Wealth-insight - Apr 2020.pdf

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April 2020

28

Volume XIII, Number 10

COVER STORY

EDITORIAL POLICY

The goal of Wealth Insight, as with all publications from Value Research, is not just limited to generating profitable ideas for its readers; but to also help them in generating a few of their own. We aim to bring independent, unbiased and meticulously- researched stories that will help you in taking better-informed investment decisions, encouraging you to indulge in a bit of research on your own as well. All our stories are backed by quantitative data. To this, we add rigorous qualitative research obtained by speaking to a wide variety of stakeholders. We firmly stick to our belief of fundamental research and value-oriented approach as the best way to earn wealth in the stock market. Equally important to us is our unwaveringly focus on long term planning. Simplicity is the hallmark of our style. Our writing style is simple and so is the presentation of ideas, but that should not be construed to mean that we over-simplify. Read, learn and earn – and let’s grow and evolve as we undertake this voyage together.

Viral investing How to use the pandemic to set your investments up for future gains

Editor Dhirendra Kumar Senior Associate Editor Vibhu Vats Copyediting Debjani Chattopadhyay, Rachael Rajan

10

Research & Analysis Danish Khanna, Rajan Gulati and Yash Rohra

Buffett’s latest annual letter

Why Prashant Jain likes PSUs

The most insightful excerpts

Prashant Jain, ED & CIO, HDFC AMC, reveals his thinking behind loading up on PSU stocks in his funds.

Design Mukul Ojha Production Hira Lal Data source for stocks AceEquity

WORDS WORTH WISDOM

32

IN FOCUS

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Subscription: 0120-4201008 / 4571008 09868891830 / 9560200520 Total pages 64, including cover

4 Wealth Insight April 2020

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Columns

7

34

INTERVIEW

EDIT

by

DHIRENDRA KUMAR

The rules have not changed

In spite of whatever may have been happening in the markets currently, by sticking to the basics, one can do well

37 STRAIGHT TALK

by ANAND TANDON Stock markets – what’s next? After the recent crash in the market, investors are asking how soon it will recover and where they should invest. Here is some help.

40 EVERYDAY ECONOMICS

by PUJA MEHRA All things viral

The rapid spread of the coronavirus has scared people. The need is to arrest fear and deal with the problem rationally.

42 MAINSTREET

by SAURABH MUKHERJEA In India, quality trumps ‘cheap’ valuations

Low valuations, including those of small caps, often don’t translate into good returns

44 OFFBEAT

by SANJEEV PANDIYA The dart-throwing monkey

Why you should do your own guessing

‘In financial services, being a tortoise is sometimes a blessing’ SONAM UDASI

Senior Fund Manager, Tata Mutual Fund

8

INSIGHT

The thoughtful investor

14

MONTHLY AGENDA

The most bearish and bullish phases

18

MARKET COMPASS

Index Watch Big Moves

22

VIS-A-VIS

Bearings barons

23

ANALYST’S DIARY

How the market may fare Building trust Desi vs videshi

26

STOCK STORY

Oh, no! How Yes Bank turned from a growth machine to a wealth destroyer

48

STOCK SCREEN

Quality stocks available cheap Reasonably priced growth stocks Discount to book value High dividend-yield stocks Attractive blue chips

62

WORDS WORTH NOW

',6&/$,0(5 The contents of Wealth Insight published by Value Research India Private Limited (the ‘Magazine’) are not intended to serve as professional advice or guidance and the Magazine takes no responsibility or liability, express or implied, whatsoever for any investment decisions made or taken by the readers of this Magazine based on its contents thereof. You are strongly advised to verify the contents before taking any investment or other decision based on the contents of this Magazine. The Magazine is meant for general reading purposes only and is not meant to serve as a professional guide for investors. The readers of this Magazine should exercise due caution and/or seek independent professional advice before entering into any commercial or business relationship or making any investment decision or entering into any financial obligation based on any information, statement or opinion which is contained, provided or expressed in this Magazine. The Magazine contains information, statements, opinions, statistics and materials that have been obtained from sources believed to be reliable and the publishers of the Magazine have made best efforts to avoid any errors and omissions, however the publishers of this Magazine make no guarantees and warranties whatsoever, express or implied, regarding the timeliness, completeness, accuracy, adequacy, fullness, functionality and/or reliability of the information, statistics, statements, opinions and materials contained and/or expressed in this Magazine or of the results obtained, direct or consequential, from the use of such information, statistics, statements, opinions and materials. The publishers of this Magazine do not certify and/or endorse any opinions contained, provided, published or expressed in this Magazine.Reproduction of this publication in any form or by any means whatsoever without prior written permission of the publishers of this Magazine is strictly prohibited. All disputes shall be subject to the jurisdiction of Delhi courts only. ALL RIGHTS RESERVED

April 2020 Wealth Insight 5

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EDIT

The rules have not changed In spite of whatever may have been happening in the markets currently, by sticking to the basics, one can do well

DHIRENDRA KUMAR

The basic principles of savings and investment are not under lockdown. In fact, this is exactly the kind of situation where they are the most useful and should be followed most rigorously. Our cover story this month is on the obvious topic, and I suspect it’s just the first of many in the coming months that will be about the impact that the virus is having and will have on our savings and investments. A lot of you might be in a panic because of the sharp drop in the value of your investments. However, the stock market is not the economy. This is something that you should not forget even in normal times. The day-to-day movements of the stock market reflect the collective opinion of traders on what will happen the next day, week or month. When there’s time of great uncertainty, this period shrinks to hours or at most next morning. All that traders are trying to do right now is to somehow stay afloat till the next session. It would be a grave mistake to imagine that when the Sensex or the Nifty fall by 30 or 40 per cent, that number is a fair (or even sane) judgement of where the economy will be in two or three years. One circuit down, two, three – it does not matter. These are just numbers driven by people who are focused on what will happen tomorrow morning and who are just guessing about what will actually happen. And the wild, manicdepressive swings that stock markets are putting up shows that these are indeed nothing more than guesses. Investors are panicking because it looks like that the huge drops in the markets are reflective of something that’s really going to happen to the economy. That’s not true. I’m not saying that the situation will not be dire for a time to come, but there’s no way of predicting. The cause is clear – this is not a financial or an economic event. It is an externality. It is like a natural

disaster except that it’s worldwide and simultaneous. This makes it impossible to understand or deal with in financial terms. Think of the 2007-08 global financial crisis. At that time, the governments around the world latched onto the idea of pouring money into economies – get businesses and people to start spending and we’re done. There were a lot of undesirable side effects but this ‘helicopter money’ approach did get things moving. It goes without saying that many things will change. It’s entirely possible that entire industries’ movement towards a future way of working will be accelerated. Things that could have been digital but were physical because of inertia will disappear fast. That’s an obvious conclusion. However, from that kind of motherhood statement all the way to an actual business impact will be a long time coming. If you look for specifics right now, you’ll just make mistakes. This sounds like the most boring and banal thing in the world, but this is just the time to stick to the basics. The ‘stick to the basics’ advice is made exactly for extreme times, whether on the upside or the downside. Do not get carried away by the apparent enormity of the events. Choosing quality investments, being conservative, having an asset allocation and sticking to it while the debt-equity balance changes, ensuring that only long-term money stays in equities – these are the same formulae that work every time and no matter how unlikely it looks right now, these are the ones that will keep working regardless of the source or the depth of the panic today. That may sound strange at first but actually that’s true of all equity investing, whether in good times or bad, in normal times or perilous ones. Because of the nature of this event, it’s easy to lose sight of that, but that would be a great peril by itself. April 2020 Wealth Insight 7

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INSIGHT

The thoughtful investor The budget carries 3 stark messages a) We will not go back to 6.5% GDP growth anytime soon b)The market was narrow and will remain that way till growth picks up and c) Quality and high RoE auto pilot businesses will continue to dominate. Adventurism should take a back seat.

Basant Maheshwari @BMTheEquityDesk Followers

94.3K Why Follow

Basant Maheshwari is the author of The Thoughtful Investor and co-founder & partner at Basant Maheshwari Wealth Advisors LLP. Maheshwari’s tweets touch upon current topics and how they affect investors. They also feature his observations on the markets, investing, the economy, taxation, and more. Being a well-known commentator for various business TV channels, his views and opinions carry credence and are definitely worth following.

Direct taxes are an important instrument to reduce inequality of income. Also it confirms with most of Adam Smith’s ‘canons of taxation’. The direct tax rates need to be reduced else it leads to stealing. And the salaried bear most of the brunt - they can’t adjust nor steal. Getting rich is a process. Most of us can’t take that pressure and wind up to just staying comfortable. The risks always appear smaller once the returns have been made. 5 yrs of controlled risk creates 50 yrs of wealth.But you have to live on the edge betting all that you have. if you’ve hit 50 lakhs wealth creation will become a habit. But it’s not the end. You have to still be hungry for more. You can’t buy ETFs and large cap stable names. You have to look at growing not protecting. And the best wealth decisions won’t come out of a consensus opinion. The first 10 lakhs needs a lot of self control. You have to stop spending to reach here. The next 15 lakhs needs skill. You have to grow what you’ve saved. From 25 lakh to 50 lakhs it’s self control. You have to stop thinking of buying a home, car, Holiday, TV etc. All large investors started small. If the corpus was built on salary or non-market related income then you always seek risk averse strategies. If you start on inherited wealth you’ll do below average to avg returns. You have to start poor. Having nothing to lose is an advantage ! The P/BV is an overrated tool. It hides the efficient & glorifies the inefficient. The ‘Book Value’ is also a yard for garbage dumping & stays with the company for ever.RoE & P/E are better metics as it’s the EPS that generates dividend, the only thing available for shareholders. Compiled by Rachael Rajan

8 Wealth Insight April 2020

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WORDS WORTH WISDOM

Buffett’s latest annual letter Warren Buffett’s annual letters to shareholders are not just a report of Berkshire Hathaway’s performance but they are also full of wisdom. Here are the most insightful excerpts from his 2019 annual letter.

Importance of retained earnings For the crux of [Edgar Lawrence] Smith’s [an economist and financial advisor who wrote Common Stocks as Long Term Investments] insight, I will quote an early reviewer of his book, none other than John Maynard Keynes: “I have kept until last what is perhaps Mr. Smith’s most important, and is certainly his most novel, point. Well-managed industrial companies do not, as a rule, distribute to the shareholders the whole of their earned profits. In good years, if not in all years, they retain a part of their profits and put them back into the business. Thus there is an element of compound interest (Keynes’ italics) operating in favour of a sound industrial investment. Over a period of years, the real value of the property of a sound industrial is increasing at compound interest, quite apart from the dividends paid out to the shareholders.”... Nevertheless, when business ownership was sliced into small pieces – “stocks” – buyers in the pre-Smith years usually thought of their shares as a short-term gamble on market movements. Even at their best, stocks were considered speculations. Gentlemen preferred bonds.

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WORDS WORTH WISDOM What Buffett looks for in an investment In addition, we constantly seek to buy new businesses that meet three criteria. First, they must earn good returns on the net tangible capital required in their operation. Second, they must be run by able and honest managers. Finally, they must be available at a sensible price.

stretch over many decades. This collect-now, pay-later model leaves P/C companies holding large sums – money we call “float” – that will eventually go to others. Meanwhile, insurers get to invest this float for their own benefit. Though individual policies and claims come and go, the amount of float an insurer holds usually remains fairly stable in relation to premium volume. Consequently, as our business grows, so does our float. And how it has grown, as the following table shows:

*URZWKLQWKHÁRDWRI%XIIHWW·VLQVXUDQFH EXVLQHVV

Acquisitions are like marriage In reviewing my uneven record, I’ve concluded that acquisitions are similar to marriage: They start, of course, with a joyful wedding – but then reality tends to diverge from pre-nuptial expectations. Sometimes, wonderfully, the new union delivers bliss beyond either party’s hopes. In other cases, disillusionment is swift. Applying those images to corporate acquisitions, I’d have to say it is usually the buyer who encounters unpleasant surprises. It’s easy to get dreamyeyed during corporate courtships. Pursuing that analogy, I would say that our marital record remains largely acceptable, with all parties happy with the decisions they made long ago. Some of our tie-ups have been positively idyllic. A meaningful number, however, have caused me all too quickly to wonder what I was thinking when I proposed.

Year Float ($ mn) 1970 39 1980 237 1990 1,632 2000 27,871 2010 65,832 2018 122,732 2019 129,423

...but the insurance business is not free from troubles As I have repeatedly done in the past, I will emphasize now that happy outcomes in insurance are far from a sure thing: We will most certainly not have an underwriting profit in 16 of the next 17 years. Danger always lurks. Mistakes in assessing insurance risks can be huge and can take many years – even decades – to surface and ripen... A major catastrophe that will dwarf hurricanes Katrina and Michael will occur – perhaps tomorrow, perhaps many decades from now. “The Big One” may come from a traditional source, such as wind or earthquake, or it may be a total surprise involving, say, a cyber attack having disastrous consequences beyond anything insurers now contemplate. When such a mega-catastrophe strikes, Berkshire will get its share of the losses and they will be big – very big...

Buffett’s top 15 common-stock investments and his long-term outlook The power of float One reason we were attracted to the P/C business was the industry’s business model: P/C insurers receive premiums upfront and pay claims later. In extreme cases, such as claims arising from exposure to asbestos, or severe workplace accidents, payments can

Charlie and I do not view the $248 billion detailed above [see the table below] as a collection of stock market wagers – dalliances to be terminated because of downgrades by “the Street,” an earnings “miss,” expected Federal Reserve actions, possible political developments, forecasts by economists or whatever else might be the subject du jour. April 2020 Wealth Insight 11

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WORDS WORTH WISDOM %XIIHWW·VWRSFRPPRQVWRFN LQYHVWPHQWV Percentage of Cost Market Company company owned ($ mn) ($ mn) American Express Company 18.7 1,287 18,874 Apple Inc. 5.7 35,287 73,667 Bank of America Corp. 10.7 12,560 33,380 The Bank of New York Mellon Corp. 9 3,696 4,101 Charter Communications, Inc. 2.6 944 2,632 The Coca-Cola Company 9.3 1,299 22,140 Delta Air Lines, Inc. 11 3,125 4,147 The Goldman Sachs Group, Inc. 3.5 890 2,859 JPMorgan Chase & Co. 1.9 6,556 8,372 Moody’s Corporation 13.1 248 5,857 Southwest Airlines Co. 9 1,940 2,520 United Continental Holdings Inc. 8.7 1,195 1,933 U.S. Bancorp 9.7 5,709 8,864 Visa Inc. 0.6 349 1,924 Wells Fargo & Company 8.4 7,040 18,598 Others 28,215 38,159 Total equity investments carried at market 1,10,340 2,48,027 Data as on December 31, 2019

What we see in our holdings, rather, is an assembly of companies that we partly own and that, on a weighted basis, are earning more than 20% on the net tangible equity capital required to run their businesses. These companies, also, earn their profits without employing excessive levels of debt. Returns of that order by large, established and understandable businesses are remarkable under any circumstances. They are truly mind-blowing when compared to the returns that many investors have accepted on bonds over the last decade – 2.5% or even less on 30-year U.S. Treasury bonds, for example.

Forecasting interest rates Forecasting interest rates has never been our game, and Charlie and I have no idea what rates will average over the next year, or ten or thirty years. Our perhaps jaundiced view is that the pundits who opine on these subjects reveal, by that very behavior, far more about themselves than they reveal about the future. What we can say is that if something close

to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments.

However... That rosy prediction comes with a warning: Anything can happen to stock prices tomorrow. Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater. But the combination of The American Tailwind, about which I wrote last year, and the compounding wonders described by Mr. Smith, will make equities the much better long-term choice for the individual who does not use borrowed money and who can control his or her emotions. Others? Beware!

The folly of committees Audit committees now work much harder than they once did and almost always view the job with appropriate seriousness. Nevertheless, these committees remain no match for managers who wish to game numbers, an offense that has been encouraged by the scourge of earnings “guidance” and the desire of CEOs to “hit the number.” My direct experience (limited, thankfully) with CEOs who have played with a company’s numbers indicates that they were more often prompted by ego than by a desire for financial gain. Compensation committees now rely much more heavily on consultants than they used to. Consequently, compensation arrangements have become more complicated – what committee member wants to explain paying large fees year after year for a simple plan? – and the reading of proxy material has become a mind-numbing experience.

Evaluating acquisition proposals Acquisition proposals remain a particularly vexing problem for board members. The

12 Wealth Insight April 2020

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WORDS WORTH WISDOM

20.3% vs 10.0%

Is it any wonder that a nonlegal orchestration for making wealthy director (“NWD”) now deals has been refined and hopes – or even yearns – to be asked expanded (a word aptly Berkshire’s compounded describing attendant costs as annual gain over 1965–2019 to join a second board, thereby well). But I have yet to see a vs S&P 500 (incl. dividends) vaulting into the $500,000-600,000 class? To achieve this goal, the CEO who craves an acquisition NWD will need help. The CEO of a company bring in an informed and articulate critic to searching for board members will almost argue against it. And yes, include me among certainly check with the NWD’s current CEO the guilty. as to whether NWD is a “good” director. Overall, the deck is stacked in favor of the “Good,” of course, is a code word. If the NWD deal that’s coveted by the CEO and his/her has seriously challenged his/her present obliging staff. It would be an interesting CEO’s compensation or acquisition dreams, exercise for a company to hire two “expert” his or her candidacy will silently die. When acquisition advisors, one pro and one con, to seeking directors, CEOs don’t look for pit bulls. deliver his or her views on a proposed deal to It’s the cocker spaniel that gets taken home. the board – with the winning advisor to Despite the illogic of it all, the director for receive, say, ten times a token sum paid to the whom fees are important – indeed, craved – is loser. Don’t hold your breath awaiting this almost universally classified as “independent” reform: The current system, whatever its while many directors possessing fortunes shortcomings for shareholders, works very substantially linked to the welfare of the magnificently for CEOs and the many advisors corporation are deemed lacking in and other professionals who feast on deals. A independence. Not long ago, I looked at the venerable caution will forever be true when proxy material of a large American company advice from Wall Street is contemplated: Don’t and found that eight directors had never ask the barber whether you need a haircut. purchased a share of the company’s stock using their own money. (They, of course, had received grants of stock as a supplement to their generous cash compensation.) This particular company had long been a laggard, but the directors were doing wonderfully. Paid-with-my-own-money ownership, of course, does not create wisdom or ensure business smarts. Nevertheless, I feel better when directors of our portfolio companies have had the experience of purchasing shares Director compensation with their savings, rather than simply having Over the years, board “independence” has been the recipients of grants. become a new area of emphasis. One key point relating to this topic, though, is almost invariably overlooked: Director compensation has now soared to a level that inevitably makes pay a subconscious factor affecting the behavior of many non-wealthy members. Think, for a moment, of the director earning $250,000-300,000 for board meetings consuming a pleasant couple of days six or so times a year. Frequently, the possession of one such directorship bestows on its holder three to four times the annual median income of U.S. households. (I missed much of this gravy Wisdom of buybacks train: As a director of Portland Gas Light in Berkshire will buy back its stock only if a) the early 1960s, I received $100 annually for Charlie and I believe that it is selling for less than it is worth and b) the company, upon my service. To earn this princely sum, I completing the repurchase, is left with ample commuted to Maine four times a year.) cash. WI ... April 2020 Wealth Insight 13

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MONTHLY AGENDA 

-31.2%

46,000



39,000

20,000

32,000

17,500

25,000

Jan 14, 2020

Mar 18, 2020

Total trading days No. of days of fall No.of days of rise 10% fall (days) 20% fall (days) Median fall during down days (%)

45 29 16 38 41 -0.5

Median rise during up days (%) Max fall in a day (%) Max rise in a day (%) Best week (%) Worst week (%)

0.6 -8.2 4.0 3.5 -19.1

COVID-19, which originated in China, is spreading around the world. There is no vaccine yet for the coronavirus, which causes this disease. COVID-19 spreads 10 times faster than normal flu and hence is particularly dangerous. The only remedy as of today is exercising precaution. The world has virtually gone into a lockdown due to this disease.



-27.8%

22,500

15,000

Nov 5, 2010

Total trading days No. of days of fall No.of days of rise 10% fall (days) 20% fall (days) Median fall during down days (%)

Dec 20, 2011 277 157 120 56 194 -0.9

Median rise during up days (%) 0.9 Max fall in a day (%) -4.1 Max rise in a day (%) 3.6 Best week (%) 7.3 Worst week (%) -7.2 Recovery (approx) 3 years

Following the 2008-09 global financial crisis, some European nations, especially Greece, found it difficult to honour their debt payments. This led to the European debt crisis. The EU and IMF had to bail out the troubled economies. In India, the Euro crisis was coupled with inflation of around 12 per cent in 2010, high interest rates and a slowing economy.

-60.9%

26,000 19,000 12,000 5,000

Jan 8, 2008

Mar 9, 2009

Total trading days No. of days of fall No.of days of rise 10% fall (days) 20% fall (days) 30% fall (days) Median fall during down days (%)

285 157 128 9 24 111 -1.9

Median rise during up days (%) 1.6 Max fall in a day (%) -11.0 Max rise in a day (%) 8.2 Best week (%) 24.9 Worst week (%) -19.4 Recovery (approx) 2 years 10 months

The worst recession since 1929 had hit the markets in 2008. It originated in the US, where the housing loans started going bad in bulk. Liquidity squeeze in the US market led to bankruptcy of Lehman Brothers. Though India was relatively untouched by the recession, the markets corrected due to withdrawals by foreign investors.

14 Wealth Insight April 2020

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MONTHLY AGENDA 

-29.2%

14,000



12,000

5,900

10,000

5,200

8,000

May 10, 2006

Jun 14, 2006

Total trading days No. of days of fall No.of days of rise 10% fall (days) 20% fall (days) Median fall during down days (%)

25 17 8 7 16 -3.1

Median rise during up days (%) 1.3 Max fall in a day (%) -6.8 Max rise in a day (%) 5.5 Best week (%) 3.5 Worst week (%) -13.5 Recovery (approx) 4 months

A number of factors were responsible for this decline. First, a CBDT circular created confusion that FIIs would have to pay higher taxes. Second, the global markets were weak and the Indian inflation was rising. A rise in interest rates was anticipated. Finally, crude oil was rising and had reached around $91/barrel in May 2006.

-27.3%

6,600

4,500

Jan 14, 2004

Total trading days No. of days of fall No.of days of rise 10% fall (days) 20% fall (days) Median fall during down days (%)

May 17, 2004 84 41 43 29.0 84.0 -1.4

Median rise during up days (%) 0.8 Max fall in a day (%) -11.1 Max rise in a day (%) 4.0 Best week (%) 6.0 Worst week (%) -18.9 Recovery (approx) 9 months

May 17, 2004, is the worst day in the history of Sensex as it fell 11.1 per cent. The shocking defeat of NDA government and the formation of a left-supported government scared the market. Panic selling by FIIs wiped out of $27 billion of the investor wealth.



-56.2%

6,500 5,000 3,500 2,000

Feb 11, 2000

Total trading days No. of days of fall No.of days of rise 10% fall (days) 20% fall (days) 30% fall (days) Median fall during down days (%)

Sep 21, 2001 405 202 203 19.0 35.0 60.0 -1.2

Median rise during up days (%) 1.0 Max fall in a day (%) -7.2 Max rise in a day (%) 7.2 Best week (%) 18.1 Worst week (%) -15.8 Recovery (approx) 3 years 11 months

This market decline can be attributed to the dot-com bubble in the US. The shares of internet companies had attained dizzying heights. The easiest way to make money was to suffix ‘.com’ with the company name. Such was the frenzy for tech stocks that Infosys, then a budding IT company, traded at a P/E of over 400. Little surprise the bubble eventually burst.

COVID-19 has spooked the markets worldwide. However, this is not the first time that the markets have fallen dramatically. Here are six worst phases when the markets corrected, along with the various metrics of the decline. Fortunately, the periods of recovery eventually followed. By Rajan Gulati April 2020 Wealth Insight 15

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MONTHLY AGENDA ¶

84%

¶

44,000

30,000

36,000

25,000

28,000

20,000

20,000

Mar 1, 2016

Feb 6, 2020

Total trading days No. of days of fall No.of days of rise 10% rise (days) 20% rise (days) 30% rise (days) Median fall during down days (%)

972 443 529 56 125 304 -0.4

Median rise during up days (%) Max fall in a day (%) Max rise in a day (%) Best week (%) Worst week (%) Previous downtrend (%)

0.5 -2.5 5.3 8.0 -6.1 -22.0

The period witnessed a liquidity-driven rally, wherein rising flows from mutual funds and global investors led to a run-up in the markets, even though the earnings growth was muted. Although the bull run faced roadblocks like demonetisation, implementation of GST, IL&FS crisis and rising bank NPAs, the markets kept on rising.

 

15,000

69.2%

Aug 28, 2013

Total trading days No. of days of fall No.of days of rise 10% rise (days) 20% rise (days) 30% rise (days) Median fall during down days (%)

Feb 19, 2015 362 155 207 8 131 172 -0.4

Median rise during up days (%) Max fall in a day (%) Max rise in a day (%) Best week (%) Worst week (%) Previous downtrend (%)

During this time, the economy was going through a phase of pessimism and policy paralysis, resulting in depressed markets. When the NDA government appeared to be coming in power, the market shot up.

159.9%

22,000 17,000 12,000 7,000

Mar 9, 2009

Nov 8, 2010

Total trading days No. of days of fall No.of days of rise 10% rise (days) 20% rise (days) 30% rise (days) Median fall during down days (%)

413 182 231 6 11 17 -0.7

Median rise during up days (%) Max fall in a day (%) Max rise in a day (%) Best week (%) Worst week (%) Previous downtrend (%)

0.5 -3.4 3.8 9.3 -4.2 -8.9

0.8 -5.8 17.3 19.0 -7.7 -61

The market bounced back sharply after crashing due to the US subprime crisis. This recovery was the result of the global coordinated monetary easing and massive liquidity injections from global central banks.

16 Wealth Insight April 2020

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MONTHLY AGENDA ¶

194%

¶

13,000

6,500

10,000

5,000

7,000

3,500

4,000

May 17, 2004

May 12, 2006

Total trading days No. of days of fall No.of days of rise 10% rise (days) 20% rise (days) 30% rise (days) Median fall during down days (%)

500 210 290 3 87 123 -0.6

Median rise during up days (%) Max fall in a day (%) Max rise in a day (%) Best week (%) Worst week (%) Previous downtrend (%)

0.8 -4.4 8.3 13.7 -7.1 -21.8

High GDP growth and lower interest rates proved to be the ingredients of this historic bull run. Further, Dr Manmohan Singh, an economist and a former RBI governor and finance minister, became the prime minister. This augured well for the stock market.

2,000

126.9%

Sep 24, 2001

Total trading days No. of days of fall No.of days of rise 10% rise (days) 20% rise (days) 30% rise (days) Median fall during down days (%)

Jan 21, 2004 584 259 325 13 38 94 0.8

Median rise during up days (%) Max fall in a day (%) Max rise in a day (%) Best week (%) Worst week (%) Previous downtrend (%)

-0.7 -3.9 4.5 7.5 -6.8 -53.8

This phase witnessed a recovery from the dot-com bubble burst. Also, India’s GDP growth started picking up, jumping from a low of 3.8 per cent in 2002 to around 8 per cent in 2003-04. RBI’s dovish stance also aided the market rise. The central bank cut interest rates from 8.5 per cent in 2010 to 6 per cent in 2004.





88%

6,000 5,000 4,000 3,000

Jan 1, 1999

Total trading days No. of days of fall No.of days of rise 10% rise (days) 20% rise (days) 30% rise (days) Median fall during down days (%)

Feb 28, 2000 287 130 157 5 44 87 -1.1

Median rise during up days (%) Max fall in a day (%) Max rise in a day (%) Best week (%) Worst week (%) Previous downtrend (%)

1.2 -6.9 7.4 14.0 -11.3 -35.0

This was the period of the dot-com bubble in the US. Companies operating in the internet space saw their shares skyrocket in hope that they will deliver bumper profits. In India, IT companies like Infosys and Wipro had their share prices go up by 17 and 19 times, respectively.

While dramatic market declines spook investors, they are often followed by extended recoveries. Here are top six bullish phases in the history of the Indian stock market, along with their key metrics. The message is clear: it pays to be optimistic. By Yash Rohra

April 2020 Wealth Insight 17

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MARKET C MPASS

INDEX WATCH

S&P BSE Sensex What a month it has been! The coronavirus scare has thrown the market off the peak it had reached just a few weeks ago. As the graphs below suggest, the sudden drop has been so cataclysmic that the various valuation indicators have dramatically fallen below their respective medians. The data for one-year returns clearly shows the bloodbath that the market’s leading stocks have gone through, let alone the others. 2L`U\TILYZ

15.67

0UKL_TV]LTLU[

2.00

Price to earnings

:LUZL_4LKPHU

45000 40000 35000

Price to book

30000

1.72

27.3

Market cap

Dividend yield (%)

25000 20000

(` lakh cr)

Mar ’15

=HS\H[PVUZKP]PKLUKZHUKYL[\YUZ Company name

P/E

P/B

Bharti Airtel Nestle India Hindustan Unilever Asian Paints Kotak Mahindra Bank TCS HCL Technologies Bajaj Finance Ultratech Cement HDFC Power Grid ICICI Bank Titan Company Infosys Sun Pharma HDFC Bank Reliance Industries Bajaj Auto Maruti Suzuki India Hero MotoCorp Tech Mahindra State Bank of India NTPC Tata Steel L&T ITC Mahindra & Mahindra Axis Bank ONGC IndusInd Bank

0.0 63.3 59.6 52.9 24.1 19.3 10.9 24.8 25.0 12.1 5.2 19.4 47.3 13.7 19.4 16.1 12.9 10.7 20.6 8.5 10.9 13.8 3.9 6.0 10.4 12.7 16.9 18.2 3.6 5.2

2.6 64.5 41.9 13.3 3.3 6.1 2.3 4.2 2.9 2.1 1.5 1.5 10.8 3.5 1.8 2.5 1.3 2.3 2.6 2.1 2.2 0.8 0.7 0.5 1.5 3.0 0.9 1.0 0.3 0.7

Dividend yield (%)

0.6 2.6 1.2 0.7 0.1 1.8 1.9 0.3 0.4 1.4 5.5 0.4 0.6 4.1 0.9 2.0 0.7 3.1 1.9 5.4 2.9 0.0 8.0 4.8 2.5 3.7 2.9 0.3 3.0 2.2

7YPJL[VIVVR]HS\L7) 1Y return (%)

35.1 22.9 11.9 2.9 -15.9 -16.3 -17.8 -20.6 -21.0 -21.5 -24.3 -26.0 -27.5 -28.4 -30.2 -32.5 -33.3 -34.5 -35.4 -37.4 -37.9 -38.2 -43.8 -47.4 -47.5 -47.7 -55.8 -58.5 -61.9 -80.0

3.4 3.1 2.8 2.5 2.2 1.9 Mar ’15

Mar ’20

7YPJL[VLHYUPUNZ7, 30 27 24 21 18 15 Mar ’15

Mar ’20

+P]PKLUK`PLSK 1.75% 1.60 1.45 1.30 1.15 1.00 Mar ’15

Data as of March 23, 2020

Mar ’20

18 Wealth Insight April 2020

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Mar ’20

MARKET C MPASS

BIG MOVES

Large caps Tata Steel Metal stocks fell amidst slowdown fears due to the coronavirus spread.

State Bank of India The bank will acquire 49 per cent in Yes Bank at around `7,250 crore.

Hindustan Zinc Metal stocks fell amidst slowdown fears due to the coronavirus spread.

Bank of Baroda As per RBIs risk-assessment report, the bank underreported bad loans for FY19 by `5,250 crore.

DLF The stock fell amidst a market-wide sell-off due to the coronavirus scare.

GAIL Tension within OPEC plus countries resulted in falling crude-oil prices, hence impacting the gas prices.

Bandhan Bank The bank has high concentration in North East and East India. It still needs to meaningfully diversify away from microfinance.

Vedanta Metal stocks fell amidst slowdown fears due to the coronavirus spread.

ONGC Tension within OPEC plus countries resulted in falling crude-oil prices.

Indusind Bank The stock was hit due to the bank’s ratings downgrade, deteriorating asset quality and deferment of fund-raising plans.

3M returns (%)

Price to earnings 3Y avg RoE (%)

Net profit (` crore) 3Y earnings growth (%)

-31.8

7 13.7

5763 41.3

425

-33.2

17 -0.3

11746 7.9

334

-33.6

8 25.0

7478 0.3

207

-34.5

– 0.8

-356 14.2

97

-36.1

22 6.3

750 17.5

233

-37.0

6 11.7

4466 46.0

124

-45.1

15 22.3

3055 68.9

-47.8

3 19.8

10558 40.2

144

-51.7

4 13.2

22360 35.5

125

-58.7

10 15.0

4502 25.1

3M price (`) movement

290

223

137

64

149

78

501 275

75

60 1604 663

Our large-cap universe has 83 large companies, making the top 70 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly in the last three months. Data as on March 16, 2020.

April 2020 Wealth Insight 19

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MARKET C MPASS

BIG MOVES

Mid caps Vodafone Idea The Supreme Court disallowed self-calculation of the AGR dues.

SAIL Metal stocks fell amidst slowdown fears due to the coronavirus spread.

Adani Transmission The stock fell amidst a market-wide sell-off due to the coronavirus scare.

Union Bank of India The bank is set to merge with PNB and OBC.

Oil India Tensions within OPEC plus countries resulted in falling crude-oil prices.

Adani Power The stock fell amidst a market-wide sell-off due to the coronavirus scare.

Tata Motors A looming slowdown around the gloabe, including North America, Europe and China, can affect JLR sales.

Motherson Sumi Systems S&P changed its outlook to negative of a material subsidiary of the company.

Canara Bank The bank called off its entire 30 per cent stake sale in CanFin homes without giving any reasons.

Future Retail The virus impact will lead to lower consumer spending and more online purchases.

3M returns (%)

Price to earnings 3Y avg RoE (%)

Net profit (` crore) 3Y earnings growth (%)

-21.2

– -18.3

-67459 -1136.9

-26.4

662 -1.2

-270 36.0

-46.5

27 19.8

735 23.5

321

-49.6

– -11.1

-3744 7.3

59

-52.8

4 5.9

1046 2.8

149

-53.4

– -184.0

-327 -27.9

-54.1

– -6.5

-151 -128.0

181

-55.0

14 25.1

1501 -7.0

148

-55.8

14 -2.5

705 14.2

226

-58.4

11 12.9

691 264.8

3M price (`) movement

6 7

37 27

172

30

70 61 28

83

67

100 369 154

Our mid-cap universe has 179 mid-sized companies, making the next 20 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly in the last three months. Data as on March 16, 2020.

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MARKET C MPASS

BIG MOVES

Small caps Atlas Jewellery India Curiously, the stock went up when the rest of the market collapsed. Investors should not fall for the rise.

Unitech The government-nominated board is expected to submit the resolution plan by the end of March 2020.

Yes Bank SBI, LIC and other private banks will infuse around `11,000 crore in the bank.

Jaiprakash Power Ventures The stock fell in line with the wider sell-off.

PNB Housing Finance The company reported a 22 per cent drop in Q3 FY20 net profit on lower loan disbursals and higher expenses.

Parag Milk Foods High promoter pledge, coupled with business disruption due to heavy rains in Q2-Q3, led to a fall in the share price.

Spicejet The spread of the coronavirus has drastically reduced travel.

NCC The company reported a 75 per cent drop (YoY) in PBT in Q3 FY20.

Sterling and Wilson Solar A lockdown in China has led to supply-chain issues for the company.

Olectra Greentech The lockdown in China may impact the company’s growth.

3M returns (%)

Price to earnings 3Y avg RoE (%)

Net profit (` crore) 3Y earnings growth (%)

159.9

– -1.6

-1 24.3

118.8

– -4.7

-673 -311.9

23.3

– 14.3

-20606 29.0

-48.1

– -13.2

-2311 -18.9

-48.3

3 14.3

1268 49.1

-56.6

4 9.9

115 292.3

-56.7

– 0.0

-48 -188.9

3M price (`) movement

67 26

2

1

37 30

1.44

0.76

471 243

140 61

98 43

-59.1

3 6.1

435 72.3

51

-61.1

3 –

17.9 –

295

-62.5

31 4.8

17 -239.7

21

115

180 68

Our small-cap universe (minimum market capitalisation `500 crore) has 587 small-cap companies, making the last 10 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly in the last three months. Data as on March 16, 2020.

April 2020 Wealth Insight 21

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VIS-A-VIS

Bearings barons Schaeffler and SKF together command about 44 per cent of India’s bearings market. Here is how they compare with each other.

Schaeffler India

SKF India

Part of the global Schaeffler group, the company manufactures balls and roller bearings used in industrial (about 42 per cent of FY19 sales) and automotive (about 48 per cent) applications at its four manufacturing facilities in India. The company offers full range of mobility solutions in engines, transmissions and chassis components, along with ball and roller bearings.

It is part of Sweden’s AB SKF group (owns 53 per cent) and manufactures bearings for automotive (about 35 per cent of the sales) and industrial (51 per cent) applications. Majority of its industrial bearings are imported, while auto bearings are manufactured at three facilities. Going forward, the company will be focusing more on localisation in the industrial segment.

-PUHUJPHSZ

-PUHUJPHSZ

All numbers in ` cr

All numbers in ` cr

Revenue

Operating profit

Net profit

Net worth

Total debt

Cash from operations

Market cap

Revenue

Operating profit

Net profit

Net worth

Total debt

Cash from operations

Market cap

4,361

634

368

2,706

58

238

12,195

2,980

399

296

1,697

90

181

7,647

7YPJLJOHY[

7,JOHY[ Schaeffler India

SKF India

„

175

„

150

45

125

35

100

Schaeffler India

„

55

SKF India

„

Merger with Luk India and INA Bearings

25 Rebased to 100

75 March 2015

March 2020

14.5

9.9

8.4

Net margin (%)

16.7

13.4

Operating margin (%)

24.8

19.0

28.7

15 March 2015

March 2020

33.2 25.8

4.1 4.2

0.9 0.8

0.0 0.1

Price to earnings

Price to book

Dividend yield (%)

Debt to equity

-P]L`LHYHUU\HSPZLKNYV^[O 21.7

21.2

4.3 Revenue (%) ROCE (%)

ROE (%)



7.2

Operating profit (%)

9.3 5.0 EPS (%)

Balance-sheet data for Schaeffler as of Dec ’18; for SKF, it’s Mar ’19. Price-related data as on Jan 17, 2020.

The Indian bearings market is estimated at `100 billion in size. The market is served primarily by organised global bearing majors. The industry caters to mainly automotive and industrial sectors. Though the auto sector is currently experiencing a slowdown, the government push towards building an extensive road network and Make in India will have a positive impact on the industry.

22 Wealth Insight April 2020

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ANALYST’S DIARY

How the market may fare Our analysis of the Sensex’s historical P/Es gives an idea of where the market is headed in the next one year

T

Sensex returns over the next one year for various P/E brackets. This gave as an idea of the market direction. For instance, whenever the Sensex’s P/E has been higher than 25 (1,200 outcomes), the median next-oneyear returns have been -11 per cent. The lowest return was -56 per cent. Whenever the Sensex’s P/E has been between 12 and 15 (861 outcomes), the median nextone-year returns have been 36 per cent. The market has shot up to as high as 103 per cent in the next one year. As of December 2019, the Sensex’s P/E was 29. If one goes by these numbers, a correction was imminent. The markets were looking for a reason to correct and COVID-19 has provided them just that. WI By Danish Khanna

he recent fall in the equity market has seen investors running for cover. The reason this time: COVID-19, a disease caused by the coronavirus. There has been no vaccine so far for it and that’s the reason investors are more panicky. Around the world, governments have locked down areas. Travel has come to a standstill. Obviously, the economy is going to be impacted in the short to medium run. Because no one knows when this threat will subside, the markets are struggling to find a bottom. Investors are anxiously asking how the markets will fare in the future. We analysed the daily P/E of the Sensex for the last 30 years. We then divided the 7,054 outcomes across various P/E brackets. We also checked the

:VTL7,JY`Z[HSNHaPUN The following are next one-year returns of the Sensex across its various P/E brackets. The analysis covers Sensex’s daily returns over the last 30 years. Next one-year return (%) Sensex’s P/E

Lowest

Less than 10

56.2

Greater than 10 but less than 12

13.2

Greater than 12 but less than 15

-30.6

Greater than 15 but less than 17

-33.7

Higher than 17 but less than 20

-43.0

Higher than 20 but less than 25

-53.6

Higher than 25

-56.2

Median

59.8 62.4 35.8 19.7 10.2 9.9 -10.8

Highest

% of total outcomes

No. of outcomes

78.8

0.1

6

109.0

2.1

146

102.7

12.2

861

134.4

14.3

1,012

225.5

26.7

1,883

264.8

27.6

1,946

96.1

17.0

1,200

Data as on March 19, 2020.

April 2020 Wealth Insight 23

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ANALYST’S DIARY

Building trust Here is a list of companies that can resolve their income-tax disputes by availing the Vivad se Vishwas scheme, introduced in the Budget

;H_PUN[PTLZ The following companies have direct-tax disputes of at least 10 per cent of their equity. Disputed amount as % of Company

5Y median operating profit

996

519.5

364.9

Sonata Software

548

68.2

285.3

1,289

53.8

263.7

432

53.1

114.2

1,269

43.7

197.2

78

79.5

28.3

20,495

31.0

92.7

82

59.0

NA

4,469

32.4

NA

Network 18 Media

216

36.0

422.1

Ashoka Buildcon

75

26.3

7.9

Central Bank of India

2,569

11.1

NA

IDBI Bank

4,302

12.4

NA

Blue Star

91

10.4

41.4

Whirlpool Of India

KRBL

I

Equity

Mahindra Holidays

Gillette India

n her recent Union Budget speech for FY21, the finance minister, Nirmala Sitharaman, has introduced a tax-amnesty scheme known as ‘Vivad se Vishwas’. As revealed during the Budget, at various appellate bodies, around 4.8 lakh direct tax cases are stuck, together amounting to around `9.4 lakh crore. Naturally, such a huge number of outstanding cases aren’t just a financial and resource strain on courts but also on companies, the tax department and the government itself. The government wants companies to opt for this scheme as it will also ease its fiscal position. Under this scheme, taxpayers need to pay only the amount of disputed taxes and they will get a complete waiver of interest and penalty, provided they pay the tax by June 30, 2020 (extended from March 31, 2020, due to the disruption caused by the coronavirus spread). This initiative is motivated by the success of the Sabka Vishwas Scheme floated last year for the resolution of indirect-tax disputes. Under this scheme, nearly 1.90 lakh applications involving duties of about `90,000 crore were filed. Of this, the government is expected to collect over `39,500 crore. We sifted through BSE 500 companies to check their total disputed direct taxes. This amount is found under the head of contingent liabilities on the balance sheet as tax disputes are contingent on the outcome of appellate bodies. Further, we filtered out companies having at least 10 per cent outstanding tax-dispute amount as per cent of total equity. These companies are given in the table. WI By Rajan Gulati

Tax-dispute amount (` cr)

Bombay Dyeing Vedanta SPARC Indian Overseas Bank

‘NA’ indicates the company has an operating loss. Data as of FY19.

4.8 lakh Direct-tax cases pending at various tribunals

`

9.4 lakh cr

Amount stuck in these cases

24 Wealth Insight April 2020

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ANALYST’S DIARY

By Rajan Gulati

Desi vs videshi Segmentation of the revenues derived from India and overseas for the Sensex companies Top 3 companies in terms of overseas revenues (excluding IT) (In ` cr)

22

Total companies (excluding banks and finance companies)

(In %)

3,04,201

75,141

51,087

73%

49%

48%

Reliance Industries

Tata Steel

ONGC

Sun Pharma

Reliance Industries

Tata Steel

Top 3 companies in terms of domestic revenues (In ` cr) 38%

TOTAL REVENUE

62%

23,72,098 Total revenue (` cr)

14,72,821 Domestic (` cr)

8,99,276 International (` cr)

(In %)

4,02,374

3,18,608

95,898

100%

100%

98%

ONGC

Reliance Industries

Larsen & Toubro

NTPC

Power Grid

Titan

2%

Company that gets the least of its revenue from India April 2020 Wealth Insight 25

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STOCK STORY

Oh, no! How Yes Bank turned from a growth machine to a wealth destroyer

A

part from the market fall due to the coronavirus, the one topic that is trending these days is Yes Bank. After falling to a low of some `5, the stock has reacted sharply. Some investors jokingly called it a ‘multibagger’. However, for long-term investors, the stock has proved to be a wealth destroyer. The bank’s problems started when its former MD and CEO, Rana Kapoor, was denied an extension by the RBI. Soon the bank’s NPAs started surfacing. Being corporate-facing, the bank had greater exposure to companies, some of them turning out to be deeply troubled. The bank’s efforts at raising capital failed. Eventually, the bank’s board was superseded by the RBI. The government has now introduced a reconstruction plan for the bank. SBI and many other private banks have showed interest in investing in the bank. Only time will tell whether the bank recovers or not. Till then hold your breath. WI By Danish Khanna

29 APR 2010

09 MAY 2011

Launches

Enters into a

the next phase of growth: Version 2.0

strategic alliance with DHFL for distribution of home loans

21 JUN 2010

ICRA

upgrades

15 JUL 2013

Spiking NPAs

RBI monetary tightening to arrest rupee depreciation; board decided not to nominate Ashok Kapur’s, the late co-founder, daughter as director

A rapid spike in the bank's non-performing assets signals its deteriorating condition.

zGross NPA (%) zNet NPA (%) 20 16 12 8 4 0

Mar 2010

17 SEP 2014

Receives ratings upgrade from ICRA and CARE

Dec 2019

ratings for the bank’s debt instruments 30 MAY 2014

Raised

$500 million through a global QIP

`49.7

30 SEP 2013 27 JUL 2010

Q1 profits rise 56.3%, advances grow 107.2%, receives licenses to open 91 branches

17 SEP 2013

Total branches stand at 500

Raised $255 million

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STOCK STORY 26 APR 2019

Caught on the wrong foot When other investors were exiting the stock, retail investors were hiking their stake in it.

Reports first-ever quarterly loss, provision rise sixfold, stock tanks

zPromoterzDIIs zFIIS zRetail

30%

70 %

8 MAR 2020

60

Rana Kapoor arrested

50 40 30 20

1 APR 2019

10

SEBI probes potential insider trading

0 Mar 2010

`321.1

Dec 2019

$1 billion through QIBs but fails to find any investor

`18,564 cr

1 AUG 2015

in Q3 FY20 NPAs of `40,709 as of Dec 2019

19 APR 2017

Reports doubling of gross NPA due to exposure to Jaiprakash Associates

12 MAY 2017

RBI conducts asset-quality review for banks

14 MAR 2020

SBI to hold 49% stake in the bank; six private-sector banks to infuse `10,000 cr. Reports loss of

Reports divergence in gross NPAs as of FY17 from that of the RBI’s estimates to the tune of `6,355 cr

7 SEP 2016

Withdrawals capped at `50,000

Three-year lock-in for investors who have more than 100 shares for up to 75% of holdings

26 OCT 2017

Plans to raise

5 MAR 2020

08 NOV 2016

Demonetisation happens

Reports divergence of gross NPAs as of Mar 2016 from that of the RBI’s estimates to the tune of

`4,176 cr

1 DEC 2019

19 SEP 2018

Rana Kapoor sells all his stake in the bank

RBI rejects bank’s plea for three-year extension to MD & CEO Rana Kapoor 15 NOV 2018

Two independent directors of the bank resign 27 NOV 2018

Moody’s cuts ratings citing corporate-governance issues 24 JAN 2019

The troublesome accounts The bank’s exposure to some of the most infamous business groups Companies ADAG Group Essel DHFL Vodafone Idea IL&FS Jet Airways CG Power*

Exposure (` cr) 12800 8400 4735 4000 2500 550 500

Hires Ravneet Gill, Head of Deutsche Bank India, as its new CEO 18 JUL 2019

Q1 profit falls 91 per cent; gross NPAs over 5 per cent; asset quality deteriorates; Rana Kapoor pledges stake

`25.6

*Yes Bank also has stake of 12.79 per cent in CG Power

April 2020 Wealth Insight 27

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COVER STORY

Viral investing How to use the pandemic to set your investments up for future gains

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COVER STORY

W

hat’ll be the world like one year from now? Don’t bet on the worst-case scenarios to come true, either in your personal lives or your savings and investments. Of course, things will get worse before they stabilise and then get better. However, the basics of the world will not change. Look at similar events in the past. During 1918-19, a great influenza epidemic swept the world. About 5 crore people died worldwide. India was the worst hit, with about 1.8 crore dead. That was about 5 per cent of the population at the time. That disease was far worse than COVID-19 is, and medical science was primitive compared to today. On top of that, the First World War (1914–18) had just ended. And yet, despite all that, the years after that were a great expansion of economic activity and prosperity. So much so that the exuberance got overdone and resulted in the crash of 1929 and the ensuing depression. Some of us may have heard grandparents and great-grandparents talk about it. However, the fact remains that the impact of the medical disaster, even such a severe one, was short-lived. Life goes on. Billions of people live their daily lives – they work; they eat; they buy things. Even at this stage, we would hazard a guess that it will change less than we think it will. Humanity and the world has seen worse and recovered pretty quickly. Still, some things are still up in the air. The last 20 years have been a great education for all of us who invest in stocks. Before that, there used to be crashes and slumps in the Indian stock markets but they were like storms in a teacup. Our markets were tiny compared to what they are now and they were practically

unconnected to the rest of the world. We had our own little scams and slumps but they were isolated from the world. All this changed from the so-called dot-com crash of 2001, which was the first ‘globally integrated’ crash of the Indian markets. Year 200809 was even more so. What can we expect now? The obvious answer is that we do not know what to expect. At this stage, the biggest worry is that in India and elsewhere in the world, the disease spread is just beginning. What will happen is still a complete unknown. The impact could be deep but short, or it could be long and shallow, or anything in between. Some industries will have one kind of an impact, some another. For instance, one can hardly doubt that travel and passenger transport will be in bad shape. Some industries will have supply shocks, some demand shocks and some both. Some will recover quickly. Inevitably, global companies that wish to diversify from an overdependence on Chinese supply chains may shift some business to India. Even so, at this stage, many investors

After the Sensex fell 20 per cent Returns starting six months after the drop Dates

12M (%)

24M (%)

36M (%)

Feb-16

11.5

35.8

31.2

May-12

7.5

48.4

35.2

Nov-11

21.8

49.3

71.6

Mar-08

33.2

56.1

27.9

Jul-00

-23.5

-24.9

31.6

Jan-95

4.4

27.1

-5.2

May-92

28.4

63.8

18.9

Dec-90

142.6

75.4

221.8

Absolute figures

April 2020 Wealth Insight 29

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COVER STORY

are close to panic or have crossed the line. No one likes uncertainty, and this looks like a bad case indeed. The thing to understand is that 30–40 per cent declines are not uncommon in the equity markets of the world and we do have a history of how markets fare after such shocks. One useful thing to do would be to look at past declines in stock markets and see what happened subsequently. Take a look at the table ‘After the Sensex fell 20 per cent’ that we have data-crunched to understand what happens after big drops in the equity markets. These analyses take eight periods when the Indian markets (as measured by the Sensex) declined 20 per cent or more and then examine what happened as time passed by. The three time periods we examined were 12 months, 24 months and 36 months. The question we are asking is, ‘How long did the markets take to recover after a deep shock?’ The data answers this quite emphatically. We find that even at the shortest 12-month period, the BSE Sensex had recovered well. In most of the cases, the gains from the bottom were large, with only the 2000 dotcom crash still strongly negative after one year. As you can see, the recovery after two years and three years is even stronger except for the odd case of 1995, when a second slump had started by the time the three-year period ended. So are we saying that equities would have recovered one or two years from now? While we

are not actually saying this, the chances of a bounce back are strong. Of course, right now, we are in the middle of the crisis and we don’t know how far this is going. When one is in the middle of a crisis, then the situation looks very dark. Later, rational expectations and analyses enter the mind and things start looking different. As in every crisis, managing one’s psychology is important. Today, a lot of media and social media are busy painting doomsday pictures. Why are they doing this? Maybe because it’s good business to get as many clicks and eyeballs. However, an excessive and continuous exposure of a large mass of people to this relentlessly negative coverage does cause excessively pessimistic reactions. As we go to press, the fact is that China, South Korea, Japan and Singapore have demonstrated that the problem can be contained with a combination of approaches. Even Italy, which is now the worse affected, has seen a slowdown of new cases eight-nine days after a complete lockdown commenced. Yes, there will be slowdowns and recessions but a bounce back is inevitable. This brings us to the real question: what should you actually do? The answer is the same that it ever was: buy quality. In fact, this is the greatest time to buy quality stocks. There were so many that were great except for the price being too high. Now is the time when we can land them at a good value-oriented entry price.

When one is in the middle of a crisis, then the situation looks very dark. Later, rational expectations and analyses enter the mind and things start looking different. 30 Wealth Insight April 2020

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COVER STORY

In our premium Value Research Stock Advisor service, we have taken the opportunity to launch a ‘Best Buys Now’ feature, which has 12 selected stocks that are available at attractive bargains. This is not a new phenomenon. Here’s a great example: back in 2008, HDFC Bank fell to half its value. If you had bought it before that crash, when it was at the peak of that time, your money today would be five times after absorbing that huge loss. From the bottom, it’s about 10 times. There’s no shortage of quality stocks that are going abegging right now at once-in-a-decade bargains. In fact, in our premium Value Research Stock Advisor service, we have taken the opportunity to launch a ‘Best Buys Now’ feature, which has 12 selected stocks that fall into this category. Let’s take you into a secret and reveal one of these 12, HDFC Asset Management Company, which runs HDFC Mutual Fund. Since the Wuhan panic started, the stock is down about 30 per cent. By the time you read this, it

You should stay invested for at least five to seven years, regardless of what is happening in the equity markets at any given point in time.

You should own at least 10 to 20 stocks (choosing these is made easy by Value Research Stock Advisor).

Market declines are a great time to invest in these fundamentally strong stocks. Do not run scared by crashes.

may even be down more. From the short-term earnings perspective, this is a justifiable reaction. After all, an AMC’s earnings are an exact percentage of the amount of money it’s managing while the costs are mostly fixed. As the value of its managed funds falls, there is no doubt that this company will make lower profits this year. However, from a longer-term perspective, this is irrelevant. The mutual fund business is going to have huge growth in the coming decade and HDFC AMC is well-set to exploit that growth. The stock has been priced quite fully recently but is great value now. It’s the perfect opportunity but there are many, many more like that. In fact, this is the time to reaffirm the basic principles of not just what to invest in but how to invest. See the points in the circles below. Now let’s wash our hands and without touching our faces, start investing. WI

 Use cash (or rather, fixed-income assets) to hold perhaps 10 to 20 per cent of the total amount you have mentally assigned to equities. This will enable you to exploit declines. However, never forget that what make these stocks great are their long-term business prospects, not the shortterm price gyrations. That’s quite simple, isn’t it?

April 2020 Wealth Insight 31

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PRASHANT JAIN ED & CIO, HDFC AMC

IN FOCUS

Why Prashant Jain likes PSUs Focus question You have been known to bet on PSUs. They have not been long-term wealth creators. What makes you optimistic about them? Why has been the market ignoring them? ‘It is imprudent to make blanket judgements based on ownership alone’ In my opinion, there are a few misconceptions about publicsector companies. Neither all PSU stocks are bad, nor are all privatesector stocks good. The large number of failures/problems and significant wealth erosion in several private-sector companies, especially in infrastructure, NBFC space, banking, telecom, etc., and significant loss of economic value in PSUs (including some unlisted ones) in telecom, airlines, etc., suggests that it is imprudent to make blanket judgements based on ownership alone. Some of the most successful companies in India in power generation, transmission, oil refining and marketing, logistics, NBFCs, etc., are in fact from the public sector. However, it is also true that exceptional companies are mostly from the private sector. This is understandable as PSUs have certain limitations like rulesdriven decision making, alignment with social interest, limitations on hiring, compensation, etc. On the other hand, PSUs also enjoy certain advantages, especially in capitalintensive/natural-resources-led businesses as also in banks, where public ownership gives confidence to people at large.

32 Wealth Insight April 2020

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IN FOCUS

‘It’s inaccurate to say that PSU stocks have always underperformed’ It is also inaccurate to say that PSU stocks have always underperformed their privatesector counterparts. As the chart [PSU Index vs Sensex] indicates,

PSU Index vs Sensex Between 2000 and 2017, the PSU Index yielded similar returns as the Sensex. After that its underperformance began.

zPSU zSensex rebased 12000 10000 8000 6000 4000 2000 0

Jan 2000

Sensex rebased to BSE PSU Index Mar 2020

for 17 years between 2000 and 2017, the BSE PSU Index yielded the same returns as those of the Sensex. However, it is true that over the past two years, the PSU Index has underperformed significantly. This sharp underperformance of two years has resulted in weak returns even over longer periods and thus gives an impression that PSU stocks have underperformed in the long term. What were the reasons for such a sharp underperformance in the last two years? Was it linked to business underperformance or was it that only share prices underperformed? A study of financials of PSU companies in oil, power, banks, NBFC space, etc., suggests that the financial performance of majority of these companies has been largely stable or is improving.

‘The underperformance is largely due to a large supply of PSU stocks on account of government divestment, especially through CPSE ETFs’

The key issue, therefore, is why these PSU stocks sharply underperformed in the past two years and if this underperformance is not warranted by fundamentals, does it creates an opportunity for future? The underperformance, in my opinion, is largely due to a large supply of PSU stocks on account of divestment by government, especially through CPSE ETFs. The inherent structure of ETFs, in my opinion, is suboptimal and is not in the interests of long-term investors. Under the ETF route, a pre-decided mix of PSU stocks is offered at a discount. This, in turn, incentivises the arbitrager or short sellers to invest in ETFs and exit after the ETF is listed. This results in a fall in the share prices of the underlying companies because of sizeable selling pressure. Due to this, some long-only investors are also disappointed, thus aggravating the pressure. Fortunately, there appears to be a shift in government stance from ETFs to strategic divestments now (source: DIPAM secretary interview, dated February 4, 2020, in Financial Express, https://bit.ly/2QJkgY2). This should remove the overhang of regular supply of PSU shares through ETFs in the market. Further, strategic divestments are likely to be at higher prices and should result in open offers creating additional demand for these shares. Strategic divestments should unlock significant value over the medium term, as was the case in strategic divestment done in 2002.

‘Significant underperformance by a sector, despite stable

financial performance, creates an opportunity’ It is also interesting to note that significant underperformance by a sector, despite stable financial performance, leads to undervaluation and creates an opportunity for the future. The following is the list of sectors [see graphic ‘Bouncing back’] which significantly underperformed over a period of 10 years and it can be seen that

Bouncing back The following sectors went out of favour for extended periods but then bounced back.

zPrevious 10Y return (% CAGR) zNext 10Y or till CY19 return (% CAGR) 50 40 30

CY01

CY02

% of assets Market value (` cr) State Bank of India

NTPC

CY07

20 10 0

Across all his portfolios, Prashant Jain has the highest assets invested in the following PSU stocks. These 10 are also part of the top 25 stocks of all his holdings.

10.11 7413

CY00 CY00

Prashant Jain’s top 10 PSU bets

CY17

?

Capital Metals Auto Cement FMCG PSU goods Index ‘CY’ stands for calendar year Source: Bloomberg

returns over the next 10 years were very healthy. To conclude, it is erroneous to judge a business on the basis of ownership alone, public or private. One’s investment should be based on the sustainability of business, its competitive advantages, growth prospects and valuation. The reason for significant exposure to PSUs in my funds is because the underperformance of last few years has made these businesses attractive. In fact, for some of the companies, the dividend yield is between one to two times of the G-sec yields. It will be interesting to watch over the next few quarters whether this trend of underperformance reverses or not. In my judgement, this underperformance should end as in the long run, just like the water finds its own level, stock prices eventually converge with the business fundamentals. WI

4.63 3392 Coal India

4.21 3084

Power Grid

3.71 2723

Power Finance Corp

3.18 2333 BPCL

2.71 1986 REC

1.87 1370 GAIL (India)

1.60 1170 Bank of Baroda

1.19 870 HPCL

1.05 768 Data as of February 2020

April 2020 Wealth Insight 33

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SONAM UDASI

INTERVIEW

Senior Fund Manager, Tata Mutual Fund

‘In financial services, being a tortoise is sometimes

a blessing’ T

he recent financial turmoil in the Indian markets, starting with the IL&FS default, has continued with the Yes Bank meltdown. It has exposed the inherent weakness in India’s financialservices industry. We speak to Sonam Udasi of Tata Mutual Fund about the reason for it. Udasi manages Tata Banking and Financial Services Fund. He also talks about insurance companies and AMCs as investment options. Finally, he tells us how he ensures quality in his portfolio. Note that the graphs in this interview are based on the moves Udasi has made in Tata Banking and Financial Services Fund as of February 2020.

The crash in Yes Bank has again highlighted the fragility in the Indian banking system. What’s going on? Weak underwriting of loans, coupled with a slowing economy, both global and Indian, have continued to haunt the financial-services industry. What started as a corporate bad-loan phenomenon in 2011-12, which

0UJYLHZPUNKLJYLHZPUNJVU]PJ[PVU Top companies in which his investments have gone up/down in the last one year (TV\U[`JY

(TV\U[`JY

ICICI Bank

30

Bajaj Finserv

-9.9

Axis Bank

22

ICICI Prudential Life

-3.0

Kotak Mahindra Bank

21

Muthoot Finance

-2.6

HDFC

15

City Union Bank

-1.2

DCB Bank

3

Bajaj Finance

-0.8

ICICI Lombard

1

34 Wealth Insight April 2020

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INTERVIEW

saw PSU banks lose their sheen, IL&FS bust, PMC Bank bust, finally found its end-game with Yes Bank essentially being ‘public’-ised. It has come to this simply because in the years of economic boom, financial investors (both debt and equity) priced risk incorrectly.

How serious would be the contagion? Where else does the problem lie? It was necessary to stem Yes Bank’s slow death. The measures seem prudent at this time. One could argue that they could have stemmed it earlier, but nevertheless it’s welcome that it has been done. This will give some badly needed time to the system to stabilise and move forward. That being said, the longer the economy stays sluggish, the risk for weaker companies within the financial space (both listed and unlisted) will loom large. The cost of funds will continue to be elevated for weaker names and credit markets are unlikely to ‘unfreeze’ for them in a hurry.

What makes banking and finance sector so vulnerable to changes? In a year or so, entire companies which were doing well get decimated, for example, DHFL, Indiabulls Housing and now Yes Bank. Over the last two-three centuries, this phenomenon has been witnessed across different countries and different asset classes. The investing world oscillates between extreme ‘greed’ and extreme ‘fear’ – the financial sector in particular, where the raw material of the business and its end output, both are capital, tends to be whiplashed in global economic turmoil. Whenever this happens, that sector weeds out its weaknesses and emerges stronger. This too shall pass.

The RBI’s role has been questioned in the PMC Bank crisis and now Yes Bank meltdown. What could have the regulator done? It’s very easy to pass comments sitting in the box. We do not know what transpired and what the RBI’s thinking was. But certainly this will bring its rigour under question and thus make credit underwriting and risk management more stringent.

;VWOVSKPUNZ Companies in which he has invested the largest amounts % of assets

` cr

HDFC Bank

20.8

96

ICICI Bank

15.8

HDFC

10.7

49

Kotak Mahindra Bank

10.6

49

Axis Bank

7.6

State Bank of India

4.9

HDFC Life Insurance

3.8

17

Bajaj Finance

3.7

17

HDFC AMC

3.6

17

Muthoot Finance

3.0

14

73

35 23

;VWLX\P[`Z[HRLZ Companies in which he holds the highest equity stakes % of equity

` cr

DCB Bank

0.24

12

IDFC

0.15

City Union Bank

0.07

ICICI Securities

0.06

9

Muthoot Finance

0.04

HDFC AMC

0.02

14 17

ICICI Bank

0.02

73

Axis Bank

0.02

35

HDFC Life Insurance

0.02

17

Kotak Mahindra Bank

0.02

49

7 11

Among NBFCs, there are many kinds of companies. Which have the most robust business models? Which are suspect? NBFCs with decent capital-adequacy ratios and aggressive risk provisioning should stand the test of time. NBFC models hinged on strong collaterals should also flourish going forward. The promoters/companies that jumped into the

“The investing world oscillates between extreme ‘greed’ and extreme ‘fear’ – the financial sector in particular, where the raw material of the business and its end output, both are capital, tends to be whiplashed in global economic turmoil.” April 2020 Wealth Insight 35

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INTERVIEW

“The promoters/companies that jumped into the NBFC fray during boom times and expanded and diversified their lending business, without building enough risk-mitigation tools, will have to ultimately wind down their weaker franchises and slowly rebuild on their strengths.” NBFC fray during boom times and expanded and diversified their lending business, without building enough risk-mitigation tools, will have to ultimately wind down their weaker franchises and slowly rebuild on their strengths. Any NBFC which is banking on external capital in a big way will find the going very tough at least over the next one year.

Insurance companies, AMCs and now SBI Cards are some new-age firms. What’s your view on them? Do you find their high valuations justified? These are largely non-lending financial-services businesses. Luckily, both insurance as well as AMCs have gained a lot of experience and vintage over the last 15 years. Some of them are now self-funded and do not require capital to sustain their growth. This

His new bets over the last one year Amount invested (` cr)

% of AUM

State Bank of India

23

4.9

HDFC Life Insurance

17

HDFC AMC

17

ICICI Securities

9

1.8

Indusind Bank

9

IDFC

7

1.8 1.6

3.8 3.6

*VTWSL[LL_P[Z Companies from which he has exited in the last one year Max % of assets over last 1 year

4.3

CreditAccess Grameen

2.5

M&M Financial

2.1

JM Financial

2.0

Bandhan Bank

1.4

MCX India

1.2

Federal Bank

1.0

How’s the condition of housing-finance companies now? Their numbers, barring one or two, still signal stress. Among HFCs, weak ones are dying or being weeded out. Strong parentage allows some of them to access a competitive cost of funds. This allows them to thrive and grow in a difficult market while managing risks. For others where the cost of money continues to be uncompetitive, growth will be slow.

You have just 18 stocks in your Banking and Financial Services Fund. Top 10 stocks command 82 per cent of your assets. What gives you conviction to run such a concentrated portfolio?

5L^LU[YHU[Z

Max Financial Services

aids their compounding, return ratios as well as the ability to reward shareholders. The runway for financial-services businesses in India is very high, considering poor penetration in these segments currently. So, in our view, the premium is likely to sustain over the next few years till their growth momentum remains high.

` cr

12 7 8 5 5 5 4

The growth in the financial-services sector is linked to the economic momentum. In a slowing economy, it makes sense to be with the strongest balance sheets and companies that are adequately capitalised for growth. In an environment where weak names are falling by the wayside, the survivors will have the advantage of a growing market share and improving pricing power going forward. Also, non-lending financial companies provide decent long-term growth trajectory. Our portfolio is aligned with this thought process. When the economy does revive, we believe our portfolio is best positioned to capitalise on that opportunity, while giving us flexibility to add more names if the situation normalises.

How do you ensure quality and reliability when you pick stocks for your banking fund? We fundamentally believe that in the financial-services industry, efficient users of capital (high ROA, ROE), prudent risk management (high provision-coverage ratio, counter-cyclical buffer trends) are worth their weight in gold. In this industry, being a tortoise is sometimes a blessing. WI

36 Wealth Insight April 2020

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STRAIGHT TALK

Stock markets – what’s next? After the recent crash in the market, investors are asking how soon it will recover and where they should invest. Here is some help.

ANAND TANDON around the world, including in India, have witnessed a sharp sell-off as possible economic costs of COVID-19 have begun to be discounted by investors. Most countries are in the process of restricting travel and instituting measures to increase ‘social distancing’ as a means to ‘flatten the curve’ of infection transmission. Direct impact is being felt in industries such as airlines, travel, hotels and restaurants, movie theatres and even oil and gas. Most commentators are out in numbers reassuring investors that a falling market is an ideal opportunity to buy. Undoubtedly, this too shall pass. However, investors are worried about how far the market can fall and what sectors are most likely to lead the revival.

How far can it fall?

9PZPUNWVSHYPZH[PVU The stocks outside top 10 have not been performing in terms of profits as well as price though they are sticky at about 10 per cent returns. Top 10 Contribution in 1Y returns of NSE 500

Since mid-February, stock markets

Remaining 490

Top 10 PAT as % of NSE 500 (RHS)

35%

85% 80%

20%

75% 70%

5% FY15

FY16

FY17

FY18

If past deep corrections were to be repeated, the index fall could be over 60 per cent. A shallower and more usual correction in an ongoing bull market could be in the range of 22 per cent, which has already been achieved.

65% 60%

-10%

The true answer is – no one knows. For now, the impact of COVID-19 cannot be estimated in any meaningful way; nor how long the impact will last. If past deep corrections were to be repeated, the index fall could be over 60 per cent. A shallower and more usual correction in an ongoing bull market could be in the range of 22 per cent, which has already been achieved. The only meaningful action therefore is to mark out a range over

FY19

Source: Bloomberg, Ambit Capital research. Note: Performance is calculated on a yearly basis as of March every year. PAT is the weighted profits as of every fiscal year-end. Top 10 indicates the top 10 stocks by free-float weight as of every fiscal year-end.

which it may be reasonable to expect a fall – and to stagger investment so as to get a lower average entry point. Assuming a historical worst-case impact, every 7–8 per cent fall should lead to a 20 per cent investment of cash allotted to equity. The more interesting question is – where to invest? As is usually the case, before a fall, the market gets narrower, with fewer stocks performing. A study by Ambit Capital has an interesting insight – this time around, not only were the returns of the top 10 stocks in NSE 500 increasingly contributing more to index returns, the profit contribution was also rising (see the chart ‘Rising polarisation’). April 2020 Wealth Insight 37

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STRAIGHT TALK

This re-emphasises that the debate about value versus growth is essentially meaningless – the market pays for growth and higher growth attracts higher valuations. The question that remains is – can valuations have a cap or is there a new paradigm of growth at ‘any cost’ rather than the more accepted ‘growth at a reasonable price’?

Valuations sustain as long as growth sustains and growth is mean-reverting Utilities usually exhibit steady growth and are usually classified in the ‘value’ bucket since their valuations reflect their slower growth profile. Consumer-facing stocks are often high-growth and are priced accordingly. As an example, I have taken NTPC to represent the former; and Hindustan Unilever, the latter. Over a period from mid-2004 (when NTPC was first listed) to 2007, NTPC’s stock price went up almost three times. Subsequently, it has halved. Over two decades from 2000, HUL’s stock has exhibit-

:[VJRWYPJLZ!5;7*]Z/<3 NTPC’s stock price went up three-fold between 2004 and 2007. HUL hadn’t moved until 2010, when it started to pick pace.

5;7* 250 200 150 100 50 0 November 2004

March 2020

/<3 2500 2000 1500 1000 500

/V^MHZ[[OL`NYL^ Sensex’s price and earnings growth vs those of HUL and NTPC 2010–19

2000–10

Sensex CAGR

8.10

17.80

Sensex EPS growth

8.35

11.50

HUL price CAGR

22.40

4.20

HUL PAT growth

12.52

4.80

NTPC price CAGR

-3.70

14.90*

NTPC PAT growth

3.36

9.80

*NTPC’s share price performance from Dec 2004 (stock was listed in Nov 2004). Stock and index price based on 31st December prices. All no. in %.

ed widely different behaviour. The first decade from 2000 was a wasted one with the stock not performing at all, while over the next 10 years, the stock has delivered returns of 10 times (see the chart, ‘Stock prices: NTPC vs HUL’). Two issues are worth highlighting here. One often hears comments that brands offer ‘moats’ and that such companies are therefore able to generate superior stock-market performance. Is it the case that between 2000 and 2009, Hindustan Unilever somehow lost its ‘moat’ and suddenly developed poorer brand equity that was later magically discovered over the next decade? Mercifully, the answer is much less mysterious – it’s all about earnings growth. Take a look at the table ‘How fast they grew’. Over the decade 2000–2010, the BSE Sensex generated EPS growth of about 11.5 per cent compounded. The Sensex itself delivered growth of almost 18 per cent year on year. NTPC’s earnings growth over this decade was almost 10 per cent – broadly in line with market earnings. Its share delivered about 15 per cent CAGR over the first five years since listing. On the other hand, HUL delivered earnings growth of less than half that of the index and accordingly its price performance remained anaemic. This reversed over the next decade. As the economy sputtered, Sensex earnings grew in single digits and so did market performance. NTPC suffered from sectoral issues and profit growth fell to low single digits. Accordingly, its stock price delivered negative returns. HUL rediscovered its mojo, delivered earnings that were 1.5 times those of the market and its stock price compounded at 22 per cent.

Market is not seeing a shift in earnings

0 January 2004

March 2020

Despite the recent sharp fall in markets, Ambit’s research reveals that stocks that were ‘expensive’ have

38 Wealth Insight April 2020

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STRAIGHT TALK

:[PSSJVTTHUKPUNHWYLTP\T Despite some valuation correction, the spread between most and least expensive stocks remains high. 80

Quintile 1 - ‘Expensive Quintile 5 - ‘Cheap’

70

Quintile 3

Price-to-earnings ratio

60 50 40 30 20 10 0

’01

’03

’05

’07

’09

’11

’13

’15

’17

’20*

Source: Capitaline, Bloomberg, Ambit Capital research. Note: For top 500 companies by Mcap every year (ex-BFSI), quintiles are based on decreasing P/E. P/E every year is calculated as the aggregate Mcap divided by the aggregate profit after tax for the respective quintile. *Indicates P/E calculated using latest Mcap divided by trailing 12 months PAT as of December 2019 quarter.

While there is good reason to believe that government-owned companies are never going to be run efficiently and in the interest of minority shareholders, there is a price below which all companies are ‘value’ fallen in line with rest of the market, with the relative premium remaining unchanged (see the chart ‘Still commanding a premium’). It appears that market participants are unwilling to bet on any change in earnings distribution between sectors when the crisis ends. Past experience does not support this view. Every large correction has led to sector rotation, with new sectors

Investing Perspectives

leading the revival. In 1992, cement; in 2000, technology and media; in 2008, construction and real-estate were the leaders going into the collapse and in every case, the revival took almost a decade after the collapse. There is no reason to believe that this would not be the case in the current fall, though the reasons will appear only along the way. Financials, in particular NBFCs and consumer stocks, led the current rally. They may not lead the revival if history were to repeat. It is therefore important to look at stocks that have fallen way more than the collapse in their fundamental values would warrant. Energy, for example, seems to be a sector ripe for the picking. Every indicator would suggest that both oil and gas and electricity generation are past their prime. However, electricity demand continues to grow in India, while generation growth has stopped. Also, gas demand is growing rapidly as gas-distribution companies increase customers, but market valuations continue to price low or no growth. Perhaps it is time for things to revert to the mean. Another area of the market that has performed poorly and is much hated is government-owned companies. While there is good reason to believe that these companies are never going to be run efficiently and in the interest of minority shareholders, there is a price below which all companies are ‘value’. Perhaps many public-sector companies meet this criterion. While we wait for the fall and inevitable rise to play out in the markets, it would be prudent to invest in a staggered manner while keeping in mind that highgrowth stories are likely to be more adversely affected over the near term and perhaps when the markets do recover, the recovery may be more broad-based, especially since it’s likely to be triggered by large doses of government support. WI Anand Tandon is an independent analyst.

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EVERYDAY ECONOMICS

All things viral The rapid spread of the coronavirus has scared people. The need is to arrest fear and deal with the problem rationally.

PUJA MEHRA

What is common between the COVID-

has two players and there are two strategies. The two players are the shopper and everyone else. The two 19 pandemic and Yes Bank’s troubles? Panic. Images of strategies are panic-buying or non-panic-buying. If shoppers squabbling over toilet rolls, as they struggle everyone buys without panicking, an equilibrium is with overloaded carts, in supermarkets are all over the reached where supplies remain normal. No shortages international media. ensue. What is happening? Panic-buying. People around the However, if all others are panic-buying, then the optiworld are stockpiling essentials, food items, toilet mal strategy for the shopper is to panic-buy and avoid paper, disinfectants, protective masks, medical-grade missing out on supplies. This game’s most likely outgloves, antibacterial soap and hand sanitisers. Shops come is the second equilibrium where everyone panand stores are running out of stocks. Fear is at play. In ic-buys, resulting in a shortage. such situations, while some people stockpile in prepaFear is the most potent human emotion. It is more ration of self-isolating, many more, seeing stocks contagious than viruses. Years ago, in a typical episode deplete, begin to buy large quantities out of the fear of of panic-buying, set off by rumours in Uttar Pradesh the coming shortages. The mad rush and hoarding soon of salt stocks disappearing, a woman lost her life in a become self-fulfilling prophecies and disrupt emergenstampede. The price of salt shot up to hundreds of cy supplies to patients and healthcare professionals. rupees per kilo. Rumours or genuine fear of a run on a Even before news broke of the first COVID-19 casualbank can become self-fulfilling prophecies. If deposity in India, cases of sudden spurt in demand, and stocktors fear a bank is about to run out of cash, they start piling, of hand sanitisers were reported. Manufacturers withdrawing more cash than they need, endangering are ramping up production to make sure that shortages the bank’s ability to meet its liabilities. Therefore, regdon’t persist. ulators place upper limits on withdrawals in such situPanic-buying is a peculiar consumer behaviour, usuations to prevent a run on the bank. ally seen during episodes of natural This is precisely why on 5th March, calamities or pandemics. It is selfish and Panic-buying is a may even seem over the top. But it is not peculiar consumer authorities capped withdrawals from Yes Bank at `50,000 a month to preirrational. Consumers buy more of a behaviour, usually vent a run on the bank (this restricproduct than they require out of the fear seen during tion has now been lifted). of missing out later. episodes of Panic-buying is similar to a run on A few years ago, Russell Crowe had played the Nobel-winning economist natural calamities a bank. The optimal solution, thereJohn Nash in the Oscar-winning film A or pandemics. It is fore, is the same. Supermarkets in the UK have rolled out contingency plans Beautiful Mind. The film glamourised selfish and may for maintaining availability of supgame theory around the world. Paniceven seem over plies during the coronavirus episode. buying is an example of what game thethe top. But it is They are making home deliveries for orists call a Nash equilibrium. Here is not irrational. self-isolating consumers as emptying how it works. In a pandemic, the game 40 Wealth Insight April 2020

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EVERYDAY ECONOMICS

shelves trigger panic-buying. They are also rationing sales by placing strict limits on purchases. Whenever there is a situation at hand, the first instinct of most Indians is to call for government intervention. Typical solutions offered on WhatsApp groups go like: the government should make hand sanitisers a product only to be sold on prescription. Or the government should step in as a holder of contingency reserves. It should release these strategically in the open market to prevent shortages. These are poor solutions. Executing them will be very costly and poor use of tax money. Further, it will worsen shortages by quickly giving rise to rent-seeking and corruption by officials empowered to manage supplies. Just like government intervention, the market also fails in most instances of panic-buying. During health or other emergency situations, the market solution of letting prices of essentials rise to clear out the excess demand does not work. It is called price-gouging and can trigger backlash from people. The best solution is for the sellers to ration sales. Public-health emergencies are also when people realise the true value of paying taxes. Recently, a WhatsApp forward went viral. It was about taxpayers receiving precious little by way of government services in return for the taxes paid. Why government should impose hefty taxes on people when their out-of-pocket expenses for school education, healthcare, security, water purification and security and safety are high, it complained. Such faulty arguments go viral because people only see the direct beneficiaries of public spending on healthcare and sanitation, and, therefore, end up under-

estimating its value to the society. But the benefits of taxpayer-funded healthcare are not limited to those individuals receiving them directly. They also extend to the rest of the society. The same, by the way, is true for law and order and education. This is not to say Indian health and other public services standards don’t need improvement; just that we often don’t realise how much we gain when there are fewer ill people around us. This becomes fully obvious in times of pandemics. COVID-19, the flu-like disease, is fast spreading from Wuhan, China, to as far as Japan, South Korea, Iran, Italy and the U.S. India has also started to suffer. What does it take to keep the casualties low? The spread of the virus slows down when more and more people with symptoms are able to quickly access testing facilities and self-isolate if they test positive. Slower spread means fewer casualties. It is easy to see why. If infections spread quickly, the health facilities available get stretched, and hospital beds, ICU machines, etc., become scarce, which affects all types of patients, not only those infected by the coronavirus. Mortality rates rise. Therefore, making testing facilities free by fully subsidising them at the outbreak of a contagious disease is good economics. The benefit to taxpayers is clear. When there are fewer cases of infection, the chance of each individual getting infected reduces – including taxpayers. WI Puja Mehra is a Delhi-based journalist and the author of The Lost Decade 2008–18: How the India Growth Story Devolved into Growth Without a Story

April 2020 Wealth Insight 41

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MAIN STREET

In India, quality trumps ‘cheap’ valuations Low valuations, including those of small caps, often don’t translate into good returns

SAURABH MUKHERJEA

Over the years, I have written

The last 10 years clearly indicate that the best-performing small-cap stocks have been those which have generated the highest earnings growth as well as the highest return on capital employed (ROCE). For instance, as

shown in Exhibits 1 and 2, for both the time periods FY09–14 and FY14–19, the companies which delivered the highest PBT growth also ended up delivering the highest share-price returns. Interestingly, for both these time periods, companies which scored the highest PBT growth (represented by bucket Quartile 1 or Q1 in below charts) also turned out to be companies generating the highest ROCEs. The positive relationship between PBT growth and ROCE and vice-versa is not surprising, given that companies with higher margin (and thereby higher PBT) generate higher ROCEs. Similarly, a higher ROCE implies higher cash generation, lower interest expenses and higher sustainable revenue growth. Hence, the inter-dependent relationship between the two. Similarly, as shown in Exhibits 3 and 4, the highest

,_OPIP[!Companies which generated the highest PBT CAGR over

,_OPIP[!...Similarly, the highest PBT generating companies over

extensively about the irrelevance of valuation multiples in India. Thanks to the success of my books, Indian investors have begun understanding the sheer futility of judging champion franchises like HDFC Bank, Asian Paints and Nestle basis their P/E, P/B or EV/EBITDA multiples. But the same people then turn around and tell me that it is better to buy small caps when their P/E multiples are low. However, as we will see, that’s not the case even with small caps.

The real driver of returns

FY09–14 delivered the highest return over CY09–14…

FY14–19 were the best performers on share price return over CY14–19 80%

75%

Q1

25%

-15%

-5%

0%

Q2 5%

Q3

15%

25%

35%

PBT CAGR (FY09–14)

-25% -50%

Q4

Size of the bubble denotes average ROCE over CY10–14

-75%

60%

Share-price return (CY14–19)

Share-price return (CY09–14)

50%

Size of the bubble denotes average ROCE over CY14–19

Q1 40%

Q2

20%

Q3

-15% -10%

-5%

0%

0%

5%

10%

Q4

15%

20%

25%

30%

PBT CAGR (FY09–14) -20%

-100% Source: Ace Equity. Note: Q1 represents companies with the highest quartile PBT CAGR over FY09–14, Q2 the next best and so on.

Source: Ace Equity. Note: Q1 represents companies with the highest quartile PBT CAGR over FY14–19, Q2 the next best and so on.

42 Wealth Insight April 2020

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MAIN STREET ,_OPIP[!Companies with highest ROCEs (FY10–14) have delivered the highest share price return over CY09–14... 40%

,_OPIP[!...Similarly, companies with highest ROCEs over FY15–19 were the best performers on share price return over CY14–19. 20%

Size of the bubble represents PBT CAGR over FY09–14

15%

Q1

Q2

20% 10%

Q3 0% 0%

10%

20%

30%

40%

5-year average ROCE (FY10–14)

-10%

Q4 -20%

Share-price return (CY14–19)

30% Share-price return (CY09–14)

Size of the bubble represents PBT CAGR over FY14–19

Q1

10%

Q2

Q3

5% 0% 0%

10%

20%

30%

40%

5-year average ROCE (FY15–19)

-5%

Q4

-10% -15%

Source: Ace Equity. Note: Q1 represents companies with the highest quartile average RoCE CAGR over FY10–14, Q2 the next best and so on.

Source: Ace Equity. Note: Q1 represents companies with the highest quartile average RoCE CAGR over FY15–19, Q2 the next best and so on.

ROCE companies have delivered highest share-price returns. Interestingly here too, companies which generated the highest RoCE (represented by Quartile 1 or Q1 in below charts) also turned out to be companies generating the highest PBT CAGRs.

short periods of irrational exuberance. For instance, in CY17, lower P/E stocks (combined with lower ROCEs) significantly outperformed the more expensive but quality stocks (represented by higher ROCEs). But such a run does not last long (see Exhibits 5 and 6). The same set of low P/E stocks which scored big time in CY17 witnessed the steepest fall in CY18 and CY19 as liquidity dried up and share prices started tracking the underlying fundamentals. WI

It’s not about cheap valuations On the other hand, a common misperception amongst investors is that ‘cheapest’ stocks generate the best returns. In reality, there is hardly any correlation between lower P/E multiples and higher share-price return. However, this relationship may prevail for

,_OPIP[!Low P/E companies with lower ROCEs significantly

outperformed high P/E high ROCE companies in the CY17 bull market...

Saurabh Mukherjea is the author of The Unusual Billionaires and Coffee Can Investing. He’s the founder of Marcellus Investment Managers, a SEBI regulated provider of portfolio-management services.

,_OPIP[!...But ‘lower P/E, lower ROCE’ companies corrected more sharply than ‘higher P/E, higher ROCE’ companies in CY18 and CY19.

60

60 50

Size of the bubble denotes FY17 ROCE

FY17 P/E

40

40 30

30

Q2

Q2

20

20

Q3

Q3 10 0 60%

50

Q1

10

Q4

Q4 80% 100% 120% Share-price performance (CY17)

FY17 P/E

Q1

Size of the bubble represents FY17 ROCE

140%

Source: Ace Equity. Note: Q1 represents companies with the highest quartile P/E at FY17-end, Q2 the next highest and so on.

-60%

-50%

-40%

-30%

-20%

-10%

0%

0

Share-price performance (CY18 and CY19) Source: Ace Equity. Note: Q1 represents companies with the highest quartile P/E at FY17-end, Q2 the next highest and so on.

April 2020 Wealth Insight 43

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OFFBEAT

The dart-throwing monkey Why you should do your own guessing

SANJEEV PANDIYA

So there’s a behavioural economist

everyone is trying to beat the market, simply because it is fun and it just feels like the right thing to do. somewhere who found the following through And then along came Warren Buffett, Jim Simons, experiment: if you take 240 guesses of the weight of 240 George Soros and the like and proved Mr Fama wrong. oxen and 240 people like you do the same, you’re not There’s a way to ‘beat the odds’; we even give it a name: likely to be the best guesser. The 241st guesser Mr alpha. The business of trying to be the fastest to reach El Market (a.k.a. the average of these guesses) is likely to Dorado now has an honourable be the best guesser of the weight name and it is taught at Harvard. of 240 oxen. It’s called seeking alpha! The So what are we trying to do ;VWZ[VJRZMVY¶ HUKOV^ business of seeking alpha may be here? The weight of each [OL`WLYMVYTLKPU[OLSHZ[KLJHKL rooted in our selfish gene – the individual ox has too many % change in stock price desire to get ahead, survival of the individual dimensions for any Name 2002–2009 2009–19 fittest. This desire is instinctive, single person to track. No way Unitech 71,827 -88 sub-conscious and primeval. It can you study each animal’s Aban Offshore 15,802 -80 has, for example, no link with any individual proclivity to garner fat Godrej Industries 8,829 741 evaluation of your ability. in different places or its eating Kalpataru Power 8,019 683 There’s this new belief now habits – simply too many moving Vedanta 7,758 233 that it’s pointless to try and you parts for any individual to wrap should just piggyback on what the his head around. JSPL 7,385 9 market is guessing and, on But any individual guesser Opto Circuits 6,823 -82 average, get the market return, can track five oxen, get to know Bharat Bijlee 6,582 16 which approximates the nominal them well, and beat the rest of the UB Holdings 6,334 1,669 growth rate of the economy over guessers on guessing the weight GE T&D 6,231 55 the long term. of his chosen oxen. That’s how Praj Industries 5,473 70 There are some investors who Warren Buffett and his ilk beat Sintex Industries 5,389 9 are beating the market by a markets: they stick to their circle CG Power 5,152 -95 whopper, some who are losing of competence and focus on the their shirts, and some who are oxen they know! Future Enterprises 5,066 40 doing just so-so. In toto, everyone If you write a paper saying Nayara Energy 4,719 197 together gets the market return, that ‘markets are efficient’, you Glenmark Pharma 4,690 142 so most people feel they have can get a Nobel Prize (Eugene Adani Enterprises 4,586 427 come out winners. But for those Fama, 1965) for it because this fact Emco 4,037 66 who seek to keep looking for that is true for 239 of the 240 guessers Jyoti Structures 4,034 -71 El Dorado (a.k.a. alpha), there are who are trying to beat the market. United Spirits 4,001 160 a couple of lessons. One, Mr It represents some insight in a Market is a fairly bad guesser of Source: Bloomberg world that knows no better, where 44 Wealth Insight April 2020

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OFFBEAT

the future and with some simple ;VWZ[VJRZVM ¶ HUKOV^ not ‘quality’ but ‘linearity’ – the tweaks, you can do a damn sight [OL`OHKWLYMVYTLKK\YPUN¶ fond hope that past performance better. For this, see the two tables. is any indicator of the future. % change in stock price If we take a snapshot of what Given that you have a Name 2009–2019 2002–09 the market was ranking at the end predisposition to recency, it’s very Bajaj Finance 45,689 727 of 2009, we find that likely that you will believe that Eicher Motors 10,582 362 z Six out of 20, i.e., 30 per cent of the recent performance is the best VIP Industries 6,886 7 the top 20, have dropped into indicator of the past. And I am Vakrangee 6,733 -84 the boondocks over the next quite sure that you don’t pay decade. much attention to the statutory Havells India 6,183 3,084 z Another six, 30 per cent of the admonition that the future may TVS Motor Co 5,827 -12 top 20, over the next decade not be like the past. AurobindoPharma 4,624 186 delivered returns that were To make a rational decision, Hexaware Tech 4,531 216 below the nominal growth rate you can go two ways: take the Indiabulls Ventures 4,440 -71 of the economy (assumed at 15 humble, ‘won’t try to beat the Bajaj Finserv 4,440 -73 per cent/annum), which I am market’ choice and just buy an IndusInd Bank 4,426 478 taking as a surrogate for the index fund. You’re guaranteed to hurdle rate that an investor not do very well but it’s also likely HEG 4,140 1,023 seeks. you won’t go bust. Or you can take Sundram Fasteners 3,823 147 z So, 60 per cent of the portfolio the road less travelled and choose Shree Cement 3,807 2,531 underperformed, delivering a potential outperformance. As the SRF 3,793 485 combined net return of second table shows, there’s no Amara Raja Batteries 3,370 1,222 approximately zero. way to say where the next top 20 MRF 3,351 366 z Three out of 20, 15 per cent of list is coming from (although you Sterlite Tech 3,016 125 the top 20, delivered a small will be told by sundry people that Graphite India 2,998 898 premium to the hurdle rate. it is entirely possible). z And five out of 20, 25 per cent The only reasonable way is to Torrent Pharma 2,950 254 of the portfolio, is the stuff focus on your shortlist of the Source: Bloomberg you were looking for, the driver ‘oxen’ that you know. Some part of returns. of your track record would be Focus on two important So, if you use the market as driven by serendipity, depending things: do you know your best advisor, this is what on which part of the pond you’re something (about may happen: stationed in. But there are ways to z Expect 30 per cent of your periodically tweak your strategy, something) that the portfolio to go to zero. look around and place yourself in market does not know? z Expect another 30 per cent to the right mega trend. Can you locate a underperform the cost of Focus on two important things: systematic weakness, a capital, the hurdle rate. do you know something (about ‘misthinking’ that the z Expect 40 per cent to something) that the market does market does all or most outperform, of which half not know? Can you locate a will be the alpha and half will systematic weakness, a of the time? just acquit itself moderately. ‘misthinking’ that the market Look at the second table. Is there any hint that the does all or most of the time? Focus on where the market market anticipated the winners of the last decade (2009– is most likely to change its mind and bet heavily on it. 19) from the rankings of the past decade? The top 20 of The business of beating the market is a serious one. the period 2020–30 are probably not on any of the above Asking your neighbour or the paanwala is not going to tables. And what’s worse is that you can rest assured get you anywhere close. And listening to the loudest that at least half the stocks on the top 20 of this decade voice is positively dangerous. You won’t likely beat the will be in the boondocks somewhere round the corner. market by buying yesterday’s winners. You can do so by This brings me to the ‘quality at any price’ debate. finding new stories that have elements which the Quality is defined as ‘past stock performance’; be market is yet to discover. WI careful with that definition. What you’re being sold is The author teaches, trades and writes at spandiya.blogspot.com April 2020 Wealth Insight 45

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6XEVFULEH 1RZ Insights into Indian mutual funds

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STOCK SCREEN

Ideas to delve deeper

S

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 a listing of 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: ŒQuality stocks available cheap Œ A ttractive blue chips Œ Stocks available at a steep discount to book value Œ High dividend-yield stocks Œ 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.

However, please note that they are not our 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 cycles, 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.

Key terms Universe companies In order to arrive at our universe of companies, we checked if the companies traded on all the days for the last two quarters. We considered the companies with a market capitalisation of more than `500 crore. Price to book value (P/B) Price to book value is the ratio of the price of a stock to the book value per share of the company. It shows how much premium investors are willing to pay for the underlying net assets of the company. Price to earnings (P/E) The price-to-earnings ratio, or the P/E ratio, is simply the ratio of the price of a stock to its earnings per share. It shows in multiples how much investors are willing to pay for the earnings. The thumb rule of valuing a stock is that a high-growth stock will have a high P/E ratio, while a value stock will have a relatively lower P/E ratio. Earnings per share (EPS) Earnings per share, or EPS, is calculated by dividing the company’s net profit with the total number of outstanding shares. EPS growth Growth of the EPS over a specified time period – trailing 12 months (TTM), a quarter or five years. Quarterly comparisons are on a year-on-year basis. For five years, the figures are annualised. Price-earnings to growth (PEG) This ratio demonstrates how high a price we are paying for the growth that we are purchasing. It is the ratio of price to earnings to the EPS growth of the stock. In all our analyses, we have taken five-year historic EPS growth. Earnings yield Earnings before interest and taxes (EBIT) divided by enterprise value. Enterprise value is market cap added to total debt and less cash and equivalents. Dividend per share Total dividend declared during the year divided by the total number of outstanding shares. Net sales This is simply the income that a company derives by selling the goods and services that it produces. The downside of taking sales as an indicator of growth is that it may not be matched by a similarly scintillating bottom-line (net profit) performance. A company may be earning revenue at a high rate. But if it is doing so by incurring a very high cost, the bottom line may not grow in proportion to the growth in the top line (sales). Interest-coverage ratio (ICR) This indicator is generally used to gauge whether a company has the ability to service its debt. The interest-coverage ratio is calculated as the ratio of operating profit to interest outgo. A company with an

ICR of more than two implies that it can service more than twice its current interest charges. Debt-equity ratio The debt-equity ratio is calculated as the ratio of total outstanding borrowings of the company to its total equity capital. It essentially tells us which companies use excessive leverage to achieve growth. Conventionally, the debt-equity ratio of less than two is considered safe. Return on equity (RoE) This is measured by taking profit after tax as a percentage of net worth of the company. It indicates how efficiently the company has been able to utilise investors’ money. Stock return Stock return is calculated by taking the percentage change in the price of the stock adjusted for bonus or split. Dividend yield This is defined as the percentage of the dividend paid per share to the current market price of the stock. Since the denominator in this ratio is the market price, a stock’s dividend yield changes every day. Dividend-payout ratio This is the total dividend paid to the shareholders as a percentage of net profit. Altman Z-Score Developed by Edward Altman of New York University, the Z-Score predicts a company’s financial distress or the possibility of its going bankruptcy within two years. A Z-Score of more than three is desirable. Modified C-Score It tells the probability of financial manipulations. In order to develop it, we have modified James Montier’s C-Score. A C-Score of less than four is desirable. Piotroski F-Score Developed by Joseph Piotroski, the F-Score highlights financial performance as compared to that in the previous year. It thus points out to the current outperformer Growth Value in terms of profitability and financial improvement. An F-Score of seven or above is good. Large Stock style It indicates the style of the stock. It is derived from a combination of the stock’s valuMid ation — growth or value — and its market capitalisation — large, mid and small. For example, on the Small right we have shown the stock style of a large-cap growth stock.

48 Wealth Insight April 2020

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STOCK SCREEN

Quality stocks available cheap The stocks listed below clear essential checks on solvency, accounting, recent financial performance and valuations

No. of companies that cleared the filters

REASONS TO INVEST

THE FILTERS

Safety Soundness Good performance Reasonable valuations

750

Market cap greater than `500 cr Z-Score greater than 2.99 F-Score greater than or equal to 7

Banking and finance companies were removed from this analysis as the metrics don’t apply to them.

C-Score less than 4 PEG less than 1 P/E to median P/E less than 1.5 Earnings yield greater than 5%

413 69 64 27

Safe bets Stock style

Company Industry

Andhra Paper Paper

DFM Foods Bakery & Milling Prod.

Excel Industries Pesticides

Firstsource Solutions Misc.Other Services

Galaxy Surfactants Personal Care

Garware Technical Fibres Misc.Textiles

Godrej Agrovet Oil cakes & Animal Feed

Granules Drugs & Pharma

Graphite Welding machinery

Gujarat Alkalies & Chem Caustic Soda

Gujarat Gas Indl.Gases

Heidelberg Cement Cement

Hester Biosciences Drugs & Pharma

Altman Z-Score

Piotroski F-Score

Modified C-Score

Earnings yield (%)

P/E

PEG

Market cap (` cr)

Share price (`)

52-week high/low (`)

3.5

9

3

54.3

3.2

0.03

573

143

505-135

5.2

9

2

5.4

27.6

0.85

983

200

334-166

4.7

8

1

29.8

5.1

0.09

575

443

1250-418

4.9

8

0

18.0

6.2

0.74

2,147

30

58-27

6.9

9

2

7.0

18.7

0.64

4,204 1,180

1790-971

5.6

9

1

7.5

17.0

0.47

2,407 1,086

1695-902

3.9

8

0

5.5

17.1

0.48

5,909

313

598-287

3.4

8

1

9.3

11.6

0.50

3,567

139

189-84

6.4

8

2

194.9

4.1

0.04

2,538

130

480-125

3.2

9

0

43.6

3.4

0.12

1,652

225

596-194

3.7

8

0

6.8

15.4

0.51

16,373

242

314-142

3.0

9

2

12.6

13.4

0.35

3,511

152

218-129

6.8

8

0

6.4

24.7

0.71

896 1,079

2048-951

April 2020 Wealth Insight 49

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STOCK SCREEN Stock style

Company Industry

The Indian Hotels Co Hotels & Restaurants

IOL Chem & Pharma Drugs & Pharma

KNR Construction Construction

L&T Technology Services Other Projects

Lux Industries Readymade Garments

Oriental Carbon & Chem Carbon Black

Radico Khaitan Liquors

Sandhar Technologies Auto Ancillaries

Satia Industries Paper

Sun TV Network Media & Entertainment

TCI Express Courier Services

Transpek Industry Inorganic Chem.

Tube Investments Auto Ancillaries

Vinati Organics Organic Chemicals

Altman Z-Score

Piotroski F-Score

Modified C-Score

Earnings yield (%)

P/E

PEG

Market cap (` cr)

Share price (`)

52-week high/low (`)

3.6

8

1

6.4

26.3

0.83

10,406

91

164-81

4.9

8

3

46.5

2.6

0.04

977

171

317-162

5.2

8

1

11.6

10.7

0.34

3,111

222

312-188

12.6

8

1

9.0

16.2

0.71

7.5

9

2

7.1

20.1

0.53

4.2

8

1

15.6

7.7

0.57

589

595

1200-550

5.1

8

2

7.3

17.9

0.84

4,091

304

439-262

3.4

9

3

9.8

13.0

0.29

1,017

161

314-155

3.8

9

2

15.0

7.5

0.20

784

77

113-60

29.1

9

0

19.2

9.0

0.65

12,831

326

651-319

28.6

8

3

5.4

25.5

0.48

2,339

617

950-501

4.0

9

1

13.0

10.2

0.19

5.2

8

0

5.8

24.7

0.98

7,452

386

577-325

29.7

8

3

5.5

23.8

0.94

8,140

791

1256-656

13,009 1,234 1820-1041 2,600 1,018

1680-925

805 1,390 2032-1077

Data as on March 20, 2020. New entrants.

To select stocks by sectors, industries and indices, visit

www.valueresearchonline.com/stocks/ 50 Wealth Insight April 2020

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

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

No. of companies that cleared the filters

THE FILTERS

All-weather style Companies with strong fundamentals Greater stability vis-a-vis value or growth

Market cap greater than `500 cr Earnings growth of: Π At least 20% in the past five years

Π At least 20% in the trailing 12

753

months YoY  Π At least 20% in latest quarter YoY

62

Stocks with a P/E of less than 15

26

On fast track Stock style

P/E

5Y median P/E

PEG

Quarterly EPS growth (%)

5Y EPS growth (%)

Market cap (` cr)

Share price (`)

52-week high/low (`)

9.7

20.1

0.77

37

23

41

1,262

113

225-100

APL Apollo Tubes

13.8

21.3

0.47

451

83

27

3,360 1,308 2219-1030

Arman Financial Services

12.2

15.2

0.23

55

88

50

529

556 1121-322

Bannari Amman Sugars

11.2

21.3

0.30

79

49

35

966

754 1665-690

Bombay Burmah Trading

4.8

9.8

0.23

3,233

220

34

5,179

739 1388-701

Caplin Point Laboratories

8.3

31.4

0.18

28

33

47

1,790

238

467-224

E.I.D. Parry

4.6

21.3

0.21

86

6,834

26

2,177

127

245-106

Fert & Chemicals Travancore

2.1

15.5

0.06

2,075

226

21

1,763

27

55-21

Hindustan Oil Exploration

2.9

43.9

0.11

41

318

27

512

40

136-36

Huhtamaki PPL

9.0

36.0

0.42

280

387

21

1,523

202

305-191

Ion Exchange

8.8

27.2

0.13

216

62

70

893

14.8

17.7

0.57

41

46

27

3,964

Company Industry

Advanced Enzyme Tech Food Processing

Steel Tubes & Pipes

Hire Purchase

Sugar

Tea & Coffee

Drugs & Pharma

Sugar

Other Fertilisers

Crude Oil & Natural Gas

Paper prod.

Industrial Machinery

JB Chemicals & Pharma Drugs & Pharma

TTM EPS growth (%)

611 1071-360 506

600-312

April 2020 Wealth Insight 51

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STOCK SCREEN Stock style

P/E

5Y median P/E

PEG

Quarterly EPS growth (%)

Kama Holdings

5.2

6.9

0.17

106

38

23

2,710 4,200 6390-4010

Kei Industries

9.2

21.3

0.21

49

25

71

2,336

257

615-250

13.9

57.6

0.29

43

153

37

509

430

770-370

Linde

5.5 234.7

0.02

4,016

2,072

167

3,997

472

801-424

Manappuram Finance

6.0

11.4

0.18

62

57

33

8,027

98

195-74

13.3

38.8

-0.54

50

73

42

PNC Infratech

4.9

15.2

0.18

491

45

38

3,108

125

219-102

Raymond

5.6

32.1

0.51

393

110

26

1,860

275

869-261

Satia Industries

7.5

7.5

0.20

48

31

43

784

77

113-60

10.7

21.0

0.25

112

130

42

1,268

131

239-113

9.2

13.2

0.28

77

35

32

13,539

287

333-231

10.2

13.5

0.19

107

149

56

805 1,417 2032-1077

Voltamp Transformers

9.2

15.7

0.27

58

51

34

1,011 1,007 1483-937

Welspun Corp

5.5

22.0

0.18

655

169

50

1,902

Company Industry

Synthetic Yarn

Wires & cables

Kingfa Science & Tech Plastic Resins

Indl.Gases

Hire Purchase

Pilani Investment & Ind Corp Invest.Services

Road Transport

Cloth

Paper

Supreme Petrochem Crude Oil & Natural Gas

Torrent Power

Electricity Distribn.

Transpek Industry Inorganic Chem.

Transformers

Steel Tubes & Pipes

TTM EPS growth (%)

5Y EPS growth (%)

Market cap (` cr)

Share price (`)

52-week high/low (`)

938 1,160 2643-1125

72

234-71

Data as on March 20, 2020. EPS growth rates are annualised. Median P/E is for less than five years if five-year data are not available. New entrants.

For Indian stocks selected as per investment gurus’ criteria, visit

www.valueresearchonline.com/stocks/ 52 Wealth Insight April 2020

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

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 No. of companies that cleared the filters

REASONS TO INVEST

THE FILTERS

Really cheap Relatively undervalued Companies with assets

Market cap greater than `500 cr

753

Companies must have a five-year earnings growth of more than 10% Price at least 10 per cent below the book value

Debt-equity ratio of less than 1.5 times Return on net worth of more than 10% in the most recent year

619 456 284 64

Bargain hunt Stock style

Company Industry

Andhra Paper Paper

Balrampur Chini Mills Sugar

Bodal Chemicals Organic Chemicals

Bombay Burmah Trading Tea & Coffee

Capacite Infraprojects Real Estate

Century Textiles & Ind Diversified

Cochin Shipyard Shipping

DCM Shriram Diversified

Delta Corp Media & Entertainment

Dhampur Sugar Mills Sugar

Excel Industries Pesticides

P/E

P/B

5Y EPS growth (%)

Dividend yield (%)

Debt-equity ratio

RoE (%)

Market cap (` cr)

Share price (`)

52-week high/low (`)

3.2

0.6

123

0.0

0.0

30.1

569

145

505-135

3.5

0.9

136

2.8

0.8

30.5

1,964

89

195-84

5.8

0.6

33

1.8

0.2

18.7

546

45

132-42

4.7

1.0

34

0.1

0.2

23.5

5,155

739

1388-701

5.4

0.7

10

1.1

0.3

12.2

611

90

295-84

5.5

1.0

191

2.5

0.9

22.1

3,391

304

1067-262

6.0

1.0

16

4.8

0.0

14.5

3,554

269

492-210

4.8

1.0

20

3.9

0.5

27.5

3,890

250

639-205

8.0

0.8

61

2.0

0.0

10.9

1,703

63

278-61

2.7

0.4

48

7.3

1.5

22.5

587

88

246-81

4.8

0.7

49

4.3

0.0

24.9

552

443

1250-418

April 2020 Wealth Insight 53

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

STOCK SCREEN Stock style

Company Industry

Future Supply Chain Sol. Transport Support Services

Gallantt Ispat Finished Steel

Gateway Distriparks Transport Support Services

GFL Organic Chemicals

GHCL Soda Ash

Glenmark Pharmaceuticals Drugs & Pharma

Graphite Welding machinery

Gujarat Alkalies & Chem Caustic Soda

Gujarat Ind Power Co Electricity Generation

Gujarat Narmada Valley Nitrogenous Fertilizer.

HEG Welding machinery

HIL Cement & Asbestos prod.

Himadri Speciality Chem Coal & Lignite

Hindustan Oil Exploration Crude Oil & Natural Gas

Indiabulls Real Estate Real Estate

India Glycols Organic Chemicals

Indian Oil Corporation Crude Oil & Natural Gas

Jindal Saw Steel Tubes & Pipes

P/E

P/B

5Y EPS growth (%)

Dividend yield (%)

Debt-equity ratio

RoE (%)

Market cap (` cr)

Share price (`)

52-week high/low (`)

-

0.8

72

0.8

0.4

12.5

655

150

711-150

11.4

0.7

55

0.2

0.3

15.2

579

20

44-16

2.4

0.7

17

5.2

0.6

25.8

944

87

154-81

1.5

0.4

14

4.4

0.4

25.1

882

80

1144-729

2.0

0.4

27

5.6

0.7

19.8

854

90

277-85

8.3

1.0

10

1.0

0.8

17.2

5,940

212

667-162

4.1

0.6

92

42.4

0.1

84.1

2,533

130

480-125

3.4

0.4

30

3.6

0.1

17.0

1,644

225

596-194

2.3

0.3

13

5.5

0.2

10.3

801

54

87-48

5.0

0.3

20

6.0

0.0

15.5

1,799

116

338-105

2.3

0.5

108

14.4

0.2

107.0

2,141

555

2201-529

4.7

0.7

70

3.7

1.1

16.9

510

680

2030-630

7.0

0.8

49

0.4

0.3

21.3

1,455

35

122-32

3.0

0.8

27

0.0

0.0

33.6

519

40

136-36

6.0

0.6

10

0.0

1.4

17.0

2,051

45

151-38

5.4

0.6

23

2.8

1.0

14.8

661

213

397-178

6.6

0.7

21

10.2

0.9

14.0

85,292

91

171-76

3.2

0.3

60

3.8

0.9

13.0

1,695

54

103-43

54 Wealth Insight April 2020

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

STOCK SCREEN Company Industry

Jindal Stainless Stainless Steel

JK Paper Paper

J Kumar Infraproject Construction

Jubilant Life Sciences Drugs & Pharma

Kalpataru Power Trans. Infrastructure

KCP Cement

Kiri Industries Dyes & Pigments

LT Foods Other Agri.prod.

Maithan Alloys Ferro Alloys

Majesco Computer Software

Mastek Computer Software

Meghmani Organics Pesticides

Music Broadcast Media & Entertainment

National Aluminium Co Aluminium

National Peroxide Inorganic Chem.

NCC Construction

NHPC Electricity Generation

NOCIL Thermoplastics

Stock style

P/E

P/B

5Y EPS growth (%)

Dividend yield (%)

Debt-equity ratio

RoE (%)

Market cap (` cr)

Share price (`)

52-week high/low (`)

2.4

0.4

55

0.0

1.3

20.7

905

39

101-34

2.9

0.6

45

4.4

0.8

23.1

1,424

80

156-68

2.9

0.3

11

2.8

0.4

11.1

613

83

182-71

8.3

0.8

218

1.6

1.0

13.0

4,470

280

832-250

6.4

1.0

31

1.4

0.8

17.4

3,279

211

555-196

16.1

0.8

20

2.1

0.7

13.9

628

49

108-40

3.3

0.5

59

0.9

0.1

10.8

786

234

654-200

3.5

0.4

12

0.9

1.3

11.0

526

16

40-13

4.6

0.8

86

1.7

0.0

25.8

1,053

360

699-316

11.1

0.8

49

0.7

0.0

12.9

604

209

588-204

4.9

0.6

13

4.1

0.1

16.4

503

205

509-192

3.9

0.8

51

2.6

0.7

31.5

984

39

73-35

9.4

0.8

12

0.0

0.1

10.2

524

15

50-12

22.4

0.6

30

17.8

0.0

16.5

6,035

32

58-24

21.9

0.7

31

5.3

0.1

14.0

3.0

0.3

128

6.8

0.6

13.3

1,348

22

119-18

6.9

0.8

19

6.9

0.8

12.1

21,295

21

29-15

7.3

0.9

50

3.9

0.0

16.8

1,060

64

150-59

707 1,231 3170-1052

April 2020 Wealth Insight 55

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

STOCK SCREEN Stock style

Company Industry

Phillips Carbon Black Carbon Black

Polyplex Corporation Plastic Films

Rail Vikas Nigam Construction

Ramkrishna Forgings Auto Ancillaries

Shriram Pistons & Rings Auto Ancillaries

Siyaram Silk Mills Cloth

Take Solutions Misc.Other Services

Tata Chemicals Soda Ash

Tata Steel Finished Steel

Technocraft Industries Steel Tubes & Pipes

Time Technoplast Other Forms-Primary Plastic

Triveni Engineering & Ind Diversified

TVS Srichakra Tyres & Tubes

TV Today Network Media & Entertainment

Varroc Engineering Auto Ancillaries

Welspun Enterprises Construction

West Coast Paper Mills Paper

P/E

P/B

5Y EPS growth (%)

Dividend yield (%)

Debt-equity ratio

RoE (%)

Market cap (` cr)

Share price (`)

52-week high/low (`)

4.0

0.6

45

5.2

0.5

25.3

1,151

67

182-59

3.2

0.4

88

14.0

0.3

21.9

1,168

366

657-314

4.2

0.6

31

6.4

0.7

14.6

2,898

14

30-13

13.6

0.6

63

0.9

1.1

14.8

554

171

545-151

10.0

1.0

14

2.2

0.1

14.4

1,040

465

1099-445

12.1

0.9

10

3.0

0.6

13.8

676

144

486-121

3.5

0.4

21

2.4

0.3

12.6

609

41

160-39

4.7

0.4

33

5.5

0.5

11.0

5,838

229

780-210

6.6

0.5

12

4.4

1.5

14.2

35,889

298

562-255

5.3

0.6

11

0.0

0.8

15.5

540

226

580-210

3.2

0.4

15

3.1

0.5

13.3

664

29

109-27

3.5

0.8

34

1.8

1.5

18.8

978

39

88-36

9.6

1.0

13

4.2

0.6

15.1

727

946

2287-881

6.8

0.9

16

1.5

0.0

18.3

923

154

345-128

8.6

0.8

52

2.2

0.8

14.1

2,472

183

655-166

7.1

0.4

39

4.7

0.4

10.2

638

43

143-42

2.9

0.7

114

3.5

0.3

30.6

934

141

297-138

Data as on March 20, 2020. EPS growth rates are annualised. New entrants.

56 Wealth Insight April 2020

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

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

No. of companies that cleared the filters

THE FILTERS

Cushion against volatility Higher total return Generate regular tax-free income

Market cap greater than `500 cr

Stocks with a current dividend yield of more than 3%

Dividend payout ratio of less than 40%

Stocks with sustained per share dividend and amount over the past five years

753 628 88 63

Dear dividend Company Industry

Allcargo Logistics Transport Support Services

Apollo Tyres Tyres & Tubes

Automotive Axles Auto Ancillaries

Birlasoft Computer Software

Bombay Dyeing Textile Processing

CESC Electricity Generation

Cochin Shipyard Shipping

Cyient Computer Software

DCM Shriram Diversified

Deepak Fertilisers Inorganic Chem.

Edelweiss Fin Services Invest.Services

Excel Industries Pesticides

Stock style

Dividend per share (`)

Dividend Dividend Earnings yield (%) pay-out ratio (%) yield (%)

Share price (`)

52-week high/low (`)

1,684

69

123-64

9.6

5,097

89

228-84

24.8

16.2

629

3.5

18.9

28.6

1,594

58

106-50

1.5

3.4

2.5

36.7

906

44

147-42

0.34

17.5

3.7

19.6

15.5

6,251

472

855-432

6.0

0.28

13.0

4.8

35.8

79.3

3,554

269

492-210

6.3

0.73

15.0

5.5

34.6

27.3

2,973

269

685-254

4.8

0.25

9.8

3.9

16.9

23.1

3,890

250

639-205

10.2 -0.50

3.0

3.8

37.4

9.9

708

79

169-57

41

211-38

P/E

PEG

6.7

1.38

3.5

5.1

35.5

16.4

10.6 -0.83

3.3

3.6

27.3

0.38

19.5

4.7

7.2 -3.21

2.0

0.6

–

4.9

9.6

Market cap (` cr)

8.8

0.75

1.4

3.4

12.5

–

3,814

4.8

0.09

18.8

4.3

15.4

31.3

552

414 1295-366

443 1250-418

April 2020 Wealth Insight 57

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

STOCK SCREEN Stock style

Company Industry

Gateway Distriparks Transport Support Services

GHCL Soda Ash

Graphite Welding machinery

Gujarat Alkalies & Chem Caustic Soda

Gujarat Ind Power Company Electricity Generation

Gujarat Mineral Dev Corp Coal & Lignite

Gujarat State Fertilizers Nitrogenous Fertilizer.

HIL Cement & Asbestos prod.

Himatsingka Seide Silk Textiles

Hindustan Aeronautics Air Transport

Housing & Urban Dev Corp Housing Finance

IIFL Finance Invest.Services

IRB Infrastructure Dev Construction

Jagran Prakashan Books & Newspapers

Jamna Auto Inds. Auto Ancillaries

Jindal Saw Steel Tubes & Pipes

JK Paper Paper

Kirloskar Oil Engines Auto Ancillaries

Dividend per share (`)

Dividend Dividend Earnings yield (%) pay-out ratio (%) yield (%)

Share price (`)

52-week high/low (`)

944

87

154-81

33.6

854

90

277-85

31.6

196.8

2,533

130

480-125

3.6

8.5

43.8

1,644

225

596-194

2.9

5.5

17.2

43.5

801

54

87-48

2.0

5.8

28.9

36.0

1,105

35

85-30

37

111-37

P/E

PEG

2.4

0.16

4.5

5.2

13.4

10.6

2.0

0.08

5.0

5.6

14.0

4.1

0.04

55.0

42.4

3.4

0.12

8.0

2.3

0.17

3.9 -0.30

Market cap (` cr)

10.1

1.35

2.2

5.9

17.8

11.5

1,478

4.7

0.13

25.0

3.7

18.4

16.4

510

4.7

0.40

5.0

8.1

25.0

14.3

610

62

241-56

6.8

0.46

19.8

3.5

29.2

18.0

19,144

565

896-472

2.9

0.17

0.8

3.8

14.0

10.5

4,334

22

47-20

3.9

0.31

5.0

5.5

23.1

–

2,884

90

480-86

2.7

0.31

2.5

4.3

10.3

16.3

2,054

59

160-53

3.7

0.46

3.5

8.2

37.8

32.9

1,201

43

129-39

15.0

0.46

1.0

3.6

27.5

12.1

1,052

26

63-21

3.2

0.06

2.0

3.8

7.5

12.4

1,695

54

103-43

2.9

0.06

3.5

4.4

14.6

37.5

1,424

80

156-68

6.3

1.32

5.0

5.3

33.0

54.2

1,354

93

205-87

58 Wealth Insight April 2020

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

680 2030-630

STOCK SCREEN Stock style

Company Industry

LIC Housing Finance Housing Finance

Lumax Industries Auto Ancillaries

Magma Fincorp Equipt.Leasing

M&M Financial Services Misc. Fin.services

Mastek Computer Software

National Peroxide Inorganic Chem.

Nava Bharat Ventures Diversified

NBCC Real Estate

NCC Construction

NOCIL Thermoplastics

NRB Bearings Ball Bearings

Nucleus Software Exports Computer Software

Phillips Carbon Black Carbon Black

Piramal Enterprises Drugs & Pharma

PNB Housing Finance Housing Finance

PTC Electricity Distribn.

Rane Holdings Auto Ancillaries

Sasken Technologies Telecom.Services

Dividend per share (`)

Dividend Dividend Earnings yield (%) pay-out ratio (%) yield (%)

Market cap (` cr)

Share price (`)

52-week high/low (`)

225

587-209

P/E

PEG

4.2

0.32

7.6

3.4

15.8

10.1

11,289

11.2

1.08

35.0

4.2

31.5

10.9

784

3.6 -0.92

0.8

4.0

7.1

12.4

539

20

138-19

8.5

0.78

6.5

3.1

21.9

11.6

13,004

210

442-187

4.9

0.14

8.5

4.1

20.1

38.3

503

205

509-192

21.9

0.71

65.0

5.3

24.3

6.7

2.5

0.22

1.5

3.8

7.5

22.1

686

39

121-36

22.6 -2.62

0.7

3.8

31.2

-20.4

3,069

17

68-14

831 1902-751

707 1,231 3170-1052

3.0

0.02

1.5

6.8

15.6

33.8

1,348

22

119-18

7.3

0.14

2.5

3.9

22.4

19.6

1,060

64

150-59

14.5

0.54

2.6

4.8

23.3

8.9

524

55

204-50

7.6

1.74

9.0

4.4

35.1

31.1

593

203

399-200

4.0

0.09

3.5

5.2

15.7

24.0

1,151

67

182-59

7.1 -1.32

28.0

4.0

35.1

12.2

15,445

685 2730-665

2.5

0.13

9.0

4.7

12.6

11.5

3,231

192

983-190

2.8

1.64

4.0

11.0

27.8

12.9

1,073

36

81-33

21.1 -0.11

19.0

5.3

26.2

10.3

516

361 1603-350

6.2 -1.21

12.5

3.2

23.7

26.1

596

397

774-335

April 2020 Wealth Insight 59

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STOCK SCREEN Stock style

Company Industry

Seshasayee Paper

P/E

3.2

Paper

Sharda Cropchem Misc.Chem.

Siyaram Silk Mills Cloth

Sobha Real Estate

Srikalahasthi Pipes Pig Iron

Sterlite Technologies Communication Equipt.

Sun TV Network Media & Entertainment

Tata Power Company Electricity Generation

Tata Steel Long Products Sponge Iron

Tata Steel Finished Steel

Time Technoplast Other Forms-Primary Plastic

Welspun Enterprises Construction

West Coast Paper Mills Paper

Zensar Technologies Computer Hardware

PEG

Dividend per share (`)

Dividend Dividend Earnings yield (%) pay-out ratio (%) yield (%)

Market cap (` cr)

Share price (`)

52-week high/low (`)

-

4.0

4.0

13.1

68.4

626

100

226-88

8.7 324.44

4.0

3.2

20.5

22.2

1,117

124

420-115

12.1

1.68

4.4

3.0

20.8

10.3

676

144

486-121

5.0

0.76

7.0

3.9

22.4

24.7

1,714

180

588-170

3.9

0.19

6.0

4.2

23.8

44.2

668

144

262-123

5.7

0.08

3.5

4.8

25.0

20.1

2,943

73

231-59

9.0

0.65

12.5

3.8

34.4

19.2

12,843

326

651-319

15.1 -3.55

1.3

3.5

16.0

9.8

9,954

37

77-33

-

-

12.5

5.7

15.5

-33.5

844

187

854-409

6.6

0.56

13.0

4.4

14.6

10.1

35,889

298

562-255

3.2

0.23

0.9

3.1

10.0

27.6

664

29

109-27

7.1

0.07

2.0

4.7

23.4

43.4

638

43

143-42

2.9

0.00

5.0

3.5

11.2

42.2

934

141

297-138

7.2

2.70

2.8

3.2

20.1

23.6

1,980

88

271-87

Data as on March 20, 2020. EPS growth rates are annualised. New entrants.

For real-time, customisable stock screens, visit

www.valueresearchonline.com/stocks/ 60 Wealth Insight April 2020

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STOCK SCREEN

Attractive blue chips Investing in blue chips at reasonable valuations is one of the simplest methods of wealth creation with limited pain REASONS TO INVEST

No. of companies that cleared the filters

THE FILTERS

Liquidity Large companies in respective businesses Strong balance sheets Liked by institutions

Large and mid caps Debt-equity ratio of less than two Interest coverage ratio should be more than two Five-year average ROE of more than 20% Annualised earnings growth of more than 20% over the past five years PEG of less than 1.5 Five-year average return on equity above 20%

235 199 155 75 17 9 4

Solid foundation Stock style

Company Industry

Aarti Industries Organic Chemicals

Godrej Consumer Products Cosmetics & Toiletries

Hindustan Petro Corpn. Crude Oil & Natural Gas

Vinati Organics Organic Chemicals

Debt-equity Interest ratio coverage ratio

5Y avg RoE (%)

Market cap (` cr)

Share price (`)

52-week high/low (`)

25

13,379

768

1071-713

27

20

51,121

499

772-476

12.6

23

44

31,886

209

334-150

196.2

26

25

8,081

791

1256-656

P/E

PEG

24.7

0.91

0.9

4.4

24

23.2

1.27

0.5

9.8

11.8

0.30

0.9

23.6

0.94

0.0

5Y EPS growth (%)

Data as on March 20, 2020. EPS growth rates are annualised.

For real-time, customisable stock screens, visit

www.valueresearchonline.com/stocks/ April 2020 Wealth Insight 61

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WORDS WORTH NOW We were leaders in antibiotics but due to government and media pressure that we are charging so much, we stopped making them for the last 20 years and started to import from China. Today we are 100% dependent on China and they control prices. And we are so stupid, we just killed our industry because of media and government pressure. Let us use this opportunity to revive some of these industries, even if it costs more. Pharma companies are not criminals, they are actually saints. Kiran Mazumdar Shaw Chairperson, Biocon, Mint, March 19, 2020

I request all people in the country to get out of house only when it is extremely necessary; try and do all work from home…Even World War I and II did not affect as many countries as coronavirus has done… Avoid this mindset that it will not affect India. Narendra Modi Prime minister, Business Standard, March 20, 2020

That [shutting the market due to COVID-19] will create panic. I feel market forces should be allowed to transact business freely. The call for closing down will create panic and more selling. I feel the wise thing is to allow the market to settle down on its own. Motilal Oswal MD & CEO, Motilal Oswal Financial Services, BusinessLine, March 19, 2020

I am afraid that the impact of the coronavirus on the [aviation] industry has been particularly severe. With the precipitous dip in revenues, the very survival of the industry is now at stake.

The failure of a few corporates has led to a lot of gossip and speculation, this is what happened with IndusInd Bank as well. Everything was smooth sailing for us; just one transaction on IL&FS, which was a triple A rated firm and almost with a sovereign backing, went bad. We have deep pockets and we are completely backing IndusInd bank, though it does not need capital for the next two years.

Ronojoy Dutta CEO,

IndiGo, Business Standard, March 20, 2020

Yes Bank depositors’ money is fully safe and secure; bank’s identity will be retained as a private sector entity… `10,000 crore capital infusion is adequate and ensures compliance with regulatory requirements. Shaktikanta Das RBI governor, Financial Express, March 17, 2020 62 Wealth Insight April 2020

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Ashok Hinduja

Chairman, Hinduja Group of Companies India, The

Economic Times, March 16, 2020

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