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across asset classes.

ICICI Prudential
Multi-Asset Fund
To invest, contact your Mutual Fund Distributor

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ICICI Prudential Multi-Asset Fund (An open ended scheme investing in Equity, Debt and Exchange Traded Commodity rate
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MAY 2021
Volume XIV, Number 11
30 COVER STORY

EDITORIAL POLICY
The goal of Wealth Insight, as with
all publications from Value
Research, is not just limited to
generating profitable ideas for its
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
HOW TO PROFIT
this voyage together.
FROM CYCLICALS
Editor
Dhirendra Kumar
Senior Editor
Vibhu Vats
Copyediting
22 WORDS WORTH WISDOM 42 INTERVIEW

Debjani Chattopadhyay,
Gautam Gupta Mungerisms @ the ‘A large part of the
Research & Analysis
Arul Selvan, Danish Khanna
Daily Journal AGM economy tends to be
and Rajan Gulati
Design
Charlie Munger’s most insightful and witty
answers at the Q&A session of Daily
cyclical in nature’
Mukul Ojha and Sneha Verma Journal’s annual general meeting. ANISH TAWAKLEY,
Production Manager Senior Fund Manager,
Hira Lal
Data source for stocks
ICICI Prudential AMC
AceEquity

‹9DOXH5HVHDUFK,QGLD3YW/WG
Wealth Insight is owned by Value
Research India Pvt. Ltd., 5, Commercial
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Editor: Dhirendra Kumar.

Printed and published by Dhirendra
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Total pages 64, including cover

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Columns
EDIT
7 8 MARKET MOVES

Market Reporter: Newsmakers of the month

by DHIRENDRA KUMAR
Monthly Agenda: The rise of the Adani Group
A cycle of stocks
Cyclicality is often
misunderstood as a trading tool.
In reality, it’s an importantfundamental concept

47
STRAIGHT TALK

by ANAND TANDON
Your investment
strategy now
Amid rising COVID infections,
here is the status check of the
Big Moves: Large, mid and small caps
current market and economic Index Watch: S&P BSE Healthcare
scenarios to formulate a portfolio strategy

50 19
MAIN STREET

by SAURABH MUKHERJEA How to choose an ETF

The science of Key parameters to consider before you invest in an ETF

portfolio concentration
How many stocks you should
have in your portfolio for the optimum
balance between risk and reward
20 STOCK ADVISOR 54 STOCK SCREEN

Better buy now Quality stocks

52 available cheap
EVERYDAY ECONOMICS High dividend-yield
by PUJA MEHRA stocks
A rain-fed economy Discount to book value
Monsoons are an important
factor for the Indian economy Reasonably priced
and influence decision-making growth stocks
in a number of areas 26 MARKET COMPASS

Market barometer
62 WORDS WORTH NOW
Tracking IPOs

28 ANALYST’S DIARY

Keeping
relationships first
Efficiency at its best
',6&/$,0(5
The contents of Wealth Insight published by Value Research India Private Limited (the ‘Magazine’) are not intended to serve as professional advice or guidance and the Magazine takes no responsibility or liability, express or implied, whatsoever for any investment
decisions made or taken by the readers of this Magazine based on its contents thereof. You are strongly advised to verify the contents before taking any investment or other decision based on the contents of this Magazine. The Magazine is meant for general reading
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 EDIT

A cycle of stocks
Cyclicality is often misunderstood as a trading tool.
In reality, it’s an important fundamental concept.

DHIRENDRA KUMAR
I once knew someone who discussed they are not useful. These stocks are cyclical because
cyclical stocks with me and then sent me a mail about of the fundamental nature of their business and how
them in which he spelled them as ‘psychlicals’. I it interacts with the rest of the economy. Just as
smiled at the time but now I think he might have been important, you can understand the differences between
on to something. There are way too many investors cyclical stocks and other non-cyclical stocks and how
(traders?) who attribute near-psychic abilities to they all play a role in your investment portfolio and in
cyclical stocks and the very idea of cyclicality. helping you meet your financial goals.
There are several variations to the idea of There is no doubt that understanding cyclical
cyclicality and what exactly one means by it. There is stocks is an important part of the toolkit of every
a broad idea of business cycles, which may or may investor. This importance could be positive or
not be true but should be of interest only to economists negative, in the sense that you may well conclude – as
and economic historians. The theory of business our cover story explains – that this is a tactical tool
cycles essentially says that there are long periods of and it just does not suit your style of investing and
relative contraction and expansion around mean the kind of investor you are. I empathise with that
economic growth. However, there are so many other point of view and must confess that it’s not far from
non-cyclical events that overlay these long-period what I believe in personally. However, unlike fictional
cycles that the idea has no practical use whatsoever. concepts like technical analysis, cyclicals and non-
At the other extreme is the punter who has reduced cyclicals are a fundamental concept that investors
the idea of cyclicality to the trite level of technical should be knowledgeable about.
analysis and other such mumbo jumbo. They’ll look However, I’ll make one more important point about
at the chart of a stock and there will be an up and such concepts by pointing out that top-down ways of
down cycle of sorts and they’ll say ‘Cyclical!’ or understanding markets must finally be subject to a
rather ‘Psychlical!’ and look for the up part of the bottom-up analysis of actual companies. You can
so-called cycle. This is NOT what a cyclical stock is. read any amount of theory about concepts but to
Except for stocks that are on a one-way fall, there are quote my favourite philosopher, Nassim Nicholas
always ups and downs in every price graph at some Taleb, “It’s much easier to bullshit at the macro level
scale. If you zoom the price graph in or out to some than it is to bullshit at the micro level.” That’s his
appropriate scale, you can always find this and call it inimitable voice explaining why bottom-up is way
a cycle or a psychle. better than top-down. Bottom-up is reality while top-
That’s not a cycle, not at all. You can turn to page down could just be talk. A concept is just a concept.
30, read our cover story of the month ‘How to profit Finally, does it help you identify actual stocks and the
from cyclicals’ and understand the difference between actual actions to take with those stocks? Does it make
psychlical and cyclical. What cyclical stocks really money for you? That’s where the rubber hits the road
are, whether and under what conditions they are and that’s what we hope to help you do in our
useful for investors and just as importantly, when analysis.

May 2021 Wealth Insight 7

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 MARKET
MOVES MARKET REPORTER

Newsmakers of the month

Key business, economic and market events over the last one month
RBI to infuse $1 trillion via bond Bharti Airtel rejigs its structure
purchases In a move to attract more foreign Inflation target unchanged
Extending the liquidity measures investments, Bharti Airtel is for the next five years
introduced last year due to the restructuring itself to consolidate all
pandemic, RBI has committed to its digital assets (Airtel Cloud, Airtel
buying government bonds worth $1 XStream, etc.). On the other hand, its
trillion from the secondary market indian telecom business, towers and
by June 30, 2021. The central bank international operations would be
has held the policy rates unchanged spun-off into separate entities. The
and maintained an accommodative new structure is expected to reduce
stance to maintain liquidity in the regulatory compliances and
system. statutory liabilities. The government has kept the
inflation target for the central
Core sector output shrinks by 4.6 Axis Bank becomes co-promoter bank unchanged, ending the
per cent in February of Max Life Insurance speculation about a more
The combined output of core After announcing its intention to relaxed inflation goal to boost
sectors has witnessed its steepest become a strategic partner in Max growth. This requires the RBI
decline in the last six months, Life back in February 2020, Axis to keep inflation at 4 per cent
contracting by 4.6 per cent in Bank has become the co-promoter with a +/- 2 per cent tolerance
February 2021. These sectors, of the life insurer. It has obtained a band.
including coal, crude oil, natural 13 per cent stake and the right to India’s retail inflation
gas, fertilisers, steel, cement, acquire an additional 7 per cent. increased to 5.5 per cent in
electricity and refinery products, Max Life is the fourth largest March 2021 from 5.0 per cent
are considered the main or key private-sector life-insurance in the previous month on
industries of an economy. company, with an asset under account of higher food and
management of `84,724 crore. fuel prices. Led by an increase
in price across commodities
such as crude oil, petroleum
GST collections stand at `1.24 trillion in March products and basic metals, the
wholesale price inflation
With a collection of nearly `1.24 deep-data analytics using data from
(WPI) rose to an eight-year
trillion, GST revenue touched an all- multiple sources – including GST,
high of 7.39 per cent in
time high in March 2021. The surge income-tax and custom information-
March 2021.
in collection was attributed to closer technology systems – and effective
monitoring against fake billing, tax administration.
>OVSLZHSLWYPJLPUKL_
.:;JVSSLJ[PVU The WPI inflation has risen to an eight-
year high of 7.39 per cent.
Robust GST collections signal economic recovery.
1,23,902 8 % change, YoY
1,15,174 1,19,875 1,13,143
In ` cr 1,05,155 1,04,963 6
90,917 95,480
87,422 86,449 4

62,151 2
0
-2
-4
Apr-2020 Mar-2021
Source: Trading economics
May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21

8 Wealth Insight May 2021

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 MARKET
MARKET REPORTER MOVES

Equity-fund flows turn positive after eight months IMF raises India’s GDP growth
The `31 trillion domestic mutual gap of nine months, the net flows
forecast for FY22
The International Monetary Fund
fund industry has turned a corner of equity mutual funds turned
(IMF) has revised its projection of
in terms of investor flows into positive in March 2021.
the Indian GDP growth rate to 12.5
equity-oriented schemes. After a
per cent from 11.5 per cent. It also
estimated that the global economy
5L[MSV^ZVMLX\P[`T\[\HSM\UKZ would grow by 6 per cent in 2021.
After eight months, net flows of equity funds have turned positive. But experts worry that the rising
9,115
In ` cr
number of COVID-19 cases could
dampen the growth prospects.

Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Coforge to acquire controlling
Mar-21 stake in SLK Global
-734
Coforge, a leading global IT
-2,480 -2,725
-4,000 -4,534 solution provider, has signed a
deal to acquire a 60 per cent stake
-9,253 in SLK Global, a business-process-
-10,147
management company offering
-12,917
digital solutions to the financial-
service industry, for `918 crore.
Adani becomes sole owner of Andhra Pradesh, for `2,800 crore. With this deal, the company
Krishnapatnam Port This acquisition came close on the expects to expand its network to
Adani Ports has acquired the heels of Adani’s acquisition of 58 the North American financial-
remaining 25 per cent of per cent stake in the Gangavaram services industry.
Krishnapatnam Port, located on port, located in northern Andhra
the eastern coast in Nellore, Pradesh. Amazon vs Future: SC stays
proceedings at the high court
In a bid to bring a faster resolution
PLI boosters for food processing, white goods and solar modules to the ongoing tussle between
As part of production-linked and create 2.5 lakh employment. Future Group and Amazon, the
incentives (PLI) to boost domestic The government has also Supreme Court halted the case in
manufacturing and enhance approved a PLI scheme worth the Delhi High Court and took on
exports, a `11,000 crore scheme has `10,738 crore for white goods (air the responsibility to resolve the
been announced for food conditioners and LED lights – dispute. Final arguments are likely
processing, with 7–10 per cent `6,238 crore) and high-efficiency to conclude by the first week of
incentives. The scheme is expected solar photovoltaic (`4,500 crore) May and a decision is expected
to result in the production of modules. soon thereafter.
processed food worth `33,500 crore
Great response to Bajaj e-scooter
Bajaj Auto’s electric scooter
;VW730HSSVJH[PVUZ
Chetak received such an
To boost domestic manufacturing, the government has announced production-linked incentives.
overwhelming response that the
57,042 company had to close the booking
In ` cr within 48 hours. Bajaj said that it
40,995
had taken this decision to review
the supply-chain challenges and
18,100 15,000 12,195 10,900 10,683
ramp up the production in view of
7,350 6,322 6,238 the high demand. Chetak is an
e-scooter connected with a
Automo- Smart- Advanced Pharma Telecom Food Textile IT Speciality ACs & dedicated app that allows its
biles phones & chemis- formula- & net- products products hardware steel LEDs
& compo- compo- try cell tions working (laptop, owners to receive notifications in
nents nents battery products tablets, the event of an unauthorised
etc.) access or accident. WI

May 2021 Wealth Insight 9

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 MARKET
MOVES MONTHLY AGENDA

The rise of the Adani Group

Adani Group stocks have done really well in the ongoing
bull run. Here are some insightful data points.
.YV^[OPUTHYRL[JHW
In ` cr
WH
  

 

2017 2018 2019 2020 2021

Data as on April 15, 2021

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In ` cr
 

  

Dec-16 Dec-17 Dec-18 Dec-19 Dec-20

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Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20

10 Wealth Insight May 2021

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 MARKET
MONTHLY AGENDA MOVES

(KHUP.YV\WHTVUN[VWI\ZPULZZNYV\WZ
M-cap in ` cr
(KP[`H)PYSH.YV\W

(KHUP
;H[H.YV\W 4\RLZO .YV\W
 (TIHUP
.YV\W  
 

)HQHQ.YV\W 4 4
Data as on April 15, 2021

9L[\YUZVM(KHUP.YV\WZ[VJRZZPUJL
(WYPS
*VTWHU` 9L[\YU
(KHUP.YLLU,ULYN`  

(KHUP;V[HS.HZ 
(KHUP,U[LYWYPZLZ  
(KHUP;YHUZTPZZPVU 
(KHUP7VY[Z 
(KHUP7V^LY 
:LUZL_ 
Data as on April 15, 2021

:[H[LVMWYVTV[LYWSLKNPUN
Promoter pledging (in %)

(KHUP,U[LYWYPZLZ (KHUP.YLLU,ULYN` (KHUP7VY[Z (KHUP7V^LY (KHUP;V[HS.HZ (KHUP;YHUZTPZZPVU

      

Data as of March 2021. Data for Adani Ports and Adani Power as of December 2020.

May 2021 Wealth Insight 11

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 MARKET
MOVES BIG MOVES

Large caps Price to earnings Net profit (` crore)

3M returns (%) 3Y avg RoE (%) 3Y earnings growth (%) 3M price (`) movement

1,162

222.3 293 449

Adani Total Gas
Adani Group’s stocks have been in focus for the last one
year and are among the top wealth creators. 24.7 62.8 360

1,050

124.4 123 968

Adani Transmission
Signed an agreement to acquire the Warora-Kurnool Transmission
line from Essel Group for an enterprise value of `3,370 crore. 19.6 0.1
468
1,158

122.5 171 556

Adani Enterprises
The company recently bagged a `FURUHbKLJKZD\
SURMHFWbIURP1+$Ζ 3.2 9.0 520

71.3
641
JSW Steel 39 3,910
Following a hike in steel prices by around `4,000 per tonne, steel
stocks have rallied on the back of high global demand. 19.8 -2.3
374
356

48.5 36 3,900
Hindalco Inds.
The company posted a 76.7 per cent rise in its consolidated
profit in Q3FY20. Rising commodity prices are a positive too. 9.5 25.4
240
921

43.7 – -491
Tata Steel
Recorded its highest-ever quarterly crude-steel production in Q4
FY21 and also benefited from the increase in steel prices. 18.2 -178.9 641

227

38.8 – -4,693
Vedanta
The company’s promoters have recently increased their stake
in the company from 55.1 to 65.2 per cent. 9.8 -172.6 163

38.7
213
Motherson Sumi Systems 134 407
Posted its highest-ever quarterly revenue of `17,923 crore in
Q3 FY21, while its net profit more than doubled. 18.6 -32.4 153

36.8 37 4,080
Adani Ports and Special Economic Zone
Conducted a series of acquisitions and recently got approval
to acquire an 89.6 per cent stake in the Gagavaram port. 17.3 1.3 539 738

18.8 13 21,567
State Bank of India
The bank posted better-than-expected Q3 results due to lower
new bad loans and an improving return on assets. 2.5 12.4 283 337

Our large-cap universe has 88 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 April 22, 2021.

12 Wealth Insight May 2021

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 MARKET
MOVES BIG MOVES

Mid caps Price to earnings Net profit (` crore)

3M returns (%) 3Y avg RoE (%) 3Y earnings growth (%) 3M price (`) movement

137

143.7 – -367
Hindustan Copper
Rising copper prices owing to supply-chain constraints and
strong demand resulted in a high PAT. -15.4 -309.5
56

111.4 17 572
243
IIFL Finance
Posted strong Q3 results, with a 57 per cent jump in net
interest income and a 47 per cent increase in PAT. 17.1 -16.4
115
636

109.3 – -93
Graphite India
A surge in steel production is expected to drive demand for
the company’s products. 43.4 -9.7 304

1,871

102.0 106 149

Linde India
7KHODUJHVWLQGXVWULDOJDVSOD\HULQΖQGLDLVH[SHFWHGWREHQHILW
IURP&29Ζ'LQGXFHGGHPDQGIRUR[\JHQb 14.8 278.5
926
87

67.7 – -56
Adani Power
A favourable Supreme Court order is likely to allow
the company to recover compensatory tariff. -144.6 25.8 52

59.2 33 444
Bank of Maharashtra
7KHVWRFNURVHDPLGVSHFXODWLRQbWKDWWKHEDQNKDVEHHQ
VKRUWOLVWHGDVDSULYDWLVDWLRQFDQGLGDWHb -26.8 10.5 23
14

47.7 46 572
Indian Overseas Bank
7KHVWRFNURVHDPLGVSHFXODWLRQbWKDWWKHEDQNKDVEHHQ
VKRUWOLVWHGDVDSULYDWLVDWLRQFDQGLGDWHb -48.9 6.0 11
16

28.8 – -1,648
Bank of India 64
7KHVWRFNURVHDPLGVSHFXODWLRQbWKDWWKHEDQNKDVEHHQ
VKRUWOLVWHGDVDSULYDWLVDWLRQFDQGLGDWHb -15.1 8.7 50

17.4 – -1,057
Central Bank of India 16
7KHVWRFNURVHDPLGVSHFXODWLRQbWKDWWKHEDQNKDVEHHQ
VKRUWOLVWHGDVDSULYDWLVDWLRQFDQGLGDWHb -25.7 5.1 14

-41.7 – -384
Dhani Services
10.1 -222.5
A correction in the stock was imminent due to a 176 per 325 189
cent decline in the company’s Q3 profits.

Our mid-cap universe has 190 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 April 22, 2021.

14 Wealth Insight May 2021

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 MARKET
MOVES BIG MOVES

Small caps Price to earnings Net profit (` crore)

3M returns (%) 3Y avg RoE (%) 3Y earnings growth (%) 3M price (`) movement

2,082

290.0 18 48
GRM Overseas
The company’s subsidiary entered into an agreement with
Walmart to place its products in Walmart stores. 28.4 73.2
534

161.7
117
Magma Fincorp 59 50
6HUXPΖQVWLWXWHȇV$GDU3RRQDZDOODLVWDNLQJRYHUDPDMRULW\
shareholding in the company. 8.4 15.2
45
122

161.3 18 86
Everest Kanto Cylinder
Acute shortage of oxygen cylinders across the country will push
demand in the company’s medical-equipment segment. 6.0 -7.5 47

36

133.9 – -32
Moschip Technologies
The company entered into a strategic partnership with
)UDQFHEDVHG6HFXUHΖ&WRVXSSRUWLWVJURZWKLQΖQGLD -49.5 -235.1 15

131.2 – -2
330
PG Electroplast
The company is benefitting from the government’s push
for domestic manufacturing of electronics. 4.7 -164.2 143
2,022

115.0 – -384
HEG
An increase in steel production globally is expected to
drive demand for graphite electrodes. 61.4 45.3
941

110.1 44 12
JTL Infra Ltd.
The company’s sales volume increased by 66.4 per
FHQWb<R<bLQ4)< 36.2 25.4 237 498

95.2 – -1,441
Jayaswal Neco Industries
A sustained rise in global steel prices has benefitted the
company. -27.8 -207.2 12
6

89.4
105
OnMobile Global 22 50
An increase in the digital uptake, coupled with cost-cutting
PHDVXUHVKDVUHVXOWHGLQDQLQFUHDVHLQVKDUHSULFHb 3.4 79.0
55

3.4 – -41
Digispice Technologies
ΖWVVXEVLGLDU\6SLFH0RQH\LVH[SHFWHGWREHQHILWIURPWKH
JURZLQJSHQHWUDWLRQRIPRELOHSD\PHQWVLQUXUDOΖQGLD -11.5 8.1 31
32
Our small-cap universe (minimum market capitalisation `500 crore) has 709 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 April 22, 2021.

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 MARKET
INDEX WATCH MOVES

S&P BSE Healthcare

The S&P BSE Healthcare index has underperformed the Sensex over the last five years. Due to the second
wave of the pandemic, it is back in focus. The index’s price-to-book ratio is at a 38.7 per cent premium to
its five-year median and its price-to-earnings ratio is at a 19.4 per cent premium. The index’s dividend
yield is at a discount of 0.12 percentage point to its five-year median.

2L`U\TILYZ 0UKL_TV]LTLU[ /LHS[OJHYL:LUZL_4LKPHU

35000

38.6
Price to earnings
5.0
Price to book
30000

25000

20000

0.48
Dividend yield (%)
12.9
Market cap (` lakh cr)
15000

10000
Sensex rebased to index
Apr ’16 Apr ’17 Apr ’18 Apr ’19 Apr ’20 Apr ’21

0UKL_^LPNO[Z 7YPJL[VIVVR]HS\L7)
6.0
:\U7OHYTHJL\[PJHS
5.2
+Y9LKK`Z3HI
*PWSH 4.4
  3.62
+P]PZ3HIVYH[VYPLZ 3.6

(WVSSV/VZWP[HSZ 2.8
 (\YVIPUKV7OHYTH 2.0
Apr ’16 Apr ’17 Apr ’18 Apr ’19 Apr ’20 Apr ’21
3\WPU

 )PVJVU

 .SHUK7OHYTH 7YPJL[VLHYUPUNZ7,
  3H\Y\Z3HIZ 60

 
6[OLYZ 50

40
32.3
=HS\H[PVUZKP]PKLUKZHUKYL[\YUZ 30
Dividend 20
Company name P/B P/E yield (%) 1Y return (%)

Laurus Labs 9.7 29.9 0.11 442.5 10

Apr ’16 Apr ’17 Apr ’18 Apr ’19 Apr ’20 Apr ’21
Apollo Hospitals 10.7 233.1 0.18 125.6
Aurobindo Pharma 2.7 10.7 0.30 82.7
Cipla 4.3 34.2 0.42 62.3
+P]PKLUK`PLSK
1.8%
Divis Laboratories 11.4 53.7 0.42 61.7
1.5
Sun Pharmaceutical 3.3 64.2 0.62 36.3
Lupin 3.8 43.2 0.55 34.6 1.2

Dr. Reddys Lab 5.1 39.4 0.49 34.1 0.9

0.6%
Biocon 6.6 78.8 0.00 12.1 0.6
Gland Pharma 4.2 55.9 0.00 - 0.3
Data as on April 20, 2021 Apr ’16 Apr ’17 Apr ’18 Apr ’19 Apr ’20 Apr ’21

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 MARKET
C MPASS

Tracking IPOs
Here is how the S&P BSE IPO index has performed over the last one year
and how its current constituents have fared

HIGHEST 0760UKL_]Z[OL:LUZL_ HIGHEST

LISTING-DAY GAIN The IPO index has outperformed the Sensex over the last one year. SUBSCRIBED IPO
Chemcon Speciality MTAR Technologies
115% 220 z IPO index z Sensex 200.8 TIMES
HIGHEST 200 186
LISTING-DAY LOSS LOWEST
SUBSCRIBED IPO
Kalyan Jewellers
180 Macrotech Developers
-15.1% 1.4 TIMES
160
HIGHEST
POST-LISTING GAIN 140 159 BIGGEST
Route Mobile IPO

111.6% 120 IRFC

HIGHEST 100
`4,633 cr
POST-LISTING LOSS
Rebased to 100 TOTAL SUM
Chemcon Speciality 80 RAISED
-43.8% April 2020 April 2021
` 25,729 cr
;VW076ZI`PZZ\LZPaL
Subscription Issue size Issue Listing price Listing Current Change post Sensex Current
Company name ratio (times) (` cr) price (`) Listing date (`) gain (%) price (`) listing (%) change (%) P/E

IRFC 3.5 4,633 26 29-Jan-2021 25 -3.8 21 -15.6 5.4 0.8*

Gland Pharma 2.1 4,536 1,500 20-Nov-2020 1,701 13.4 2,483 46.0 11.2 52.6
Macrotech Developers 1.4 2,500 486 19-Apr-2021 439 -9.7 503 19.1 0.3 32.2
CAMS 46.9 2,244 1,230 01-Oct-2020 1,518 23.4 1,853 22.1 26.1 55.1
UTI AMC 2.3 1,515 554 12-Oct-2020 490 -11.5 552 12.6 20.2 22.6
Indigo Paints 117.0 1,160 1,490 02-Feb-2021 2,608 75.0 2,301 -11.7 -2.0 228.9
Home First Finance 26.7 1,156 518 03-Feb-2021 612 18.2 469 -23.4 -2.9 1.9*
Kalyan Jewellers 2.6 833 87 26-Mar-2021 74 -15.1 69 -6.6 -0.4 45.5
Burger King 156.7 810 60 14-Dec-2020 115 92.3 130 12.7 5.5 -
Heranba Industries 50.2 625 627 05-Mar-2021 900 43.5 639 -29.0 -3.2 26.1
Route Mobile 73.3 609 350 21-Sep-2020 708 102.3 1,498 111.6 28.3 -
Angel Broking 3.9 600 306 05-Oct-2020 275 -10.1 297 7.9 25.2 28.0
Craftsman Automation 3.8 577 1,490 25-Mar-2021 1,350 -9.4 1,341 -0.6 0.8 77.3
Railtel Corporation 42.4 575 94 26-Feb-2021 105 11.3 115 10.1 -0.6 26.7
Mrs. Bectors Foods 198.0 544 288 24-Dec-2020 501 74.0 344 -31.4 3.9 71.6
*P/B value. Price data as on April 15, 2021. For Marcrotech Developers, data as on April 22, 2021.

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 An Investors Education Initiative by

How to choose an ETF

Key parameters to consider before you invest in an ETF

A
s we saw in the previous article of this series, an a fairly high trading volume. This is similar to
ETF, or exchange-traded fund, is a rather simple investing in a liquid or an illiquid stock. A liquid stock
product which just tracks an index. So, by provides you a smooth buying and selling experience.
investing in an ETF, you are effectively investing in its But with an illiquid stock, your order may remain
underlying index. Your returns will also likely be unexecuted for a long time.
index-like. For instance, if you invested in a Sensex or Entities called authorised participants (APs) play an
a Nifty ETF, you would get similar returns as those important role in maintaining the liquidity of ETFs.
from these indices. An AP is a large financial institution, such as an
A look at your available ETF options reveals that investment bank, that purchases or sells shares
there are 26 ETFs tracking the Sensex or Nifty indices. required to create a unit of ETF based on the market
You may ask, what’s the difference demand. When the demand of ETFs is
between them? If all of them track the high, the AP purchases more stocks
same index, shouldn’t you just pick
one randomly? Well, not really,
)YLHR\WVM[OL and helps create more units of the
ETF. Similarly, when the demand of
because there are differences even H]HPSHISL,;-ZPU0UKPH the ETF is low, the AP removes ETF
among the ETFs that track the same Thanks to the easy replicability of large units from the market.
index. Here are the various caps, almost half of the available ETFs Difference between the price and NAV: The
parameters that you should keep in are based on them. price of an ETF should move in
mind while picking an ETF. tandem with its net asset value (NAV).
Underlying index: An ETF tracks an 48 Since an ETF is a mutual fund that
index, so first decide which index you Number of ETFs trades, the NAV is the actual price of
would like to invest in. Sensex and its unit. If the price is more than the
Nifty comprise large-cap stocks. So, by 31 NAV, you are actually getting the ETF
investing in ETFs that track them, you expensive. The vice versa is also true.
are investing in large caps. There are So, a good ETF will reflect an orderly
ETFs tracking mid and small caps as 14 movement of its price and NAV. On
10
well. Then there are those that track occasion, however, due to supply–
international indices. The chart demand dynamics, this sync may get
‘Break-up of the available ETFs’ disturbed. Hence, always see the
shows the number of ETFs in terms Large- All other Debt ETFs Gold ETFs price–NAV difference at the time of
of their underlying. cap equity equity investing in an ETF.
ETFs ETFs
As one can see, the ETF universe is Tracking error: The tracking error
highly skewed towards ETFs tracking indicates how well an ETF tracks its
large-cap indices, such as the Nifty and the Sensex. underlying index. The lower the error, the better.
This is because of the ease of replicability. Large-cap Expenses: While choosing a fund, expenses are an
indices constitute most liquid stocks and hence it’s important consideration. In the case of actively
easy for the fund manager to mimic them. On the managed funds, an investor may give preference to
contrary, ETFs tracking mid and small caps have to performance over expenses but in the case of ETFs,
struggle harder to replicate their underlying, given that where the returns are almost certain to be like the
these segments tend to be less liquid. underlying index, it would make sense to go for the
Liquidity: While investing in an ETF, it is important to cheapest ETF. For two ETFs that track the same index,
ensure that you can buy and sell its units with ease. go for the cheaper one, provided that the rest of the
Thus, it is important to choose an ETF that trades with determinants are the same. WI

All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (RMF).
For further information on KYC, RMFs and procedure to lodge a complaint in case of any grievance, you may refer the
Knowledge Center section available on the website of Mirae Asset Mutual Fund.
Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully.

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 www.valueresearchstocks.com

Better buy now

There’s an easy way to start with stock investing with a great portfolio,
and there is no excuse to delay it

Dhirendra Kumar article on a subject like this. talking about tactical approach-

I
After all, locating and investing es to stock investing.
don’t know whether you in cyclicals is a tactical In our premium Value
would have read the cover approach and not a fundamental Research Stock Advisor service
story of this issue by now. one. In the 16 years of the exis- too, we don’t talk about short-
To our long-term follow- tence of this magazine, we have term tactics. However, as you
ers, it may have come as a never done a cover story on this would realise when you read the
bit of surprise that Value subject. In general, the Value cover story, there are tactical
Research has done a detailed Research approach is to avoid approaches to stock investing

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 which depend on proper funda- if they are all chosen well. With some magical list that makes it
mental considerations. The the stocks that we have chosen, more useful for beginners. It
cyclical approach is one of 43 is not too large a number as really is exactly what the name
them. Of course, that’s just the far as the number of stocks implies. What are best buys now
concept. From understanding goes. Seasoned investors can for beginners are the best buys
the idea to actually implement- certainly do well with whatever now for everyone. Essentially,
ing it, there is some distance. selection from this 43 that they that is all you need to know to
The quest for not just under- would like to make. use our Best Buys list to fine-
standing but also implementing However, newcomers can have tune your equity investing, but
ideas is a long one and can be an issue. No one who has just let’s look at the main takeaways
problematic for many investors. started investing should start that you should keep in mind as
In Value Research Stock straight away with 43 stocks. If to what it is exactly that Best
Advisor, we started with about nothing else, it will be a large Buys provides:
10 stocks, which gradually grew chunk of money and a lot of z It sharpens the focus to just
to 43 now (we’ve added a slew of stocks to manage. The solution about a dozen (give or take)
stocks in recent weeks). Is this for this that we have is our Best stocks at a time, thus making it
too large a portfolio? It is true Buys Now feature, that we easier to make choices.
that large portfolios tend to be a added about a year back. This z It also brings in a portfolio
random collection of stocks. offers a way out of the begin- approach to our service because
However, that does not happen ners’ dilemma by marking out Best Buys is chosen to be a
diversified selection that can
There’s an old saying that insulate capital from volatility
as well as enhance returns.
goes, “The best time to plant z ‘Now’ is an important word in
a tree was ten years ago. The the name of this feature. At
times, a sound business may be
second best time is today.” beaten down on account of tem-
What it really means is porary reasons, which makes
valuations attractive. Best Buys
‘better buy now’. is designed to exploit this.
There’s an old saying that
roughly a dozen stocks out of goes, “The best time to plant a
our main list and grouping tree was ten years ago. The sec-
them as ‘Best Buys Now’. Over ond best time is today.” Some
time, our members have under- people might interpret this as
stood that this does not mean meaning that you can plant a
that the remaining stocks in our tree any time and it doesn’t
list have been ‘de-recommended’ make a difference. Today, tomor-
in any way. They’re just as row or 10 years later, no matter
desirable investments as the when you quote this saying, it
‘Best Buys Now’. Best Buys will always be today. But that’s
reflects a problem of plenty not what it really means. It
which some of our members means ‘better buy now’. As
cannot cope with. That is all. quickly as possible! So better
Even so, the important thing head over to Value Research
to note is that Best Buys is not Stock Advisor and start the
just for beginners. It’s not just action. WI

Value Research Stock Advisor is a premium service where you get promising stocks along with their full analyses.
We also actively track the underlying companies for you and keep you posted on the major developments in
them, including when to sell a stock. Additionally, members get exclusive access to a range of tools and data
which they can use to study any other stock. You can subscribe to the service at www.valueresearchstocks.com.

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 WORDS WORTH
WISDOM

Mungerisms
@ the Daily Journal AGM
Charlie Munger, who is a long-time associate of Warren Buffett, is also the
chairman of the Daily Journal Corporation.
p Here are his most insightful
g and
witty answers at the Q&A
&A session of Daily Journal’s annual general meeting.
Buying stocks in frenzy
In fact, what a lot of shareholders actually do
is crowd in buying stocks on frenzy –
frequently on credit – because they see that
they’re going up. And, of course, that’s
at’s a very
dangerous way to invest. I think that
at
shareholders should be more sensibleble and not
crowd into stocks and buy them justt because
they’re going up and they like to gamble.
mble.

New brokerages luring

amateurs
Well, it’s most egregious in the
momentum trading by novice investors stors
lured in by new types of brokerage
operations like Robinhood. I think all
of this activity is regrettable. I think
k
civilisation would do better without it.t.
You’ll remember that when the he
first big bubble came, which was thee
South Sea bubble in England back k
in the 1700s, it created such havocc
eventually when it blew up that
England didn’t allow hardly any
public trading and securities of
any companies for decades
thereafter. It just created the most
unholy mess.
So, human greed and the
aggression of the brokerage
community create these bubbles
from time to time. And I think wise
Shareholders should be more
people should just stay out of them.. sensible and not crowd into
stocks and buy them just
Is value investing old-fashioned? because they’re going up and
What about passive investing? they like to gamble.
Value Investing will never go out of style. Because
value investing – the way I conceive it – is always

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 WORDS WORTH
WISDOM

wanting to get more value than you pay for when you
buy a stock. That approach will never go out of style.
Some people think that value investing is you chase
companies that have a lot of cash and they’re in a
lousy business or something. I don’t define that as I don’t think Bitcoin is going
value investing. I think all good investing is value to end up as the medium of
investing. It’s just that some people look for value in
strong companies and some look for value in weak
exchange for the world. It’s
companies. Every value investor tries to get more too volatile to serve well as a
value than he pays for. medium of exchange.
What is interesting is that in wealth management,
a lot of people think that if they have a hundred
stocks, they’re investing more professionally than
they are if they have four or five. I regard this as
insanity. Absolute insanity.
I find it much easier to find four or five investments
where I have a pretty reasonable chance of being right
that they’re way above average. I think it’s much
easier to find five than it is to find a hundred.
I call it deworsification – which I copied from
somebody. I’m way more comfortable owning two or
three stocks which I think I know something about
and where I think I have an advantage.
Future of banking/Bitcoin
Well, I don’t think I know exactly what the future of
banking is and I don’t think I know how the payment
system will evolve. I do think that a properly run bank
All good investing is is a great contributor to civilisation and that the
value investing. central banks of the world like controlling their own
banking system and their own money supplies.
It’s just that some
So, I don’t think Bitcoin is going to end up as the
people look for value in medium of exchange for the world. It’s too volatile to
strong companies and serve well as a medium of exchange. It’s really kind of
an artificial substitute for gold, and since I never buy
some look for value in
any gold, I never buy any Bitcoin. I recommend that
weak companies. other people follow my practice. Bitcoin reminds me
of what Oscar Wilde said about fox hunting. He said it
was the pursuit of the uneatable by the unspeakable.

Wisdom behind holding

banking stocks How to learn about business
Well, I think all stocks can fluctuate. I do think …The Harvard Business School, when it started out
banking run intelligently is a very good business. way early, they started out with a history of the
But, a very wise man said on an earlier occasion: The business. They’d take you through the building of the
trouble with banking is that we have more banks canals and the building of the railroads and so on and
than we have bankers. so on. You saw the ebb and flow of industry and the
The kind of executives who have a Buffett-like creative destruction of the economic changes and so
mindset and never get in trouble are a minority group, on. It was a background that helped everybody. And,
not a majority group. It’s hard to run a bank of course, what I’m saying is that if I were teaching
intelligently. There’s a lot of temptation to do dumb business, I would start the way Harvard Business
things which will make the earnings next quarter go School did a long time ago.
up but are bad for the long term. And some bankers I think they stopped because if you taught that
yield to the temptations. It’s difficult, but it’s not course, you’d be stealing the best cases from the
impossible investing in bank stocks successfully. individual professors of marketing and so on and so

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 WORDS WORTH
WISDOM

on. And I just think it was academically inconvenient example of self-learning.

for them. But, of course, you should start out by When I saw that psychology was necessary and I
studying the history of capitalism, how it worked, didn’t have it, I didn’t just learn the little tendencies
and why before you start studying business. And they well enough to get A’s in psychology. I learned those
don’t do that very well – I’m talking about the tendencies well enough to synthesise them with the
business schools. rest of knowledge. And that’s the right way to do it.
If you stop to think about it, business success long But show me a psychology department that knows
term is a lot like biology. And in biology, what happens how to do that. It’s one of the most ignorant
is the individuals all die, and eventually, so do all the professions in the world
species. Capitalism is almost as brutal as that. Think
of what’s died in my lifetime. Just think of the things How to be a better thinker
that were once prosperous that are now in failure or
gone. Whoever dreamed when I was young that Kodak
and General Motors would go bankrupt. You know, it’s
just, it’s incredible what’s happened in terms of the
destruction. Of course, that history is useful to know.

Munger’s method of learning

I think I had the right temperament. When people
gave me a good idea and I could see it was a good idea,
I quickly mastered it and started using it for the rest
of my life. You’d say that everybody does that in their
education but I don’t think everybody does. It’s such a
simple idea.
Without the method of learning, you’re like a one-
legged man in an ass-kicking contest. It’s just not
going to work.
Well, I do have a tip. At times in my life, I have put
myself to a standard that I think has helped me: I think
I’m not really equipped to comment on this subject
until I can state the arguments against my conclusion
When people gave me a good better than the people on the other side. If you do that
idea and I could see it was a all the time; if you’re looking for disconfirming
evidence and putting yourself on a grill, that’s a good
good idea, I quickly mastered way to help remove ignorance.
it and started using it for the What happens is that every human being tends to
rest of my life. believe way more than he should in what he’s worked
hard to find out or where he’s announced publicly that
he already believes. In other words, when we shout our
knowledge out, we’re really pounding it out. We’re not
enlarging it. And, I was always aware of that and so
How to really put psychology to work I’ve accepted these damned annual meetings. I’ve been
What prevents the wide use of helpful psychological pretty quiet.
insight is the fact that psychology gets really useful
when you integrate it with all other knowledge. But The biggest investment lie currently
they don’t teach that in the psychology department Well, commission-free trading is a very good candidate
because the academic system rewards little experiments for that if you want to emphasise disgusting-wise.
that develop more insight into psychological tendencies Commission-free trading is not free.
instead of synthesising what’s already been discovered
with the rest of knowledge. The psychology professors Chess and investing
don’t know all that much about the rest of knowledge What I think is interesting about chess is, to some extent,
and they have no incentive to master it. If you don’t you can’t learn it unless you have a certain natural gift.
have to master the rest of the knowledge, you can’t And even if you have a natural gift, you can’t be good at it
synthesise it with psychology. That’s an interesting unless you start playing at a very young age and get huge

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 WORDS WORTH
WISDOM

Secrets of a happy life

A happy life is very simple.
The first rule of a happy life is low expectations. That’s
one you can easily arrange. If you have unrealistic
expectations, you’re going to be miserable all your life. I
was good at having low expectations and that helped me.
Also, when you get reverses, if you just suck it in and
cope, that helps if you don’t just fretfully stew yourself
into a lot of misery.
There are certain behavioural rules. Rose Blumpkin
had quite an effect on the Berkshire culture. She created
a business with like 500 depression dollars that became
experience. So, it’s a very interesting competitive field. a huge business. You know what her mottoes
I think people have the theory that any intelligent were? Always tell the truth and never lie to anybody
hard-working person can get to be a great investor. I think about anything.
any intelligent person can get to be pretty good as an Those are pretty good rules and they’re pretty simple.
investor and avoid certain obvious traps. But I don’t think A lot of the good rules of life are like that. They’re
everybody can be a great investor or a great chess player. just very simple. Do it right the first time. That’s a really
I knew a man once, Henry Singleton, who was not a good rule.
chess champion. But he could play chess blindfolded at
just below the Grandmaster level. But Henry was a
genius. And there aren’t many people that can do that.
And if you can’t do that, you’re not going to win the The first rule of a happy
great chess championships of the world and you’re not life is low expectations.
going to do as well in business as Henry Singleton did.
I think some of these things are very difficult and I That’s one you can easily
think, by and large, it’s a mistake to hire investment arrange. If you have
management – to hire armies of people to make unrealistic expectations,
conclusions. You’re better off concentrating your
decision power on one person…and then choose the you’re going to be
right person. miserable all your life.
I don’t think it’s easy for ordinary people to become
great investors.

The future of oil & gas

…I think the oil and gas industry will be here for a
long, long time. As a matter of fact, it will be here for a
long, long time if we stop using many hydrocarbons in
transportation.
The hydrocarbons are also needed as chemical
feedstocks. I don’t think that hydrocarbons are going.
I’m not saying that oil and gas is going to be a wonderful
business but I don’t think it’s going away. I don’t think
it’s like the newspaper business. Lessons from the pandemic
…What you’ve learned in the pandemic is that we can
How important is a company’s culture? do with a lot less travel and a lot more Zooming.
It’s quite important – part of the success of a company When the pandemic is over, I don’t think we’re going
like Costco. It’s been amazing that one little company back to just the way things were. I think we’re into a lot
starting up not that many decades ago could become as less travel and a lot more Zooming. I think the world is
big as Costco did [and] as fast as Costco did. Part of the going to be quite different.
reason for that was cultural. They have created a A lot of the people who are doing this remote work
strong culture of fanaticism about cost, quality, – a lot are going to work three days a week in the office
efficiency, and honour. All the good things. And, of and two days a week at home. A lot of things are going
course, it’s all worked. Culture is very important. to change. I expect that and I welcome it. WI

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 MARKET
C MPASS

Market barometer
Here are some charts that will help you make sense of the current market
in terms of valuations and return potential
Sensex’s movement
In ’000
60 Max 52,154 The Sensex is the most convenient
indicator to tell the state of the Indian
market. The 10-year graph presented
50
alongside shows the secular run in the
Current markets. However, this rally was
40 48,804 punctuated by several bearish phases.
The most prominent ones include the
30 following: a bear market driven by
weakening economic fundamentals in
2011, Chinese growth concerns in
20
2015, demonetisation blues in 2016,
and the sell-off in 2018 due to US–
10 China trade war and rise in US interest
Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Min
rates. Lately, the markets have sharply
’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21
15,175 recovered from the COVID-19 shock.

Sensex’s price to earnings

40 Max 35.1 The price-to-earnings ratio of the Sensex
is a simple market-valuation ratio. A
Current 33.9 general guideline to help understand the
35
valuation is:
P/E > 24 = Dangerously
30
overvalued
P/E > 20 < 24 = Overvalued
25 P/E > 16 < 20 = Fairly valued
P/E > 12 < 16 = Undervalued
20 P/E < 12 = Highly underval-
ued (mouthwater-
Median 20.6 ing valuations)
15
Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr This graph is based on standalone data of Sensex companies. If one
’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 Min 16.4 takes the consolidated data, the P/E will be lower.

Sensex’s price to book value

4.0 Max 3.65 The price-to-book-value ratio tells us how
many times an investor is ready to pay
for a rupee of net assets.
3.6
Current 3.30 Since book value is stable and less
volatile than earnings, some consider it
3.2
better than the P/E as a measure of
valuation.
2.8
Median 2.96
If
P/B > Median P/B = Overvalued
2.4
P/B < Median P/B = Undervalued

2.0
Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr
’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 Min 2.36

26 Wealth Insight May 2021

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 MARKET
C MPASS

Sensex’s dividend yield

2.0% Max 1.80 Dividend yield is nothing but the return
an investor gets in the form of dividend
on his investment. It is measured as
1.7 dividend per share divided by price
per share.
1.4 Generally speaking, when stocks are
cheap, dividend yields are high.
Median 1.34
If
1.1
Dividend yield >
Median dividend yield = Undervalued
0.8 Dividend yield <
Median dividend yield = Overvalued
Current0.74
0.5 Min 0.72
Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr
’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21

Market cap to GDP

110% Max 105 This measure is Buffett’s personal
Current 105 favourite. He said, “It is probably the
single best measure of where valuations
100 stand at any given moment.”
Here we have considered the market
90 capitalisation of all the listed companies
on the BSE.
If
80 Median 77 Market cap > GDP = Market
overvalued
70 Market cap < GDP = Market
undervalued
The GDP fell by 23.9 per cent YoY in Q1 FY21 and 7.5 per
60 Min 65 cent YoY in Q2 FY21 due to COVID-19. In Q3 FY21, it was
2013 2014 2015 2016 2017 2018 2019 2020 2021 almost flat at 0.4 per cent YoY.

10Y G-sec yield vs Sensex’s earnings yield

4.0% Max 3.87 The spread between G-sec yield and
Sensex’s earnings yield is another
valuation measure. G-sec yield is the
3.2
Current 3.18 yield of the 10-year government bond.
Sensex’s earnings yield is the inverse of
Median 2.78 the Sensex’s P/E ratio. The greater the
2.4 deviation from the median in either
direction, the greater the degree of
overvaluation or the undervaluation of
1.6
the Sensex.
If
0.8 Spread > Median = Overvaluation
Spread < Median = Undervaluation
0 Min 0.79
Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr All data as on April 15, 2021.
’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 GDP data as of December 2020.

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 ANALYST’S
DIARY

Efficiency at its best

Companies that have consistently increased their return on capital
employed over the last five years

F
inancial ratios are a useful tool to analyse returns it has made on the debt portion. This makes
companies as they compress financial details return on capital employed (ROCE) a better metric as
in ready-to-use chunks. To assess a company’s it takes into account both equity and debt.
profitability, return on equity (ROE) is frequently Here we bring to you companies which have been
used. This ratio measures how much profit a able to increase their ROCE consistently over the last
company has been able to generate on its five years. What does this imply? It means that these
shareholders’ funds, also called equity. However, ROE companies have not just constantly achieved superior
doesn’t capture the full picture. A company often returns over the previous year, but they have also put
raises debt for its in extra efforts to be able to grow their profits. This
operations and ROE also speaks tonnes about their prudent capital
doesn’t tell you allocation and efficiency.
what Profits alone are not enough. They
should also be backed by consistent
cash flows. The companies
mentioned here have also been
able to deliver positive cash
flows from operations during
all the years.
Of course, you shouldn’t
invest in these companies
only on the basis of their
ROCE. Do analyse them
thoroughly before taking an
investment call. WI
By Danish Khanna

ROCE champs
Market ROCE (%)
Company Sector cap (` cr) 2020 2019 2018 2017 2016
Black Rose Industries Trading 889 36.2 30.7 29.3 19.4 11.8
Honeywell Automation Consumer durables 37,811 35.5 35.5 29.6 28.2 24.1
Indian Hotels Hospitality 11,893 10.8 9.0 7.4 5.6 4.0
IOL Chemicals Healthcare 3,354 68.1 55.5 15.0 11.6 3.7
Ion Exchange Capital goods 1,856 35.3 33.4 27.4 27.0 21.0
Lemon Tree Hotels Hospitality 2,385 7.9 7.3 6.3 5.4 4.1
Petronet LNG Industrial gases & fuels 33,315 31.6 29.9 29.7 26.1 16.1
Sadbhav Engineering Infrastructure 1,097 25.8 12.3 11.3 9.8 9.5
Sadbhav Infrastructure Infrastructure 710 30.3 11.1 10.0 8.3 7.7
Minimum market cap `500 cr. Data as of FY20. Price data as of April 15, 2021.

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 ANALYST’S
DIARY

Keeping relationships first

Significant related-party transactions warrant a close scrutiny

I
n an ideal world, a company is expected to generate Let us look at these transactions individually:
higher returns for its shareholders. And if GOCL Corporation: It provided a loan of $150 million to
investment opportunities are limited, it is expected its subsidiary HGHL Holdings for a downstream joint
to distribute the excess funds in various forms, such venture payable in seven years at a rate of USD Libor
as dividends to its shareholders. However, at times, (London Interbank Offer Rate expressed in US dollars)
companies loan some of the excess funds to their plus 570 basis points per annum.
related parties. Wardwizard Innovations: Details of loans not provided
As the name suggests, the related party refers to a Jet Airways: The company had an outstanding balance
person or entity that is related to the company. These from its wholly-owned subsidiary Jet Lite to a tune of
include associate companies, subsidiaries, trusts and `2580 crore. However, the company has classified the
key management personnel. Owing to their close loan as doubtful in its last annual report.
proximity or business relations with the company, at Gujarat Fluorochemicals: The company has paid advances
times, these are able to receive high advances which towards the purchase of assets even before their
may or may not go in favour of the company’s acquisition.
shareholders. While not all related-party transactions Jindal Stainless (Hisar): The company provided an inter-
are suspect, an investor should still keep track of them. corporate deposit to Jindal Stainless, one of its
Check details like the purpose of the loan, interest rate associate companies. However, its interest servicing for
charged, etc., to ensure whether these loans make any FY19 and FY20 has been deferred until February 2021
business sense to the lending company. following a mutual agreement between two entities.
In the accompanying table, we zero in on five Thus, investors should be particularly wary of
companies that have offered advances of more than 10 companies that offer large loans to their related
per cent of their total assets to related parties and in companies, especially at unfavourable terms, which
some cases, more than 40 per cent. If any of these may ultimately result in the erosion of shareholders’
related parties defaults on these advances, that may funds. WI
significantly impact the company’s financial position. By Danish Khanna

Relationships at play
These companies offered advances of more than 10 per cent of their total assets to related parties
Advances to related Total assets Advances to
Company name Sector M-cap (` cr) parties (` cr) (` cr) total assets (%)
GOCL Corporation Chemicals 1,041 1,135 2,281 49.8
Wardwizard Innovations Infrastructure 1,658 5 11 43.3
Jet Airways Aviation 1,004 2,580 6,927 37.2
Gujarat Fluorochemicals Chemicals 8,243 872 5,828 15.0
Jindal Stainless (Hisar) Iron & Steel 3,264 900 7,082 12.7
FY20 data. Price data as on April 15, 2021.

May 2021 Wealth Insight 29

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30 Wealth Insight May 2021
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 COVER STORY

How to
profit from
cyclicals
By Rajan Gulati, Danish Khanna cyclical businesses such as FMCG, and homogeneity, we had to create
and Arul Selvan pharma, IT, consumer durables, our own indices. To do so, we

C
services, and so on. Non-cyclical considered companies across
yclicals have again businesses can continue to do well sectors that had a 20-year history.
started to create a buzz. in spite of moderate economic Within sectors, there could be
As of April 15, 2021, the currents. multiple industries, so we tried to
S&P BSE Metal, Basic In this story, we assess seven make the index as inclusive as
Materials, Auto and cyclical sectors to see if their cycles possible. We then assigned all the
Realty indices were among the are reversing. If yes, then these components equal weights. This
one-year toppers, with returns of businesses can prove to be good gave us our ‘equal-weight’ indices
129.2, 100.7, 54.1 and 34.1 per cent, investments for the medium term. across sectors. The components of
respectively, as compared to the We will also see how to analyse these indices are mentioned on
Sensex’s 41.9 per cent till April 20, cyclicals and when to invest in their respective sector pages.
2021. But first, what exactly are them. Finally, we present to you a Then in order to see whether the
‘cyclicals’? compact scorecard of the major various sectors are on the road to
Cyclicals are businesses that cyclical companies to help you in recovery, we assessed the combined
heavily depend on the economy. your research. five-year revenues, profits and
When the economy is booming, median margins of the companies
these businesses do well. When METHODOLOGY constituting the equal-weight
it’s not, they suffer. While Sectoral cycles are a long-term index. An upcycle often results in
virtually no business is entirely phenomenon and to observe them an uptick in these three. Do note
insulated from the economy, it’s we require a long-term index. Since that the idea here is not to assess
the higher dependence of cyclicals the available stock indices the quantum of revenues or profits
that differentiates them from non- generally don’t have such a history but to assess the trend.

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 COVER STORY

(<;646)03, (5*033(90,:

(YVHKM\SSVMWV[OVSLZ
With several headwinds looming large, the
automobile sector is limping to recover

T
he automobile sector is a close to five years. Thereafter,
classic example of a cyclical the industry started facing
industry. Both the passenger- several headwinds,
vehicle (PV) and commercial-vehicle including the transition to
(CV) sub-segments are largely BS-VI, the mandatory
influenced by changes in economic purchase of long-term
growth. While the cyclicality of the insurance, liquidity crisis
PV segment is primarily driven by after the IL&FS episode and
the discretionary nature of expenses new axle-load norms. Adding
(consumers can generally choose to to the woes, the pandemic-led
use public transport systems, lockdown cast a dark shadow over
purchase used cars or use their the sector.
existing vehicle), the variability of
the CV segment is directly linked to OUTLOOK
the quantity of goods transported Following the easing of the
(which is a measure of economic lockdown, sales rebounded on the
activity). Besides, auto sales are very back of pent-up demand, the festive capita vehicle ownership rates
sensitive to changes in interest rates season and growing consumer relative to developed countries are
because of high unit costs and the preference for personal transport some positives.
resulting need for financing. (due to heightened hygiene Although the rise of electric
requirements). Besides, factors like vehicles (EV) could pose a
HISTORICAL PERSPECTIVE better highways, the availability of significant threat to the industry, the
The latest rally in the auto sector cheaper fuel (natural gas) and high EV segment is still at a very nascent
began in late 2013 and continued for sales potential because of low per- stage and there are several
challenges, such as less distance
(<;6 (5*033(9@,8<(3>,0./;05+,? covered per charge as compared to
10000 conventional vehicles, long charging
8000
duration and the lack of charging
stations. Many leading players have
6000
already launched electric vehicles
4000 (EV), especially in the two-wheeler
2000 segment. However, it remains to be
0 Rebased to 100 seen whether their adoption rate in
Jan-01 Apr-21 India will mirror that of western
countries.
-05(5*0(37,9-694(5*, Overall, the industry outlook is a
Combined revenue (` cr) &RPELQHGRSHUDWLQJSURÀW` cr) Median operating margin (%)
mixed bag. Although there is always
175000 (In ` cr) (In %) 20
a need to travel, the advent of
140000 16
technology has decreased the need to
105000 12 some extent. The growing use of
70000 8 video-conferencing facilities, greater
35000 4 adoption of e-commerce and the
0 0 likelihood that working from home
Dec-15 Dec-20 will stay relevant even after the
Constituents of the equal-weight index: Ashok Leyland, Escorts, Hero MotoCorp, M&M, Motherson Sumi, MRF, Tata Motors, lockdown are some possible long-
TVS Motor, VST Tillers
term headwinds.

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 COVER STORY

)(5205. -05(5*,

([^V^H`L_JOHUNL
While this sector is impacted by the prevailing economic
conditions, it also in turn impacts the economy

T
he banking and finance HISTORICAL
sector is the classic example PERSPECTIVE
of cyclicals. Its performance Boom times, no doubt,
is directly linked to economic augur well for this sector.
growth and interest-rate However, as history reveals,
movements. High economic growth every boom period came to
results in higher demand for credit, an end, owing to excessive
which benefits banking and finance credit and the poor
companies. Lower/higher interest performance of borrowers. For
rates in the economy can increase/ example, during the mid-2000s, the
decrease the spreads between boom in infrastructure lending in
interest paid and charged by India ultimately resulted in a
banking and finance companies. prolonged period of pain for
What makes this sector stand out lenders in the next decade because
is the fact that the general business of poor underwriting standards. liquidity constraints and providing
cycle also depends on this sector’s guaranteed loan schemes. Further,
behaviour. When banks turn risk- OUTLOOK the regulatory uncertainty
averse, that can translate into credit With lending playing a significant surrounding the recognition of NPAs
crunch for other sectors. A liberal role in the overall economic growth, has now come to an end.
lending regime bolsters economic the sector is expected to do well in Recent positive developments,
growth. So, while this sector is the future. During the previous year, such as reinstating access to the
affected by the economic conditions, the government unveiled a slew of Insolvency and Bankruptcy Code,
it also in turn affects the economy. measures aimed at improving which is an effective recovery
lenders’ access to funds, removing mechanism in the country, coupled
with lower interest-rate regime, have
)(5205. -05(5*,,8<(3>,0./;05+,? augured well for this sector. As
7500 lenders already took pre-emptive
provisions during the previous year,
6000
it should give investors comfort
4500
against any nasty surprises.
3000 Over the last few months, there
1500 has been a rally in PSU banks. One
0 Rebased to 100 should avoid attributing it entirely
Jan-01 Apr-21 to a change in cycle. The
government’s privatisation drive is a
-05(5*0(37,9-694(5*, major force behind this rally. If the
Combined income (` cr) Combined NII (` cr) Median NIM (%)
government successfully privatises a
160000 (In ` cr) (In %) 4.0
couple of banks, there could well be
128000 3.2 a re-rating of PSU banks. However,
96000 2.4 if politics, growth worries and
64000 1.6 balance-sheet concerns turn out to
32000 0.8 be the spoilsport, the rally may not
0 0 go very far. Another concern is the
Mar-16 Dec-20 second wave of COVID-19, which is
Constituents of the equal-weight index: HDFC, LIC Housing, ICICI Bank, SBI, HDFC Bank, IDBI and Shriram Transport now casting a shadow on the
Finance. NII: Net interest income. NIM: Net interest margin.
recovery of this sector.

May 2021 Wealth Insight 33

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 COVER STORY

*9<+,603

9LJV]LY`VU[OLJHYKZ
With the revival of the global economy and record production cuts by OPEC
countries, the future of the sector appears promising

T
he cyclicality in crude oil was observed when the US imposed 2016. Thereafter, the oil prices
depends on a host of factors. sanctions on Iran’s export of crude started recovering. However, the
Global economic growth has oil. Recently, the trade war between demand was tepid mainly because
a decisive impact on the demand the US and China led to a global of the global economic slowdown.
for crude oil. An increase in economic slowdown, thereby At the beginning of 2020, the
economic output leads to an decreasing the demand for crude oil. COVID-19 pandemic resulted in the
increase in the demand for crude crashing of oil prices.
oil and vice versa. HISTORICAL PERSPECTIVE
On the supply side, the crude-oil During the financial crisis of 2008, OUTLOOK
output is controlled by various crude oil hit its all-time high of $145 The revival of the global economy,
forces across the globe. The per barrel. But thereafter, its along with record production cuts
revolutionary introduction of shale demand plummeted. The fear of by OPEC countries, has led to an
technology in the US has led to a global recession, coupled with a increase in crude-oil prices. With
remarkable increase in the oil bleak future outlook, resulted in the the global economy rebounding, the
supply over the last decade. Besides, bottoming of crude oil prices to $32 demand for crude oil is on a steady
OPEC – a cartel of 13 countries – per barrel by the end of 2008. Post- rise. So, oil prices are expected to
accounts for more than half of the crisis, economies around the globe remain high in the near future.
total world output. started gaining pace, with crude oil Several factors, including the
This cartel tends to collectively also reaching a high of over $100 growing demand for electric
control oil production for its per barrel by 2014. Large oversupply vehicles and alternative energy
members in order to manage global because of the US shale output and sources, are expected to change the
oil prices. Besides, global tepid global macro environment led sector’s outlook. However, till then,
geopolitical tensions contribute to to a massive fall in the oil prices to global dependence on oil is likely to
the cyclicality of this commodity. It as low as $30 per barrel till early remain high.

*9<+,603,8<(3>,0./;05+,?
2000
1600
1200
800
400
0 Rebased to 100
Jan-01 Apr-21

-05(5*0(37,9-694(5*,
Combined revenue (` cr) &RPELQHGRSHUDWLQJSURÀW` cr) Median operating margin (%)
750000 (In ` cr) (In %) 15
600000 12
450000 9
300000 6
150000 3
0 0
Mar-16 Dec-20
Constituents of the equal-weight index: BPCL, HPCL, IOC, ONGC and Reliance Industries

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 COVER STORY

*(70;(3.66+:

;PTL[VMVYNLHOLHK
Resumption of economic activities, steady
demand and a renewed focus on exports are
providing headroom for growth

C
apital goods refer to those the demand for capital goods,
tangible assets that are further thereby impacting the stock
used by other companies to price of companies belonging
manufacture final products for their to the sector.
consumers. So, companies in the
capital-goods sector cater to the HISTORICAL economy. The
needs of companies across sectors, PERSPECTIVE pandemic-led
such as manufacturing, mining, The previous cycle of capital lockdown has further
construction, telecom, power, goods during 2003–07 started with delayed macroeconomic
transportation, to name a few. It the power sector on the back of the recovery, which could dent capex
signifies that the performance of this landmark Electricity Act, 2003, plans for various industries, thereby
sector is very sensitive to the which was followed by a high capital posing a threat to order inflows and
fluctuations of the business cycle in expenditure in the telecom and earnings of companies in this sector.
other sectors. For instance, when the energy sectors. The cycle ended with
economy performs well, it augurs the global recession in 2008. From OUTLOOK
well for the manufacturing sector. that time to FY14, the capex cycle The government’s increased focus on
Then the sector can incur high capex was muted. Thereafter, it regained infrastructure development in its
to cater to the growing demand for strength, buoyed by a revival in recent budget reflects its
manufacturing equipment. Likewise, public spending (GDP) in India. commitment towards public
during an economic slowdown, However, over the last few years, spending. This, coupled with India’s
companies incur low capital the sector has been struggling, owing target to increase the contribution
expenditure, leading to a decline in to the overall sluggishness in the of the manufacturing sector to the
overall GDP from the current level
*(70;(3.66+:,8<(3>,0./;05+,? of 13 per cent to 25 per cent by 2025,
10000 is expected to accelerate the growth
8000
of capital-goods companies dealing
in the manufacturing space.
6000
The government has also
4000 provided various production-linked
2000 incentives (PLI) schemes to boost
0 Rebased to 100 manufacturing and exports. Unlike
Jan-01 Apr-21 the last cycle which was driven by
investments in core industries such
-05(5*0(37,9-694(5*, as power, telecom, and oil and gas,
Combined revenue (` cr) &RPELQHGRSHUDWLQJSURÀW` cr) Median operating margin (%) the current cycle is likely to be
20000 (In ` cr) (In %) 16 driven by the infrastructure and
15000 12 manufacturing revival.
10000 8 The performance of this sector
5000 4 largely depends on the capex cycle.
Thus, the easing of the lockdown,
0 0
resumption of economic activities, a
-5000 -4
Mar-16 Dec-20 strong pick-up in demand and a
Constituents of the equal-weight index: ABB, BHEL, Graphite India, Siemens and Thermax growing focus on exports will bode
well for it.

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 COVER STORY

*65:;9<*;065 05-9(:;9<*;<9,

-H]V\YHISL[HPS^PUKZ
The construction-materials sector is witnessing a
rebound on the back of the government’s infra push
and renewed housing demand

T
he construction-materials the continuous legacy asset build-up
sector mainly caters to the but moderate demand.
housing market (accounting
for 60 per cent of the total demand) HISTORICAL PERSPECTIVE
and the infrastructure space. During The 2000s, a high-growth period for
high economic growth, companies the Indian economy, saw a huge
in the sector try to increase their inflow of infra financing (mainly
market share by pushing volumes through banks). Further, an increase infrastructure projects. However, the
and selling at low prices. It leads to in infrastructure and housing country is estimated to require an
overcapacity. However, during bad requirements paved the way for the investment of `50 trillion in
times, companies opt for sector’s growth. However, the infrastructure by 2022 for sustainable
consolidation, with smaller players economic crisis in 2008–09, coupled development, a target that cannot be
fading away and bigger players with a crack in government achieved without the participation
emerging as winners. In recent machinery because of various of private companies.
years, consolidation in the sector corruption cases, led to a plethora of Recently, the government has
has led to the top two players incomplete projects. Project taken various steps. In December
Ultratech and Ambuja cornering a appraisals done with rosy future 2019, it announced the set-up of the
market share of 52 per cent in 2020 estimations also played a major role. National Infrastructure Pipeline
(source: IBEF). Despite this, (NIP), under which infra projects of
capacity utilisation of the sector has OUTLOOK `102 lakh crore would be
hovered at around 70 per cent Given the previous experience, implemented until FY25. To mobilise
during the last few years, owing to banks are now reluctant to fund resources for funding, the
government has also set up a
*65:;9<*;065 05-9(,8<(3>,0./;05+,? National Infrastructure Investment
25000 Fund (NIIF) and a Development
Finance Institution (DFI).
20000
On the other hand, after facing
15000
several headwinds, the cement
10000 industry is expected to see a
5000 turnaround on the back of strong
0 Rebased to 100 demand, market share concentrated
Jan-01 Apr-21 with top five players and focussed
capacity additions.
-05(5*0(37,9-694(5*, Cement companies reported a
Combined revenue (` cr) &RPELQHGRSHUDWLQJSURÀW` cr) Median operating margin (%) strong set of numbers in Q3FY21.
60000 (In ` cr) (In %) 25 UltraTech grew its Q3 operating
48000 20 profit by 61 per cent, while Ambuja
36000 15 Cements by 40 per cent. After a long
lull, UltraTech has announced a
24000 10
cumulative 19.5 million tonnes of
12000 5
capacity addition in the next two-
0 0 three years. In Q3, the bellwether
Mar-16 Dec-20
Constituents of the equal-weight index: Ambuja Cements, L&T, Shree Cement, Kajaria Cermics L&T saw one of the highest quarterly
order inflows in its history.

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 COVER STORY

4,;(3: 40505.

:OPUPUNIYPNO[
Thanks to a recovery in Chinese economy, the
metals-and-mining pack is seeing new investments,
better profitability and greater demand

T
he cyclicality of the metals- China accounts for 53.3 per
and-mining segment is driven cent of the global steel
by the law of supply and production and around 50
demand. When companies foresee a per cent of its
rise in demand, they go for capacity consumption. Hence, to
expansion. However, this capacity understand the steel cycle, it’s
expansion doesn’t happen important to understand the OUTLOOK
overnight. For example, it takes business conditions in these A rebound in Chinese economy
seven to 10 years to develop a mine countries. Similar is the case with from the pandemic-driven slump,
and only after that, the supply other commodities as well. boosted by large spending on
comes to the market. This construction, is positive for the
mismatch between supply and HISTORICAL PERSPECTIVE metal-and-mining sector. Low
demand causes metal and mineral The last metals-and-minerals super interest rates, rising global demand
prices to rise. cycle, which started around 2002, was post COVID and huge investments
Another determining factor is led by China and other emerging in clean energy are some other
where metals and minerals are economies, like India. Construction reasons cited for the recovery.
produced and consumed. If we of modern infrastructure and cities Iron-ore prices have reached a
consider steel, Australia (around 30 at an unprecedented scale left decadal high in recent months
per cent of global production) and suppliers struggling to fulfil demand. largely on account of a mine
Brazil (about 16 per cent) are the The rally lasted till 2014, post which disaster in Brazil, which blocked a
major suppliers of iron ore, which a slowing global economy led to a significant chunk of output. Copper,
is a key raw material for steel. drop in prices. which is trading around its 10-year
highs, will see renewed investments
4,;(3: 40505.,8<(3>,0./;05+,? due to its essential role in major
30000 appliances, batteries, electric cars
24000
and others. Vedanta is looking to set
up a copper-smelting plant with an
18000
investment of `10,000 crore.
12000 Hindalco has announced an
6000 expenditure of `7,000 crore to
0 Rebased to 100 double its aluminium downstream
Jan-01 Apr-21 capacity over the next few years.
After the COVID-led lockdown,
-05(5*0(37,9-694(5*, the economy recovered swiftly in Q2
Combined revenue (` cr) &RPELQHGRSHUDWLQJSURÀW` cr) Median operating margin (%)
and Q3 of FY21. Tata Steel achieved
150000 (In ` cr) (In %) 50
the highest-ever quarterly operating
120000 40
profit of `8,811 crore in Q3 FY21.
90000 30 Similar was the case with JSW
60000 20 Steel, which recorded 13 times
30000 10 growth in net profit. A sharp
0 0 recovery in silver and zinc prices,
Mar-16 Dec-20 along with volume growth, also
Constituents of the equal-weight index: Tata Steel, JSW Steel, Jindal Steel and Power, Hindustan Zinc, Vedanta, Hindalco pushed Hindustan Zinc’s operating
Industries, NMDC
profit up by 42.8 per cent in Q3 YoY.

May 2021 Wealth Insight 37

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 COVER STORY

9,(3,:;(;,

9L]P]HSIYPJRI`IYPJR
Hit by the pandemic, the sector had started to recover
gradually, but then came the second COVID wave

B
roadly, the real-estate sector acquiring residential projects.
could be divided into This led to an increase in land
residential and commercial prices, thereby resulting in a
segments. In the residential segment, vicious cycle where gains were
demand mainly comes from the used to acquire more land.
migration and nuclearisation of Funding was readily available and
families and customers looking for many developers went overboard
an upgrade. On the other hand, for on leveraging their assets until the OUTLOOK
the commercial segment, economic global financial crisis hit in 2008. As 2019 was a record year of leasing
growth drives the demand. As a result, a series of events, such activities, 2020 was expected to be a
On the supply side, the as increasing interest rates during revival year for the real-estate
availability of capital and land are 2013-14, slow-paced economic market. But the pandemic played a
key growth factors. In India, growth, demonetisation, RERA spoilsport. However, gradually, a
speculations over the price increase and credit crisis led to a slump in host of positive developments,
led to an oversupply of residential the sector. With customers holding including the revival of the
real estate. Therefore, despite a up progress payments, developers economy, low interest rates of home
shortfall of houses in India, there were left with under-construction loans, rock-bottom housing prices,
was an unsold inventory of around stocks, land banks and operational attractive special offers from cash-
7.4 lakh units at the end of FY20. and financial liability, which starved developers, interest subsidy
became difficult for them to under Pradhan Mantri Awas Yojana
HISTORICAL PERSPECTIVE service from current cash flows. and a reduction in stamp duty have
During the real-estate boom in 2005, Ultimately, it resulted in several revived the demand for real estate,
developers invested more in developers going bust. albeit at a slower pace.
As noted by Godrej’s
9,(3,:;(;,,8<(3>,0./;05+,? management, the sector’s cycle has
175 started to turn, since demand is
140
picking up and inventory is getting
absorbed in a steady manner. Godrej
105
has also announced the launch of 10
70 projects in Q4 (highest in any
35 quarter). DLF recorded a 9 per cent
0 Rebased to 100 increase in net profit in Q3 driven by
Jul-07 Apr-21 residential demand. On the other
hand, Oberoi Realty’s Q3FY21 sales
-05(5*0(37,9-694(5*, volume was at 5.1 lakh sq feet, up
Combined revenue (` cr) &RPELQHGRSHUDWLQJSURÀW` cr) Median operating margin (%)
around 2.3 times YoY, driven by
7500 (In ` cr) (In %) 60
buyers’ preference for available
6000 48
inventories/near-completion
4500 36 projects. While the real-estate market
3000 24 is experiencing an upthrust, the
1500 12 work-from-home culture can reduce
0 0 the overall long-term demand for
Dec-15 Dec-20 commercial real estate. This would
Constituents of the equal-weight index: DLF, Indiabulls Real Estate, Mahindra Lifespace Developers, Phoenix Mills, Sobha. be exacerbated by the recent second
wave of the pandemic.

38 Wealth Insight May 2021

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 COVER STORY

/V^[VPU]LZ[PUJ`JSPJHSZ
Profiting from cyclicals requires a combination of vigilance, patience
and enterprise. Of course, you can take the indirect route as well.

I
n the tricky world of stocks, investing in cyclicals is HOW TO ASSESS VALUATIONS
even trickier. Unlike secular-growth non-cyclical P/B, NOT P/E: The classic P/E ratio
businesses, cyclicals aren’t long-term buy and hold. doesn’t tell us much about the valuation
You can’t expect them to organically build wealth. Of of cyclicals. At the start of an upcycle,
course, as the Indian economy itself has done well over when the earnings are still low, a run-up in
the long term, even cyclicals have turned into long-term stock prices can artificially inflate the P/E.
compounders, but as the economy matures, this may not Similarly, during downcycles, it may not be valid due to
be the case. Let’s see how to profit from cycles then. net losses or could be very high due to meagre profits.
The P/B ratio helps assess the valuations better as it
KEY TRENDS TO TRACK captures the asset-heavy nature of cyclicals.
GROWTH IN REVENUES: At the start of an
upcycle, revenues start to witness EV TO EBITDA: This metric solves the problem of using
growth. They start to fall as the the P/E ratio while also capturing the earnings.
downcycle approaches. Enterprise value (market cap + debt - cash and
equivalents) captures the value of the whole firm.
OPERATING INCOME AND MARGIN: Most cyclical When we divide it by EBITDA, or operating profit, we
companies are asset-heavy. Irrespective of the changes get the payback period if the entire company were to be
in revenues, their fixed costs remain the same. Hence acquired. Obviously, the lower the period, the better.
as revenues jump, the company starts reporting high
operating profit and margins. This could signal a WHEN TO BUY AND SELL
reversal in cycle. z If you have patience and tolerance, you
can buy cyclicals when they are down in
DEBT POSITION: Being asset-heavy, cyclical companies the dumps. Then wait for the cycle to
can take substantial debt for capital expenditure to turn. It would be worthwhile to go with
meet the anticipated demand. Typically, at the peak of quality names in this space that have robust
the cyclical, one can find them to be neck deep in debt. financials. Once they seem to have peaked out, you can
For instance, during the 2014 commodity bust, steel book your gains.
companies were heavily indebted. New capex z If you are market savvy and keep a track of market
announcements, along with new debt, tend to mark the trends, keep looking for cyclical shifts, as is currently
start of an upcycle. the case with many sectors. As the cycle starts
recovering, you can buy cyclicals and exit them when
PLAYERS IN THE INDUSTRY: Before a cycle peaks, new the cycle seems to be reversing.
players tend to enter the market in pursuit of higher
profits and chase volumes through competitive pricing. BE CAUTIOUS
As the cycle reverses and heads towards the bottom, Do understand that there is always a
weak or non-serious players tend to exit the market. risk of going wrong with reading a
Thus, the number of new players at a given point in cycle. Not to forget the several
time could also act as a gauge of where we are in a unprecedented factors that can derail
cycle. Sectors like steel, cement and housing finance any sectoral move. Allocate only a small
have seen consolidation in recent years. portion of your portfolio to cyclicals. The majority of
your portfolio should be in evergreen, secular-growth
UTILISATION OF CURRENT SUPPLY: Companies businesses.
generally go for further expansion only after they have If you are not sure about this space, you can also
utilised the current capacity. Keeping an eye on the seek professional help. There are specialised
existing capacity additions helps. For example, during business-cycle funds that try to profit from cyclicals.
the 2007–09 upcycle, utilisation levels of cement Value Research Stock Advisor also actively tracks the
companies were more than 85 per cent. These have entire investment universe and gets you rewarding
hovered around 70 per cent in the past few years. stock ideas across sectors. WI

May 2021 Wealth Insight 39

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 COVER STORY

:JVYLJHYK!;VWJ`JSPJHSZ[VJRZ
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&RPSDQ\  4 4 4 4 4 4 &XUUHQW <PHGLDQ

Maruti Suzuki 2,00,944 13.2 9.7 -17.1 5.8 20.3 -104.6 7.5 13.7
ANCILLARY

%DMDM$XWR         
AUTO &

7DWD0RWRUV         
Mahindra & Mahindra 1,00,102 11.3 -1.5 -25.7 -1.3 16.1 -93.4 14.1 12.8
Eicher Motors 65,919 19.5 -2.7 -11.0 13.5 -13.0 -99.8 19.8 27.0

+')&%DQN         
BANKING &

,&,&,%DQN         
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Siemens 64,712 16.1 -8.9 -59.2 13.6 5.5 -101.8 9.9 9.9
$%%         
CAPITAL
GOODS

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Graphite India 12,632 -22.4 -45.0 -57.7 84.8 -155.7 -144.4 -15.5 19.4

/DUVHQ 7RXEUR         
CONSTRUCTION

Ultratech Cement 1,88,701 17.4 7.7 -33.2 56.4 40.5 -29.7 25.1 18.8
& INFRA

Shree Cement 1,09,276 12.6 8.2 -24.9 28.0 14.2 -27.4 30.5 26.9
$PEXMD&HPHQWV         
ACC 34,468 2.4 0.1 -37.9 5.7 20.5 -32.9 18.0 14.0

Reliance Industries 13,14,479 -21.1 -24.2 -43.8 -5.2 -16.2 -21.9 15.3 14.7
ONGC 1,32,093 -8.4 -17.7 -42.9 -27.9 -13.4 -47.7 10.7 39.9
CRUDE
OIL

%3&/         
IOCL 84,916 0.6 -13.4 -40.9 36.1 171.1 -27.0 4.7 5.8
+3&/         

JSW Steel 1,52,019 23.4 11.5 -41.0 142.6 61.6 -63.9 20.7 20.1
Hindustan Zinc 1,23,527 27.9 24.0 -20.8 42.8 39.4 -36.4 48.6 49.2
METALS &
MINING

7DWD6WHHO         
Vedanta 83,786 6.5 -4.3 -25.9 19.1 47.7 -23.2 28.7 25.6
Hindalco Industries 79,476 19.7 5.3 -15.6 54.5 30.8 -44.3 13.0 12.0

DLF 61,412 15.0 -6.2 -58.8 118.6 32.2 -99.3 23.7 23.7
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40 Wealth Insight May 2021

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 COVER STORY


'HEWHTXLW\RU  5HWXUQV   3%
JURVV13$  0 < <SD &XUUHQW <PHGLDQ &RPSDQ\

0.0 -17.1 30.5 12.2 4.0 4.9 Maruti Suzuki

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0.1 22.1 59.6 18.9 7.6 6.8 Shree Cement
      $PEXMD&HPHQWV
0.0 2.8 59.9 4.5 2.6 2.8 ACC

0.4 -0.9 70.6 29.9 3.1 2.1 Reliance Industries

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      %3&/
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      +3&/

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0.2 4.7 67.8 12.0 3.2 2.8 Hindustan Zinc
      7DWD6WHHO
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1.3 35.3 193.2 29.7 1.7 0.9 Hindalco Industries

0.2 -11.9 85.1 15.3 2.3 1.1 DLF

      *RGUHM3URSHUWLHV
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)RUEDQNLQJ ¿QDQFHVWRFNV)<GDWDLVFRQVLGHUHGLQVWHDGRI770WUDLOLQJWZHOYHPRQWKVGDWDIRU1,01,0¿JXUHVIRU%DMDM)LQDQFHDUHHVWLPDWHV DVRI6HSWHPEHU2WKHUGDWDDVVWDWHG

May 2021 Wealth Insight 41

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 INTERVIEW ANISH TAWAKLEY Senior Fund Manager, ICICI Prudential AMC

‘A large part of the economy

tends to be cyclical in nature’
B
usiness cycles are an important element of investing.
Understanding them can help you invest in companies
that are best positioned at a point in time. We speak to
Anish Tawakley, Senior Fund Manager, ICICI Prudential
AMC about business cycles. He also tells us if the
business cycle for cyclicals, such as metal, realty, capital
goods, etc., is reversing. Tawakley co-manages ICICI
Prudential Business Cycle Fund, which has assets of
over Rs 4,600 crore as of March 2021.

You run a business-cycle fund. Please tell our readers what

a business cycle is, what causes it and why it is important
as an investment theme.
We know that economies go through periods of booms
and slumps. These could occur either because of
demand or supply shocks. An example of a supply
shock is the one seen during the onset of the
pandemic when production activity could not take
place. Demand-driven slumps happen when households
and businesses become cautious or risk-averse, leading to
a reduction in both consumption and investment spending.
Households cut back on their discretionary spending like
holidays, eating out, etc. On the business side, corporates may
decide to cut back on investments. But, ironically, one person’s
spending is another person’s income. So, when spending falls,
income falls further, and that leads to the spending weakening
further. So, it’s a vicious cycle.
Booms happen when consumers and businesses are
feeling very optimistic and are spending freely. As
demand is strong, capacity utilisation is high and
profitability too is strong. Here, businesses are
feeling confident of investing and are also
giving wage hikes as a means to attract
employees.
The duration and severity of an
economic cycle depends on what is
causing it, the policy response to it
(monetary and fiscal). The fact here
is that at different stages in a cycle,
different sectors tend do well and it
is this logic which is applied when
it comes to managing a business-
cycle fund. Depending on where
we are placed in an economic
cycle, we invest in sectors which

42 Wealth Insight May 2021

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 INTERVIEW

“Every cycle is different as the challenges faced by the economy

will differ from time to time and hence the shape
of the cycle. As a result, the type of stocks picked for the
portfolio will depend on the nature of the shock and
the policy response both in terms of both fiscal and monetary.”

are better placed to make gains at that point of the (3) Demand and investment growth indicators: Credit
cycle. growth, business confidence, consumer confidence,
new project announcements, demand growth in
Do all businesses undergo cycles or are there any specific industries such as auto, cement, steel, etc.
businesses that are subject to them? (4) Global growth outlook
There are some businesses which are cyclical in The risk of going wrong is minimised by having
nature, while some others tend to be less cyclical. For exposure to three to five different sectors at any point
example, healthcare is not a cyclical business but in time, with diversification within these sectors built
capital goods, automobiles, financials are cyclical in. The sectors chosen are based on their
businesses. So, a large part of the economy tends to appropriateness for a given point in cycle. Based on a
be cyclical in nature. continuous assessment of the evolving economic
conditions and the policy response being tailored, the
What are the key indicators that help you read a business sectors are bound to change dramatically when
cycle and its reversal? How do you minimise the risk of needed. For example, if the economy is going through
going wrong with reading a cycle? a slump phase, it is very likely that the central bank
We look at a very large set of indicators. These can could embark on monetary-policy easing, which is a
broadly be grouped into the following: trigger that can change our view substantially.
(1) Macro-stability indicators: These include current
account deficit, inflation, balance-of-payments After a long period of lull, sectors such as metals, realty,
situation and capital flows, banking-sector capital power and infrastructure, have started performing well.
adequacy, corporate and household leverage, etc. What’s going on in them? Is the cycle reversing for them
(2) Economic slack (capacity utilisation) indicators: or is it just high liquidity taking the stock prices up?
Capacity utilisation in capex-intensive industries, For many of these sectors the cycle has reverted.
like steel, cement, power, etc. When it comes to metals, the spreads, i.e., EBITA per

;VWOVSKPUNZVM0*0*07Y\KLU[PHS)\ZPULZZ*`JSL-\UK

In % of assets

9.52 7.70 7.00 5.83 5.29 4.85 4.47 3.61 3.55 3.18

L&T Axis Reliance HDFC Bharti ICICI BPCL Hindalco SBI Tata
Bank Industries Bank Airtel Bank Industries Steel

Data as of March 2021

May 2021 Wealth Insight 43

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 INTERVIEW

“We do not expect a prolonged hit to the economic activity. Earnings for
a quarter or so could, of course, take a hit. The recovery
should again start gathering momentum after this period.”

When it comes to making an exit decision, we look

:LJ[VYHSHSSVJH[PVUVM at individual sectors, based on parameters such as
capacity utilisation, profitability, amongst several
0*0*07Y\KLU[PHS)\ZPULZZ*`JSL-\UK others. If the stock appears to be fully valued or the
profitability is at its zenith, then we choose to exit
that name.
17.41
Which sectors or themes are you betting on currently and
5.26 why? Which ones would you avoid and why?
5.29 We are positive on deposit-rich banks, capital goods,
29.02 metals and are avoiding consumer goods, FMCG and
In % of non-deposit based unsecured retail lenders.
7.60
assets
Just when the economy seemed to be getting back on its
feet, a revival in COVID cases has cast a shadow. What
15.57 portfolio adjustments are you making to counter this
19.85 renewed uncertainty?
Since this is an ongoing development, we are closely
monitoring the evolving situation. Our view at the
Financial Energy Construction Metals moment is that we do not expect a prolonged hit to
Communication Automobile Others the economic activity. Earnings for a quarter or so
could, of course, take a hit. The recovery should
Data as of March 2021 again start gathering momentum after this period.
So, we want to be sure that companies we are holding
have the balance sheet to withstand a weak quarter
tonne have almost doubled. For real estate, we are in without having to raise capital.
the early stages of a reversal as can be seen through
the uptick in sales volume. In real estate, we are How is understanding business cycles useful for a long-
hoping that activity volumes remain strong and price term stock investor, who just wants to pick a few good
growth remains moderate. Strong real-estate volumes companies and hold them for the long term?
are a positive for the overall economic activity. In As we have discussed, cyclical sectors comprise a
terms of the power sector, it is too early to talk about very large part of the economy. Even the highest-
reversal as power demand is yet to pick up quality companies in these sectors are affected by
meaningfully. In terms of infrastructure, government these cycles. Some of the companies that have fared
support has been a major factor for revival here. poorly over the last decade or so – particularly in the
capital-goods sector – are, in fact, very strong
How exactly do you pick stocks for your fund? When do companies. It was just that the economy went through
you exit them? a very prolonged slump and these sectors did not do
While we use a lot of quantitative inputs, there is a well. Had economic growth been stronger over the
fair amount of forward-looking judgement involved last decade, many of the companies in these sectors
as well. Every cycle is different as the challenges would have fared much better. So, you can have
faced by the economy will differ from time to time situations where an investor identifies the best
and hence the shape of the cycle. As a result, the type company in the sector, but then the sector goes
of stocks picked for the portfolio will depend on the through a prolonged downcycle and even this
nature of the shock and the policy response both in company delivers mediocre returns. WI
terms of both fiscal and monetary.

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 6XEVFULEH
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 STRAIGHT TALK

Your investment strategy now

Amid rising COVID infections, here is the status check of the current
market and economic scenarios to formulate a portfolio strategy

ANAND TANDON
Resurgence of COVID in India had past 12 months. This massive injection of liquidity in
caught equity markets and policymakers by surprise. the US and other developed markets has been the pri-
Possible lockdowns reminiscent of 2020 have made mary cause of asset-price inflation. The US recently
markets jittery. Coupled with a stronger dollar, this has announced another COVID-related financial-support
led to a reversal of some international flows into package for its residents, the cheques of which are just
Indian equity markets and a bout of selling. reaching the beneficiaries. This will further support
As we step into the new reporting season, the outlook consumption and speculative behaviour in global mar-
for the year ahead begins to look slightly less definitive, kets. The RBI has had its own balance-sheet expansion
with unmitigated bullishness being replaced by a mod- programme – the largest that it has attempted and the
icum of concern about the trajectory of growth. We largest among emerging markets. This has helped sus-
look at the opportunities and risks that lie ahead. tain negative real interest rates, despite a large increase
in government borrowing.
The bull case
The bull case emanates from the money supply. US M1 The difference from 2020
– a measure of money supply – has risen from approxi- Unlike 2020, vaccinations against COVID are now avail-
mately $4 trillion at the end of February 2020 to $18 able and treatment protocols are in place. Mortality
trillion in February 2021, i.e., almost 78 per cent of all remains low. Lockdowns, though being enforced selec-
money supply in dollar terms has been created in the tively across several Indian states, are unlikely to reach

<:4TVUL`Z[VJR 9)0»ZIHSHUJLZOLL[L_WHUZPVU
M1 – a measure of money supply – has risen from approximately $4 RBI's balance-sheet expansion has been the highest across
trillion at the end of February 2020 to $18 trillion in February 2021. emerging markets.
20000 30%

16000
Billions of dollars

27
12000
24
8000
4000 21
0
1960 1970 1980 1990 2000 2010 2020 18
April 2015 January 2021
U.S. recessions are shaded, the most recent end date is undecided
Source: Board of Governors of the Federal Reserve System (US); fred.stlouisfed.org Source: Haver Analytics, Morgan Stanley Research

May 2021 Wealth Insight 47

Subscription copy of [[email protected]]. Redistribution prohibited.
 STRAIGHT TALK

proportions of last year. At best, a few months of spike 0UKPHZIHURPUNZ`Z[LTSPX\PKP[`

and it should be possible to contain COVID infections RBI's growth-supportive liquidity is positive for the markets.
and bring them down to manageable levels. In econom-
ic terms, this shouldn’t result in more than 0.5 per cent 100 US$ bn
80
of reduction in economic growth if that – easily man-
60
ageable in the context of forecast double-digit growth. NDTL (+1%)
40
The bull case is predicated on an increase in corpo- 20
rate earnings. Key factors driving this are a recovery 0
from a low base, increase in global trade due to syn- -20
chronised demand revival across global economies -40
NDTL (-1%) Net liquidity
-60
fuelled by stimulus and a restructuring of global sup-
-80
ply chains, with China ceding space to countries like January 2016 January 2021
Vietnam, Bangladesh and India. This is supported by Source: Bloomberg, Haver, CEIC, UBS. Note: NDTL is net demand time liabilities; Net
government policies that are meant to make corporate liquidity includes repo, reverse repo, term repo, MSF (marginal standing facility), SLF
(Standing liquidity facility) and excess cash balances.
India more competitive – production-linked incentives,
restructured labour laws, lower corporate taxes for new cent followed by another 18 per cent over the next year.
manufacturing capacities and growth-supportive
liquidity management by the RBI. The cautionary tale
Coupled with this, corporate India has shown a Key risk to the market arises from (a) a rapid increase
remarkable ability to manage costs despite the lock- in valuation that captures much of the estimated
down, with several sectors reporting higher margins upside, leaving little in terms of margin of safety; (b)
despite a reduced top line for FY21. The government’s inflationary expectations that have risen higher than
willingness to impose anti-dumping tariffs on imports, the mandate of the monetary policy committee (MPC)
particularly from China, have also provided Indian tasked with maintaining price stability.
corporates the ability to increase domestic prices and The sharp run-up that the market has witnessed
sustain profitability. over the past 12 months has ensured that the forecast
Consensus earning growth estimates are at a multi- earnings growth has been largely baked into the pric-
year high. Growth in FY22 is estimated at around 35 per es. With this, unless performance beats already-exalt-
ed expectations, there is little scope for further re-rat-
ing of markets. Much of the previous five years’ mar-
Investors should increase their ket performance can be attributed to rising P/E multi-
investment horizon if they don’t ples even as earnings growth disappointed. Now as
want to trade. This is likely to be a earnings come back, the likelihood of a further P/E
good year for those that enjoy mid- re-rating is low, especially in the context of rising
inflationary expectations.
cap stock picking as the preferred Much of the increase in earnings is driven by sec-
mode of investment. tors that are cyclical – metals, corporate-facing banks,

):,:LUZL_JVUZLUZ\Z,7:NYV^[O[YLUK *VYWVYH[LWYVMP[[V.+7
Growth in FY22 is estimated at around 35 per cent followed by another Corporate profits have started to show an uptick due to cost
18 per cent over the next year. management and higher margins.
40% 8%
F2022E EPS - 2249
30
6
F2023E - 2680
20 F2020E EPS
4
10
F20 to F22
EPS CAGR 2
0
F2021E EPS - 1660
-10 0
July 2017 January 2021 F1992 F1996 F2000 F2004 F2008 F2012 F2016 F2020
Source: RIMES, MSCI, IBES, Morgan Stanley Research Source: CMIE, Morgan Stanley Research (e) estimates

48 Wealth Insight May 2021

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 STRAIGHT TALK

*`JSPJHSS`HKQ\Z[LK7, =HS\LHZZPNULK[VM\[\YLNYV^[O
Given the high prevailing P/E, even if earnings growth comes back, the A rapid increase in valuation captures much of the estimated upside.
chances of a re-rating are low.
90%
10-year average 5-year trailing average
40 80
Cyclically adjusted P/E Mean +1 std devn. -1 std devn. 70
35
60
28.98
30 50
40
25
30
20 20
10
15
0
10 1996 2000 2004 2008 2012 2016 2020
April 2007 April 2021 Source: RIMES, MSCI, Morgan Stanley Research

9PZPUNPUMSH[PVU what down the road, it does reflect the more volatile
nature of sectors driving index earnings growth.
Rising inflation is a key risk for the market. So far, the Monetary Policy
Committee has held its fire.
Positioning
8.5% Portfolio positioning is tricky in a situation such as
Headline Core
7.5 this. Headline index has little room to perform over
6.5 the next six months till estimates for 2023 start getting
5.5 factored in. Growth has largely been priced in but
4.5 interest rates are likely to remain benign, favouring
3.5 risky assets. This is a scenario that is ideal for widen-
2.5 ing of market performance and favours mid- and
1.5 small-cap stocks. Large-cap stocks will likely continue
March 2019 March 2021 to witness sector rotation, driven by portfolio posi-
Source: Mospi, I-Sec research tioning of large funds.
Assuming that commodity prices remain firm,
5PM[`!=VSH[PSL]ZSV^]VSH[PSP[`NYV\WVMZ[VJRZ stocks that benefit from this, i.e., metals and mining,
Earnings growth trend of volatile earnings group in the Nifty 50 index are likely to see another leg-up. Auto and auto ancil-
shows catching up with the low-volatility group. laries, consumer electricals and construction can be
adversely impacted. IT, pharma and metals will also
55%
Volatile earnings (61% weight) Low volatility in earnings (39% weight) benefit from a depreciation of the currency. Pressure
45
on the rupee can be expected with rising inflation and
35
25
higher energy prices, though this will be managed by
15 the RBI, given the large foreign-exchange reserves
5 that it has accumulated.
-5 The second half of the year will likely see greater
-15 pressure to raise interest rates. Government borrowing
-25 would be largely done and inflation expectations will
CY15 CY16 CY17 CY18 CY19 FY21E FY22E FY23E
likely remain elevated, forcing the MPC to take remedi-
Source: Capitaline, Bloomberg, I-Sec research
al action. Higher interest rates are generally negative
for earnings. However, the impact is especially strong
textiles, real-estate, etc. These earnings are largely for real estate and consumer discretionary. Banks will
reflective of commodity-price increases. Most com- benefit at least in the first stage of the upcycle.
modity cycles tend to last for a few years and result in In sum, investors should increase their investment
price rises that overshoot fundamental demand–sup- horizon if they don’t want to trade. This is also likely
ply gaps. The commodity growth cycle has inherent in to be a good year for those that enjoy mid-cap stock
it its own demise as interest rates will have to rise to picking as the preferred mode of investment. WI
control prices (inflation). Though this may be some- Anand Tandon is an independent analyst.

May 2021 Wealth Insight 49

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 MAIN STREET

The science of
portfolio concentration
How many stocks you should have in your portfolio for
th optimum balance between risk and reward
the

SAURABH MUKHERJEA

One of the main goals of portfolio fundamental, high-quality stocks; timing business
construction is to optimise risk vs reward (or returns). As turnarounds; stock-discovery-based valuation expansion
the number of stocks increases in a portfolio, (i.e., P/E multiple expansion); macro-based themes;
diversification reduces the stock-specific risks involved sectoral themes; disruption-based themes; unicorn hunt;
in the portfolio. However, excessive diversification and many more. Hence, every equity fund manager’s
reduces returns more than it reduces risk, because: investment philosophy seeks a different ‘characteristic’ in
1. Every incremental stock added to the portfolio is likely the stocks that are selected in their portfolio.
to be inferior in quality as compared to the previous Within the coverage universe of a fund, the fund
stocks in the portfolio. manager is likely to be more convinced about the
2. In a fundamental-research-based portfolio, the wider characteristics of certain stocks as compared to others.
the coverage universe, more difficult it is for the research This will typically lead to a gradient of conviction across
team to conduct deep research. the coverage universe of such a fund manager at any point
3. The diversification benefits from every incremental of time. As highlighted in the charts, this gradient can
stock added to the portfolio reduce as the number of either be steep or relatively flat.
stocks in the portfolio increases.
So, how many stocks in a portfolio make it optimally Diversification may
ay
balanced? The answer to this question might not be a preserve wealth,
‘one-size-fits-all’ approach. Some of the most successful but concentrationn
funds globally call a 30–40-stock portfolio as ‘concentrated’
and above 50 stocks in a portfolio as being overdiversified.
builds wealth
However, there are other successful funds which view a – Warren Buffett
10–20-stock portfolio as being ‘concentrated’ and a 30-stock The steeper the gradient, the fewer should be the number
portfolio as being overdiversified. of stocks in an optimal portfolio. This is because a steep
At Marcellus, we use our proprietary framework for gradient implies that every incremental stock added to the
arriving at the number stocks in a portfolio, based on a portfolio reduces the quality of the overall portfolio
few factors that drive portfolio concentration. One of the meaningfully. Hence, as shown in chart ‘Steep gradient in
biggest factors in our framework is the ‘gradient’ of the the coverage universe’, the first few stocks added to the
characteristics that the fund manager seeks within her portfolio improve the risk–reward because the reduction in
coverage universe. Here we lay out the science behind risk due to diversification is significantly greater than the
this factor to optimise the risk–reward trade-off embedded compromise on portfolio returns. For instance, a 10-stock
in our portfolios. portfolio could be substantially less risky and hence offer
better risk–reward compared to a three-stock portfolio,
The ’gradient’ of fund philosophy despite the average characteristic score of a 10-stock
There are various ways to make money in the stock market portfolio (and hence the expected returns) being slightly
– timing cyclical stocks; buying and holding high- lower than that of a three-stock portfolio.

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 MAIN STREET

:[LLWNYHKPLU[PU[OLJV]LYHNL\UP]LYZL -SH[NYHKPLU[PU[OLJV]LYHNL\UP]LYZL
A steep gradient implies that every incremental stock added to the A flat gradient implies that every incremental stock added to the
portfolio reduces the quality of the overall portfolio meaningfully. portfolio does not reduce the quality of the overall portfolio.
„ „

Score on characteristics a philosophy seeks

Score of characteristics (LHS) Sharpe ratio of the portfolio (RHS) Score of characteristics (LHS) Sharpe ratio of the portfolio (RHS)
Score on characteristics a philosophy seeks

Risk–reward ratio (such as Sharpe ratio)

Risk–reward ratio (such as Sharpe ratio)
Some drop in returns but Sharp drop in returns but Some drop in returns but No drop in returns but
Optimal risk–reward Optimal risk–reward
significant drop in risk only marginal drop in risk significant drop in risk some drop in risk

1 10 20 30 40 1 10 20 30 40
Stock list within the coverage universe of a philosophy Stock list within coverage universe
Source: Marcellus Investment Managers

After adding a few stocks to the portfolio, the marginal number of stocks in the portfolio to the extent that the
risk reduction due to diversification tapers off (as gradient of stock characteristics remains flat in the
highlighted in the chart ‘Steep gradient in the coverage coverage universe.
universe’). For instance, the concentration risk of a 30-stock
portfolio is not substantially lower than that of a 20-stock Investment implications
portfolio. However, the expected portfolio performance of a Marcellus invests in a portfolio of companies where our
30-stock portfolio could be meaningfully lower than that of research team is convinced about their (a) ability to
a 20-stock portfolio. Therefore, the compromise on portfolio generate strong free cash flows (hence high ROCEs)
returns becomes a meaningful and avoidable drag on the through deep-rooted competitive advantages and (b)
overall risk–reward of the portfolio after a certain number ability to consistently reinvest the free cash flows back
of stocks have been added in such a portfolio. For such a into the business to generate growth without any
coverage universe (with steep gradient), it might be prudent dilution in ROCEs over long periods of time.
to have no more than 10–15 stocks in the portfolio and focus There are not too many firms in India which fit this
on the fund manager’s depth of fundamental research to ‘gradient’ and hence our CCP (Consistent Compounders
further reduce portfolio-level risks, rather than relying on Portfolio) philosophy’s coverage universe is very small.
adding more stocks to the portfolio. In fact, this characteristic is so rare in India that the top
The flatter this gradient, the greater should be the 20 profit generators in India (‘the Leviathans’) now
number of stocks in an optimal portfolio. This is account for 90 per cent of the country’s corporate
because a flat gradient implies that every incremental profits. Beyond dominating the country’s profit pool, the
stock added to the portfolio does not reduce the quality Leviathans also reinvest these profits far more efficiently
of the overall portfolio. Hence, as shown in chart ‘Flat back into their businesses. By doing this over the last 25
gradient in the coverage universe’, after the first 10–20 years, the Leviathans have also widened the ROE gap
stocks have meaningfully improved the risk–reward, between them and India Inc.
there is no deterioration in the risk–reward of the Since only a handful of companies in India possess
portfolio due to the increase in the stock list to beyond the characteristics that we seek, the coverage universe
20 stocks. This is because there is no reduction in of Marcellus’ portfolio has a steep gradient, similar to
expected portfolio returns as the number of stocks what is highlighted in chart ‘Steep gradient in the
increases, whilst there is a continued marginal coverage universe’. Hence, we manage tightly
reduction in risk due to portfolio diversification. For concentrated portfolios containing 12–15 stocks. WI
instance, the concentration risk of a 30-stock portfolio
is slightly lower than that of a 20-stock portfolio, Saurabh Mukherjea is the author of ‘The Unusual Billionaires’ and
despite the expected performance of a 30-stock portfolio ‘Coffee Can Investing: the Low Risk Route to Stupendous Wealth’.
being the same as that of a 20-stock portfolio. For such He’s part of the Investments team at Marcellus Investment Managers,
a coverage universe, it is prudent to increase the a SEBI regulated provider of Portfolio Management Services.

May 2021 Wealth Insight 51

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 EVERYDAY
ECONOMICS

A rain-fed economy
Monsoons are an important factor for the Indian economy and influence
decision-making in a number of areas

PUJA MEHRA

I had once written a piece titled ‘Monsoons, high through the year, but air purifiers sales pick up
India’s Real Finance Minister’, about the tremendous during the winter months when pollution levels rise for
significance of rains. It was published under a different a few days to dangerously high levels. Spending
headline, but every year, as spring ends and day-time decisions in such categories of consumer goods can be
temperature begins to rise, I am reminded of how, even quite sensitive. Decisions to spend on an air purifier get
so many years after Independence, the quality and postponed if the air quality improves even for a few
quantity of rainfall in a year remain among the most days during the season.
important factors for the economy. (This year of course The general impression is that a good monsoon
the pandemic will be an even bigger factor, as it was last counts only because large swathes of Indian agriculture
year. And so, the true impact maybe somewhat difficult are rain-fed, with irrigation infrastructure available to a
to separate out and observe for laypeople.) As dinnertime fraction of farmers. It’s true that farmers’ incomes and
conversations across the country turn to the much- quality of life depend largely on the vagaries of
romanticised arrival of the mangoes season, economy- monsoons. But the
watchers start tracking monsoon forecasts, for they are
State government economy’s link to the
an important determinant of buying, selling, saving, monsoons doesn’t end
investing and spending decisions. departments are there. Good rains boost
Every year, I hear a story or two reaffirming this known to issue farm output, rural
dependence. A friend from school, who heads sales for official directions incomes and, therefore,
an electronic-appliances giant, told me a couple of
to temples for rural demand.
years ago about why he and his global bosses don’t buy Industries such as
the ‘India growth story’: “How can you when all that conducting construction materials,
sets apart a good year from a bad one for air-conditioner ceremonies and fast moving consumer
sales is a week or two’s delay in the coming of the practices believed goods, tractors,
monsoon. More than my team’s hard work. More than
to please rain gods passenger cars and two-
the launch of new models.” His winter rains story is wheelers, and gold and
similar. “What’s up?” I once asked him on phone. His silver see surge in sales.
reply was: “Trying hard to not set on fire a few tyres If a good monsoon stimulates demand, a poor one limits
around South Delhi.” That part of the national capital it. Either way, the monsoons set off rippling effects on
constitutes the bulk of the market for indoor air the non-farm economy.
purifiers and makes all the difference to his annual The Economic Survey estimated that in a year when
bonus linked to sales performance. Rains in winters rainfall levels were 100 millimetres less than average,
prove good for Delhi’s skies as they bring down pollution farmer incomes fell 15 per cent during kharif and by 7 per
levels marginally but enough to limit the potential cent during the rabi season. Poor rains lower crop yields
surge in demand for air purifiers. Why does this and send food prices soaring. Water reservoirs get depleted.
happen? Because the market in India for most such Power cuts become more frequent, which affects factory
products is quite small. Air-pollution levels tend to be production schedules. Plus, as my friend explained, both

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 EVERYDAY
ECONOMICS

winter and summer rains influence urban spending imports of specific crops soaring. The fiscal deficit
decisions too. widens. Less than a quarter of the GDP comes from
A good monsoon pretty much plays out in the economy farming, but rains remain central to policymaking and
like a tax cut or demand stimulus would. On the other budget arithmetic. The economic impulses set off by the
hand, a poor monsoon tends to be inflationary as it leads to monsoon still decide to a great extent what a finance
shortages of agricultural commodities and at the same minister can or cannot do in a year – just as it does for a
times reduces demand by lowering incomes. That’s why, farmer in the villages or a corporate CEO. Rains still
even though agriculture contributes less and less to the influence the Reserve Bank of India’s policies.
GDP, rating agencies are quick to downgrade or upgrade It’s no secret that the monsoons are, have always been,
growth forecasts for a year in line with the expectations of a tremendous influence on India’s art, literature and
weather the monsoon is projected to be normal or not. And music. It baffles, though, how much the economy still
so, not just sales teams in industries and services sectors relies on natural phenomenon and moisture-bearing
and debt collectors in banks but the taxman and the winds. This primacy of rains in ensuring economic
government’s budget makers also closely track the official sustenance makes the challenge of climate change more
weather forecaster Indian Meteorological Department and pressing. Interestingly, it also explains to an extent the
private weather forecasters, such as Skymet Weather. As survival of certain age-old rituals in modern times. In
do macroeconomists in the Reserve Bank of India. fact, state government departments are known to issue
India is no longer dependent on food imports as it was official directions to temples for conducting ceremonies
in the decades following independence before the Green and practices believed to please rain gods. (For example:
Revolution helped the country become food secure. https://bit.ly/32Bt9bn) It is not uncommon for weddings
There’s been self-reliance or atmanirbharta of food. The of pairs of frogs or donkeys to be performed in towns and
economy has made great strides, especially after the villages for invocation of rain gods. WI
1990s. Its size, composition and character have changed.
Puja Mehra is a Delhi-based journalist and author of
But deficient rainfall causes droughts, though, and can ‘The Lost Decade (2008-18): How India’s Growth Story
still send government’s bill for farmers’ support and Devolved Into Growth Without A Story’

May 2021 Wealth Insight 53

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 STOCK
SCREEN

Ideas to delve deeper

S
ound investment methods outlast cycles and fads However, please note that they are not our recommen-
and generate profits over the long run. Value dations.
Research presents stock screens based on time- Each stock screen explains the reason behind picking
tested principles. the stock, which over time will help you develop your
What are stock screens? These are a listing of own investing rules. As we will be evolving such models
attractive stocks based on the objective principles of and implementing changes to the methodology to be in
sound investment. We apply stock filters carefully line with economic and market cycles, the list will be
crafted by Value Research analysts on the universe of dynamic and updated periodically.
Indian stocks to identify these attractive stocks. The In the following pages of ‘Stock Screen’, we present
filters are devised to identify stocks of the following five categories that collectively list a number of stocks.
kinds: With these, you will be well-equipped to select stocks to
ŒQuality stocks available cheap build your own portfolio after doing further research. If
ΠStocks available at a steep discount to book value you think that stock picking is a lot of hard work, you
ΠHigh dividend-yield stocks can get started with these screens and with time
ΠGrowth stocks available at reasonable prices understand the way the ideas are shaping to make your
We believe that stocks listed in this section are a good 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

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 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 1006

Safety Market cap greater than C-Score less than 4
598
Soundness `500 cr PEG less than 1
85
Good performance Z-Score greater than 2.99 P/E to median P/E less
Reasonable valuations F-Score greater than or equal to 7 than 1.5 73
Earnings yield greater than 5% 15
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 (`)

Associated Alcohols
Liquors
8.2 8 2 10.3 13.5 0.41 722 398 465-161

Aurobindo Pharma
Drugs & Pharma
5.2 9 0 7.7 10.7 0.45 57,856 987 1024-526

Bharat Rasayan
Pesticides
17.4 9 2 5.0 26.8 0.71 4,118 9,683 11700-5901

Clariant Chemicals
Dyes & Pigments
4.7 9 1 6.1 4.4 0.12 915 397 608-288

Ester Industries
Plastic Packaging goods
5.4 9 3 17.7 6.9 0.09 998 120 137-27

Globus Spirits
Liquors
4.1 9 1 16.2 8.1 0.16 887 308 423-88

Granules
Drugs & Pharma
5.7 9 0 7.4 16.1 0.45 8,282 335 438-154

Heidelberg Cement
Cement
4.1 8 1 8.1 21.8 0.36 5,253 232 256-140

IOL Chemicals
Drugs & Pharma 7.8 8 2 17.8 7.6 0.14 3,489 594 899-240

KRBL
Other Agri.prod. 5.1 8 3 17.4 7.3 0.49 4,146 176 340-175

Marksans Pharma
Health Services 16.3 9 1 11.7 11.8 0.96 2,386 58 66-18

Shree Digvijay Cement

Cement 7.1 9 3 8.1 18.4 0.27 915 64 73-22

May 2021 Wealth Insight 55

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 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 (`)

Tamilnadu Petroproducts
Organic Chemicals
5.3 8 0 23.0 8.7 0.29 604 67 72-28

Transpek Industry
Inorganic Chem.
4.2 8 2 6.8 20.4 0.75 747 1,337 2192-1315

VST Industries
Tobacco Prod.
8.1 9 1 9.8 16.3 1.00 5,037 3,267 4538-2750
Data as on April 20, 2021. 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
No. of companies that
cleared the filters
REASONS TO INVEST THE FILTERS
Cushion against volatility Market cap greater than Stocks with a current dividend 1006
Higher total return `500 cr yield of more than 3%
818
Generate regular tax-free Dividend payout ratio of less Stocks with sustained per
income than 40% share dividend and amount 22
over the past five years
13

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 5.7 0.09 20.0 6.2 26.7 18.5 875 323 364-195

Bajaj Consumer Care

Cosmetics & Toiletries
19.4 14.21 2.0 3.4 16.0 7.0 4,330 293 324-129

Century Enka
Synthetic Yarn
12.2 7.33 8.0 3.3 18.3 23.0 537 246 286-125

CESC
Electricity Generation
5.8 0.18 20.0 3.4 20.4 14.4 7,735 583 731-534

Cochin Shipyard
Shipping
9.0 0.35 16.6 4.8 34.6 28.9 4,605 350 427-218

Gujarat Industries Power

Electricity Generation
5.5 0.73 2.9 4.0 17.7 27.5 1,102 73 95-53

Housing & Urban Dev

Housing Finance
5.5 0.21 3.1 7.6 36.3 9.9 8,188 41 55-21

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 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 (`)

JK Paper
Paper 11.1 0.12 4.0 3.1 15.0 12.6 2,182 129 168-85

NTPC
Electricity Generation
12.8 4.49 3.2 3.2 26.9 9.0 95,900 99 115-78

PNB Gilts
Invest.Services
1.6 0.02 3.0 6.0 29.0 9.2 901 50 62-24

Rail Vikas Nigam

Construction
6.5 2.17 1.1 4.3 31.6 11.0 5,577 27 36-16

Srikalahasthi Pipes
Pig Iron
7.0 -1.81 7.0 4.1 17.4 21.2 799 172 224-109

Tamil Nadu Newsprint

Paper
- - 6.0 4.4 31.9 3.2 938 135 162-87

Data as on April 20, 2021. 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
cleared the filters
REASONS TO INVEST THE FILTERS
1006
Really cheap Market cap greater than Companies must have a five-year
Relatively undervalued `500 cr earnings growth of more than 838
Companies with assets Debt-equity ratio of less than 1.5 10%
Price-to-book should be between 504
times
Return on net worth of more than 0.01 and 1
300
10% in the most recent year
18

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
15.0 0.9 19 0.0 0.0 24.5 839 211 299-161

Andhra Sugars 5.7 0.7 113 6.2 0.2 18.0 875 323 364-195
Diversified

CESC 5.8 0.7 46 3.4 1.5 13.3 7,735 583 731-534

Electricity Generation

May 2021 Wealth Insight 57

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 STOCK
SCREEN
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 (`)

Dalmia Bharat Sugar

Sugar 6.5 1.0 165 0.9 0.8 12.7 1,823 225 235-54

Dhampur Sugar Mills

Sugar 5.7 0.9 86 2.9 1.3 16.7 1,368 206 214-87

Elecon Engineering
Other Machinery 8.8 1.0 14 0.0 0.5 10.9 846 75 78-18

GHCL
Soda Ash 7.2 0.9 18 1.3 0.6 19.6 2,169 229 258-95

Himadri Spl Chemical

Coal & Lignite 18.3 1.0 77 0.4 0.3 12.2 1,751 42 64-38

HPCL
Crude Oil & Natural Gas 4.4 0.9 12 4.2 1.4 10.1 33,381 233 259-163

JK Paper
Paper
11.1 0.9 85 3.1 0.8 21.3 2,182 129 168-85

Nava Bharat Ventures

Diversified
2.4 0.2 14 2.1 0.8 13.5 1,057 73 79-33

Polyplex Corporation
Plastic Films
6.8 0.8 96 1.9 0.3 17.0 2,774 880 945-392

Rail Vikas Nigam

Construction
6.5 1.0 18 4.3 0.9 16.2 5,577 27 36-16

Seshasayee Paper
Paper
10.7 0.9 62 2.6 0.0 18.1 970 153 184-117

Technocraft Industries
Steel Tubes & Pipes
7.9 0.9 16 0.0 0.7 14.2 887 361 444-180

Usha Martin
Other Metal prod.
13.7 0.9 17 0.0 0.5 41.9 1,123 37 43-13

Welspun Enterprises
Construction
8.2 0.9 204 2.0 0.5 11.3 1,466 98 135-48

West Coast Paper Mills

Paper
29.6 1.0 201 2.7 0.5 32.7 1,242 188 277-122
Data as on April 20, 2021. EPS growth rates are annualised. New entrants.

58 Wealth Insight May 2021

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 STOCK
SCREEN

Reasonably priced growth stocks

Growth investing is about picking companies that are fast growing their
bottom lines. But make sure that the valuations are not overheated.
No. of companies that
REASONS TO INVEST THE FILTERS cleared the filters

All-weather style Market cap greater than Œ


At least 20% in the trailing 12
1006
Companies with strong `500 cr months YoY
fundamentals Earnings growth of:  Œ

At least 20% in latest quarter
YoY 98
Greater stability vis-a-vis Œ
At least 20% in the past five Stocks with a P/E of less
value or growth years 38
than 15

On fast track
Company Stock 5Y median Quarterly EPS TTM EPS 5Y EPS Market cap Share 52-week
Industry style P/E P/E PEG growth (%) growth (%) growth (%) (` cr) price (`) high/low (`)

Alembic
Drugs & Pharma
7.0 23.4 0.22 26 43 26 2,691 105 123-43

Associated Alcohols
Liquors
13.5 12.4 0.41 58 21 33 722 398 465-161

Aurobindo Pharma
Drugs & Pharma
10.7 16.5 0.45 318 110 23 57,856 987 1024-526
Bajaj Healthcare
Drugs & Pharma
8.4 19.0 0.34 327 464 24 603 437 600-238
Bhansali Engg Polymers
Thermoplastics
7.8 20.0 0.11 2,000 397 69 2,618 158 180-34
Birla Corporation
Cement
12.6 19.1 0.53 82 31 24 7,252 942 1015-372
Clariant Chemicals
Dyes & Pigments
4.4 36.4 0.12 306 780 38 915 397 608-288
Dalmia Bharat Sugar
Sugar
6.5 5.0 0.04 39 61 165 1,823 225 235-54
Dolat Investments
Invest.Services
10.4 16.5 0.12 140 64 84 1,092 62 73-34
Dwarikesh Sugar Industries
7.1 5.8 0.05 65 42 125 621 33 39-16
Sugar

Ester Industries
6.9 7.6 0.09 70 105 72 998 120 137-27
Plastic Packaging goods

Everest Kanto Cylinder

14.5 7.5 0.65 6,099 83 22 1,242 111 111-13
Metal Tanks & Fabrications

May 2021 Wealth Insight 59

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 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 (`)

Garware Polyester
Plastic Films
14.4 11.1 0.39 276 40 37 1,660 715 810-149

Globus Spirits
Liquors 8.1 16.8 0.16 215 207 58 887 308 423-88

Godawari Power & Ispat

Sponge Iron 7.9 3.9 0.18 443 79 47 2,710 765 840-104

Gravita India
Other Non-Ferrous Metal 13.3 21.7 0.14 28 119 118 583 84 123-30

Gujarat Ambuja Exports

Other Agri.prod. 10.7 10.7 0.43 102 93 26 2,925 128 155-52

Gujarat Narmada Valley Fert

Nitrogenous Fertilizer. 7.6 7.4 0.30 114 72 26 4,776 307 340-124
Kirloskar Ferrous Industries
Pig Iron 11.4 14.5 0.31 406 176 37 2,546 186 202-51
KNR Construction
Construction 14.7 13.4 0.53 88 34 31 5,682 202 242-90
Kopran
Drugs & Pharma 11.5 10.7 0.56 149 115 20 590 136 146-23
KSE
Oil cakes & Animal Feed 7.1 15.6 0.16 229 2,661 43 704 2,200 2620-1139
LT Foods
Other Agri.prod. 8.2 8.7 0.33 46 81 21 2,241 70 75-20
Mangalam Cement
Cement 8.3 17.2 0.23 201 42 36 731 274 305-142
Panama Petrochem
Lubricants, etc. 11.1 12.9 0.43 733 119 26 904 149 189-31
Pix Transmissions
Rubber & Rubber Prod. 9.8 9.0 0.19 137 71 51 504 370 415-90
PNB Gilts
Invest.Services 1.6 6.5 0.02 279 612 66 901 50 62-24
Sadbhav Engineering
Construction 1.4 20.2 0.03 65 702 45 1,031 60 85-32
Savita Oil Technologies
Lubricants, etc. 9.3 13.1 0.27 275 40 36 1,399 991 1181-603
SMC Global Securities
Misc. Fin.services 11.7 12.6 - 214 23 24 768 68 110-67
Summit Securities
Invest.Services 10.8 25.5 0.45 29,380 28 24 534 496 625-272

60 Wealth Insight May 2021

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 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 (`)

Sunflag Iron & Steel

Finished Steel
10.9 9.6 0.36 102 79 30 1,138 63 76-25

Thangamayil Jewellery
Gems & Jewellery
10.2 19.6 0.15 117 84 70 827 601 676-222

Triveni Engineering & Ind

Diversified
7.5 7.3 0.23 115 28 36 2,616 108 112-35

Vijay Solvex
Vegetable oils
11.4 5.8 0.33 169 122 35 517 1,616 1616-201

Welspun Enterprises
Construction
8.2 17.9 0.04 46 99 204 1,466 98 135-48

Wockhardt 6.8 40.7 0.29 58 674 23 5,609 506 570-211

Drugs & Pharma

WPIL 8.2 11.6 0.36 171 56 25 586 600 685-304

Pumps & Compressors

Data as on April 20, 2021. EPS growth rates are annualised. New entrants.

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May 2021 Wealth Insight 61

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 WORDS WORTH
NOW

We have to stay away from lockdown.

States should focus on micro-
containment zones. The mission of
saving lives ought to have the least
adverse effect on the economy.
Narendra Modi Prime Minister, Financial Express, April 21, 2021

At this juncture, growth is of paramount

unt In major consuming countries
importance and we’ll do whatever it and producing countries
takes to help sustain the recovery… like China, we see their
inflation targeting is also important. government’s major push
Shaktikanta Das Governor, RBI, Business Standardd, on infrastructure but they
April 8, 2021 also have targets to reduce
greenhouse gases. Thus, they
have already given up much of
their inefficient and polluting
Overall, there has been a 20% loss
units, so there will be a supply
of household income. The stress
and demand gap. Look at
is largely on salaried employees
India, we have also given a
because it’s harder for them to
major push for infra, and even
re-skill and find new jobs.
the auto sector has revived.
Mahesh Vyas CEO & MD, CMIE, Financial Express, Seeing all this, I would expect
April 19, 2021
the steel upcycle to continue.
Soma Mondal Chairperson, SAIL,
The Economic Times, April 12, 2021
We too want to see societies and
economies reopening, and travel and trade
resuming. But right now, intensive care
units in many countries are overflowing
and people are dying – and it’s totally
avoidable. The Covid-19 pandemic
is a long way from over.
Tedros Adhanom Ghebreyesus
Director-General, WHO,
Financial Express, April 13, 2021

We are the only country in the world where everybody gets

a digital vaccination certificate immediately, which can
be printed or stored digitally...We can authenticate that
certificate anywhere - offline or online.
Nandan Nilekani Co-founder, Infosys, Business Standard, April 21, 2021

62 Wealth Insight May 2021

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