or. weatthinsght in September 2018 125 PUP sa coun rren Buffett v ori ions of an equity analyst Prone) | aL)Get the titans on your side. Presenting HDFC Top 100 Fund*. Large is solid. And the large cap companies exemplify this best. HDFC Top 100 Fund invests a minimum, 80% of its assets in stocks of large cap companies. These companies are well-established businesses. Typically, these companies are in operation for a longer period of time and are well positioned to absorb business pressures across various market cycles. Due to their size, they also benefit from economies of scale, Consider investing in this fund to give a foundation of solidity to your portfolio. RS eae Eee To know more, contact your financial adviser or call 92218 12345. HDFC Top 100 Fund (An open-ended Riskometer ‘equity scheme predominantly investing in large cap stocks) + To generate long-term capital appreciation /income. 1 = i al DFC + Investment predominantly in large cap eee companies. SST a [MUTUAL FUND | BHAROSA APNO KA “twwestors should consult ther nancial advisers fin doubt about whedher the produc sutable for them Note: For further details refer tothe Scheme Information Document/Key Information Memorandum Bvallable on ww hcfe‘ung.com orth SCs or Distributors. MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.Upgrade {f the way you Save. ; Download iSave-IPruMF to ; redeem our inverting ~~ on the go. 3 Pa ne Sk icici ° PDN MUTUAL FUNDnea TH Wealth Insight September 2018 blue Number 3 EDITORIAL POLICY Te gel Wt ag a wen apatrs ton tae Fase ots Seon eaoaiatepten ewan sore hr ewn Ne einaaiouy eed il lp you akg etarnernes enon Seasins, evruaghg yo irl tio esa on our wana din Toi, 38 Sinpa an so orseinson ‘figs bl ot ol obs Read rend aman ets pow ar vie stn saat sven gat aa tor ‘pet corespontets Prac Nar Deen Mat Oe, Kran Sadhwal Pacer at e082 AavengCatac: OO cover stoRY INDIA’ MOST WANTED micro caps 10 vaive curv 48 srock aowson Buy businesses with long-term visibility Confessions of the Warren Buffett way an equity analyst 4 1 Wealth insight Soptomor 2018Columns 7 by DHIRENDRA KUMAR Miro is beautiful but also ugly Micra caps can both be great weath creators and wealth destoyars. Ba cexcrematy cautious picking them 42 orraeat Dy SANIEEV PANDIYA When technical Tracking the edllective ego cen be more rewaraing tran following technical analysis 44 STRAIGHT TALK by ANAND TANDON w ‘The rise of ESG investing Investing practices nased on ‘environmental, soci and governance issues are fast gaining ground 46 TAKING STOCK by MAUINI BHUPTA “Here is what you should di Analysts are increasingly gotting into uncharted tortorios ‘and advising companies on how to.run their businesses, Ths is unwelcome, DISCLAIMER B0 wrenview ‘Reassessing investment hypothesis dispassionately is crucial’ PV K Mohan Head ~ Equity, Principal PNB Asset Management 8 srowmiy acenoa Swaying with the interest rate TA nasser commass # Index wate « Big moves © The leader vs the rest # Market (non)sense ¢ Institutional moves « The pledging tracker « IPO tracker « Promoter in action 28 anavers ony # On the edge Taxation boost me DB stock anavysrs choice Our scorecard 56 srocx seneen © Reasonably priced growth stocks # Quality stocks available cheap Attractive blue chiy # High dividend-yield sto « Discount to book value 16 woros worm now ich pala nays ice i api Hees sn od Ne Rt Septamber 2018 Weath insight IS3 Daily Good Habits Drinking eight glasses of water Exercising Reading the newspaper Cultivate another. Invest through DAILY SIP (Systematic Investment Plan} Start investing early, regularly and stay invested. Mutual funds offer you the convenience of the Systematic Investment Plan(SIP). It’s the affordable way to create wealth over the long term. An investor education initiative by a \ LIC MUTUAL FUND LO http://licmt.com/knowledge_center/investor_education Snr Cnn MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.i Micro is beautiful but also ugly Micro caps can both be great wealth creators and wealth destroyers. Be extremely cautious in picking them. e DHIRENDRA KUMAR I dont know when I first heard the term ‘micro cap’ but it certainly was not in use in the 90s. We just had big, medium and small companies. We ‘used to call them large cap, mid cap and small cap and that was that. Today, the range is subdivided into at least one ‘more step, which is micro cap. At Value Research, for a long time, we have also been using the term ‘giant cap’ on our website in some contexts. At this point, the reader is entitled to ask how one can decide what the appropriate number of slots is in which to divide all companies listed on the Indian markets. There are companies ranging from Reliance Industries, which is now worth % lakh crore, all the way down to Antariksh Industries, which is the smallest company in our database and has a capitalisation of %2 lakh, After all, given the love for jargon and complexity that financial types have, what is to stop someone from having megalarge cap, ultralarge cap, large cap, mid cap, small cap, micro cap, nano cap, minuscule cap, pico cap and so on and so forth? Of course people are free to do that and I'm sure one day someone will reach and even cross these limits. However, at Value Research, we hate jargon and complexity. We follow a simple principle, which is of uniformity of characteristics. Years ago, we invented the ‘giant-cap’ category because by characteristic, we found that the largest large-cap companies (Reliance Industries and Infosys being typical examples) were quite different from routine large-cap companies like MRE So there was a logic to creating a new category. Similarly, at other end, we find that a %5,000 crore company like Monsanto is a fairly substantial small cap and is quite different from the tiny Archies, whose market cap is only %95 crore. They are different kinds of businesses and from your and our point of view, they are very different kind of investment opportunities. They have to be approached differently and studied differently. At this point, there’s no logic of further categories like nano cap but one day there might be, However, you can be sure that we will use them only if necessary. Albert Einstein famously said, “Everything should be made as simple as possible but not simpler.” Value Research's slogan could well be a variant of this idea “Everything should be as complex as needed but not, more complex.” One thing that investors must appreciate about smaller companies is that they are on a completely different part of the risk-reward scale. The smaller the company, the more likely it is that you will go wrong in choosing its stock. However, if you turn out to be right, then the gains can be huge. Ask any investor who had invested in Symphony or Relaxo, And for the other sad side of the story, ask anyone who had invested in any one of the thousands of listed companies that have simply disappeared. ‘Therefore, you should approach the lists in our cover story with extreme caution. This is a statistical exercise and we are doing it because it is valid within our judgement. It’s also interesting and educational However, these are most certainly not buy lists or tip sheets and do not treat them as one. At some point we will also do equivalent ‘India's ‘Most Wanted’ for larger companies and those will surely be just as useful. However, those will be less interesting, less educational and less like investing in one’s own business! Septber 2018 Weath insight 17ead Xcra\ DN Swaying with the interest rate In August, the Reserve Bank of India raised the repo rate by 25 basis points, to 6.5 per cent. The banking and financial sector is most sensitive to the RBI's rate hikes. The following graphs tell you how various banking and finance-related stocks have reacted to interest rates over the long term. The aggregate picture suggests that there is an inverse relation between interest-rate movements and stock prices of banking and finance companies. The correlation, however, is weak in most cases. Nifty Financial Services Index — Interestrate Lot avs: Sockintax Ret ans: noose 5000 10x ce 12000 7] 8 9000 6 5000 4 3000 2 ° ° ‘September 2008 ‘hupst 2018 HDFC Bank Icicl Bank 2350, 10% 400 10% 1900 8 20 2 1450 5 240 6 1000 4 10 4 Comelation Conelation 550, 2 80 2 100 o ° ° September 2008 August 2018 September 2008, ‘Aupst 2018 8 | Wealth insight September 2018WoT ae ‘SBI HDFC 00 10% 2500 10% xo} A 8 2000 8 0 ‘ 1500 ‘ 180 ‘ 1000 4 Coreation 0 2 soo 2 o 0.1L, ° o o September 2008 agot2018 ‘Setenber2008| Aupst2018 Bajaj Finance Shriram Transport Finance 3500 10% 2000 10x 2200 s 1800 2 2100 fo 6 1200, 6 tuco SP —_Conelaton 4 00 1 contation 100 2 00 0 0 ° ° September 2008 agit 2038 September 2008 ug 2018 LIC Housing Finance ‘Sundaram Finance 1000 10% 2500 10% 00 J a 8 2000 J a 2 S00 \_4 6 1500 a a s 400 ‘ 1000 4 Contain 20 2 00 2 0 o ° ° ‘eptember 2008 agit 2038 ‘september2008 Tagt 2048 Bharat Financial Inclusion Manappuram Finance 1500 10% 10 108 1200 s 20 2 00 conaaton s 20 Conetaton * * 0.89, ‘ ° . 200 2 FA 2 a 0 a ° ‘ug 2010 agit 2038 ‘sepombor 2008 ‘up 2018 Soptamber 2018 Weath insight | @Buy businesses with long-term visibility the Warren Buffett way One effective way of finding good companies is to ask whether their product or service will undergo any change over the next 10 years “We will never buy anything we don’t think we understand. And our definition of understanding is thinking that we have a reasonable probability of being able to assess where the business will be in 10 years.” Warren Buffett in Berkshire Hathaway AGM, 2000 years have seen it go only up, Many of them do not think about the long term demand for a company's products and its impact on stock returns, In this issue of Value Guru, we explore the relation between long. term visibility of a company’s product or service and how it affects the returns you can expect. ‘The world’s greatest investor Warren Buffet takes a Jong hard look at where a company willbe five-10 ‘years from today: We show you how you ean improve your stock returns if you follow Buffett Buffett gives alot of weightage to businesses that are stable and have been doing the same thing for decades, His rationale is that such businesses develop a franchise over decades of operations. Here is Buffett explaining why this is important “Experience, however, indicates that the best busi ness returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago. That is no argument for managerial complacency: Businesses always have eal inities to improve service, product lines, manufacturing techniques, and the like, and obviously these opportunities should be ‘seized. But a business that constantly ‘encounters major change also encounters many chances for ‘major error Furthermore, eco nomic terrain that is forever shifting violently is ground on which itis difficult to build a fortress-like business fran chise, Such a franchise is usually the key to sustained high returns. [== who have come to the market in the last 10Looking ahead What we have to train ourselves as investors is to look out how a company is going todo five or 10 years head. You want it tobe continuing to do the same thing again and again ‘There are all kinds of important subjects that Charlie and I, we don’t know anything about, and therefore we dont think about them. So we have ~ our view about what the world will look like over the next ton years in business or competitive situations, we're just no good We do think we know something about what Coca Cole's going to look like inten years, or what Gillette's going to look like in ten years, or what Disney's going to 00k like in ten years, or what some of our operat- ing subsidiaries are going to look lke in ten years We care a lot about that, We think a lot about that We want to be right about that. If we're right about that, the other things get to be - you know, they're less important. And if we started focusing on those, we ‘would miss a lot of big things. ve used this example before, but Coca Cola went public in, think, it was 1919, And the first year one share cost $40. The first year it went down a little over 50 percent. At the end of the year it was down to $18 ‘There were some problems with bottler contracts. ‘There's problems with sugar: Various kinds of prob lems. If you'd had perfect foresight, you would have seen the world’s greatest depression staring you in the face, when the social order even got questioned. You ‘would have seen World War Il. You would have seen atomic bombs and hydrogen bombs. You would have seen all kinds of things, And you could always find a reason to postpone ‘hy you should buy that share of Coca-Cola But the important thing wasn't to see that. The import- ant thing was to see they were going to be sel nga billion eightounce servings of beverages a day this yea VALUE GURU Or some large number. And that the person who could make people happy a billion times a day around the globe ought to make a few bucks off doing it. And so that $40, which went down to $19, I think with divi dends reinvested, has to be well over $5 million now. And if you developed a view on these other subjects that in any way forestalled you acting on this more important, specific narrow view about the future of the company, you would have missed a great ride. So that's the kind of thing we focus on. Avoid businesses that a smartphone can destroy Technology is a disruptive force. Ithas destroyed the fortunes of many varied industries, Here is Buffett talking of the effect of technology and the damage it can do to some industries. “If something comes in where there's a technologi- cal component that’s of significance, or where we think the future technology could hurt the business as it presently exists, we look at, you know, we look at that as something to worry about Here are some businesses destroyed by smart. phones. Some are struggling to remain alive > PS location devices > Scanners > Book publishers > File cabinet manufacturers > Fax > Music CD and DVD players > Digital cameras > Handheld video games > Watches > Travel agents > Brick and mortar book stores > Traditional taxis > Banks physieal branches > Eneyclopaedias > Real estate broke Remember, avoid companies selling products that ‘can one day become an app. The problem with tech companies Many Indian tech companies that do basic back office work are susceptible to any innovation that can render their ser vices obsolete. Automation has started doing that today: These tech firms will “You are not buying a stock, you are buying part ownership ina business. You will do well if the business does well, if you didn’t pay a totally silly pric That is what it is all about.” Soptomber 2018 Welt Insight | 1ace “I know what the chewing business will look like ten years from now. The Internet is not going to change how we chew gum and nothing much else is going to change how we chew gum.” have to move up to doing something that cannot be hurt Coca-Cola around the world? I can’t do it, Those easily replicated by robots or software. Here's Buffett are good businesses.” talking about the risks to software companies com- pared to those selling simpler products. How to look at stocks? —— “Lam not going to be able to fig- In today’s world of ‘click to buy and ‘ure what the moat is going to look 100n sell’ many investors confuse invest: Microsoft ten years from now. same proc for over entry. tomorrow’ isa big selling jingle Gates is the best businessman weet {or one big brokerage. This is [have ever run into and they a Sed exactly what you should never have a hell of a position, but I indies Biscuits 1882 really don't know what that business is going to look like ten years from now. I certainly do with stocks. If you have done your homework and have not fallen prey to a ‘hot stock’ at crazy valuations, you should ‘ShaimarPas Pains 1902 YesarBeters Pures 1888 mr Dar ‘yee 1884 don’t know what his competi- ame EGRET one not be looking at an exit price. Gedelnd Bie ce 1697 tors will look like ten years ——— Buffett explains. from now, I know what the na “Tdon’t want to buy any stock chewing business will look like where if they close the NYSE ten years from now. The Internet is not going to change how we chew gum and nothing much else is going to change how we chew gum. There will be lots of new products. Is Spearmint or Juicy Fruit going to evaporate? It isn’t going to happen. You give me a billion dollars and tell me to go into the chewing gum business and try to make a real dent in Wrigley’s. [can't do it. That is how I think about businesses. I say to myself, give me a billion dollars and how much can I hurt the guy? Give me $10 billion dollars and how much can I tomorrow for five years, I won't be happy owning it. [buy a farm and I don't get a quote on it for five years and am happy if the farm does OK. I buy an apartment house and don’t get a quote on it for five years, Iam happy if the apartment house produces the returns that I expect. People buy a stock and they look at the price next morn- ing and they decide to see if they are doing well or not doing well. It is crazy. They are buying a piece of the business, That is what Graham — ‘the most fundamental part of what he ‘taught me. You are not buying a stock, you are buying part ownership in a business. You will do well if the busi- ness does well, if you didn’t pay a totally silly price, That is what it is all about.” Remember Buffett is not say- ing you bury your head in the sand after you buy a stock, Follow the major news, the big developments, the ups.and- downs, but don't trade in the stocks you bought for the long term. The table lists out Indian companies that have been doing the same thing over and over again for more than 100 years. WLSTOCK MARKETS ARE VOLATILE. YOUR CASH FLOWS NEED NOT BE SO. Introducing Motilal Oswal Equity Hybrid Fund (MOFEH) Steady mix of equity and debt. Steady cash flow for regular needs. In volatile stock markets, you can’t plan regular cash flows _ MOTILAL OSWAL depending on dividend declaration because dividends are subject to surpluses. Further dividends are taxed at 10%. With C A S H MOFEH, while the mix of equity and debt provides growth potential with lower volatility, the Motilal Oswal CashFlow Plan FLOW PLAN offers a regular source of funds from your corpusMARKET COMPASS BITaar er Nifty Energy Index 16.3 2.2 1.9 15.9 Price to earings Price to book Dividend yield (%) Market cap lat ot) wtlyEser Nity Men Top gainers/losers Nifty Energy nas gvenetumssiniarto these om Nity 50 ne years Company name ——-Mecap (er) change) 16000 14000 2000 10000 2000 6000 mugs Mag gS ITT D Price /eamings is 25.8% premium o ts he yearmean of 12.9 2% Relance Indusfes —7,62,708 52.7 a 87328 a7 once: 2oss10 48 Pe 1.30257 Power Gia 97935 Reliance Ine 10940 Tata Power 18568 arc. s1g89 Woe 1,55,000 re. ‘0770 se x a s ‘ ois me wat 5 a a es meee om iso at D Price/book value is at a 29.5% premium to its five-year median of 1.66, Weck 87 16 ea s ie ees 2 as ire Bea : ga ng pit fn ove 130 7 as 24 Reliance industries 209 25, Ca pee a tai oA ee . ‘eae ae ess meee Dividend yield 13 vas points niger tan se yearmedan 183% Weightages (%) a8 — conan 20) Reliance industies 58.0 GAIL 50 uw we Ts Bre i o nes 7 ee a a a a fee aE ie 52 Tales nfa 8 os “——__* tise‘ 14 | Weath insight September 2018. MARKET BIG MOVES: LARGE CAPS |usies Our large-cap universe has 100 large companies, making the top 70 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most ws wildly in the last three months. Peo eamings Net rot cr aM rtums (6) SY aE ROE (3) SY eaings gout (3) __3M ple (2) movment 77 Indiabulls Ventures 172.1 274 mgm tt 0 or 13% 219 \ a Page Industrie merameepamemmnm ANB ys ‘G 23610 = . —_——— emmmemn 380 s 8 ‘Sun Phi itical 9 A Soa = 298 X a 14 Bank of Baroda 1 21 = 2107 magenta eaten! 42-1880 : Shriram Transport Finance 178 1692 826 Tse ited iar 8 2 123 106 Interglobe Aviation 27 1459 sooo TT a3 - minpcnnectmminn 13.) gag of 8-108. Ashok Leyland 207 1821 fenand ter thecompangstnass 71 242 512 ‘The New India Assuran 7 Remmomecrecewemen — D/A hg o rarars Sorter 2018 Weath insight | 15Cs . Bibi) BIG MOVES: MID CAPS Our mid-cap universe has 229 mid-sized companies, making the next 20 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly in the last three months. G mreus (x) "SH evgRae (2) _eamings gow (3) __ 3M pce) enna iermaeeenmnnerronne §— GD tte a Messer tnt MS x 3 ~ tr ns 388 ma ate af $ & Vakrangee 90 526 ett ecsmmecnnums 169 go ie alleged price manipulation by ts promoters. Meemmpomrnimecsnasny 2.3 te iat INGT over cating trees. : ep tn DAT oi a helicopter scam, » 8 Thema taut epinglel arp 24 Re 753 Correction in the stock titi raamarane 339 i, 286 crore fom 2147 crore smn aanuanrewem 331 8 ie crore from €39 crore. flee Dassen hig, 2018 16 | Weath insight September 2018. MARKET BIG MOVES: SMALL CAPS pga Our small-cap universe (minimum market capitalisation 400 crore) has 773 small- cap companies, making the last 10 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly in the last three months. wus (x) "Svea 8) Steaming owen) 3M pe (meet ee sutsansiowen 3977 ih oy Alok Industries - -18216 ~ mecrmprroetninenerecinnerm 1667 45 by /Y Beene nent on 315s = Weil Fe 9 Mma apt 376 he, m es nemwwwmonnarnn ALQ fg iy ™ a Den Networks 31 N SSM gern conn ALB 96 m2 gic xia == ABD Raa iarascuagnae 505 ua 4 Ns seem 5 a 2 sere = 4 i BOL Ona asentige 08 Sorter 2018 Weath insight |17Wan We) TTS The leader vs the rest Everyone wants to be a leader. But what does it take to be one? If you see the companies that are in the leading position in their industries, you will find that it isn’t easy for any company to displace them easily. In the following graphics, we illustrate how many companies it takes in an industry to equate the market cap of the leader. The PAT numbers tell you how their combined profits stand vis-a-vis the leaders’ profits. £ Housing finance esp en aren company teap en 1,34,300 Wore 320238 486 —_—BogerPains——_a,753 44091 ndabul HousingFnance 53,580 — S15 __KansalNewlae 27,059 2012 UOHausingFnance 27,724 208 ‘ao Nabe auto 308, GrhFinance 23,200 50 ShallmarPalns| 2 881 PNB Nousng Finance 20,921 > 4188 Total (thevest) 67,195 08 lots “4377 | 10482 169,561 @ ___ Telecom S ios aan tra 406 __TataCommuricalons 15,886 221 _GocteyPilipslndia 4353 — 2,877 Relanee Communications 5,061 Wood Products Company 563 15681 Allothers 3,99 4 Golden Tobacco 58 21471 Total(terest) 98481 0 NTC nd 39 Totaltherest) 9 fir Public banks Treen coun ean en 249 StateBant india _258,708 — [2107 Bemottavea 37527 — Private banks rey Company weap Re 9785 ‘elBark 25,589, 1994 MDFOBank 562/432 13/500. Paniab National Bank 22,319 Laas2 c 6.355 Kotak Mahinda Bank 237,537 rk 19475 4509 Tetcigank 215,509 58589 Aloe 117,238. 329 ‘ieBark 159.478 249 Total (terest) 222,248 10,685 i therest) 622, 18 | Weath insight September 2018Power generation/ distribution anes ME 03 EE to a 1972 a cd a9 wey a: Mas Ee os ar 88 J mee 1195 1368 3% a2 or 1618 ae MN ees Tose a a T8250 ncvteowioges 39.28 a a T2906 teenManindrs 65,807 B55) skates 125 000- ase IPC Power Grid Comp NPC Tata Power Total (the rest) Cement Ultatech coment ‘Shoe Coment ‘Abuja Cements ‘ce Tota (the vst) Jewellery ‘tan Company Rajesh Expos PClewoler Vaihay Global Renaissance ewalry Total the rest) IT company Tes Ines HCL Teemoloies Wie Tech Mahindra ‘Sicothers al (the vest) Infrastructure ESS weer tomay Manet Meo eh a lanenkoutro 172,409 —| oaoe “77 GiRinasinctre 10,852 8.786 484 —_‘KeCintemationd 7.500 25,83 932 _‘RBinfasovcure 6.585 1ea76 3a nee on 12,808 Me am om Te7__Tetal(therest) 91,08 een Refineries company Mea 15,054 alance ndties 761,52 39.355 Tndan on 154308 24318 Bret e176 29202 : wre wos2e 133 i 282 MRL 13908 I 1037 ‘others mz 43637 Total (theres) 295547 sean et 51888 18798 Pharma as omy eit SunPhama 146,958 227 = m la sian Piramal Eteprses 48888 — OnRedéyslabs 38,861 wae ay 1 tia 38:04 alte vet) 77028 769,524 312827 139,241 125,695 65,407 133,098 776988 2.966 Zoo Entertainment| 1251 SunTVNetWork m2 Din Vinge 42 TViB Broadcast 1331 _‘Total (thereat) 48,030 30959 123125 8,089 sass Sorter 2018 Weath insight | 18MARKET COMPASS Market (non)sense In spite of the fact that market has been hitting new highs every day, investor portfolios have lost value. Here is why. of the market. The market performance in the Jast few months has further added to this, 108 Ny SO equal weighed Actual Nity 60 confusion. As the market itself rose, investor Me: investors have a tough time making sense Comparing the two Niftys portfolios showed little movement, One good reason for“ this is that the components of Nifty 50 are weighted as 190 per the free float; they are not equal weighted. This ‘means that a stock going up will get more weight inthe #8 index automatically, thus taking the entire index - further upwards. We segregated the components of the Nill 60 to check what would have happened if the components of Nifty 50 were equally weighted (sce the tables). Our analysis suggests that if the Nifty 50's 2 components were equally weighted, the market would gg have actually fallen since the budget (February 1). The feo 2018 gs, 2018 ‘upward march of the index is just because of a handful, of stocks. Fortunately, this makes some sense now. WI fonasad 100 Nifty 50 stocks that fell most but have less weights fewms sacs wage “NAyntene ys. ieany seater Meap(Ce) P/E Fab 1 201808) IR NAYSOC) (Seca) (el nee) ieee) Tata Moore ‘ora 76a 88 352 ta 04 “07 2a Non-FerausNetals 83,508 30. 382 a 02 a7 Ey] ‘ude OF 3.058 50 280 05, an 06 2a ‘Aone © Avelinies 76518 zy 224 10 02 oa 22 Retaeos 34.091 89, 208 07 a o4 23 inaian OF Corporation Retneos 160975, 73, 207 08 02 oa) 03 Taastee! on & Stet 69.556 52 174 10 02 23, 02 Brartintater Telecom 5379 a 162 08. on 05, 02 “rari ngusbes Dhersiieg 6.481 28 150 08 aa 23) 02 rr PestiidesRAgochem 32.804 160 168 08, on 05, 02 WindscoTnosios Non: Ferous Metals 29.558 81 139 oF, on 23 22 ‘ani Pores Logstes 745 aS 127 06. on 23 22 Bharti aid Telecom 153,40_1855 123 a on 02, on nee iL Eperaton| 220.08 33. 18 10 on 02, on Heo Maton | ‘Automobiles 85.873 a8 118 an on 02, on ZeeEnertainment Media BEntertaioment—~60.786_~—~=«UAS SCA. oF on “02 on ‘een &Toubre Tease Taue20 a7 108 36 04 “oz 02 ieierBank Banking Zones aaa 1 40. 02 “02 02 Wipe i 12588156 15 07 “aa 24) on ‘oaltnla Ming 174480 2A 35 oy an 4) on pe Power 130402126 34 ia on 24) on tet 2a aa 7 33 20| Wealth insight September 2018Nifty 50 stocks that remained more or less flat Retuns ence wgrage —Nijrtuns ys camoany steor Mezp¢tey P/E _ Fab, 20188) InN SOC) (Hara (emia ws) Ore) wv Heatiare a738 3880 40 08, 002 0.08 0.06 Uyatech coment Constnclondateais 116459 «89.5 34 10 0083 007 008 PowerGid Corporation Power 9965128 2a 10 003 0.05) 0.08 ‘Mansi Suehiinia—_Auombios 27e201 342 20 29 006 2.04) 0.02 HeLTeehnooges 134353150 20 13 008 2.08 om her Motors ‘ome 7940382 20 08 002 “2.08 0.02 IndiabulsHousingFin Finance 58,428 142 06 08 00 001 ‘01 ‘ae Bank Bank 7.53.160, 00 06 21 001 001 0.0 Fe Finance 34808 261 07 72 008 0.0L 008 ‘StateGarkOrinda Banke 275457 : 08 22 002 0.02, 0.00) ‘SonPhamaceuteal Healthcare ian 38 1 008 007 002 ‘aL ay Inds. Gases & Foes 34908 177, 33 oF, 002 007 0.04 De Redes abe Heathere 3720515, a 08 008 0.08 010 Tera 227 01 ‘008007 Nifty 50 stocks where equal weights wouldn’t have made much difference amnion te cancion te Rene snce — ogate —Nyrtens Ny tas moan stout Meaney AYE ab, 2018) _RNYSOC) CHa (eeu el Oseee ) otak Matindra Bank Banking 245982 383 152 43 06 03, 03 indutan Uniever FMCG ‘a795a7 92 a9 28 08 08: 02, insted Bank Banking 120282 «a6 us 23 08 02. 00) Matinda &Matindra Aarts 15378238 152 2 03 03, 20, ‘estan Banking 26S 33 18 or on 00. Tech Manin 1 as 16s 7a 10 a mH a pla Healthcare 54002 «SS 7 07 a 02. on ‘ean Pans ‘Chemicals 736705630 236 1a 03 05 on Than Company Jewlery 06 ead 2s oo a 03, 02 al Finance Fanee Tea _—884 25 13 08 13 m7 Bala Fiver Fnanee 129385 399 09, 03 os 05 Tou 194 38 46 os Nifty 50 stocks that moved Nifty most due to their high weightages Rene sace —wegage —Najrtuns ty us cin secer Mesm(Cey B/E Fab 201808) InN SOCK) (Harun) (emis Dire (8) wore Bank Banning 579188 ate 7 102 oF on 26 Relanceinausties _Refneos PETE? 290 a 2a 06 18 Infos 1 297875 ‘18a 18a 38 Mt 0a oT ie race 367208320 24 35 05 02, 03 ies 75599027 258 49 13 05, 28 Tou a, ot 18 43 Over 35 mH mH Bata inal ablos eon gunk, 2018 Soper 218 Wealth insight | 2Wan We) TTS Institutional moves Here are top five companies across market caps in which mutual funds and foreign institutions have significatly changed their holdings over the last quarter Mutual funds Fils Increase in stake Large cas Diterence Diteerce oy ae Int sete Marte (8) Compre Inty davis wacse (8) Tata to ion & Ste 162187 26 —_nabule Vertes ——_‘ranee ma iat 83 De Reds Laboratories Pharma 138824 AdaniPors Pert 2318033, Bharat Petnan Corp Refionies 7556 20 ~~ BandhanBank Banking 322328 ee Coment G1 4220 iterBobeavation ton 150 12624 Cotte Paine FMCG: 850 18 (cchPrdevtalte_lmuranee 56520 Wdcaps Diteronee oiterece comouy mane ry uns Moris (8) Sampunyrane tnt davte verte (8) naico iio 15498 56 Fatueifesie aston —_Retaling ma 498 ‘hart Fnacialncon NAF 2a 194-80 ‘Faeteathare Heathers m4 45668 RoLaank Banking 164123 44_—(Nohase 7 m2 m8 64 Pe Neda &Eneraionent 132 99 33 Ge Popes at ms 8887 \orshmanTton Texte 17514233 Lakai Nachie ons Tele 520082 Smalicaps Ditereee oie comoan nane ry joys warts (8) Compu rane Instn sunte marta (8) Magra For are 156 40 96 Indiabulls tegrated Ser Miclaneous| ma 4912 Indostar Capital nance NBFC Si 00 91 AaryDngs A Pharma Tang me 03143 Ganesha zcphere Tele T7276 Indstar Capital Finance _NAFC ma 00 ia Fine Organic ndusties Chemicals 400 G4 Gohan gore Tele 70s 129 ‘tides Pama ence Pama Zi 186 45M Feeds Pace ns 00 5 22| Wealth insight September 2018MARKET COMPASS Mutual funds Fils Decrease in stake Large cans biteence Diternce coun nae try oh Maris (6) Campa rane tty smth warts OW Intro aon Aton 5374-21 De RedjeLaboatovies Pharma 72303 aa Power Ga Power 7683 17 BharalPevooun Corp Cade 10198 28 om Chemis a 98 ee Cament 109 728 ean inde GavmAfues 11212210 Tae ion & Stee 156 18527 ‘Container Comoran —_Legstes 95105 10 Grasimindstis Dhersed 292428 Wecans Direence Diterone camo ae try bovis marie (8) conpay rine ny noe vers ore ance wa Wa AT DFC Bank Banking m3 7-48 Dota corp isetaneaus 306737 (Wohas ConunerDuabies 185 196 Aa ent 7 143 18430 TataMotom-OVROrdnary Aulomoties 024038 aptalit Nore 1614427 ‘Fre Commer Trading ii 838 Forts Healer eaiere 20 48 25 Bharat Franclalicion FE 555 50035 Smalicans Diteence Diterence conse Irs ete warts ons rane hy dave vers CH) io ea 0088S Sahumatpers Trading oo ta 182 Skene Ventes Power 41349 Haway Cable &Datacom Telecom 6300-128 inaianTerain Fashions Teale 20328 —-44_——Pleweler dewey 113121 wu Capital Goods 65108 41 Stroh 7 0425 12a ‘ro Geen Miscoaneove A181 40 —_Navaanardayaaya __Heatbeoe 52s 95 Top 10 holdi gs of mutual funds Top 10 holdings of Fils consi ey o_o “on Compara tac eye eon ‘ore ean ankng seeaae the ese Ore anes aan200 729 230028 ‘ecreane hn 23768 282 40608 WOVCBank nk e628 409 21260 ios 7 2o7680 347 25877 Relacelndnien ——_‘Refnefes —7,67458 245408257 ‘Sateen Baring 263008 1192431 TataConutany Series Teese 106 12712 ic Ciguees/Tbaeco 3755777521880 iowe aa7ee9 249 407281 linea —iasmuure «475721 15425901 (iBank Seong __—_—213,706 469400205 Fence uses Refers 79745833 75:73 Wotshahindadook king —=2.AB721 ~~ SBATO ore Fiance-Wouing 2.28200 08 22449 Rank Seking __—_+488785 503 TaADS NaniSuadinda Avtonobles ———2,76795 62 aras9 Te ce RIGS! 418 65688 Hetaannea Bank Sang 2462216916866 WanSumln ——_Atnobien—~2.75795 23765259 Sorter 2018 Weath insight | 23MARKET COMPASS The pledging tracker In the following companies, promoter pledging has shown a marked rise or fall between March and June 2018 parameter. When promoters pledge shares, they keep shares as collateral with a financial institution, such as a bank, to raise money. It's just like mortgaging something for money. Later you pay the loan back and get your thing released. Pledging is not always bad. Many times promoters pledge their stake for sound business reasons and later release their pledged shares, But pledging takes an. ugly turn when the pledged stake is high and the promoter is unable to pay back the dues. This may force the financing institution to sell the pledged stake, which can result in a sudden fall in the stock price. Generally speaking, a high pledged stake also indicates a bad management, Investors should stay away from companies that have high levels of pledging. ‘The first table below mentions companies in which pledging has gone up by 10 per cent or more in the last quarter and the pledged stake is now at least 25 per cent. The second table mentions companies in which pledging has gone down by 10 per cent and the current promoter stake is at least 25 per cent. W. | is an important analytical Increase in pledging cap cent (8)__rentin Pomerat tae rss canon ane Indy (eee) “Tarte War pgngts)_sute(s) mune) Seo FSeae eau nani Papers Paper ise 2~—~OTSOSCSCSC 62 india Real Estate Realy aes 22 ‘Senghi nasties Consinctionwatas 2182 ors ~—wS~CSRASCSTOCMAZSCCT 05 “Shtexinaustis Past Prowcts a6 a5 ~«O =i i ‘SimtexPastesTechnelogy Plasto Products 2a 75 sol 1 iota ina Gi 600 765~«*sSC« SSC 2a Erosintematonal eda Meda ktnertainment i868 ~—=S67~—~«aS4~—=A ~*~‘ 03 ‘ecoteeh Non Feneus Metals io 6392S 13 ‘rans Healers 2e56os aL? ~—~CitSCOSSCiRSSSCSC os BharatRoaa Neon _nfastuctire 1am 387—~OdRSCOTACSASCSCSCOD 10 Setconutometve at etary eae 5488S 2a iat ce 40 ee 15 DBReaty Reaty 7s 4 OAT ~—C«SSCTSSCSSC*S 06 ‘ani anaminsion Power wee a= i Future MarketNetnors Miscellaneous sah 865 wk BBBZ—GOO CO 18 ‘sian Ole Sorieos Ollerton 3682S 8D 2A 24 | Wealth insight September 2018— sy (Goon) Tinie ieTT pete) sos) nom) _2sewe Fem oy imaNedaCopvaion Weds dtaetanmed—al0 35 —~6L0 ast tsa gs 90 Soe rion 3404890300) irtageving capa aoe 20 sigs ess Decrease in pledging — way Gam Twit GET pegeeh saett) mam) 2Siee Ase cay Brus el ton Se Ea Sahara ivoGien eis et oo asada eerste Ses Tord Sie wie a0 9s es e000 Biel Eng nsec aes Sees cong /fogigs 050g 24a? St ine na 30s aged) comer mm YY edcanenBieh eae EE YY iqratiNtsindaCapaigons___2a28 00280 a0 mag iifatienatenl _fubow Potts 28800285 28s ea0 ats iam Be cee tal) Anu was sass eg aa Seana Gronatis _Pieogupic eat 15048282 aa mass Pear Ene Bg Cai Gowes pos 28283285 as) at Prats eR Feta on ee te Sire iia Supra 2141 a7 369 tea een ewig Conpany capa Goods ‘a 4e2 60447 saa Sane Egos estate m9 218 a89 82 zn anced Eg Teco zais__239 498 es age) iene Stns 7 isa wos naan ats as on Rot 10 2OTR, For eplannons of 7 See ara F Sear, se the yen Te lock Secor eet, IPO tracker Here is a list of the initial public offers since May and how they have fared. HDFC AMC was the most notable IPO during this period. otateap Subsiplon laeste te ie Curent change post ty ams canpan rane Rey to Rep) steno ree) song) pestistng(y P/E ircame 363088212800 ~~—*1100 ~~ OG ANTS _—1,739 ama 00 «BO ingostarCapitalFnace 4489 68 4840 ~~—~—«<72~—~2AMay18 600 a2 20~C« SC Varoctngineoing 18052 «36 ~—=«AST2—=«SG7_~—OG UMN —1032 368 S87 230 TENS Coting Co ead OAS 1G GOSS OAD Fine Organicincusties 2539 8.0 —00_—=«78S_—sOZWLIS SAC 268327 Rios 5s00 6724685802727 Sorter 2018 Weath insight | 25Wan We) TTS Promoter in action Here are some companies in which the promoters have raised or reduced their stakes, thus indicating how positive they are about their companies Rise in promoter stake Companies where the eurtent promoter stake I at least 25 percent and has risen by at eat percent inthe previous quarter wep Prone saie(X) eee poner camoan rae ns eer ine ir ees) etn iMreaucare ucational ations 32, 332 237, 595 262, esrostel tees Ton & Stee 1at82 900 452 a8 : ViartRetal Retaling 5:56) 544 127 a3 RT Best Stet togaten Trading 375 350 255) 295 163 ‘Bhushan Steel ron & Soe ane 727 a9 288 267 Bhagora nduses Chemicals 870 on 339 12 72, ehangng Soutions 57 308 7 120 58 Gujarat as Trading 103845, oo 504 105 a inst yd Power 36 a8 Be ea ae ‘ahaa Bank Bank 4735 7a oF 70 28 ‘Shree Renuka Suga Sugar 2378 590 520) 70 Tea uco Bane Bank 7698 208 2 66 35 iDareank Bank 25.86% 260 a0 50 7 DianTvinge Media & Enertainment 12502 364 as 30 a7 Fur Eteses etalng 1697 502 53 48 Sa Ines grated Miscelanesus 458 3 3a a7 rr) ras Home Reta etalng a2, 558 324 a4 388 ‘Mainan Aloe Ferro Manganese Pr 750 708 aa 7) ‘Gandhi Speci abs Casings /Foraings| 536) 733 on aa 03 ‘mera Realy & na ea 78 575 33 42 185 ‘rind Smarspaces ety 570 802 564 38 116 Bata a on Agua 10, 2018 Minivan mart cap eonsierad 8200 re Fall in promoter stake Companies wher the current promoter stake is atleast 25 per cent and has fallen by atleast 3 per cent inthe previous quarter weap Prone sae (X)_—_Oreeaseinpoier 3M amos rane ny ee ine Mar se (0) ren) ‘MG toy See Tron & See 9) 359 oy a0 394 ‘kinases Teste 316 108 288 1321693) ‘ot Consumer Duras or 282 a 172, 50 evlan taboratoies Heatheare oo 360 sur 156 16 United Brower ‘Aeohol as St Ta 156 3a ‘Mangalore Chemicals Chemie 648 340 750) 110 100 sip nasties Wood & Wood Products 1.038 227 2a 107 18a Response nduses| Paste Products 2586 504 394 92 284 Auch Soya ndustos Fea. 300) oo 53 a7 300) ‘Mananagar Gas Gas Tans 3308 565 50 a8 oe iMpnass T 22385 a4 oa 0 ise 26 | Wealth insight September 2018Noneteep Protein (X)_—_—Daewtssin poetry at cee oane easy er inte Marts hoaegs (ea) er (8) MEP ntastctare Insite 1062, ois 9 80. 233. ‘ental Bank Bank 17947 735 a4 78 45 Enamitnasovcire Realy 295) 505 38 76 369) Gotaldas pers Teste 358) 326) 338 7 ALL ‘Simplexinasttures Inasttre 2.405 993 34 70 288 ture ese Fashions Retaling 8.483 535 205, 70 my intbeam Avenues T Ba a9 oF 66 163 ‘Minds Coneraton ‘at ellay 3558 a7 702 35 149 ‘Ganesha Eoepher Tele 755) 28 aa 35. 10 ‘retVentree isclanesue 26 595 350 35 2h ‘beret Reaty Realty 7524 or 25 a 92 oF Feeds PMCS 16 308 352 az 40 ‘esi Properties eaty 15810 77 749 42 i08 aco Non Fenous Weta 15521 552 202 40, 30 ‘avanced Ere Heathare 2.448 or Ts 40, 75 ‘ani ors Logit 75375 223 353 40, 75 Parsnatn Dovel Realty 518 687 705 38. 18 ise Misclaneous 078 284 322 38, 49 oat FCs 266 53 548 35 07 ‘RG Housing Finance Housing 33 582 oo 34 8 Magma Fico NaC: 3995 244 27 33 138 ALR Engineering ‘capital ods 16,198 585 our 32 198 ‘Generic Engng Sock rong 334 503 333 30) 65 Bata a on Agua 10,2018, Mincnur mart cap conser 8200 re Investing | Invest like pros i tit + . ii cy att Learn the craft of investing by t, utes reading about the investment htt styles of world-class money age ttt t managers ret a ut A ath ttt https://shop.valueresearchonline.com/store/ Sorter 2018 Weath insight | 27ANALYSTS we On the edge The following companies may slip into losses if the interest rates in the economy rise or their profits fall hose who have experienced bungee jumping _already on an up move; recently they were raised by T= hati fees ike to bea the verge anther 25 basis polnts) or the operational of falling from a height. Thankful. profits ofthese companies decline, they their feet are tied with an elastic cord so mma auieky show a loss there are often no eases when they The ZScore helps aesess the Qo tal probability of bankruptey of The business equivalent of bungee company, When itis bolow thre, Jumping is soon in tho compas indlates arti situation, As Seon std below They area the verge of inthe table, many of of these Slipping ino losses thanks tothe companies ae below that Crea interest outgo on debt The intrest Whats mere, there ino elastic cord outgo makes a substantial part (more either that can help them avoid severe than 8 per ent of thelr earnings before injuries, What they maybe feling now interest payment and taxes the interest an what thelr investors wil fee eventually fates in the economy rise further (they have been ss anybody's ques Getting interest-ing ‘Company name ‘Sector een . Debt io equity Fame en narest enh ores Tscore anton Nen-Foronieae «2a 3 25 a9 oe tren Miele oo 4 ET] 288 iLaSTanperavornewors ast ia aaa ares O82 atic Gltal represen 2a7e 40 5 eT) ami ‘aa ove Company oer ise 8 asa agar asa 308 Seman ep ope 703 2 ae 505 iota insite Powe wom as toons 023 ames aie 3790 aa 279 a) a0 ae nos tang Lamas 2 maa 2a Hein consonance ET) 708 eo 0a 8 it eee ey aT = CET ot kro kane Power sania tas ieee Sasi eat ae a aa aa Bra ie iagaaa as —~—naon ina ear Srinm ee aa tear 7 uae m2 Cate Oa Een sna sas 20 rm asa am io ay 1005 0a a0 aaa ae na ean as 2 2s 290 demas Spgs Tele asa a oa 170 Benen St Tara ees 6 eras 1 ine nara Dope asst isto oe a7 098 iene i saa sara 36 7S 540 ect Css cst Fors 75 n 74 34a 108 Bata on Agua 43,2018, Minar cut of mart ap G00 rare, Forte explanation ofthe Zr, aea he Kyte he Sock Seana eGo 25 | Wealth insight September 2018ANALYST'S Ne Taxation boost These companies have shown greater profits or lesser losses due to significant tax write-backs 667» this world nothing can be said to be certain, The table below lists companies which have except death and taxes,” said Benjamin received significant tax write backs in the previous United States. He was right. Taxes have not just stayed __cent of their profits before taxes. Because of these tax since then but have also become more pervasive. For _credits, their profits have got a boost or their losses ‘most of us, they mean less money in hand. But there _have significantly reduced. One should take into are some companies for which they have meant more account the impact of the write-backs to form a proper profits or a reduction in losses. picture of their performance. WI When tax is good coun tne see ant cap eh Prono xe) Tarek @e)_Putatertar ea TES) ‘ppg operation Lops 2m 2 224 254 7808 ramalEneres Heaters 5025 1968 2376 540 a5 ‘aya ita Fstion Retain 13725 @ o aie 05 ‘Sate Bankot aa ECE “as ase as ea Banko aharatva 3408 3232 2.120 a2 6 ow se 2 29 20 sa jon, 05 oo 35 36 En ‘hi ines Tacha 2168 a4 20 14 582 Unrea Bank ofa Banking 3516 1492, ase 508 ife nance 2.48 79 272 a5 ‘Noxtngoties Teste 220 Baa “3,070 a0 ‘aur coent Wore Corstuclon Matera 585 30 43 wo Dea Bank Banking 3806 1286 1925 385; ‘omoration Bark Banking 4822 2828 383) Laka Bank Banking Zaz 366 385; ava Bank Banking 3938 Zar a6) Punjab Nationa Bank Banking 72.825, 7282 386 ana Bank Basking 20.138 2321 382 ‘ental Bank Ona Banking 17805, 7876 2.780 363 iDBLBank Banking 25507 12495 4338 a7 Sanghi iscetaneoi | 75 a 2 en idea Cotular Telecom 72955, oa 2a 342 [aan Coment ‘Constucion atrale———_—2.788| 38 a Ha ini Capt Goods 2168 280 3 En ‘eet autoiy of a Trond See 32218 at 245 302 Bank ofa 15868 EC 267 073 299 ‘anabaa Bank asTe $452 1878 4578 204 Alera is 656 w 4 ry 28 ‘aya Poles 3790 20 6 26 28 SyceateBan Banting 5,682 a7 765 aaa 272, indlan Overseas Bank Bahing 787 8.632 2.382 6299 210 Dats 0 onAigust 18, 20LE Marae cap more an FSDD cre Tex PST oer 25H Sorter 2018 Weath insight | 28PV K MOHAN Head - Equity, Principal PNB Asset Management aay ‘Reassessing investment c hypothesis dispassionately ” is crucial’ It didn’t take PV K Mohan much to jump at the job of an analyst. In fact, he didn’t even blink an eye before saying ‘yes’, though he was securely employed with a bank. Over the last two decades, Mohan has mas- tered measured risk-taking, As Head - Equity of Principal PNB Asset Management, he oversees inves tor assets worth over %3,000 crore and manages four-star rated Principal Multi Cap Growth Fund and Principal Tax Savings Fund. In an interview with Kumar Shankar Roy, Mohan talks about his habit of looking beyond the tradition al favourites and his willingness to bet against con- sensus. The skilled fund manager, who expects large caps to do well for quite some time, is howev- er mindful of the chances of sustained rate hikes hereon and their effect on the equity-market sent ment, He also talks about why he is selectively posi- tive on media, infrastructure and realty stocks. What made you enter the world of markets and what made you stay on. ‘What started off as an activity just to kill spare time after my PGDM ~ preparing an industry research project on refractories for a friend of mine - got me extremely interested in equity research. During one meeting, I went to present my report on refractories. I was offered a job as an analyst and without blinking, I chucked my bank job in favour of this job. Tenjoyed what I was doing and 230 | Wealth insight September 2018 just kept at it all these years. ‘Tracking several sectors and meeting so many companies, entrepreneurs, corporate executives made the job more interesting. As I graduated into the fund-management role, I enjoyed — and still enjoy ~the thrill of finding stock ideas which give outsized returns You manage Principal Multi Cap Growth Fund and Principal Tax Savings Fund since September 2010. Eight years is a long time to manage a fund, How have your investment strategy and approach evolved over the years? Im some sense, they have been the same ~ being more bottom-up in portfolio construction, looking for stocks that can grow earnings ahead of the peers and expectations, and availability at attractive relative valuations. What probably has changed is the breadth of coverage ~ the willingness to look beyond thetraditional favourites, bet against consensus, be ahead of the market and tolerate short-term pain and volatility for better returns over a period of time. How do you assess whether a ‘company has widened its moat or not? ‘The key is to look at competitive positioning, sustainability and scalability of the business model in terms of increase in sales. volume, better profitability, better cash flows. Assessing moats requires not just meeting the ‘company but also competitors ~ both listed and unlisted suppliers, distributors, exemployees, etc. This gives a better understanding of why the company could do well on a sustainable basis and of its competitive strengths. How do you decide the best use for ‘cash on a company's balance sheet? ‘Cash is best utilised in the following cases © Reinvestment in the core business if it has good growth prospects and generates good cash flows and return ratios © Diversification into related businesses which complement the existing business and have strong growth prospects, ‘© Enhanced dividend payouts/ buyback What kind of poor capital-allocation decisions by the management scare you? ‘Some poor capital-allocation decisions are as follows © Entry into unrelated businesses Entry into capital-intensive businesses Entry into a business where management has no competence or track record © Entry into a competitive business where the company has no competitive advantage ‘What's your opinion on banks, sectors related to discretionary consumption, industrials and domestic materials? Retail business for banks continues to show good growth, which is likely to continue, though margins may come off slightly: Corporate facing banks are just getting out of asset-quality woes and offer some value in today’s market. ‘We are very positive about discretionary consumption and staples as demand conditions in the urban and rural markets are looking good. Our concerns about the valuation in the sector remain. In the absence of a revival in the capex cycle, we are selectively positive on the industrials sector: In materials, we expect the cement sector to do well. The strong. Sale allocation between debt and equity. ‘As the P/E moves higher, the equity allocation comes down and vice-versa. In pure equity funds, ‘we do not change asset allocation. We manage them as equity funds with a long-term perspective and ‘may sometimes hold some cash tactically ‘You have two decades of experience in ‘equity research and fund management. What was your best performance throughout a complete market cycle? What was responsible for this? ‘While I have been in the equity markets for over two decades, a large part has been spent in the proprietary portfolio/PMS platform, It's been around nine “Assessing moats requires not just meeting the company but also competitors — both listed and unlisted - suppliers, distributors, ex-employees, etc.” volume growth is likely to sustain and should drive better pricing power going ahead. What s your outlook on media, infrastructure and realty stocks? We are selectively positive on these sectors. While ad spends may drive growth, there is the potential digital disruption challenge for the media sector Infrastructure asset owners are stil struggling with balance-sheet concerns. The realty sector is plagued with huge unsold inventory It is thus imperative to be extremely selective in these sectors. you actively manage the portfolio by changing asset allocation, how do you determine what asset classes ate good and bad value propositions? We have an asset.allocation fund that uses a four-quarter trailing P/E of the Nifty to determine the years on the mutual fund side and we had a very pleasing performance in the 2012-2014 period and again 2016-2017 period. My sense is that in stable markets when the market is much ‘more broad-based and willing to reward the stocks based on improving fundamentals, my performance has been good. Conversely, in times of flight to extreme safety or extreme focus on a few stocks, as we saw recently, it has been challenging for me. But broadly over a three-five-year period, which is a good period for fundamentals to play out, the performance has been good. Itis the stock selection and hold- ing with conviction till the invest: ment hypothesis plays out, despite short-term volatility and underper- formance, that really makes the difference. Soptombor 2018 Wealth Insight | 35aay Z \ r “It is quite possible that the outperfor- mance of large caps continues for the next few quarters. Over a three-five -year period, we expect mid/small caps to outperform large caps.” Investing has its ups and down. Did your investment thesis for some ‘companies ever fall? What went wrong? ‘Oh yes, several of them! They were ‘more in the form of missing some great compounding stories despite having looked at them very early. (Of the stocks that I owned but Which failed to perform, there were some PSU banks and some stocks in the construction and power sectors. While the PSU-bank story is well -mnown, stocks in the other two sectors failed due to inability to de-leverage the balance sheet, partly due to policy changes and partly due to management’s inability to respond fast to the changing business conditions. Fortunately, these were small bets and the returns from several other stocks that did well kept the portfolio impact of these underperformers minimal 32 | Wealth Insight September 2018 ‘There are periods when nothing is fundamentally wrong with a quality stock, butt doesn’t move for months or even years. Given that your job as an active fund managers generating alpha, how do you deal with such situations? The first thing is to make sure that the investment hypothesis remains intact. If that remains as anticipated, then just stay put till the market recognises the true value of the stock. Reassessing the hypothesis, and that too very dispassionately is the most crucial thing to do. It also helps if there are other stock ideas in the portfolio that may play out in a relatively shorter time frame or play out at different points of time ‘There is then no undue pressure of short-term underperformance. ‘The RBI has hiked interest rates twice inthe last few months. Equities do not perform well in arising-rate scenario. How do you think this will play out? ‘Our base case is that the policy rates will not go up significantly from hereon. In such a scenario, if the earnings-growth momentum sustains into FY20, we do see the markets responding favourably. Sustained rate hikes hereon ‘would, of course, damage the sentiment of the equity markets but that would be a function of how oil prices behave and how the government manages its deficit. ‘Most importantly, the outcome of the elections would also have a bearing on the short-term outlook for the equity market, With clear categories and definitions, funds have less wiggle-room now. Given that most equity funds are betting on the same set of 300-350 stocks in general, what will drive alpha generation from here? ‘Alpha generation in large-cap funds may get challenging and would be lower going ahead, However, given the flexibility of the large/mid, multi-cap, mid-cap categories, we do expect good stock selection in the mid/small-cap space to drive alpha generation over the longer term, Even after deep correction, mid-cap and small-cap valuations ae relatively rich. Overall will mid caps and small ‘caps continue to underperform large- ‘caps? What can trigger a turnaround? Iis quite possible that the coutperformance of large caps continues for the next few ‘quarters. However, we believe mid. and small-cap stocks with good earnings growth and good track record of execution would see better times going ahead, especially if the quarterly performance trends meet or are ahead of expectations. Over a three-five year period, we expect ‘mid/small caps to outperform large caps. WIINDIA’S MOST WANTED micro capsee Teg jhe Indian micro-cap space is ‘a jungle - unknown promoters selling unknown products, absence of liquidity, no track record to fall back on and high risk. This is a place many investors fear to tread, Micro caps are stocks you do not hear about every day Some of the top stocks in this space today include GSS Infotech, Premier Explosives and Aksharchem. ‘Their market value of less than 3500 crore may appear tiny as ants ‘compared to large companies but ‘micro caps dominate the Indian stock market, A full 75 per cent of alll listed stocks are micro caps. Even though their size, illiquidity and lack of information deter most investors, micro caps have found favour with large investors. Today, FIls and domestic funds have piled onto these stocks, which inspires confidence in them. In this issue of Wealth Insight, we bring to you the favourite micro-cap stocks of Flls and domestic funds. We dig a little deeper and categorise them on ‘quarterly profits of the last one year ~ those with increasing profits, those with steady gains, those turning around and those reporting losses, A little bit of forewarning: the micro-cap space is a dangerous place. We do not recommend you to buy any stock figuring in the following pages. This is not a place for either conservative or new investors to hang around, Experienced investors should remain careful as well. Many fortunes have been wiped out in micro caps. This story brings you up to speed with the top micro caps finding favour with large investors today What are micro caps? Based on our criterion, companies accounting for the bottom 1 per cent of the total market, capitalisation of all listed companies are called micro caps. ‘Their market cap turns out to be around @500 crore or less. Some of the prominent characteristics of micro caps are Micro caps turning into mid caps onary sea ‘Symphony Consumer Durables ‘Avanti Feeds Fuca. RelaxoFootears FMCG Plindusties Chemicals NantaPharma Healthcare Astral PolyTechnik Plastic Products Vint Organics Chorals Te Prestige Consumer Durables V.Guardndusties Capital Goods ul Chemicals Zydus Wellness FMCG 24 | Wealth insight September 2018 pre) 2008) ey 200rRey 124 407805280757 4719 649289735 25 48 9978 572,674 72 70 10789 743603 1136 115 9998 1009 58 1047 160 1254 1800 519 194 184 6137 908 518 6397 1169 7390 132.7 492 209 41 a912 1706 482 2680 619 8541 1836 458 1479-758 5,778 423 346 ‘Asymmetric information : In case of micro caps, transparency and availability of information are uneven, Some insiders or major shareholders can have significant advantage over minority or small retail investors with respect to vital price sensitive information. iquidity/high transaction costs: ‘Micro caps are not very actively traded and tend to have very few public shareholders. They may have wide gaps between the bid and ask prices (prices at which the seller and buyer want to sell or buy) Unproven products: The products and services of micro-cap companies are generally not well- known, with very few customers having any idea about them. rack record: Generally, micro caps do not have a meaningful track record to demonstrate their ability to come out of difficult times, ‘Significant volatility and risk: Micro caps are highly risky and can show significant price movements ina very short span of time. They carry a very high risk-reward ratios. They can quickly turn out to be multi-baggers or wealth destroyers, Price manipulation: Many micro caps also have corporate-governance issues. They could be operator- driven. Their price movements may not be backed by the business fundamentals. Promising micro caps If micro caps are really so risky, then why invest in them at all? Why some investors want toee TG allocate a part of their portfolios to Institutions’ favourites: The third table rioro caps is because they have lists top 10 micro caps in which ‘immense potential and room to ‘mutual nds and foreign WZ grow Just imagine a micro cap institutions have significant stakes. becoming asmall cap, then mid cap Mostwanted mier caps: These are and finally large cap. Naturally the micro caps in which mutual funds \wealthreation potential of micro _and foreign institutions have caps is immense raised their stakes by more than 1 This story has four tables, The _per cent (of equity) over the last first two tell you how micro caps one year. Incoming up with this _—_years ago are still miero caps, ic can both be wealth creators and final list, we have considered only their market caps haven't moved destroyers. The next two list some actively traded stocks - those that mich, Out of the total listed promising micro caps on which traded on 99 per cent of the trading universe of micro caps, there were institutions are betting. Note that days in the last six months. 410 companies whose market caps the micro caps discussed in this remained almost same or fell over story are not our recommenda Micro caps remaining micro 10 years, Surely, these companies tions. But they can act as the uni- Our analysis revealed that many would have failed to create wealth verse of micro caps on which you companies that were micro cap 10 if you had invested in them. WI can research further, Micro caps that turned into mid caps: ‘Amicro cap turning into amidcap Getting bigger only to shrink again is quite some achievement. The met hae first table ists companies that coro Secor eh eet ‘were micro cap 10 years ago but Thoobeurat a pee hhave since become mid caps. This shows the strength of businesses Hari Apparels Miscellaneous 44st 4 of these companies. For instance, ‘Symphony had gone bankrupt in lobl capital Markets France 5 3 5 2001 due to excessive diversification. In 2009, the ‘SRK Industries Teatile 7 1568 5 company regained its focus to ve fi become the world’s largest air epesey Corparation nance 7 aut 5 cooler company. Its market cap ‘commer eemnology 1 8 417 swelled from mere €28 crore to more than 27,500 crore Goenka Diamond &Jewels Diamond & Jewelry sms 8 Micro caps that tured bigger but then again became micro caps: The “init Tadetink Tracing Boom 8 second table mentions companies that fell back to the micro-cap Ka Exerptes ‘Actes ® 388 ° status from mid. and small-cap aaa aan Do 8 status, For example, Lycos Internet grew larger due to its Global ofshoe Services ——_Logstes 43 136039 search-engine business but later lost its edge to Google. ‘Shalimar Productions Media & Entertainment 48 954 48 Sundaram Mult Pap Paper Cr , ‘Lycos Internet v 195 1,698 167 z ‘$V Global Mill Miscellaneous 223 554 204 Feo FilendlyFood Processing, Agicutue 390102375 Channel Nine Entertainment Media &Entertainment —-391.«=« 979384 Daas on Ae, 2018, Same fee cmpare dre ay adhere mat aps ae rat addy Soptombor 2018 Wealth Insight | 35ee Teg Mutual funds’ favourite micro caps sae ove te coms seo ‘ees Moar” oterenin "een Soa’ oem) Ear en Premier Explosives Chemicals BCBS 50 1990 Ado Welding Capital Goods 420 7 nT 9B OS. 17 245.0 Pennar Engineered Capital Goods a1 848198872 Rajeatan Global Wire Iron & Stee 3578 78 94 08 68 ‘Asharchem (nia) Chemicals ar td 63 6802622877 Zuar Global Trading 328 61 28 Oh 2at0.0 SarlaPerformance fibres Textile. see 88 58 at oa 288 Saker Electrons Blectcals 23127 51 “a 0s 732728 Vardhman Special Steals ron & Stel 4751 50 448838883 ‘Arnant Superstuctures Realty 2866 50 M2023 a7 a6 Fils’ favourite micro caps sae WSN san “Ros eto coms seat fey No” een "ee Stree) eran Winsome Testi Industies Textile 7 381A 28 18 281765 Intemational Conveyors Capital Goods 11 7 TO os 1496 AlseeTeehnoogios mi toto 308 oo 3332078 xa Tadex Trading 202-268 269542 01 39743 AshapuraMinachor Mining 4530 AA 239 0A 45H 472 65 Infotech 7 1540233387 02 68 105 Visa Seo! Iron & Stel 136 2200208840 - 1934 Ponn Sugars (Erode) sugar wos 1228 00 13 229 Aarey Drugs & Pharmaceuticals Trading 1 45 St 02 95 803 New eth Television Media ma 4220 492 26 | Wealth insight September 2018ee TG The average market cap ofthe top 10 micro-cap holdings of mutual funds is€352 crore. ll these companies are profitable, This shows that Indian ‘mutual funds are risk averse and when it comes to betting on micro caps, they keto go with those that have an established record, wa=]omwRSGSCSCRSSSCTSS OT sos 50 osm mes otto atate mea tsa tse tar The average market cap ofthe top 10 mico-cap holdings of Fls is 2205 core. Many ofthese are curently loss making. This shows that Fs are willing to take on higher isk for beter eturs when it comes to betting on micro caps; they don't hesitate beting on prospective tumarounds.. SHORE) ABELL, Lh, AEH coon tee rooe SEIT Sa neo UE ws ~«s0~CtaRSa) ae SCASSCSCSSCSCS OR mr met tka a t08 7 mano mama took tm tts st sone nea tata aos at ots Soptombor 2018 Wealth Insight | 37ee Teg India’s most wanted micro caps ‘ia ake Mae ltah pu ew (MEA) poeiele Gases: eatin campsny seat eer Moy bse Wires ety noes) esa en Increasing profits in the last four quarters nmblndusties Plastle Products me 12,200 208k tT BC Beavings Beatngs 49027 133,04 at 93 urs Teehrafa Engineering Infrastructure 950 BT 288 Ketton Tec Solutions 4a 5215 88s Monarch Networth Capital Stock Broking mm 3208128 5a RadhaMadhav Corporation Packaging m7 2200 S485 tS 85 Constant profits in the last four quarters Aatacton chen wort aes mtr rami Eh chen ata 2a ta site 1 ss ao sakes Artninctins ay me ots teats petana coninctonawish 40248 280k t ats tt rascPoucs 28858812 Roplorsidoe gay as 448k ase kta Varn ses fon Sta sr st may 02 sna on cate se eens cori wien ee Shipucoléteney ——sNen-FouMes 28208 aaes faves Pama Tg seo att 8s mak Sainte cae war eas sas Meat von te ee Tumioas Peeps Pevochekal wr 28 00st Govaaoypat = aiePmincs, tz aaa aaa alts spt brvees Does S058 tuittamaceial Wate 444740 0m Pad ns cree m3 oak wnt 26 | Wealth insight September 2018ee TG ‘The companies highlighted in green have been bought by the institutions forthe frst ime in one y US ABRRRS GOSh GE coer coen sen ORGIES SURES neg mmo 82 Mosh 2 aa tS 62 Fa OT) asi us k kk eat kata ms aA sas ts masa m2 eek =n as ate aeons Ss7 88mg a8 ma 0 kok ate FC eT) mask maka hae veo somata as sts amo a 0k Oksana ws asks ake s 0 FT eT oma ost mete sess olka oma mts amt 2k moms att so uaa ase msgs wa oes ozs team tatss sia mom ky 2808288 is 7 soo 5657 dk dsm 7 was 83 skate tas 20 Ee TS wa ss 557k 20S thw ES Se] mek mA 88am ae Soptombor 2018 Wealth Insight | 38Mew WEST pusnein ehseliast beso — tm we FGM ati eo reo tent Rasndngneing oA aos oe tka then as sis er ee ee ee SanvtPtamacten———Haiene 32 09 08st Losses in two quarters out of the last four omens tee toot kts tostinda vey Coa Preto us Sige Ting we aso a eas 0k atts WSs Batic as | fina ety 0080s 0a Aokacechon Tadng Bn Prospective tumarounds: Loss in three quarters but profit in most recent quarter Gokaldas Exports. Textile: 385 ALT 145 48.4 197 20.6 130.9 Eectatemdnds) ton te i 4500s tao atone eases vere ms 1800 as nek ans AatitgaeebaCaman) | Boe 23 ook oak Losses in all four quarters Panyam Cements & Mineral nd. Cement 7 4000 aa 465 -1853.7 13.7 ‘AZZ nf Engineering Infrastructure 390-98 00229 495-239-3720 Kinetic Engineering ‘Ato Ancilary oo 103 1800-217 Palred Technologies 15 184 ‘SELManufacturing Company Texte 6 150 090 56 785310923868 Detaasonaupst7, 2018 40| Wealth insight September 2018COVER STORY rg 226" tang 26 3¥slee SFR Say (Gen recpaitenpeatnCs) gow Peco Feo "Gite on to) mn i 2 i A 3 3 z 280.8 47 g é 12 540 08 18 253 925 32 240 E 126 22 1217 509 664.9 50 os 273 2 E 158 04 476 15.4 m3 a 128 St 11S 03-157 266 § S “184 27 z S 8 & $ 366.2 75 1223-283 128 285 & 7085-874 § 15 10-47-70 9400 23913 © 305 : 3 08 8 124 223 0000-383 24.9itz When technical analysis fails Tracking the collective ego can be more rewarding than following technical analysis SANJEEV PANDIYA The more sophisticated among us would understand the ego as the id (the sel), but there are layers to that. There is a subconscious 1d and @ Conscious a (Qhe selfawareness that humans are uniquely known to have). This sel'image is very complex and hence very fragile It is what sends a flim star into depression when a film fails or prompts an oldtimer corporate employee to die quickly after he retires or is fired. It builds up over time, is reinforced by repeated validation (as in the case of film stars) and gives you the crutch on which you live. It is ‘why billionaires Commit sulcide when they are faced with sudden losses. Like the shattering of lacs howace, it takes evwey tore than just heir iveihood: it takes away their identity It doesn't really matter whether a Vijay Mallya ora Nirav Mod! is actualy there are technical how the The reason why analysts is that they do not know of the ego in culture, religions and markets is useful because the individual is also a player within this (collective) ego, Let's evaluate this further. Human behaviour evolves and markets are sometimes called ‘history in motion’ ‘Technical analysis often tries to deduce ‘rules’ from this evolution, sometimes with disastrous results. The reason why there are no rich technical analysts is that they do not know how the interaction of their own ‘actions creates a feedback loop that leads to their own demise. For example, ‘once it is well-known that a stock is at a strong support, we know that such support level is mostly violated before the stock turns. For example, look back at the stock-price chart of Tata Steel over the last few months, You will find that the stock bounced a few times from 540, which became the no rich sent to jail; their life is already finished. teraction of accepted ‘strong support level’. And But going back to the evolution of the their own actions then two top commentators came on the collective ego in agglomerations of | creates a top TV channels and touted the stock as. people, it is possible to observe the | po acK | the pick of the decade. Result: All the building up of the collective ego thread by | feedback loop immature viewers got onto the stock thread, The more complex the inter- relationships in an organisation, the more complex the (organisational) ego. At the highest level of complexity (the inter-connected human brain), itdevelops self-awareness, ‘The more order a system has, the more it will need to protect itself, especially the underlying order, This is seen in complex organisations or even marketplaces. It is perhaps easy to make the point that a highly ordered human brain would have a complex, self aware ego, or even that organisations have an instinct of self- preservation. But an awareness of the operation 42 Wealth insight September 2018 that leads to their own demise (especially after the Thyssenkrupp announcement). This was sold into by someone who seemingly did not agree with the recent prognosis given out by the two market wizards. The stock was handed over to ‘fools’, who by their very action had increased the very risk that they were seeking to avoid. Net result: With no apparent trigger, the stock dropped 12 per cent, to 490. The ‘fools’ capitulated and the strong hands moved back in. Come the quarterly results and the stock moved back to 580, its starting point, all in about a month,itz ‘The casualty in this short example was the technical analyst and his believers. The only way to understand this is through the much softer rules of behavioural evolution. It is a big, wide subject that uses a lot of psychology, one small chapter of which is this idea of the collective ego. Ego is defined as the (irrational) desire to maintain homeostasis. ‘Irrational’ because evolution does not care about the individual; it secks to perpetuate evolution (which, in turn, is defined as the adaptation of the organism/organisation to the environment). Just as an organisation develops an ego because the complex interrelationships inside the organisation seek perpetuity, a market develops an ego, which seeks to perpetuate the complex inter-relationships within and with itself Tracking this collective ego is a far more accurate way to track markets than to follow the rules of technical analysis. Egos develop, they are fed, they bloat and then they crack. Very similar to the boom-bust cycles in markets, think of both bullishness/bearishness as egotism of a very visible, measurable sort, Like individual egos, Mr Market has his ego. And like any ego, it starts by reminding him of the boundary between him and his environment but then builds up and creates the vested interest inhomeostasis. Eventually, as with individuals, it takes over the very objective of his existence till it cracks and kills him, The point is that these forces are much more linear and predictable than we can imagine. If you build a pictorial ‘imagination that is able to track the build-up of collective ego, it will give you a much clearer understanding of market momentum than technical analysis, One of the biggest examples of irrelevant correlations is the famous ‘Dow Jones tracking the size of women’s hemlines over 100 years’. This has been explained by Robert Prechter, the Dow theory guru, who believes that it is possible to track the ‘social ‘mood’ through the collective unconscious, which is mostly reflected in the (collective) ego. We know that the collective ego is more powerful than the individual ego and mostly even subjugates it. In the same market, why is the loss-¢making (and no-hope) Balrampur Chini at 12 times book value, while the seriously profitable and now-confident Tata Steel is also at 12 times book value. The former has an Just like almost all commercial activity is focused on marketing to ego, all market participants should be seeking to sell into the market's ego, rather than joining it overhangof lastyear’s once in-a-blue moon profitability, while the latter has the overhang of the ‘China bust’ ‘These are measurable egos. It’s possible to quantify the excess of the valuation premium that Balrampur has over what it should be (by looking at its valuation when it was reporting similar-quality numbers earlier in its history), just as it is possible to project the valuation premium that Tata Steel will command as it spends ‘more time mid cycle. So if markets were ‘efficient’, would such a thing exist? That's about as logical as expecting human beings to be ‘rational’ rather than ‘egotistical’, and that's my point. Markets are egotistical and seek homeostasis. Just like almost all commercial activity is focused on marketing to the individual ego and appeal to the limbic brain, all traders and market participants should be secking to sell into the market's ego, rather than joining it. How much should you be paying for a loss: making sugar company that has no idea when the sugar demand-supply balance will tilt? Compare this with how much ‘you should be paying for a profit making steel company that is clearly the last man standing in a bankrupt sector that, is still not officially out of the woods. ‘And if there is a difference between the ‘two, why is Mr Market offering you a free lunch? So far, we've talked about what ego is, not what it does. In pursuit of self: perpetuation, the market pays a cost, which can be your profit. Why is the entire aviation valued at 30 per cent less, the consolidator and the consolidated? Indigo, with a billion dollars in cash, is down 30 per cent, while Air India and Jet Airways, both have a billion dollars in current losses. If the market is a forecasting ‘machine, what is it forecasting? But if it is a reacting machine, then one can explain this current situation, In such cases, it's easy to do the maths. Between the reaction and the forecast, you don’t even need numbers if you know the direction very clearly. What it should be doing versus what it is actually doing is a result of the selfperpetuation motive of the (sector) momentum. And it is possible that this will continue to bloat till it cracks. Betting on these cracks is a lot more profitable than betting on some pseudo-scientific support-resistance levels that have no basis other than to say ‘if enough people think it will happen, it will (happen)’. WL ‘The author teaches, ades and wiles at spanaiya blogspot.com Soptombor 2018 Wealth Insight | 43The rise of ESG investing Investing practices based on environmental, social and governance issues are fast gaining ground a \NAND TANDON Launched in 2006, the UN Principles for Responsible Investment (PRI area voluntary set of investment principles that offer a menu of possible actions for incorporating environmental, social and governance (ESG) issues into investment practice, The principles were developed at the initiative of UN Secretary General Kofi Annan, who invited some of the largest institutional investors to develop these principles. A group of 20 persons from 12 countries, supported by an expert group of 70, made up the drafting team The PRI 1,800 Growing interest ‘The PRI has over 1,800 signatories including 1,184 investment managers (as of end-Apr 2017), from over 50 countries, representing over $70.66 trillion of AUM (ee the graphic). Socially responsible investment (SRD) funds have reached @ inclu signatories, investment managers, from ‘with 613 public firms between 1999 and 2009 offers, thus far, the most convincing empirical results that successful ESG engagement leads to cumulative size- adjusted abnormal returns over the years following the initial engagement. A more recent analysis can be found at (https://tinyurl.com/yéd8minz). The process of how this value is created is less understood. A study by UNEP Finance Initiative identified three ‘engagement dynamics’ that can create value, These are identified as follows: Communicative dynamics: Allowing interactions between investors and internal ESG information and reporting practices of companies Leaming dynamics: ‘Acting rather than being acted upon’ - testing out of ESG policies, identifying better metrics, targets and key result areas Political dynamics: Enhanced interactions has over g 1,184 significant share of overall investment | over 50 between the investor relation department, markets in Europe (about 50 per cent) sustainability department and board and Canada (about 40 per cent), with countries, members, along with external investors other countries like the US and Australia representing Investors too benefit through better also catching up. over $70.66 understanding of company processes, Given that ESG issues manifest over the longer term, it is natural that debt investors, too, worry about sustainability. Fixed-income investors are almost as big as listed equity investors (both about $30 trillion) in considering ESG issues while investing. How does ESG create value? ‘Academic studies have shown that interaction between investors and companies on BSG goals helps in creating long-term value for investors, An analysis by Dimson, Karaka and Lis (2015) of 2,152 engagement exercises 4 | Wealth insight September 2018 trillion of AUM ESG-evaluation processes, and collaboration between financial and ESG analysts, Recent studies have documented ‘that ESG information is associated with numerous economically meaningful effects, Specifically, ESG disclosures are associated with lower capital constraints (Cheng, Ioannou and Serafeim, 2014) and lower cost of capital (Dhaliwal, Li, Tsang and Yang, 2011), What do investors use ESG information for? Astudy by Prof Amir Amel-Zadeh and George Serafeim published in the Financial Analysts Journal (Vol. 74, 3)Sel aT Growth in responsible investments mm Total asets uncer management mm Assetawners' assets under management umber of signatories — umber of asset owners eats ander manage US lo) a ee ee ee) Source: htpe//ammeuopior/ reports on a global survey of investment organisations to find out what these organisations use ESG data for ‘The result: “Relevance to investment performance is the most frequent motivation, followed by client demand, product strategy, and then, ethical considerations, An important impediment to the use of ESG information is the lack of reporting standards.” The study also reports that investors found “negative screening,” ic., the exclusion of certain sectors or companies from a portfolio purely on the basis of ESG criteria to be least beneficial. Sixty- fone per cent of survey respondents believed that “full integration’ (explicitly including ESG parameters into financial models, cost of capital and earnings forecasts) had a moderate or significant positive impact on financial returns, while 53 per cent believed that “direct, engagement” (exercise of shareholder power through corporate engagement or proxy voting) with companies had a beneficial impact. A key issue in using ESG data was determining what ‘was material to investment performance. This tended to vary across industry, country and even company. Khan et al. (2016) showed that the vast majority of ESG data did not affect investment performance. Hence, understanding what is material is of prime importance, between investors investors Academic studies have shown that teraction companies on ESG goals helps in creating long- term value for a0 200 150 1250 actos and at comes 00 zon 204208 —2ONG 272k ESG rankings ‘There are several rating agencies which collate data and provide ratings for investors to rank companies on ESG parameters, Unfortunately, unlike credit: rating companies where the ratings tend to cluster around similar levels, ESG ratings are often all over the place. A study using MSCI rankings vs Fortune ‘magazine's “Best 100 Firms’ showed a correlation of only 14 per cent. There are issues of _ standardisation, transparency, data delays, bias, etc, all of which result in divergent rankings Over time, these issues will get resolved as reporting standards are better defined and technological advances allow verification from other collaborative sources. That said, it is unlikely, perhaps also not desirable, that there should be only one interpretation, After all, financial data is reported in a standardised form yet leads to different conclusions in the hand of investors of various hues. Despite all the drawbacks, the increasing use of ESG inputs in investments is a trend that will only strengthen. Investors will need to take these into account when looking at long-term investing. WI Fane Tandon an indopendart anabat and Soptombor 2018 Wealth Insight | 45TAKING STOCK ‘Here is what you should do. Analysts are increasingly getting into uncharted territories and advising companies on how to run their businesses. This is unwelcome. MALINI BHUPTA There is no winning against the ‘noise’ in the market, especially when analysts behave like bloodthirsty gladiators. Not surprising then that ‘esia's Elon Musk is keon to take his eompany private. Quarterly teporting of Mnancials surely increases transparency for investor, but over time It has made companies focus on meeting or beating the markets Shortterm expectations. Analysts tend to arrive at earnings estimates of companies and when companies deviate from these estimates, all hell breaks loose ‘The noise has become so loud even in the US that President Donald Trump has asked the Securities and Exchange Commission to study the merit in companies reporting financials every sik Tmonths instead of every quarter. Over the last couple of decades, the numberof listed companies inthe United States has come down and the Wall Street Journal recently reported, “The rise of private markets where companies are free from quarterly reporting is already reshaping the makeup of public markets" Warren Bulfet, boss of Berkshire Hathaway, and Jamie Dimon, CKO of JP Morgan, have called for an end to quarterly earnings guidance by listed companies to end Short-term swings ‘The story in India is no different. At the start of the earnings season this fiscal, Bajaj Ato faced the wrath of analysts after the company announced its results, ‘The Baja story in some sense embodies the dichotomy that markt pose before promoters af] matiagementa The Bajaj Auto story is interesting simply because the company was criticheod a fow yoors aps for aicking to 46 | Wealth insight September 2018 Warren Buffett, boss of Berkshire Hathaway, and Jamie Dimon, CEO of JP Morgan, have called for an end to quarterly earn- ings guidance by listed companies to end short-term swings high-margin products and its refusal to chase growth in the commuter-bike segment, where rival Hero ruled, So chatter in the market was hard to comprehend when the company reported motorcycle volume growth of 40 per cent year-on-year and 80 per cent growth in three-wheelers in the June quarter of the current fiscal, And it has aggressively priced one entry-level bike, which helped it increase market share, too. The company’s shares fell sharply the day after its results, as analysts decided that an intense telecom-like ‘price war’ had broken out. This assumption was based on the change in Bajaj Auto's product mix coupled with operating margins coming in below the 20 per cent mark (18.4 per cent in June 2018). Such was the panic that Rajiv Bajaj, ‘Managing Director of Bajaj Auto, had to give a detailed interview where he explained that the company was not facing ‘unusual margin pressures’ and ‘the company was seeing growth in all segments. Interestingly, in 2014, Antique Stock Broking in a report said, “Though one might debate Bajaj Auto has lost share to peers in volume terms, not value terms, it is time it focused on growth and regained volume share through new brands and unique products with mass appeal and value proposition, rather than debating and defending the existing topic.” Now that Bajaj Auto has a product very attractively priced in the commuter-bike segment, the market is worrying about margin decline, which in the latest quarter was also impacted by rising input costs, A few years ago, Infosys under the stewardship of D ShibulalTAKING STOCK was badgered by the market to chase growth even if it ‘meant sacrificing margins. This is a dangerous trend to say the least as analysts seemingly want companies to be run on their whims. History is replete with examples of entrepreneurs following their vision despite the opposition from the market, which is how it should be. In 2007, Kumar ‘Mangalam Birla’s Hindalco made a bid for Novelis. At that time, the market was very skeptical as Novelis was thrice the size of Hindalco (net worth was 9,500 crore at the end of March 2009). In FY18, Novelis contributed 56 per cent of the group's operating profit. A decade later, Hindalco has made another acquisition (Aleris), in 2018, making it the largest aluminium company in the world It is not for nothing that equity capital is referred to as risk capital because it is supposed to bet on an awe entrepreneur and his ability to take risks to grow the business, Back in 2007, Kumar Birla stuck to his decision ‘on Novelis despite stiff opposition from the market. Analysts don't just stop at arriving at quarterly estimates that they expect companies to meet, Some of them also end up giving advice on operational issues. For instance, some analysts have been advising Parag ‘Milk Foods to cut back on its umbrella of brands and consolidate all value-added dairy products under a single brand. If analysts had their way, they would have Go Cheese and Go Ghee sitting on the same shelf or, even better, Gowardhan Cheese alongside Gowardhan Ghee. Not surprising then that entrepreneurs like Jack ‘Ma, founder of Alibaba, believes that shareholders come third in his list of priorities — it is customers first and employees second. WL ‘The author the ear of Value Resoareh Siook Ravear The key to riches Get access to timeless investment wisdom and know how to & Prosper avoid the common follies of investing hittps://shop.valueresearchoniine.com/store/ Sorter 2018 Weath insight | 470 an equity analyst An equity analyst reveals what matters and what doesn’t in equity researchVikas Vardhan Lessee tometer conan so investor belive hat anljts ant experts tracing toes pend copious hour analysing ts, on thebasiot which ny arrive at nancial motels Astermin he ste avhich compants should grow 1 Ai sounds to complex foreainary people fo tderstand, Assumption sucha these ae rhe pervs by numerous busines channel leh five inordinate amounts of air tine to thes exper Fartsaary daring the earings season, And when Compants alto mee the arts etites the fmatagement hast spr ine and eerey erlang ie staegy and evn snes Is tock pking as comple ast is made out to be? At Yate Research Stock ison we blieve tha oc picking kway simpler As analyte work on Simple des We wor ith snple assumptions Sometimes we even walk around the office and nibble on snacks ve ealjeng socks! And we dn have a restore have many miseoneepions about oy research Iwas becuse of them tat we cecil to put out our principles o tock pking fr average Investors and eados And nthe process we wl be Dusting afew myths around ‘researc Confession: The investible universe is very small as compared to the total listed stocks At present, there are ‘more than 4,000 stocks listed on the Bombay Stock Exchange. So picking a few winners may appear to be a Herculean task, but it needn't be. The actual investible universe is, quite small and it is easy to cut it down to just a few hundred companies. If you devise a simple approach to investment, then you can further narrow Stock Advisor it down to a handful of stocks. For example, out of ‘over 4,000 stocks listed on the stock exchange, only 2,500 stocks are traded on any given day. Less than 1,500 companies have been traded daily in the past six months. Thus, actively traded scrips are down to half simply because of liquidity. ‘The second most important filter is profitability. ‘The best way to gauge a company’s profitability is, return on equity (RoE). There are only 450 companies ‘that have generated RoKSs of more than 12 per cent in. the last three years. If we look at scale, then there are Just 350 companies that have a market cap of more ‘than %500 crore. By applying these simple filters, you can cut the investible pool to 350 companies, which is less than 10 per cent of the listed universe in India. Confession: There are dozens of investmentrationales but the most compelling ideas are built on just a few Having done the initial sifting, we get down to applying investment rationale to the few companies that are left to select the better ones, Pick any research report @ @® | tomsensiae (brokerage) firms and you will find that the investment rationale given is difficult to understand. Investment rationale can be based on variables ranging from macro situation to favourable government policies to reversal of a cycle to debt restructuring, among many others. Taking an investment call based on so many variables is like betting on several horses at the same time, However, compelling ideas are built on solid financials. The fewer the variables, the higher the conviction, For example, a company can be recommended because it is great at doing something which nobody else can do, ‘The case is stronger if valuations are right. It can be as simple as that. Good investment opportunities come from others’ ignorance. Good investment prospects are not created overnight. They are in the making for a long time and are available in the market, provided you know what you are looking for. Soptombor 2018 Wealth Insight | «9Sols In the short term, a stock’s movement is pegged to dozens of factors like market sentiment, interest rates, economic scenario, etc. In the long term, a stock’s movement is pegged to just one thing - profitability. Confession: We are no expert at running businesses Analysts are often given the status of ‘demigods’. In reality, they are simply numbers experts. ‘Managements, on the other hand, take years to master their businesses. An analyst covering multiple sectors and companies can never Know the business the way an entrepreneur does. In reality, as analysts, we do not know how to efficiently manufacture a product at the lowest cost. Nor do we know the market dynamics fully. Similarly, estimating the future earnings of a company right to ‘two decimal points is more like crystal-ball gazing, which is seemingly made easy through spreadsheets. We, at Value Research Stock Advisor, have an understanding of the business model and we take effort to understand how the business makes money and how it spends it. We develop the skill to identify which management or business has been doing this smartly and will continue to do so in future. As analysts, our job is to be good stock pickers but we don’t claim to be masters of running businesses. Confession: We like it when markets behave irrationally as that creates opportunities We all know that markets ? are not perfect. And itis ‘opportunities! Good investment opportunities come from others’ ignorance. this anomaly that creates ‘opportunities for smart Good investment prospects are not created overnight. investors. If everyone is investing in fundamentally good ‘companies and at reasonable prices at all 50 | Wealth insight September 2018 ‘They are in the making for a long time and are available in the market, provided you know what you are looking for and identify them in time. Let me take a real life example. While working on PSU companies in 2013, I came across NBCC (National Building Construction Company). It was a debt-free company with a sound business model. It had cash in hand and advances from customers of %1,650 crore. Its order book was more than %12,000 crore. All this was available at a market cap of just €1,700 crore, It was a case of an irrational pricing. Since then, the stock has proved to be a 10-bagger, If all the investors would have acted rationally, then ‘we would have never spotted such a multi-bagger Confession: We do not know where the market is headed in the short term ‘One of the biggest expectations from analysts is that they know where the market or stocks prices will go in the short term. The most frequently asked question is “Kya lagta hai? Nifty kitna jayega?” ‘As you may have observed, many stock research reports come with 12 month price targets. But the fact is that analysts do not know where the market is headed in the short term. The shorter the time, the higher the uncertainty. In the short term, a stock's movement is pegged to dozens of factors like general market sentiment, interest rates, economic scenario, government policies, inflation and liquidity, among others. All these are difficult to predict. In the long term, a stock's movement is pegged to just one thing - profitability: Thus, comprehending results to get a better understanding is relatively easier. What really matters is how much conviction the analyst has in the Jong-term potential of the company. WIee cre YU NETH Subscribe No) Insights into Indian mutual funds BUY A NEW SUBSCRIPTION RENEW EXISTING SUBSCRIPTION DIGITAL+ DIGITAL+ DIGITAL PRINT DIGITAL PRINT 3monins for%270 — []_ 3 months for €382 1 1 year for 2936 1 1 year for €1,404 Save 40% Save 15% Save 48% Save 22% 1 year for 1,026 CO 1 year for 1,494 (C1 3years for 22,484 =] 3 years for 3,540 Save 43% Save 17% Save 54% Save 35% Delivery by courier Deter by courier Start my subscription from Name (Mrs) Adress Pin Code State Phone Email Cheque Number Date Bank & Branch Pade Valve Research nda Pt Lid, New hy GO ONLINE CALL WHATSAPP MAIL ‘wwvalueresearchonne.com 0120-4153529 +91-9866891890 €-108, Sector 65, +94-9868891890 Noida - 201301 rmfi@valueresearch inSubscribe =a Now Insights into the Indian stock market and companies BUY A NEW SUBSCRIPTION RENEW EXISTING SUBSCRIPTION DIGITAL+ DIGITAL+ DIGITAL PRINT DIGITAL PRINT 1 3months for %300 © []_3 months for 2356 1 1 year for 2975 C1 year for 4,320 Save 20% Save 5% Save 35% Save 12% 1 ‘tyearforet050 1 year for€1,395 1 Syearsfor2,250 —]_3years for 83,375 Save 30% Save 7% Save 50% Save 25% Deter by courier Delivery by courier Start my subscription from Name (MriMrsitts) Address Pin Code Sto Phone E-nall Cheque Number Date Bank & Branch Payal o Vale Research india Pt Lid, Now Dei © © @ GO ONLINE CALL WHATSAPP MAIL wiw.valueresearchanline.com 0120-4159529 +91-9868891830 108, Sector 65, +91-9868891830, Noida - 201301 wi@valueresearchinOur scorecard ver the years, we have analysed and recommended several O= Thetis below chowsonrprtrmance ine Daly 2011. Yes, we have a few failures, but we also have many successful picks. A portfolio comprising the stocks below has delivered an IRR of 23.71 per cent, including dividends, assum- ing one had invested £10,000 in each of the stocks at the time of the recommendation, In all one would have invested £10,10,000. The current value comes to #34 42,363 (including divi dends) on August 21, 2018, whereas investing the same amount in the Nifty 50 would have generated #21,86,374 (including divi dends), yielding 14.15 per cent. WE STOCK ANALYST’S| ce felles Performance Total returns* since July 2011 23.1% 14.1% Stock Analyst's Choice Nifty 50 Index “As on August 21, 2018 Recanmendaton ate rere pacoty “mesa tale per anna) wit @ Asian Paints| 295 144i 47,805 255 = Bosch e917 18860 71286 160 : Castrol India 1m 161 13140 65 1 Colgate-Palmative 458 1149 25076 15.6 : ceisit 683, 1.801 36020 163 7 ‘Cummins India 481 135 88 1 Exide Industries 149 204 19,659 1.0 ! mre 23 313 25379 162 a Larsen &Toubro 730 1319 18085 99 1 Nestle India 3.888 10850 27905 165 . NMDe 258 108 4070 13 ' Pidlite Industries 159 1.153, 72346 329 = Titan Company 9 913 35,880 216 : tugs @ Lupin 461 869 18809 103 1 Opto Circuits 213 13 617 321 = Sepit_g Bank of Baroda 182 152 9999 os \ ‘castro ndia wr 161 12626 60 1 Power Grid Corporation 103 187 18,168 1d t Rural Electrification 87 112 12,956 10.6 t Tata Coffee 10 110 15589 15 1 Torrent Power 2 242 11,446 34 1 Zee Entertainment Ent. 3 509 ania. 23.4 7 oetat @ cMce 58 2032 23ers 25.7 Graphite India 18 4,035 1.33522 426 = Zylog Systems 197 1 6 06 Retus for less then ove yar ae abso Teal rehams nude dvigend ame, Reus es on August 2, 2078 Tansactonal fae rot akan la aosunt “CWC morgd wih TCS wah ofc rom Saplabe 28,2015, scutes the ast radod price Get fresh recommendations Value Research Stock Advisor www, valueresearchstoc! com Soptombor 2018 Wealth Insight | 53STOCK ANALYST'S CHOICE Recommmnded curt ue of 10K Aecemendatin dt poet _prcet)_—_—_ meg ‘tatu (par an Novt1 ® Godrej Consumer Products 198 1,386 69,860, 33.8 = ‘Tata Consultancy Services 543, 2011 37,015, 23.9 a Transformers & Reaifers 20 a 10761 12 I Dec-t1 Gujarat State Petronet 92 190 20,602 12.2 i Noida Tol Bridge Fa $ 11056 35 1 ‘Tata Motors: 180 a4 16,631, 74 Jant2 GAIL 218 82 17496 108 1 9 atin espace 2s mms ! MRF 6889 7ai00 408638 434 = Mar-12 Bajaj Finance 83 2,839 380,511 TAL = Gabriel india 2 18 63207 346 = Opto Circuits a 13 595, 35.0 i_| ter Shriram Tanspor Finance ei 1388 m1 15.0 r ‘TIK Prestige 2647 6,100 23,046 14.6 . May2 Bataindia 8 19% 24330 157 1 SP ckemiumeredene 2779 tess) a ‘war Engines 385 1782 ‘ 32.6 = Jun-12 ‘Ajanta Pharma 15 1,200 159,200 575 = Elecon Engineering 53 69 12,920 61 1 Kirloskar Pneumatic 470 si 18,533 12.3 a: Map2 Hero Motocorp 2082 air 15530 112 1 ‘Supreme Industries. 237 1,198 50,640 33.2 i | VST Industes 1.685 aaet 18535 135 1 Sep2 Amara Raja Batteries 195 a7 44,985 29.5 = Redington India 1 90 12,624 64 1 Oct-12 O Lupin 567 869 15,317 84 ! MindTee m 1081 083 381 = Solar Industries 197 1198 60,913 36.7 = Wor2 @ Grndwell Norton 10 sat ‘088 293 = PIT Technologies n0 21 24281 14 Mcleod Russel 206 1% 203 125 Dee2 @ City Union Bank a 165 09 296 Petronet LNG 73 m8 23,130 218 Wockrart 1687 oan 3887 147 Feb13 Q Balkshna industies M5 1350-93000 498 EC Intemational oi 07 e188 335 Torent Pharmaceuticals x65 B61 48.81 35.6 Mar43 Emami 205 st nan. 24 Gruh Finance a x seat 39.6 Returns for ls han one year are absolie, Tota tus incudeddend income, Rekans as on Augut 21, 2018, Transactonal fees rataken ine account Get fresh recommendations Value Research Stock Advisor www,valueresearchstocks.com 54 | Wealth Insight September 2018STOCK ANALYSTS} colo (aa Recommended Curent ‘al af 04 Recommendation ate ee mrce) invested @)—_—_—Ttaletum (pera) ‘Apri @ Berger Paints India ry 336 48,887 34.9 = Innoventive Industies* 103 4 407 28 May-13 Kaveri Seed Company 252 615 24437 189 J Navneet Education 8 126 22,033 19.2 a \-Guard Industies 38 216 2343 a7 = ‘hugs Calm india” 296 285 9650 29 1 Indraprastha Gas 62 285 46,058 36.4 = Nesco 146 502 34359 28.2 = NovAs Bajaj Comp 231 a 17,587 163 1 HL Technologies 581 4,003 aan 145 : Dec-13 @ Voltas 89 613 68,584 514 = Tait O Jekbak i im Tata Consultancy Services 1107 2011 18,172 16.41 1 Mar44 Cummins india 433, 735 16,986 158 1: ‘Swaraj Engines: 622 1,792 28,831 317 = Ayrld_Q AIA Engineering 560 4,784 31,8617 313 = Godrej Consumer Products 382 1,385, 36,264 34.7 = May4 Rallis india 167 191 11,436 48 I I Tan omy rr ee | Jun4 Q Finolex Cables 164 so 36024 36.1 = Bcc 20 74 37,323 319 = ‘Aug-ld Gateway Distriparks 22 184 7.968 22 1 @mpc 154 116 7821, 47 1 V-Guard Industies a7 216 46,034 46.0 = ‘Sept4 @ Finolex industries 237 67 20,782 223 : Hindustan Media Ventures 155 166 10,706 25 Oct14 Mahindra Holidays & Resorts 199 261 13,101 87 ' Tata Coffee 93 110 1174 5.7 Lo Nova @ Infosys 966 1379 14,268 123 1 Tata Motors 482 24 5935 “13.7 1 Jan-t8 Apollo Tyres: 208 264 12,715 8.0 ! wai @ alas a mts ae | t Voltas 256 613, 2914 29.2 = AprAS Astral Poly Technik ag 4,37 25304 312 = VST Tillers Tractors 1,380, 2,165, 15,690 15.7 ' May15 Just Dial 1253 569 4540 209 - Shriram Transport Finance 1,099 1335 12,140 69 t PORTFOLIO TOTAL 33,07,082 23.7 "Slapped wading ance Jun 7a "Slapped ding ence Apr 17 Rela ols han ane yaar are abso. Tol eure dude vend core. Ratu aon ‘gust 2%, 2078, Tansactonal fos ot akon ito account Gel fresh recommendations Value Research Stock Advisor www,valueresearchstocks.com Soptombor 2018 Wealth Insight | 55STOCK SCREEN Ideas to delve deeper ound investment methods outlast cycles and fads and generate profits over the long run. ‘Value Research presents stock screens based on. time-tested principles. ‘What are stock screens? These are alistingof attractive stocks based on the objective principles of sound investment, We apply stock filters carefully crafted by Value Research analysts on the universe of Indian stocks to identify these attractive stocks. The filters are devised to identify stocks of the following kinds: + Quality stocks available cheap Attractive blue chips Stocks available at a steep discount to book value High dividend-yield stocks Growth stocks available at reasonable prices We believe that stocks listed in this section are a good starting point to start a close scrutiny before adding them to your portfolio. Key terms Universe companies n cde to ane a our universe of companies, we checked ifthe companies vaded onal the doy forthe lst vo quae. We consceed ‘he companies wih a mate! captasaon of more than 8400 coe Price to book value (P/B) Price to book ale the rato of he pce ofa stock to the book vale per shar ofthe compan. shows how uch pen imestos are wing to py forte undering nel asses of he company. Price to earnings (P/E) The prce io earnings rat, ote P/E ato, is simply ‘he ra of he pie of 2 sok ts earings er shark shows n mui how ‘much investors ae sing pay forthe earings The ut ue ofaling a tock Is that a igh own stock wi hae a high 9 at, whe a vale stock wil have 2 rately lover ®/E rato Earnings per share (EPS) Earns per share, o EFS, scalelatd by ding ‘he companys net prot with he total nunber of eutstanding shares. EPS growth Grovty ofthe EPS ove species tin ptiog- tring 12 monte (TT), a quarter or fe yeas. Quran comparsons a ona yearn yea basis Fore years, the fques are annualised, Price-earnings to growth (PEG) This ato deronsats how high a pice we are paying forte growth tat we ae purchasing, ste rabo of pr to earings tthe FPS gonth ofthe stock inal ow analyses, we ve taken fue year hte BS gow, Earnings ylld Earnings before interest and tates (EB) chided by enernive Jalue. Enorrise value fs manat cap adced to total debt and less cash and tauivalens. Dividend per share Tl civsendceiares during ve ear vied by the oa umber of eutsansing shares, Net sales. Tis is simply the income that a company cevves by seling the goods and sences hall produces. The downs of taking sales aan, Indletr of gown stat may not be matches bya sila sertalatng bo tomine (net profit) peforrance. A company maybe caring rvenue at 2 high fale Butts doing so by incring avery hig cost te bot ne may ot pow in proportion tothe gon inthe top ine (sles). Interest-caverage ratio (ICR) This indicator Is generally usee to gauge Iwhetrer a company ns the aby to sence its Get The mest overage ro Is calculate a5 tera of operating profit to intrest tg. A compary wih an 56 | Wealth Insight September 2018 However, please note that recommendations. Each stock screen explains the reason behind picking the stock, which over time will help you develop your own investing rules, As we will be evolving such models and implementing changes to the methodology to be in line with economic and market eycles, the list will be dynamic and updated periodically. In the following pages of ‘Stock Screen’, we present five categories that collectively list a number of stocks. With these, you will be well-equipped to select, stocks to build your own portfolio after doing further research. If you think that stock picking is a lot of hard work, you can get started with these screens and with time understand the way the ideas are shaping to make your own judgement on stock selection. Great investments are not easy to find, but practice, patience and sound principles are all that you need, they are not our IR of more than two implies that can sanise more then twee its curent rors charges. Debt-equity rat The des:-oauty ra is calclated as the rato of wal ou stansing borowings fhe compan tits tal equ capital Ressntialy ts us Which companies use excessive leverage to aeteve growth, Comenionaly, the Gebt equity ato of ss than oi considered safe Return on equity (RoE) This is measured by taking profit ater tax as a perce age net worn ofthe company Kindates how ecient the company has been able to use Investor” mone. ‘Stack return Stock et is clelate by taking the percentage chang inthe Dice of te stock adjusted for bonus op Dividend yield This dened a he percentage of hedgers pa percha to the curent mart pc of the stock Since the denominator nis tof the mask pie a sto’ dvdend ald changes evry day Dividend-payout ratio Ths is the total divides pa to the sateoldes a8 petootage of re prot. ‘Altman Z-Score Oeieloped by Edvard Aman of New ork Univers te Z Score prets a company’s financial sess ofthe possiblity of ging bankupty Iwthin to years A Z-Sore of more than the desde, Modified C-Score I isthe probably of tancial manipulations. none develop, we have modes ares Monier C-Seare. A C-Sare fees han our sdesiabie Plotroskl F-Seare Dereopedby Joseph Patosk, the FScoe highlight ance pevlrmance as compared to that inthe preous Year Rhus pants eutto the curentovperormer Growth Value i tars of pretty and nancial improvement a ‘nF Score of senor above goad ‘Steck style it indcates the she of the served fom 8 combination ofthe stk va Mid ‘ion gonth orvalua and ts market eapta "ton ~ lag, milan sal For eral, on the sight we have shown te stock syle ofa largecap Bow stack Large SmalSTOCK SCREEN Reasonably priced growth stocks Growth investing is about picking companies that are fast growing their bottom lines. But make sure that the valuations are not overheated. REASONS TO INVEST 1 Allweather syle = Companies with strong fundamentals 1 Greater stability vis-a-vis THE FILTERS = Market cap greater than 400 or 1 Eamings growth of: + Atleast 20% in the past ve + Atleast 20% in the taling 12 months Yo" 4 Atleast 20% in latest quarter vor 1 Stocks with a P/E of less Value or growth years than 15 On fast track — Se MR ne TN NS ON "eS te Anaiha Petrochemicals ae 94 = 0.08 4,952.1 1,262.2 512 674 79 8427 Asian tar Company = «13 167 059-310-795 37.1 1,393 870 1614-680 Bala Holdings & Inv "103 78 054 322 334 31 33594 3,007 3248-2501 Balal Amines s 143 105 044 486 515 326 1,775 548 782-308 Bhagenia Industion = «126 540.15 163.7 24.37.2658 300 365-254 ciara lee a 95 368 0.17 4310 511.0 1021 741 1,317 1790-964 euecate = «146 13.50.38 3,459.2 1,786.2 40.2 401 134 135-39 BL Kashyap & Sons = 128 «568 (032 1239-3478 35371334 72-29 Garb Homes a 14.1 20.2 0.36 = 454.9 54.3 34.2 4,352 326 590-308 Centrum Capital 59 632006 3863.1 742.3 1335 2,163 52 67-50 cheane’ Pevoleum Com a 44 53 019 365.9 745 27.0 4,538 304 481-262 Cit Technologies = 140 220 027 7648 1181 555 1,079 393 492-204 Sorter 2018 Weath insight | 57STOCK SCREEN stock sy mason Qusretye>S TIMES STEPS Metetcp Stare S2ask company we PE PEG gow) gown) gems) (Cc) pret) _ tion) rae a M43 238 016 4789. 4430 988 799 B71 1128448 DLF . Contucion 85 42.0 0.18 = 56.1 7024 59.4 38,327 215 274-158 sou Sons 2898 OTA 342-273 8B AATS 65843 Galant eta = 88 «17 043-1755 1204 34245355 03:33 Sea tarbon mL 1210.26 29.6 2856 © 306 © 726 795 1215-266 saphena BH 117 186 0.19 2,759.9 1,227.7 84.8 20,350 1,042 1127-242 Cwamaltales& Chem 67 TA 029 924 964 234 4,197 570 935-405 Gajarat Ambuja Exports M16 7.6 «(067 «215.0 91.6 24.7 © 2,502 220 310-110 GularatNamadaValey mm 79 8.10.25 «1788 «69.1 35.6 6,354 409 549-265 ae esing B89 11.0 0.10 9,237.6 6,416.0 108.3 16,516 4,132 4542-465 India Ghoats = 105-00 062 411,.0 1935 26.7 1,382 449 621-160 5 7 Indiabulls Housing Fin 134 123 0.38 29.6.» 32.6 33.9 85,165 1,296 1440-1081 ikPaper 113 103 017 50.0 35.6 1455 3,347 189 191-92 es . . {SW Steel 104 175 0.15 276.4 2339 67.4 82,560 342 351-228 Kellton Tech Solutions 60 122 0.07 327 308 649 444 46 85:37 Technolgy Ke (122 104 016 525 1945 B61 912 2,8744000-1196 Lincoln Pharmaceuticals 113° 117 036 2273 944 50.9 517-258 290-150 Maharashire Senmioas 125 17.0 0.70 1694 64.6 309 3,275 485 552.384 jaa 7 Meghmani Organics M18 123 O14 938 987 934 2,379 94 129-68 ras 56 | Wealth Insight September 2018stock usrety EPS TTHEPS sr ers STOCK SCREEN Masetesp Share Sesh — sie PE PEG goweth) gowns) _gown(h) eat pce) _ gow VaionslAuminlumco 73° 139025 432.8 1869 829 13820 72 9857 NR Agarwal Industries = 85 = 79009356 © 66.3 954 846501 600-250 Orient Paper & Industies 139-276 O3T 126.2 96.3 349-832 39—175.25 femnarindusties = «78 «133 043228 941 Mt 551 4679-41 Cues araton 87 340009 789.8 282.8 734 1,606 508 602-406 Prakash Industries ge 47 68 O17 169.6 2543 321 2,284 140 276-100 Rain Industies = 67 87 025 946 1584 39.6 7,322 218 475-133 Rane (Madras) nm 143 254060 346.9 137.1 362 754 648 1050-457 Renaissance ewellay 9.2 1 OAT)=— 364483 25.7 GOT 322 412-167 Sadhanaluochem 428-38 006 35720 32668 715 678 18 791-53 Sandur Manganese nm 83 94 034 1824 1028 277 1,464 1,331 1470-751 SamariaConsimer 874027728 180346996. 13 BT Satia Industies T1555 010782 GTA 449549538 «549-77 Fes . Stovec Industies a M4 191 046 = 283 319 509 S17 2,4759875.2211 Engineering Sunfaglon &Steelco 4 Lt 0009 594 99.2 72.7 1,208 67 10050 Tse Power Company m 48 25 006 3791 240.0 77.1 18920 70 10267 Tata Steel * 50 0.0 0.14 91.5 10,370.8 32.1 72,175 599 756-493 Technocraft industies () = 106 96 140 45.2 38.8 34.7 1,227 504 620-388 Priumalai Chemicals a 4 99 048-27 1265 546 1,679 164 244-117 Sorter 2018 Weath insight | 52STOCK SCREEN se vnaen Cuaray E25 TEES SYEPS atasay Ste 2a congay se eo gow is) gous) gowns) eth pene) en) enmeeal Cables 32 1220.24 AL 82.5 452 690 198 210-101 voor anSpesalseels 448 1800.19 2336 42.1 70.0469 132 195-113 MexcoastPaperMils 90 140.14 56516 267.3 2,284 347 374.173 ecg a 134 225 043 3544 1813 42.6 892 913 960-450 Data as on August 20,2078, EPS growth als are annualeed Median PIE i fries than ve years # five-year data are nol avalable, Now enlans Quality stocks available cheap The stocks listed below clear essential checks on solvency, accounting, recent financial performance and valuations REASONS TO INVEST 1m Safety = Soundness 1 Good performance THE FILTERS 1 Market cap greater than %400 cr = Z-Score greater than 2.99 = C-Score less 1 PEG less th 3s than 4 an 1 /€to median P/E less than 1m Reasonable valuations = F-Score greater than orequal == 1.5 120 to7 Eamings yield greater than 5% 4 Banking and france companies wore removed fram tis analysis asthe metrics don apply to them. * Safe bets Presper ct rn anetnnmn cn] Siok Nan Pook edie Exrgs Mah SoS campary ie_ZSan Foes Come yout) PE —PEG_—ciu_arw®)_tahow cnecna 2 53) 9 1 51 301 070 505437 569. 380 nse tena 72-90 63 DOME 1,633 139 204-59 faetcoonmis 8B B38 1231.60.88 733. 1,285. 1860- 1200 paeeuae tna) 19 BART 1260831881 221 27T- 195 GramsglEngePovmers 79 9-2-2500 2.240 135——225- 78 Bharat Seats 49 9 1 84 176 0.45545 172,274. 112 omcbie 7 60 | Wealth insight September 2018STOCK SCREEN Sod Anan Poo edd Exarge Vaiat SS company ‘tle__ZSore Fine Some youth) PE PEG—cae_—_owi®) aon) Beata Chemicals = 63 8 2 128 111 O11 1,503 123 190-110 Cigniti Technologies Seite 2 48 8 2 T4140 027 1,079 393 492-204 DCM Shriram 39°09 2 143 92 051 6016 376 628-237 Oversed 7 ceamgialomisoewe 63 82 BT IBA 0.192.603 451 592-403 Flasexindla = 33) 8 2 88 178 0.26 1,169 5558-26 Goa Carton = 50 8 3 135 131 0.26 726-795. 1215-266 Eneray GP Petyoleums 56 8 2 70 27.00.91. 4360 «85 97-67 Energy Graphite India 17 8 = «2137 109 20,350 1,042 1127- 242 Engng Grauer & Weil (india) 77 8 1 89 178 «6076 §=61,203 53 86-42 Chania tes 17-8 = 3 168) 89 (O10 16,516 4,132 4542. 465 Engiatng bimadsiSpecialyChem mm 54 9 3 76 204 020 5502 131 197-82 Enery Insecticides (naa) 43° 8 1 92 161 084 1407 680 964. 642 Chemica Intemational Paper APPM 40 9 1 94 178 033 1850 464 503-277 es Jubilant Life Sciences = 30 8 1 80 167 041 11,628 731 1039-600 Helncare Kelton Tech Solutions 59-8 «615 604 G85. 37 Teernioay . Maithan Alloys a 73 8 1 26 60 O11 1,802 621 1026- 446 Mots Manali Petrochemicals 5493 166 | 102039 700 186-3 Chania : Meghmani Organics 45 9 2 152 118 014 2379 94 129-68 Chania . National Aluminium Com 420-8 D173 0.25 1382072, BT Weta Soper 2018 Wealth insight |STOCK SCREEN NR Agarwal industes 2 34 9 1 134 86 0.09 846501 600- 250 WRB Bearings 2 36 8 1 80 165 085712177 198-118 rips Carbon Black . 8 8 1 82 159 039 -4,432« «257-319-121 Quick Heal Technologies. 428 8 1 108 194 0.22 1,866 265 404-174 Tecmology . Rico Auto industiies 37 8 07H 195 ONT 1528511 65 Avometie . Sanur Mangan 82 9 1 236 83 034 1164 1,331 1470-751 els . Sharda Motor Industies 54 8 1 111 146 065 1,175 1,988 3140-1743 tombe 5 Shemaroo Enertainment 132 8 2 94 177 090 1324 480 595-331 ences : See Pusha Chemicals 85 8 3 93 182 050 623 202 «337-172 rics = Sta Cement 478 1 TA 149 093 4679 112 152- 102 Suntec Reaty m 41 8 2 56 283 031 6992 478 490-249 Suen Life Sciences 99 8 3 93 176 067 2951 232 251-158 alia . ata Metals 5 40 8 0 122 100 0.25 1,601 632 976-605 ve M35 8 2 88 153 066 31,493 619 856-537 Wadlalindusties 32. 8 2 93 182 069 423-589 1173-587 Ic . Varahman Textles = 38° «9 0 117 110 027 6520 1,137 1560-1130 Wenig (india) 61 9 1 89 185 0.23 4,051 2,877 4725-1787 Fa . Zee eam : 43 8 2 81 206 076 1,198 37 51-31 Data as on August 20, 2018, Ne enlrants 62 | Wealth Insight September 2018Attractive blue chips Investing in blue chips at reasonable valuations is one of the simplest methods of wealth creation with limited pain REASONS TO INVEST = Liquidity 1 Large companies in respective businesses 1 Strong balance sheets 1 Liked by institutions Solid foundation Stock THE FILTERS 1 Large and mid caps 1 Debt-equity ratio of less than two 1 Interest coverage ratio should be more than ‘two '= Average ROE should not have fallen more than 20 per cent in any year 1» Annualised earings growth of more than 20% over the past five years 1 PEG of less than 1.5, 1 Five-year average return on equity above 20% Debteiy nrest —S¥avp—«SYEPS. Market ap STOCK SCREEN Shae NX company hit PE PEG oops ROECH) gent) Repo) _—_tow® Aart Industies m 332 13 11 45 220 315 11,374 1,389 1445-821 Aurobindo Pharma "64 04 04 42.7 310 216 38,604 660 809-527 Avant Feeds m 161 02 00 1477 487 715 6213 457 980-390 linda Industries m= 325 05 04 126 204 587 10810 412 459-253 suuetan Fasteners m= 360 11 05 158 209 431 13,804 651 684-381 Tea bsi m= 339 06 00 4565 391 553 8834 1,420 1491-792 Data as on Aust 72018, EPS growth ates are annualised, New enrants, For real-time, customisable stock screens, subscribe to Value Research Stock Advisor Wwww.valueresearchstocks.com Sorter 2018 Weath insight | 63STOCK SCREEN High dividend-yield stocks Good dividends are not just a bonus in addition to stock returns, they also accumulate to become sizeable in the long run REASONS TO INVEST THE FILTERS 1 Cushion against volatility 1 Matketcap greater than 1 Stocks with sustained per ‘= Higher total return 400 cr share dividend and amount m Generate regular tax-free = Dividend payout ratio of less ‘iver the past five years income than 40% s Stocks with acurentdvidend yield of more than 3% Dear dividend sick vind viendo shu Seok coment ‘hie PE EO. partre@) yl) poy sree) Seon BSE = (162 02 360 48 270 747 1039-726 General insurance Cop EI 16.3 M7 38 348 58,772 334 450-325 Financial - ~ ” . ~ " * eunda = 82 12 45 58 352 98 11862 78 119-69 i = 12.7 -3.2 48 3.2 36.8 68 1,30,691 159 188-150 wee Colum Corporation 97 O01 70 70 101 158 1,606 508 602-406 cals ' Fre india 79 04 «30 «47 (214 482,498 85 130-68, ey . rg amet BK 82 BATE 185 REC = 48 12 97 85 302 112 22,307 113 184-89 Financ Ucal Fuel Systems ‘Automobie i - 50 45 335 127 489 221 339-180 Data as on August 20,2018. New envais. £4 | Wealth insight September 2018STOCK SCREEN Discount to book value Stocks available at a discount to their book value indicate bargain and inherent value, provided the business fundamentals are sound REASONS TO INVEST 1 Really cheap 1 Relatively undervalued = Companies with assets 1, of consanie THE FILTERS = Market cap greater than '= Companies must have a five 400 or year eamings growth of more = Debt-equity ratio of less than ‘than 10% 1.5 times 1 Price at east 10 per cent = Return on net worth of more below the book value than 109% in the most recent year Bargain hunt eck Dried Deeny Mato\cap Shares company he PPE PEG yallfn)——min—ROE(M) (Celta) OW) Gosme Films am (015 72 (006 «25 13 108472243 415-189 Dhampur Sugar Mils nm «(056 «48 (005° «34 1415957987 381-72 Eros Intemational Mecia mn 050 48 (050-00 «03 134 1,144 120-260-104 Hindustan Mea Ventures (090 88 121 07 OL 148 1,204 169 278-154 Hy Media 052 49 046 O7 05 112 1,324 57 118-53 . Incian Metals = (O10 75 (028 = AT OT 164 863321799287 Kuantum Papers = «085 81 O21 «04 05114603691 1082-470 meine = 089 82 115 58 10 154 11862 78 119-69 Prakash Industries 0.79 47 0.17 0.0 03 145 2,284 140 276-100 Overied 7 Stikalahasthi Fipes = «(087 81 007 27 06 «186 © 1.035221 449-187 Data as on August 20, 2078. Now onan Sorter 2018 Weath insight | 65Me Ne Ne From being counted among the Fragile Five... India has become the destination for multi-trillion-dollar d for ‘reform, investments. Today India is discuss perform and transform’... We are poised for record economic growth... the sleeping elephant has woken up and has started to run. Narendra Modi Prime Minise in his n 12 Day speech We have had eight very difficult years, often very painful years, where we have had three successive programmes. But now Greece can finally turn the page ina crisis that has lasted too long. The worst is over. Pierre Moscovici European Commissioner for Econo and Financial Ai, Financial Eros, August 21, 2018 Lots of shareholders have lost money. L feel guilty and Augus 10,2018 com, August 15, 2018 Before you ask me again next year to make scooters, can you please ask Siddhartha Lal to make scooters? If he makes scooters... I will also make scooters. Rajiv Baja, MD, Ba Auto, Mint, August 16,2018 embarrassed. of the automobile and Naresh Goyal . 1 ‘Chairman, Jot Aisways, construction sectors. The Financial Exprss, demand for steel was projected to grow by 5-6% but it has been 8%. TV Narendran CEO, Tat Stee, Lent. verybody is responsible, be it the bankers, industry or borrowers, government and, without inviting contempt of the court, even the judiciary has played a role in this (NPA is) situation. Rajnish Kumar, Chaiman, SB Min, August 21, 2018 The current demand for steel is more than expected, buoyed by robust performance £6 | Wealth insight September 2018MIRAE ASSET Mutual Fund Prudent investing Relaxed investor Mirae Asset Hybrid Equity Fund (Aggressive Hybrid Fund - An open-ended hybrid scheme investing predominantly in equity and equity related instruments) RISKOMETER got Mates ig Mirae Asset Hybrid Equity Fund is suitable for investors who are seeking* ros Te % ‘+ Capital appreciation along with current income over long term ‘* Aggressive hybrid fund investing predominantly in equites & equity related 3 instruments with balance exposure to debt & money market instruments, * my “Investors should consult thelr financial advisers if they are not clear about the sunabiny ofthe product Investors understand that their principal ‘willbe at Moderately High Risk Mutual Fund investments are subject to market risks, read all scheme related documents carefully. a Internet ante your franca | ©) /MiveassetnFRANKLIN TEMPLETON INVESTMENTS. 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