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www.hdfcfund.com

A model
driven
approach
to asset
allocation

Presenting HDFC Multi-Asset Fund

Each asset class behaves differently across different economic cycles. As Asset class winners
keep changing, asset allocation is critical for wealth creation. HDFC Multi-Asset Fund (“the
Scheme”), which invests in 3 asset classes viz. Equity, Debt and Gold, aims to meet asset
allocation needs of investors in a dynamic way.
The current investment strategy is subject to change depending on the market conditions. For complete portfolio,
please refer our website www.hdfcfund.com. To start an SIP in HDFC Multi-Asset Fund, please contact your Mutual Fund
Distributor / Registered Investment Advisor or give a missed call on 7397412345.

HDFC Multi-Asset Fund (An Open-ended Scheme Investing In

Equity And Equity Related Instruments, Debt & Money Market Riskometer #
Instruments And Gold related instruments) is suitable for
investors who are seeking *:

• To generate long-term capital appreciation/income

• Investments in a diversified portfolio of equity & equity related
instruments, debt & money market instruments and Gold related
instruments

*Investors should consult their financial advisers, if in doubt about

whether the product is suitable for them.

#For latest Riskometer, investors may refer to the Monthly Portfolios disclosed on the website of the Fund
viz. www.hdfcfund.com Date of Release: June 09, 2023

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
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 July 2023 VOLUME XVII, NUMBER 1

EDITORIAL POLICY
The goal of Wealth Insight, as with
all publications from Value
Research, is not just limited to 34 COVER STORY
generating profitable ideas for its
readers; but to also help them in
generating a few of their own. We
aim to bring independent, unbi-
ased and meticulously-
researched stories that will help
you in taking better-informed
Multiply
investment decisions, encouraging
you to indulge in a bit of research
on your own as well.
All our stories are backed by
Your Wealth
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 unwavering-
ly 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. Learn to use our new framework for
Read, learn and earn – and let’s identifying future multibagger stocks
grow and evolve as we undertake
this voyage together.

EDITOR-IN-CHIEF Dhirendra Kumar

83 COVER STORY
COPYEDITING Agnisheik Chatterji,
Debjani Chattopadhyay and Mithilesh
Bhaumik INDIA STORY
RESEARCH & ANALYSIS Hemkesh
Khattar, Karthik Anand Vijay, Samridh
Rela, Udhayaprakash J and Vishal Goyal

DESIGN Anand Kumar, Aprajita Anushree,

Harish Kumar Singh, Kamal Kant Koner,
Mukul Ojha and Sneha Verma

PRODUCTION MANAGER Hira Lal

DATA SOURCE FOR STOCKS AceEquity

DIGITAL ADVERTISING
Aastha Tiwari, Ashish Jain, Jash Ashar,
Kasturi Kaushik

ADVERTISING CONTACT: The Indian economy is all set to

Venkat K Naidu +91-9664048666 generate exceptional growth—read how
Biswa Ranjan Palo +91-9664075875
your investments can benefit
SUBSCRIPTION
Shipra Srivastava +91-9868891830
Chhaya Verma +91-9560200520

6 Wealth Insight July 2023

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CONTENTS th

9 Edit 91 Straight Talk

by DHIRENDRA KUMAR by ANAND TANDON

Real equity investing Generative AI: Truth or hype?

How to prosper with small-cap investing AI has taken the world by storm.
Who stands to gain the most from it?

10 Index Watch
94 Of This & That...
Market and sectoral moves by SANJEEV PANDIYA

Tracking an index is the easiest way to get an idea about An option theory of manipulation
the broader picture of the market and various sectors
Between price discovery and manipulation

16 Big Moves 96 Everyday Economics

by PUJA MEHRA
The most significant price movements
Basics matter
Stocks that witnessed the biggest price movements
in the last five years India beat its growth expectations for FY23.
But there’s still ample room to improve.

24 Market Reporter 98 Main Street

by SAURABH MUKHERJEA
Buzz of the month
Are you benefitting from double engine
The latest news from this month you should know about
compounding?
Harness the compounding prowess of both the Indian
and American markets
30 Readers’ Testimonials

Our readers don’t need tips

101 Stock Screen
We asked our readers how Wealth Insight contributed to
their investing journey, and here’s what they had to say Small-cap growth stocks
Investing in small caps that go on to become mid and
even large caps is any stock investor’s dream. Here
are some promising small caps to explore.
89 Stock Advisor
by DHIRENDRA KUMAR

The easy route to

a winning stock
portfolio ‹9DOXH5HVHDUFK,QGLD3YW/WG
Wealth Insight is owned by Value Research India Pvt. Ltd., 5, Commercial
“What kind of stocks do Complex, Chitra Vihar, Delhi 110 092.
you recommend?”
Editor-In-Chief: Dhirendra Kumar.
Printed and published by Dhirendra Kumar on behalf of Value Research India
Pvt. Ltd. Published at 5, Commercial Complex, Chitra Vihar, Delhi 110 092.
Printed at Option Printofast, 46, Patparganj Industrial Area, Delhi-110092
Total pages 106, including cover

',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
purposes only and is not meant to serve as a professional guide for investors. The readers of this Magazine should exercise due caution and/or seek independent professional advice before entering into any commercial or business relationship or making any
investment decision or entering into any financial obligation based on any information, statement or opinion which is contained, provided or expressed in this Magazine.
The Magazine contains information, statements, opinions, statistics and materials that have been obtained from sources believed to be reliable and the publishers of the Magazine have made best efforts to avoid any errors and omissions, however the
publishers of this Magazine make no guarantees and warranties whatsoever, express or implied, regarding the timeliness, completeness, accuracy, adequacy, fullness, functionality and/or reliability of the information, statistics, statements, opinions and
materials contained and/or expressed in this Magazine or of the results obtained, direct or consequential, from the use of such information, statistics, statements, opinions and materials. The publishers of this Magazine do not certify and/or endorse any
opinions contained, provided, published or expressed in this Magazine.Reproduction of this publication in any form or by any means whatsoever without prior written permission of the publishers of this Magazine is strictly prohibited. All disputes shall be subject
to the jurisdiction of Delhi courts only. ALL RIGHTS RESERVED

July 2023 Wealth Insight 7

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 EDIT

Real equity investing

How to prosper with small-cap investing

For this 17th anniversary choices for asset types with no risk.
commemorative issue, we return to Do you think there’s a fortune to be
what is perhaps the most confusing made in choosing the best fixed
topic in investing, which is small- deposit? That sounds like a joke,
cap investing, and let me provoke mostly because it is. If this
you a bit on that topic: magazine was about choosing the
Imagine you’re a pioneer in the best fixed deposits, we wouldn’t
wild frontier of stock investing. have lasted more than a month, let
This thrilling landscape isn’t found alone 17 years and going strong.
in the towering shares of Infosys It’s not easy, it takes patience and
or InterGlobe, but in the uncharted a certain temperament, but the
By Dhirendra Kumar territory of small-cap stocks. This rewards can be enormous. To
isn’t to say that those big names understand what I’m trying to
aren’t part of the equity investing convey, investors must consider

W
hen I look back at the last world – they are. However, if what they expect from equity
17 years of Wealth Insight, you’re seeking the true essence of investing and whether they are
what strikes me most owning a business and flourishing willing to put up with the risk and
strongly is how unhappy the first alongside it, your journey begins the volatility that is an inevitable
seven years were. I don’t mean with a small-cap stock and part of the same package that also
unhappy for anyone personally but watching it evolve into a midcap, contains great returns. Part of our
for the equity markets. then a large enterprise. job at Wealth Insight has always
We launched Wealth Insight in What makes these small-cap been to help our readers attain that
July 2006. The BSE Sensex was at stocks a daring venture? One word: kind of temperament and attitude.
around 10,000. For the next eighteen volatility. Yet, that same volatility is In fact, on this front, we are
months the giant bull run continued the spark that can ignite them into soon launching something new
to peak at just over 20,000. The winning investments. It’s a paradox, to help you more – a stock-rating
global financial crisis hit, and the isn’t it? But that’s the fascinating system. However, I’m not going
markets stayed below that peak till crux of equity investing. We to say anything more – better to
the magazine was seven years old. intuitively understand that the maintain the suspense until you
This turned out to be useful. We fluctuating nature of stocks is what can use it!
attracted a core group of makes them such an enticing The other part of our anniversary
subscribers who experienced our investment. Some stocks will soar, cover package is as general as the
unique approach first-hand. Our others will plummet. Some will one above is specific. Equity
methodology withstood the stormy outperform their current status in investing – and, in fact, our lives in
phase gracefully and armed our the future, while others will falter. general – can only do well if our
loyal readers with invaluable This inherent risk is precisely what nation itself is becoming more
insights that bolstered their returns fuels their potential profitability. progressive. Sometimes we forget
in subsequent years. The true reward lies in astute the historic scale of what is
Let’s not forget the age-old investing – identifying those stocks happening in India and the kind of
wisdom in equity investing: the poised for substantial future growth. impact it’s having on the lives of
seeds of loss are planted in Understand that risk and returns more than a billion people. I hope
prosperity, while the seeds of profit go together. There’s no great payoff ‘India Story’ on page 83 will help us
are sown in adversity. waiting for you to make great gain perspective.

July 2023 Wealth Insight 9

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 A five-year perspective
INDEX WATCH

Market and sectoral moves

Tracking an index is the easiest way to get an idea about the broader picture of
how the market and various sectors have performed over time. Here are the
performance data of the major Indian indices over the last five years.

BSE Sensex 63,143 BSE 100 19,137

12.1% 11.4%
35,739 11,166

June 2018 June 2023 June 2018 June 2023

Top performers Top performers

26.6% 26.3% 26.0% 80.3% 69.2% 44.8%

ICICI Bank Bajaj Finance Titan Adani Enterprises Adani Power SRF

BSE 500 BSE Midcap

27,990
11.4% 11.7%
25,497

14,878 16,078

June 2018 June 2023 June 2018 June 2023

Top performers Top performers

99.0% 91.0% 82.4% 69.2% 63.8% 53.2%

Tanla Platforms Lloyds Metals HLE Glascoat Adani Power Tube Investments Deepak Nitrite

BSE Smallcap BSE Auto

31,877 33,815
13.4% 6.2%
24,995

17,029

June 2018 June 2023 June 2018 June 2023

Top performers Top performers

114.9% 99.0% 91.0% 63.8% 22.4% 21.9%

Waaree Renewable Tanla Platforms Lloyds Metals Tube Investments UNO Minda Cummins

Data as of June 13, 2023. All the returns given on the page are five-year annualised returns.

10 Wealth Insight July 2023

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 A five-year perspective
INDEX WATCH

BSE Bankex BSE Commodities

10.8% 49,951
11.9% 5,464
29,895 3,121

June 2018 June 2023 June 2018 June 2023

Top performers Top performers

26.6% 16.3% 14.9% 128.8% 91.0% 80.3%

ICICI Bank AU Small Finance SBI Jyoti Resins Lloyds Metals Adani Enterprises

BSE Consumer Durables BSE Capital Goods 39,514

42,295
15.2% 16.2%
18,633
20,814

June 2018 June 2023 June 2018 June 2023

Top performers Top performers

46.5% 26.0% 19.4% 46.4% 35.5% 34.5%

Dixon Tech Titan Havells CG Power Timken India Praj Industries

BSE Finance 9,218 BSE FMCG 18,432

9.0% 10.3%
5,978
11,280

June 2018 June 2023 June 2018 June 2023

Top performers Top performers

66.8% 54.3% 50.0% 59.6% 56.4% 50.9%

Share India Securities Capri Global Choice International GRM Overseas Globus Spirits Ugar Sugar Works

BSE Healthcare BSE Infrastructure

24,441
12.1% 7.3% 311
13,835
219

June 2018 June 2023 June 2018 June 2023

Top performers Top performers

84.3% 69.2% 51.6% 69.2% 42.0% 28.7%

Gujarat Themis Jagsonpal Pharma JB Chemicals Adani Power Adani Transmission JSW Energy

Data as of June 13, 2023. All the returns given on the page are five-year annualised returns.

12 Wealth Insight July 2023

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 A five-year perspective
INDEX WATCH

BSE IT BSE Metal

16.1% 29,223
8.2%
13,676 20,261
13,839

June 2018 June 2023 June 2018 June 2023

Top performers Top performers

99.0% 66.0% 63.6% 48.4% 17.2% 16.8%

Tanla Brightcom Group R Systems APL Apollo Tubes JSW Steel Jindal Steel & Power

BSE Oil and Gas BSE Power

4.4% 14.1%
18,181
2,052 3,969
14,656

June 2018 June 2023 June 2018 June 2023

Top performers Top performers

24.2% 20.5% 11.7% 69.2% 46.4% 42.0%

Gujarat Gas Reliance Industries Indraprastha Gas Adani Power CG Power Adani Transmission

BSE PSU BSE Realty 4,167

6.0% 10,611 13.5%

2,212
7,933

June 2018 June 2023 June 2018 June 2023

Top performers Top performers

25.1% 24.2% 23.2% 28.5% 20.8% 19.7%

Bharat Electronics Gujarat Gas Bharat Dynamics Brigade Enterprises Mahindra Lifespace DLF

BSE Telecom 1,775

BSE Utilities 3,088
8.1% 9.3%
1,201 1,978

June 2018 June 2023 June 2018 June 2023

Top performers Top performers

74.4% 21.3% 19.7% 114.9% 69.2% 42.0%

Tata Teleservices (Mah) Tata Communications Bharti Airtel Waaree Renewable Adani Power Adani Transmission

Data as of June 13, 2023. All the returns given on the page are five-year annualised returns.

14 Wealth Insight July 2023

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 Large-cap wealth creators
BIG MOVES

In 2018, our large-cap universe had 97 companies, accounting for top

70 per cent of the total market cap. Over the last five years, these
10 companies have emerged as top large-cap wealth creators.

3,640 3,734
HAL Capital Goods Siemens Capital Goods

30.5% 29.6%

963
1,020

Worth of `1 lakh `3.78 lakh Worth of `1 lakh `3.66 lakh

7,166
ICICI Bank Bank Bajaj Finance Finance
944

291
26.6% 26.3%
2,233

Worth of `1 lakh `3.25 lakh Worth of `1 lakh `3.21 lakh

2,912
Titan Jewellery Asian Paints Chemicals 3,262

26.0%

919
20.5%
1,282

Worth of `1 lakh `3.17 lakh Worth of `1 lakh `2.54 lakh

Reliance Industries Crude Oil Pidilite Chemicals

2,520 2,686

993
20.5%
1,081
20.0%

Worth of `1 lakh `2.54 lakh Worth of `1 lakh `2.48 lakh

503
Bharti Airtel Telecom DLF Realty

834
19.7%

205
19.7%
339

Worth of `1 lakh `2.46 lakh Worth of `1 lakh `2.46 lakh

5Y annualised return Data as of June 13, 2023. Price data adjusted for splits, bonus and rights. The graphs depict five-year price charts in rupees.

16 Wealth Insight July 2023

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 Mid-cap wealth creators
BIG MOVES

In 2018, our mid-cap universe had 217 companies, accounting for the
next 20 per cent of the market cap. Over the last five years, these
10 companies have emerged as top mid-cap wealth creators.

Adani Enterprises Trading Adani Power Power

268

80.3% 69.2%
2,462
129 19

Worth of `1 lakh `19.05 lakh Worth of `1 lakh `13.87 lakh

1,617
Varun Beverages FMCG SRF Chemicals

2,345

48.3% 44.8%

225 368

Worth of `1 lakh `7.18 lakh Worth of `1 lakh `6.38 lakh

Persistent Systems IT Tata Elxsi IT 7,849

5,040

44.3% 43.8%
805 1,278

Worth of `1 lakh `6.26 lakh Worth of `1 lakh `6.14 lakh

1,687
Adani Transmission Power Trent Retailing
39.0%

42.0% 823

142 326

Worth of `1 lakh `5.78 lakh Worth of `1 lakh `5.18 lakh

4,950
Apollo Hospitals Healthcare PI Industries Chemicals

3,763

38.4%
36.1%
977 805

Worth of `1 lakh `5.07 lakh Worth of `1 lakh `4.67 lakh

5Y annualised return Data as of June 13, 2023. Price data adjusted for splits, bonus and rights. The graphs depict five-year price charts in rupees.

18 Wealth Insight July 2023

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 An Investor Education Initiative by

GET THE ADVANTAGE OF

A 3-IN-1 FUND
DEBT

EQUITY
GOLD*

MULTI ASSET
ALLOCATION FUNDS
Multi Asset Allocation Funds combine the advantages of equity, debt and gold* in a single scheme. Invest
in them to diversify your portfolio and give your investments an opportunity to grow.

Multi Asset Allocation Funds invest in at least 3 asset classes with a minimum of 10% in each.
*They can take exposure to Exchange Traded Commodity Derivatives having Gold/Silver as underlying
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To know more, Contact your Mutual Fund Distributor | Visit: www.iciciprumf.com

Visit www.icicipruamc.com/note to know more about the process to complete a one-time Know Your Customer (KYC) requirement
to invest in Mutual Funds. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI
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subsequently view its status.
0623

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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 Small-cap wealth creators
BIG MOVES

In 2018, our small-cap universe had 710 companies, accounting for

the last 10 per cent of the market cap. Over the last five years, these
10 companies have emerged as top small-cap wealth creators.

2,794
Tata Teleservices (Mah) Telecom Tube Investments Auto & Anc.

74.4% 80 63.8%

5 237

Worth of `1 lakh `16.14 lakh Worth of `1 lakh `11.79 lakh

286
Usha Martin Iron & Steel Alkyl Amines Chemicals
2,669

59.0% 58.6%
28
266

Worth of `1 lakh `10.15 lakh Worth of `1 lakh `10.03 lakh

405
Linde India Chemicals Ion Exchange Capital Goods

4,401

57.6% 56.4%
453 43

Worth of `1 lakh `9.73 lakh Worth of `1 lakh `9.37 lakh

RattanIndia Enterprises Retailing Capri Global Capital Finance

757
39
54.8% 54.3%
4 87

Worth of `1 lakh `8.88 lakh Worth of `1 lakh `8.75 lakh

575 654
Elecon Engineering Capital Goods Shivalik Bimetal Non-Ferrous Metals

54.3% 54.0%
66 75

Worth of `1 lakh `8.73 lakh Worth of `1 lakh `8.67 lakh

5Y annualised return Data as of June 13, 2023. Price data adjusted for splits, bonus and rights. The graphs depict five-year price charts in rupees.

20 Wealth Insight July 2023

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 Most prominent wealth destroyers
BIG MOVES

In 2018, they were all large caps. Over the last five years,
these 10 companies have emerged as the most prominent
wealth destroyers.

Yes Bank Bank Indiabulls Housing Finance

-45.2% -37.6%
333 1,210
16 114

Worth of `1 lakh `4,929 Worth of `1 lakh `9,456

Zee Entertainment Media & Entt. New India Assurance Insurance

320
-19.1%
559 -18.0%
194 119

Worth of `1 lakh `34,705 Worth of `1 lakh `37,164

Sun TV Network Media & Entt. Bandhan Bank Bank

931
-13.6% -13.4%
448 536
262

Worth of `1 lakh `48,141 Worth of `1 lakh `48,778

GIC Insurance Indus Towers Telecom

-11.1%
-13.0%
364
181 300
166

Worth of `1 lakh `49,739 Worth of `1 lakh `55,472

Samvardhana Motherson Auto & Anc. IndusInd Bank Bank

137
1,336
85 1,947
-9.3%
-7.3%
Worth of `1 lakh `61,532 Worth of `1 lakh `68,617
5Y annualised return Data as of June 13, 2023. Data adjusted for splits, bonus and rights. The graphs depict five-year price charts in rupees.

22 Wealth Insight July 2023

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 Bandhan Financial Services Fund
(Sector Fund - An open ended equity scheme investing in Financial Services Sector)
This product is suitable for investors who are seeking*:
• To create wealth over long term.
• Investment predominantly in equity and equity related instruments of the companies
engaged in the Financial Services sector.
 ,QYHVWRUVVKRXOGFRQVXOWWKHLUƬQDQFLDODGYLVHUVLILQGRXEWDERXWZKHWKHUWKHSURGXFWLVVXLWDEOH
for them.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.

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 MARKET REPORTER

GDP rises 7.2 per cent in FY23

India’s real GDP jumped 6.1 per cent in Q4 FY23. In FY23,
it stood at 7.2 per cent. With this, India has once again
emerged as the fastest-growing major economy in the
world. The trade, hotels, transport, communications and
services industry led this growth, with a 14 per cent jump
during the year.

No change in Aditya Birla

repo rate ventures into
retail jewellery
The Reserve Bank of India has
left the repo rate unchanged at
6.5 per cent for the second
Aditya Birla Group has announced
consecutive time. It has also
its entry into branded retail
retained the real GDP growth
jewellery business under the name
projection of 6.5 per cent for FY24
‘Novel Jewels’. Armed with an
on the back of brisk growth in
investment of `5,000 crore, it plans to
Q4 FY23. Besides, it has cut
compete with industry giants, such
inflation projection to 5.2 per cent
as Titan, Reliance Jewels and Kalyan
from 5.1 per cent since it has
Jewellers. Leveraging its expertise
come to a tolerable level recently.
in the lifestyle retail business, it will
build large-format exclusive
jewellery retail stores across India.

Auditor questions
Adani Ports and
SEZ transaction
Adani Ports and Special
Economic Zone, one of
Adani Group’s flagship
Government reduces companies, has received a
qualified opinion from
its stake in Coal India Deloitte (its auditor). A
In a bid to raise around `4,160 qualified opinion means

`13,000
that financial statements
cr
crore, the government sold a
3 per cent stake in India’s contain material
Maharatna PSU Coal India misstatements or omissions.
through an offer for sale Deloitte was not satisfied investment is planned by
(OFS). While the base offer with the information the Tata Group to build a
was for a 1.5 per cent stake, provided about some related- new EV battery plant in
an additional 1.5 per cent party transactions. Gujarat. The plant would
Interestingly, the short-seller
stake was offered due to
Hindenburg’s report had
have an initial capacity of
oversubscription. Following
also mentioned the names of 20 GWh, which will be
this, the government’s stake
in the company has fallen to some of the entities involved doubled in the second
63 per cent. in these transactions. phase of expansion.

24 Wealth Insight July 2023

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 MARKET REPORTER

Sensex closes at its all-time high :LUZL_!@TV]LTLU[

64,000
In the last three months and one year, the BSE Sensex has
returned 10 and 23 per cent, respectively. On June 16, 2023, the 60,500
Sensex closed at its highest-ever point (63,385). This was mainly
57,000
fuelled by a sharp increase in net inflows by foreign portfolio
June 16, 2023
investors (FPIs). In May 2023, FPIs’ net investments in equity hit a 53,500
63,835
nine-month high of `43,838 crore. Moreover, buoyed by the strong
50,000
market performance, new demat openings hit a nine-month high of
Jun '22 Jun '23
21.5 lakh accounts in May.

Abrdn exits HDFC Life

Abrdn (Mauritius Holdings), one of
HDFC Life’s promoters, has sold its
remaining stake of 1.7 per cent for
`2,037 crore. From around a 25 per
cent stake back in 2019, Abrdn has
consistently decreased its stake over
the years. HDFC Life was
incorporated in 2000 as a joint
venture between HDFC and Abrdn
(previously known as Standard Life).

ECB hikes
SEBI bars Chandra, interest rate
son from holding key posts again
SEBI has barred Punit Goenka, The European Central Bank
CEO & MD of Zee Enterprises and (ECB) has raised its
Subhash Chandra, the former benchmark interest rate by
Chairman of Zee Enterprises, 25 basis points (0.25 per cent).
from holding key managerial It has also indicated another
positions in any listed companies hike next month. The ECB
or subsidiaries. According to has now hiked rates for the
SEBI, they have syphoned funds eighth consecutive time,
by abusing their positions. taking the rate to 3.5 per cent
Therefore, they shall not hold any – the highest since May 2001.
position until further notice. This Although inflation in Europe
move is likely to delay the merger has eased a bit to 6.1 per cent,
between Sony Pictures India and it is still way above its target
Zee Entertainment. of 2 per cent.

MRF’s share price crosses `1 lakh

The share price of one of India’s leading tyre makers, MRF, breached
the `1,00,000 mark. It became the first Indian company to reach this
level. The company came close to the mark multiple times in the last
couple of years but failed to breach it. Finally, on June 14, 2023, it
crossed it. It has returned 25 per cent per annum in the last 20 years.

26 Wealth Insight July 2023

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 MARKET REPORTER

`8,000
ECONOMIC METRICS
cr .:;JVSSLJ[PVU
is the capex planned by 2,00,000 In ` cr

JK Lakshmi Cement for 2024– 1,50,000

2030 to more than double its 1,00,000
total capacity. Post expansion,
50,000
it would be among the top 10
cement producers in India. 0
May '21 May '23

Largest-ever 0UMSH[PVU!*VUZ\TLY7YPJL0UKL_

aircraft order
8 % change YoY

by IndiGo 6

IndiGo, India’s largest airline, 5

Jindal Stainless
has placed an order for 500
4
Airbus aircraft. The order will May '21 May '23
be delivered between 2030 and
2035. With this deal, IndiGo
plans `2,500-
broke the previous record for crore capex 0UK\Z[YPHSHJ[P]P[`!0UKL_VM
the largest aviation deal held Jindal Stainless, India’s 0UK\Z[YPHS7YVK\J[PVU
by Air India. Earlier in 180 % change YoY
largest stainless steel player,
February 2023, Air India has announced a capex of 120
ordered 470 aircraft. `2,500 crore for FY24. A
60
major part of the capex will
be used to acquire the 0
remaining stake of Jindal Apr '21 Apr '23
United Steel, thereby making
it a wholly-owned subsidiary,
as well as to increase its 059]Z<:+
stake in recently acquired 72 Inverted scale
Indonesia-based RKEF.
75
Besides, the company is
likely to acquire debt-laden 78
Rathi Super Steel.
81

84
Jun '21 Jun '23
Adani Group repays debt
In a bid to regain investors’ trust, Adani *Y\KLVPS
Group stated that it had successfully repaid 150 Brent $/barrel
loans aggregating to $2.65 billion. It has
prepaid margin-linked share-backed 120
financing loans worth $2.15 billion and
$500 million worth of loans taken for the 90
acquisition of Ambuja Cement. Also, the
group sold shares in four of its listed entities 60
to GQG partners to raise `15,446 crore. Jun '21 Jun '23

28 Wealth Insight July 2023

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It’s time for investments to
GO AUTOMATIC!
T he most common reasons why people
feel sceptical about investing are the
uncertainty of the market, inadequate
knowledge of financing, and the thought of
constantly watching the market. So wouldn’t
it be nice, if just like our automatic cars, ACs,
washing machines, even our investments
could be automated? Automation makes our
lives easier and more comfortable. So an
automatic fund would give you the freedom
to invest and relax as it dynamically adjusts
the equity and debt allocation according to
the market cycle-just what we need in our
busy lives, right?

Balanced Advantage Funds

Balanced Advantage Funds or Dynamic Asset Allocation Funds are a category of Hybrid Mutual Fund Schemes
that invest in Equity and Debt, and such investments are managed dynamically based on the ups and downs of the
market.

How Balanced Advantage

Funds work Net Equity Debt

Based on in-house proprietary model,

When the market
the fund determines the equity and debt valuations are high the equity
allocations to stay disciplined in the asset allocation is low.
volatile markets.
It doesn’t require you to time the markets.
Market Valuations

It dynamically allocates equity depending When the market

on the market trend. valuations are
Aim to grow and give downside protection to low the equity
your investment in bull and bear markets. allocation is high.

Deals with equity markets and uncertainty

without any bias.

Time

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 This fund is gaining popularity for all the right reasons!
Due to the intuitive nature of the investment, Balance conditions. This helps investors handle the market
Advantage Funds generally have a net equity allocation volatility comfortably and get the optimum benefits of
ranging between 20-80%. The rest is invested both asset classes – debt and equity.
in debt and arbitrage funds, depending on the market

Types of investors who can invest in this fund

II’m constantly wondering

I don
don't understand the market
if my fund is doing well
Lac of knowledge keeps the
Lack Long
Long-term investors know that staying
first-timers from investing in the
fir in
invested is the key to sound investing.
sstock market. But with the B
But the fact that Balanced Advantage
Balanced Advantage Funds, they F
Fund automatically increases or
can get into the market without d
decreases the allocation to equity
worrying too much about the sshares depending upon their market
market levels and valuations as it outlook ensures that their investment
ou
ccan be taken care of automatically. sails smoother through the fluctuations.
sai

I have to keep a watch on the market constantly

Market Timers try to correctly time their buy and sell orders before prices go up and
down. Balanced Advantage Funds don't require you to keep a constant eye on the
market's movements as it dynamically allocates assets based on market valuation.

Here’s why you could

consider investing in Whether you are 1st timer, market timer or

Balanced Advantage Funds. long-term investor or young investor who are

coming into the investment fold, Balanced
Advantage Funds are the funds that aim to
It aims to provide: provide you with balanced growth.
Growth with Equity:
These schemes invest in stocks and other equity Nilesh Shah,
instruments to get investors market-linked returns and Managing Director
Kotak Mahindra Asset Management Company Limited
create long term wealth.

Stability with Debt: Manage Volatility:

Investing in debt securities help reduce the overall risk of A dynamic asset allocation strategy helps adjust the Equity
the portfolio and endeavour to limit losses during steep and Debt allocation as per different market conditions basis a
market corrections. pre-defined asset allocation strategy.
An Investor Education and Awareness Initiative by Kotak Mahindra Mutual Fund
Visit: https://www.kotakmf.com/factsheet/investor-info to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds, procedure w.r.t. change
of address, phone number, bank account details, etc. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website (www.sebi.gov.in/intermediaries.html).
Advt.

For any queries, complaints and grievance redressal, investors may reach out to the AMCs and / or Investor Relations Officer. Additionally, investors may also lodge complaints on https://scores.gov.in if
they are unsatisfied with the resolution given by AMCs. SCORES portal facilitates you to lodge your complaint online with SEBI and subsequently view its status.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.

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 COVER STORY

Multiply
Your
Wealth
Learn to use our new
framework for identifying
future multibagger stocks

Illustrations: ANAND

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 th

By Karthik Anand Vijay and Udhayaprakash. Data support by Hemkesh Khattar, Samridh Rela and Vishal Goyal

H
ad you invested `10,000 in Titan (a jeweller) in What can you expect from this cover story?
January 2000 and held on to the stock till now We went the whole hog trying to find promising small-
(June 2, 2023), you would have had a whopping cap companies. After burning the midnight oil for
`39 lakh! Your wealth would have multiplied by more several weeks, our team finally settled on a framework
than 391 times. backed by our rigorous research and analysis. Then,
Indeed, for Titan, it was an amazing journey! we structured the story in the following manner:
Starting its voyage as a small cap, it has ultimately z The appeals and risks associated with investing in
emerged as a giant, thereby rewarding its small-cap companies
shareholders immensely. It proves again that the z Factors to consider while looking for small caps
holy grail of investing lies in identifying small caps z Some successes and failures in the past
that have the potential to become multibaggers. z 25 small-cap companies to begin your journey
We were wondering whether we could identify As always, the companies mentioned in this story
some potential multibaggers for our readers. are not our recommendations. We have given you the
And voila! A cover story of this anniversary ingredients (and hopefully a good recipe). But you
issue revolves around investing in promising have to prepare the dish yourself.
small-cap companies. Let’s begin the hunt!

July 2023 Wealth Insight 35

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 COVER STORY

Navigating small caps

Know the rewards and
W
hat is appealing about in the hospitality, real estate,
investing in small financial services and (to an
risks associated with companies? extent) information technology
investing in small caps Correspondingly, what are the sectors? According to its FY22
risks associated with small-cap annual report, M&M has 162
investing? This section dwells on subsidiaries, 29 joint ventures
such questions that may crop up and 27 associates across
in our readers’ minds. industries. So, it would be a
daunting task for anyone looking
The allure of to evaluate the company!
small-cap investing On the other hand, a small
A raft of reasons can drive company like Hawkins Cookers
investors to show interest in small operates in a single segment –
caps. Here are some. pressure cookers. Mostly, these
companies have a simple
High growth rates: Immense High growth rates: The growth structure, and therefore, it is
growth potential due to their potential of small-cap companies much easier to understand and
small size. is immense. This holds especially evaluate such companies.
true for good companies that can For retail investors, it is a huge
Easier to understand: Small
companies have a simple manage to scale their businesses advantage. Unlike M&M, they
structure, and therefore, it is at staggering rates. don’t have to assess multiple,
much easier to understand and A case in point is Route unrelated variables to figure out
evaluate such companies. Mobile, a cloud-communication the future performance of
Alternative to venture capital: provider. Over the past 10 years Hawkins Cookers.
The venture capital market is (FY13–23), Route Mobile has
reserved for a few. However, grown its revenue to `3,569 crore Alternative to venture capital:
listed small-cap companies from `56 crore. This translates to Sanjeev Bikhchandani, the
offer us a similar opportunity. a pulsating growth rate of founder of Info Edge, invested in
Low institutional coverage: 51 per cent per annum! At the Zomato and PB Fintech during
Retail investors have a distinct same time, its net profit has their early days. When these
advantage over institutional grown at 44 per cent per annum companies came out with their
investors in the small-cap space to `327 crore from `8 crore. IPOs and got listed, Bikhchandani
because the latter either benefited hugely.
wouldn’t or couldn’t invest in Easier to understand: You probably Most of us don’t have access or
such companies. know that Mahindra & Mahindra the means to invest in similar
Outsized returns: The most (M&M) is a major automobile situations. The venture capital
obvious and convincing reason manufacturer. But did you know market is reserved for a few.
for investing in small caps. that it has a significant presence However, we can access the stock

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 COVER STORY

market. Listed small-cap companies 2HQHYPH*LYHTPJZ!4-Z[HRLHUKTHYRL[JHWV]LY[OL`LHYZ

offer us a similar opportunity. M-cap (left side) MF stake (right side)
In (` cr) In %
Low institutional coverage: 20,000 25
According to legendary investor
Peter Lynch, retail investors have 16,000 20

a distinct advantage over 12,000 15

institutional investors because the
latter either wouldn’t or couldn’t 8,000 10
invest in small-cap companies. This
4,000 5
lack of attention opens up huge
opportunities for retail investors. 0 0
Mar '13 Mar '23
Take a look at the chart titled
‘Kajaria Ceramics: MF stake and
market cap over the years’. Back after the participation of High failure rates: As shown in the
in March 2013, it had a market cap institutional investors. table ‘Movements across market-
of `1,415 crore and mutual funds cap categories,’ nearly 30 per cent
owned only about 3 per cent of the Outsized returns: This is perhaps
company. Over the next 10 years, the most obvious and convincing
the company’s market cap grew reason for investing in small caps.
nearly 12 times (as of March 2023), As depicted in the table titled
and mutual funds now own nearly ‘Movements across market-cap
a quarter of the company. categories,’ the average return
Had you identified the generated by a small-cap company
company in its initial days, you becoming mid cap (35.4 per cent
would have benefited from the p.a.) or large cap (50.8 per cent p.a.)
company’s growth, as well as is significantly higher than the
enjoyed the ‘discovery premium,’ returns generated by companies in
which gets bestowed on the stock other categories. Moreover, on High failure rates: More
average, 13 per cent of small-cap small companies perish than
large companies.
4V]LTLU[ZHJYVZZTHYRL[JHW companies have been able to
JH[LNVYPLZ become mid caps or even large Dependent on a few people/
Prepared for 14 ten-year rolling periods caps over a period of 10 years. products/customers:
starting from Mar’00–10 to Mar’13–23 Even, the average return of Generally, one or two key
Average 10Y those companies that remain in managers make strategic
Movement Count (%) return (% pa)
the small-cap category over a decisions. Also, their revenue
Small to Micro 29.5 -6.8 stream mostly hinges on a few
10-year period is quite robust at
Small to Small 57.6 16.1 customers. Hence, if the key
16.1 per cent per annum.
Small to Mid 12.0 35.4 manager or the top customer
Small caps look tempting now,
Small to Large 0.9 50.8 leaves, the company could be
don’t they? Well, hold on to your in a spot of bother.
Mid to Micro 4.0 -25.1
seat. We need to address some of
Mid to Small 27.5 -2.6 Poor or low information: Low
the risks as well.
Mid to Mid 44.9 15.5 media coverage and minimum
Mid to Large 23.6 27.9 disclosures make information
The perils of investing in hard to come by.
Large to Micro 0.2 -36.5
small-caps
Large to Small 4.8 -19.8 Illiquidity: Small-caps have low
There is no good without bad.
Large to Mid 22.0 -1.2 volumes. Moreover, the
Similarly, it would be amiss to
Large to Large 73.0 14.9 combination of low volumes, a
leave out the risks associated with
bear market and high volatility
Count (%) represents the average percentage of companies investing in small companies.
moving from one market cap category to another can signal doom.
Here are a few of them.

38 Wealth Insight July 2023

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 COVER STORY

of small-cap companies, on How to mitigate the risks

average, have moved into the Here are some insights that will
micro-cap category. However, we help you minimise the risks of
only captured companies that have investing in small caps.
remained listed over a 10-year
period. If we include companies Be an independent thinker: You
that got delisted or failed, that must be comfortable with
percentage may be higher. thinking for yourself. Ian Cassel,
By contrast, large-cap a micro-cap investor, says,
companies have a higher staying So, if the top customer or Singh “Successful micro-cap investors
power, i.e., they continue to leaves IKIO, the company would are always independent-minded
remain large-cap. Our data shows be in dire straits. people. They are used to no
that over a period of 10 years, analyst coverage, no institutional
73 per cent of large-cap companies, Poor or low information: It may be following, no liquidity - no safety
on average, have maintained their difficult to get necessary net. They are used to doing their
large-cap status. information about small-cap own work without having their
companies. For instance, most hands held and building their
Dependent on a few people/ large companies provide own conviction.”
products/customers: Small necessary information through
companies, by design, have fewer press releases, investor Focus on profitable companies: The
layers of management and fewer presentations and earnings calls small-cap universe is huge and full
business segments/products. every quarter. Besides, they have of duds. Narrow down the
Generally, one or two people take a strong presence in the media. universe by focusing only on
care of their day-to-day operations On the other hand, companies profitable companies.
and key strategic decisions. Also, like La Opala (an opalware
their revenue stream mostly manufacturer) and Hawkins Think of the long term: To address
hinges on a few customers. Hence, Cookers do not disclose anything the problem of illiquidity, Ralph
if the key manager or the top beyond mandatory requirements. Wanger, a small-cap aficionado,
customer leaves, the company So, you are left with their annual suggests, “There’s one sure
could be in a spot of bother. reports, annual general meetings antidote to the liquidity problem:
IKIO Lighting, a LED-lighting and your own groundwork as your buy stocks you don’t have to sell
provider, exemplifies this point. only information sources. for a good long time.”
At the time of writing, IKIO came
out with its IPO. Over FY20–22, Illiquidity: The number of shares Train your temperament: Would you
the company grew its revenue and traded in a particular period (a panic if a company you own falls
net profit by 25 and 32 per cent per day, six months, etc.) is an 50 per cent? Likewise, would you
annum, respectively. It even important consideration for small- rush to sell a company because it
boasts of a three-year average cap stocks. As on June 2, 2023, the has grown five times? How you
ROCE of 54 per cent. These are average six-month volumes for handle these scenarios will
stellar numbers by any measure! large-cap, mid-cap and small-cap determine whether you succeed.
At the same time, the company stocks stood at 80 lakh, 39 lakh and This is what Cassel has to say,
derived over 90 per cent of its 9 lakh, respectively. “Stock picking is personal. It takes
revenue only from one customer. Volumes become a big concern in time to develop your temperament
Also, the importance of Chairman a bear market. Selling shares of an (views on risk, time horizon,
and MD Hardeep Singh (one of its illiquid stock (i.e., the stock with volatility) and principles (the
promoters) cannot be overstated. low volumes) in a bear market is attributes of business/people you
This is because IKIO’s business almost impossible. Now, add the find attractive); you go from being
from its top customer is backed by high volatility of small-cap stocks to a sponge to a filter. The ability to
Singh’s 10-year-long relationship the mix and you will find yourself disregard 99 per cent of the
with the customer. in the middle of doom and gloom. investing universe.”

40 Wealth Insight July 2023

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 COVER STORY

Secrets of
small-cap
success
We look at common traits that most
small-cap multibaggers share

T
his section focuses on our
framework for evaluating small-
cap companies. We developed
this framework in line with the ideas
picked from the books of three
renowned market professionals:
1. Hermann Simon: a management
consultant and author of the book
‘Hidden Champions of the 21st Century’
2. Ralph Wanger: a small-cap
specialist, the former fund
manager of The Acorn Fund
and author of the book
‘A Zebra in Lion Country’
3. Ian Cassel: a micro-cap
investor, founder of
MicroCapClub and
author of two books on
intelligent fanatics

Why did we choose these 2009) is a distillation of over two z Ralph Wanger is a successful
professionals? decades’ worth of work. Ignoring small-cap investor. His fund
The reasons are pretty it would be reckless. generated returns of 16.8 per cent
straightforward: per annum from 1970 to 1996 as
z Hermann Simon has been against the S&P 500 Index’s
researching the strategies of 13.1 per cent per annum. His book
unknown market leaders from provides a glimpse into how
around the globe (mostly small experts invest in small caps.
companies) since 1986! He found z Ian Cassel is the micro-cap
2,000 such companies and maestro. He has been at his craft
researched them by using public for a long time. We got great
information, questionnaires and insights from his work.
interviews. His book (published in Interestingly, even though these

42 Wealth Insight July 2023

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 COVER STORY

three individuals have not worked Business and especially, the top management
together (at least to our management attributes finds it difficult to cede control to
knowledge), they arrived at the In his book, Simon summarises professional management.
same conclusion regarding small- his learning in a concept he terms
cap companies: focus on ‘Three circles and eight lessons’. A case in point - Tarsons Products:
companies that dominate a Leveraging the concept, we have This plastic-labware manufacturer
niche market. highlighted the key attributes is a leader in its segment in India.
Here’s what you should do that you need to look for in small- Over the years, the company has
when analysing small caps. cap companies. employed state-of-the-art
manufacturing facilities to make
Identify red flags ;OYLLJPYJSLZHUKLPNO[SLZZVUZ high-quality products. It has set a
Many small-cap companies are goal of achieving a revenue of
financially weak and beset with Taken from Hermann Simon’s book `500 crore by FY25. Chairman and
‘Hidden Champions of the 21st Century’
financial fraud. To avoid such MD Sanjive Sehgal (also the
businesses, you need to first founder) has been at the helm for
identify obvious red flags in their Focus over 31 years.
financial statements. Some of
these red flags include: High-performing employees: The
Decentralisation

z Loss-making companies success of small-cap companies

Globalisation

to customer
Closeness
z Companies that generated depends on employees who
Depth

Leadsership
negligible revenue with ambitious perform to their full potential.
z Companies with negative cash goal This is often reflected in low
flow from operations attrition (implies loyalty), good
High performance
z High debt employees work culture (i.e., happy
z Significant amount of related- employees) and training
party transactions Innovation (provides opportunities and
z A convoluted capital structure improves productivity).
Checking the strength of a
company’s balance sheet is also Leadership with ambitious goals: A case in point - LatentView
an important consideration. Does As identified by Simon, growth Analytics: Being involved in the
the company have the ability to and market leadership are the data analytics industry,
navigate a crisis? And lastly, you dominant goals of his ‘hidden LatentView’s success depends on
need to verify if the company’s champions’ group of companies. its ability to attract and retain
strategies ultimately reflect in its These goals should be long-term highly skilled employees. The
financial statements. If the and formulated early in their life. company undertakes significant
company keeps talking about its Moreover, the management learning and development
execution prowess but the should clearly communicate these programmes for its employees.
numbers don’t reflect the same, goals to employees. Although quite like its peers, the
then you better move on. Simon found that these company witnessed an increase in
companies don’t limit themselves attrition rate in the past few years.
to market share. Rather, they However, in FY23, it managed to
focus on product and service bring it down to 19 per cent from
quality and performance. over 20 per cent.
Furthermore, the CEO usually Small companies often face the
holds the position for a long time. challenge of hiring highly
This ensures continuity. qualified employees. Candidates
However, according to Simon, from top management (e.g. IIMs)
these companies struggle with and science (e.g. IITs) colleges
management succession. In prefer to work with renowned
family-owned companies companies that offer higher pay.

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 COVER STORY

Therefore, small companies resort scuttlebutt skills (Phil Fisher’s term Here are some examples:
to regional talent. for groundwork) come into play. z Rajratan Global Wire: It
By interacting with the focuses on manufacturing tyre-
Depth: In a bid to stand apart from company’s employees and bead wires and is the number
the rest, successful small-cap management, you will be able to one player in India and the only
companies prefer to maintain a get a better picture of its manufacturer in Thailand.
deep value chain and vertical operations. Both Wanger and z SJS Enterprises: Its focus lies
integration. It means that these Cassel have put great emphasis on on self-adhesive aesthetic
companies don’t believe in it. It might seem like a daunting products for automobiles and
outsourcing core competencies. task but Cassel says that one can consumer durables, and it is the
An example is backward develop an edge here as the market leader in India.
integration. By manufacturing majority of investors don’t do this. z Greenpanel Industries: It
key raw materials itself, a manufactures medium-density
company gets better control over fibreboard (MDF). It is the
its supply chain and margins. market leader in the country’s
MDF category.
A case in point - IOL Chemicals and
Pharmaceuticals: It is the largest
producer of Ibuprofen (a painkiller Of course, you shouldn’t
active pharmaceutical ingredient) assume that focus always leads to
in the world. It is also the largest market leadership. It is necessary
producer of Iso Butyl Benzene (a but not sufficient.
key raw material for Ibuprofen) in
the world. Backwards integration Globalisation: Simon noted that
has paved the way for IOL to small companies are very open to
control its supply chain and cater Focus: Small companies have globalisation. They venture into
to the demands of its customers at limited resources at their disposal. foreign markets at an early stage
short notice. Thus, it makes no sense for small and don’t prefer to rely on local
companies to go into multiple players for support.
Decentralisation: As a small fields willy-nilly. Leveraging globalisation, a
company grows, its organisational Focus is all they need. By niche-focused company can
structure becomes more complex. directing their limited resources substantially increase its market
However, as noted by Simon, to to productive activities, these size. However, it has some
retain their edge and focus, hidden companies can achieve their challenges as well. If a company
champions decentralise their ambitious goals. So, efficient has a low management bandwidth,
operations as much as possible. small-cap companies restrict their it will struggle to conquer the
Some of these companies focus to a narrow market segment
dominate a extremely small niche. and work towards attaining
In order to grow, they undertake market leadership in it.
soft diversification, which means Simon believes that while
they venture into adjacent niches. focusing on a narrow market can
To ensure that their core potentially limit the growth of
operations are not threatened and such companies, it also enables
their new ventures are successful, them to establish significant entry
the top management moves barriers for new competitors.
towards decentralisation. However, to improve their growth
We know that this is a very prospects, these companies
effective tool. But it is more venture into adjacent categories.
challenging to evaluate this factor. But that doesn’t diminish their
However, this is where your dependence on their core niche.

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 COVER STORY

foreign market. Furthermore, A case in point - Garware Technical 45 per cent of its requirements
employees need to be open to Fibres: It provides aquaculture from IKIO. Therefore, this
working in different countries. cage nets to the global salmon- signals a win-win relationship for
farming industry. The company’s either company.
V2 technology has been life- Now, let’s say that you found a
Here are some companies
changing for salmon farmers. This small-cap company that clears all
that have established their
presence in foreign markets: technology reduces the release of the red flags and fits the bill on
z Route Mobile: This cloud- copper from its cage nets, thereby business and management
communication platform keeping the fish healthy and attributes. What do you do then?
provider has expanded its lowering the cost of cleaning for
prensence in all continents salmon farmers. Investment case
except for Australia. You prepare an investment case.
z Poly Medicure: It has been Revenue concentration: Typically, Cassel says that you should be
the largest Indian exporter of revenue concentration is a major able to write the reason(s) for
consumable-medical devices challenge for small-cap companies. investing in the company in a
for nine years in a row.
However, unlike most people, page or two. Yes, it should always
z GMM Pfaudler: It is a
Simon argues that this be that simple!
market leader in the global
dependence is not one-sided. In You should be able to decipher
glass-lined equipment
segment, with a share of about most instances where a company’s the key variables that will
40 per cent. revenue comes from a handful of determine the fate of this
customers, the customers are also company. After you have made
equally dependent on the company your investment, it is important
While globalisation offers a for its business. that you continue to do the due
larger market size, it is not a Another byproduct of revenue diligence and stay vigilant.
necessary attribute. A large but concentration is that, usually, the Over time, the key variables
underpenetrated national market customers’ requirements are change. The company might
can propel their growth as well. performance-based and not price- evolve into a different company
driven. The company regularly altogether. So, you have to keep
Innovation: We have established gets input from the customers on track of all the developments
that successful small-cap the products/services. It then surrounding the company.
companies thrive on leadership in incorporates the input and
product quality and market share. improves its offerings. When to sell?
So, to maintain their edge and However, small companies Wanger has a suggestion for you.
grow, these companies count on should not lose their focus on He says, “Have a reason for
continuous innovation. These pricing. If a competitor is able to buying every stock you own. As
innovations mainly refer to improve its product quality and soon as that reason comes into
incremental changes. markets it at a lower price, then doubt, ask yourself if it isn’t time
The purpose of innovation is to the company will be at risk of for a change.”
provide higher value to customers losing business to its competitor. The only way you will be able
and/or lower costs. According to Thus, both product quality and to know this is when you keep
Simon, these companies strive not cost considerations should go track of the company. Information
only to innovate their products hand-in-hand. is key to investing success. It will
and services but also their help you figure out whether to sell
processes. The top management A case in point - IKIO Lighting: If or buy more.
actively takes part in it. you recall, we highlighted that That’s pretty much it! Before
Nevertheless, when it comes to this LED-lighting provider derived diving into the 25 companies that
innovation, a company should over 90 per cent of its revenue we have picked for you, let’s take
always maintain a balance from only one customer (Signify a closer look at three multibaggers
between product/service offerings Innovations) over FY20–22. that made it big and three that
and market needs. However, Signify procures around went kaput.

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 COVER STORY

From a small step

to a giant leap
These small-cap companies have
grown big over the past 10 years

I
t seems to be every investor’s wish to identify a few
small-cap companies that reward her portfolio with
stellar returns. However, it is not a cakewalk indeed.
Only 88 companies out of 617 small-cap companies in 2013
(as per our market-cap classification) made it to the mid-
cap or large-cap category in 2023.
Over these 10 years, the average returns generated by
these companies were 26 per cent per annum. It meant
that they multiplied their investors’ wealth by 10 times.
That is no mean feat! These businesses have been able to
scale their operations substantially (and profitably) to be
able to achieve such growth.
In this section, we delve into three small companies
that have become mid or large caps.

TATA ELXSI

Driven by R&D
A
n IT company of the Tata business in FY13. its focus on the EPD segment
Group, Tata Elxsi mainly The company again renewed in FY13. This, coupled with a
focuses on embedded robust period for automobiles
product design (EPD) and caters (till FY18), media (till the
to the transportation, media & M-cap (` cr) pandemic struck and then for
communication and healthcare & OTT platforms) and healthcare
medical devices industries. companies, accelerated Tata
562
Following the outbreak of the Elxsi’s growth in the last
global financial crisis of 2008–09, 10 years.
Jun ‘13
the company’s customers Between FY13–22, the
curtailed their R&D investments. company spent, on average,
However, Tata Elxsi’s in-house 2 per cent of its revenue on R&D,
R&D efforts enabled it to make a which led to an improvement in
foray into the visual effects 47,940 its overall capabilities, thereby
(VFX) business. Buoyed by its attracting more clients. Thanks
success in Bollywood, the to all its efforts, the company’s
company looked to Hollywood. market cap has grown at a
But the move proved to be costly. Jun ‘23 stupendous rate of 55 per cent
It ended up curtailing that per annum in the last 10 years!

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 COVER STORY
ASTRAL

Breaking the norm

B
ack in the 90s, the Indian ahead, it shifted its customer hotels and, most importantly,
pipe industry saw the use base to real-estate developers, plumbers. Further, to strengthen
of galvanised iron (GI) its presence, the company has
pipes and polyvinyl chloride built strong brand equity on the
(PVC) pipes. However, GI pipes M-cap (` cr) back of several ad campaigns.
were easily prone to corrosion, Also, it has undertaken several
while PVC pipes were not very 1,192 training programmes to solidify
efficient. During that time, its relationships with plumbers.
Sandeep Engineer realised the Owing to all these activities,
potential for CPVC (or Astral’s marketing expenses, as
Jun ‘13
chlorinated PVC) pipes and set a percentage of sales, went to
up Astral in 1996 after obtaining 2.8 per cent in FY22 from
the patent for resin from 0.9 per cent in FY10.
Lubrizol and technical know-how Evidently, shareholders were
from Thomson Plastics. rewarded for the company’s
However, the company’s staggering growth, as its market
initial journey was beset with
50,132 value has grown at 45 per cent
challenges as it had to compete Jun ‘23 per annum in the last 10 years!
with cheaper GI pipes. To stay

KAJARIA CERAMICS

Staying spotless
K
ajaria is a prominent its vast dealer network and the company’s success story. In
name in India’s tile branding activities, has scripted the last decade, it spent over
industry. It is the `600 crore on advertising.
country’s largest manufacturer At the same time, Kajaria has
of ceramic and vitrified tiles and M-cap (` cr) put its best foot forward to grow
the seventh-largest tile in strength. While it acquired a
manufacturer in the world. 1,797 slew of companies, it also
Although the company has a entered into joint ventures with
presence in the sanitaryware small tile manufacturers. Over
market, the tile segment FY13–22, it enhanced its capacity
continues to be its main Jun ‘13 by 90 per cent and spent
growth driver. `1,717 crore on capex.
Innovation runs deep in the The company could retain its
company’s DNA. Kajaria takes leadership position for more
the credit for launching a host 20,133 than a decade. Its stock price
of innovative products, bears testimony to this fact, with
including polished vitrified its market value increasing by
tiles, glazed vitrified tiles and Jun ‘23 27 per cent per annum over the
digital tiles. This, coupled with last 10 years.

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 COVER STORY

Losing lustre
These small-cap companies went kaput
after attaining success

T
his section belongs to skeletons. All these companies
did well (or at least that was the impression they
created), grew big and then went bust. Not to be
missed, many investors lost their money in these companies.
A prime example is YES Bank. Initially, the bank
reported a rapid growth rate and even was called the ‘next
HDFC Bank’. Between July 2005 and August 2018, YES
Bank’s market cap went from `1,600 crore to nearly
`91,000 crore. But things turned ugly for the bank when
the RBI disclosed findings pertaining to the bank’s bad
loans and other developments. Although the bank’s
market value more than halved, the number of retail
shareholders rose multifold. As of March 2023, YES Bank
had over 50 lakh shareholders.
That explains what we can learn from the journey of
such companies. Here we have presented the case studies
of three companies that went from small to big and then
back to small.

BHUSHAN STEEL (NOW TATA STEEL BSL)

From agile to fragile

F
ounded in 1987, Bhushan declined along with the prices. from `8,066 crore in FY09 to
Steel was a prominent steel Despite unfavourable `47,235 crore in FY16. Moreover,
producer in India. With its conditions, the company continued the management faced the
focus on the auto industry, the to borrow in the hope that the allegation of bribery to secure
company was able to capitalise on successful commissioning of its loans. Later in 2018, Tata Steel
the growing demand for steel and new Orissa plant would solve all its acquired the company. Between
rising steel prices. problems. However, things went October 2010 and May 2018, its
In the early 2000s, the south when its net profit plunged market cap fell by 94 per cent.
company’s profits and market by 94 per cent in FY14. Eventually, Bhushan Steel was
value soared. Buoyed by the The company’s debt escalated delisted.
growing demand and rising
profits, the management made
some aggressive expansion plans. M-cap (` cr)
To fund its expansion, Bhushan
11,354
597
Steel began binging on debt.
290
However, after the global financial
crisis of 2008, steel prices
witnessed a sharp decline, and Jun ‘04 Oct ‘10 May ‘18
obviously, the company’s profit

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 COVER STORY
VAKRANGEE

Deep slide
V
akrangee is a last-mile Several reports revealed that the stock. Moreover, using its
e-governance service many of its kendras were not treasury funds, the company also
provider. It helps people operational. In 2018, its auditor made some questionable
avail banking, insurance, PwC resigned. In FY19, investments which made
e-commerce transactions and Vakrangee’s revenue and net investors lose confidence. As a
other such services through its profit fell by 77 and 96 per cent, result of poor governance,
outlets. The ‘Vakrangee Kendras’ respectively. Vakrangee lost 92 per cent of its
(the outlets) are its primary Apart from that, the market cap in 2018. In the last
source of revenue, with 84 per cent management was probed by SEBI 10 years, its market cap has fallen
of them located in tier 4–6 cities. multiple times for manipulating by 7 per cent per annum.
The company had a meteoric rise
in 2017–18. It became the authorised
logistics partner for Amazon (the M-cap (` cr)
e-commerce major) in rural areas
3,771 53,507
and won contracts to provide
Aadhar enrollment services.
1,816
Between FY15 and FY18, its revenue
grew at 33 per cent per annum. Jun ‘13 Jan ‘18 Jun ‘23
But the story had some gaps.

DISH TV

A poor show
D
ish TV is a leading direct-to- company’s topline was in a good Adding to woes, an increase in
home player. In its heyday, position. However, Dish TV promoter pledge put the company
the company’s market cap started grappling with several in a tight corner. Further, its
swelled to `14,822 crore in April challenges – rising debt and inability to service its debt paved
2018 from `7,044 crore in June resultant higher interest the way for YES Bank, one of Dish
2013. However, in the last 10 years, payments, fierce competition and TV’s lenders, to become the largest
the stock has fallen by around most importantly, the Telecom shareholder and it resulted in a
10 per cent per annum. Regulatory Authority of India’s slew of conflicts between the bank
A growing user base, coupled cap on the price charged by and the company’s management.
with improving average revenue paid channels.
per user, accelerated the
company’s growth trajectory.
However, fierce competition M-cap (` cr)
started making a dent in its
subscriber base. In a bid to 14,822
solidify its position amid the 7,044
rising competition, it acquired 2,587
Videocon’s d2h business. Jun ‘13 Apr ‘18 Jun ‘23
Following the acquisition, the

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 COVER STORY

A common thread
of mistakes
Here are some themes that lead
a company to failure

I
n this section, we look at the key
learnings from the journey of companies
that grew big but then went bust. As
noted by Simon in his book, successful small
businesses usually avoid making high-risk
mistakes. And even when they make
mistakes (which is natural), they are able to
correct them more quickly and decisively.
If you spot any of these qualities in the
company you own or you want to purchase,
then you should rethink your decision.
These are the serious mistakes that Simon
warns against.

Unrelated diversification High debt

Venturing into unrelated Successful small-cap companies
segments is not for small-cap prefer to fund their expansion
companies. Diversification should through internal accruals. Debt
be limited to related segments. amplifies returns but it can also
cause trouble.

Mindless acquisition Short-term profit maximisation

If a company is making too many Maxisimise short-term gains at
or too big acquisitions, then it is a the expense of investing in the
good chance that it is in long-term future (e.g., R&D) is a
uncharted territory. sign that things are not alright.

Frequent changes in strategic direction Over-reliance on external managers

If the captain keeps turning the If the top management regularly
boat aimlessly, the sailors are lends its ears to consulting firms,
going to lose confidence and the then you wonder who runs the
ship is going to be stuck. business. Similarly, paying heed to
investment bankers is also not ideal.

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 COVER STORY

The making of
our framework
Here is our methodology for selecting
promising small caps
We know that our readers are eager to see the
companies we have picked up. But first, let’s
take a look at the methodology followed by us
to arrive at the list.

z Number of companies

The universe 859

zzzzzzzzzzzzzzz
Following Value Research’s methodology, we focused on the companies with a market cap zzzzzzzzzzzzzzz
zzzzzzzzzzzzzzz
zzzzzzzzzzzzzzz
between `500 crore and `10,000 crore. Within the set, we removed companies belonging to the zzzzzzzzzzzzzzz
zzzzzzzzzzz
banking, financial services and insurance industry. We also removed companies without a
five-year financial history.

A history of profits 360

zzzzzzzzzzzzzzz
Companies that reported an operating loss, loss after tax or a negative cash flow from zzzzzzzzzzzzzzz
zzzzzzzzzzzzzzz
zzzzzzzzzzzzzzz
operations in any one of the last five years were removed. zzzzzzzzzzzzzzz
zzzzzzzzzzz

Capital structure 314

zzzzzzzzzzzzzzz
The total debt-to-equity ratio should be less than one and the short-term debt-to-equity ratio zzzzzzzzzzzzzzz
zzzzzzzzzzzzzzz
zzzzzzzzzzzzzzz
should be no more than 0.35. zzzzzzzzzzzzzzz
zzzzzzzzzzz

Cash conversion, debtors and off-balance sheet risk 240

zzzzzzzzzzzzzzz
It is important for a company to convert accounting profit (as measured by EBITDA) into cash zzzzzzzzzzzzzzz
zzzzzzzzzzzzzzz
zzzzzzzzzzzzzzz
flows. At least 70 per cent of accounting profit should be converted into cash flows. zzzzzzzzzzzzzzz
zzzzzzzzzzz
Small-cap companies derive a major chunk of their revenue from a few customers. So, it is
customary for their debtors (or amounts receivable from customers) to be relatively higher
than that for large companies. However, to ensure that things do not get out of hand, we have
only selected companies with a current debtors-to-revenue ratio of less than 25 per cent.
An often ignored risk is one that arises from outside of the balance sheet. To an extent, it is
captured in contingent liabilities. It represents a liability that may arise in the future,
depending on the outcome of a particular event. If it is more than 25 per cent of net worth, then
be wary.

Promoters’ stake and pledging 216

zzzzzzzzzzzzzzz
We removed companies where the promoters owned less than a third of the company and zzzzzzzzzzzzzzz
zzzzzzzzzzzzzzz
zzzzzzzzzzzzzzz
where more than 5 per cent of the promoters’ stake was pledged. zzzzzzzzzzzzzzz
zzzzzzzzzzz

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Quality and growth 87

zzzzzzzzzzzzzzz
Quality without growth or growth without quality may work in the short term, but we are zzzzzzzzzzzzzzz
zzzzzzzzzzzzzzz
long-term investors. We require both, especially in small companies. zzzzzzzzzzzzzzz
zzzzzzzzzzzzzzz
zzzzzzzzzzz
Companies with a five-year average ROCE and ROE of at least 15 per cent each were selected.
In addition, we removed companies where the profit after tax grew by less than 10 per cent per
annum over the last five years.

Niche leadership 25
zzzzzzzzzzzzzzz
A key part of our framework focuses on finding small companies that dominate a niche zzzzzzzzzzzzzzz
zzzzzzzzzzzzzzz
market. We hunkered down and evaluated the market position of each of these 87 companies. zzzzzzzzzzzzzzz
zzzzzzzzzzzzzzz
zzzzzzzzzzz
There were many market leaders on our list. However, we settled on finding the top 25.

Hunting for multibaggers

5Y average (%) 5Y growth (% pa) P/E






/PERATING

0ROÜT



Company M-cap (`
CR
2/%
2/#%
2EVENUE
PROÜT
AFTER
TAX
#URRENT
9
MEDIAN

Greenpanel Industries 3,918 15.1 16.3 31.3* 94.0* 65.0* 15.3 25.7
Supriya Lifescience 2,023 44.1 42.4 16.7 53.1 59.4 22.5 17.0
Prevest Denpro 521 32.9 40.7 23.9 48.9 48.6 33.2 32.3
Route Mobile 9,351 22.8 26.2 47.9 43.6 46.4 28.6 34.6
Rajratan Global Wire 3,904 27.5 25.4 21.0 41.3 42.4 39.0 16.0
RPG Life Sciences 1,309 18.0 24.9 8.3 30.9 38.1 19.4 20.1
IOL Chem. and Pharma 2,624 38.0 41.9 17.7 15.0 38.1 18.9 9.6
CE Info Systems 5,916 16.3 22.0 20.1* 60.1* 33.7* 55.2 70.3
VRL Logistics 6,081 21.4 22.8 8.0 13.8 31.7 17.2 28.9
GMM Pfaudler 6,513 21.5 24.7 50.9 42.9 31.3 39.3 63.1
Granules India 6,944 20.1 18.3 21.8 29.2 31.3 13.5 15.5
Rossari Biotech 4,197 25.1 32.7 41.5 30.9 29.9 39.0 44.3
ESAB India 6,023 29.7 40.8 15.4 32.8 29.6 44.4 37.3
Mold-Tek Packaging 3,210 18.3 20.3 16.0 16.7 23.6 39.9 27.7
Poly Medicure 9,303 18.1 20.8 16.5 17.6 20.5 51.8 41.0
Paushak 2,136 17.7 21.5 15.5 18.9 20.3 39.5 36.4
Tarsons Products 3,053 25.4 30.1 12.2* 15.4* 20.0* 37.8 39.7
LatentView Analytics 6,878 21.1 25.4 18.0 13.6 18.5 44.3 49.2
Vijaya Diagnostic Centre 3,893 23.6 34.2 11.9* 15.1* 16.3* 46.0 47.4
Saint-Gobain Sekurit India 870 16.0 17.4 4.9 11.7 16.0 30.2 30.8
SJS Enterprises 1,638 16.2 22.1 16.2* 9.2* 15.6* 24.3 22.2
Cera Sanitaryware 9,855 16.1 21.1 8.8 11.6 15.2 47.0 35.8
Amrutanjan Health Care 1,766 21.9 30.0 11.5 9.1 14.7 44.3 39.7
Laxmi Organic Industries 6,885 16.4 17.7 15.2 7.2 10.4 55.4 39.5
Garware Technical Fibres 6,263 19.5 23.9 8.1 9.8 10.4 36.5 34.6
*Represents four-year growth rates. Financials as per the latest available. Price data as of June 2, 2023; For companies that don’t have a five-year trading history, the median P/E
is for the period since they started trading.

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 COVER STORY
GREENPANEL INDUSTRIES

Knock on wood
C
arved out of Greenply Price history its MDF revenue has tripled while
Industries (a leading plywood z Price z High z Low total capacity has quadrupled.
manufacturer) in 2018, 750 Going forward, Greenpanel has
Greenpanel Industries is the largest 600 announced it would further
manufacturer of medium-density 450 increase its MDF capacity by
fibreboards (MDF) in India and Asia. 300 35 per cent, planning to spend
Greenpanel’s first-mover 150 `600 crore over the next two years.
advantage helped cement its 0 With the Indian MDF market
2019 2020 2021 2022 2023
leadership position in the MDF expected to double by 2026
segment. That said, its origin story India’s largest MDF manufacturing (according to the company’s FY23
is rather interesting. When plant in Andhra Pradesh. annual report), growth prospects
Greenply Industries realised it Since MDF is generally cheaper remain high.
cannot win the plywood war than plywood and easy to work But like with any company
against CenturyPly (the leader in with, its rapid growth in recent thesis, it’s not all hunky dory.
plywood), it capitalised on the years has benefitted Greenpanel. Cheap imports can harm the
increasing potential for MDF. To meet the growing demand, it demand for branded MDF in the
Soon, this division became one of expanded its capacity and country. Delays in commission-
their growth drivers, even launched large-scale branding ing its new capacity can be a
enabling the company to build activities. As a result, since FY18, bugbear too.

SUPRIYA LIFESCIENCE

A healthy growth curve

S Price history
upriya Lifescience is a leading with four customers).
supplier of active z Price z High z Low Between FY19–21, revenue
pharmaceutical ingredients 650 from three key products grew at
(API) – a key raw material used to 520 33 per cent per annum due to
manufacture drugs. Its product 390 higher demand and better
portfolio comprises 38 APIs. It is 260 pricing. This led to a significant
India’s largest exporter of 130 rise in its profit margins and
Chlorpheniramine Maleate (anti- 0 capital efficiency. But, at the
2019 2020 2021 2022 2023
histamine), Ketamine same time, its working capital
Hydrochloride (anaesthetic), integrated. This ensures better cycle has quadrupled.
Salbutamol Sulphate (anti- efficiency and a consistent supply Besides entering new markets,
asthmatic) and several other of materials. In addition, by Supriya is scouting for opportuni-
products. Exports comprised 80 per leveraging its successful ties in the contract manufacturing
cent of the company’s FY23 revenue. experience in emerging markets, segment. However, there are some
Backward integration and close the company has scaled its risks to look out for. The company’s
customer relationships were business in regulated markets. high dependence on a few products
critical to the company’s success. Also, it has maintained long-term needs to be monitored. Besides, any
Twelve of its products relationships with its customers adverse observation by the US FDA
(contributing around 67 per cent to (over 10 years of relationship with or any other international regulato-
its FY23 revenue) are backwards five customers and over five years ry authority can be a dampener.

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 COVER STORY
PREVEST DENPRO

Poised for a big bite

W
ould you believe that a Price history The future seems bright too. In
company that generated z Price z High z Low FY23, the company received US
about `50 crore in 500 FDA’s blessing for 20 products
revenue in FY23 is one of India’s 400 and recently signed a five-year
leading dental materials 300 distribution agreement with a US
manufacturers? We were blown 200 company. Prevest also aims to
away too! Established in 1999, 100 diversify its product segments
Prevest Denpro’s products are 0 such as mouthwashes, sanitisers
2019 2020 2021 2022 2023
useful in various dental and disinfectants. The company
procedures. Moreover, its strong overseas plans to spend `30 crore for the
It has a lot of firsts to its credit. network has boosted its export big push.
The first private dental materials business, generating around Speaking of risk, its small size
manufacturer to set up an R&D 60 per cent of its FY23 revenue is a sore point, as are the
unit in India; the first to from exports. Back home, the company’s relatively-untested
collaborate with leading dental company has been able to triple its execution capabilities. But the
universities and institutions to revenue and double its operating next time you visit the dentist,
exchange technical knowledge; margin over FY18-23, owing to don’t forget to snoop around and
and the first to set up an advisory superior R&D, solid network and find out more about the company.
board of dental professionals. new product launches.

ROUTE MOBILE

In the sweet spot

G Price history
one are the days of business with them. Not
newspaper fliers. Now, z Price z High z Low surprising then that it generated
companies use SMSes, 2,500 around 50 per cent of its revenue
emails and other types of digital 2,000 from its top 10 customers in FY23.
communication to communicate 1,500 The platform’s scalable nature
with customers. But this pivot 1,000 and growing adoption have
necessitates companies to set up 500 spurred the company’s
backend infrastructure and 0 spectacular growth in the last few
2019 2020 2021 2022 2023
interfaces, which is costly and years. And the trend is expected to
time-consuming. This is where Given their full-stack services, continue, with the company
Route Mobile steps in. many industry consultants looking to expand its geographical
By signing up with them, both consistently rank Route Mobile footprint and product portfolio. In
global and domestic brands get among the top global service fact, Juniper, a market research
access to a platform that not only providers. Over the years, the firm, expects the industry to
provides omni-channel company has also added multiple grow at 21 per cent annually
communication (text, email, strings to its bow through over 2022–27.
chatbot, etc.) but also eliminates acquisitions and innovation. Having said that, disruptive
the need for setting up backend Furthermore, the company has technologies and data breaches
infrastructure. Not to mention been focusing on acquiring large could act as spoilers.
their cloud computing services. clients and increasing its

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 COVER STORY
RAJRATAN GLOBAL WIRE

Expert shock absorbers

H
ave you heard of a tyre Price history on Thailand. The strategy has
bead wire? It basically z Price z High z Low worked, with its revenue from
holds the tyre to the 1,500 the southeast Asian nation
wheel’s rim and prevents 1,200 growing 21 per cent each year
vibrations while driving. 900 since FY18.
Guess what? Rajratan Global 600 It has ambitious plans for
is one of the world’s leading tyre 300 India, too, as the company plans
bead wire manufacturers, with a 0 to increase capacity in the
2019 2020 2021 2022 2023
45 per cent market share in India country by 83 per cent through a
and a 26 per cent market share tyre companies take a significant greenfield expansion. And with
in Thailand. amount of time to award the global tyre industry set to
The primary reason for manufacturing contracts. grow at 4 per cent annually
Rajratan’s success is its focus on Ultimately, it means high between 2022-27, Rajratan can be
its core product - tyre bead wire. switching costs for tyre a huge beneficiary.
Although this product costs less companies and of course, a However, the cyclical nature
than 4 per cent of the overall competitive moat for of the tyre industry and raw
manufacturing cost of a tyre, it is manufacturers, like Rajratan. materials costs can act as a speed
a critical component. Given the Since FY18, it has more than bump in its growth story.
critical nature of tyre bead wire, doubled its capacity, with a focus

RPG LIFE SCIENCES

In the pink of health

P Price history
art of the RPG Group, this Covid, with its new products’
company manufactures z Price z High z Low contribution to revenue
drugs across nine therapies. 1,125 increasing from 6 per cent in FY19
Its domestic and international 900 to 28 per cent in FY23. Another
formulations businesses account 675 reason for its strong performance
for 67 per cent and 18 per cent of 450 is the implementation of life cycle
its FY23 revenue, respectively. 225 management for legacy brands.
The remaining contribution 0 This led to Naprosyn+ (an anti-
2019 2020 2021 2022 2023
comes from the active inflammatory drug) becoming the
pharmaceutical ingredients company has a presence across company’s first `50 crore brand.
(APIs; raw materials for drugs) regulated and emerging markets. RPG Life Sciences plans to
segment. (The API division Interestingly, the company has double its capacity and further
mainly provides backward chosen to stay away from the US improve its immunosuppressant
integration to the international market. The management explains portfolio in the foreign market. It
formulation business). that it wants to avoid the highly is also keen on penetrating the key
RPG Life Sciences is the leader competitive US market and focus emerging markets of the Asia-
in immunosuppressants in India. on markets with less competition Pacific region, Egypt, Sudan and
This class of drugs keeps the and a high growth potential. South Africa. However, watch out
immune system in check. In its The company’s performance for slackness in R&D.
international formulations, the has gathered pace ever since

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 COVER STORY
IOL CHEMICALS AND PHARMACEUTICALS

Killing it
H
ave you encountered this Price history plant, giving it some control over
medicine called Ibuprofen, z Price z High z Low power expenses.
a painkiller used to relieve 1,000 But IOL’s success isn’t
toothache, migraines, and back 800 dependent on a single product; it
pains? Then you should know that 600 has increased the share of other
IOL Chemicals and 400 APIs and specialty chemicals.
Pharmaceuticals is the largest 200 Since FY18, revenue from the
producer of Ibuprofen active 0 chemical segment has more than
2019 2020 2021 2022 2023
pharmaceutical ingredient (API) doubled, while revenue from other
in the world, with a market share its production. APIs jumped 14 times! Here too,
of 35 per cent. It also added capacity for Iso the management plans to scale its
IOL’s path to success was Butyl Benzene (IBB) and ethyl non-Ibuprofen portfolio through
simple: expand capacity and acetate - key raw materials for backward integration.
control its supply chain. In this Ibuprofen. As a result, it became That said, Ibuprofen (35 per cent
process, not only did the company the second-largest manufacturer of FY23 revenue) and ethyl acetate
become the largest manufacturer of IBB in the world and the largest still form a sizable portion of
of Ibuprofen but it also became producer of ethyl acetate at a revenue. Therefore, volatility in
the only company in the world to single location in India. IOL also their prices could adversely affect
be fully backwards integrated in has set up its own captive power the company.

CE INFO SYSTEMS

Clear road map

E Price history
ver wondered who provides CE Info Systems has a target
digital maps in your z Price z High z Low of crossing the `1,000 crore
vehicle? Most probably, it is 2,050 revenue mark in the next four
CE Info Systems. Better known as 1,800 years. A slew of factors will
MapMyIndia, the company has an 1,550 drive its growth, in both
80 per cent market share in 1,300 domestic and overseas markets.
automotive navigation systems in 1,050 Its products will find increasing
India! It is a leading provider of 800 applications in the automobile
2019 2020 2021 2022 2023
advanced digital maps, geospatial industry’s transition to
software and location-based itself and grow profitably. One of autonomous, electric and
Internet of Things (IoT) the reasons it has escaped connected vehicles. Moreover,
technologies. Apart from the Google’s heat is its focus on the the government’s geospatial
automotive and mobility tech B2B segment as against B2C. guidelines and corporate sector’s
segment (which forms 54 per cent Moreover, the company has tighter embrace augur well for
of FY23 revenue), the company consistently focused on the company.
also caters to consumer tech and innovating its offering by Cybersecurity is a key concern.
enterprise digital transformation. creating detailed maps, System failures and/or breaches
Despite the threat posed by developing proprietary can have an adverse impact on
Google Maps, the company has technologies and integrating the company’s operations.
managed to carve out a niche for them with its existing offerings.

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VRL LOGISTICS

Delivering the goods

S
mall and medium enterprises Price history Over the years, VRL had
form the backbone of a z Price z High z Low diversified into wind power and
thriving economy. In a 800 bus booking businesses, but
country like India, with its vast 640 recently sold these operations to
landmass, moving goods from one 480 focus on its core logistics business.
corner to another can be a tough 320 The management expects to
task. So how do these companies 160 continue benefiting from the
manage it? Well, they rely on 0 implementation of GST as many
2019 2020 2021 2022 2023
VRL Logistics. With a fleet size of businesses still remain outside its
5,671 vehicles (all owned by it), it goods are collected at its 1,126 ambit. Moreover, the company
is India’s largest small-load transport branches (spokes) and has been aggressive in branch
service provider. sent to its 49 transhipment centres additions and vehicle
Unlike its peers, VRL has (hubs), where they are replacements. Recently, VRL
amassed a significant clientele consolidated before delivering to entered into a contract with
among small and medium the customers. Ashok Leyland for 1,560 trucks.
businesses too, helping it diversify The introduction of the e-way bill However, a slowdown in demand
its customer base. Besides, the was music to VRL’s ears because and volatile fuel costs can prove
company follows a hub and spokes the move brought many small a fork in the road.
model to be more efficient. The businesses under compliance.

GMM PFAUDLER

Global domination
M Price history
aintaining the sanctity of a in the last seven years to increase
chemical reaction is of z Price z High z Low its market share and add to its
utmost importance to 2,500 offerings. However, the most
chemical and pharmaceutical 2,000 significant of them is the
manufacturers, among others. 1,500 acquisition of its parent company,
Earlier, stainless steel was the 1,000 Pfaudler International. Given the
preferred choice of reactor vessels 500 30-year-long association between
among manufacturers. However, 0 both companies, this acquisition
2019 2020 2021 2022 2023
even stainless steel can be subject has strengthened its foothold
to corrosion and reactive to many and the preferred vendor for high- as a leader.
chemicals used in chemical and value orders and large reactors. The management targets a
pharmaceutical industries. Apart from glass-lined equipment turnover of `3,700 crore with a
To counter such problems, glass- (heaviest revenue contributor), the ROCE of 25 per cent by FY25. It is
lined equipment came to the fore company also makes counting on its low-cost
because they display very high complementary products for capabilities, new market entries,
resistance to corrosion. Enter various application purposes, and complementary product growth
GMM Pfaudler, the worldwide offers ready-to-go solutions and and turnkey solutions segments to
leader in glass-lined equipment after-market services. drive its growth. The chief risk lies
manufacturing, with a global GMM Pfaudler has taken the in its customers deferring their
market share of about 40 per cent acquisition route multiple times capex and/or growth plans.

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 COVER STORY
GRANULES INDIA

Tunnel vision
G
ranules India, one of the Price history to 84 per cent of its FY23 revenue),
leading pharma companies z Price z High z Low it has given it a dominant position,
in the country, manufac- 500 even in the US where some of its
tures across the value chain – 400 molecules have a market share of
right from active pharmaceutical 300 over 50 per cent. That said, prod-
ingredients (API; 30 per cent of 200 uct concentration can be a dou-
FY23 revenue) to pharmaceutical 100 ble-edged sword. An adverse US
formulation intermediates (PFI; 0 FDA observation can be damning.
2019 2020 2021 2022 2023
20 per cent) to finished doses Coming back to what’s worked,
(50 per cent). ing pharmaceutical companies in the API and PFI segments have
Granules is among the most the world. performed well, especially
cost-efficient manufacturers of Interestingly, the company post-Covid. So have the value-add-
Paracetamol, Metformin, chose to double down on its exist- ed products, growing 23 per cent
Guaifenesin, and Methocarbamol ing molecules rather than adding annually in the last five years.
APIs worldwide. It also pioneered more molecules. This strategy has Going forward, Granules plans
the commercialisation of PFIs (a made it difficult for its peers to to spend `2,000 crore to establish
combination of API and inactive take a bite from its pie. While such an integrated green pharmaceuti-
substances), making it the pre- a strategy means concentrated rev- cal zone in the coming five years.
ferred supplier to some of the lead- enues (five molecules contributed

ROSSARI BIOTECH

Strong chemistry
R Price history
ossari Biotech is a leading Since soaps, detergents, and
specialty chemicals z Price z High z Low disinfectants are some of its key
manufacturer, catering to 1,650 offerings in home and personal
three segments: home, personal 1,400 care, it witnessed tremendous
care and performance chemicals 1,150 growth during the pandemic.
(70 per cent of FY23 revenue), 900 Between FY18 and FY23, its
textile specialty chemicals 650 revenue from this segment jumped
(23 per cent) and animal health 400 21 times! Recently, the company
2019 2020 2021 2022 2023
& nutrition. made three major acquisitions to
The company decided to enter provide specialty chemicals for a) solidify its position in the home
new product segments based on textile companies, soon becoming and personal care segment and
its capabilities in four core the largest specialty chemical b) foray into new segments such
chemistries of enzymes, silicones, manufacturer in this space. as agrochemicals.
acrylic and surfactants. However, to offset the textile The Indian specialty chemicals
Moreover, the company’s focus on business’s low margins, it entered industry is set to almost double
green and sustainable chemicals the home and personal care segment between FY22-25, which bodes well
has made it one of the leading in 2013. Though sluggish initially, for the company. The key risk to
producers of environmentally- bagging marquee clients like watch out for is greater
friendly chemicals. Hindustan Unilever has pushed the technological advancements made
The company was also able to business to new heights. by competitors.

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 COVER STORY
ESAB INDIA

Welded for strength

A
leader in the welding equip- Price history the world. It compensates for this
ment industry, ESAB India z Price z High z Low privilege by paying a trademark fee
is a part of the ESAB group 5,000 of 3 per cent of revenue.
(a US company with Swedish 4,000 With its fortune tied to the
roots). It commands a market share 3,000 capital goods sector, ESAB India
of 23 per cent in welding consuma- 2,000 benefitted from the recent capex
bles and 30 per cent in welding 1,000 boom. As a result, it was able to
equipment in India. In addition, it 0 grow its revenue at 16 per cent per
2019 2020 2021 2022 2023
has wide distribution networks in annum over FY20–23. Also, the
those regions that contribute sig- Similar to other companies with an operating margin doubled in FY23
nificantly to its revenue. MNC heritage, ESAB India reaps as compared to FY18.
ESAB India was established after benefits from the brand reputation As much of ESAB India’s growth
its US parent acquired the welding and technological expertise of its depends on the overall industrial
division of Philips India in 1988. parent company. The company cycle, a slowdown in the capital
This was followed by the receives R&D support from its goods sector may dampen its
acquisitions of the welding division parent centre in India. Besides, it prospects. Moreover, the prices of
of BOC India in 1991, Flotech receives other support services from steel and other alloys need to be
Welding & Cutting Systems in 1992 various subsidiaries of Colfax (the monitored since they are the
and Maharashtra Weldaids in 1994. ultimate parent company) around company’s key raw materials.

MOLD-TEK PACKAGING

Moulded for success

W Price history
hat is common among the company has been able to add
Asian Paints (the paint z Price z High z Low some of the biggest brands to its
major), Castrol (the 1,125 clientele. The revenue
lubricant major) and Hindustan 900 contribution of its FMCG segment
Unilever (the FMCG major)? They 675 increased to 26 per cent in FY23
source their plastic-packaging 450 from around 5 per cent in FY16.
requirements from Mold-Tek 225 Going forward, Mold-Tek is
Packaging. A leader in rigid 0 betting big on FMCG, pharma
2019 2020 2021 2022 2023
plastic packaging, Mold-Tek packaging and QR-coded IML. It
Packaging holds a market share own mould, labels and even intends to invest around `140 crore
of 25 per cent in the organised robots! Moreover, it boasts a wide for capacity addition in FY24. Its
segment. It manufactures distribution network and low paint segment is also expected to
injection-moulded containers for transportation costs (for its top ride high on growth prospects,
paint (49 per cent of FY23 customers, it sets its shop near its owing to its new client Grasim
revenue), FMCG (26 per cent) and customers’ plants). Owing to all Industries. For this new client, the
lubricants (25 per cent) segments. these factors, the company is able company is all set to build a new
The company is the only to produce quality products at plant. However, its fate is tied to
packaging company to be competitive prices. that of its top five customers, as
completely backwards integrated. Pioneering pail packaging and they contribute around 70 per cent
It designs and manufactures its in-mould labelling (IML) in India, to its revenue.

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POLY MEDICURE

Going global
P
oly Medicure is one of Price history international presence, it acquired
India’s leading disposable z Price z High z Low Italy-based Plan1 Health, set up a
medical device 1,250 subsidiary in the US, and launched
manufacturers. It focuses on 1,000 more than 25 new products
infusion therapy, blood 750 (including COVID-19 antigen) in
transfusion, and renal care. It 500 the last five years.
earned 68 per cent of its FY23 250 The company targets a global
revenue from exports and has 0 presence in infection reduction
2019 2020 2021 2022 2023
been the largest exporter of technologies and fluid management
consumable medical devices for across both product design and products. Moreover, the Indian
nine years in a row. tooling, have borne fruits. As of government’s ambition to become
With over 300 sales associates in March 2023, the company held 372 the global leader in medical
more than 125 countries, the patents. A further 71 patents were devices is expected to help the
company has developed a vast pending approval. sector reach $50 billion by 2023.
distribution network. The company Poly Medicure’s secret growth Demand in infusion therapy and
gives exclusive rights to sell its sauce has been its global crude oil prices are to be
products to only one regional expansion. Revenue from exports monitored as they can have an
distributor. Over the years, its has grown at 15 per cent per adverse impact on the company.
research and development efforts, annum over FY18-23. To boost its

PAUSHAK

Enjoying a competitive edge

I Price history
ndia’s largest phosgene-based (FY17) to its product portfolio. The
specialty-chemical z Price z High z Low addition of these specialty
manufacturer, Paushak is a 15,000 phosgene derivatives has fuelled
part of the Alembic Group 12,000 its growth.
(Alembic, its flagship company, is 9,000 In FY21, the company received
the oldest pharmaceutical 6,000 the government’s approval to
company in India). Phosgene and 3,000 expand the phosgene capacity by
phosgene-derived intermediates 0 three times. The new capacity
2019 2020 2021 2022 2023
are used to manufacture different was commissioned in FY23. It
types of chemicals, agrochemicals Paushak’s constant emphasis also emerged as the largest
and pharmaceuticals. on safety and environment supplier of chloroformates in
As phosgene gas is highly protection, coupled with an India in 2022. An increase in the
poisonous, the government is very expansion in its R&D team and company’s capacity and the
strict with licensing, and thus, backward integration, has enabled ‘China plus one’ trend augurs
this segment has a significant the company to adopt automation well for near-term growth.
entry barrier. Paushak is one of and solvent-free processes. Over However, slackness in the
the few with a licence and has the years, the company added company’s R&D activities, as
over 40 years of experience in chloroformates (FY13), well as cost competitiveness
handling phosgene gas, which isocyanates (FY15) and with China, should be closely
provides it with a strong moat. agrochemical intermediates monitored.

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 COVER STORY
TARSONS PRODUCTS

An unbreakable future
W
hat comes to your mind Price history by 2025 from 52 per cent in 2020. So,
when you think of a z Price z High z Low glass labware will soon become a
laboratory? Someone in a 1,000 thing of the past. This trend,
white lab coat is fiddling with 900 coupled with its exports (to over 40
some glass beakers, right? Here’s 800 countries), drove its growth.
the thing, though. Those glass 700 While the abovementioned
beakers are brittle and pose a risk 600 trend will fuel growth, Tarson’s
to the personnel. In contrast, 500 primary growth strategy revolves
2019 2020 2021 2022 2023
plastic labware has a longer shelf around adding cell culture and
life and is safer. A company that manufacturing processes, it robotic-handled consumables to
recognised this long ago is manufactures higher-quality its product portfolio. It is
Tarsons Products. products at competitive pricing. expanding its manufacturing
It is among the top three plastic If you are still sceptical about capacities and its geographical
labware manufacturers in India. plastic labware, here is an footprints. However, the
But, the industry is highly interesting tidbit for you. Frost & company’s expansion activities
competitive, with foreign Sullivan (a consulting firm) need to be monitored, as there
companies dominating the estimates the market share of have been delays in setting up the
market. However, Tarsons is no plastic labware to reach 67 per cent new facility.
pushover. By automating its globally (and 75 per cent in India)

LATENTVIEW ANALYTICS

Analysing tomorrow
I Price history
magine that you run a leading industry forms a small part of the
beverage and snack z Price z High z Low total data and analytics market
manufacturing company. You 800 (about 9 per cent). On the other
find that one of your plants is 700 hand, the consumer & retail and
lagging behind in terms of 600 financial services segments
productivity. The productivity is 500 contribute about a third each to
half of what you expected. But 400 this market. Given this, the
you are unable to identify the 300 company’s growth strategy
2019 2020 2021 2022 2023
problem. What will you do then? focuses on building expertise in
Well, you can hire LatentView companies. During the course, it the consumer & retail and
Analytics, an IT company with a has deepened its domain financial services industries.
sole focus on data and analytics. knowledge and expanded its Vendor consolidation, i.e. if its
It will map your manufacturing service offerings. The technology clients opt to source all their IT
process, run an audit and provide industry remains the company’s requirements from a single
you with a report on the problem major revenue driver (around vendor, may pose a threat to the
and its solution as well. In fact, 69 per cent of FY23 revenue). The company. However, given its
this example is taken from a case remaining revenue comes from domain expertise and delivery
study of the company. industrial, consumer & retail and capabilities, the chances of that
Over the last 17 years, it has financial services segments. are slim.
worked with many established However, the technology

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 COVER STORY
VIJAYA DIAGNOSTIC CENTRE

Hale and hearty

H
eadquartered in Hyderabad, Price history (establishing more hubs and spokes)
Vijaya Diagnostic Centre is z Price z High z Low and leveraging its brand recall. In
the largest integrated 700 the last five years, Vijaya
diagnostic chain in South India, 600 Diagnostics has doubled its number
with 121 centres across 20 cities in 500 of centres, and as a result, the
the country. Unlike standalone 400 number of tests performed grew at
diagnostic centres, the company 300 10 per cent per annum.
offers both pathology and radiology 200 Its growth strategy involves
2019 2020 2021 2022 2023
services and has over 200 consolidating its leading position
radiologists, pathologists and best foot forward in adopting the in Telangana and Andhra Pradesh
microbiologists. The pathology and latest technologies, thereby and expanding its presence in
radiology segments contributed ensuring more accuracy and South and East India. However, it
65 per cent and 35 per cent, improved turnaround time in must be noted that, unlike other
respectively, to its revenue in FY23. providing results. All these factors major players such as Dr Lal
As radiology and pathology have created a strong moat for PathLabs, which follows a
services require trained the company. franchise model, Vijaya
professionals, the company Over the years, the company was Diagnostics controls all of its
provides in-depth training to its able to grow by expanding its centres. This may slow the pace
employees. In addition, it puts its footprints in new regions of growth.

SAINT-GOBAIN SEKURIT INDIA

Breaking the glass ceiling

A Price history
company with a 350-year-old company is totally dependent on
history - talk about having a z Price z High z Low the automotive industry for its
legacy! 125 revenue. In the last two years, its
Saint-Gobain Sekurit India is 100 revenue growth was fueled by the
part of the Saint-Gobain group, an 75 rising demand for automobiles. In
institution that has been making 50 addition, the company more than
glasses for more than 350 years! It 25 doubled its operating profits and
is the leading manufacturer of 0 improved its margins as a result
2019 2020 2021 2022 2023
glasses for Indian automobiles. In of operational efficiencies.
fact, it provides the entire gamut more than 65 per cent of its raw Going forward, the company
of glazing solutions to three- materials from its parent Saint- has planned to improve the
wheelers, passenger vehicles, and Gobain India (the Saint-Gobain effectiveness and upgradation of
commercial vehicles. group’s Indian venture). This has furnace lights for light
Unsurprisingly, its core helped it establish long-standing commercial vehicles. Additionally,
strength is the Saint-Gobain relationships with its clients, as it has planned to increase capacity
group’s experience and auto manufacturers have at its existing plant. Any
innovation prowess, which is immense faith in Saint-Gobain’s slowdown in the automobile
second to none. To ensure glass quality. industry would affect its growth.
superior product quality, Saint- From the nature of its business,
Gobain Sekurit India purchases it is quite evident that the

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SJS ENTERPRISES

Finding its niche

H
ave you ever wondered Price history segments grew six times and 1.4
who made the speedometer z Price z High z Low times, respectively. In April 2023,
dials in your vehicle? Or, 600 the company acquired a 90 per cent
who made labels and buttons on 480 stake in Walter Pack India for
your microwave or washing 360 `240 crore to enhance its expertise
machine? The company behind 240 in in-mould technology.
these products is SJS Enterprises. 120 The management expects
And not just that – it is the 0 organic growth of around 20–25
2019 2020 2021 2022 2023
market leader in these so-called per cent per annum over FY23–
aesthetic products. develops new designs at its studio 26. This will be driven by
SJS caters to four segments: in partnership with OEMs, and increasing exports, the launch of
two-wheelers (45 per cent of FY23 then, it manufactures them at its advanced products and capacity
revenue), passenger vehicles plants. This uniqueness has expansion for chrome plating.
(33 per cent), consumer durables resulted in SJS’s top 10 customers The company will also look for
(15 per cent) and others (medical sticking with it for 19 years potential acquisitions to enhance
devices, sanitaryware, etc., on average! its capabilities. But beware of
7 per cent). Unlike its peers, the Over FY19–23, the company’s large and highly leveraged
company has expertise in both revenue from the passenger acquisitions.
design and development. First, it vehicle and consumer durables

CERA SANITARYWARE

A clean road ahead

W Price history
ith a legacy of over 40 company has benefitted
years, Cera z Price z High z Low immensely from the rising
Sanitaryware is India’s 8,000 sanitary ware and replacement
largest sanitaryware player, with 6,400 demand post pandemic. To
a market share of 25 per cent. The 4,800 capitalise on this demand boom
company also has a presence in 3,200 further, it plans to deploy `200
faucetware, tiles and bathware 1,600 crore to expand its capacity in
segments. While it has products 0 both sanitaryware and faucet-
2019 2020 2021 2022 2023
in all price categories, its ware divisions. In addition,
decision to manufacture only launched 225 new products in according to a report by Bonafide
premium and luxury products sanitaryware and 676 in Research (a market research
and outsource manufacturing faucetware. Its manufacturing firm), the sanitaryware segment
low-priced products has and innovation strength is is expected to grow at around
worked wonders. complemented by its vast 10 per cent per annum over
What sets Cera aside from its distribution network and FY22-28. This should further fuel
peers is its high-end branding initiatives. In the last growth. However, watch out for
manufacturing technologies. It 10 years, the company has spent a its peers. The sanitaryware
has enabled it to launch more and median of 7 per cent of its segment is highly competitive.
more products within a short revenue on advertising.
time period. Since FY21, Cera has In the last few years, the

July 2023 Wealth Insight 79

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 COVER STORY
AMRUTANJAN HEALTH CARE

As fit as a fiddle
A
mrutanjan pain balm is Price history were previously inaccessible by
firmly ingrained in Indian z Price z High z Low its OTC products.
nostalgia. It is one of the 1,125 In FY23, the company completed
leading over-the-counter (OTC) 900 its migration to SAP (an enterprise
pain-management companies in 675 resource-planning software), which
the country. OTC means that you 450 augurs well for future growth.
don’t need a prescription to buy 225 Besides, its increasing focus on
the product. Although the company 0 exports and its e-commerce
2019 2020 2021 2022 2023
is present in the body pain business is also expected to drive
management, women’s menstrual activities, has made the growth and improve its operational
health and electrolyte health drink Amrutanjan a household name. efficiency. Amrutanjan also plans
segments, headache management Since it is an OTC company, its to increase its presence in
is its primary growth driver. It distribution footprint is, by menstrual health and energy drink
contributed around 73 per cent to design, smaller than FMCG segments. It has set a revenue
FY23 revenue. companies. However, with the target of `1,000–1,500 crore in the
Amrutanjan’s secret growth pill introduction of ‘Comfy’ sanitary medium term. However, if these
has been its 130-year-old legacy of pads, the company has ventured divisions don’t scale up, then the
combining science with Ayurveda. into FMCG channels. It is also business might see muted growth.
This, coupled with its branding gaining prominence in towns that

LAXMI ORGANIC INDUSTRIES

Organic growth ahead

L Price history
axmi Organic Industries is a and the doubling of revenue from
leading specialty chemical z Price z High z Low specialty intermediates.
player in India. It is the 700 Going forward, it intends to
largest acetyl intermediates 560 increase the revenue share of spe-
producer in India and the sixth- 420 cialty intermediates to 55 per cent
largest in the world. It also 280 by FY27. It also plans to retain its
manufactures specialty 140 leadership position in the acetyl
intermediates, in particular, 0 intermediates segment and attain
2019 2020 2021 2022 2023
ketene and diketene derivatives. In a leadership position in specialty
fact, it is the only manufacturer of strategically to improve logistical intermediates. Downstream
diketene derivatives in India and efficiency. Adding to it, its long- expansion, innovation and scal-
meets 55 per cent of the demand. standing relationships with many ing-up of its recently acquired
Acquisitions, plant efficiency customers have paid off. fluoro intermediates business
and customer relationships laid Just like other specialty will be the main growth drivers.
the path for its success. One of its chemical companies, Laxmi The key monitorable remains
important milestones was the Organics also benefited from China. Since it has ramped up
acquisition of the diketene China’s crackdown on pollution. production, prices have dropped.
derivatives business from Clariant. More demand and improved It has already affected Laxmi
Also, the company set up its plants, pricing resulted in the tripling of Organics in FY23.
distilleries and warehouses revenue from acetyl intermediates

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 COVER STORY
GARWARE TECHNICAL FIBRES

Casting the net wide

A
kin to a blockbuster Price history years. Of these, 24 patents have
underdog story, Garware z Price z High z Low already been granted.
Technical Fibres has come a 4,500 Around 75 per cent of its
long way from its simple rope- 3,600 product portfolio is value-added
manufacturing days of the 1970s. It 2,700 products, offering significant
is a pioneer in technical textiles in 1,800 advantages to customers and
India and manufactures ropes and 900 contributing to higher margins.
twines for domestic fisheries and 0 The company plans to increase its
2019 2020 2021 2022 2023
allied sectors. It also has a penetration in existing
presence in aquaculture nets, also a major supplier of sports geographies and enter new
sports nets, geosynthetics, coated nets, with a leading market share geographies. Access to India’s
fabrics and more. in tennis and baseball netting in complete geosynthetic supply
Garware’s growth has been led the US and soccer nets in the UK. chain and the ‘China plus one’
by its strong performance in This market dominance is the trend are expected to drive its
aquaculture, sports, geosynthetics result of its expertise in polymer growth further. But any
and agriculture segments. It has engineering and its drive to slowdown in innovation and/or
emerged as a leading supplier of provide innovative, application- improved offerings by peers could
salmon aquaculture cage nets for focused solutions. The company be a dampener.
aquaculture farms globally. It is has filed 81 patents in the last five
All the price data in this Cover Story is as of June 2, 2023

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 COVER STORY th

The Indian economy is all set to

generate exceptional growth—read how
your investments can benefit

By Karthik Anand Vijay, Mithilesh Bhaumik Meanwhile, various research firms keep writing
and Vishal Goyal reports about India’s bright prospects. Numbers are

A
being thrown around like anything - ‘the economy will
ll eyes are on India. India’s recent reach these many trillion dollars by so and so year’.
economic growth is nothing short of a So, the question is, what happened? What helped
perfect winning-against-all-odds script, India to defy the odds and become the bright spot in
and the world (most of it, at least) wants a dull global economy?
India to deliver a happy ending. A simple and obvious question, indeed. However,
Organisations like the IMF and World Bank have analysing the factors that fueled the growth of the
raved about India’s resilience amid global chaos. world’s fifth-largest economy is no child’s play.
Similarly, Tim Cook, the CEO of Apple, was more But we got you covered. In this cover story, we
than optimistic about India’s future during his recent explore how the script of this great Indian growth
visit to the country. He said, “There are a lot of people story was written.
coming into the middle class, and I really feel that So, fasten your seatbelts because the story is
India is at a tipping point, and it’s great to be there.” indeed quite exhilarating.

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 COVER STORY

Connecting India
The government’s push for better infrastructure is fueling India’s
economic growth

H
ow does a country grow? The path the US
economy trodded differs from that taken by
Domestic air passengers have risen rapidly
Germany, Japan, the UK and many others. 11.6 cr 27.0 cr
Yet, there is one common link - a robust
infrastructure, especially an efficient transport
network. The growth these countries witnessed over
the decades wouldn’t have been possible without their
well-oiled logistics. And for a country as gargantuan as
India, a wide-reaching and efficient transport network
has always been the key to unlocking its potential.
So, it shouldn’t come as a surprise that India’s
FY13 FY23
present economic growth was spurred by higher
investment in infrastructure and transport.
economic growth. Micro, small and medium
More roads, more flights, more business enterprises (MSMEs) can look beyond their own town
A quick glance at the budget documents shows that in or districts for more business opportunities. Also, large
FY13, the government spent around 4 per cent of its businesses can reach previously inaccessible areas.
total expenditure on transport. Fast forward to the
latest budget, and the government has allocated One nation, one tax
roughly 12 per cent of its total spending to transport! Better infrastructure without an efficient taxation
The results have been spectacular. The total road system would have been a half-baked solution.
network grew 21 per cent over FY13-23, the highway So, GST truly was a game-changer. It brought a
network grew 83 per cent over the same period, and uniform tax structure, reduced compliance, made
nearly 66,000 km of highways were added! logistics more efficient and eliminated the cascading
effects of tax (i.e., taxing at each successive stage in
the supply chain).
Nearly doubling of our highway network
FY13 79,116 km The annual GST collected has doubled
In ` lakh crore 18.1
14.9
FY23 1,44,955 km
12.2 11.4
11.8

7.4
Similarly, the number of domestic air passengers
has more than doubled over the same period. The
number of airports has doubled too.
And that is not all! The recently launched PM
GatiShakti (in 2021) and National Logistics Policy
(in 2022) should improve connectivity and lower the FY18 FY19 FY20 FY21 FY22 FY23

cost of logistics as a percentage of GDP to less than

10 per cent (from the present 14 per cent). Thus, India is on the verge of overcoming its
Apart from making goods and people move faster, a logistics hurdle. But, it is not the only grand challenge
physically-networked economy fosters trade and drives India has overcome recently.

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The digital revolution
The India stack has been one of the greatest financial revolutions in
recent history

H
ow do you formalise the economy of a country In FY23, more than 8,300 crore transactions were
with a population of billions where most don’t done using UPI, worth around `140 lakh crore. This is
have a bank account? According to a report by equivalent to around 57 per cent of India’s nominal
BIS, in 2009, only 17 per cent of Indian adults had a GDP in FY23!
bank account.
But as the saying goes, where there is a will, there Jio's entry into telecom had a cascading effect...
is a way. And India indeed had the will.
Avg. data usage per user per month Avg. cost to use 1GB of data
19.5 GB
Enter India stack
`269
Simply put, using a three-layered framework, the India 0.1 GB `10
stack addressed the three requirements for access to
financial services: identity, payment and data. FY14 FY23 FY14 FY23

India Stack …one of which was to make UPI ubiquitous

Share of UPI in total digital transactions (%)

Identity Payments Data

Centered around $RIVINGlNANCIAL Giving the
Aadhaar, it allows inclusion and digital users the
quick authentication transactions with control over
of a person's identity the help of UPI their data trail
0.2 6.3 23.0 36.4 51.1 63.9 73.5
FY17 FY18 FY19 FY20 FY21 FY22 FY23
Layer one: Identity
The first layer of the India stack provided citizens
with a unique identity document through Aadhar, the Layer three: Data
12-digit unique identification number. India Stack’s final grand act will be establishing
Starting from 2010, in about 10 years, more than 95 per ownership over your data. The government will
cent of the population had an Aadhaar ID. And by implement it through an account aggregator (AA)
2018, the percentage of adults with a bank account network.
jumped to nearly 80 per cent. The AA network will help individuals securely
share their information from one financial institution
Layer two: Payment to another and fast-track document verifications for
The second layer introduced Unified Payments loans and investments.
Interface (UPI), a payment system that enabled
anyone with a mobile phone, bank account and UPI The path ahead
ID to transfer money to and from an individual or India Stack is one of the greatest feats of the Indian
merchant with a mobile phone, bank account and economy. It has successfully brought a vast informal
UPI ID. economy into the formal fold. Also, the potential uses
Since its launch in 2016, UPI has taken off like a of the India stack are limitless. Apart from financial
rocket! From paying phone bills to buying shares, UPI services, it will make waves in other areas, such as
is the most popular digital payment mode. And healthcare, e-commerce, etc.
because these transactions take place digitally, you So, India has built itself a sturdy growth engine.
leave a trail of financial footprint. Now let’s look at the factors that will drive this engine.

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 COVER STORY

The growth drivers

The structural tailwinds that have buoyed India forward will continue to do so

I
ndia has always been a unique piece of the Asian
economic puzzle. Unlike the other Asian economic We are a services-led economy
juggernauts, India’s growth has been driven by the Its share has been increasing slowly over the years
unique aspects of its identity. In %
Sure, the digital revolution and better 100
infrastructure were answers to the bottleneck
80
plaguing the economy for decades. But not everything
in the Indian growth machine needed fixing.
60
So, here are the unique Indian growth drivers Services
that have and will continue to drive India’s 40
economic growth. Industry
20
The great Indian consumer Agriculture
Between FY13 and FY23, India’s real GDP has grown 0
by 74 per cent. This growth was led by the growth in FY13 FY23
private consumption (81 per cent), i.e., the amount
spent by households on goods and services. In the last
10 years, its contribution to real GDP has averaged economy to a service-led economy. Services, such as
57 per cent. financial services, information technology, trading
The fact that consumption drives our growth is and tourism, on average, accounted for 62 per cent of
not surprising. The growing Indian middle-class’ the GDP in the last 10 years.
consumption has always been India’s primary
growth driver. A sleeping giant
India’s manufacturing sector had an average GDP
In service of India share of only 18 per cent in the last 10 years. But,
One can easily argue that India’s growth was made India’s dormant manufacturing sector is about to
possible by its transition from an agricultural wake from its slumber.
z Since the pandemic, the government has tried to
Real GDP and private consumption spur manufacturing sectors. Its latest attempt includes
the “Make in India” initiative and production-linked
Household consumption is a key driver of GDP
incentive schemes.
z Real GDP (` lakh cr) z Share of private consumption in real GDP (%)
z Global players want to reduce their dependence on
180 60
China. India’s low labour costs, improving
150 59 infrastructure, and digital transformation will help it
become a global manufacturing hub.
120 58 z India has the largest youth population in the world.
A recent Deutsche Bank report posits that India will
90 57
add close to 10 crore people to its labour force over
60 56 the next 10 years. As a result, it will account for
22 per cent of the global workforce growth.
30 55

0 54 So, India’s sturdy growth engine has capable

FY13 FY23
drivers. But a few more changes are brewing, which
might make India richer and greener.

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A new green revolution
India’s efforts to reduce its dependence on imports for its energy needs will
boost growth and create jobs

W
hat good is economic growth if half of the add over 340 gigawatts of renewable energy
country is shrouded in poisonous smog? capacity. It will take renewable energy capacity to
India has a history of extensive fossil over 60 per cent of the total installed capacity.
fuel usage, which has been the biggest contributor to
India’s burgeoning pollution problem. Over FY13-22, Share of installed capacity
around 87 per cent of India’s energy consumption, on of electricity generation
average, has been met by fossil fuels.
Non-fossil fuel capacity has been rising
In addition, India still is heavily dependent on
imports for its energy needs, which weigh heavily Fossil fuels (%) z Non-fossil fuels (%)
z
on its trade deficit. India’s imports of crude oil and
100
petroleum products have averaged about 20 per cent
of its total imports in the last 10 years.
So, India must look for greener and more 80
sustainable fuel sources to sustain its current
GDP growth. The good news is that change is 60
already underway.

40
Share of crude oil and petroleum
products in total imports
20
The Russia-Ukraine war induced oil
price rise has caused a spike
In % 0 FY13 FY22 Apr '23

30
25 The response from the private sector has been
20 equally heartening. The leading business houses
15
in India have announced ambitious plans to help
India go green. Reliance Industries plans to invest
10
`75,000 crore by 2035 to establish the ecosystem for
5 various renewable energy solutions like hydrogen,
0 wind and solar. Adani Enterprises has announced
FY99 FY23 investments for energy transition worth $50-70 billion
3OURCE00!#&9AND&9lGURESAREBASEDONPROVISIONALESTIMATES over the next decade. Tata Power and JSW Energy
plan to invest `75,000 crore each in the foreseeable
future as well.
A greener India Also, according to a recent report by the
The government has announced that it plans to National Resources Defence Council, India’s
make India net carbon zero by 2070. And non-fossil renewable sector can potentially create 10 lakh
fuels already account for more than 40 per cent of jobs by 2030.
its installed capacity of electricity generation. To summarise, with conglomerates and the
In fact, it has overachieved its commitment made government joining hands to give India a greener
at the COP-21 Paris Summit. The Deutsche Bank future, India’s growth would not come at the cost
report estimates that by 2030, India is expected to of the environment.

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 COVER STORY

Not your usual takeaway

While we are bullish on India, we don’t know how the growth story ends

So here’s where we stand. So, in short, we must be saying that this is going
z Robust infrastructure and the digital revolution to be India’s decade, right?
have broken some age-old shackles that have held Well, we don’t deal in clairvoyance. The
India back for years. They have already helped confluence of the above factors does make us bullish
formalise the economy to a great extent, boosted job on India. However, we don’t know whether they will
creation and will continue to buoy India’s growth in actually materialise. We can only take cues from
the coming years. In addition, every year that passes, the underlying trends.
we are witnessing more novel applications of the When it comes to making concrete forecasts
India Stack. For instance, the Open Network for about something as complicated as the economy,
Digital Commerce (ONDC) will democratise we would rather heed the words of one of the most
e-commerce in a big way. It will level the playing field renowned economists:
for small players.
z The Indian economy has three structural
tailwinds - robust private consumption, mighty
services sector and a young population. Together, “There are two kinds of forecasters:
these three factors can play a huge role in driving those who don’t know, and those
India forward. Moreover, their interplay with the who don’t know they don’t know”.
developments of the last decade (networking, GST
and India Stack) has laid the foundation on which
India can continue to grow more efficiently.
“The only function of economic
z India is working towards a greener future, and
energy demands will be increasingly met by
forecasting is to make astrology look
renewable resources. This will lead to job creation respectable”.
in the renewable sector and decrease India’s
dependence on imports. John Kenneth Galbraith

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 STOCK ADVISOR

The easy route to a winning

stock portfolio
“What kind of stocks do you recommend?”

zine, you must be reading and that a good portfolio should have a
watching other media about stock balance of large, mid and small
investing and constantly coming caps. However, these are just some
across these terms. They are fully factors that go into stock selection.
justified in expecting such answers They have to be weighed with each
because that’s how things have other and against each other to
always been done in the business of decide whether a stock is worthy of
stock recommendations. investing. If we have a list dedicated
Plenty of stock advisories have to a certain class of stocks, that can-
different services for mid caps or not be done.
value stocks or whatever. Like any So, does that mean that our stock
other business where specialist recommendations are an undiffer-
professionals guide the casual cus- entiated pile? Far from it. As our
By Dhirendra Kumar tomer, there is an upside to creat- members know, we, too, have differ-
ing complexity and many different entiated categories of stocks. The
products. We don’t believe in that. distinguishing factors are that, one,

I
t’s now been six years since we That’s something that has been a they are parts of the same service;
launched Value Research Stock guiding principle of Value two, they can overlap; and three,
Advisor. Ever since, this has Research over the long (almost they fit the way investors should
been the most frequent question I’ve three-decade) period that we have invest. Puzzled? Let me explain.
been asked, “What kind of stocks do been guiding investors.
you recommend?” Let’s see what Value Best Weather Now
My answer to that question has Research Stock Advisor does, We mark some of our recommended
always been that we recommend why it’s different and why it stocks as ‘All Weather’ and some as
stocks that will make money for makes sense for you. ‘Best Buy Now’. Notably, these are
you. To some people, this sounds not categories but more like the
like a non-answer, as if I’m avoid- Our job, not yours hashtags you see on social media.
ing the question, but it’s not. I In Value Research Stock Advisor, That’s an idea. Uniquely, we have
mean, I am avoiding saying the there is only one stream of recom- some recommended stocks which
kind of things that some investors mendations – a list of stocks you are neither and some which are
expect, but I’m doing so with care- should buy. Does that mean we both! They are ALL recommended
ful thought. Investors expect to don’t look at factors like dividends, for investing, even the ones which
hear well-worn terms like divi- the value equation, or capitalisa- are neither. Let’s look at the ‘Best
dend stocks, value stocks, growth tion? Far from it. These factors are Buys’ created a couple of years after
stocks, large/mid-small or con- central to our evaluation of stocks. the service’s launch.
trarian stocks or some such com- However, looking at them is our job,
mon way of classifying stocks. not yours. We have a great liking A Problem of Plenty
They await an answer that is for companies that have good divi- Why did we do this? Because it
filled with such jargon. dend yield, are available at a rea- served a genuine investor’s need. To
Since you are reading this maga- sonable value, and we fully believe begin with, Best Buys served a prob-

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 STOCK ADVISOR

lem of plenty that our new members

faced. We have 58 recommended
stocks currently. You can become a
member and buy all 58 on day one,
but starting in bulk is not a great
idea. We started with 10 stocks
when we launched this service in
November 2017. As the months and
years went by, we added a lot of
stocks and removed some and now
have 58. In April 2020, we created a
‘Best Buys Now’ list. This is not
added to the recommendations but
is a selected subset. The basic idea
is that if stocks in the main list are
too much for you to invest in, then
at this point in time, you can con-
Illustration: ANAND
centrate on building positions in the
‘Best Buys’. Best Buys reflects a Most importantly, it is not a type z The complete investment thesis
problem of plenty which some of of stock like the conventional cate- for all recommended stocks so
our members cannot cope with. It gories that people think of. Our idea that you understand why you are
does NOT reflect any issue in those is how stock recommendations investing
stocks that are not in Best Buy. should be classified in investors’ z New recommendations as soon as
So, does that mean that seasoned interest. An old saying goes, “The they are released
investors should ignore Best Buys best time to plant a tree was ten z Continuous updates and analysis
Now? Not at all. Best Buys is not years ago. The second best time is on all recommended stocks
just for beginners. There’s nothing today.” Some people might interpret straight from our dedicated ana-
magical about it that is more useful this as meaning that you can plant a lyst team
for beginners. It is exactly what the tree at any time, and it doesn’t make z Tools and data to research and
name implies. What are best buys a difference. Today, tomorrow or 10 analyse any other stock
now for beginners are best buys years later, no matter when you To start right away, head over to
now for everyone. Essentially, that quote this saying, it will always be valueresearchstocks.com, read the
is all you need to know to use our today. But that’s not what it means. details and become a member.
Best Buy list to finetune your equity Currently, there are 40 to 60 per cent
investing. ‘Now’ is an important A Lot Else discounts on the full membership
word in the name of this feature. Let’s take a look at what you price, so don’t miss the opportunity.
For example, at times, a sound busi- will get: Oh, and one more thing.
ness may be beaten down for tempo- z Access to all our (currently 58) After all these years since
rary reasons, which makes valua- stock picks launch, we will soon be raising
tions attractive. Best Buys is z Best Buy Stocks: 14 stocks select- the membership price for Stock
designed to exploit this and other ed from our recommendations. Advisor. However, if you sub-
sharp, focused opportunities that Use this set to start building your scribe now, you can lock in the
may present themselves at a time. portfolio right away! old (current) price.

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 STRAIGHT TALK

Generative AI: Truth or hype?

AI has taken the world by storm. Who stands to gain the most from it?

ChatGPT received over 200 million Where is the “moat”?

unique users per month within OpenAI, the company that made
five months of launch and the GPT model, reportedly spent
averages over 30 million active over $540 million in 2022 to make
users per day. Bard, Google’s the model. This should have
answer to Microsoft, has been stopped most companies from
delayed and has less than 5 per replicating it and should have
cent of the traffic. provided a clear “moat” against
A report by Gartner in the competition to the likes of
December 2022 predicted that by Microsoft and Google. However,
2025, over 30 per cent of new drug the reality is more complex.
By Anand Tandon discoveries will use generative AI, LLaMA, the language model that
as will over 30 per cent of Meta was developing, leaked.
marketing messages. It also Though a relatively

T
he past few quarters have predicted that real data, one of the unsophisticated model, the open-
been among the most key issues in AI model training, source community adopted it.
volatile in economic terms. will be replaced by synthetic data Within a few months and a spend
US interest rates have hardened in 70 per cent of cases. Co-pilot, a of $300, a chatbot called ‘Vicuna-
by over 500 per cent as inflation virtual assistant, will become 13B’ (https://tinyurl
reached levels not seen for ubiquitous with over 100 million com/5a9hds66) was launched.
decades. Central Banks reversed users, while over 15 per cent of new
With the cost, time and data
course to reduce balance sheets applications will be generated by
(quantitative tightening). AI. In effect, Gartner is calling for
required to develop a working
Simultaneously, tight labour generative AI to become a general- model falling quickly, it may
markets persisted, even as major purpose intelligence. This will be appear that the model developers
economies headed into recession revolutionary were it to occur. do not quite have a moat
(Germany tipped over in the
second week of June). The US Worldwide total traffic share Using GPT-4 to evaluate
economy is expected to descend Mar ’23 to May ’23 responses from various engines
into one in the second half of the shows that Vicuna-13B reaches 92
year. Despite all these extremes, z chat.openai.com z bard.google.com per cent capability of ChatGPT
the one occurrence (not involving 4.2 and is only marginally behind
geopolitics) that is likely to have a Bard. While this is not
long-term and persistent impact is necessarily a very accurate
the introduction of large language measure, it does indicate that the

%
models that can replace much that cost of developing these models
is performed by human effort, may not be as high as estimated.
including creativity. A major cost in neural
Accenture, in a report, writes, networks is developing the
“The meteoric rise of ChatGPT has training data set. As Gartner has
captivated the world’s attention on predicted, synthetic data is
the power of generative AI to
95.8 already marking its presence in
Source: Similarweb
augment human capability”. this area.

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 STRAIGHT TALK

machine learning. Its AI

enterprise software is the software
layer over its more than 100
frameworks and tools. These
associations have the potential to
provide some sustainable
competitive advantage.
NVIDIA has successfully
positioned itself as a specialist
developer of processors for AI and
graphics, along with an entire
suite of products for cloud,
metaverse and now AI. Whether
the AI models prove their worth
or not, demand for NVIDIA’s
products will remain high for now
– a typical “spades for gold
diggers” opportunity.

Where is the benefit

ANA
ND for the industry?
ration:
Illust A recent report by UBS on the
industry’s response to generative
With the cost, time and data develop extensions. Google, too, AI reveals that generative AI was
required to develop a working has allowed access to its models referred to in over 3,600 earnings
model falling quickly, it may (PaLM2) to its cloud users. calls by over 500 companies since
appear that the model developers Incidentally, Bard has been January 2023.
do not quite have a moat. Despite upgraded to PaLM2 too. A survey by UBS’s analysts
this, all major players, in For the moment, with its reveals that almost all
particular Microsoft and Google, enterprise customers, Microsoft companies thought the biggest
are developing and releasing appears to have a lead – as benefits would be in the form of
models at break-neck speed. With evidenced by the tie-up it has lower costs. The impact is likely
ChatGPT getting an early mover announced with chip maker to be highest in those industries
advantage, Microsoft has opened NVIDIA. NVIDIA will integrate its where the manpower component
up its platform to developers to AI enterprise software into Azure is the highest.

A recent report by UBS reveals

Relative response quality assessed by GPT-4 that generative AI was referred to
in over 3,600 earnings calls since
100 % 100 January 2023
92 93
80 76
68 It would be fair to estimate at
60
this stage that the overall impact
40 of generative AI will be
deflationary – with many mid-
20 level jobs being lost – reducing
consumer demand. The table
0
‘Industry-wise risks to business
LLaMA-13B Alpaca-13B Vicuna-13B Bard ChatGPT and opportunities of generative

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Industry-wise risks to business and opportunities of generative AI
Industry Risks to business Opportunities
Technology and software Disruption of manual coding and development Automating coding processes, improving productivity

Manufacturing and supply chain Disruption of traditional production processes Streamlining operations, optimising supply chain

Finance and asset management Algorithmic bias, cybersecurity, job displacement Improved risk management, enhanced customer
experience, automation of back-office operations, cost
efficiencies

Retail and consumer goods Disruption of marketing and customer Personalisation, AI-driven recommendation systems
engagement, data privacy

Real estate and property management Shigt in demand for office spaces Innovations in remote work, adaptable property
management

Healthcare and pharma Data privacy, bias, ethical considerations Enhanced drug discovery, improved patient care,
accelerated clinical trials, personalised medicine

E-commerce and retail tech Enhanced customer experience expectations, Personalisation, dynamic pricing, efficient supply chain
optimised logistics

Energy and utilities Optimisation of energy consumption and Cost savings, maintenance scheduling, customer
management could impact revenues service, billing and customer complaints

Transportation and logistics Enhanced route planning, last-mile delivery Increased productivity, reduced operational costs

Telecommunications Improved network management, customer service Enhanced customer satisfaction, increased market share

AI’ summarises the benefits and A lesson for investors would be to between innovation and social
business risks associated with invest in companies that benefit impact will be the key to
the use of generative AI for a from widespread adoption rather unlocking the potential of
few industries. generative AI. A lesson for
than betting on those that directly
As the table suggests, key areas investors would be to focus on
deal with model users
of opportunity exist around the second-order effects – invest
enhanced productivity, data-driven in companies that benefit from
insights, personalisation and and intellectual property rights, widespread adoption rather than
customer engagement, and better accuracy, model bias and malicious betting on those that directly
risk management. On the flip side, use causing societal harm. deal with model users. The
barriers to adoption would revolve Generative AI indeed holds out chances of success are higher
around lack of regulation, the the potential for transformative in investing in the tools in a
potential to undermine copyright change. Striking a balance gold rush.

Invest like pros

Learn the craft of investing by reading about the
investment styles of world-class money managers
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 OF THIS & THAT...

An option theory of manipulation

Between price discovery and manipulation

diabetes is a symptom, not a So before I launch into laying out

disease) paved the way for the solution, let’s discuss the
various new treatment regimens problem with derivatives. Why are
or protocols. they perceived to be more
So, in short, the world has dangerous? A recent SEBI study
always been full of bad ideas. And says that the one-year survival rate
entire industries have been born to for traders in derivatives trading is
take advantage of such bad ideas. 11 per cent. Projecting that forward,
The idea that the market is it would mean that simplistically,
engaged in “price discovery” often the two-year survival rate would be
hides the fact that market 1 per cent (my guess is that it is a
operators often make it difficult to bit better than that). If we assume
By Sanjeev Pandiya get in cheap into a stock, or they that a bull-bear cycle happens in
dump a stock onto the two-three years, then it would be
unsuspecting public by creating a reasonably accurate to posit that

A
scientific theory is simply false narrative. only 2-3 per cent of traders survive
an attempt to explain the the cycle.
facts of nature. From data about active traders The good news is that those who
Reality is based upon replicated and the average losses of the survive are likely to know why.
facts, whereas interpretation of typical trader, it’s possible to And it’s unlikely that they will
these facts is based upon a estimate that, on average, the forget the lessons. From data about
credible theory: trading community loses about active traders and the average
1. The heliocentric theory could `55,000 crore per annum losses of the typical trader, it’s
explain the movements of celestial possible to estimate that, on
bodies better than the geocentric average, the trading community
theory. So, we put the Sun at the As part of the broader market, loses about `55,000 crore per
centre of the solar system, and it the derivatives market suffers annum. This is distributed among
clarified a lot of things. from the same distortions and is the brokers, the government
2. The germ theory could explain plagued with additional risks. (through statutory levies) and the
the origins of contagious diseases Derivatives must be settled on 3 per cent of traders who see gains
better than the miasma theory. specified dates (called the expiry through the survival of the fittest.
3. The theory of evolution by dates) and at prices that are never That’s not a small change, and it is
natural selection could explain the under our control (the trader is certainly worth pursuing as an El
origins of species better than usually a price-taker with no Dorado. By comparison, the film
creationism. That helped us get control over the quantum of risk industry distributes less than a
over the idea of “immaculate once he has taken a position). billion dollars among the top 20
conception”. There’s a theory called option film stars, and that too, only for
4. The mitochondrial metabolic theory that states that stock price the years that they are stars. In
theory explains the origins of discovery (and hence option price contrast, top traders can earn more
cancer better than the somatic discovery) is independent of our and for longer. There is no reason
mutation theory. Still, in its own behavioural intervention. But why they cannot do it forever.
infancy, the idea that cancer is a what if a better theory explains There doesn’t have to be a
preventable disease (or that option prices? retirement age for this vocation.

94 Wealth Insight July 2023

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 So let’s start with the “price makes far more money than a
;^VZPTPSHYHJP]P[PLZ discovery” process. We all agree fund manager, but he can’t take it
z Options trading z Climbing Mt. Everest
that it is the job of the market to home. Between mark-to-market,
z You are not obligated to do it. discover the ‘correct price’ of the broker, the exchanges and the
z You are not obligated to do it.
security - some will tell you that taxman, most of it disappears. It’s
z It’s only for the sharpest minds on Earth. the market is very “efficient” in not worth it. It’s intellectually
z)TSONLYFORTHElTTESTBODIESON%ARTH
doing this (although you engaging, like F1 racing, but it’s
z There’s a 97% chance that you’re not one shouldn’t believe them). Firstly, not needed for buying vegetables
of them.
z There’s a 97% chance that you’re not one “efficiency” for the individual from the mandi.
of them. trader is about anticipating and So, decide why you want to get
z-ARKETSARENEITHERPERFECTNOREFlCIENT  taking advantage of current into options trading. If it’s just to
and you aren't either. prices and holding it to be able to get rich, there are far safer and
z4HEOXYGENLEVELDROPSINMOUNTAINS AND sell it to Mr Market at some less emotionally taxing ways. If
YOUCANNOTPRODUCEOXYGEN!TLEAST NOT
on mountains. future date, preferably tomorrow. you have the intellectual arrogance
So that’s the first hurdle. Why to still do it (similar to driving F1
z The Black & Scholes theory is wrong.
Nobody uses it. Nobody understands it or must you try to anticipate what a cars or climbing Mt. Everest), then
knows why it doesn’t work. Don’t get into capricious, whimsical market is let’s take a deep dive into the
options trading without knowing these. going to think tomorrow? Can’t subject. Yes, it’s possible to “beat
z The maps are often not accurate; blizzards
you give up your obsession with the market”. It is the same as the
can change the landscape. Sherpas might
HAVEBETTERLUNGSTHANYOURS BUTTHEY stock prices and focus on buying fact that you might be able to climb
can’t help you breathe. value instead? While this cannot Mt. Everest on one leg. But are you
z Option pricing models are based on be done if you are on leverage, you sure that you want to do it?
"ROWNIANMOTIONMODELS WHICHARE can, however, buy and hold with There are people who go to the
modelled on randomness. They don’t
patience. But in derivatives, casinos, play roulette (sometimes
pretend to predict prices. In the short
RUN OPTIONPRICESAREESSENTIALLYRANDOM you’re brought back to the real with guns), surf-ride, and
4HEYONLYMAKESENSEOVERTHELONGTERM  world on the last Friday of every paraglide. And then there are
much longer than the next expiry date. month, and everything has to be people who swim with the sharks
z Sherpas may have gone to the top and
come back. But it doesn’t mean you settled in cash. and trade options. Without
will too. So, the first lesson in derivatives questioning why, let’s just say
z The underlying is called volatility: it’s trading is that it forces you to that risk and uncertainty are
VIOLENT UNCOMFORTABLEANDMAKESYOU focus on stock prices, not the heady and addictive. Not everyone
sick. Sometimes you die. underlying valuations, because of likes to do it. But those who want
 )TSCOLD WINDYANDHARD)TSVIOLENT 
z
uncomfortable and makes you sick. settlement procedures. So, you to do such things, they also want
Sometimes you die. can’t sleep through a storm or to go to Mars, by the way. If you
z If you don’t understand stochastics and “forget” about your stocks while have an intelligent mind, you
PROBABILITY DONTBELIEVESOMEONEWHO the market figures out what to do must use it. That’s a fair answer
claims he does. about your company over the to start with.
z If you can’t survive with only a third of
longer term. So coming back to the idea that
the required oxygen. Don’t believe
someone who says he can. This tiny behavioural anomaly there are many bad ideas, the
must be remembered as it creates a world of options trading is full of
z3ERIOUSLY OPTIONSTRADINGISNOTA
science; it is an art. It is philosophy huge emotional cost that makes bad ideas.
and the art of war. Mr Market can be a trading different from your usual
killing machine.
buy-and-hold. And it is the reason Sanjeev Pandiya is a student of
z3ERIOUSLY CLIMBING-T%VERESTISNOTA
why superstar traders are a rare Behavioural Economics. He has spent
science; it is an art. It is philosophy and
over 3 decades as a CFO & has immense
the art of war. Mother Nature can be a breed, as compared to rockstar
experience in Corporate Transformation.
killing machine. fund managers, who may be He has been stock-picking for high profile
z/NCEYOUGETPAST  THEWORLDISAT accidental heroes. investors & has experience as a
your feet. If you ask such a trader, he derivatives strategist. He is passionate
z/NCEYOUGETPAST  THEWORLDISAT about mentoring people, communities &
your feet. might tell you that it is not worth corporates on the principles of Human
the (emotional) effort. Yes, he Irrationality. www.sanjeevpandiya.com

July 2023 Wealth Insight 95

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 EVERYDAY ECONOMICS

Basics matter
India beat its growth expectations for FY23. But there’s still ample room to improve.

will release the final estimates.) prices are around $73 a barrel right
Economists and experts have put now, down from $128 a barrel in
out a variety of takes explaining March. India has managed to buy
the strong performance. The fac- cheaper crude from Russia during
tors range from a favourable sta- 2022-23, and is paying, according to
tistical base in the last quarter of a Bloomberg report, on average,
the year (January – March 2023) to $64 a barrel.
the high levels of pent-up demand The reason behind the muted
due to COVID-19 lockdowns that growth predictions was that the year
finally broke free. 2022-23 was one of tremendous eco-
In my view, while all of the nomic tumult. Russia’s invasion of
By Puja Mehra explanations have merit, the chief Ukraine threw an already fragile
reason why India managed to global economy totally out of gear,
deliver better-than-expected complicating the COVID-19 era

L
ast year, in the sixteenth-an- growth is that oil prices eased con- shortages (such as chip shortages).
niversary issue of this maga- siderably. India’s economy is This impacted car and phone pro-
zine, I wrote that the narra- energy-intensive and highly vul- duction and caused oil, fertiliser and
tive on the Indian economy was nerable to crude oil prices (as food prices to spike, tipping vulnera-
turning over-pessimistic. demand for petroleum products ble economies into sovereign debt
Although things weren’t ideal, isn’t price elastic). Basics matter. crises. In addition, it pushed coun-
there were reasons to remain opti- Whenever oil prices flare up, the tries to rethink their dependence on
mistic. I also listed sixteen rea- economy suffers, and when they China and Russia, and they enacted
sons to feel hopeful about the ease up, the economy recovers policies aiming to reduce this reli-
Indian economy. Now, a year smartly. We saw this oil bonanza ance with subsidies for local produc-
later, the economy is looking up. for the Indian economy in 2014-15 tion and higher tariffs on imports,
However, conditions, I repeat, are when global crude oil prices upsetting the global trade order.
still not ideal. There’s tremendous slumped suddenly. It’s a relief that the storm has
scope for doing better by improv- weathered and the economy can
ing the capacity for economic poli- The chief reason why India restart focusing on how to
cy-making, making sound deci- managed to deliver better-than- achieve sustainable growth. Yet,
sions, minimising mistakes, build- expected growth is that oil prices it’s also hard to feel too upbeat
ing infrastructure, and strength- eased considerably about the better-than-expected
ening institutions and govern- GDP growth after the tragedy of
ance. And yet, the economy isn’t the crashed trains in Odisha. It is
gloomy as the narrative a year ago Having been high for quite a time to reflect. Railway Minister
had suggested it would be. while, by June 2014, they were test- Ashwini Vaishnaw has said that
The latest official GDP esti- ing $120-a-barrel. But suddenly, the malfunctioning of an electron-
mates released on May 31 show prices started declining. By January ic interlocking system of the
the economy grew 7.2 per cent in 2015, they had dropped to $50 a bar- tracks led to the three trains
the financial year 2022-23. (These rel. By January 2016, they were crashing. Whether this was due
are provisional estimates and will close to $20 a barrel. India’s GDP to negligence or sabotage is being
be refined over the next two years growth shot up from 6.4 per cent in probed by the safety regulator
by the government, and then it 2013-14 to 8 per cent in 2015-16. Brent and the CBI.

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Illustration: ANAND

tuality records at a time the num- ators being pressed simultaneous-

According to the Business ber of trains being operated is ly. When jugaad or mistakes take
Standard, the problem with the increasing, but investments in place in economic policy making,
signal interlocking system has and staff strength deployed for the unfortunate consequences are
been a source of risk in India’s maintenance, safety and tracks felt by the key players but don’t
train system for a few years: aren’t keeping pace. become visible widely like in the
“In 2018, loco pilots on southern In India, we have a tendency to case of the train crash. Youngsters
routes exposed three serial crises celebrate what has come to be struggle to get employment because
with signal interlocking systems known as jugaad, a short-cut way of their education and skills aren’t
in one week. All involved express reaching goals, bypassing the rig- good enough to make them employ-
trains diverted down the wrong our of technical competence and able. Companies fail to generate
lines — including one that was defying rules, processes and checks jobs because policies, such as taxa-
cleared for a signal crossing when and balances. A consequence is that tion, incentivise the use of
it was still open for vehicular traf- we celebrate the lack of expertise machines and capital equipment
fic. Only the alertness of the loco and show impatience with exper- instead of labour. But fewer jobs
pilots stopped the trains just in tise. But especially where safety is means fewer Indians with quality
time. Such salvation by serendipi- concerned, these seemingly incomes and consumption power
ty is not always possible for trains unglamorous things determine the and, therefore, sub-optimal growth
travelling at top speeds, as the difference between life and death. prospects for companies and the
tragedy at Balasore showed”. What the railway people described economy as a whole. There can be
Officials who retired from sen- in their write-ups are examples of no substitute for expertise, process-
ior positions in the railways have using jugaad for coping with sys- es, rules and technical competence
written in newspapers such as tem-wide pressures and tensions on the road to sustainable growth
The Times of India explaining that generated by inept policy-making. and excellence.
maintenance work is often carried Jugaad is a response invariably
out on the tracks, bypassing the to rigidities in the system that Puja Mehra is a Delhi-based journalist and the
author of ‘The Lost Decade (2008-18):
safety protocols and systems. This obstruct it from delivering its How the India Growth Story Devolved
is done to maintain trains’ punc- goals. A bit like brakes and acceler- into Growth Without a Story’

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 MAIN STREET

Are you benefitting from double

engine compounding?
Harness the compounding prowess of both the Indian and American markets

This makes it the most strained. The origins of these

important potential geoeconomic strains lie, at least in part, in the
partner for the United States misguided actions in the 1970s of
today as it “re-globalises” with the then US President Richard
greater concern for national Nixon (who was subsequently
security and resilience. As India impeached) and Secretary of State
considers its own leadership in Henry Kissinger. These two men
the world, it must look toward all but ensured that the
becoming a stronger innovator in relationship between the two
technology with a more democracies went completely off
comprehensive capacity to move the rails in the second half of the
up the value chain in software and 20th century.
hardware. This necessitates a Now, however, a different wind
By Saurabh Mukherjea much closer and deeper is blowing across the world.
relationship with America, both China’s growing belligerence vis-
at the governmental but also at à-vis both of these great democra-
India is in a global sweet spot. the private-sector level. cies is bringing America and
It is now the world’s most Hemant Taneja and Fareed Zakaria in India together. From floating hot
populous country — home to more Harvard Business Review (April air balloons with spy equipment
than 1.4 billion people — and has 17, 2023) to constantly pushing the enve-
had robust economic growth for lope on India’s northern borders,
the past three decades, with GDP Is your portfolio well positioned to the Chinese armed forces have
per capita rising by 245 per cent. benefit from the reset in geopolitics? aggressively upped their ante in
And yet, it remains relatively As is well known, America and recent years, much to India’s
underdeveloped on a global scale. India are the world’s two largest alarm and America’s chagrin.
As of 2019, more than 600 million free-market democracies –
people in India live on less than America, with its colossal Over the next decade, wealth
$3.65 per day. Thus, there remains economy, the largest in the world compounding will be
enormous potential for economic (with a GDP of about $25 trillion) overwhelmingly driven by the
growth and improvements in and India, with its massive mightiest compounders from India
human welfare. And as the United population of 1.42 billion (with a and the US
States’ concerns about China GDP of $3.4 trillion).
grow, India shines as a promising Historically, the two countries
alternative in supply chains, have not seen eye to eye on Therefore, America needs India
innovation hubs, and joint anything of practical relevance. A to counter China’s muscle flexing
ventures. As the world’s largest divergence in ideological in Asia. And India needs America
democracy with an increasingly alignments and the geopolitics of to counter the gulf in military
open economy and a strong the Cold War meant that until the spending between Asia’s two
technology sector, it has the fall of the Berlin Wall in 1989, ties largest countries (see ‘Sizing up
potential to operate at scale. between the two countries were India, China and the US’).

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Sizing up India, China and the US adjusted returns from the
standalone Nifty50 of 0.66 and the
standalone S&P 500 of 0.92. Note
further that the 50:50 S&P 500 and
Metrics India United States China
Nifty50 portfolio’s 13.9 per cent
3,500 25,461 15,700 20-year CAGR return is far higher
GDP ($ bn) than the MSCI World’s return
over the corresponding period
10Y average
5.7 2.1 6.4 (10.6 per cent per annum).
GDP growth (%) Because the Indian and
American stock markets are less
1.42 0.33 1.41 than perfectly correlated (their
Population (bn) correlation over the last 20 years
is a mere 0.34), by running a
double engine compounding
10Y stock market 9 12 6
compounding (% pa) portfolio, you can get the benefit
of diversification i.e., your equity
81 877 292 returns are more stable due to
Military spending ($ bn) double engine compounding.
Thus, it is evident that by
investing in a simple 50:50
Source: Marcellus Investment Managers; stock market return calculated using Nifty50, S&P 500 and CSI 300
for India, US and China, respectively over March 2013-23 portfolio of Nifty50 and S&P 500
indices, you benefit from the
higher return of the Nifty50 AND
This long overdue Indo-American 14.3 per cent per annum. Over the the lower volatility of the S&P 500.
alliance has a clear investment same period, the S&P 500 has The result is a far more stable
implication for you – over the next compounded in INR terms at portfolio compounding than is
decade, wealth compounding will 12.5 per cent per annum (see ‘A 50:50 possible from either of the
be overwhelmingly driven by the portfolio of Nifty50 and S&P 500’). national indices.
mightiest compounders from Had you started a 50:50 Indo-
these two countries. The question American portfolio 20 years ago The math behind double engine
you, therefore, need to ask (followed by annual rebalancing compounding using Marcellus’
yourself is, “Is my portfolio well to maintain the 50:50 ratio), your PMS portfolios
positioned to capitalise not just on risk-adjusted return (i.e., return All of the above analysis was
the growing financial muscle of per unit of risk taken) would have based on the broader market
well-known Indian compounding been 0.95 and your CAGR return in indices. What if you had
machines like Titan, Bajaj INR would have been 13.9 per cent. Marcellus Investment Managers
Finance, HDFC Bank, and Asian This is better than the risk- doing double engine compounding
Paints but also of global
compounding machines like
Amazon, Microsoft, Berkshire A 50:50 portfolio of Nifty50 and S&P 500
Hathaway, Nvidia, and ASML?”
Metrics Return (% pa) Risk (%)^ Downside risk (%) Return/risk

The math behind double engine S&P 500 12.5 13.6 9.9 0.92
compounding at the index level
Nifty50 14.3 21.7 15.9 0.66
To understand why double engine
compounding is good for you, take 50:50 portfolio 13.9 14.7 11.1 0.95
the following historical data: over
Source: Marcellus Investment Managers; returns inclusive of dividends and calculated over January
the past 20 years, the Nifty50 has 2004 and May 2023; ^Risk measured by standard deviation; downside risk measured by standard
compounded in INR terms at deviation for negative returns for that period

July 2023 Wealth Insight 99

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 MAIN STREET

for you over the past four years? Combining GCP and CCP
Would that have made a
Metrics Return (% pa) Risk (%)^ Downside risk (%) Return/risk
difference?
Live returns from Consistent GCP* 24.0 20.8 14.7 1.16
Compounders Portfolio (CCP) over CCP 18.5 18.8 13.2 0.98
the past four years (net of fees and
GCP* and CCP
taxes) have been 15.88 per cent. portfolio
21.4 16.4 12.1 1.30
Marcellus’s Global
Source: Marcellus Investment Managers; returns calculated over January 2019 and May 2023;
Compounders Portfolio (GCP) *Metrics calculated over equal weighted backtested current portfolio using price returns; For CCP, live
went live in October 2022. To date, performance data (gross of fees and taxes) is used; annually rebalanced in every January to maintain
GCP has generated a return of 50 per cent allocation; all returns in INR terms; ^Risk measured by standard deviation; downside risk
measured by standard deviation for negative returns for that period
12.90 per cent in INR terms (gross
of taxes but net of fees and
expenses). A back test of the GCP zDiversification: Given that GCP and zAsset-liability mismatching: As
algorithm shows that returns CCP are less than perfectly Indians are becoming more
(gross of fees and expenses and correlated (correlation coefficient of affluent, incrementally, ever larger
taxes and based on price returns about 0.38 over the last four years), amounts of their spending will be
(rather than total returns)) over by combining the two, the return is in US dollars. Indians now
the past four years would have sustained with relatively low routinely go on holiday abroad.
been 24 per cent per annum (see downside risk. This is a textbook Almost all affluent Indians use
‘Combining GCP and CCP’). case of effective diversification imported phones, pads and laptops
However, what’s really whereby return per unit of risk and spend their evenings watching
interesting is that a 50 per cent taken jumps up to 1.30 for the media content from American
CCP and 50 per cent GCP combined strategies vis-à-vis 1.16 media companies (Netflix, Amazon
portfolio would have given better for GCP and 0.98 for live CCP. Prime, Disney/Star), and most of
risk-adjusted returns over the zCurrency effects: The diversification their children go to study abroad.
past four years of 1.30 (gross of benefits of a 50 per cent US and This essentially means that
fees and taxes), i.e., significantly 50 per cent India portfolio are increasingly, Indians’ liabilities
higher than the risk-adjusted juiced up further by currency are increasingly denominated in
returns that GCP and CCP effects which broadly pan out as US dollars, a trend that will become
generated individually. follows. Typically, every five years ever more powerful as we get
or so, the Federal Reserve hikes richer. Logically, therefore, it
Indians’ liabilities are rates for 12-18 months. These rate makes sense for Indians to also
increasingly denominated in US hikes strengthen the US Dollar and have US dollar-denominated assets
dollars. Logically, therefore, it weaken the Indian Rupee. The to their name. In short, if you know
makes sense for Indians to also result of this currency movement is that increasingly your future
have US dollar- denominated two-fold: (a) foreign investors stay outgoings will be in US dollars, you
assets to their name. away from the Indian market should have a part of your savings
during such periods, thereby in that currency rather than only
causing CCP-type stocks to derate having rupee-denominated assets.
Combining the two strategies in during such periods as was evident
a simple 50:50 ratio could in FY23 when the CCP corrected by All the stocks mentioned in this
massively add value in terms of 15 per cent (as the INR slid from `72 article are part of Saurabh and
reduction in risk whilst not to `82 to the USD), and (b) GCP Marcellus’ clients’ portfolios.
foregoing a meaningful amount of stocks’ returns in INR terms are
return. Why does this happen? juiced up as the INR depreciates. Saurabh Mukherjea is part of the
There are largely three drivers of This offsetting currency effect Investments team at Marcellus
this ‘free lunch’ that investors in a drives powerful currency Investment Managers (www.marcellus.
in). He is the author of ‘Diamonds in the
50 per cent CCP and 50 per cent diversification benefits in a 50:50
Dust: Consistent Compounding for
GCP portfolio get treated to: Indo-American portfolio. Extraordinary Wealth Creation’.

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 STOCK SCREEN

Small-cap growth stocks

Investing in small caps that go on to become mid and even large caps is any
stock investor’s dream. Here are some promising small caps to explore.

A
stock screen filters out companies few survived to tell their tale.
based on certain criteria. The Thus, in order to remove poor-quality
main advantage of using a small caps, we have applied the filters
stock screen is that it helps for solvency (debt), quality of business
you generate stock ideas with a few (i.e., ROE) and revenue growth. To
clicks. It does away with the time- refine the list further and incorporate
consuming process of ‘finding’ valuation as well, we have selected
companies. companies with a PEG (P/E to earnings
Value Research applies carefully growth) of less than one.
selected stock filters to the universe of Small-cap investing requires you to do a
Indian stocks to identify and present you with lot of groundwork. Pick companies that you
attractive companies. In this issue, we will be covering understand and research them in detail. This is not for
the ‘Small-cap growth companies’ screen in detail. We the fainthearted or amateurs. In their journey to
have also given a concise list from the other screens. If become a larger company, small caps will undoubtedly
you want to view all the companies, then you can find encounter multiple headwinds. You should have the
them at: https://www.valueresearchonline.com/ skillset to judge whether these are transient or not.
stocks/selector/ You will also need perseverance to deal with the
frequent drawdowns in your portfolio.
Small-cap growth companies
The greatest joy of compounding, for any investor, is A word of caution
unarguably the journey of a small-cap company These are not stock recommendations. Please do your
transforming into a large-cap company. However, the due diligence before investing. If you are interested in a
small-cap arena is like the Roman-era Colosseum – list of stocks to invest in, subscribe to Value Research
many participated in the gladiatorial games but only a Stock Advisor.

Key terms
<UP]LYZLJVTWHUPLZ willing to pay for the earnings. The company to its total equity capital. rate of a company’s earnings per
thumb rule of valuing a stock is that Tells us which companies use share (EPS).
Should have traded on all the days
a high-growth stock will have a high excessive leverage to achieve :[VJR:[`SL
for the last two quarters and should
P/E ratio, while a value stock will growth. Conventionally, a debt-to-
have a market capitalisation of more Derived from a combination of the
have a relatively lower P/E ratio. equity ratio of less than two is
than `500 crore, the lower cut-off stock’s valuation – growth or value
7YPJLLHYUPUNZ[VNYV^[OYH[PV considered safe.
for small-cap stocks as per the – and its market capitalisation –
Value Research criteria 7,. 9L[\YUVULX\P[`96, large, mid and small. For example,
4JHW Ratio of price to earnings to the Measured by taking profit after tax here is the stock style of a large-
EPS (earnings per share) growth of as a percentage of the net worth of cap growth stock.
Stands for market capitalisation.
a stock. Demonstrates how high a the company. Indicates how
Obtained by multiplying the stock
price we are paying for the growth efficiently the company has been
price by the total number of shares.
that we are purchasing. In all our able to utilise investors’ money.
Shows a company’s market value or Growth Value
analyses, we have taken five-year @YL]LU\LNYV^[O 
size.
historic EPS growth. Large
7YPJL[VLHYUPUNZ7, The three-year annualised growth
+LI[[VLX\P[`YH[PV+, rate of a company’s revenue. Mid
The ratio of the stock price and
Calculated as the ratio of total @,7:NYV^[O 
earnings per share (EPS). It shows Small
outstanding borrowings of the
in multiples how much investors are The three-year annualised growth

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 STOCK SCREEN

No. of companies that

Reasons to invest The filters CLEAREDTHElLTERS
Fast-growing companies Market cap between `500 cr and `9,216 cr 979
Chances of high wealth creation Debt-equity ratio of less than 1
799
Fundamentally sound 3Y average ROE of more than 20%
3Y revenue growth of more than 20% 185
Reasonable valuations
PEG less than 1 82
56
Banking and finance companies were removed from this analysis as the metrics don’t apply to them.

Small cap growth companies

Company Stock Debt-equity 3Y avg 3Y revenue 3Y EPS Market cap Share 52-week
Industry style P/E PEG ratio RoE (%) growth (%) growth (%) (` cr) price (`) high/low (`)

E.I.D. - Parry (India)

8.7 0.30 0.2 27.8 27.2 26 8,267 466 670-433
Sugar

Kama Holdings
6.4 0.21 0.7 40.0 27.5 33 8,022 12,500 14,600-9,615
Misc. Fin.services

Supreme Petrochem
15.5 0.45 0.0 45.3 24.7 71 7,726 411 471-338
Other Forms-Primary Plastic

Balaji Amines
22.5 0.59 0.1 28.7 36.0 46 7,325 2,261 3,844-1,880
Organic Chemicals

Granules India
13.7 0.40 0.4 21.2 20.2 17 7,074 292 381-227
Drugs & Pharma

Godawari Power And Ispat

7.8 0.26 0.1 34.1 20.5 71 6,223 457 460-223
Sponge Iron

Mastek
Software
20.7 0.60 0.2 27.5 33.8 29 6,051 1,977 2,218-1,475

Authum Inv & Infra

Misc. Fin.services
24.4 0.22 0.3 26.6 233.7 152 5,852 345 350-134

H.G. Infra Engineering

Construction
11.4 0.27 0.8 26.1 27.7 44 5,609 861 978-511

R Systems International
Software
33.6 0.73 0.0 27.0 24.2 39 4,895 415 440-200

Meghmani Finechem
Caustic Soda 13.1 0.34 0.8 35.1 53.0 47 4,615 1,116 1,736-815

HLE Glascoat
Chemical Machinery 65.3 0.80 0.8 49.5 29.7 10 4,559 668 815-465

Lux Industries
Cloth 32.0 0.76 0.3 30.3 21.6 -2 4,536 1,510 2,024-1,111

Rajratan Global Wire

Steel Wires 42.1 1.00 0.4 30.7 23.1 45 4,225 835 1,410-539

Share India Securities

Brokerage Services 12.8 0.14 0.4 37.6 63.1 91 4,202 1,288 1,426-991

Greenpanel Industries
Wood 16.3 0.10 0.2 20.8 26.7 161 4,188 341 523-255

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Company Stock Debt-equity 3Y avg 3Y revenue 3Y EPS Market cap Share 52-week
Industry style P/E PEG ratio RoE (%) growth (%) growth (%) (` cr) price (`) high/low (`)

Prudent Corp Advisory 33.4 0.73 0.0 27.7 25.4 32 3,886 938 1,108-461
Misc. Fin.services

Globus Spirits 29.3 0.37 0.2 22.7 31.0 27 3,575 1,240 1,284-722
Liquors

Sandur Manganese 12.8 0.20 0.2 28.9 47.4 65 3,471 1,285 1,414-655
Minerals

JTL Industries 30.2 0.29 0.5 30.5 44.7 43 2,730 325 373-166
Steel Tubes & Pipes

Tips Industries 35.5 0.40 0.0 42.1 27.1 80 2,720 213 219-127
Media & Entertainment

Expleo Solutions 18.5 0.78 0.0 26.5 32.2 28 2,485 1,605 1,720-1,148
Software

Sharda Motor Industries 11.6 0.50 0.0 21.9 43.4 54 2,413 810 950-550
Auto Ancillaries

Cigniti Technologies 14.0 0.36 0.1 29.2 23.6 12 2,364 868 938-415
Software

Gufic Biosciences 28.3 0.75 0.2 31.6 23.9 40 2,254 232 243-178
Drugs & Pharma

Tanfac Industries 34.8 0.82 0.0 34.2 31.5 49 1,953 1,958 2,055-436
Inorganic Chem.

Hariom Pipe Industries 41.0 0.92 0.9 27.1 47.7 41 1,894 686 695-180
Steel Tubes & Pipes

Carysil 33.5 0.99 0.5 22.6 29.1 33 1,757 655 743-431

Granite & Stones

Panama Petrochem
7.5 0.24 0.0 22.9 30.9 101 1,746 288 425-234
Lubricants & Grease

Jyoti Resins & Adhesives

36.4 0.33 0.0 59.5 52.6 73 1,690 1,408 1,818-700
Plastic Resins

Thejo Engineering
47.9 0.99 0.1 29.9 22.8 40 1,552 1,448 1,598-802
Misc. Manuf.Articles

EKI Energy Services

4.0 0.00 0.0 137.2 350.0 645 1,383 503 2,964-355
Misc.Other Services

Knowledge Marine
25.9 0.13 0.6 47.7 79.5 96 1,204 1,115 1,450-260
Ship Building

Gujarat Themis Biosyn

20.1 0.28 0.0 60.7 20.5 35 1,163 801 921-376
Drugs & Pharma

Punjab Chemicals & Crop

18.2 0.42 0.4 32.3 22.3 78 1,114 910 1,399-728
Pesticides

KSolves India
44.1 0.80 0.0 118.6 103.0 127 1,086 916 985-320
Software

Raghav Prod. Enhancers

41.7 0.85 0.1 21.3 21.3 29 1,053 917 1,180-452
Non-Metallic mineral prod.
Data as of June 16, 2023. This is not the full list. For the full list, visit https://bit.ly/3yVWT2W

July 2023 Wealth Insight 103

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 STOCK SCREEN

Want more? Here you go

Other screens available on the Value Research website, along with their themes
and some of their stocks
P/E P/E

Attractive Deepak Nitrite 34.6 Coromandel International 13.7

bluechips Aarti Industries 34.4
Gives you large caps with strong fundamentals SRF 32.9
and solid growth that are trading at a K.P.R. Mill 26.7
reasonable valuation Angel One 14.6

Reasonably priced BF Utilities 11.9 Ujjivan Financial Services 5.3

growth stocks Vascon Engineers 9.2 GE Shipping 4.2
Combines growth and value investing and SBI 9.2 Welspun Enterprises 3.8
spills out companies with high earnings growth Hercules Hoists 8.4 Triveni Engineering 3.5
trading at a cheap valuation Pearl Global Industries 8.1 Andhra Cements 1.0

KDDL 32.1 Benares Hotels 24.1

Quality stocks
Kalyan Jewellers 31.3 Pricol 23.2
available cheap
Gufic Biosciences 28.3 RPG Life Sciences 22.4
Companies that clear our essential checks on
solvency, accounting, recent financial Aditya Vision 26.8 Kamdhenu 21.2
performance and valuation Gujarat Fluorochemicals 26.4 CMS Info Systems 17.6

Dividend yield (%) Dividend yield (%)

Gloster 10.1 GNFC 5.1

High dividend
PFC 6.7 IRFC 4.6
yield stocks
GSFC 6.2 D-Link (I) 4.3
A screen for those looking for a steady stream
of dividends REC 5.4 MOIL 3.7
Gulf Oil Lubricants 5.4 GOCL Corp. 3.2

P/B P/B

IFB Agro Industries 0.9 RSWM 0.7

Discount to
Shreyas Shipping 0.9 Nava 0.7
book value
Tamilnadu Petroproducts 0.9 ONGC 0.7
Presents companies that are available at less
than their net worth, thus helping you spot Elpro International 0.8 Nahar Spinning Mills 0.7
value stocks Canara Bank 0.8 Jindal Poly Investment 0.3

For all the screens and to customise them

as per your requirements, visit
z Customisable filters z Value Guru screens z Easy peer comparison

www.valueresearchonline.com/stocks/selector

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