has trailed the Sensex since May 2019. The index’s price-to-book ratio is
at a 0.25 per cent discount to its five-year median and its price-to-earnings ratio is at a 32.4 per cent
premium. The index’s dividend yield is at a discount of 0.67 percentage points to its five-year median.
2LÙ\TILYZ 0UKL_TV]LTLU[ ):,4L[HS:LUZL_4LKPHU

16500
39.6
Price to earnings
0.95
Price to book
14000
11500
9000
3.03
Dividend yield (%) Market cap
4.7 (` lakh cr)
6500
4000
Aug ’15 Aug ’16 Aug ’17 Aug ’18
Sensex rebased to index
Aug ’19 Aug ’20
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4.0
1:>:[LLS
3.2

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2.4
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=LKHU[H Aug ’15 Aug ’16 Aug ’17 Aug ’18 Aug ’19 Aug ’20
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40
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=HS\H[PVUZKP]PKLUKZHUKYL[\YUZ
Dividend -40
Company name P/B P/E yield (%) 1Y return (%)
-60
LJindal Steel & Power 0.7 355.4 0.00 114.4 Aug ’15 Aug ’16 Aug ’17 Aug ’18 Aug ’19 Aug ’20
A negative P/E indicates a loss
JSW Steel 1.9 27.4 0.72 22.5
Tata Steel 0.8 0.0 2.30 20.9
Steel Authority Of India 0.4 7.9 1.23 13.0
+P]PKLUK`PLSK
6.0%
Hindustan Zinc 2.4 15.5 8.55 11.7
4.8
Hindalco Industries 0.8 22.1 0.51 8.3
NMDC 1.1 8.1 5.81 -6.8 3.6
3.70%
National Aluminium Company 0.7 49.6 15.88 -12.0 2.4
Vedanta 0.9 0.0 3.08 -12.3 1.2
Coal India 2.6 5.0 9.58 -31.3 0
Aug ’15 Aug ’16 Aug ’17 Aug ’18 Aug ’19 Aug ’20
Data as on August 18, 2020

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

3M returns (%) 3Y avg RoE (%) 3Y earnings growth (%) 3M price (`) movement
89.9 – -8,858
IDBI Bank
The board approved the sale of a majority stake in the
bank’s life-insurance arm for `595 crore. -50.6 6.6 20
39
64.0 – -2,167
Mahindra & Mahindra
615
An improvement in the rural economy has led to a revival in
tractor and vehicle sales. 9.8 -175.6
375
61.1 40 5,031
Bajaj Finance
3,331
Assets under moratorium declined to about 15.5 per cent of
AUM as of June 2020 from 27 per cent as of April 2020. 20.9 42.1 2067
57.2 – -61
Adani Green Energy 358
After winning an 8 GW solar tender from the government, it
emerged as the largest renewable power generator. -22.2 -12.3
228
185
57.1 21 2,129
Hindalco Inds.
The company reported strong Q4 results on the back of volume
growth and cost-control measures. 8.8 102.4
118
50.7 43 1,375
Eicher Motors
The stock price rose as the stock will be split in a 10:1 ratio.
25.1 -5.3 20,130
13356
49.8 16 3,157
Muthoot Finance
A higher gold price has resulted in a spurt in gold loans,
leading to a 52.4 per cent YoY increase in Q4 FY20 net profit. 23.1 34.6 809 1,213
125
47.7 – -15,925
Tata Motors
Despite a loss of `8,443 crore in Q1FY21, its share price gained
on the back of cost control and positive free-cash-flow guidance. -15.4 -233.0 84
32.4 27 6,461
Bajaj Finserv
6,248
An uptick in Bajaj Finance business, wherein Bajaj Finserv
owns 52.8 per cent, resulted in a gain in the share price. 23.0 22.4
4719
17.0 17 2,770
Bandhan Bank
The bank saw its loans and advances grow by 18 per cent YoY in
Q1FY21, along with improving collections in microlending. 20.4 38.1 246
288
Our large-cap universe has 75 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 August 14, 2020.

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

196.5 6 1,311
Alok Industries 35
The stock gained due to restructuring and acquisition of a
37.7 per cent stake by Reliance Industries. -33.0 35.3 12
1,295
141.4 15 2,891
Hindustan Aeronautics
Defence stocks gained on the back of the government’s
banning of import of 101 defence items. 20.8 4.5 536
1,010
138.3 27 412
Laurus Labs
Its Q1 FY21 net profit zoomed up 1,047 per cent YoY, to `172
crore. 11.2 26.5 424
212
131.2 346 -45

Jindal Steel & Power
Reported an increase of 29 per cent YoY in standalone steel sales
in July on the back of pent-up demand. -7.1 25.4
92
99.2 21 364
Granules India
The company reported an increase of 33.9 per cent YoY
in Q1 FY21 net profit. 14.2 36.9 154 307
85.6 – -94,850
Vodafone Idea 9
The stock recovered sharply from lows but the company’s
future depends on the AGR verdict by the Supreme Court. -18.3 -467.6
5
69.7 32 685
AU Small Finance Bank
15.7 36.4
Reported a YoY increase of 6 and 24 per cent in net profit and 416 706
interest income, respectively, for Q1 FY21.
53.5 4 2,166
Indiabulls Housing Finance 205
The stock price surged after Morgan Stanley Asia bought a 1.06
per cent stake in the company. 27.0 -9.4 133
2.5 3 7,672
Ruchi Soya Inds.
Following its acquisition by Patanjali, there has been a
consistent rise in the stock price due to the low free float. -27.1 100.9 679 696
-50.0 – -22,791
Yes Bank
14.3 29.0
The stock has been on a downward trend ever since its 30 15
FPO was priced at `12.
Our mid-cap universe has 169 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 August 14, 2020.

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

14
657.5 744 1
Vikas Multicorp
Specialty chemical companies are expected to benefit from
the supply- chain shift from China to India. – –
2
115
308.0 41 30
BLS International Services
The company reported a PBT of `3.9 crore in Q1 FY21.
37.9 -25.6
28
240.9
805
Best Agrolife 56 32
The company’s net profit for Q4 FY20 rose by 381 per cent YoY.
-0.1 388.8 236
220.8 12 165
RattanIndia Power
Its losses narrowed to `512 crore in Q4 FY20 from `594 crore in
the year-ago period. -149.2 -278.7 1
190.0 – -2,010
Jaiprakash Power Ventures
The stock gained amid a market-wide rally.
-13.2 -18.9 1
188.2 – -10,811
Reliance Communications
The stock gained amid a market-wide rally.
-52.3 -414.7 1 2
153.1
4
Jai Prakash Associates 1 1,383
Its lenders are trying to work on a debt-resolution plan
outside the IBC process. -83.8 5.6 2
144.9
186
Dishman Carbogen Amcis 16 180
The stock went up amid a rally in pharma. Further, Rakesh
Jhunjunwala bought a 3.2 per cent stake. 0.9 297.8
76
117.6 25 35
Borosil Renewables
78
The government’s proposal of imposing custom duty on solar
cells and modules is positive for the company. 10.8 -34.3
36
-55.6 – -97
Omaxe
High promoter pledging and invocation of pledged shares by one
of the lenders led to a fall in the share price. 3.8 -197.4 168 74
Our small-cap universe (minimum market capitalisation `500 crore) has 583 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 August 14, 2020.

MARKET
C MPASS
Change in promoter stake

Companies that have seen a rise or decline in promoter stake in Q1 FY21
M
any investors track the change in promoter one should also be mindful that promoter holdings can
holding. A significant rise in promoter holding be impacted by corporate actions also. For instance, a
may mean that the promoter is bullish about rights issue, a merger, a reclassification of promoter
his company. On the other hand, a significant fall in can all cause the reported promoter holding to change.
promoter stake is taken as a negative development. Hence, dig deeper into the following companies to make
However, while tracking the change in promoter stake, sense of the change in promoter stake. WI
9PZLPUWYVTV[LYZ[HRL
Companies where the promoter stake in Q4 FY20 was at least 25 per cent and has risen by at least 3 percentage points in Q1 FY21
Promoters’ stake (%)
Company name Sector M-cap (` cr) Jun-20 Mar-20 Increase in promoter holdings (% pt) 3M return (%)
Vipul Organics Chemicals 115 63.2 54.5 8.7 32.0
Shree Rama Newsprint Paper 232 74.8 69.8 5.0 13.8
Gulshan Polyols FMCG 241 68.2 63.3 4.9 33.9
Shiva Cement Const Materials 194 59.3 54.4 4.9 35.3
Indian Bank Bank 7,245 88.1 83.5 4.6 41.2
IFCI Finance 1,395 61.0 56.4 4.6 89.9
Shakti Pumps Capital Goods 349 53.6 49.1 4.5 47.1
Welspun Spl Solutions Iron & Steel 531 53.6 49.8 3.8 87.4
Faze Three Textile 102 49.2 45.9 3.3 25.4
M-cap more than `100 cr and as on August 19, 2020. Returns as of June 2020.
-HSSPUWYVTV[LYZ[HRL
Companies where the promoter stake in Q4 FY20 was at least 25 per cent and has fallen by at least 3 percentage points in Q1 FY21
Promoters’ stake (%)
Company name Sector M-cap (` cr) Jun-20 Mar-20 Decrease in promoter holdings (% pt) 3M return (%)
Dish TV Media & Entertainment 1,652 23.7 54.6 -30.9 95.7
Reliance Naval and Engg Logistics 235 0.0 25.2 -25.2 115.2
Andhra Paper Paper 902 75.0 92.2 -17.2 76.8
Indostar Capital Finance Finance 3,214 45.5 60.6 -15.1 4.1
Siti Networks Media & Entertainment 147 54.7 65.7 -11.0 296.4
Take Solutions IT 742 58.7 66.9 -8.2 29.4
Wheels India Automobile & Ancillaries 1,072 55.1 63.3 -8.2 42.0
Zee Media Corporation Media & Entertainment 286 36.8 44.9 -8.1 80.3
JM Financial Finance 7,915 54.9 62.1 -7.2 10.9
Tourism Finance Corporation Finance 329 26.2 32.6 -6.4 14.0
Metropolis Healthcare Healthcare 8,695 50.8 56.9 -6.1 7.2
Neogen Chemicals Chemicals 1,588 64.3 70.0 -5.7 38.5
HDFC Asset Mgmt Co Finance 51,789 74.0 79.6 -5.7 13.4
Generic Pharmasec Chemicals 303 60.0 65.5 -5.5 -9.0
Zee Learn Education & Training 510 51.8 57.2 -5.4 31.5
Hindustan Unilever FMCG 5,15,456 61.9 67.2 -5.3 0.1
Indo Amines Chemicals 198 69.3 73.5 -4.1 83.0
ICICI Lombard General Ins Insurance 59,574 51.9 55.9 -4.0 13.5
Kotak Mahindra Bank Bank 2,68,461 26.1 29.9 -3.9 15.0
MEP Infra Developers Infrastructure 356 61.7 65.5 -3.8 67.5
Mcnally Bharat Engineering Infrastructure 115 34.2 37.9 -3.7 154.6
Alkem Laboratories Healthcare 34,056 62.4 65.9 -3.5 4.0
HDFC Life Insurance Insurance 1,21,816 60.4 63.7 -3.3 27.8
Kellton Tech Solutions IT 205 59.0 62.1 -3.1 112.1
M-cap more than `100 cr and as on August 19, 2020. Returns as of June 2020.

MARKET
C MPASS
Pledging tracker
Companies that have seen a rise or decline in promoter pledging in Q1 FY21
P
romoter pledging is an important analytical turn when the pledged stake is high and the promoter
parameter. When promoters pledge shares, they is unable to pay back the dues. This may force the
keep shares as collateral with a financial financing institution to sell the pledged stake, which
institution, such as a bank, to raise money. It’s just like can result in a sudden fall in the stock price and the
mortgaging something for money. dilution of promoter stake in the company.
Pledging is not always bad. Many times promoters A high pledged stake also indicates a bad
pledge their stake for sound business reasons and later management. Investors should stay away from
release their pledged shares. But pledging takes an ugly companies that have high levels of pledging. WI
0UJYLHZLPUWSLKNPUN
Companies in which promoter pledging has gone up by 10 percentage points and the minimum promoter stake is 25 per cent
M-cap Pledged stake (%) Increase in Promoter 3M stock Debt to
Company name Sector (` crore) Jun-20 Mar-20 pledging (% pt) stake (%) return (%) Z-Score F-Score equity
Jagran Prakashan Media & Entertainment 1,168 100.0 0.0 100.0 65.0 -12.7 2.8 5 0.22
Forbes & Company Capital Goods 1,340 98.3 27.1 71.1 73.9 16.4 1.3 5 4.06
Solara Active Pharma Science Healthcare 2,465 51.1 0.0 51.1 41.9 45.9 2.9 5 0.72
Pitti Engineering Capital Goods 101 21.4 8.2 13.2 56.8 43.5 2.1 8 1.44
Andhra Paper Paper 902 68.0 55.3 12.7 75.0 76.8 3.8 9 0.02
Min m-cap `100 crore. For explanation of Z-Score and F-Score, see the key terms in the ‘Stock Screen’ section. M-cap as on August 19, 2020. Return as of June 2020.
+LJYLHZLPUWSLKNPUN
Companies in which promoter pledging has come down by 10 percentage points and the minimum promoter stake is 25 per cent
M-cap Pledged stake (%) Decrease in Promoter 3M stock Debt to
Company name Sector (` crore) Jun-20 Mar-20 pledging (% pt) stake (%) return (%) Z-Score F-Score equity
TCPL Packaging Paper 389 0.0 75.4 75.4 55.7 64.1 2.4 8 1.32
Balrampur Chini Mills Agri 3,290 0.0 73.1 73.1 41.1 22.9 2.7 4 0.82
Torrent Pharmaceuticals Healthcare 47,312 0.0 36.5 36.5 71.3 20.9 4.5 8 1.21
Tourism Finance Corp Finance 329 0.3 30.0 29.7 26.2 14.0 0.0 0 1.92
Adani Ports & Spl Eco Zone Logistics 72,462 28.7 58.3 29.6 63.6 40.4 4.9 5 1.17
GATI Logistics 557 5.0 34.1 29.1 51.9 -7.4 2.3 4 0.51
Granules Healthcare 7,509 8.6 37.6 29.0 42.1 43.3 5.4 9 0.49
6HTXHQW6FLHQWLÀF +HDOWKFDUH
Parag Milk Foods FMCG 954 24.8 48.1 23.3 46.2 48.1 3.8 7 0.29
Gateway Distriparks Logistics 1,087 0.1 19.8 19.7 30.2 -12.2 3.9 4 0.63
Adani Transmission Power 27,006 35.8 53.6 17.9 74.9 37.3 1.3 6 5.27
Jindal Steel & Power Iron & Steel 23,210 57.3 74.8 17.5 60.5 129.7 1.1 5 1.22
Adani Enterprises Trading 26,291 32.4 49.8 17.4 74.9 16.6 2.7 9 0.73
Brightcom Group IT 366 33.4 50.2 16.8 36.7 176.5 8.1 5 0.02
Arvind Smartspaces Realty 365 0.2 16.9 16.7 59.1 8.7 1.9 3 0.67
Gokul Agro Resources Agri 201 0.0 15.8 15.8 71.8 83.9 4.1 7 1.33
Laurus Labs Healthcare 11,399 31.6 45.2 13.7 32.1 60.7 5.2 8 0.60
HFCL Telecom 2,046 55.5 67.9 12.4 38.6 79.5 5.2 5 0.41
8ÁH[ 3ODVWLF3URGXFWV
Zuari Agro Chemicals Chemicals 366 22.9 33.9 11.0 65.0 59.1 1.1 2 4.12
Wockhardt Healthcare 3,490 26.4 37.1 10.7 72.1 57.8 1.1 5 1.22
Min m-cap `100 crore. For explanation of Z-Score and F-Score, see the key terms in the ‘Stock Screen’ section. M-cap as on August 19, 2020. Return as of June 2020.

MARKET
C MPASS
Institutional moves
Here are top five
companies across large,
mid and small caps in
which mutual funds and
foreign institutions have
significantly changed
their holdings between
March 2020 and
June 2020
Increase in stake
Mutual funds FIIs
Large caps Change Change
Company name Sector Jun ’20 Mar ’20 (%) Company name Sector Jun ’20 Mar ’20 (%)
Bharti Airtel Telecom 12.8 10.6 2.2 Berger Paints Chemicals 11.7 7.8 3.9
Lupin Healthcare 11.9 10.1 1.8 ICICI Lombard Insurance 26.6 23.4 3.2
Hindustan Unilever FMCG 4.4 2.9 1.5 Kotak Mahindra Bank Bank 42.2 39.2 3.0
Colgate-Palmolive FMCG 5.1 3.7 1.4 Hindustan Unilever FMCG 14.8 12.1 2.7
HDFC AMC Finance 2.1 0.8 1.3 HDFC AMC Finance 10.7 8.0 2.7
Mid caps Change Change

Page Industries Textile 11.2 8.4 2.9 Jubilant FoodWorks FMCG 36.2 30.9 5.3
Jindal Steel & Power Iron & Steel 9.8 7.0 2.8 RBL Bank Bank 32.1 28.4 3.8
Endurance Technologies Automobile 8.4 5.7 2.7 Thermax Capital Goods 11.0 7.8 3.2
Hindustan Petroleum Corp Crude Oil 16.4 14.9 1.5 Sundaram Finance Finance 11.1 8.4 2.7
PI Industries Chemicals 18.4 17.0 1.4 Tata Consumer Products Agri 19.5 17.1 2.4
Small caps Change Change

Andhra Paper Paper 7.9 0.0 7.9 Metropolis Healthcare Healthcare 25.3 16.1 9.2
Metropolis Healthcare Healthcare 12.1 6.0 6.1 Laurus Labs Healthcare 16.1 11.3 4.8
JM Financial Finance 7.9 4.1 3.8 JM Financial Finance 25.6 20.9 4.7
Suprajit Engineering Automobile 10.1 6.3 3.8 Best Agrolife Finance 18.8 14.3 4.6
CCL Products Agri 10.3 7.3 2.9 Neogen Chemicals Chemicals 4.8 0.6 4.3

MARKET
C MPASS
Decrease in stake
Mutual funds FIIs
Large caps Change Change
Larsen & Toubro Infrastructure 17.2 19.2 2.0 JSW Steel Iron & Steel 15.4 17.1 1.8
Grasim Industries Diversified 8.3 9.7 1.4 State Bank of India Bank 7.9 9.6 1.7
Interglobe Aviation Aviation 6.8 7.9 1.1 Power Grid Corporation Power 25.3 27.0 1.6
Bandhan Bank Bank 1.7 2.8 1.1 Hero MotoCorp Automobile 32.7 34.3 1.6
HDFC Bank Bank 14.0 15.0 1.0 Bharti Infratel Telecom 40.6 42.0 1.4
Mid caps Change Change

RBL Bank Bank 12.3 19.9 7.7 Tata Power Company Power 12.9 18.6 5.7
LIC Housing Finance Finance 4.7 8.2 3.5 Glenmark Pharmaceuticals Healthcare 23.4 28.5 5.1
Jubilant FoodWorks FMCG 11.8 15.2 3.4 Endurance Technologies Automobile 11.8 16.3 4.5
Thermax Capital Goods 12.5 15.7 3.2 Bharat Heavy Electricals Capital Goods 5.1 9.4 4.3
M&M Financial Services Finance 9.4 12.1 2.8 Page Industries Textile 25.5 29.2 3.7
Small caps Change Change

Indostar Capital Finance Finance 0.3 11.9 11.6 Cyient IT 33.0 42.2 9.1
Repco Home Finance Finance 18.5 24.2 5.7 SH Kelkar & Co Chemicals 9.5 17.3 7.8
Chennai Petroleum Corp Crude Oil 6.9 12.1 5.2 DCB Bank Bank 15.1 22.8 7.7
PVR Media & Ent 14.9 20.0 5.1 Just Dial Miscellaneous 35.4 42.7 7.3
NCC Infrastructure 13.0 18.0 5.0 Hindustan Oil Exploration Crude Oil 0.6 7.6 7.0
Top 10 holdings of mutual funds Top 10 holdings of FIIs

Market % of Amount Market % of Amount
cap equity invested cap equity invested
Company name Sector (` cr) held (` cr) Company name Sector (` cr) held (` cr)
KNR Construction Infrastructure 3,546 32.0 1,136 HDFC Finance 3,19,855 70.2 2,24,442
Tata Motors - DVR Automobile 2,225 30.7 682 Zee Entertainment Media & Ent 19,157 67.3 12,897
Ashoka Buildcon Infrastructure 2,020 28.8 582 Shriram Transport Fin Finance 17,407 63.7 11,085
ICICI Bank Bank 2,53,691 28.3 71,744 IndusInd Bank Bank 35,625 52.1 18,550
Equitas Holdings Finance 1,929 27.9 537 Apollo Hospitals Healthcare 23,574 46.6 10,981
DCB Bank Bank 2,564 27.8 712 Axis Bank Bank 1,33,098 46.0 61,172
Voltas Consumer Durables 22,164 27.5 6,093 ICICI Bank Bank 2,53,691 43.0 1,09,062
Max Financial Services Finance 14,496 26.5 3,847 Kotak Mahindra Bank Bank 2,64,860 42.2 1,11,638
Bharat Electronics Capital Goods 27,253 25.7 6,990 Redington Trading 4,488 41.1 1,846
Federal Bank Bank 10,886 25.6 2,791 Fortis Healthcare Healthcare 10,562 41.0 4,328
M-cap as on August 20, 2020. Other data as of June 2020.

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ANALYST’S
DIARY
Margin masters
While their revenues have fluctuated, the following companies have
remarkably maintained the operating margin
R
evenue growth is a key financial metric that have kept their margins intact during this time. To
tells how well a company is doing. In the keep your margins intact amid fluctuating revenues,
March 2020 and June 2020 quarters, most you must be able to pass on the costs to your
companies have suffered a hit on their revenues and customers and these companies have successfully
profits due to the lockdowns to contain the spread of done that. It’s likely that these companies have some
the pandemic. In the aftermath of the pandemic, it’s inherent moat that enables them do so.
likely that the revenue and profit growth will remain Note that for variability in margins, we have taken
subdued in the near future as well. the coefficient of variation to be less than 10 per
As revenue and profit growth remain muted for cent. This is calculated by dividing the standard
the next few quarters, it may be a good idea to keep deviation in margins of the last five years by their
an eye on the operating margins. The companies average. Also, to remove loss-making companies, we
below aren’t revenue-growth stars. Their revenue have ensured that the book value has increased more
growth has fluctuated over the last five years. or less consistently over the last five years. WI
However, what’s remarkable about them is that they By Danish Khanna
0YYLN\SHYZHSLZNYV^[OI\[Z[HISLVWLYH[PUNTHYNPUZ Sales growth (%) Op margin (%)
(RaV5VILS0UKPH )HQHQ(\[V )HSRYPZOUH0UK\Z[YPLZ )OHY[P0UMYH[LS

18 24 30 60
9 16 15 30
0 8 0 0
-9 0 -15 -30
-18 -8 -30 -60
2016 2020 2016 2020 2016 2020 2016 2020
*HZ[YVS0UKPH ,PJOLY4V[VYZ ,SHU[HZ)LJR0UKPH .HIYPLS0UKPH

36 40 24 20
24 20 16 10
12 0 8 0
0 -20 0 -10
-12 -40 -8 -20
2016 2020 2016 2020 2016 2020 2016 2020
3H6WHSH9. 4HYPJV 5PSRHTHS :\WYLTL0UK\Z[YPLZ

45 24 10 15
30 16 5 10
5
15 8 0 50.7
0
0 0 -5 -5 -30.4
-15 -8 -10 -10
2016 2020 2016 2020 2016 2020 2016 2020
Min market cap `1,000 cr

ANALYST’S
DIARY
A tricky situation
Investing in asset plays involves more than just looking at the fixed assets
I
n his book One up on Wall of these belong to the hospitality
Street, Peter Lynch described or logistics sectors, where the 3HUKYPJOJVTWHUPLZ
how he categorised stocks. One business itself is about land and The worth of the land and buildings of the
of the classifications was ‘asset buildings. As such, there is no following companies is at least 50 per cent of
plays’. These are companies which business if the land and buildings their enterprise values.
have high assets, the true worth of are monetised. Some others have Land and
building to
which doesn’t reflect in their poor business fundamentals, so Company Name Sector EV (times)
share prices. Over time, as the what’s mostly remaining in them is
Thomas Cook* Hospitality 2.74
value of these assets is unlocked, land and building.
the stock price reacts positively. All in all, one can’t really call a Garware Polyester* Plastic Products 1.83
In order to spot the asset plays company is attractively valued just Mahindra Holidays Hospitality 1.57
in India, we filtered out stocks because it has large fixed assets.
Tata Steel BSL* Iron & Steel 1.00
whose value of land and buildings What makes the situation even
on their balance sheets is at least trickier is that the real asset plays Bajaj Hindusthan* Agri 0.89
50 per cent of their enterprise may not be readily apparent Wonderla Holidays Hospitality 0.79
value (EV). Enterprise value because the value of land and
Sarda Energy* Iron & Steel 0.75
denotes what you need to pay if buildings on their balance sheets
you were to buy the full company. may have been recorded at their CESC Ventures IT 0.72
It’s calculated by adding the acquisition prices several years Gateway Distriparks* Logistics 0.66
market cap and debt and ago. Since the prices haven’t been The India Cements* Const. Materials 0.63
subtracting the cash and restated or recalculated, they
Kirloskar Industries Capital Goods 0.62
equivalents from the sum. To be would form a small portion of the
sure, fixed assets can be of many companies’ actual worth. Electrosteel Castings* Automobile 0.61
other types as well, including So, you must have a sharper Polyplex Corporation Plastic Products 0.55
intellectual property, plant and insight into the true worth of a
GATI* Logistics 0.54
machinery, vehicles, etc., but we company’s assets if you want to
have limited our play the asset theme. Those Jain Irrigation* Plastic Products 0.53
study to land who don’t want to take that Arvind* Textile 0.53
(both freehold and pain can simply take a note
EIH Hospitality 0.52
leased) and that there is often more to a
building only – the company’s assets than meets Indian Metals* Ferro Manganese 0.52
most basic types the eye. WI Chalet Hotels Hospitality 0.51
of fixed assets. Min m-cap `500 cr. Data as of FY20 or *FY19.
So, are the
companies in the
list great
bargains? Many

ANALYST’S
DIARY
Growth without fuel

Five companies in the BSE 500 universe have managed to improve their
earnings profile without incurring much capex
)LJVTPUNTVYLYL^HYKPUN
A
company’s capital expenditure holds much
importance, since today’s capex results in
The following companies have improved their ROEs on the back of
tomorrow’s growth. But can a company grow better operating margins
without incurring much capex? In the BSE 500
universe, there are five companies that have grown 3Y avg ROE (%) 3Y avg op margin (%)
their net block (a measure of a company’s assets) by Company FY18–FY20 FY11–FY13 FY18–FY20 FY11–FY13
less than 5 per cent annualised over the last 10 years, Escorts 18.0 6.9 12.8 6.6
yet their earnings profile has improved, as depicted by Garware Technical Fibres 20.9 10.1 21.0 10.9
their ROEs, which have in turn improved on the back KEI Industries 25.4 8.7 10.2 8.4
of better operating margins (see the table). Let’s see
Sundram Fasteners 24.0 17.6 17.6 11.1
what helps these companies command higher margins.
Tata Elxsi 32.2 15.8 27.3 13.1
,ZJVY[Z
A tractor manufacturer, Escorts dealers in 2019 from about 600 in 2014. Further, the
launched market- and application- company’s move to the high-margin EPC business
based products under a clear product enhanced the overall margin profile.
strategy: Powertrac (an economy
brand) and Farmtrac (a premium :\UKYHT-HZ[LULYZ
brand). Also, it sold its non-core Part of the TVS Group, Sundram is
businesses, with the latest being the auto-parts India’s largest fasteners manufacturer.
business in 2016. Further, the company did vendor Fasteners are nuts, bolts and washers
rationalisation and brought down raw-material costs used in automobiles. The company
to around 67–68 per cent from 71 per cent in FY15. grew its operating margin by
increasing its share of business from
.HY^HYL;LJOUPJHS-PIYLZ higher-margin products, such as hub, shaft, powdered
The company manufactures synthetic metal components, etc. Further, it focused on the
textile products like nets and ropes export market, whose share in the company’s
used for fishing, aquaculture and revenues increased to around 37 per cent in March
sports. Over the years, it has offered 2020 from about 29 per cent in March 2012.
value-added products like antifouling
nets and sea-lice solutions. Superior quality ;H[H,S_ZP
control, a strong understanding of polymer Involved in designing and developing systems and
engineering and application-focused innovation software, this engineering R&D company improved its
enabled the company to target price-inelastic western operating margin by leveraging its execution
markets and increase its export share to about 60 per capabilities in niche segments like
cent in FY20 from around 44 per cent as of FY12. transportation, broadcasting and
communications, and healthcare. As
2,00UK\Z[YPLZ R&D expenses for such sectors have
A manufacturer and seller of wires and cables, KEI increased over the years, greater
increased its ROE by focusing on high-margin retail outsourcing to engineering R&D players
customers. Retail customers accounted has helped in the company’s revenue
for 33 per cent of the revenue in FY19 growth. Also, the company has maintained a good
as against 10 per cent in FY11. This geographical revenue mix across Europe, the US, India
was achieved through growing and others, thereby reducing its dependence on a single
branding activities, along with the geography. WI
expansion of dealers’ network to 1,450 By Rajan Gulati

TAHER BADSHAH CIO – EQUITIES, INVESCO MUTUAL FUND IN FOCUS
Value opportunities vs value traps

FOCUS QUESTION The market has run up over the last two-three months in
spite of a fall in earnings and an uncertain outlook. Which pockets currently offer
value? How can one differentiate between a value opportunity and a value trap
(1) in general and (2) in the current context in the aftermath of the pandemic?
C
OVID-19 pandemic hit the
world abruptly at the
beginning of the year
bringing the economic
activities to a grinding halt. The
subsequent market meltdown
offered some of the best conditions
that allow for possible value-
investing opportunities to emerge
in the marketplace. The world has
now moved beyond lockdowns and
is in the unlock mode, whereby
economic activities and mobility
indicators are on an improving
trajectory. The central banks
across the world have responded to
avert liquidity shocks and related
business failures, and reduced
policy rates to spur growth.
In India, like elsewhere in the
world, markets have therefore
celebrated the first phase of return
to normalcy in economic activity.
A good part at this stage, however,
appears to be the restoration of
supply-side normalcy, which is
easier to judge as factories start
humming again. The picture on
demand, however, is only partially
clear in certain sectors and will
likely take time to recover and
become more broad-based. Riding
on liquidity and improving activity
indicators, the stock markets have
staged a sharp recovery and
quickly priced in quite a lot of the
available value in the system. The
benchmark valuation multiple has
moved beyond the long-period
average and in the short-term, the
performance can even be termed
as ‘too fast, too soon’.
‘Value’, in the more traditional
sense of the term, is commonly

IN FOCUS
´,QRXUYLHZVHFWRUVVXFKDVEDQNLQJDQGÀQDQFLDOVSDUWVRIFRQVXPHU
discretionary and industrials would be from where the next set of value
opportunities may likely emerge.”
seen when industries or and significantly disregard downside cushion in the Top 10 holdings
businesses are going the long-term earnings event of such delays and (2) of Invesco India
through a period of stress power and value of a ensuring that one avoids Contra Fund*
Market value % Net
or, less typically, when franchise. Under normal taking balance-sheet risks (` cr) asset
there is a severe dislocation economic conditions, value of the investee companies, Reliance Industries
opportunities are more even while assuming P&L
497 10.03
in the overall market (as
HDFC Bank
was the case recently business- or industry- risks. Changes in the
403 8.14
during March-April 2020 at specific and in a growth competitive landscape,
Infosys
the height of the COVID-led economy like India, technology-led disruptions 366 7.39
crisis). At times like these, generally result when a or product redundancies ICICI Bank
market prices of assets business or industry generally precede value 316 6.39
move materially below suffers from an adverse traps. Many of these are Bharti Airtel
their long-term intrinsic growth cycle. identified and filtered at 257 5.19
value, thereby creating Normally, we come the stage of initial Axis Bank
196 3.97
value-investment across two types of value- investment due diligence
Sun Pharma
opportunities. During such investing opportunities: (1) with the help of our 164 3.31
periods, markets tend to when markets take a dim investment process.
HCL Technologies
considerably over- view of the medium-term However, one must 128 2.59
emphasise the short-term growth prospects of any acknowledge that value Apollo Hospitals
enterprise or (2) when traps can become evident at 122 2.47
there is pessimism on a later stage of ownership United Spirits
continuity of even the of a business as well and 121 2.45
*The fund is managed by
present cash flows of a the speed of response of Taher Badshah
non-growth business. fund managers in Data as of July 2020
Inexpensive valuations do mitigating their impact on
become a good starting the portfolio is crucial
point while seeking value under such circumstances. Sectoral allocation
but in doing so, one must The initial round of of Invesco India
guard against franchise or market recovery has Contra Fund
balance-sheet risk. disproportionately Financial
Value opportunities can belonged to sectors where
25.1
Energy
degenerate into a value earnings recovery has been
trap when there are faster to visualise, such as
18.8
Technology
conditions that result in a staples, healthcare and
13.2
more permanent technology, besides
Healthcare
impairment of the businesses geared towards
8.9
earnings power of any the rural-consumption
Automobile
business or industry or the theme. In phase 2, it stands
8.8
perception thereof. Value- to reason that it will be the
Others
oriented strategies or tier 1 locations that would
25.2
contra bets do run now begin to emerge from
Data as of July 2020
with the risk of the lockdown. As that
delayed turnaround unfolds, in our view, sectors
or value traps. such as banking and
Delays in financials, parts of
turnarounds are consumer discretionary
easier to deal and industrials would be
with by (1) buying from where the next set of
at valuations that value opportunities may
provide the necessary likely emerge. WI

MAIN STREET
When fatigue begins to set in

How to spot when a great company is turning lethargic
SAURABH MUKHERJEA
Consistent compounding requires focus When it comes to both equity

and discipline over long periods of time. However, just
like assembly-line workers in a manufacturing process
investing as well as business
may find themselves bored by the repetitive nature of management, the philosophy of
their work, consistent compounders also run the risk ‘consistent compounding at a
of boredom/fatigue/complacency in the long run. This healthy pace’ requires an investor or
can then lead to mistakes caused by either (a) lethargy
in the face of evolutions, disruptions and changing
a management team to focus only
competitive environment or (b) capital misallocation. on their core strengths in a
So how can investors figure out whether a great disciplined and sustainable manner
company is gradually becoming lethargic? I joined over a long period of time
forces with two of my colleagues, Rakshit Ranjan and
Deven Kulkarni, to investigate. The summary of our
research is outlined in this article. four or five days. Dravid belongs to that priceless
breed of champions whose mental resolve is at its
Rahul Dravid: The consistent compounder of cricket strongest when the situation is dire.” … “Dravid’s
In cricket, the ‘boring’ Rahul Dravid has beaten the batsmanship was often taken for granted because it
‘flamboyant’ Virendra Sehwag in batting averages was so firmly rooted in time-worn traditions – leaving
across all formats of the game (see exhibit below). Not the good balls, not hitting in the air or on the up, and
only this, the outperformance of Rahul Dravid over because it was so utterly comprehensible and lacking
Virendra Sehwag is wider for the shorter formats of in mystique. But only those who have played the game
the game – a counter-intuitive outcome given that at the highest level can fully appreciate the true mean-
shorter formats intuitively offer more room for ‘excite- ing of Dravid’s craft.”
ment’ compared to test cricket. – Sambit Bal, Editor of ESPN Cricinfo in the book
“Test cricket, he often says, is such a fulfilling expe- Rahul Dravid: Timeless Steel – Collected writings on
rience because it challenges the mind continuously for Indian cricket’s go-to man (2012)
Risk of lethargy is a key risk for Consistent

9HO\S+YH]PKOHZHOPNOLYIH[[PUNH]LYHNL[OHU Compounders
[OH[VM=PYLUKLY:LO^HNPUHSSMVYTH[ZVMJYPJRL[ “Loss of focus is what most worries Charlie [Munger]
T20 ODI Test and me when we contemplate investing in businesses
Rahul Dravid 31 39 52
that in general look outstanding. All too often, we have
seen value stagnate in the presence of hubris or of
Virender Sehwag 22 35 49
boredom that caused the attention of managers to
Dravid’s outperformance vs Sehwag 41% 11% 6% wander.”
Source: Marcellus Investment Managers; www.cricbuzz.com – Warren Buffett in his 1996 annual letter

MAIN STREET
While driving a car on ‘cruise con-

trol’, fatigue and a false sense of securi-
Our lethargy tests secondary data research (annual
reports, quarterly management com-
ty can lead to lack of attention and an proactively aim to mentary) as well as primary data
accident. When it comes to both equity understand how checks (e.g., extensive discussions
investing as well as business manage- our portfolio with ex-employees, channel partners,
ment, the philosophy of ‘consistent
compounding at a healthy pace’
companies are raw-material vendors, customers, IT
and HR consultants):
requires an investor or a management deepening their Lack of incremental deepening of moats:
team to focus only on their core competitive Over time, a Consistent Compounder
strengths in a disciplined and sustain- advantages, faces three key risks – competition,
able manner over a long period of time.
Although this sounds too simple and
strengthening ties disruption and evolution:
z Competition: Our portfolio companies
traditional, it is one of the hardest with various operate in large industries and gener-
characteristics to develop, partly stakeholders and ate high returns on capital employed.
because consistent compounding over refreshing their Hence, they always attract competitors
the longer term tends to get monoto-
nous or boring, especially when the
offerings who try to narrow down the gap
between return on capital and cost of
external environment offers ‘exciting’ capital for these companies. Such com-
opportunities. As a result, investors in these firms run petitors could try to either replicate the offerings of
the risk of their management teams either doing too our portfolio companies or get into a price war or
little to sustain their competitive advantages or doing attempt to introduce a new way of catering to the
too much by chasing exciting opportunities aggressive- requirements of various stakeholders (customers/
ly. In both of these scenarios, the management loses its channel partners/raw material vendors, etc).
focus on core strengths (in cricketing parlance, after a For instance, in 2019, JSW Paints entered the paints
long and successful innings, the batsman either gets industry with ‘any colour one price’ offering. In 2017–
clean-bowled out of fatigue or gets caught while hitting 18, Van Heusen (Aditya Birla Fashion and Retail)
the ball on the up out of excitement). launched premium innerwear to compete directly with
Jockey by offering higher incentives to distribution
Our ‘Lethargy Test’ framework channel partners. Dr Lal PathLabs faced a massive
This framework focuses on identifying the following price war from competitors like Thyrocare in 2017.
signs of lethargy/complacency/indiscipline using Reactive research of understanding the response of

MAIN STREET
our portfolio companies to such com-

Consistent customers’ preferences, India’s demo-
petitive action is important, but not graphics, scale of operations of our
sufficient. Our lethargy tests proactive- Compounders portfolio companies, and penetration
ly aim to understand how our portfolio typically use levels of the products and services of
companies are deepening their compet- disruptions to our portfolio companies in existing
itive advantages, strengthening ties
consolidate the geographies, etc. Our lethargy tests try
with various stakeholders and refresh- to measure how alive, awake and adap-
ing their offerings so as to leave no dominance of their tive are the business models of our
room for a competitor to take away franchise by portfolio companies to such evolution-
market share through such actions. benefitting from ary changes so as to ensure that they
For instance, in addition to speaking
the challenges sustain the longevity of earnings
to dealers post facto about JSW Paints’ growth in their business in future.
aggressive entry into decorative paints, faced by their This includes new product launches,
our lethargy tests done in the years competitors marketing campaigns, IT initiatives to
prior to such competitive changes have through such improve operating efficiencies, and
to understand whether Asian Paints has
disruptions investments in systems and processes
left enough room for any new entrant to to help institutionalise processes and
make a successful entry into the sector. manage growing scale of operations.
z Disruptions: Over the past few years, event-based dis- The risk of capital misallocation: As Consistent
ruptions like GST, demonetisation, financial crisis Compounders grow and deepen their competitive
(e.g., IL&FS, Global Financial Crisis), COVID-19 crisis advantages, the quantum of free cash flow available for
have become very frequent. On the other hand, there redeployment tends to far exceed the amount that can
are several disruptions caused by new technology or be reinvested to grow the core business further.
new infrastructure (digital or physical) to meet a cus- Promoters with aspirations of ‘empire-building’ or
tomer’s requirement. Consistent Compounders typical- those who want to add to their business new revenue
ly use such disruptions to consolidate the dominance growth drivers for the longer term tend to use surplus
of their franchise by benefitting from the challenges capital to diversify across geographies or product cate-
faced by their competitors through such disruptions. gories. This could either be organic or inorganic diver-
Our lethargy tests try to keep a close track of the sification. Many firms prefer the inorganic route
attempts made by our portfolio companies during peri- towards diversification, acquiring companies in relat-
ods of disruption. For instance, it has been a fascinat- ed or unrelated businesses, forging joint ventures with
ing journey over the past four months to watch our other companies, acquiring minority stakes in other
portfolio companies take initiatives which will help companies, etc. Whilst all this sounds straightforward,
them gain substantial market share from their peers on many firms with a great core franchise that consistent-
the other side of the COVID-19 crisis. Hence, in-depth ly generates high ROCE have found it difficult to sensi-
lethargy tests carried out for our portfolio companies bly allocate surplus capital to diversify their business
through the previous as well as the current crisis have in the past. Hence, our lethargy tests focus substantial-
helped us stay invested with broadly the same portfolio ly on capital-allocation decisions taken by a firm on an
of stocks over the past four months and in fact, buy ongoing basis. WI
more of companies whose stock prices had fallen the
Saurabh Mukherjea is the CIO at Marcellus Investment Managers
most during the crisis. (www.marcellus.in) and the author of ‘The Victory Project:
z Evolution: As time progresses, there will be changes in Six Steps to Peak Potential’.
Mutual Fund Investments are subject to market risk.

Check Value Research Fund Ratings before investing.

COVER STORY
Sensex @
38,000

What
to do
now?
A
fter the crash in March that saw the Sensex and its quite tempting to direct those gains to the
fell by 24.7 per cent in just one month, the bank account. Secondly, the March and June quarter
recovery in the last two months has come as a results have started to show the impact of the
surprise for most investors. From its lows at 25,981 pandemic, with sales, profits and margins getting
on March 23, 2020, the Sensex has recovered to 37,877 contracted across the board. Though some experts
as on August 15, 2020. That’s a gain of 45.8 per cent suggest that the impact was not as severe as
from the bottom. Between March 1, 2020, and August anticipated and hence the rally, others are pointing
15, 2020, the Sensex’s returns stand at -0.7 per cent. to the high levels of uncertainty ahead.
So, it has regained its past levels. However, in the Amid this, the average investor wants to
middle, the market did give some once-in-a-lifetime understand what he should do now. Should one stay
thrills and chills to investors. invested and wait for a recovery or should one exit
The Sensex’s rise is not a standalone event. The the market or should one do both, i.e., partly book
markets around the world have raced, riding on easy the profits? Then there are others who have missed
liquidity that central banks and governments the rally altogether. They had sold out during the
around the world injected to bolster the economy. fall and stood on the sidelines. Now they are rubbing
From its bottom on March 23, 2020, the S&P 500 has their hands in despair, looking at the steep rally.
raced 50.7 per cent. Its six-month returns as on The answers to all these questions are not
August 15, 2020, stand at -0.2 per cent, indicating that straightforward. They seldom are as far as the
the fall that it witnessed has all but erased. market is concerned. To make a proper choice,
The excitement about the rally has now been things have to be put in a proper context. For
replaced with caution and anxiety. First, the market that, in this cover story, we are going to explore
has run up unprecedentedly, so many are the valuations perspective of the market, the
anticipating a fall on account of plain profit- business performance of BSE 500 companies and
booking. Those who were courageous enough to some fundamentals that will help you decide what
invest at the bottom are now sitting on healthy gains to do now.

COVER STORY
Is the market overheated?

Popular valuation metrics and how to make sense of them
:LUZL_»ZWYPJLJOHY[ :LUZL_JVTWHUPLZ!
In ’000
+LJVKPUN[OLYHSS`
45 Max Number of Sensex stocks with
41,953 reference to their prices on
38 15 15 March 2, 2020
Current
38,528
31 10
8
24 6
5
17
Below Above Below Above Below Above
10 by over by over by over by over
Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Min 10% 10% 20% 20%
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 15,175
A quick look at the Sensex’s price chart suggests that different weights. A movement in its top stocks can
the Sensex is indeed nearing a new high after a brief move the index, while a majority may have actually
dip in March. Should that be a cause for concern? sunk or not rose meaningfully. The graph ‘Sensex
Over the last 10 years, as depicted by the chart, the companies: Decoding the rally’ suggests that half of
Sensex has resumed its upward trajectory, with an Sensex companies are still trading below their prices
annualised return of 7.7 per cent per annum. on 2nd March and haven’t meaningfully contributed to
Investing in stocks is a play on the economy, and if the the rally in the last couple of months. Further, just
economy is poised to grow, so will the market. five stocks have risen by over 20 per cent from their
Secondly, don’t forget that Sensex is a weighted 2nd March prices and six stocks are down by over 20
index. This means that the stocks in this basket have per cent from that level.
:LUZL_»Z7,
The price-to-earnings ratio is one of 30 Max 28.4
the widely tracked metrics of
valuation. A look at the Sensex’s P/E 27
chart suggests that its P/E is nearing Current 27.8
all-time highs. However, P/E ratios 24
have to be put in the right context.
The P/E ratio can be inflated if the 21
Median 20.0
price goes up or if the earnings
compress or both. When it is inflated 18
because the price has gone up, it may
mean overvaluation. However, in the 15
Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug
present scenario, the inflated P/E is ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 Min 16.4
primarily due to a compression in
earnings. Due to the outbreak of the and hence their sales and profits have fallen. This has resulted in a
pandemic and the ensuing spike in their P/Es. In the subsequent section, we will decipher the
lockdowns, the economy has taken a pandemic’s impact on the sales, profits and operating margins of
hit. Most businesses have suffered S&P BSE 500 companies.

COVER STORY
:LUZL_»Z7)
4.0 Max 3.82 The price-to-book ratio is especially
useful when the earnings don’t tell
3.6
much, as in the current situation.
3.2 The book value indicates what a
company thinks about its worth. A
2.8 Median 2.96 fall in earnings doesn’t cause a fall in
2.4 Current 2.89 the book value. However, since the
book value falls in the case of a loss
2.0 and many companies have posted a
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 Min 2.36 loss in Q1, the Sensex’s P/B may be
slightly inflated. Still, it’s near its
10-year median.
:LUZL_»ZKP]PKLUK`PLSK
2.00 Max 1.80 Dividend yield is obtained by
dividing the dividend in rupee terms
1.75
by the price. So, a decline in dividend
1.50 or a rise in price can both contract
the yield. Given the economic
1.25
Median 1.34 uncertainty, many companies would
1.00
be inclined to slash their dividends.
The RBI has instructed banks not to
0.75 Current1.00 pay any dividend for this financial
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 Min 1.00 year, so that can also lower the yield
of the Sensex, in which banks hold 25
per cent of the weight.
:LUZL_»ZTHYRL[JHW[V.+7
95 Max 90 The Sensex comprises the biggest
company’s in India. Their combined
88
market cap as a proportion to India’s
81 GDP can indicate overvaluation.
Currently, the ratio is slightly below
74 Median 78
the median. Due to the toll the
Current 76 pandemic has had on the economy,
67
estimates suggest that the GDP will
60 contract in Q1. This could increase
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Min 64 this ratio. However, as the economy
picks up momentum, this ratio will
again settle.
:WYLHKVM.ZLJ`PLSKHUK:LUZL_»ZLHYUPUNZ`PLSK
5 Max 3.94 G-sec yield is the yield on the 10-year
government bond. Earnings yield is
4
the inverse of the P/E. The spread is
3 Median 2.87 obtained by subtracting the earnings
yield from the G-sec yield. As the
2 Current 2.38 value of this spread reduces, i.e.,
1
Sensex’s earnings yield increases (due
to a fall in the price or an increase in
0 the earnings), that indicates
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 Min 0.79 undervaluation and vice-versa.
All data as on August 18, 2020. GDP data as of June 2020

COVER STORY
The sales perspective

W
hile the COVID-led slowdown was already
visible in Q4 FY20, the major impact came in
Q1 FY21, which saw a drop of over 30 per cent
(NNYLNH[LZHSLZ
in aggregate sales of non-finance companies. In Q1, NYV^[O@V@
travel, hospitality, entertainment and retail were the z Q4 FY20 z Q1 FY20
worst-affected sectors as sales literally fell to zero for
some of the companies in these sectors. On the other NON-FINANCE COMPANIES
-7.5 -31
hand, agri, healthcare, telecom, amongst others, were
able to increase their sales. Good rains and rural
stimulus pushed the agri sector. Increased data
consumption and higher demand for digital services FINANCE COMPANIES
8.1 10
were the tailwinds for telecom and IT. Rising gold prices
led to an increasing demand for gold loans, benefitting
Muthoot Finance and Manappuram Finance.
*VTWHUPLZ!>VYZ[MHSSPU *VTWHUPLZ!)LZ[YPZLPU :LJ[VYZ!>VYZ[ :LJ[VYZ!

ZHSLZ[V[HSPUJVTL ZHSLZ[V[HSPUJVTL MHSSPUZHSLZ )LZ[YPZL
NON-FINANCE FINANCE NON-FINANCE FINANCE Aviation PUZHSLZ
Inox Leisure Indostar Capital SPARC Indian Bank -92 Agri
-100 -23 971 97.0 Hospitality 21

Shoppers Stop PNB Housing Laurus Labs CreditAccess Gram -76 Ratings
-93 -16 77 65 Diamond & Jewellery 13

VIP Industries Aditya Birla Capital Dhanuka Agritech Canara Bank -73 Telecom
-93 -9.5 71 44 Alcohol 5.2

Interglobe Aviation L&T Finance Coromandel Int ICICI Securities -59 IT
-92 -5.7 51 41 Gas Transmission 4.8

EIH UCO Bank Balrampur Chini Manappuram Fin. -54 Healthcare
-91 -4.0 51 27 Consumer Durables 2.5

Godrej Properties IDBI Bank Divis Laboratories Muthoot Finance -53
-89 -3.8 49 27 Retailing
TCNS Clothing Shriram City Union Ipca Laboratories Bajaj Finserv -53
-88 -3.6 42 26 Automobile &
Ancillaries
Mahindra Lifespace Bank of India Alembic Pharma REC
-52
-87 -1.0 41 24 Ship Building
Bombay Dyeing Bank of Baroda PI Industries AU Small Finance
-51
-86 -1.0 41 24 Media &
Indian Hotels MAS Financial GE Shipping Ujjivan Financial Entertainment
-86 -0.9 37 23 -49
All data for Q1 FY21 on a YoY basis unless stated otherwise. All numbers in %. Study based on BSE 500 companies.
Q4 FY20 data: No. of non-finance companies 420 and finance companies 68. Q1 FY21 data: No. of non-finance companies 336 and finance companies 55.

COVER STORY
The profit perspective

I (NNYLNH[LWYVMP[
n the absence of meaningful sales but
thanks to fixed expenses, like rent, interest,
salaries amongst others, the profits of non- NYV^[O@V@
finance companies plunged by 90 per cent in Q1. z Q4 FY20 z Q1 FY20
Sectors like aviation, retail, hospitality suffered
the most because of high fixed costs. Among NON-FINANCE COMPANIES
the non-finance companies, the ones that had
attained more than 10 per cent profit growth in
Q1 YoY were mainly from agrochemicals, -78 -90
healthcare, IT and FMCG. While financial firms
FINANCE COMPANIES
made provisions in anticipation of bad assets,
-8.2 29
the aggregate profit improved as public-sector
banks, which are recovering from their NPA
mess, started reporting profits.
*VTWHUPLZ! *VTWHUPLZ! :LJ[VYZ!>VYZ[ :LJ[VYZ!

>VYZ[MHSSPUUL[WYVMP[ )LZ[YPZLPUUL[WYVMP[ MHSSPUUL[WYVMP[ )LZ[YPZLPU
NON-FINANCE FINANCE NON-FINANCE FINANCE Hospitality UL[WYVMP[
Shoppers Stop Bank of Baroda Strides Pharma Bank Of India -11,358 Logistics
-109,218 -181 2,691 449 Telecom 87

Indian Hotels IIFL Finance JSPL M&M Financial -505 Agri
-5,046 -82 1,842 303 Iron & Steel 66

EIH L&T Finance Shipping Corp Max Financial -346 Miscellaneous
-4,507 -73 1,266 288 Aviation 24

Aster DM Healthcare IndusInd Bank Intellect Design CSB Bank -336 Crude Oil
-2,644 -64 1,157 174 Auto & Ancillaries 22

Lemon Tree Hotels Shriram Trans. Fin. Deepak Fertilisers IDFC First Bank -315 Plastic Products
-2,407 -50 1,114 116 Retailing 6.1

Blue Dart Express Ujjivan Small Fin. Laurus Labs IDBI Bank -218 IT
-2,201 -42 1,038 104 Diamond & Jewellery 1.9

Aditya Birla Fashion RBL Bank GE Shipping UCO Bank -180
-1,992 -42 967 104 Alcohol
JK Tyre & Industries Bandhan Bank Indoco Remedies Chola Financial -131
-1,276 -32 821 90 Textile
Mahindra Holidays Equitas Holdings Hathway Cable ICICI Securities -120
-851 -29 778 70 Realty
JTEKT India Aditya Birla Capital Heritage Foods State Bank of India -112
-797 -26 382 62
All data for Q1 FY21 on a YoY basis unless stated otherwise. All numbers in %. Study based on BSE 500 companies.
Q4 FY20 data:: No. of non-finance companies 420 and finance companies 68. Q1 FY21 data: No. of non-finance companies 336 and finance companies 55.

COVER STORY
The margin perspective

A (NNYLNH[LTLKPHU
mong the 336 non-finance companies
studied for their Q1 results, only about 129
were able to protect their margins in the
VWTHYNPU504
first quarter of the previous year. Shipping NYV^[OW[@V@
companies surprisingly benefited from a rise in z Q4 FY20 z Q1 FY20
tanker rates as crude-oil prices dropped suddenly
NON-FINANCE COMPANIES
and traders rushed to seek storage tanks. Except
for a few firms, net interest margins (NIMs) of
financial firms remained stable overall or even -0.6 -3.2
improved as the cost of funds declined. Also, the
interest on the loans under moratorium accrued. FINANCE COMPANIES
It remains to be seen in the coming quarters how
these loans will affect the NPAs of financial firms. 0.4 0.3
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>VYZ[MHSSPUVWTHYNPU504 )LZ[YPZLPUVWTHYNPU504 PUH]NVWTHYNPU YPZLPUH]NVW
NON-FINANCE FINANCE NON-FINANCE FINANCE Aviation THYNPU
EIH Bandhan Bank SPARC IDFC First Bank -237 Crude Oil
-483 -2.3 581 1.5 Hospitality 3.6

Interglobe Aviation Shriram Transport GE Shipping IDBI Bank -178 Power
-237 Finance
30 0.7 Retailing 3.2
Shoppers Stop
-0.7 Sobha Motilal Oswal Fin. -62 Inds. Gases & Fuels
-206 L&T Finance

28 0.6 Textile 3.1
Indian Hotels
-0.5 Shipping Corp RBL Bank -29 Telecom
-202 Bank of India

26 0.5 Diamond & Jewellery 2.2
VIP Industries
-0.2 Indiamart Intermesh Muthoot Finance -24 IT
-166 City Union Bank

23 0.4 Ship Building 2.1
TCNS Clothing Co
-0.1 Ipca Laboratories Canara Bank -23 Plastic Products
-152 Kotak Mahindra

Bank 20 0.3 Realty 1.9
Mahindra Lifespace -0.1 Adani Transmission Aditya Birla Capital -23 Agri
-143 Federal Bank 18 0.3 Media & Ent. 1.7

Aditya Birla Fashion -0.1 Intellect Design IndusInd Bank -22 Ratings
-127 Bank of Baroda 16 0.2 Paper 1.3

Godrej Properties -0.1 Laurus Labs State Bank of India -14 Gas Transmission
-93 13 0.2 Auto & Ancillaries 1.1

Bata India Alkem Laboratories ICICI Bank -14 Infrastructure
-91 12 0.1 0.4

All data for Q1 FY21 on a YoY basis unless stated otherwise. All numbers in % pt. Study based on BSE 500 companies for non-finance stocks.
Q4 FY20 data: No. of non-finance companies 420. Q1 FY21 data: No. of non-finance companies 336.
Due to unavailability of full BSE 500 data, for non-finance stocks study is based on BSE 200 companies. Q4 FY20 data: No. of companies 19. Q1 FY21 data: No. of companies 19.

COVER STORY
What all this means

Key takeaways from the analysis that will help you decide your future course
H
aving read this report, you now have a better its components. Miscellaneous occurrences like
idea of the complexity of the stock market and COVID can make them behave erratically, so better put
the companies that trade in it. Before you things in the right perspective.
decide to buy or sell, here are a few pointers that you
would like to refer to in order to make your decision. 4. The index hides more than it reveals
Looking at the Sensex or
1. Don’t underestimate the bull BSE 500 may provide a
The swift recovery in the last broader idea of the direction
couple of months has of the market but that’s not
virtually undone the market everything. Indices are often
crash. Those who had sold weighted and can move up
out were caught on the even when a majority of
wrong foot. Thus, timing the their components are
market in anticipation that trending downwards. Hence,
you can protect your returns basing your decisions just on index movements can be
or cut your losses is counterproductive.
generally unproductive. Once you have selected a good
company, it makes sense to stay invested in it through 5. Don’t paint all companies with the same brush
all phases of the market. While the pandemic has hit
almost every sector and
2. Always be prepared for a correction company, you can’t paint all
The crash in March came as the companies with the same
a shock for most investors, brush. Certain sectors and
who had grown accustomed companies have been
of seeing new highs. severely hit but then there
Corrections and crashes are are some, such as pharma
an integral part of the stock and IT, that have clearly
market and as an investor, stood out. It’s not that these sectors offer some sort of
you should always be panacea for bear-market woes. Recall that the pharma
prepared to face them. This sector had been out of favour for long and the IT
implies not investing your short-term capital in the sector is disregarded on and off based on the
market and keeping a long horizon. Pick safe and headwinds from the US.
sound stocks that you can stand by during crises. As
Buffett said, “Only buy something that you’d be 6. Beaten-down sectors
perfectly happy to hold if the market shut down for 10 may provide opportunities
years.” See crashes as opportunities to accumulate The pandemic isn’t going to
more of good companies at lower levels. last forever. In a few months,
as a vaccine becomes
3. Valuations are always tricky available, the beaten-down
As we saw in the section on sectors will start reviving.
Sensex’s valuations, different The good companies in those
parameters tend to point in sectors may turn out to be
different direction. They are the next leaders. Many of
seldom in sync. Thus, these companies may
reading a simple P/E chart currently have inflated P/Es but then as you saw, that’s
and saying that the market because of subdued earnings. At the same time, the
will fall or rise isn’t going to sectors and companies that weathered this storm may
be of much help. Also, it become overvalued. Hence, smart investors would start
pays to understand a particular valuation metric and looking at the out-of-favour sectors and companies. WI

EVERYDAY
ECONOMICS
Back to the drawing board

The COVID-19 crisis has sparked the debate on the future of
economics and reimagining the subject
PUJA MEHRA
Every public-health crisis in history about tolerable levels of borrowings by governments.

has led to lasting changes. The New Yorker magazine Can governments afford the debts they are piling up to
recently listed some examples. The Black Death reduced stabilise economies reeling under the impact of the
the population of medieval Europe to such an extent coronavirus pandemic? Who will repay this debt?
that labour became scarce and the wage rates shot up, There is no doubt that there will be dire consequences
weakening the feudal system and, in particular, the of the expansion in governments’ borrowings for future
British social hierarchy. The First World War made way generations of taxpayers.
for a larger role of women in the economy. The Second The policy responses across countries and the ramifi-
World War birthed the post-war welfare state in Europe, cations of those measures are leading to such questions,
including the British National Health Service, and the which are forcing economists to revisit the basic princi-
adoption of what has come to be known as the Keynesian ples of economics. A huge debate is underway among
economic policies. macroeconomists around the globe on the changes and
Similarly, the COVID-19 crisis has changed the daily realignments necessary in the subject – once again, just
life, attitudes, behaviours and governance substantial- as has been seen in its history over the last 100 years
ly. In March, large parts of the economy were shut whenever significant events took place. It’s early to say
down in the hope of containing the spread of the virus. what changes will come about this time. But one thing
Although some parts have been restarted, the toll on is certain: economics is not going to remain the same
the economy is clearly going to be enormous until a and, therefore, our lives will change too.
vaccine is found and some semblance of In every economic crisis so far, coun-
normalcy returns. As a result, nearly tries have relied on macroeconomic
every country in the world is not only Not even during tools of monetary and/or fiscal policy.
dealing with a public-health crisis but the Second World Those have been found to be ineffective
in the present crisis. Despite federal
also an economic catastrophe.
The crises – essentially an outcome
War, which stimulus spending of more than $3 tril-
of state failures in China to begin with plunged the lion on emergency private wage protec-
but then in every other country, includ- western world into tion, unemployment assistance and
ing US, Iran, Italy, India and elsewhere the Great other forms of relief, the US economy
shrank by an annual rate of 32.9 per
– have ironically necessitated an expan-
sion and change in the nature of the
Depression, had cent between April and June. This is
government’s role. Governments across the world economy the sharpest contraction in the US
countries have stepped up their spend- come to a GDP since the Second World War. The
ing to mitigate the loss of incomes. The standstill the way US has reported a rise in unemploy-
ment levels last seen in the Great
International Monetary Fund has pre-
dicted that the debt-to-GDP ratio will
it has right now, Depression of the 1930s. Taking nev-
skyrocket this year for countries, chal- said Dr Manmohan er-before monetary policy actions, the
lenging conventional conservatism Singh US Federal Reserve has injected more

EVERYDAY
ECONOMICS
than $6 trillion into the US economy through rate cuts, COVID crisis is unlike anything else seen before. Not
credit and lending programmes. Germany, the largest even during the Second World War, which plunged the
European economy, saw its growth contract by 10.1 per western world into the Great Depression, had the world
cent between April and June, the sharpest slump since economy come to a standstill the way it has right now,
1970, even after spending more than 130 billion on a he has said. Therefore, the current economic situation
fiscal stimulus package and slashing tax rates. is truly unprecedented in its ubiquity, scale and depth.
India’s case is trickier than the other economies. The He has also highlighted how there are no known policy
COVID-19 crisis follows a decade of profligate borrow- tools to mitigate the impact of the crisis – bringing
ing by the government. The last five years had no global home the global debate on the future of economics and
economic challenges, but the window was not put to the need for reimagining the subject.
good use for tidying up the mess created in the previous Is the fact that economics needs to evolve and adapt
years. Rather, the government’s financial management constantly in response to emergent real-world situa-
was allowed to deteriorate. Today, India’s government tions a good thing or bad? The best take on this salient
has little ability to spend like other countries for miti- question has come from Meghnad Desai, a British
gating the hardships heaped by the virus on the people. economist and recipient of India’s civilian award
Banks remain buried under mountains of bad debt. Padma Bhushan (2008): “As an economist, my surprise
The financial system is fragile. Should the debilitating has been the uncertainties on the hard science side.
impact of the COVID-19 crisis tip companies or banks People mock economists for disagreeing, or for getting
into trouble, there is likely to be a huge public support forecasts wrong. But, uncertainties about the nature
for large bailouts of private banks, financial institu- of the virus, its evolution, ways of testing, devising a
tions and companies by the taxpayer, although tax col- vaccine, estimates of lives lost under each scenario
lections are down drastically. have all shown (to me, at least) that faced with an
Dr Manmohan Singh, a former governor of the unanticipated shock, natural science does no better
Reserve Bank of India, and one of the best finance min- than social science. At least the mistakes of econo-
isters the country has had, has advised the Indian gov- mists are not lethal.”
ernment to fix the financial sector on priority to make To be able to change is to be alive. Isn’t that a com-
sure that the economy would be able to withstand the forting thought in times of a raging pandemic? WI
challenges of the unprecedented crisis due to COVID-
Puja Mehra is a Delhi-based journalist and the author of
19. As Dr Singh has pointed out, the 1991 crisis was a The Lost Decade 2008–18: How the India Growth Story Devolved into
domestic crisis induced by global triggers, but the Growth Without a Story

INTERVIEW S KRISHNAKUMAR
CIO – Equity, Sundaram Mutual Fund
‘We expect a large part of the

economy to normalise towards the
second half of the current fiscal’
T
he COVID
COV pandemic has proved to be a big
disruption for the economy. It’s likely that its
disrup
impact will be felt for long across sectors.
Amid tthe breakout, the quarterly results of
Indian companies
compan show the stress they are facing. We
speak to S Krishnakumar,
Krish CIO – Equity, Sundaram
Mutual Fund about
ab the outlook of various sectors. He
also shares with us his stock-selection framework and
his best investing
investin lessons.
Based on Q4FY20
Q4FY2 and Q1FY21 results, what’s your
assessment of theth impact of COVID on Indian companies?
Whhenn doo yyou
When ou see India Inc’s performance go back to pre-
CO
OVI
VID levels?
VID
COVID
Th
Thehe imimpact of C COVID and the subsequent re-opening
phase
ph asse is varied across sectors, with certain segments
hase
normalising
norm malis
alissin
al ing quickly on the back of pent-up demand.
g qu
q
With
W
Wi t easing
th go off lockdown restrictions, production
levelss by th the
he en end of Q1FY21 reached 83 per cent of the
levelss llast
ast yeyear,a , led by manufacturing, commodities
ear
and el electricity.
lectrtricity. An expansion was witnessed for
tr
cconsumer
co nsumer er nnon-durables,
on-d with a boost in pharma
production.
prod
pr oduccti
od tion
on. Lab
on Labour market indicators continued to
improve,
im
mp prrov
ove,
e w with
ith C
it CMIE (a think tank) unemployment rate
reducing
redu
re duci
du cing to 7.
ci 7.2
.2 per cent as of 2nd August.
Unemployment
U
Un em
empl
mp oyme m nt
me n rates are now below pre-COVID levels
both
in b otth rurall a and
n urban areas.
During
Du uring g Q1FY21,
Q1F most companies were nimble to
save
sa ve costs
ave cos
oststss amidst weaker volumes. Notable
am
amongst
m these were sectors such as consumer,
cement
m nt and software. Added to this, benign
ceeme
input
input prices
p aided them to manage operating
margins
margin reasonably despite adverse
operating
o erat
op leverage.
The
T flattening of the number of active
Th
cases
case
ca sess and increasing number of recovered
se
cases
ca sess raise hopes of improved activity
ase
levels
v ls and economic outlook. Should
leeve
current
curr
cu rree trends continue, the state
governments
g ve
go will presumably be
encouraged
ennco o to continue with steps to
reopen
op the economy. With normal
reeop
monsoons
mo on and stable prices, farm incomes

INTERVIEW
are expected to improve and provide a fillip to rural forward by five to 10 years, which necessitates
demand in the current year, partially offsetting the investment in digital technologies for seamless
weakness in urban demand due to lockdowns. We customer experience and data analytics. Also, the
expect a large part of the economy to normalise to adoption of cloud has accelerated as clients look to
pre-COVID levels towards the second half of the reduce costs and capture the benefits of cloud in
current fiscal and accelerate on growth from FY22. terms of better access to data. The recent
announcements of a few large cloud deals by Indian
How effective has the government’s stimulus been in companies reflect this.
fighting the COVID crisis? What are the major pain points in Enhanced participation in digital programmes and
the economy currently? core transformation deals have been the key drivers
The focus of the government and RBI measures has for the growth of Indian IT companies during the last
been to address the immediate pain on the ground five years. Industry analysts such as Gartner project
while also keeping in mind the structural reforms CY2021–24E IT services spending growth at 5–8 per
required. The measures have helped cash-starved cent compared to the average of 4.2 per cent achieved
businesses greatly tide over the current disruption during 2010–19. Post COVID, the outlook for Indian IT
through tax relief, waivers, interest subvention, cash companies remains encouraging as these underlying
transfers, food and financial support. Since the drivers have strengthened.
announcement of the package, the system has
witnessed an appreciable drop in the banks’ The pharma sector has witnessed a resurgence
deposits with the RBI, reflecting a pick- in investor interest. How good does the
up in risk perception. The story appear?
government’s measure through “Stocks are We remain positive on the growth
the RBI approving a liquidity analysed with our 5S outlook of the Indian pharma
scheme for NBFCs and HFCs
model, which stands for sector. Stable demand in the
through an SPV has witnessed domestic market and surging
improved sentiment and has identifying and filtering export markets, led by a
led to a contraction in the companies with simple growing need for chronic
spreads for NBFCs. businesses, scalable therapies and newer launches,
A recent example of the
opportunities, sound promoters, has kept the pharmaceuticals
response to the government sector on a steady growth path.
measures is the PM SVANidhi, sustainable competitive Post the pandemic, the
aiming to provide loans to street advantages and steady incremental demand growth is
vendors. The scheme has received cash flows.” expected to be driven largely by
five lakh applications. The key higher exports to the developed
concerns currently revolve around the markets. The recent increase in
Centre and state revenue shortfall and the resolution of USFDA issues of various
resulting impact on government spending plants in India also kickstarts the growth engine
programs. The current year could be a tight walk on where investments are already done. Post the COVID
balancing between the fiscal health and stimulating event and the resulting disruptions in China,
growth through targeted spends. A few sectors like opportunities have opened up significantly for Indian
automobiles, trucks, real estate, hotels and textiles pharmaceutical companies to establish themselves as
seem to be needing a focused support, which is an area end-to-end manufacturers in the pharma supply chain.
to watch out. Additionally, the government’s focus on reducing
dependence on imports from China and boosting
IT companies have proved to be highly resilient to the crisis. indigenous manufacturing through schemes for the
What’s responsible for this? What’s the outlook for Indian IT creation of bulk-drug parks and production-linked
now? incentives for key drugs provide a medium-term growth
The results of IT companies have been encouraging road map for domestic pharmaceutical companies.
through this period of economic disruption. Despite On capabilities, the shift towards complex products
GDP of many economies declining during this and bio-similars should augur well for Indian pharma
intermittent period, IT spending has been resilient. A companies in the medium term. The consumer spend
sharp increase in online adoption across verticals has on speciality products in developed markets is
opened up growth levers for this sector. Online expected to reach 52 per cent of the total
penetration in many countries has been pulled pharmaceutical expenditure in 2024 from 44 per cent

INTERVIEW
increase in higher credit costs apart from raising

capital to comfortable levels. With liquidity issues
getting addressed through consistent intervention of
the central bank, the focus largely shifts to asset
quality, where normalised levels could largely be
assessed from the end of the current fiscal. Against
this backdrop, the recovery in growth could be gradual
and lenders well-positioned on the above parameters
could have a head start on growth.
How do you see the revival in demand for auto and

consumer goods? Is the trend sustainable or is it just a blip
before a prolonged slowdown?
Consumer demand is expected to recover gradually
through the current fiscal. Localised lockdowns in
various states continue to be a supply-side factor that
currently. Also, with a renewed global focus on costs, can constrain growth temporarily. Nevertheless, the
there has been an increasing trend across global benefits of a normal monsoon and improved rural
pharmaceutical companies to outsource development spend should help demand growth in foods and
and manufacturing of new products, thus saving consumer durables.
capital costs and gaining access to capacity. Indian Post COVID, initial trends point to a positive rub-
contract development and manufacturing off on demand for certain categories. Passenger
organisations could build on these increasing vehicles and two-wheelers have seen a sharp recovery
opportunities, given the established capabilities and in demand to pre-COVID levels as a preference for
relationships with their customers. personal mobility increases, while packaged-food
companies continue to see tailwinds from consumer
What’s your take on banks and NBFCs as far as their assets shift to established brands in this phase.
and liquidity woes are concerned? The long-term thesis for consumption growth
Post the pandemic event, we’ve witnessed is very much intact. Several categories
a spate of measures announced by the “The within consumption are still marked by
RBI and the government towards
liquidity support and guarantees.
key to low market penetration, thereby
presenting a significant opportunity
The outcome of these schemes successful investing for long-term growth. The
could result in improved system is to dispassionately structural drivers behind
liquidity, normalisation of the review decisions, back consumption growth include
economy and could either delay
or reduce the stress in the
conviction ideas with ground increasing working-age
population, a rising mix of
system. The pace of economic checks and accept with affluent households, increased
recovery would dictate the asset- humility the calls that financial penetration and
quality trends for financials stocks haven’t played as per emergence of tier-2 cities as
and any swift recovery could
undermine the relevance of
expectations.” consumption hubs. Several of these
undercurrents are very much at play.
resolution frameworks. In the short With major reforms being initiated in the
term, with the moratoriums and agri sector, the drivers for rural demand
restructuring guidelines being announced, the growth get strengthened in the medium term.
magnitude and duration of stress remains an
uncertain variable. What’s your stock-selection framework? How do you avoid
For banks and NBFCs, we expect this year to be wealth-destroying stocks?
largely marked by efforts on bolstering equity capital, Rigorous research remains the cornerstone of good
ensuring adequate liquidity to tide over short-term investments. Stocks are analysed from the perspective
delays in collections, building up coverage cushion of our in-house 5S model, which stands for identifying
and managing recoveries efficiently. In the last two and filtering companies with simple businesses,
quarters, banks have been creating specific provisions scalable opportunities, sound promoters, sustainable
towards the COVID event in anticipation of possible competitive advantages and steady cash flows.

INTERVIEW
Please share with our readers the most precious investing lessons in your career.
As an investor who aspires to build a portfolio of valuations if there is a choice to be made. Even if
stocks for the long term, it is important to follow a the price is wrong, one might still have a positive
disciplined process to identify businesses that are return experience, even though the holding period
good to invest in. Over time, every manager could be longer.
develops a certain investing style which shapes the z Be open to reviewing decisions that have turned
way he/she thinks about businesses, valuations bad but at the same stick to a stock with conviction
and risks. Over the decades, we have clearly seen if the underlying thesis is still right but
that managers who stick to their style with temporarily disrupted.
discipline tend to perform well. One must z Avoid businesses that are susceptible to both
remember that wealth is created by doing three operative and financial risk coming together.
things right – right stock selection, right valuation z Be aware of your innate cognitive biases and
and right weighting in the portfolio. emotions as you think about investing and stocks.
A few other points one may keep in mind are: z Choose to invest in businesses that you can
z Always choose quality of business over understand, no blind dates!
Emphasis is on understanding the business dynamics, and larger on quantum, thereby triggering a quick shift
key drivers, structural changes, if any, competitive in expectations. The fiscal stimulus from governments
environment, underlying government policies and have also been very effective to help businesses and
regulation. This process includes meeting company society at large to weather the shock. With the risk of a
managements, making plant visits, interacting with systemic standstill behind and central banks in full
vendors as well as peers to help understand the action to avert the same, the markets have rebounded
business dynamics beyond the financials, such as sharply, overlooking short-term impact of the event and
product quality, plant efficiency, skills of key focusing back on longer-term drivers that support
personnel and distribution network, to name a economy and earnings under normalised
few. Such inputs enable the formation of conditions.
a more holistic view of a company.
The research process involves
“Trying We remain constructive on India and
equities as an asset class. While this
reviewing investments rigorously times present event has created a growth scare,
through the lens of the 5S great opportunities to we do see a silver lining. India has
framework, and any change to invest at great prices. seen improved competitiveness
long-term investment thesis
triggers a hard review of the
Historically, equity-market on corporate taxes,
accommodative monetary policy,
investments. The key to returns have been quite good ample skilled labour supply,
successful investing is to post decadal events like the stable currency and is the most
dispassionately review decisions, Global Financial Crisis, improved over the last five years
back conviction ideas with ground
checks and accept with humility the
demonetisation or on the ease of doing business.
Global manufacturing companies
calls that haven’t played as per COVID.” are therefore increasingly considering
expectations. As Peter Lynch says, in India as an investment destination to
this business, if you’re good, you’re right relocate a part of their China operations.
six times out of 10. A disciplined asset allocation and investment
approach of buying through the dips would be
The crash in March and then the swift recovery have baffled essential to see through the volatility arising out of
investors. What would be your advice to them to stand such such events. Trying times present great opportunities
volatility? to invest at great prices. Historically, equity-market
The current phase of disruption across global markets returns have been quite good post decadal events like
is an unprecedented event and was bound to evoke the Global Financial Crisis, demonetisation or COVID.
sharp response in investor behaviour. Unlike earlier Equities are a long-term asset class and require
cycles, the coordinated central-bank action across patience from investors to reap the benefits of long-
markets have been far quicker on response timelines term compounding stories. WI

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STRAIGHT TALK
The right context

In order to understand the prevailing power dynamics between the
US and China, a proper framework of political philosophies
and human nature is required
ANAND TANDON
As US elections near, there is significant India – would do well to make their peace with China
interest in the outcome. Opinion polls suggest a regime instead of engaging in postures that will inevitably
change and with that, a change in policies – higher lead to conflict and from where they will each emerge
corporate tax, potentially higher interest rates in the rather poorly.
US. This, in turn, would affect large parts of the world
markets. Concomitantly, changed foreign policy A framework for analysis
priorities of the US could lead to significant changes in Without a framework within which to understand the
the power structure of the world. behaviour of powerful states, a debate such as one ini-
Kishore Mahbubani is a career diplomat and acade- tiated by Mahbubani is only a matter of diverse opin-
mician. His latest book, Has China Won: The Chinese ions. Is the push-back against China that we see in
Challenge to American Primacy, examines the rela- many countries, led by the US and including countries
tionship between the US, the existing dominant power like India, a matter of cultural belligerence or an inev-
in the world, and China, which Mahbubani argues is itable outcome of changes in relative economic and
the inevitable successor. Mahbubani attempts to military heft. Professor Mearsheimer, Distinguished
explain to the reader why China is a benign, non-expan- Service Professor at the University of Chicago and a
sionist (almost passivist) state – much maligned in the political science scholar, explains the theory underpin-
west and mistreated on account of cultural bias: “There ning various political philosophies and their resultant
has been buried deep in the unconscious foreign policy postures in his excellent
of the Western psyche an inchoate but Political institutions book The Great Delusion: Liberal Dreams
real fear of the “yellow peril”.” and International Realities. In this book,
That, and an assumption of moral
are formed as a Mearsheimer deals with liberalism,
superiority by the West that regards ‘per- need for societies nationalism and realism and their inter-
sonal freedom’ and democracy as being to interact with actions from first principles.
‘righteous’ while ignoring the desires of each other and
the Chinese populace for strong, central
control lead to misunderstandings
within themselves. The basis of human society
Humans are social animals. It is not quite
between the two nations that will inevita- These institutions clear though what comes first – individu-
bly lead to the USA not being able to cede control the means al or society. Is our species made up of
ground gracefully. A conflict is inevitable, of violence to individuals who got together to form soci-
and China is an unwilling participant,
being dragged into a conflict where it will
enforce rules within eties or, conversely, of societies with indi-
viduals as members? If the first, it can be
eventually triumph. The rest of the world society and among postulated that all humans have unalien-
– Japan, Australia, ASEAN countries and societies. able and universal rights that allow them

STRAIGHT TALK
to live life the way they would want to. This is the fun- gressive liberalism’, where, along with the rights of
damental principle of liberalism. individuals, there is an assumption that the state will
Almost everyone would agree that survival is the help its citizens. Progressives think that all individuals
most important individual goal – without that, no other need equality of opportunity, which requires social
goal can be pursued. Beyond that, it is impossible to engineering by the state. This puts them in conflict
agree on what constitutes a good life. Various philoso- with the laissez-faire liberals because positive discrim-
phers have thought about what could be ‘objective ination favouring some citizens will come at the cost of
truths’ that are intrinsically good or right – without others impinging on their rights. Despite this, most
success. Leo Strauss, a political philosopher commonly modern liberal states are progressive.
assumed to have believed that society could get to a
coherent set of natural laws, actually concluded, “It Nature of nationalism
may be that as regards the possible answers to these Liberal thought privileges individuals over societies,
questions, the pros and cons will always be in more or but humans are social animals from the beginning.
less even balance, and therefore that philosophy will Human infants are born helpless and remain depen-
never go beyond the stage of discussion or disputation, dent on their parents and immediate caretakers for
and will never reach the stage of decision.” their survival. Individualism develops with the devel-
Without an agreement on what is ‘right’, disagree- opment of reasoning ability over time. Till then, small
ments among liberal groups may need to be resolved by children are influenced by the people around them.
an external party – the state. Liberalism should lead to “Society is not a mere sum of individuals. Rather, the
a small but powerful state with limited powers to affect system formed by their association represents a specif-
the lives of individuals in the normal course of busi- ic reality which has its own characteristics,” said
ness – and this Mearsheimer defines as “modus vivendi Emile Durkheim.
liberals”. Such a liberal state will have a laissez-faire Political institutions are formed as a need for societ-
economy, with minimal interference of government – ies to interact with each other and within themselves.
capitalism – with the right to own property and free- These institutions control the means of violence to
dom of speech as its most basic features. enforce rules within society and among societies.
A variant of this liberal philosophy is that of ‘pro- Societies have an instinct of survival, which provides

STRAIGHT TALK
the impetus for them to expand. Societies want to con- interference in the internal affairs of countries in their
trol resources of rival groups through various means sights. He calls this “liberal hegemony” – largely driv-
– killing rivals, enslavement, influencing politics. More en by the liberal elite. This explains US intervention in
powerful societies have a greater chance of survival. Afghanistan, Iran, Iraq, Syria et al. In all these cases,
However, expansionist powers will meet resistance they came up against opposition from people who had a
from target groups. As societies expand, they also different view of their own society and were willing to
become more fissiparous, with rival groups within the fight for it. This policy ended in disaster with large
society trying to impose their will or causing splits in parts of the world in turmoil.
the society. These opposing forces explain why interna- Going forward, as the world becomes more bipolar, a
tional systems are anarchic, with no global society. powerful state would act as a realist – competing for
Political institutions have powerful reasons to foster power in a threatening world. Realism works on the
a sense of ‘nationhood’ among their populace – a com- assumption that there is no neutral umpire in the
mon identity among different groups. Nationalism cre- world between nations – the international system is
ates powerful bonds between citizens of a state. The ‘anarchic’. In addition, it is not possible to gauge the
assumption of progressive liberalism that humans are intention of other states. As rational actors, states have
solitary individuals, with unalienable rights, clashes to devise strategies to maximise chances of their own
with their being social beings steeped in nationalism, survival. Liberal hegemony is no longer possible and
who would prioritise national interests (no matter how alliances must be formed with other states on the basis
defined) over individual goals. of congruence of interests and not on political form of
domestic governance.
The conflict
With its focus on individuals, liberalism China’s rise cannot be peaceful
actually works at loggerheads to national-
Liberals are China’s rise has already moved the world
ism. Most people care about rights, but it extremely illiberal from being unipolar to being bipolar.
is often not a burning issue for them. when it comes to Mearsheimer’s playbook leads to the fol-
Mearsheimer holds that nationalism is other viewpoints – lowing conclusions irrespective of who
more in sync with human nature than forms the government in the US:
liberalism. “Liberalism always operates
they cannot tolerate (1) Liberal hegemony that the US dis-
within the context of a nation-state. groups that do not played in the past cannot be continued in
Liberalism without nationalism is impos- play by their rules the future. The US will increasingly have
sible. We live in a world of nation-states—a to focus on its own interest rather than
world of omnipresent nationalism. orchestrate regime change in regions
Liberalism, of course, is not omnipresent.” People that are not strategically important to it.
often prioritise stability over individual freedom. (2) Its policy of containment of China, using third
Nationalism is also about prioritising one’s own group countries like India, Japan and Australia, will gather
over others – in direct contrast to universal rights. momentum. This in no way implies that any of these
These two ‘isms’ can coexist within national borders countries can count on the US to back them if the cost
but when applied across borders, there is no higher of doing so to the US is high. The relationship will
authority that protects individual rights. Stateless peo- largely be based on what suits each country, with the
ple have no rights. Despite this, liberals often extend US having the upper hand and arm-twisting whenever
their ideas of rights across nations. Prioritising rights it feels the need.
implies that the only acceptable political order is a lib- (3) China will demand allegiance from countries in its
eral order. Liberals are extremely illiberal when it own ‘backyard’ – and will interfere in internal affairs
comes to other viewpoints – they cannot tolerate groups of its neighbours whenever it feels that a threat is
that do not play by their rules. arising.
In no event is it possible to game a scenario where
Liberal hegemony in a unipolar world, realism in a China can be ‘peaceful’ as it becomes richer and more
bipolar world powerful. Encroachments into Indian territory, Bhutan,
Mearsheimer’s hypothesis suggests that post the col- Nepal, Vietnam, Japan are all pointers to the future.
lapse of the USSR, the world became unipolar – allow- And, importantly, it shows how even career diplomats
ing liberals in the US to export their idea of universal can propound naïve theories. WI
rights to other countries through regime change and Anand Tandon is an independent analyst.

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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 896

Safety Market cap greater than C-Score less than 4
518
Soundness `500 cr PEG less than 1
71
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 66
to 7 Earnings yield greater than 5% 18
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 (`)
Andhra Paper
Paper 3.8 9 3 13.7 7.1 0.07 900 226 452-112
Confidence Petroleum
Storage & Distribn. 7.3 8 2 13.4 10.6 0.30 555 20 37-13
Deepak Nitrite
Organic Chemicals 6.2 9 2 8.7 15.0 0.24 8,701 639 673-257
Ester Industries
Plastic Packaging goods 4.6 9 3 20.7 6.1 0.08 638 76 76-22
Excel Industries
Pesticides 5.8 8 1 11.9 11.0 0.21 1,060 843 1015-376
Ganesha Ecosphere
Textile Processing 5.2 8 1 15.1 8.6 0.38 553 253 390-141
Garware Polyester
Plastic Films
3.4 9 2 24.3 7.1 0.14 612 264 282-132
Granules India
Drugs & Pharma
5.4 9 0 5.9 21.5 0.71 7,835 317 336-86
Heidelberg Cement
Cement
3.5 9 2 9.3 18.3 0.13 4,344 192 218-122
Huhtamaki PPL
Paper prod.
4.4 8 1 8.0 12.7 0.62 1,951 258 305-162
IOL Chem & Pharma
Drugs & Pharma
9.2 8 3 11.2 11.8 0.25 4,759 811 858-146
Kalyani Steels
Finished Steel
3.9 8 1 17.0 9.0 0.51 983 225 269-92
KNR Construction
Construction 5.6 8 1 10.4 13.2 0.41 3,546 252 312-171

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 (`)
Meghmani Organics
Pesticides 4.3 9 1 16.1 9.0 0.20 1,991 78 79-32
Nesco
Diversified 11.0 8 1 8.7 15.0 0.94 3,710 527 817-380
RPG Life Sciences
Drugs & Pharma 6.8 9 2 7.1 20.9 0.29 621 376 418-143
Shree Digvijay Cement Co
Cement 6.2 9 3 11.0 13.7 0.34 704 50 60-14
Transpek Industry
Inorganic Chem. 4.2 9 1 10.8 11.7 0.22 857 1,534 2032-1077
Data as on August 20, 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
896
Really cheap Market cap greater than Companies must have a five-year
Relatively undervalued `500 cr earnings growth of more than 742
Companies with assets Debt-equity ratio of less than 1.5 10%
Price at least 10 per cent below 503
times
Return on net worth of more than the book value
301
10% in the most recent year
36
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
7.1 0.9 99 0.0 0.0 30.1 900 226 452-112
Andhra Sugars
Diversified
4.4 0.8 30 6.1 0.3 15.9 890 328 392-117
CESC
Electricity Generation
6.4 0.9 46 3.2 1.5 13.3 8,385 634 855-365
Dalmia Bharat Sugar

Sugar
4.2 0.7 125 1.2 0.7 11.5 1,103 136 150-40
Dhampur Sugar Mills

Sugar
4.4 0.7 32 4.3 1.5 22.5 927 140 246-66

STOCK
SCREEN
Filatex India
Synthetic Yarn
4.7 1.0 55 0.0 1.3 19.9 574 26 44-15
Future Supply Chain
Transport Support Services
– 0.9 72 0.8 0.4 12.5 658 150 599-81
Gallantt Ispat
Finished Steel
16.4 0.8 55 0.2 0.3 15.2 798 29 36-16
GHCL
Soda Ash
4.9 0.7 18 1.9 0.6 19.6 1,529 161 227-69
Gujarat Alkalies & Chem

Caustic Soda
11.7 0.5 30 4.9 0.1 17.0 2,391 325 487-180
Gujarat Industries Power

5.4 0.4 11 3.6 0.2 10.3 1,217 80 87-44
Gujarat Narmada Valley

Nitrogenous Fertilizer.
5.6 0.5 20 2.7 0.0 15.5 2,841 183 225-96
Hindustan Petroleum Corp

Crude Oil & Natural Gas
8.1 1.0 44 7.4 0.9 20.6 32,701 215 329-150
India Glycols
Organic Chemicals
10.6 0.9 23 2.1 1.0 14.8 895 289 397-175
Indian Oil Corporation

– 0.9 21 10.4 0.9 14.0 83,786 89 156-71
ITD Cementation
21.3 0.9 21 0.6 0.5 10.2 917 54 76-26
Construction
Jindal Saw
5.3 0.3 60 2.9 0.9 13.0 2,174 68 103-40
Steel Tubes & Pipes
JK Paper
5.0 0.7 45 4.0 0.8 23.1 1,754 100 152-62
Paper
National Aluminium Co
53.5 0.7 30 14.7 0.0 16.5 7,295 39 49-24
Aluminium
Nava Bharat Ventures 3.0 0.2 14 2.7 0.8 13.5 985 56 95-32
Diversified
NCC 8.1 0.5 28 0.5 0.6 13.3 2,238 37 72-16

Construction
NHPC 7.6 0.8 19 6.4 0.8 12.1 23,606 24 29-15

Polyplex Corporation 6.9 0.8 191 2.1 0.3 17.0 2,633 821 844-288
Plastic Films
Prakash Industries
6.9 0.3 58 2.5 0.2 19.9 818 48 65-19
Diversified

STOCK
SCREEN
Rail Vikas Nigam

Construction
6.4 0.9 31 4.9 0.7 14.6 4,816 23 29-10
Ramkrishna Forgings
Auto Ancillaries
71.8 0.8 63 0.7 1.1 14.8 696 216 416-133
Sandur Manganese
Minerals
4.1 0.7 58 1.0 0.0 24.5 610 678 922-295
Sarda Energy & Minerals

Finished Steel
7.3 0.4 17 2.2 0.8 12.4 837 232 269-98
Seshasayee Paper
Paper
6.1 1.0 62 2.5 0.0 18.1 999 159 226-80
Sunflag Iron & Steel Co

Finished Steel
12.2 0.6 36 1.0 0.4 12.4 880 49 51-20
Tata Chemicals
Soda Ash
1.2 0.6 65 3.5 0.6 57.1 8,083 317 780-197
Technocraft Industries
Steel Tubes & Pipes
5.5 0.7 11 0.0 0.8 15.5 678 277 425-144
Vedanta – 0.9 11 3.0 1.1 15.5 47,933 129 167-60

Minerals
Welspun Corp 5.3 0.9 28 9.0 0.3 14.9 3,028 116 234-55
Steel Tubes & Pipes
Welspun Enterprises 7.0 0.7 204 2.8 0.5 11.3 1,051 71 105-33
Construction
West Coast Paper Mills

Paper
3.3 0.9 114 2.7 0.3 30.6 1,234 187 286-100
Data as on August 20, 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 896
Higher total return `500 cr yield of more than 3%
721
Generate regular tax-free Dividend payout ratio of less Stocks with sustained per
income than 40% share dividend and amount 44
over the past five years
23

STOCK
SCREEN
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 4.4 0.21 10.0 6.1 14.2 25.0 890 328 392-117
CESC
Electricity Generation 6.4 0.20 20.0 3.2 20.4 11.7 8,385 634 855-365
Cochin Shipyard
Shipping 8.1 0.39 13.0 4.9 35.8 38.0 4,494 342 492-209
Cosmo Films
Plastic Films 8.2 0.25 15.0 3.1 25.7 14.2 933 480 491-186
Garware Polyester
Plastic Films 7.1 0.14 10.0 3.8 28.5 24.3 612 264 282-132
Gateway Distriparks
Transport Support Services 20.4 -1.07 4.5 4.8 13.4 7.8 1,142 91 138-69
Gujarat Alkalies & Chem

Caustic Soda
11.7 0.39 8.0 4.9 8.5 13.6 2,391 325 487-180
Gujarat Industries Power

5.4 0.49 2.9 3.6 17.2 20.8 1,217 80 87-44
Gujarat Mineral Dev Corp

Coal & Lignite
8.0 -0.62 2.0 3.9 28.9 16.5 1,641 52 78-29
Housing & Urban Dev Corp

Housing Finance
4.3 0.30 0.8 8.4 14.0 10.6 7,407 37 46-18
India Motor Parts

Auto Ancillaries
13.8 2.14 18.0 3.3 36.2 13.0 685 545 752-367
Ingersoll-Rand
Pumps & Compressors
24.6 4.87 3.0 4.3 11.7 5.9 2,079 658 730-585
Jagran Prakashan
Books & Newspapers
6.8 -0.40 3.5 8.5 37.8 12.8 1,159 41 78-32
Jain Irrigation Systems

Plastic tubes & pipes
– – 1.0 7.8 21.6 -5.8 638 13 24-3
JK Paper
Paper
5.0 0.10 3.5 4.0 14.6 24.7 1,754 100 152-62
Kirloskar Oil Engines

Auto Ancillaries
11.7 3.29 4.0 3.7 31.2 13.4 1,549 107 200-76
Mahanagar Gas
15.0 0.92 20.0 3.5 36.2 8.8 9,995 1,012 1247-664

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 (`)
PTC India
Electricity Distribn.
4.7 2.77 4.0 9.3 27.8 11.4 1,754 59 69-32
Redington
Computer Hardware
9.1 1.80 4.3 3.7 32.5 19.2 4,488 116 140-59
Srikalahasthi Pipes
Pig Iron
6.2 0.87 7.0 3.6 17.4 21.1 907 194 234-96
Sun TV Network
Media & Entertainment
14.8 1.08 12.5 5.3 34.4 10.2 18,581 471 551-260
Suven Life Sciences

Drugs & Pharma
– – 1.5 3.0 22.0 26.4 634 50 335-15
Tata Steel Long Products

Sponge Iron
– – 12.5 3.9 15.5 -13.6 1,460 324 487-164
Data as on August 20, 2020. New entrants.
Reasonably priced growth stocks

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

At least 20% in the trailing 12
896
Companies with strong `500 cr months YoY
fundamentals Earnings growth of:

At least 20% in latest quarter
YoY 48
Greater stability vis-a-vis
At least 20% in the past five Stocks with a P/E of less
value or growth years 22
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 5.5 29.0 0.18 141 63 26 2,112 82 97-25
Can Fin Homes

Housing Finance
13.0 19.2 0.38 37 27 31 4,889 367 519-253
Chaman Lal Setia Exports 9.8 9.3 0.46 564 53 21 516 100 109-24
Other Agri.prod.
Chambal Fertilisers & Chem 4.6 12.6 0.13 80 126 33 6,235 150 186-94
Nitrogenous Fertilizer.

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 (`)
Dalmia Bharat Sugar

Sugar 4.2 5.4 0.03 131 55 125 1,103 136 150-40
Dolat Investments
Invest.Services 14.4 17.7 0.48 48 62 30 1,021 58 84-27
E.I.D. Parry
Sugar 9.5 16.3 0.18 206 64 79 4,990 282 315-102
Ester Industries
Plastic Packaging goods 6.1 14.1 0.08 23 120 74 638 76 76-22
Eveready Industries
Dry Cells 5.7 28.5 0.20 1,285 273 29 1,014 139 158-34
Fert & Chem Travancore

Other Fertilisers 3.3 11.6 0.16 233 226 21 3,209 50 55-21
HMT
Industrial Machinery 13.2 82.5 0.63 118 34 27 2,059 17 20-7
IOL Chemicals & Pharma

Drugs & Pharma 11.8 12.9 0.25 45 29 42 4,759 811 858-146
Ion Exchange
Industrial Machinery 11.6 13.3 0.17 29 42 70 1,128 769 1071-502
ISGEC Heavy Engineering

Machine Tools 12.0 22.4 0.40 47 31 28 1,971 268 442-205
Jubilant Life Sciences

Drugs & Pharma 14.1 16.1 0.16 362 52 77 12,629 793 910-234
Manappuram Finance
Hire Purchase 8.5 11.4 0.21 39 55 40 13,290 157 195-74
Mangalam Cement
Cement
7.2 20.0 0.22 826 880 33 547 205 340-117
PNB Gilts
Invest.Services
1.9 7.4 0.04 530 200 49 793 44 49-20
Saregama
Media & Entertainment
13.5 31.1 0.28 1,311 37 46 821 472 541-182
Torrent Power
Electricity Distribn.
13.6 12.5 0.66 35 34 20 17,300 360 369-232
Triveni Engineering & Ind

Diversified
4.8 8.0 0.17 156 88 30 1,865 75 88-29
West Coast Paper Mills

Paper
3.3 8.2 0.03 111 28 114 1,234 187 286-100

STOCK
SCREEN
Attractive blue chips

Investing in blue chips at reasonable valuations is one of the simplest
methods of wealth creation with limited pain
REASONS TO INVEST THE FILTERS cleared the filters
Liquidity Large and mid caps
260
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% 177
Annualised earnings growth of more than 20% over 87
the past five years
PEG of less than 1.5 14
Five-year average return on equity above 20% 10
6
Solid foundation
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 (`)
Aarti Industries
Organic Chemicals
40.9 1.51 0.9 4.4 24 25 19,628 1,128 1192-668
Coromandel International
Other Fertilisers
17.8 0.66 0.4 6.9 21 26 22,268 760 830-345
Hindustan Petroleum Corp

8.1 0.20 0.9 12.6 23 44 32,701 215 329-150
KEC International
Power Projects
14.7 0.55 0.8 3.0 20 27 8,065 313 359-154
Petronet LNG
14.2 0.58 0.0 8.7 21 24 37,500 250 302-170
Vinati Organics
Organic Chemicals
31.5 1.47 0.0 196.2 26 22 10,201 995 1256-651
For real-time, customisable

stock screens, visit
www.valueresearchonline.com/stocks/
WORDS WORTH
NOW
On unveiling of the taxpayers’ charter and a digitised interface]

The country’s tax structure needs fundamental reforms as the
current one, with its genesis during pre-independence period,
(has shortcomings). Even the several changes made during the
post-independent times did not alter its foundational structure.
Narendra Modi Prime minister, Financial Express, August 14, 2020
I’ve always maintained our best My sense on the financial sector is it is going to be significantly dominated
is yet to come, and with Sashi by technology and digital. We are going to see a significant
now at the helm I have no doubt improvement in execution, costs, operating costs and the
that our best will come...If I question with reference to banks is the future of branches.
look back, 26 years seems like I genuinely believe we are no longer moving to a new
yesterday. From my first office normal, we are moving to a world in finance, technology and
with broken chairs to now, what business to a never normal world.
we’ve achieved in this time is Uday Kotak CMD, Kotak Mahindra Bank, The Economic Times, August 18, 2020
incredible and doesn’t have too
many parallels globally....We
truly are a world-class Indian Equities are rising as there is no yield on the bond side, with
bank today and one of the 10-yield US bond yields trading at 10-year low at 60 basis
largest in independent India points. It suggests a bond’s P/E of 150 times, raising
in terms of outreach, balance questions as to what harm would you have in buying the
sheet, number of customers, basket of equities, say index, at 20-25 P/E. It offers growth
and market capitalisation... and also 2-2.5 per cent dividend. That is the argument for
We’ve come to be recognized as stocks against bonds…
one of the country’s best wealth
Raamdeo Agrawal Co-founder, Motilal Oswal, The Economic Times,
creators and we have emerged August 18, 2020
as one of the largest employers
in independent India.
Aditya Puri Outgoing MD, HDFC Bank, India has slowed down but interestingly its stock market has recovered quite
Business Standard, August 14, 2020 well and that is the source of confidence for every country in the world with
the exception of China, which will have an economic decline
this year overall. If you are used to growing at 5, 6 or 7 per
cent, then around (-)3 per cent may seem like the end of
the world. But stepping back, it will be better than the rest
now. From the outside, India should resume its path to
growth in 2021 and get stronger in 2022…
Stephen A Schwarzman Co-founder, CEO and Chairman,
Blackstone Group, Business Standard, August 21, 2020
Global GDP growth eased to 2.9% in 2019, against an initial growth projection of
3.5%... As we look ahead, it is important to gauge COVID-19’s unprecedented impact
on the global economy. It is expected that global growth will contract by over 3% in
2020, the worst contraction since the 1930s.
N Chandrasekaran Chairman, Tata Sons, Livemint.com, August 16, 2020

INTRODUCING
An Investor Education Initiative

By Kotak Mahindra Mutual Fund
www.kotakmf.com/documents/Investor-Education-Infographic
To know more about Mutual Funds, contact your financial advisor.

www.kotakmf.com | Toll free Number : +91 80488 93330 |
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
y One-time KYC (Know your customer) registration is mandatory to invest in mutual funds. You can complete the same by submitting the following at any of our branches or collection centres:
a) Duly filled and signed Central-KYC application form. b) Proof of Identity: Any document notified by the central government. c) Proof of Address: Same as identity proof (except PAN). d) Recent
Passport Size Photograph. Copies of all documents submitted must be self-attested by the applicant and accompanied by originals for verification. You may also avail Online KYC Registration
facility while opening an online account. For more Information such as details and documents for KYC registration, change of bank details and change of address or phone number. Log on to
www.kotakmf.com/investor-info. In case you are KYC verified and want to update any information, please submit a completed KYC details change form with the required self-attested documents
as proof to our nearest branch or collection centre. y If you have a complaint regarding your fund house w.r.t. your investment, you may reach out to them at their customer service contact number
or write to their respective customer service email IDs. Alternatively, you may also contact their investor relation representatives at the branch office listed on their website. Additionally to this,
you may also contact their Compliance Officer(s) for further escalation or you may also contact the Managing Director of the fund house with your grievance. You can also lodge your grievances
with SEBI at http://scores.gov.in or you may also write to any of the offices of SEBI. y For any queries, feedback or assistance, please contact SEBI Office on Toll Free Helpline at 1800 227 575
/ 1800 2667 575. y Investors should deal only with registered Mutual Funds details of which can be verified on the SEBI website under "Intermediaries/Market Infrastructure Institutions”

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Subscription copy of [shishir.saxena@gmail.com]. Redistribution prohibited.

Subscription copy of [shishir.saxena@gmail.com]. Redistribution prohibited.

• Long Term wealth creation

Subscription copy of [shishir.saxena@gmail.com]. Redistribution prohibited.

Research & Analysis

Editor: Dhirendra Kumar.

4 Wealth Insight September 2020

EDIT Your personal-finance Index watch

by ANAND TANDON Reasonably priced

September 2020 Wealth Insight 5

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Subscription copy of [shishir.saxena@gmail.com]. Redistribution prohibited.

What you see and

September 2020 Wealth Insight 7

Many opportunities and investment instruments are available.

8 Wealth Insight September 2020

Dealing with uncertainty

In the 20th century, the United States You must always be

10 Wealth Insight September 2020

The most important lesson an People who

If there’s one thingg

Markets are constantly

Survival as an investor over that

September 2020 Wealth Insight 11

You can’t buy

12 Wealth Insight September 2020

September 2020 Wealth Insight 13

Large Mid Small

14 Wealth Insight September 2020

The lockdown and the recent rally /PNOYL[\YUZKYVWPUKLSP]LY`]VS\TLZ

as illustrated by the Company

data around Bandhan Bank 56.8 50 20 -30

434 Total small

37 Out of these 125 had a debt-to-equity ratio of more than 1 or

1550 caps (m-cap

September 2020 Wealth Insight 15

The road to `14 lakh cr market cap

FY10-11 FY11-12 FY12-13 FY13-14

16 Wealth Insight September 2020

Changing revenue mix Aug 14, 2020

2012 2013 2014 2015 2016 2017 2018 2019 2020

September 2020 Wealth Insight 17

S&P BSE Metal

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Aug ’19 Aug ’20

18 Wealth Insight September 2020

Large caps Price to earnings Net profit (` crore)

September 2020 Wealth Insight 19

Mid caps Price to earnings Net profit (` crore)

131.2 346 -45

20 Wealth Insight September 2020

Small caps Price to earnings Net profit (` crore)

September 2020 Wealth Insight 21

Change in promoter stake

22 Wealth Insight September 2020

September 2020 Wealth Insight 23

Mid caps Change Change

Small caps Change Change

24 Wealth Insight September 2020

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