Value Research September

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Value Research
September 2018
Volume XII, Number 3 33 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.
Editor
Dhirendra Kumar
Associate Editor
Vibhu Vats
Special Correspondents
Kumar Shankar Roy
Data Support
Prasobh Nair
Design
Mukul Ojha, Kiran Sindhwal
Production
10 VALUE GURU 48 STOCK ADVISOR
Hira Lal
Data source for stocks
Buy businesses with long-term visibility Confessions of
AceEquity
the Warren Buffett way an equity analyst
9DOXH5HVHDUFK,QGLD3YW/WG
Wealth Insight is owned by Value
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Total pages 68, including cover
4 Wealth Insight September 2018

Columns
7 30 INTERVIEW
EDIT
by DHIRENDRA
KUMAR
Micro is beautiful
but also ugly
Micro caps can both be great wealth
creators and wealth destroyers. Be
extremely cautious in picking them.
42
OFFBEAT
by SANJEEV PANDIYA
When technical ‘Reassessing investment hypothesis

analysis fails dispassionately is crucial’
Tracking the collective ego
can be more rewarding than P V K Mohan
following technical analysis Head – Equity, Principal PNB Asset Management
44 8 MONTHLY AGENDA 53 STOCK ANALYST’S CHOICE

STRAIGHT
TALK Swaying with the Our scorecard
by ANAND TANDON interest rate
The rise of ESG 56 STOCK SCREEN
investing 14 MARKET COMPASS
Investing practices based on Index watch Reasonably priced

environmental, social and growth stocks
governance issues are fast Big moves
gaining ground The leader vs the rest Quality stocks available
Market (non)sense cheap
46 Institutional moves Attractive blue chips
TAKING STOCK
The pledging tracker High dividend-yield
by MALINI BHUPTA IPO tracker stocks
‘Here is what you Promoter in action Discount to book value
should do...’
Analysts are increasingly
getting into uncharted territories 28 ANALYST’S DIARY
66 WORDS WORTH NOW
and advising companies on how

to run their businesses. This is
On the edge
unwelcome. Taxation boost
DISCLAIMER
The contents of Wealth Insight published by Value Research India Private Limited (the ‘Magazine’) are not intended to serve as professional advice or guidance and the Magazine takes no responsibility or liability, express or implied, whatsoever for any investment
decisions made or taken by the readers of this Magazine based on its contents thereof. You are strongly advised to verify the contents before taking any investment or other decision based on the contents of this Magazine. The Magazine is meant for general reading
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September 2018 Wealth Insight 5

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EDIT
Micro is beautiful but also ugly

Micro caps can both be great wealth creators and wealth destroyers.
Be extremely cautious in picking them.
DHIRENDRA KUMAR
I don’t know when I first heard the They are different kinds of businesses and from
term ‘micro cap’ but it certainly was not in use in the your and our point of view, they are very different
90s. We just had big, medium and small companies. We kind of investment opportunities. They have to be
used to call them large cap, mid cap and small cap and approached differently and studied differently. At
that was that. this point, there’s no logic of further categories like
Today, the range is subdivided into at least one nano cap but one day there might be. However, you
more step, which is micro cap. At Value Research, for can be sure that we will use them only if necessary.
a long time, we have also been using the term ‘giant Albert Einstein famously said, “Everything should
cap’ on our website in some contexts. At this point, be made as simple as possible but not simpler.” Value
the reader is entitled to ask how one can decide what Research’s slogan could well be a variant of this idea:
the appropriate number of slots is in which to divide “Everything should be as complex as needed but not
all companies listed on the Indian markets. There are more complex.”
companies ranging from Reliance Industries, which One thing that investors must appreciate about
is now worth `8 lakh crore, all the way down to smaller companies is that they are on a completely
Antariksh Industries, which is the smallest company different part of the risk–reward scale. The smaller
in our database and has a capitalisation of `2 lakh. the company, the more likely it is that you will go
After all, given the love for jargon and complexity wrong in choosing its stock. However, if you turn out
that financial types have, what is to stop someone to be right, then the gains can be huge. Ask any
from having mega-large cap, ultra-large cap, large investor who had invested in Symphony or Relaxo.
cap, mid cap, small cap, micro cap, nano cap, And for the other sad side of the story, ask anyone
minuscule cap, pico cap and so on and so forth? Of who had invested in any one of the thousands of
course people are free to do that and I’m sure one day listed companies that have simply disappeared.
someone will reach and even cross these limits. Therefore, you should approach the lists in our cover
However, at Value Research, we hate jargon and story with extreme caution. This is a statistical
complexity. We follow a simple principle, which is of exercise and we are doing it because it is valid within
uniformity of characteristics. Years ago, we invented our judgement. It’s also interesting and educational.
the ‘giant-cap’ category because by characteristic, we However, these are most certainly not buy lists or tip
found that the largest large-cap companies (Reliance sheets and do not treat them as one.
Industries and Infosys being typical examples) were At some point we will also do equivalent ‘India’s
quite different from routine large-cap companies like Most Wanted’ for larger companies and those will
MRF. So there was a logic to creating a new category. surely be just as useful. However, those will be less
Similarly, at other end, we find that a `5,000 crore interesting, less educational and less like investing in
company like Monsanto is a fairly substantial small one’s own business!
cap and is quite different from the tiny Archies,
whose market cap is only `95 crore.

MONTHLY
AGENDA
Swaying with the interest rate

In August, the Reserve Bank of India
raised the repo rate by 25 basis
points, to 6.5 per cent. The banking
and financial sector is most sensitive
to the RBI’s rate hikes. The following
graphs tell you how various banking
and finance-related stocks have
reacted to interest rates over the
long term.
The aggregate picture suggests
that there is an inverse relation
between interest-rate movements
and stock prices of banking and
finance companies. The correlation,
however, is weak in most cases.
Nifty Financial Services Index Interest rate Left axis: Stock/index. Right axis: Interest rate
15000 10%
Correlation
12000 8
9000 -0.08 6
6000 4
3000 2
0 0
September 2008 August 2018
HDFC Bank ICICI Bank

2350 10% 400 10%
1900 8 320 8
1450 6 240 6
1000 4 160 4
Correlation Correlation
-0.09 0.05
550 2 80 2
100 0 0 0
September 2008 August 2018 September 2008 August 2018

MONTHLY
AGENDA
SBI HDFC
400 10% 2500 10%
320 8 2000 8
240 6 1500 6
160 4 1000 4
Correlation Correlation
-0.05
80 2 500 2
0 -0.11 0 0 0
Bajaj Finance Shriram Transport Finance

3500 10% 2000 10%
2800 8 1600 8
2100 6 1200 6
1400
Correlation 4 800 4
700 -0.24 2 400

Correlation
2
0 0 0 -0.01 0
LIC Housing Finance Sundaram Finance

1000 10% 2500 10%
800 8 2000 8
600 6 1500 6
Correlation
400
200
Correlation
4
2
1000
500
-0.01 4
0 -0.06 0 0 0
Bharat Financial Inclusion Manappuram Finance

1500 10% 150 10%
1200 8 120 8
900 Correlation 6 90 Correlation 6
600
-0.89 4 60
-0.27 4
300 2 30 2
0 0 0 0
August 2010 August 2018 September 2008 August 2018

VALUE GURU
Buy businesses with long-term visibility

the Warren Buffett way
One effective way of finding good companies is to ask whether their product
or service will undergo any change over the next 10 years
“We will never buy anything we don’t think we understand. And our
definition of understanding is thinking that we have a reasonable
probability of being able to assess where the business will be in 10 years.”
Warren Buffett in Berkshire Hathaway AGM, 2000
I
nvestors who have come to the market in the last 10
years have seen it go only up. Many of them do not
think about the long-term demand for a company’s
products and its impact on stock returns. In this issue
of Value Guru, we explore the relation between long-
term visibility of a company’s product or service and
how it affects the returns you can expect.
The world’s greatest investor Warren Buffett takes a
long hard look at where a company will be five–10
years from today. We show you how you can improve
your stock returns if you follow Buffett.
Buffett gives a lot of weightage to businesses that
are stable and have been doing the same thing for
decades. His rationale is that such businesses develop
a franchise over decades of operations. Here is Buffett
explaining why this is important.
“Experience, however, indicates that the best busi-
ness returns are usually achieved by companies that
are doing something quite similar today to what they
were doing five or ten years ago. That is no argument
for managerial complacency. Businesses always have
opportunities to improve service, product lines,
manufacturing techniques, and the like, and
obviously these opportunities should be
seized. But a business that constantly
encounters major change also
encounters many chances for
major error. Furthermore, eco-
nomic terrain that is forever
shifting violently is ground on
which it is difficult to build a
fortress-like business fran-
chise. Such a franchise is
usually the key to sustained
high returns.”
100 W
Wealth
We
eaallth
th IInsight
nssig
ght
ht September
Sep
epteemb
mber
er 2018
200118

VALUE GURU
Looking ahead Or some large number. And that the person who could
What we have to train ourselves as investors is to look make people happy a billion times a day around the
out how a company is going to do five or 10 years globe ought to make a few bucks off doing it. And so
ahead. You want it to be continuing to do the same that $40, which went down to $19, I think with divi-
thing again and again. dends reinvested, has to be well over $5 million now.
“There are all kinds of important subjects that And if you developed a view on these other subjects
Charlie and I, we don’t know anything about, and that in any way forestalled you acting on this more
therefore we don’t think about them. So we have – our important, specific narrow view about the future of
view about what the world will look like over the next the company, you would have missed a great ride. So
ten years in business or competitive situations, we’re that’s the kind of thing we focus on.”
just no good.
We do think we know something about what Coca- Avoid businesses that a smartphone can destroy
Cola’s going to look like in ten years, or what Gillette’s Technology is a disruptive force. It has destroyed the
going to look like in ten years, or what Disney’s going fortunes of many varied industries. Here is Buffett
to look like in ten years, or what some of our operat- talking of the effect of technology and the damage it
ing subsidiaries are going to look like in ten years. can do to some industries.
We care a lot about that. We think a lot about that. “If something comes in where there’s a technologi-
We want to be right about that. If we’re right about cal component that’s of significance, or where we
that, the other things get to be – you know, they’re less think the future technology could hurt the business as
important. And if we started focusing on those, we it presently exists, we look at, you know, we look at
would miss a lot of big things. that as something to worry about.”
I’ve used this example before, but Coca-Cola went Here are some businesses destroyed by smart-
public in, I think, it was 1919. And the first year one phones. Some are struggling to remain alive.
share cost $40. The first year it went down a little over ` GPS location devices
50 percent. At the end of the year, it was down to $19. ` Scanners
There were some problems with bottler contracts. ` Book publishers
There’s problems with sugar. Various kinds of prob- ` File cabinet manufacturers
lems. If you’d had perfect foresight, you would have ` Fax
seen the world’s greatest depression staring you in the ` Music CD and DVD players
face, when the social order even got questioned. You ` Digital cameras
would have seen World War II. You would have seen ` Handheld video games
atomic bombs and hydrogen bombs. You would have ` Watches
seen all kinds of things. And you could ` Travel agents
always find a reason to postpone ` Brick and mortar book stores
why you should buy that ` Traditional taxis
share of Coca-Cola. ` Banks physical branches
But the important ` Encyclopaedias
thing wasn’t to see ` Real estate brokers
that. The import- Remember, avoid companies selling products that
ant thing was to can one day become an app.
see they were
going to be sell- The problem with tech companies
ing a billion Many Indian tech companies that do
eight-ounce basic back-office work are susceptible to
servings of any innovation that can render their ser-
beverages a vices obsolete. Automation has started
day this year. doing that today. These tech firms will
“You are not buying a stock, you are buying part ownership in a
business. You will do well if the business does well, if you didn’t pay a
totally silly price. That is what it is all about.”

VALUE GURU
“I know what the chewing business will look like ten years from now.
The Internet is not going to change how we chew gum and nothing
much else is going to change how we chew gum.”
have to move up to doing something that cannot be hurt Coca-Cola around the world? I can’t do it. Those
easily replicated by robots or software. Here’s Buffett are good businesses.”
talking about the risks to software companies com-
pared to those selling simpler products. How to look at stocks?
“I am not going to be able to fig- In today’s world of ‘click to buy and
ure what the moat is going to look
like for Oracle, Lotus or
100 not out sell’ many investors confuse invest-
ing with trading. ‘Buy today, sell
Companies selling the
Microsoft ten years from now. same product for over a century. tomorrow’ is a big selling jingle
Gates is the best businessman Year of for one big brokerage. This is
Company Business incorporation
I have ever run into and they exactly what you should never
have a hell of a position, but I Britannia Industries Biscuits 1892 do with stocks. If you have
really don’t know what that Shalimar Paints Paints 1902 done your homework and have
business is going to look like Kirloskar Brothers Pumps 1888 not fallen prey to a ‘hot stock’
ten years from now. I certainly Dabur Ayurvedic 1884 at crazy valuations, you should
don’t know what his competi- Godrej and Boyce Locks 1897
not be looking at an exit price.
tors will look like ten years Buffett explains.
Indian Hotels Hotel 1903
from now. I know what the “I don’t want to buy any stock
ITC Cigarette 1910
chewing business will look like where if they close the NYSE
ten years from now. The Internet Tata Steel Steel 1907 tomorrow for five years, I won’t be
is not going to change how we chew happy owning it. I buy a farm and I
gum and nothing much else is going don’t get a quote on it for five years and
to change how we chew gum. There will I am happy if the farm does OK. I buy an
be lots of new products. Is Spearmint or apartment house and don’t get a quote on it
Juicy Fruit going to evaporate? It isn’t for five years, I am happy if the apartment
going to happen. You give me a billion dollars house produces the returns that I expect. People
and tell me to go into the chewing gum business buy a stock and they look at the price next morn-
and try to make a real dent in Wrigley’s. I can’t ing and they decide to see if they are doing well or
do it. That is how I think about businesses. I not doing well. It is crazy. They are buying a
say to myself, give me a billion dollars and piece of the business. That is what Graham –
how much can I hurt the guy? Give me the most fundamental part of what he
$10 billion dollars and how much can I taught me. You are not buying a stock,
you are buying part ownership in a
business. You will do well if the busi-
ness does well, if you didn’t pay a
totally silly price. That is what it
is all about.”
Remember Buffett is not say-
ing you bury your head in the
sand after you buy a stock.
Follow the major news, the big
developments, the ups-and-
downs, but don’t trade in the
stocks you bought for the long
term. The table lists out Indian
companies that have been doing
the same thing over and over again
for more than 100 years. WI

MARKET
C MPASS INDEX WATCH
Nifty Energy Index

16.3
Price to earnings
2.2
Price to book
1.9
Dividend yield (%)
15.9
Market cap
(` lakh cr)
Nifty Energy Nifty Median

Top gainers/losers
Nifty Energy has given returns similar to those from Nifty 50 in five years.
Company name M-cap (` cr) 1Y change (%)
16000
Reliance Industries 7,62,704 53.7
14000
GAIL 87,328 37.7
12000 ONGC 2,09,310 1.6
10000 NTPC 1,30,237 -10.7
8000 Power Grid 97,935 -14.7

Reliance Infra 10,940 -15.3
6000
Aug ’13 Aug ’14 Aug ’15 Aug ’16 Aug ’17 Aug ’18 Tata Power 18,568 -15.6
BPCL 81,889 -23.4
Price/earnings is at 25.8% premium to its five year median of 12.9.
IOC 1,55,000 -25.0
28
HPCL 40,770 -38.4
24
20
16
Valuations and dividend
Dividend
12
Company name P/E P/B yield (%)
8 BPCL 8.6 2.2 5.6
Aug ’13 Aug ’14 Aug ’15 Aug ’16 Aug ’17 Aug ’18
GAIL 18.0 2.1 2.3
Price/book value is at a 29.5% premium to its five-year median of 1.66. HPCL 5.7 1.6 6.4
4.5 IOC 6.6 1.3 13.2
3.8 NTPC 12.6 1.2 3.2

ONGC 9.4 1.0 3.0
3.1
Power Grid 12.1 1.7 2.8
2.4 Reliance Industries 20.9 2.5 0.5
1.7 Reliance Infra 8.6 0.4 2.2
Tata Power 4.7 1.1 1.9
1.0
Aug ’13 Aug ’14 Aug ’15 Aug ’16 Aug ’17 Aug ’18
Dividend yield is 3 basis points higher than its five year median 1.83% Weightages (%)
2.3
Company Company
2.0 Reliance Industries 58.0 GAIL 5.0
1.7 NTPC 7.6 BPCL 4.5
ONGC 7.1 HPCL 3.1
1.4
Power Grid 6.5 Tata Power 2.1
1.1
IOC 5.2 Reliance Infra 0.8
0.8
Aug ’13 Aug ’14 Aug ’15 Aug ’16 Aug ’17 Aug ’18 Data as on August 16, 2018

MARKET
BIG MOVES: LARGE CAPS C MPASS
Our large-cap universe has 100 large companies, making the top 70 per cent of the
total market capitalisation. The list mentions the stocks that have fluctuated most
wildly in the last three months.
Price to earnings Net profit (` crore)
3M returns (%) 3Y avg RoE (%) 3Y earnings growth (%) 3M price (`) movement
772
71.3 172.1 274

Indiabulls Ventures
The company has fund-raising plans of `8,000 crore.
It also posted a 95% rise in Q1 profit YoY. 35.6 21.9
451
34045
44.8 100.4 386

Page Industries
The company entered into MSCI India Index. It also
posted a 46% rise in Q1 profit YoY. 47.0 23.6
23510
2853
38.0 57.5 2878

Bajaj Finance
Q1 profit rose by 81%, from `461 crore to `836 crore,
on a YoY basis. 21.1 44.1
2067
29.8
623
Sun Pharmaceutical 42.2 4065
USFDA cleared the company’s Halol facility, which
had long been under scrutiny. 22.2 -6.4
480
12.1 – -2107
146
Bank of Baroda
The company posted a profit of `528 crore in Q1
against a loss of `3,102 crore a year ago. -4.2 -188.0 130
-8.2 17.8 1692 1326

Shriram Transport Finance
The company disclosed a guarantee of `870 crore to
a distressed unlisted subsidiary. 12.3 10.6 1445
-11.1 27.7 1459

Interglobe Aviation 1048
The company showed a 97% drop in Q1 profits YoY
due to high crude-oil prices. 74.3 – 1178
-13.0 15.3 2149

UPL 617
The company failed to meet its revenue guidance
of 8–10%. 29.7 20.6 709
-17.1 20.7 1821

Ashok Leyland 128
Change in axle norms could lead to a reduction in the
demand for the company’s trucks. 24.2 51.2 154
-21.4 18.9 2337

The New India Assurance
The company’s auditors expressed disagreement with
the management on certain disclosures. 9.9 – 339
266
Data as on August 17, 2018

MARKET
C MPASS BIG MOVES: MID CAPS
Our mid-cap universe has 229 mid-sized companies, making the next 20 per cent of
the total market capitalisation. The list mentions the stocks that have fluctuated most
wildly in the last three months.
203
64.2 29.4 347

Adani Enterprises
Adani group plans to sell stake in its group companies to
raise `6,000 crore. 4.5 -44.6 124
569
41.8 54.7 149

VIP Industries
The company’s Q1 profit increased by 55% YoY. Its
operating margin also expanded by more than 3%. 23.9 47.8
402
31
38.8 – -2461
Adani Power
22
Adani group plans to sell stake in its group
companies to raise `6,000 crore. -72.4 -217.6
-7.5 18.7 327

NCC 101
The stock corrected amidst a fall in broader markets.
2.8 27.9 109
-16.9 9.0 526

Vakrangee 54
The company is under SEBI investigation on account of
alleged price manipulation by its promoters. 33.5 16.5 45
98
-24.3 36.3 382

NBCC India
The company’s South Delhi project has been stayed by
NGT over cutting trees. 21.5 10.1 74
-24.7 19.8 422

KRBL
The company is allegedly involved in the Agusta
helicopter scam. 21.6 9.4 469
353
1159
-26.4 15.6 753

Dilip Buildcon 853
The rumours of auditor resigning led to sharp
correction in the stock. 21.4 –
682
-33.9 16.1 407

Avanti Feeds
The company reported a 41.6% fall in Q1 profit YoY, to
`86 crore from `147 crore. 48.4 43.9 451
-38.1
1721
Symphony 45.9 164
The company reported a 48.7% fall in Q1 profit YoY, to `20
crore from `39 crore. – 12.1
1065

MARKET
BIG MOVES: SMALL CAPS C MPASS
Our small-cap universe (minimum market capitalisation `400 crore) has 773 small-
cap companies, making the last 10 per cent of the total market capitalisation. The list
mentions the stocks that have fluctuated most wildly in the last three months.
310
387.7 743.4 4
Atlas Jewellery India
The company’s founder was granted bail in a debt-default
case. -2.3 9.7
64
166.7
4
Alok Industries – -18216
The company is facing liquidation under the Insolvency and
Bankruptcy Code. -66.6 -633.7
2
271
-37.1 – -4
Emami Infrastructure
The stock fell amidst a correction in small caps.
1.9 -514.8 170
994
-37.6 21.9 34
Weizmann Forex
The company’s Q4 profit dropped 85% YoY.
25.4 22.6
621
169
-41.0 6.9 574

PC Jeweller
The company had to withdraw its buyback proposal.
17.8 13.7
100
101
-44.8 – -31
Den Networks
The company is likely to face intense competition
from Reliance Jio GigaFiber. -19.6 22.2
56
-45.2 127.6 8
8K Miles Software Services
344
The company delayed declaring its Q4 results.
36.6 117.0 627
47
-50.5 6.4 71
Kwality
23
The company had to withdraw its buyback offer. It
also shut down its Dubai operations. 24.4 -20.4
586
-59.1 35.2 10
Intrasoft Technologies
The company’s profit fell by 95.5% in the June
quarter. 20.9 17.4
240
431
-69.4 15.7 100

Manpasand Beverages
The company’s auditors resigned, resulting in a
plunge in the stock price. 14.0 47.3
132

MARKET
C MPASS
The leader vs the rest

Everyone wants to be a leader. But what does it take to be one? If you see
the companies that are in the leading position in their industries, you will
find that it isn’t easy for any company to displace them easily. In the
following graphics, we illustrate how many companies it takes in an industry
to equate the market cap of the leader. The PAT numbers tell you how their
combined profits stand vis-a-vis the leaders’ profits.
Paints Housing finance

PAT (` cr) Company M-cap (` cr) PAT (` cr) Company M-cap (` cr)
2,112 Asian Paints 1,34,340 12,808 HDFC 320,239
484 Berger Paints 31,753 4,091 Indiabulls Housing Finance 53,580
515 Kansai Nerolac 27,059 2,012 LIC Housing Finance 27,724
208 Akzo Nobel 8,110 406 Gruh Finance 23,260
-50 Shalimar Paints 274 881 PNB Housing Finance 20,921
1,158 Total (the rest) 67,195 3,063 All others 44,377
10,452 Total (the rest) 169,861
Telecom
PAT (` cr) Company M-cap (` cr)
1,105 Bharti Airtel 147,944

Cigarettes/tobacco
1,190 Bharti Infratel 51,974
11,481 ITC 376,066
-3,397 Idea Cellular 22,061
203 VST Industries 4,566
-406 Tata Communications 15,886
221 Godfrey Phillips India 4,353
-2,877 Reliance Communications 5,061
17 Indian Wood Products Company 563
-15,681 All others 3,499
-4 Golden Tobacco 59
-21,171 Total (the rest) 98,481
0 NTC Industries 39
438 Total (the rest) 9,580
Public banks
-11,349 State Bank of India 259,705

Private banks
-2,107 Bank of Baroda 37,527 PAT (` cr) Company M-cap (` cr)
-9,795 IDBI Bank 25,589 18,194 HDFC Bank 562,432
-13,566 Punjab National Bank 22,319 6,355 Kotak Mahindra Bank 237,537
-4,192 Canara Bank 19,475 4,609 ICICI Bank 215,599
-58,589 All others 117,338 -329 Axis Bank 159,478
-88,249 Total (the rest) 222,248 10,635 Total (the rest) 612,614

MARKET
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Infrastructure
Power generation/distribution 8,588 Larsen & Toubro 172,409
10,313 NTPC 130,402 -777 GMR Infrastructure 10,653
8,080 Power Grid Corp 98,746 484 KEC International 7,560
1,972 NHPC 25,443 932 IRB Infrastructure 6,685
2,727 Tata Power 18,176 327 NCC 6,049
12,779 Total (the rest) 142,365 -8,713 All others 60,172
-7,747 Total (the rest) 91,118
Cement Refineries
1,958 Ultratech Cement 115,854
36,431 Reliance Industries 761,152
1,224 Shree Cement 59,355
23,629 Indian Oil 154,369
2,015 Ambuja Cements 44,518
9,468 BPCL 81,976
956 ACC 29,202
7,152 HPCL 40,526
4,194 Total (the rest) 133,076
2,352 MRPL 13,933
1,037 All others 4,742
Jewellery 43,637 Total (the rest) 295,547

1,195 Titan Company 81,858
1,368 Rajesh Exports 18,798 Pharma

574 PC Jeweller 3,925
4,065 Sun Pharma 146,959
127 Vaibhav Global 2,217
1,440 Cipla 51,312
67 Renaissance Jewellery 577
4,463 Piramal Enterprises 48,888
-523 All others 1,719
1,323 Dr. Reddys Labs 38,661
98 Lupin 38,164

IT
27,292 TCS 769,524

Media
16,157 Infosys 312,527 PAT (` cr) Company M-cap (` cr)
8,930 HCL Technologies 139,241 1,466 Zee Entertainment 48,090
8,018 Wipro 126,695 1,251 Sun TV Network 30,959
3,906 Tech Mahindra 65,407 122 Dish TV India 12,125
4,533 Six others 133,099 -42 TV18 Broadcast 8,049
41,544 Total (the rest) 776,968 1,331 Total (the rest) 51,133
Only Nifty 50 companies considered for leader’s position. Data as on August 16, 2018. PAT as of trailing 12 months.

MARKET
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Market (non)sense
In spite of the fact that market has been hitting new highs every day, investor
portfolios have lost value. Here is why.
M Comparing the two Niftys

any investors have a tough time making sense
of the market. The market performance in the
last few months has further added to this 104 Nifty 50 equal-weighted Actual Nifty 50
confusion. As the market itself rose, investor
102
portfolios showed little movement. One good reason for
this is that the components of Nifty 50 are weighted as 100
per the free float; they are not equal weighted. This
means that a stock going up will get more weight in the 98
index automatically, thus taking the entire index
96
further upwards. We segregated the components of the
Nifty 50 to check what would have happened if the 94
components of Nifty 50 were equally weighted (see the
tables). Our analysis suggests that if the Nifty 50’s 92
components were equally weighted, the market would 90
have actually fallen since the budget (February 1). The
Feb 1, 2018 Aug 8, 2018
upward march of the index is just because of a handful
of stocks. Fortunately, this makes some sense now. WI Rebased to 100
Nifty 50 stocks that fell most but have less weights

Contribution to Contribution to
Returns since Weightage Nifty returns Nifty returns
Company Sector M-cap (` cr) P/E Feb 1, 2018 (%) in Nifty 50 (%) (%, actual) (%, equal weights) Difference (%)
Tata Motors Automobiles 73,627 18.9 -35.2 1.1 -0.4 -0.7 -0.3
Vedanta Non - Ferrous Metals 83,544 8.0 -34.2 0.9 -0.3 -0.7 -0.4
HPCL Crude Oil 43,033 6.0 -28.0 0.5 -0.1 -0.6 -0.4
Bajaj Auto Automobile & Ancillaries 76,914 17.4 -22.1 1.0 -0.2 -0.4 -0.2
%3&/ 5HÀQHULHV
,QGLDQ2LO&RUSRUDWLRQ 5HÀQHULHV
Tata Steel Iron & Steel 69,556 5.2 -17.1 1.0 -0.2 -0.3 -0.2
Bharti Infratel Telecom 53,759 21.8 -16.2 0.6 -0.1 -0.3 -0.2
*UDVLP,QGXVWULHV 'LYHUVLÀHG
UPL Pesticides & Agrochem 32,934 16.0 -14.8 0.5 -0.1 -0.3 -0.2
Hindalco Industries Non - Ferrous Metals 49,553 8.1 -13.9 0.7 -0.1 -0.3 -0.2
Adani Ports Logistics 77,495 21.5 -12.7 0.6 -0.1 -0.3 -0.2
Bharti Airtel Telecom 1,53,740 185.5 -12.3 1.1 -0.1 -0.2 -0.1
ONGC Oil Exploration 2,20,603 9.9 -11.8 1.0 -0.1 -0.2 -0.1
Hero MotoCorp Automobiles 65,873 17.8 -11.6 1.1 -0.1 -0.2 -0.1
Zee Entertainment Media & Entertainment 50,756 34.5 -11.2 0.7 -0.1 -0.2 -0.1
Larsen & Toubro Infrastructure 1,81,924 23.7 -10.8 3.6 -0.4 -0.2 0.2
ICICI Bank Banking 2,04,688 44.4 -8.1 4.0 -0.3 -0.2 0.2
Wipro IT 1,25,881 15.6 -7.5 0.7 -0.1 -0.1 -0.1
Coal India Mining 1,71,480 24.4 -6.5 0.8 -0.1 -0.1 -0.1
NTPC Power 1,30,402 12.6 -6.4 1.1 -0.1 -0.1 -0.1
Total 23.4 -3.4 -6.7 -3.3

MARKET
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1LIW\VWRFNVWKDWUHPDLQHGPRUHRUOHVVÁDW
Lupin Healthcare 37,341 389.1 -4.0 0.5 -0.02 -0.08 -0.06
Ultratech Cement Construction Materials 1,16,459 59.5 -3.4 1.0 -0.03 -0.07 -0.04
Power Grid Corporation Power 99,165 12.3 -2.7 1.0 -0.03 -0.05 -0.03
Maruti Suzuki India Automobiles 2,78,201 34.2 -2.0 2.9 -0.06 -0.04 0.02
HCL Technologies IT 1,34,353 15.0 -2.0 1.3 -0.03 -0.04 -0.01
Eicher Motors Automobiles 74,940 38.2 -2.0 0.9 -0.02 -0.04 -0.02
Indiabulls Housing Fin Finance 58,428 14.2 -0.6 0.9 0.0 -0.01 -0.01
Axis Bank Bank 1,53,160 0.0 0.6 2.1 0.01 0.01 0.00
HDFC Finance 3,34,805 26.1 0.7 7.2 0.05 0.01 -0.03
State Bank Of India Bank 2,75,457 – 0.8 2.2 0.02 0.02 0.00
Sun Pharmaceutical Healthcare 1,37,373 63.6 3.3 1.4 0.05 0.07 0.02
GAIL (India) Inds. Gases & Fuels 84,949 17.7 3.3 0.7 0.02 0.07 0.04
Dr. Reddys Labs Healthcare 37,295 27.5 4.1 0.6 0.03 0.08 0.10
Total 22.7 -0.01 -0.08 -0.07
Nifty 50 stocks where equal weights wouldn’t have made much difference
Kotak Mahindra Bank Banking 2,45,982 38.3 15.1 4.3 0.6 0.3 -0.3
Hindustan Unilever FMCG 3,79,547 69.2 27.9 2.8 0.8 0.6 -0.2
IndusInd Bank Banking 1,20,252 31.6 11.5 2.3 0.3 0.2 0.0
Mahindra & Mahindra Automobiles 1,15,376 23.9 16.2 2.1 0.3 0.3 0.0
Yes Bank Banking 88,264 19.5 6.3 1.6 0.1 0.1 0.0
Tech Mahindra IT 64,145 16.5 7.1 1.0 0.1 0.1 0.1
Cipla Healthcare 51,002 35.1 7.9 0.7 0.1 0.2 0.1
Asian Paints Chemicals 1,36,705 63.0 23.6 1.4 0.3 0.5 0.1
Titan Company Jewellery 83,026 68.1 12.5 0.8 0.1 0.3 0.2
Bajaj Finance Finance 1,62,464 56.4 62.5 1.3 0.8 1.3 0.4
Bajaj Finserv Finance 1,12,194 38.5 39.9 0.9 0.3 0.8 0.5
Total 19.1 3.8 4.6 0.8
Nifty 50 stocks that moved Nifty most due to their high weightages
HDFC Bank Banking 5,79,154 31.8 7.3 10.2 0.7 0.1 -0.6
5HOLDQFH,QGXVWULHV 5HÀQHULHV
Infosys IT 2,97,675 18.4 19.1 5.8 1.1 0.4 -0.7
ITC FMCG 3,67,204 32.0 9.1 5.5 0.5 0.2 -0.3
TCS IT 7,55,990 27.8 25.8 4.9 1.3 0.5 -0.8
Total 34.8 6.1 1.8 -4.3
Overall 6.5 -0.4 -6.9
Data in all tables as on August 8, 2018

MARKET
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Institutional
moves
Here are top five
companies across market
caps in which mutual
funds and foreign
institutions have
significatly changed their
holdings over the
last quarter
Data between March 2018 and June 2018
Mutual funds FIIs

Increase in stake
Large caps Difference Difference
Company name Industry Jun ‘18 Mar ‘18 (%) Company name Industry Jun ‘18 Mar ‘18 (%)
Tata Steel Iron & Steel 16.2 13.7 2.6 Indiabulls Ventures Finance 23.4 18.1 5.3
Dr. Reddys Laboratories Pharma 11.3 8.9 2.4 Adani Ports Port 21.3 18.0 3.3
Bharat Petroleum Corp Refineries 7.5 5.6 2.0 Bandhan Bank Banking 5.2 2.3 2.9
ACC Cement 6.1 4.2 2.0 Interglobe Aviation Aviation 15.0 12.6 2.4
Colgate-Palmolive FMCG 6.8 5.0 1.9 ICICI Prudential Life Insurance 8.5 6.5 2.0
Mid caps
Difference Difference
NALCO Aluminium 15.4 9.8 5.6 Future Lifestyle Fashions Retailing 14.9 5.4 9.6
Bharat Financial Inclusion NBFC 24.4 19.4 5.0 Fortis Healthcare Healthcare 52.4 45.6 6.8
RBL Bank Banking 16.4 12.3 4.1 Mphasis IT 29.2 22.8 6.4
PVR Media & Entertainment 13.2 9.9 3.3 Godrej Properties Realty 14.5 8.9 5.7
Vardhman Textiles Textile 17.5 14.2 3.3 Lakshmi Machine Works Textile 5.2 0.0 5.2
Small caps
Magma Fincorp NBFC 13.6 4.0 9.6 Indiabulls Integrated Ser Miscellaneous 22.1 4.9 17.2
Indostar Capital Finance NBFC 9.1 0.0 9.1 Aarey Drugs & Pharma Trading 14.6 0.3 14.3
Ganesha Ecosphere Textile 14.8 7.2 7.6 Indostar Capital Finance NBFC 13.1 0.0 13.1
Fine Organic Industries Chemicals 6.4 0.0 6.4 Gokaldas Exports Textile 13.7 0.8 12.9
Strides Pharma Science Pharma 23.1 18.6 4.5 DFM Foods FMCG 11.5 0.0 11.5

MARKET
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Mutual funds FIIs

Decrease in stake
Large caps
Interglobe Aviation Aviation 5.3 7.4 -2.1 Dr. Reddys Laboratories Pharma 27.2 30.3 -3.1
Power Grid Power 7.6 9.3 -1.7 Bharat Petroleum Corp Crude Oil 17.0 19.8 -2.8
UPL Chemicals 8.4 9.5 -1.1 ACC Cement 10.9 13.7 -2.8
GAIL (India) Inds. Gases & Fuels 11.2 12.2 -1.0 Tata Steel Iron & Steel 15.8 18.5 -2.7
Container Corporation Logistics 9.5 10.5 -1.0 Grasim Industries Diversified 24.9 27.4 -2.5
Mid caps
IDFC Finance 12.4 17.1 -4.7 IDFC Bank Banking 10.3 14.7 -4.4
Delta Corp Miscellaneous 3.0 6.7 -3.7 Voltas Consumer Durables 15.5 19.6 -4.1
Cyient IT 14.8 18.4 -3.6 Tata Motors - DVR Ordinary Automobiles 43.2 47.0 -3.8
Capital First NBFC 11.6 14.4 -2.7 Future Consumer Trading 16.1 19.9 -3.8
Fortis Healthcare Healthcare 2.0 4.6 -2.6 Bharat Financial Inclusion NBFC 55.5 59.0 -3.5
Small caps
HDIL Realty 0.0 5.4 -5.4 Sakuma Exports Trading 0.0 13.2 -13.2
KSK Energy Ventures Power 6.4 11.3 -4.9 Hathway Cable & Datacom Telecom 17.6 30.0 -12.4
Indian Terrain Fashions Textile 20.3 24.6 -4.4 PC Jeweller Jewellery 19.1 31.2 -12.1
WPIL Capital Goods 6.5 10.6 -4.1 3I Infotech IT 0.4 12.5 -12.1
Arrow Greentech Miscellaneous 4.1 8.1 -4.0 Narayana Hrudayalaya Healthcare 5.2 14.8 -9.6
Top 10 holdings of mutual funds Top 10 holdings of FIIs

Market % of Amount Market % of Amount
cap equity invested cap equity invested
Company name Industry (` cr) held (` cr) Company name Industry (` cr) held (` cr)
HDFC Bank Banking 5,66,226 11.6 65,682 HDFC Finance 3,28,200 72.9 2,39,225
ICICI Bank Banking 2,13,766 23.2 49,636 HDFC Bank Bank 5,66,226 40.9 2,31,360
Infosys IT 3,07,689 11.7 35,877 Reliance Industries Refineries 7,67,458 24.5 1,88,257
State Bank of India Banking 2,63,008 11.9 31,351 Tata Consultancy Services IT 7,66,194 16.6 1,27,112
ITC Cigarettes/Tobacco 3,75,577 7.5 27,980 Infosys IT 3,07,689 34.9 1,07,291
Larsen & Toubro Infrastructure 1,75,721 15.4 26,991 ICICI Bank Banking 2,13,766 46.9 1,00,235
Reliance Industries Refineries 7,67,458 3.3 25,173 Kotak Mahindra Bank Banking 2,46,221 39.9 98,316
HDFC Finance - Housing 3,28,200 6.8 22,449 Axis Bank Banking 1,58,785 50.3 79,805
Maruti Suzuki India Automobiles 2,75,795 6.2 17,099 ITC FMCG 3,75,577 17.5 65,688
Kotak Mahindra Bank Banking 2,46,221 6.9 16,866 Maruti Suzuki India Automobiles 2,75,795 23.7 65,253

MARKET
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The pledging tracker

In the following companies, promoter pledging has shown a marked rise or
fall between March and June 2018
P
romoter pledging is an important analytical
parameter. When promoters pledge shares, they
keep shares as collateral with a financial
institution, such as a bank, to raise money. It’s just
like mortgaging something for money. Later you pay
the loan back and get your thing released.
Pledging is not always bad. Many times promoters
pledge their stake for sound business reasons and later
release their pledged shares. But pledging takes an
ugly turn when the pledged stake is high and the
promoter is unable to pay back the dues. This may
force the financing institution to sell the pledged stake,
which can result in a sudden fall in the stock price.
Generally speaking, a high pledged stake also
indicates a bad management. Investors should stay
away from companies that have high levels of
pledging.
The first table below mentions companies in which
pledging has gone up by 10 per cent or more in the last
quarter and the pledged stake is now at least 25 per
cent. The second table mentions companies in which
pledging has gone down by 10 per cent and the current
promoter stake is at least 25 per cent. WI
Increase in pledging
M-cap Pledged stake (%) Increase in Promoter 3M stock Debt to
Company name Industry (` crore) Jun-18 Mar-17 pledging (%) stake (%) return (%) Z-Score F-Score equity
Emami Paper Mills Paper 1,561 49.2 0.0 49.2 75.0 6.3 1.6 6 6.3
Indiabulls Real Estate Realty 6,852 34.3 0.0 34.3 38.6 -23.7 2.0 7 2.3
Sanghi Industries Construction Materials 2,182 97.3 63.9 33.4 65.7 -14.2 2.6 7 0.5
Sintex Industries Plastic Products 846 85.0 60.7 24.2 28.6 -19.8 1.4 6 1.1
Sintex Plastics Technology Plastic Products 2,480 73.5 50.1 23.5 32.0 -21.0 1.5 7 1.3
Rolta India IT 600 76.5 54.0 22.4 48.9 -35.8 2.0 3 2.4
Eros International Media Media & Entertainment 1,186 56.7 35.4 21.4 60.1 -20.0 2.4 4 0.3
Arcotech Non - Ferrous Metals 199 69.3 49.2 20.1 68.5 -33.9 2.2 6 1.3
Granules India Healthcare 2,646 60.4 41.7 18.6 44.9 8.5 3.0 2 0.8
Bharat Road Network Infrastructure 1,373 35.7 18.3 17.4 65.1 -7.0 3.6 1 1.0
Setco Automotive Auto Ancillary 644 54.9 38.7 16.2 63.5 -14.5 2.2 3 2.4
Kwality FMCG 466 94.4 79.0 15.4 51.3 -60.7 3.8 5 1.5
DB Realty Realty 785 86.4 71.6 14.7 62.3 -47.1 1.0 3 0.6
Adani Transmission Power 17,987 37.1 22.9 14.1 74.9 -3.2 1.8 8 1.7
Future Market Networks Miscellaneous 534 96.5 82.7 13.8 73.2 -30.0 0.6 4 1.8
$VLDQ2LOÀHOG6HUYLFHV 2LO([SORUDWLRQ

MARKET
C MPASS
M-cap Pledged stake (%) Increase in Promoter 3M stock Debt to
Zee Media Corporation Media & Entertainment 1,410 63.5 51.0 12.5 67.0 -15.3 6.8 9 0.2
Spicejet Aviation 5,440 44.2 33.9 10.3 60.0 -24.0 -1.9 7 -1.9
Pitti Engineering Capital Goods 260 34.1 23.9 10.2 63.8 -12.5 2.3 6 1.7
Data as on August 10, 2018. For explanations of Z-Score and F-Score, see the key terms in the ‘Stock Screen’ section.
Decrease in pledging
M-cap Pledged stake (%) Decrease in Promoter 3M stock Debt to
Bhushan Steel Iron & Steel 3,422 0.0 83.6 -83.6 72.7 26.7 -0.1 8 -32.5
Sadhana Nitro Chem Chemicals 684 0.0 82.4 -82.4 74.0 52.9 9.6 8 3.1
Electrosteel Steels Iron & Steel 13,182 0.0 79.5 -79.5 90.0 – 0.0 5 -18.1
Steel Exchange India Trading 159 33.4 82.8 -49.4 47.6 -26.9 -0.6 2 8.0
Steelcast Castings/Forgings 405 0.0 44.2 -44.2 45.8 3.1 3.6 8 1.0
Indo-National Batteries 305 32.2 76.1 -43.9 74.9 2.4 3.6 8 0.2
NCL Industries Cement 728 48.6 88.5 -39.9 40.1 -28.0 2.7 5 1.1
Medicamen Biotech Healthcare 597 0.0 31.3 -31.3 46.0 -23.4 10.4 7 0.8
Igarashi Motors India Capital Goods 2,324 0.0 29.0 -29.0 77.1 -8.0 13.6 4 0.1
5XEÀOD,QWHUQDWLRQDO 5XEEHU3URGXFWV
Nath Bio-Genes (India) Agriculture 927 32.3 58.6 -26.3 40.7 -13.4 7.8 5 0.1
Scanpoint Geomatics Photographic Product 150 14.9 41.1 -26.2 29.7 22.5 3.9 7 2.3
Pennar Engg Building Systems Capital Goods 203 2.8 28.3 -25.5 63.5 -25.9 2.1 3 0.2
Praxis Home Retail Retailing 432 2.6 27.7 -25.1 56.8 -34.8 – 3 0.0
Shree Renuka Sugars Agri 2,379 1.1 24.7 -23.6 59.0 -19.4 -1.2 6 -2.1
Elecon Engineering Company Capital Goods 741 46.2 61.0 -14.7 58.6 -9.2 1.6 5 0.8
Sunil Hitech Engineers Infrastructure 173 10.9 24.8 -13.9 36.2 -28.9 2.2 5 1.3
Advanced Enzyme Technologies Healthcare 2,448 26.6 39.5 -12.9 67.3 -7.6 17.2 6 0.1
Aurionpro Solutions IT 481 42.3 53.1 -10.8 31.4 -3.3 4.9 4 0.3
Data as on August 10, 2018. For explanations of Z-Score and F-Score, see the key terms in the ‘Stock Screen’ section.
IPO tracker
Here is a list of the initial public offers since May and how they have fared.
HDFC AMC was the most notable IPO during this period.
Market cap Subscription Issue size Issue List Listing Current Change post Nifty returns
Company name (` cr) ratio (` cr) price (`) List date price (`) gain (%) price (`) listing (%) post lisiting (%) P/E
HDFC AMC 36,398 83.1 2,800 1,100 06-Aug-18 1,739 58.1 1,717 -1 0.0 50.4
Indostar Capital Finance 4,449 6.8 1,846 572 21-May-18 600 4.9 482 -20 8.3 18.9
Varroc Engineering 13,052 3.6 1,372 967 06-Jul-18 1,032 6.7 968 -6 5.7 29.0
TCNS Clothing Co 3,924 3.1 1,125 716 30-Jul-18 715 -0.1 640 -10 0.6 40.0
Fine Organic Industries 2,539 9.0 600 783 02-Jul-18 815 4.1 828 2 6.8 32.7
Rites 5,500 67.2 466 185 02-Jul-18 190 2.7 275 45 6.8 15.8

MARKET
C MPASS
Promoter in action
Here are some companies in which the promoters have raised or reduced
their stakes, thus indicating how positive they are about their companies
Rise in promoter stake
Companies where the current promoter stake is at least 25 per cent and has risen by at least 3 per cent in the previous quarter
M-cap Promoters’ stake (%) Increase in promoter 3M
Company name Industry (` cr) Jun-18 Mar-18 holdings (% pt) return (%)
MT Educare Educational Institutions 382 83.2 23.7 59.5 -26.2
Electrosteel Steels Iron & Steel 13,182 90.0 45.2 44.8 –
V-Mart Retail Retailing 5,156 54.1 12.7 41.3 32.7
Best Steel Logistics Trading 375 55.0 25.5 29.5 -16.1
Bhushan Steel Iron & Steel 3,422 72.7 43.9 28.8 26.7
Bhageria Industries Chemicals 670 68.1 53.9 14.2 7.2
Xchanging Solutions IT 657 90.8 78.8 12.0 5.8
Gujarat Gas Trading 10,645 60.9 50.4 10.5 -7.7
Indsil Hydro Power Ferro Manganese 316 62.8 53.8 9.1 -31.9
Allahabad Bank Bank 4,725 71.8 64.8 7.0 -2.8
Shree Renuka Sugars Sugar 2,379 59.0 52.0 7.0 -19.4
UCO Bank Bank 7,693 90.8 84.2 6.6 3.5
IDBI Bank Bank 25,861 86.0 81.0 5.0 -7.8
Dish TV India Media & Entertainment 12,502 36.4 31.5 5.0 -6.7
Future Enterprises Retailing 1,697 50.2 45.3 4.9 -5.4
Indiabulls Integrated Miscellaneous 4,618 43.3 38.6 4.7 -11.9
Praxis Home Retail Retailing 432 56.8 52.4 4.4 -34.8
Maithan Alloys Ferro Manganese 1,842 75.0 70.6 4.4 -18.9
Gandhi Special Tubes Castings/Forgings 536 73.3 68.9 4.4 0.3
Ajmera Realty & Infra India Realty 719 67.5 63.3 4.2 -18.5
Arvind Smartspaces Realty 570 60.2 56.4 3.8 -11.6
Data as on August 10, 2018. Minimum market cap considered is `300 crore.
Fall in promoter stake

Companies where the current promoter stake is at least 25 per cent and has fallen by at least 3 per cent in the previous quarter
M-cap Promoters’ stake (%) Decrease in promoter 3M
RMG Alloy Steel Iron & Steel 839 55.9 86.8 31.0 39.1
Alok Industries Textile 616 10.6 28.8 18.2 169.3
KDDL Consumer Durables 571 28.2 45.4 17.2 -6.0
Neuland Laboratories Healthcare 882 36.0 51.7 15.6 -13.6
United Breweries Alcohol 31,735 57.7 73.4 15.6 9.1
Mangalore Chemicals Chemicals 648 64.0 75.0 11.0 -10.0
Uniply Industries Wood & Wood Products 1,018 22.7 33.4 10.7 -18.1
Responsive Industries Plastic Products 2,536 50.1 59.3 9.2 28.1
Ruchi Soya Industries FMCG 300 48.6 57.3 8.7 -30.0
Mahanagar Gas Gas Transmission 9,368 56.5 65.0 8.5 9.8
Mphasis IT 22,345 52.4 60.4 8.0 15.8

MARKET
C MPASS
Market cap Promoters’ stake (%) Decrease in promoter 3M
MEP Infrastructure Infrastructure 1,062 61.9 69.9 8.0 -23.3

Central Bank Bank 17,947 78.5 86.4 7.9 -4.5
Emami Infrastructure Realty 495 50.5 58.1 7.6 -36.9
Gokaldas Exports Textile 358 32.6 39.9 7.3 -11.1
Simplex Infrastructures Infrastructure 2,405 49.3 56.3 7.0 -28.8
Future Lifestyle Fashions Retailing 8,433 53.5 60.5 7.0 -6.9
,QÀEHDP$YHQXHV ,7
Minda Corporation Auto Ancillary 3,554 64.7 70.2 5.5 -14.9
Ganesha Ecosphere Textile 759 39.8 45.4 5.5 -11.0
Crest Ventures Miscellaneous 436 59.5 65.0 5.5 -24.7
Oberoi Realty Realty 17,524 67.7 72.5 4.8 -9.3
ADF Foods FMCG 516 30.5 35.2 4.7 4.0
Godrej Properties Realty 15,910 70.7 74.9 4.2 -19.8
NALCO Non - Ferrous Metals 13,521 56.2 60.2 4.0 -9.0
Advanced Enzyme Healthcare 2,448 67.3 71.3 4.0 -7.6
Adani Ports Logistics 78,375 62.3 66.3 4.0 -7.6
Parsvnath Developers Realty 513 66.7 70.5 3.8 -19.8
BSE Miscellaneous 4,078 28.4 32.2 3.8 -4.9
Kwality FMCG 466 51.3 54.8 3.5 -60.7
SRG Housing Finance Housing 331 58.2 61.6 3.4 -13.9
Magma Fincorp NBFC 3,995 24.4 27.7 3.3 -13.8
AIA Engineering Capital Goods 16,198 58.5 61.7 3.2 19.8
Generic Engineering Stock Broking 634 50.3 53.3 3.0 6.5
Data as on August 10, 2018. Minimum market cap considered is `300 crore.
Investing
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ANALYST’S
DIARY
On the edge
The following companies may slip into losses if the interest rates in the
economy rise or their profits fall
T
hose who have experienced bungee jumping already on an up-move; recently they were raised by
know what it feels like to be at the verge another 25 basis points) or if the operational
of falling from a height. Thankfully, profits of these companies decline, they
their feet are tied with an elastic cord so may quickly show a loss.
there are often no casualties when they The Z-Score helps assess the
do fall. probability of bankruptcy of a
The business equivalent of bungee company. When it is below three, it
jumping is seen in the companies indicates a critical situation. As seen
listed below. They are at the verge of in the table, many of of these
slipping into losses thanks to their companies are below that threshold.
interest outgo on debt. The interest What’s more, there is no elastic cord
outgo makes a substantial part (more either that can help them avoid severe
than 80 per cent) of their earnings before injuries. What they may be feeling now
interest payments and taxes. If the interest and what their investors will feel eventually
rates in the economy rise further (they have been is anybody’s guess. WI
Getting interest-ing
Market cap Interest as %
Company name Sector (` cr) Debt to equity EBIT (` cr) Interest (` cr) of EBIT Z-Score
Bharat Wire Ropes Non - Ferrous Metals 420 3.7 25 25 98.8 0.97
Elpro International Miscellaneous 984 0.8 34 34 98.4 2.69
IL&FS Transportation Networks Infrastructure 1,304 7.9 3,922 3,760 95.9 0.52
Healthcare Global Enterprises Miscellaneous 2,178 1.0 55 53 95.8 3.71
Tata Power Company Power 18,663 3.3 3,926 3,737 95.2 0.09
Snowman Logistics Logistics 718 0.3 13 12 94.9 6.05
Reliance Infrastructure Power 10,713 4.9 6,979 6,503 93.2 0.23
Gayatri Projects Infrastructure 3,790 4.3 279 258 92.8 2.64
Future Enterprises Retailing 1,674 1.5 633 578 91.3 2.47
Hindustan Construction Company Infrastructure 1,219 -8.9 703 639 90.9 -1.13
Hotel Leela Venture Hospitality 1,006 9.8 93 84 89.6 -0.74
GVK Power & Infrastructure Power 1,800 -53.3 1,836 1,643 89.5 -1.23
Shristi Infrastructure Realty 488 1.8 30 27 88.1 3.28
Bharti Airtel Telecom 1,48,403 1.6 10,708 9,355 87.4 0.87
Shriram EPC Infrastructure 1,758 0.7 119 103 86.2 1.02
Coffee Day Enterprises Hospitality 5,346 2.0 426 364 85.4 1.77
HDIL Realty 1,005 0.2 410 349 85.2 1.84
Vipul Realty 620 1.3 37 32 84.8 3.90
Bannari Amman Spinning Mills Textile 359 2.1 71 60 84.4 1.70
BGR Energy Systems Infrastructure 646 1.6 346 287 83.0 1.20
MEP Infrastructure Developers Infrastructure 1,133 50.7 574 470 81.8 0.89
Lemon Tree Hotels Hospitality 6,378 1.6 96 78 81.5 5.40
Electrosteel Castings Castings/Forgings 785 0.8 264 214 80.9 1.04
Data as on August 13, 2018. Minimum cut-off of market cap is `300 crore. For the explanation of the Z-Score, see the key terms in the ‘Stock Screens’ section.

ANALYST’S
DIARY
Taxation boost
These companies have shown greater profits or lesser losses due to
significant tax write-backs
“I
n this world nothing can be said to be certain, The table below lists companies which have
except death and taxes,” said Benjamin received significant tax write-backs in the previous
Franklin, one of the Founding Fathers of the financial year. These write-backs are more than 25 per
United States. He was right. Taxes have not just stayed cent of their profits before taxes. Because of these tax
since then but have also become more pervasive. For credits, their profits have got a boost or their losses
most of us, they mean less money in hand. But there have significantly reduced. One should take into
are some companies for which they have meant more account the impact of the write-backs to form a proper
profits or a reduction in losses. picture of their performance. WI
When tax is good

Company name Sector Market cap (` cr) Profit before tax (` cr) Tax write-back (` cr) Profit after tax (` cr) Tax to PBT (%)
Shipping Corporation Logistics 2,711 29 224 254 760.8
Piramal Enterprises Healthcare 50,251 1,964 2,876 4,840 146.5
Aditya Birla Fashion Retailing 13,725 49 69 118 140.5
State Bank of India Banking 2,64,212 -12,245 8,058 -4,187 65.8
Bank of Maharashtra Banking 3,404 -3,232 2,120 -1,112 65.6
DCW Chemicals 538 -49 29 -20 58.8
HDIL Realty 1,005 60 35 96 58.3
Claris Lifesciences Trading 2,164 -34 20 -14 58.2
United Bank of India Banking 3,516 -2,947 1,492 -1,454 50.6
IFCI Finance 2,748 -1,720 749 -972 43.5
Alok Industries Textile 620 -5,391 2,321 -3,070 43.0
Udaipur Cement Works Construction Materials 543 -73 30 -43 40.7
Dena Bank Banking 3,806 -3,179 1,256 -1,923 39.5
Corporation Bank Banking 4,822 -6,675 2,625 -4,050 39.3
Lakshmi Vilas Bank Banking 2,421 -951 366 -585 38.5
Andhra Bank Banking 3,938 -5,441 2,047 -3,394 37.6
Punjab National Bank Banking 22,623 -19,846 7,262 -12,584 36.6
Canara Bank Banking 20,139 -6,408 2,321 -4,087 36.2
Central Bank Of India Banking 17,803 -7,876 2,780 -5,096 35.3
IDBI Bank Banking 25,547 -12,495 4,338 -8,157 34.7
Sanghvi Movers Miscellaneous 775 -88 30 -57 34.6
Idea Cellular Telecom 22,955 -6,822 2,331 -4,491 34.2
JK Lakshmi Cement Construction Materials 3,783 33 11 43 33.4
Inox Wind Capital Goods 2,163 -280 93 -188 33.1
Steel Authority of India Iron & Steel 32,218 -811 245 -566 30.2
Bank of India Banking 15,861 -8,660 2,587 -6,073 29.9
Allahabad Bank Banking 4,578 -6,452 1,878 -4,574 29.1
Rajapalayam Mills Textile 656 14 4 18 27.8
Gayatri Projects Infrastructure 3,790 20 6 26 27.6
Syndicate Bank Banking 5,662 -4,277 1,165 -3,112 27.2
Indian Overseas Bank Banking 7,737 -8,632 2,332 -6,299 27.0
Data as on August 13, 2018. Market cap more than `500 crore. Tax to PBT over 25%

INTERVIEW P V K MOHAN
Head – Equity, Principal PNB Asset Management
‘Reassessing
investment
hypothesis
dispassionately
is crucial’
It didn’t take P V K Mohan much to jump at the job of
an analyst. In fact, he didn’t even blink an eye before
saying ‘yes’, though he was securely employed with a
bank. Over the last two decades, Mohan has mas-
tered measured risk-taking. As Head – Equity of
Principal PNB Asset Management, he oversees inves-
tor assets worth over `3,000 crore and manages
four-star rated Principal Multi Cap Growth Fund and
Principal Tax Savings Fund.
In an interview with Kumar Shankar Roy, Mohan
talks about his habit of looking beyond the tradition-
al favourites and his willingness to bet against con-
sensus. The skilled fund manager, who expects
large caps to do well for quite some time, is howev-
er mindful of the chances of sustained rate hikes
hereon and their effect on the equity-market senti-
ment. He also talks about why he is selectively posi-
tive on media, infrastructure and realty stocks.
What made you enter the world of just kept at it all these years. Eight years is a long time to manage a
markets and what made you stay on. Tracking several sectors and fund. How have your investment
What started off as an activity just meeting so many companies, strategy and approach evolved over
to kill spare time after my PGDM – entrepreneurs, corporate the years?
preparing an industry research executives made the job more In some sense, they have been the
project on refractories for a friend interesting. As I graduated into the same – being more bottom-up in
of mine – got me extremely fund-management role, I enjoyed – portfolio construction, looking for
interested in equity research. and still enjoy – the thrill of stocks that can grow earnings
During one meeting, I went to finding stock ideas which give ahead of the peers and
present my report on refractories. I outsized returns expectations, and availability at
was offered a job as an analyst and attractive relative valuations. What
without blinking, I chucked my You manage Principal Multi Cap probably has changed is the
bank job in favour of this job. Growth Fund and Principal Tax breadth of coverage – the
I enjoyed what I was doing and Savings Fund since September 2010. willingness to look beyond the

INTERVIEW
traditional favourites, bet against What’s your opinion on banks, sectors allocation between debt and equity.
consensus, be ahead of the market related to discretionary consumption, As the P/E moves higher, the
and tolerate short-term pain and industrials and domestic materials? equity allocation comes down and
volatility for better returns over a Retail business for banks continues vice-versa. In pure equity funds,
period of time. to show good growth, which is we do not change asset allocation.
likely to continue, though margins We manage them as equity funds
How do you assess whether a may come off slightly. Corporate- with a long-term perspective and
company has widened its moat or facing banks are just getting out of may sometimes hold some cash
not? asset-quality woes and offer some tactically.
The key is to look at competitive value in today’s market.
positioning, sustainability and We are very positive about You have two decades of experience in
scalability of the business model discretionary consumption and equity research and fund
in terms of increase in sales staples as demand conditions in management. What was your best
volume, better profitability, better the urban and rural markets are performance throughout a complete
cash flows. Assessing moats looking good. Our concerns about market cycle? What was responsible
requires not just meeting the the valuation in the sector remain. for this?
company but also competitors – In the absence of a revival in the While I have been in the equity
both listed and unlisted – capex cycle, we are selectively markets for over two decades, a
suppliers, distributors, positive on the industrials sector. large part has been spent in the
ex-employees, etc. This gives a In materials, we expect the cement proprietary portfolio/PMS
better understanding of why the sector to do well. The strong platform. It’s been around nine
company could do well on a
sustainable basis and of its
competitive strengths. “Assessing moats requires not just meeting
How do you decide the best use for
the company but also competitors – both
cash on a company’s balance sheet? listed and unlisted – suppliers, distributors,
Cash is best utilised in the
following cases: ex-employees, etc.”
z Reinvestment in the core
business if it has good growth volume growth is likely to sustain years on the mutual fund side and
prospects and generates good and should drive better pricing we had a very pleasing
cash flows and return ratios power going ahead. performance in the 2012–2014
z Diversification into related period and again 2016–2017 period.
businesses which complement What is your outlook on media, My sense is that in stable
the existing business and have infrastructure and realty stocks? markets when the market is much
strong growth prospects, We are selectively positive on these more broad-based and willing to
z Enhanced dividend payouts/ sectors. While ad spends may drive reward the stocks based on
buyback growth, there is the potential improving fundamentals, my
digital-disruption challenge for the performance has been good.
What kind of poor capital-allocation media sector. Infrastructure asset Conversely, in times of flight to
decisions by the management scare owners are still struggling with extreme safety or extreme focus on
you? balance-sheet concerns. The realty a few stocks, as we saw recently, it
Some poor capital-allocation sector is plagued with huge unsold has been challenging for me. But
decisions are as follows: inventory. It is thus imperative to be broadly over a three–five-year
z Entry into unrelated businesses extremely selective in these sectors. period, which is a good period for
z Entry into capital-intensive fundamentals to play out, the
businesses If you actively manage the portfolio by performance has been good.
z Entry into a business where changing asset allocation, how do you It is the stock selection and hold-
management has no competence determine what asset classes are ing with conviction till the invest-
or track record good and bad value propositions? ment hypothesis plays out, despite
z Entry into a competitive We have an asset-allocation fund short-term volatility and underper-
business where the company that uses a four-quarter trailing formance, that really makes the
has no competitive advantage P/E of the Nifty to determine the difference.

INTERVIEW
perform well in a rising-rate scenario.

How do you think this will play out?
Our base case is that the policy
rates will not go up significantly
from hereon. In such a scenario, if
the earnings-growth momentum
sustains into FY20, we do see the
markets responding favourably.
Sustained rate hikes hereon
would, of course, damage the
sentiment of the equity markets
but that would be a function of
how oil prices behave and how the
government manages its deficit.
Most importantly, the outcome of
the elections would also have a
bearing on the short-term outlook
for the equity market.
With clear categories and definitions,

“It is quite possible that the outperfor- funds have less wiggle-room now.
mance of large caps continues for the next Given that most equity funds are
betting on the same set of 300–350
few quarters. Over a three–five-year period, stocks in general, what will drive
alpha generation from here?
we expect mid/small caps to outperform Alpha generation in large-cap
large caps.” funds may get challenging and
would be lower going ahead.
However, given the flexibility of
Investing has its ups and down. Did There are periods when nothing is the large/mid, multi-cap, mid-cap
your investment thesis for some fundamentally wrong with a quality categories, we do expect good stock
companies ever fail? What went stock, but it doesn’t move for months selection in the mid/small-cap
wrong? or even years. Given that your job as space to drive alpha generation
Oh yes, several of them! They were an active fund manager is generating over the longer term.
more in the form of missing some alpha, how do you deal with such
great compounding stories despite situations? Even after deep correction, mid-cap
having looked at them very early. The first thing is to make sure that and small-cap valuations are relatively
Of the stocks that I owned but the investment hypothesis remains rich. Overall, will mid caps and small
which failed to perform, there were intact. If that remains as caps continue to underperform large-
some PSU banks and some stocks in anticipated, then just stay put till caps? What can trigger a turnaround?
the construction and power sectors. the market recognises the true It is quite possible that the
While the PSU-bank story is well value of the stock. Reassessing the outperformance of large caps
known, stocks in the other two hypothesis, and that too very continues for the next few
sectors failed due to inability to dispassionately, is the most crucial quarters. However, we believe mid-
de-leverage the balance sheet, thing to do. It also helps if there and small-cap stocks with good
partly due to policy changes and are other stock ideas in the earnings growth and good track
partly due to management’s portfolio that may play out in a record of execution would see
inability to respond fast to the relatively shorter time frame or better times going ahead,
changing business conditions. play out at different points of time. especially if the quarterly
Fortunately, these were small bets There is then no undue pressure of performance trends meet or are
and the returns from several other short-term underperformance. ahead of expectations. Over a
stocks that did well kept the three–five-year period, we expect
portfolio impact of these The RBI has hiked interest rates twice mid/small caps to outperform
underperformers minimal in the last few months. Equities do not large caps. WI

COVER STORY

COVER STORY
T
he Indian micro-cap space is quarterly profits of the last one
a jungle – unknown year – those with increasing
promoters selling unknown profits, those with steady gains,
products, absence of liquidity, no those turning around and those
track record to fall back on and reporting losses.
high risk. This is a place many A little bit of forewarning: the
investors fear to tread. micro-cap space is a dangerous
Micro caps are stocks you do place. We do not recommend you
not hear about every day. Some of to buy any stock figuring in the
the top stocks in this space today following pages. This is not a place
include GSS Infotech, Premier for either conservative or new Asymmetric information : In case of
Explosives and Aksharchem. investors to hang around. micro caps, transparency and
Their market value of less than Experienced investors should availability of information are
`500 crore may appear tiny as ants remain careful as well. Many uneven. Some insiders or major
compared to large companies but fortunes have been wiped out in shareholders can have significant
micro caps dominate the Indian micro caps. This story brings you advantage over minority or small
stock market. A full 75 per cent of up to speed with the top micro retail investors with respect to
all listed stocks are micro caps. caps finding favour with large vital price-sensitive information.
Even though their size, investors today. Illiquidity/high transaction costs:
illiquidity and lack of information Micro caps are not very actively
deter most investors, micro caps What are micro caps? traded and tend to have very few
have found favour with large Based on our criterion, companies public shareholders. They may
investors. Today, FIIs and domestic accounting for the bottom 1 per have wide gaps between the bid
funds have piled onto these stocks, cent of the total market and ask prices (prices at which
which inspires confidence in capitalisation of all listed the seller and buyer want to sell
them. In this issue of Wealth companies are called micro caps. or buy).
Insight, we bring to you the Their market cap turns out to be Unproven products: The products
favourite micro-cap stocks of FIIs around `500 crore or less. Some of and services of micro-cap
and domestic funds. We dig a little the prominent characteristics of companies are generally not well-
deeper and categorise them on micro caps are: known, with very few customers
having any idea about them.
Micro caps turning into mid caps Track record: Generally, micro caps
Current Price in M-cap M-cap in 10Y CAGR do not have a meaningful track
Company Sector price (`) 2008 (`) (` cr) 2008 (` cr) (%)
record to demonstrate their ability
Symphony Consumer Durables 1124 4.0 7,865 28.0 75.7 to come out of difficult times.
Significant volatility and risk: Micro
Avanti Feeds FMCG 477 1.9 6,492 18.9 73.5 caps are highly risky and can
show significant price movements
Relaxo Footwears FMCG 825 4.8 9,928 57.2 67.4 in a very short span of time. They
carry a very high risk–reward
PI Industries Chemicals 782 7.0 10,789 74.3 60.3
ratios. They can quickly turn out
Ajanta Pharma Healthcare 1136 11.5 9,996 100.9 58.3 to be multi-baggers or wealth
destroyers.
Astral Poly Technik Plastic Products 1047 16.0 12,541 180.0 51.9 Price manipulation: Many micro caps
also have corporate-governance
Vinati Organics Chemicals 1194 18.4 6,137 90.6 51.8 issues. They could be operator-
driven. Their price movements
TTK Prestige Consumer Durables 6397 116.9 7,390 132.7 49.2
may not be backed by the business
V-Guard Industries Capital Goods 209 4.1 8,912 170.6 48.2 fundamentals.
Atul Chemicals 2880 61.9 8,541 183.6 46.8 Promising micro caps
If micro caps are really so risky,
Zydus Wellness FMCG 1479 75.8 5,778 42.3 34.6 then why invest in them at all?
Data as on August 7, 2018 Why some investors want to

COVER STORY
allocate a part of their portfolios to Institutions’ favourites: The third table

micro caps is because they have lists top 10 micro caps in which
immense potential and room to mutual funds and foreign
grow. Just imagine a micro cap institutions have significant stakes.
becoming a small cap, then mid cap Most wanted micro caps: These are
and finally large cap. Naturally, the micro caps in which mutual funds
wealth-creation potential of micro and foreign institutions have
caps is immense. raised their stakes by more than 1
This story has four tables. The per cent (of equity) over the last
first two tell you how micro caps one year. In coming up with this years ago are still micro caps, i.e.,
can both be wealth creators and final list, we have considered only their market caps haven’t moved
destroyers. The next two list some actively traded stocks – those that much. Out of the total listed
promising micro caps on which traded on 90 per cent of the trading universe of micro caps, there were
institutions are betting. Note that days in the last six months. 410 companies whose market caps
the micro caps discussed in this remained almost same or fell over
story are not our recommenda- Micro caps remaining micro 10 years. Surely, these companies
tions. But they can act as the uni- Our analysis revealed that many would have failed to create wealth
verse of micro caps on which you companies that were micro cap 10 if you had invested in them. WI
can research further.
Micro caps that turned into mid caps:
A micro cap turning into a mid cap Getting bigger only to shrink again
Current Max Min
is quite some achievement. The m-cap M-cap M-cap
first table lists companies that Company Sector (` cr) (` cr) (` cr)
were micro cap 10 years ago but Khoobsurat Trading 2 399 2

have since become mid caps. This
shows the strength of businesses Haria Apparels Miscellaneous 4 431 4
of these companies. For instance,
Symphony had gone bankrupt in Global Capital Markets Finance 5 493 5
2001 due to excessive
diversification. In 2009, the SRK Industries Textile 7 1,563 5
company regained its focus to
Odyssey Corporation Finance 7 311 5
become the world’s largest air-
cooler company. Its market cap Commex Technology IT 8 451 7
swelled from mere `28 crore to
more than `7,500 crore. Goenka Diamond & Jewels Diamond & Jewellery 9 755 8
Micro caps that turned bigger but then
again became micro caps: The Trinity Tradelink Trading 13 2,717 13
second table mentions companies
KGN Enterprises Agriculture 15 366 9
that fell back to the micro-cap
status from mid- and small-cap VKJ Infradevelopers Infrastructure 19 393 18
status. For example, Lycos
Internet grew larger due to its Global Offshore Services Logistics 43 1,360 39
search-engine business but later
lost its edge to Google. Shalimar Productions Media & Entertainment 48 954 48
Sundaram Multi Pap Paper 65 499 55
Lycos Internet IT 195 1,698 167
SV Global Mill Miscellaneous 223 554 204
Eco Friendly Food Processing Agriculture 390 1,102 375
Channel Nine Entertainment Media & Entertainment 391 979 384

Data as on August 9, 2018. Some of these companies don’t trade daily and hence their market caps are for the last traded day.

COVER STORY
Mutual funds’ favourite micro caps

Total stake Value of MF
M-cap (MF + FII) MF stake holdings Debt to
Company Sector (` cr) (%) (% of equity) (` cr) equity ROE (%) Equity (` cr)
Premier Explosives Chemicals 288 18.1 17.4 50.2 0.5 5.0 199.0
Ador Welding Capital Goods 472 12.7 12.7 59.8 0.3 7.7 245.0
Pennar Engineered Capital Goods 201 13.1 12.3 24.6 0.2 10.9 187.2
Rajratan Global Wire Iron & Steel 375 7.8 7.8 29.4 0.9 16.9 115.1
Aksharchem (India) Chemicals 427 11.1 6.3 26.8 0.2 16.2 237.7
Zuari Global Trading 372 6.5 6.1 22.8 0.4 -0.4 2410.0
Sarla Performance Fibres Textile 364 5.8 5.8 21.1 0.9 14.9 273.8
Salzer Electronics Electricals 253 12.7 5.7 14.4 0.6 7.9 272.8
Vardhman Special Steels Iron & Steel 487 5.1 5.0 24.4 1.6 9.3 339.3
Arihant Superstructures Realty 286 6.1 5.0 14.2 2.3 12.7 117.6
FIIs’ favourite micro caps

Total stake Value of MF
M-cap (MF + FII) FII stake holdings Debt to
Company Sector (` cr) (%) (% of equity) (` cr) equity ROE (%) Equity (` cr)
Winsome Textile Industries Textile 77 33.1 33.1 25.6 1.8 2.9 176.5
International Conveyors Capital Goods 191 31.7 31.7 60.4 0.6 0.6 149.6
Allsec Technologies IT 421 31.0 31.0 130.5 0.0 33.3 207.5
Hexa Tradex Trading 202 26.9 26.9 54.2 0.1 -3.9 274.3
Ashapura Minechem Mining 453 24.1 23.9 108.4 46.5 -146.8 -47.2
GSS Infotech IT 154 23.3 23.3 35.7 0.2 6.8 110.5
Visa Steel Iron & Steel 136 22.0 22.0 29.8 -4.0 – -793.4
Ponni Sugars (Erode) Sugar 103 21.2 21.2 21.8 0.0 1.3 272.9
Aarey Drugs & Pharmaceuticals Trading 106 14.6 14.6 15.4 0.2 9.5 80.3
New Delhi Television Media 214 14.2 14.2 30.3 14.7 -163.4 49.2
M-cap as on August 7, 2018

COVER STORY
The average market cap of the top 10 micro-cap holdings of mutual funds is `352 crore. All these companies are profitable. This shows that Indian
mutual funds are risk averse and when it comes to betting on micro caps, they like to go with those that have an established record.
Trailing 12M Trailing 12M 3Y sales 3Y profit Trading days in last 6M avg trading 1Y returns 3Y returns
C-Score Z-score F-score P/E P/B (%)
sales (` cr) net profit (` cr) growth (%) growth (%) 6M (Out of 124) volumes (‘000) (%)
268.4 7.2 21.0 29.8 1 4.6 5 122 7.4 35.9 1.4 -40.1 -13.1
473.2 22.8 6.7 -13.5 2 3.5 3 124 28.4 25.6 1.9 -8.6 7.6
520.0 15.8 5.0 -10.3 2 2.1 3 122 34.1 12.7 1.1 -51.6 –
401.1 22.0 20.4 55.8 1 4.1 6 124 7.7 17.1 3.1 43.7 121.1
276.4 31.0 13.0 27.0 0 6.4 8 124 11.9 14.0 1.8 -21.9 51.2
14.3 18.9 -1.0 -13.5 2 1.1 6 124 111.3 19.7 0.2 -4.3 10.1
306.3 24.1 -0.6 -5.0 4 2.1 6 124 81.9 15.2 1.3 -9.4 -13.7
453.3 20.0 17.0 18.7 2 3.0 3 124 42.3 12.6 0.9 -15.8 -18.7
877.9 25.0 9.9 – 1 2.9 8 124 32.9 19.4 1.4 -1.0 64.8
188.0 14.6 20.3 8.8 3 1.6 7 124 141.7 22.7 2.5 -61.9 18.3
The average market cap of the top 10 micro-cap holdings of FIIs is `205 crore. Many of these are currently loss making. This shows that FIIs are willing
to take on higher risk for better returns when it comes to betting on micro caps; they don’t hesitate betting on prospective turnarounds.
Trailing 12M Trailing 12M 3Y sales 3Y profit C-Score Trading days in last 6M avg trading 1Y returns 3Y returns
sales (` cr) net profit (` cr) growth (%) growth (%) Z-score F-score 6M (Out of 124) volumes (‘000) P/E P/B (%) (%)
664.9 5.0 0.8 -27.3 2.0 1.5 9 124 7.6 15.6 0.4 -47.6 -15.4
59.2 -5.8 -14.8 – 4.0 3.8 8 122 55.4 – 1.3 15.3 -8.2
303.7 52.8 24.1 – 1.0 21.6 4 123 20.7 7.1 2.0 -20.8 87.7
0.0 -2.1 -95.6 – 4.0 6.0 5 121 12.7 – 0.8 20.9 18.6
794.4 -73.0 -23.2 23.2 4.0 0.2 3 124 188.6 – -6.5 -12.9 -6.1
24.2 7.3 -51.9 – 5.0 7.2 4 124 1361.4 21.2 1.4 337.6 67.8
1605.6 -124.2 8.0 – 1.0 -0.7 7 123 25.0 – -0.2 -34.6 -10.5
173.5 0.3 7.4 – 1.0 2.8 5 106 3.8 332.7 0.4 -31.4 -11.8
349.3 6.2 17.8 78.4 1.0 4.0 7 124 102.7 17.1 1.3 -64.6 41.5
421.4 -66.5 -7.9 – 1.0 0.4 4 124 62.9 – 4.4 -19.2 -34.1

COVER STORY
India’s most wanted micro caps Total stake MF stake FII stake pur-
M-cap (MF + FII) purchase in chase in last Debt to
Company Sector (` cr) (%) last 1Y (` cr) 1Y (` cr) equity ROE (%) Equity (` cr)
,QFUHDVLQJSURÀWVLQWKHODVWIRXUTXDUWHUV
GSS Infotech IT 154 23.3 0.0 24.8 0.18 6.8 110.5
Emmbi Industries Plastic Products 278 7.2 0.0 20.6 0.92 16.7 98.2
ABC Bearings Bearings 479 2.7 13.3 -0.4 0.21 9.3 147.5
Technofab Engineering Infrastructure 189 5.0 0.0 12.6 0.41 5.7 268.3
Kellton Tech Solutions IT 484 5.2 1.5 6.1 0.68 31.3 260.1
Monarch Networth Capital Stock Broking 174 3.2 0.0 5.7 1.26 35.5 62.6
Radha Madhav Corporation Packaging 287 2.2 0.0 4.5 -1.35 -10.5 -85.2
&RQVWDQWSURÀWVLQWKHODVWIRXUTXDUWHUV
Aksharchem Chemicals 427 11.1 36.5 29.8 0.24 16.2 237.7
Premier Explosives Chemicals 288 18.1 63.2 2.0 0.48 5.0 199.0
Subex IT 305 9.8 0.0 54.1 0.04 2.8 779.5
Arihant Superstructures Realty 286 6.1 38.5 8.9 2.25 12.7 117.6
Pokarna Construction Materials 492 4.8 32.5 -0.4 1.65 27.1 191.3
TPL Plastech Plastic Products 269 5.9 -0.1 27.2 0.60 19.4 71.0
Royal Orchid Hotels Hospitality 413 7.1 4.4 22.4 0.54 7.1 169.1
Vardhman Special Steels Iron & Steel 487 5.1 26.7 -0.2 1.60 9.3 339.3
CMI Cable 336 15.9 13.9 7.4 0.68 11.6 238.1
GPT Infraprojects Infrastructure 457 4.1 13.4 6.8 1.23 9.4 211.4
6KLUSXU*ROG5HÀQHU\ 1RQ)HUURXV0HWDOV
Aarey Drugs & Pharma Trading 105 14.6 0.0 14.1 0.21 9.5 80.3
Salzer Electronics Cable 253 12.7 -6.4 20.5 0.57 7.9 272.8
Manaksia Steels Iron & Steel 183 7.0 0.0 13.4 0.35 9.3 176.2
Tamilnadu Petroproducts Petrochemicals 367 2.9 0.0 11.3 0.10 14.3 361.8
Gopala Polyplast Plastic Products 112 8.6 0.0 9.8 3.67 28.2 29.9
Globus Spirits Breweries & Distilleries 365 1.4 0.0 5.4 0.74 1.5 379.4
Jenburkt Pharmaceuticals Healthcare 344 1.7 0.0 4.0 0.00 29.8 61.3
Poddar Pigments Chemicals 273 1.3 0.0 3.2 0.01 10.7 197.2

COVER STORY
The companies highlighted in green have been bought by the institutions for the first time in one year.
24.2 7.3 -16.9 – 5 7.2 4 124 1361 21.2 1.4 337.6 67.8
279.0 15.3 14.9 36.8 2 3.9 6 124 14 18.2 2.8 -15.4 56.3
193.5 13.2 5.9 46.8 1 5.2 9 123 2 36.3 3.2 -2.6 46.4
435.1 14.4 1.2 20.8 3 2.6 6 118 7 13.1 0.8 -26.1 -2.9
783.5 68.4 64.5 62.3 1 6.6 8 124 187 7.1 1.9 9.3 8.6
90.3 18.9 16.6 73.2 – – – 124 12 9.2 3.5 -26.8 21.8
217.8 10.3 24.8 -55.7 5 -0.6 4 124 739 27.9 -3.4 10.9 -4.9
276.4 31.0 13.0 27.0 0 6.4 8 124 12 14.0 1.8 -21.9 51.2
268.4 7.2 21.0 29.8 1 4.6 5 122 7 35.9 1.4 -40.1 -13.1
324.1 25.6 -4.2 76.2 1 4.3 6 124 3258 11.9 0.4 -39.7 -28.7
188.0 14.6 20.3 8.8 3 1.6 7 124 142 22.7 2.5 -61.9 18.3
329.0 46.4 0.3 14.0 2 2.5 8 124 40 11.7 2.6 -39.4 -16.1
197.6 12.8 4.1 17.9 4 4.2 6 124 45 21.0 3.6 -30.5 5.0
104.9 11.9 8.2 11.2 1 4.0 8 124 129 34.8 1.9 35.0 38.6
877.9 25.0 9.9 – 1 2.9 8 124 33 19.4 1.4 -1.0 64.8
573.9 25.8 61.7 60.0 4 3.1 2 124 65 13.0 1.4 0.0 8.2
520.2 19.1 10.1 66.1 1 2.2 6 124 58 22.9 2.2 -3.8 33.6

349.3 6.2 17.8 – 1 4.0 7 124 103 17.1 1.3 -64.6 41.5
453.3 20.0 17.0 18.7 2 3.0 3 124 42 12.6 0.9 -15.8 -18.7
510.0 15.6 15.7 24.1 2 4.9 6 123 152 11.7 0.0 27.5 51.7
1048.9 48.3 3.4 – 3 4.2 8 124 235 7.6 1.0 -25.7 22.0
267.7 7.1 -1.8 – 4 2.6 7 124 36 15.8 3.7 43.5 81.1
1631.2 5.6 40.6 -5.7 1 2.0 5 124 103 64.6 1.0 82.4 19.6
120.9 22.8 11.3 27.3 2 17.4 7 124 3 15.1 5.4 53.4 15.7
373.4 17.4 6.6 2.7 3 10.5 7 124 8 14.3 1.4 -7.0 21.7

COVER STORY
Total stake MF stake FII stake pur-

M-cap (MF + FII) purchase in chase in last Debt to
Company Sector (` cr) (%) last 1Y (` cr) 1Y (` cr) equity ROE (%) Equity (` cr)
Shilchar Technologies Capital Goods 150 1.1 0.0 1.6 0.25 11.3 54.0
Sankhya Infotech IT 129 2.3 0.0 1.6 0.39 9.2 109.6
Rasandik Engineering Auto Ancillary 91 1.3 0.0 1.3 4.45 2.1 80.9
Triveni Glass Glass 17 2.8 0.0 0.6 -2.12 -13.8 -37.1
Samrat Pharmachem Healthcare 40 3.2 0.0 0.6 0.45 19.0 18.5
/RVVHVLQWZRTXDUWHUVRXWRIWKHODVWIRXU
Winsome Textile Industries Textile 77 33.1 0.0 31.7 1.77 2.9 176.5
Rossell India Tea/Coffee 264 8.1 0.0 27.6 0.59 0.1 168.6
Chartered Logistics Logistics 98 4.4 0.0 9.1 0.94 0.6 43.1
CIL Nova Petrochemicals Textile 82 5.4 0.0 4.4 0.59 1.5 84.3
Sicagen India Trading 128 12.3 0.0 2.7 0.25 0.3 393.1
Websol Energy Systems Electronics 152 9.2 0.0 1.8 4.12 3.6 89.8
Toyam Industries Stock Broking 85 2.0 0.0 1.7 0.00 1.8 19.3
PVV Infra Realty 9 10.5 0.0 1.0 0.20 0.6 4.1
Ashok Alco-Chem Trading 43.6 1.0 0.0 0.5 0.2 6.1 48.7
3URVSHFWLYHWXUQDURXQGV/RVVLQWKUHHTXDUWHUVEXWSURÀWLQPRVWUHFHQWTXDUWHU
Gokaldas Exports Textile 385 17.7 14.5 48.4 1.97 -20.6 130.9
Electrotherm (India) Iron & Steel 194 4.5 0.0 4.6 -2.40 -0.2 -1362.4
Indianivesh NBFC 185 1.9 0.0 3.5 2.62 7.2 128.3
Austin Engineering Company Bearings 23 2.3 0.0 0.6 0.19 -2.2 52.0
/RVVHVLQDOOIRXUTXDUWHUV
Panyam Cements & Mineral Ind. Cement 37 4.0 0.0 4.1 4.65 -1853.7 -13.7
A2Z Infra Engineering Infrastructure 390 9.8 0.0 22.9 4.66 -23.9 372.0
Kinetic Engineering Auto Ancillary 103 10.0 0.0 10.3 1.80 -21.7 32.1
Empee Distilleries Breweries & Distilleries 38 4.7 0.0 4.2 0.87 -25.7 365.1
Palred Technologies IT 47 7.2 0.0 1.5 0.00 -18.1 42.7
SEL Manufacturing Company Textile 65 15.0 0.0 5.6 78.53 210.9 -2386.8

COVER STORY
87.5 5.9 -6.1 0.3 5 4.5 4 114 1 25.5 2.8 -12.7 35.5
181.0 8.5 0.5 52.5 0 5.6 8 124 36 14.4 1.2 120.9 74.1
240.8 1.7 6.4 -33.8 1 1.5 9 122 3 54.0 0.8 -1.8 25.3
69.3 5.5 14.8 – 2 -0.4 8 124 8 3.1 0.3 -34.9 -5.3
92.5 3.2 24.0 – 5 6.0 6 124 3 12.6 2.2 121.7 50.9
664.9 5.0 0.8 -27.3 2 1.5 9 124 8 15.6 0.4 -47.6 -15.4
208.0 2.2 13.5 -25.6 3.0 2.6 5 121 17 0.0 1.6 -25.6 -14.0
140.4 0.2 -7.0 -59.0 4 5.2 8 124 148 393.8 2.3 -58.8 -18.6
250.5 1.3 1.0 -31.7 4 2.7 6 107 48 63.9 1.9 -1.6 20.0
711.3 -2.7 0.0 -183.9 2 4.2 3 124 51 111.5 0.3 -15.7 26.6
183.3 2.6 -19.8 – 2 -1.7 6 124 308 57.8 1.8 -56.5 34.2
40.1 0.3 36.4 – 0 124 1030 244.8 4.4 -31.0 -54.1
33.8 0.0 -33.3 – 2 1.4 6 123 27 364.6 2.3 -7.1 6.9
160.7 2.9 -23.2 -41.6 5 2.9 6 122 4 15.0 0.9 1.9 -13.2
1073.4 -15.4 2.7 -184.0 3 2.2 1 124 159 0.0 1.6 -8.3 2.5
2976.3 3.0 13.3 – 1 -0.2 7 123 20 65.2 -0.2 -36.4 59.3
366.2 7.5 122.3 -26.3 0 124 6 28.5 1.4 -5.0 5.0
78.0 -1.2 -8.3 -172.8 2 2.5 6 121 3 0.0 0.4 -2.7 -5.7
174.5 -31.4 21.4 – 3 0.6 3 124 13 0.0 -18.7 -65.0 -27.1
708.5 -87.4 6.0 – 3 0.4 4 124 715 0.0 1.0 -41.7 -7.0
102.3 -7.8 24.3 -191.3 1 1.0 5 124 6 0.0 3.3 -27.8 -2.5
620.5 -84.5 2.7 – 5 1.3 2 123 25 0.0 0.2 -55.3 -26.1
51.2 -6.4 93.7 – 4 11.9 6 123 11 0.0 1.1 -53.7 -19.5
940.0 -2391.3 -30.5 – 3 -0.8 3 124 223 0.0 0.0 -38.3 -24.9

OFFBEAT
When technical analysis fails

Tracking the collective ego can be more rewarding
than following technical analysis
SANJEEV PANDIYA
The more sophisticated among us of the ego in culture, religions and markets is useful
would understand the ego as the id (the self), but there because the individual is also a player within this
are layers to that. There is a sub-conscious id and a (collective) ego.
conscious id (the self-awareness that humans are Let’s evaluate this further. Human behaviour evolves
uniquely known to have). and markets are sometimes called ‘history in motion’.
This self-image is very complex and hence very Technical analysis often tries to deduce ‘rules’ from
fragile. It is what sends a film star into depression this evolution, sometimes with disastrous results. The
when a film fails or prompts an old-timer corporate reason why there are no rich technical analysts is that
employee to die quickly after he retires or is fired. It they do not know how the interaction of their own
builds up over time, is reinforced by actions creates a feedback loop that
repeated validation (as in the case of leads to their own demise. For example,
film stars) and gives you the crutch on The reason why once it is well-known that a stock is at a
which you live. It is why billionaires there are no rich strong support, we know that such
commit suicide when they are faced with technical support level is mostly violated before
sudden losses. Like the shattering of the stock turns. For example, look back
glass houses, it takes away more than analysts is that at the stock-price chart of Tata Steel
just their livelihood; it takes away their they do not know over the last few months.
identity. It doesn’t really matter whether how the You will find that the stock bounced
a Vijay Mallya or a Nirav Modi is actually a few times from 540, which became the
sent to jail; their life is already finished. interaction of accepted ‘strong support level’. And
But going back to the evolution of the their own actions then two top commentators came on the
collective ego in agglomerations of creates a top TV channels and touted the stock as
people, it is possible to observe the the pick of the decade. Result: All the
building up of the collective ego thread by feedback loop immature viewers got onto the stock
thread. The more complex the inter- that leads to their (especially after the Thyssenkrupp
relationships in an organisation, the own demise announcement). This was sold into by
more complex the (organisational) ego. someone who seemingly did not agree
At the highest level of complexity (the with the recent prognosis given out by
inter-connected human brain), it develops self-awareness. the two market wizards. The stock was handed over to
The more order a system has, the more it will need to ‘fools’, who by their very action had increased the
protect itself, especially the underlying order. This is very risk that they were seeking to avoid. Net result:
seen in complex organisations or even marketplaces. With no apparent trigger, the stock dropped 12 per
It is perhaps easy to make the point that a highly cent, to 490. The ‘fools’ capitulated and the strong
ordered human brain would have a complex, self- hands moved back in. Come the quarterly results and
aware ego, or even that organisations have an instinct the stock moved back to 580, its starting point, all in
of self-preservation. But an awareness of the operation about a month.

OFFBEAT
The casualty in this short example was the technical overhang of last year’s once-in-a-blue-moon profitability,
analyst and his believers. The only way to understand while the latter has the overhang of the ‘China bust’.
this is through the much softer rules of behavioural These are measurable egos. It’s possible to quantify the
evolution. It is a big, wide subject that uses a lot of excess of the valuation premium that Balrampur has
psychology, one small chapter of which is this idea of over what it should be (by looking at its valuation when
the collective ego. it was reporting similar-quality numbers earlier in its
Ego is defined as the (irrational) desire to maintain history), just as it is possible to project the valuation
homeostasis. ‘Irrational’ because evolution does not premium that Tata Steel will command as it spends
care about the individual; it seeks to perpetuate more time mid-cycle.
evolution (which, in turn, is defined as the adaptation So if markets were ‘efficient’, would such a thing
of the organism/organisation to the environment). exist? That’s about as logical as expecting human
Just as an organisation develops an ego because the beings to be ‘rational’ rather than ‘egotistical’, and
complex inter-relationships inside the organisation that’s my point. Markets are egotistical and seek
seek perpetuity, a market develops an ego, which seeks homeostasis. Just like almost all commercial activity is
to perpetuate the complex inter-relationships within focused on marketing to the individual ego and appeal
and with itself. to the limbic brain, all traders and market participants
Tracking this collective ego is a far should be seeking to sell into the
more accurate way to track markets than market’s ego, rather than joining it. How
to follow the rules of technical analysis. Just like almost much should you be paying for a loss-
Egos develop, they are fed, they bloat and all commercial making sugar company that has no idea
then they crack. Very similar to the activity is focused when the sugar demand–supply balance
boom–bust cycles in markets, think of will tilt? Compare this with how much
both bullishness/bearishness as egotism on marketing to you should be paying for a profit-making
of a very visible, measurable sort. Like the individual steel company that is clearly the last
individual egos, Mr Market has his ego. ego, all market man standing in a bankrupt sector that
And like any ego, it starts by reminding is still not officially out of the woods.
him of the boundary between him and participants And if there is a difference between the
his environment but then builds up and should be two, why is Mr Market offering you a
creates the vested interest in homeostasis. seeking to sell free lunch?
Eventually, as with individuals, it takes So far, we’ve talked about what ego is,
over the very objective of his existence into the market’s not what it does. In pursuit of self-
till it cracks and kills him. ego, rather than perpetuation, the market pays a cost,
The point is that these forces are much joining it which can be your profit. Why is the
more linear and predictable than we can entire aviation valued at 30 per cent less,
imagine. If you build a pictorial the consolidator and the consolidated?
imagination that is able to track the build-up of collective Indigo, with a billion dollars in cash, is down 30 per cent,
ego, it will give you a much clearer understanding of while Air India and Jet Airways, both have a billion
market momentum than technical analysis. dollars in current losses. If the market is a forecasting
One of the biggest examples of irrelevant machine, what is it forecasting? But if it is a reacting
correlations is the famous ‘Dow Jones tracking the size machine, then one can explain this current situation. In
of women’s hemlines over 100 years’. This has been such cases, it’s easy to do the maths. Between the
explained by Robert Prechter, the Dow theory guru, reaction and the forecast, you don’t even need numbers
who believes that it is possible to track the ‘social if you know the direction very clearly. What it should be
mood’ through the collective unconscious, which is doing versus what it is actually doing is a result of the
mostly reflected in the (collective) ego. self-perpetuation motive of the (sector) momentum. And
We know that the collective ego is more powerful it is possible that this will continue to bloat till it cracks.
than the individual ego and mostly even subjugates it. Betting on these cracks is a lot more profitable than
In the same market, why is the loss-making (and betting on some pseudo-scientific support–resistance
no-hope) Balrampur Chini at 1.2 times book value, levels that have no basis other than to say ‘if enough
while the seriously profitable and now-confident Tata people think it will happen, it will (happen)’. WI
Steel is also at 1.2 times book value. The former has an The author teaches, trades and writes at spandiya.blogspot.com

STRAIGHT TALK
The rise of ESG investing

Investing practices based on environmental, social and governance issues
are fast gaining ground
ANAND TANDON
Launched in 2006, the UN Principles with 613 public firms between 1999 and 2009 offers, thus
for Responsible Investment (PRI) are a voluntary set of far, the most convincing empirical results that
investment principles that offer a menu of possible successful ESG engagement leads to cumulative size-
actions for incorporating environmental, social and adjusted abnormal returns over the years following the
governance (ESG) issues into investment practice. The initial engagement. A more recent analysis can be
principles were developed at the initiative of UN found at (https://tinyurl.com/y8d8mfnz). The process
Secretary General Kofi Annan, who invited some of the of how this value is created is less understood. A study
largest institutional investors to develop these by UNEP Finance Initiative identified three
principles. A group of 20 persons from 12 countries, ‘engagement dynamics’ that can create value. These
supported by an expert group of 70, made up the are identified as follows:
drafting team. Communicative dynamics: Allowing
The PRI has over interactions between investors and
Growing interest 1,800 internal ESG information and reporting
The PRI has over 1,800 signatories, practices of companies
including 1,184 investment managers (as signatories, Learning dynamics: ‘Acting rather than
of end-Apr 2017), from over 50 countries, including 1,184 being acted upon’ – testing out of ESG
representing over $70.66 trillion of AUM
(see the graphic). Socially responsible
investment policies, identifying better metrics,
targets and key result areas
investment (SRI) funds have reached a managers, from Political dynamics: Enhanced interactions
significant share of overall investment over 50 between the investor-relation department,
markets in Europe (about 50 per cent)
and Canada (about 40 per cent), with
countries, sustainability department and board
members, along with external investors
other countries like the US and Australia representing Investors too benefit through better
also catching up. over $70.66 understanding of company processes,
Given that ESG issues manifest over
the longer term, it is natural that debt
trillion of AUM ESG-evaluation processes, and
collaboration between financial and ESG
investors, too, worry about sustainability. analysts. Recent studies have documented
Fixed-income investors are almost as big as listed that ESG information is associated with numerous
equity investors (both about $30 trillion) in considering economically meaningful effects. Specifically, ESG
ESG issues while investing. disclosures are associated with lower capital constraints
(Cheng, Ioannou and Serafeim, 2014) and lower cost of
How does ESG create value? capital (Dhaliwal, Li, Tsang and Yang, 2011).
Academic studies have shown that interaction between
investors and companies on ESG goals helps in creating What do investors use ESG information for?
long-term value for investors. An analysis by Dimson, A study by Prof Amir Amel-Zadeh and George Serafeim
Karaka and Lis (2015) of 2,152 engagement exercises published in the Financial Analysts Journal (Vol. 74, 3)

STRAIGHT TALK
Growth in responsible investments

100 2750
Total assets under management
90 2500
Asset owners’ assets under management
2250
80 Numbder of signatories
No. of signatories and asset owners

Number of asset owners 2000
Assets under management (US$ trillion)
70
1750
60
1500
50
1250
40
1000
30
750
20
500
10 250
0 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source : https://www.unpri.org/pri
reports on a global survey of investment organisations ESG rankings

to find out what these organisations use ESG data for. There are several rating agencies which collate data
The result: “Relevance to investment performance is and provide ratings for investors to rank companies
the most frequent motivation, followed by client on ESG parameters. Unfortunately, unlike credit-
demand, product strategy, and then, ethical rating companies where the ratings tend to cluster
considerations. An important impediment to the use of around similar levels, ESG ratings are often all over
ESG information is the lack of reporting standards.” the place. A study using MSCI rankings vs Fortune
The study also reports that investors magazine’s ‘Best 100 Firms’ showed a
found “negative screening,” i.e., the Academic studies correlation of only 14 per cent. There
exclusion of certain sectors or companies are issues of standardisation,
from a portfolio purely on the basis of
have shown that transparency, data delays, bias, etc., all
ESG criteria to be least beneficial. Sixty- interaction of which result in divergent rankings.
one per cent of survey respondents between Over time, these issues will get
believed that “full integration” (explicitly resolved as reporting standards are
including ESG parameters into financial
investors and better defined and technological
models, cost of capital and earnings companies on advances allow verification from other
forecasts) had a moderate or significant ESG goals helps collaborative sources. That said, it is
positive impact on financial returns, unlikely, perhaps also not desirable,
while 53 per cent believed that “direct
in creating long- that there should be only one
engagement” (exercise of shareholder term value for interpretation. After all, financial data
power through corporate engagement or investors is reported in a standardised form yet
proxy voting) with companies had a leads to different conclusions in the
beneficial impact. hand of investors of various hues.
A key issue in using ESG data was determining what Despite all the drawbacks, the increasing use of
was material to investment performance. This tended to ESG inputs in investments is a trend that will only
vary across industry, country and even company. Khan strengthen. Investors will need to take these into
et al. (2016) showed that the vast majority of ESG data account when looking at long-term investing. WI
did not affect investment performance. Hence, Anand Tandon is an independent analyst.
understanding what is material is of prime importance.

TAKING STOCK
‘Here is what you should do...’

Analysts are increasingly getting into uncharted territories and advising
companies on how to run their businesses. This is unwelcome.
MALINI BHUPTA
There is no winning against the high-margin products and its refusal to chase growth
‘noise’ in the market, especially when analysts behave in the commuter-bike segment, where rival Hero
like blood-thirsty gladiators. Not surprising then that ruled. So chatter in the market was hard to comprehend
Tesla’s Elon Musk is keen to take his company private. when the company reported motorcycle volume
Quarterly reporting of financials surely increases growth of 40 per cent year-on-year and 80 per cent
transparency for investors, but over time it has made growth in three-wheelers in the June quarter of the
companies focus on meeting or beating the market’s current fiscal. And it has aggressively priced one
short-term expectations. Analysts tend to arrive at entry-level bike, which helped it increase market
earnings estimates of companies and when companies share, too. The company’s shares fell sharply the day
deviate from these estimates, all hell after its results, as analysts decided
breaks loose. that an intense telecom-like ‘price war’
The noise has become so loud even in Warren Buffett, had broken out. This assumption was
the US that President Donald Trump has boss of Berkshire based on the change in Bajaj Auto’s
asked the Securities and Exchange Hathaway, and product mix coupled with operating
Commission to study the merit in margins coming in below the 20 per
companies reporting financials every six Jamie Dimon, cent mark (18.4 per cent in June 2018).
months instead of every quarter. Over CEO of JP Such was the panic that Rajiv Bajaj,
the last couple of decades, the number of Morgan, have Managing Director of Bajaj Auto, had
listed companies in the United States has to give a detailed interview where he
come down and the Wall Street Journal called for an end explained that the company was not
recently reported, “The rise of private to quarterly earn- facing ‘unusual margin pressures’ and
markets where companies are free from ings guidance by the company was seeing growth in all
quarterly reporting is already reshaping segments.
the makeup of public markets.” Warren listed companies Interestingly, in 2014, Antique Stock
Buffett, boss of Berkshire Hathaway, and to end short-term Broking in a report said, “Though one
Jamie Dimon, CEO of JP Morgan, have swings might debate Bajaj Auto has lost share to
called for an end to quarterly earnings peers in volume terms, not value terms,
guidance by listed companies to end it is time it focused on growth and
short-term swings. regained volume share through new brands and unique
The story in India is no different. At the start of the products with mass appeal and value proposition,
earnings season this fiscal, Bajaj Auto faced the wrath rather than debating and defending the existing topic.”
of analysts after the company announced its results. Now that Bajaj Auto has a product very attractively
The Bajaj story in some sense embodies the dichotomy priced in the commuter-bike segment, the market is
that markets pose before promoters and managements. worrying about margin decline, which in the latest
The Bajaj Auto story is interesting simply because the quarter was also impacted by rising input costs. A few
company was criticised a few years ago for sticking to years ago, Infosys under the stewardship of D Shibulal

TAKING STOCK
was badgered by the market to chase growth even if it entrepreneur and his ability to take risks to grow the
meant sacrificing margins. This is a dangerous trend to business. Back in 2007, Kumar Birla stuck to his decision
say the least as analysts seemingly want companies to on Novelis despite stiff opposition from the market.
be run on their whims. Analysts don’t just stop at arriving at quarterly
History is replete with examples of entrepreneurs estimates that they expect companies to meet. Some of
following their vision despite the opposition from the them also end up giving advice on operational issues.
market, which is how it should be. In 2007, Kumar For instance, some analysts have been advising Parag
Mangalam Birla’s Hindalco made a bid for Novelis. At Milk Foods to cut back on its umbrella of brands and
that time, the market was very skeptical as Novelis was consolidate all value-added dairy products under a
thrice the size of Hindalco (net worth was `9,500 crore single brand. If analysts had their way, they would have
at the end of March 2009). In FY18, Novelis contributed Go Cheese and Go Ghee sitting on the same shelf or,
56 per cent of the group’s operating profit. A decade even better, Gowardhan Cheese alongside Gowardhan
later, Hindalco has made another acquisition (Aleris), Ghee. Not surprising then that entrepreneurs like Jack
in 2018, making it the largest aluminium company in Ma, founder of Alibaba, believes that shareholders
the world. come third in his list of priorities – it is customers first
It is not for nothing that equity capital is referred to and employees second. WI
as risk capital because it is supposed to bet on an The author is the editor of Value Research Stock Advisor

Stock Advisor
Confessions of
an equity analyst
An equity analyst reveals

what matters and what
doesn’t in equity research

Stock Advisor
Vikas Vardhan
H
ow difficult is it to pick winning stocks from a it down to a handful of stocks. For example, out of
universe of 4,000 odd listed companies? Most over 4,000 stocks listed on the stock exchange, only
investors believe that analysts and experts 2,500 stocks are traded on any given day. Less than
tracking stocks spend copious hours analysing data, on 1,500 companies have been traded daily in the past six
the basis of which they arrive at financial models to months. Thus, actively traded scrips are down to half
determine the rate at which companies should grow. It simply because of liquidity.
all sounds too complex for ordinary people to The second most important filter is profitability.
understand. Assumptions such as these are further The best way to gauge a company’s profitability is
perpetuated by numerous business channels, which return on equity (RoE). There are only 450 companies
give inordinate amounts of air time to these experts, that have generated RoEs of more than 12 per cent in
particularly during the earnings season. And when the last three years. If we look at scale, then there are
companies fail to meet the market’s estimates, the just 350 companies that have a market cap of more
management has to spend time and energy explaining than `500 crore. By applying these simple filters, you
its strategy and even business. can cut the investible pool to 350 companies, which is
Is stock picking as complex as it is made out to be? less than 10 per cent of the listed universe in India.
At Value Research Stock Advisor, we believe that stock
picking is way simpler. As analysts, we work on Confession: There are dozens of investment rationales
simple ideas. We work with simple assumptions. but the most compelling ideas are built on just a few
Sometimes we even walk around the office and nibble Having done the initial
on snacks while analysing stocks! And we don’t have a sifting, we get down to
television screen in our research section at all. applying investment
Investors have many misconceptions about equity rationale to the few
research. It was because of them that we decided to companies that are left
put out our principles of stock picking for average to select the better ones.
investors and readers. And in the process we will be Pick any research report
busting a few myths around ‘research’. from sell-side
(brokerage) firms and
Confession: The investible universe is very small as you will find that the
compared to the total listed stocks investment rationale
At present, there are given is difficult to understand.
more than 4,000 stocks Investment rationale can be based on variables
listed on the Bombay ranging from macro situation to favourable
Stock Exchange. So government policies to reversal of a cycle to debt
picking a few winners restructuring, among many others. Taking an
may appear to be a investment call based on so many variables is like
Herculean task, but it betting on several horses at the same time. However,
needn’t be. The actual compelling ideas are built on solid financials. The
investible universe is fewer the variables, the higher the conviction. For
quite small and it is easy example, a company can be recommended because it
to cut it down to just a is great at doing something which nobody else can do.
few hundred companies. If you devise a simple The case is stronger if valuations are right. It can be
approach to investment, then you can further narrow as simple as that.
Good investment opportunities come from others’ ignorance.

Good investment prospects are not created overnight. They
are in the making for a long time and are available in the
market, provided you know what you are looking for.

Stock Advisor
In the short term, a stock’s movement is pegged to dozens of

factors like market sentiment, interest rates, economic
scenario, etc. In the long term, a stock’s movement is pegged
to just one thing – profitability.
Confession: We are no expert at running businesses They are in the making for a long time and are
Analysts are often given available in the market, provided you know what you
the status of ‘demigods’. are looking for and identify them in time.
In reality, they are simply Let me take a real life example. While working on
numbers experts. PSU companies in 2013, I came across NBCC (National
Managements, on the Building Construction Company). It was a debt-free
other hand, take years to company with a sound business model. It had cash in
master their businesses. hand and advances from customers of `1,650 crore. Its
An analyst covering order book was more than `12,000 crore. All this was
multiple sectors and available at a market cap of just `1,700 crore. It was a
companies can never case of an irrational pricing. Since then, the stock has
know the business the proved to be a 10-bagger.
way an entrepreneur does. If all the investors would have acted rationally, then
In reality, as analysts, we do not know how to we would have never spotted such a multi-bagger.
efficiently manufacture a product at the lowest cost.
Nor do we know the market dynamics fully. Similarly, Confession: We do not know where the market is
estimating the future earnings of a company right to headed in the short term
two decimal points is more like crystal-ball gazing, One of the biggest
which is seemingly made easy through spreadsheets. expectations from
We, at Value Research Stock Advisor, have an analysts is that they
understanding of the business model and we take know where the market
effort to understand how the business makes money or stocks prices will go in
and how it spends it. We develop the skill to identify the short term. The most
which management or business has been doing this frequently asked
smartly and will continue to do so in future. As question is “Kya lagta
analysts, our job is to be good stock pickers but we hai? Nifty kitna jayega?”
don’t claim to be masters of running businesses. As you may have
observed, many stock
Confession: We like it when markets behave research reports come with 12-month price targets.
irrationally as that creates opportunities But the fact is that analysts do not know where the
We all know that markets market is headed in the short term. The shorter the
are not perfect. And it is time, the higher the uncertainty.
this anomaly that creates In the short term, a stock’s movement is pegged to
opportunities for smart dozens of factors like general market sentiment,
investors. If everyone is interest rates, economic scenario, government
investing in policies, inflation and liquidity, among others. All
fundamentally good these are difficult to predict. In the long term, a
companies and at stock’s movement is pegged to just one thing –
reasonable prices at all profitability. Thus, comprehending results to get a
times, there will be no better understanding is relatively easier. What really
opportunities! Good matters is how much conviction the analyst has in the
investment opportunities come from others’ ignorance. long-term potential of the company. WI
Good investment prospects are not created overnight. Vikas Vardhan is Senior Equity Analyst at Value Research Stock Advisor

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STOCK ANALYST’S
CHOICE
Our scorecard
O Performance
ver the years, we have analysed and recommended several
stocks. The table below shows our performance since July
2011. Yes, we have a few failures, but we also have many Total returns* since July 2011
successful picks. A portfolio comprising the stocks below has
delivered an IRR of 23.71 per cent, including dividends, assum-
ing one had invested `10,000 in each of the stocks at the time of
the recommendation. In all one would have invested
`10,10,000. The current value comes to `34,42,363 (including divi-
dends) on August 21, 2018, whereas investing the same amount
23.7% 14.1%
Stock Analyst’s Choice Nifty 50 Index
in the Nifty 50 would have generated `21,86,374 (including divi- *As on August 21, 2018
dends), yielding 14.15 per cent. WI
Recommended Current Value of `10K
Recommendation date price (`) price (`) invested (`) Total return (% per annum)
Jul-11 Asian Paints 295 1,411 47,805 25.5

Bosch 6,917 18,860 27,266 16.0
Castrol India 122 161 13,140 6.5
Colgate-Palmolive 458 1,149 25,076 15.6
CRISIL 693 1,801 36,020 16.3
Cummins India 481 735 15,284 8.8
Exide Industries 149 294 19,659 11.0
ITC 123 313 25,379 16.2
Larsen & Toubro 730 1,319 18,065 9.9
Nestle India 3,888 10,850 27,905 16.5
NMDC 258 104 4,070 -7.9
Pidilite Industries 159 1,153 72,346 32.9
Titan Company 229 913 39,880 21.6
Aug-11 Lupin 461 869 18,869 10.3
Opto Circuits 213 13 617 -32.1
Sep-11 Bank of Baroda 152 152 9,999 0.6
Castrol India 127 161 12,626 6.0
Power Grid Corporation 103 187 18,168 11.1
Rural Electrification 87 112 12,956 10.6
Tata Coffee 70 110 15,589 7.5
Torrent Power 211 242 11,446 3.4
Zee Entertainment Ent. 123 509 41,191 23.4
Oct-11 CMC* 858 2,032 23,674 25.7
Graphite India 78 1,035 1,33,522 47.6
Zylog Systems 197 1 66 -50.6
Returns for less than one year are absolute. Total returns include dividend income. Returns as on August 21, 2018. Transactional fees not taken into account.
*
CMC merged with TCS with effect from September 29, 2015. Its current price is the last traded price.
Get fresh recommendations

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STOCK ANALYST’S
CHOICE
Nov-11 Godrej Consumer Products 198 1,385 69,860 33.8

Tata Consultancy Services 543 2,011 37,015 23.9
Transformers & Rectifiers 20 21 10,761 1.2
Dec-11 Gujarat State Petronet 92 190 20,602 12.2
Noida Toll Bridge 23 9 4,056 -3.5
Tata Motors 180 274 16,631 7.4
Jan-12 GAIL 218 382 17,496 10.8
Mahindra Lifespace 245 475 19,380 12.8
MRF 6,859 74,700 1,08,838 43.4
Mar-12 Bajaj Finance 83 2,839 3,80,511 74.1
Gabriel India 23 144 63,297 34.6
Opto Circuits 221 13 595 -35.0
Apr-12 Shriram Transport Finance 581 1,335 22,951 15.0
TTK Prestige 2,647 6,100 23,046 14.6
May-12 Bata India 423 1,029 24,330 15.7
GSK Consumer Healthcare 2,770 7,069 25,519 17.2
Swaraj Engines 395 1,792 45,380 32.6
Jun-12 Ajanta Pharma 75 1,200 1,59,200 57.5
Elecon Engineering 53 69 12,920 6.1
Kirloskar Pneumatic 470 871 18,533 12.3
Aug-12 Hero Motocorp 2,082 3,317 15,930 11.2
Supreme Industries 237 1,198 50,640 33.2
VST Industries 1,695 3,141 18,535 13.5
Sep-12 Amara Raja Batteries 195 877 44,955 29.5
Redington India 71 90 12,624 6.4
Oct-12 Lupin 567 869 15,317 8.4
MindTree 172 1,041 60,553 38.1
Solar Industries 197 1,198 60,913 36.7
Nov-12 Grindwell Norton 130 534 41,084 29.3
KPIT Technologies 120 291 24,231 17.4
Mcleod Russel 306 129 4,203 -12.5
Dec-12 City Union Bank 44 185 45,499 29.6
Petronet LNG 79 229 29,130 21.8
Wockhardt 1,647 634 3,847 -14.7
Feb-13 Balkrishna Industries 145 1,350 93,000 49.8
KEC International 64 307 48,188 33.5
Torrent Pharmaceuticals 365 1,761 48,181 35.6
Mar-13 Emami 205 564 27,472 21.4
Gruh Finance 54 321 59,531 39.6
Returns for less than one year are absolute. Total returns include dividend income. Returns as on August 21, 2018. Transactional fees not taken into account.

Stock Ad sor

STOCK ANALYST’S
CHOICE
Apr-13 Berger Paints India 69 336 48,887 34.9

Innoventive Industries# 103 4 407 -62.8
May-13 Kaveri Seed Company 252 615 24,437 18.9
Navneet Education 57 126 22,033 19.2
V-Guard Industries 35 216 62,343 41.7
Aug-13 Cairn India## 296 285 9,650 2.9
Indraprastha Gas 62 285 46,058 36.4
Nesco 146 502 34,359 28.2
Nov-13 Bajaj Corp 237 417 17,547 16.3
HCL Technologies 581 1,003 17,271 14.5
Dec-13 Voltas 89 613 68,584 51.4
Feb-14 J&K Bank 135 57 4,223 -16.3
Tata Consultancy Services 1,107 2,011 18,172 16.1
Mar-14 Cummins India 433 735 16,956 15.8
Swaraj Engines 622 1,792 28,831 31.7
Apr-14 AIA Engineering 560 1,784 31,867 31.3
Godrej Consumer Products 382 1,385 36,264 34.7
May-14 Rallis India 167 191 11,436 4.8
Titan Company 256 913 35,712 34.8
Jun-14 Finolex Cables 164 591 36,024 36.1
NBCC 20 74 37,323 37.9
Aug-14 Gateway Distriparks 232 184 7,968 -2.2
GMDC 154 116 7,521 -4.7
V-Guard Industries 47 216 46,034 46.0
Sep-14 Finolex Industries 297 617 20,792 22.3
Hindustan Media Ventures 155 166 10,706 2.5
Oct-14 Mahindra Holidays & Resorts 199 261 13,101 8.7
Tata Coffee 93 110 11,774 5.7
Nov-14 Infosys 966 1,379 14,269 12.3
Tata Motors 482 274 5,935 -13.7
Jan-15 Apollo Tyres 208 264 12,715 8.0
Mar-15 Ipca Laboratories 681 743 10,908 2.6
Voltas 256 613 23,914 29.2
Apr-15 Astral Poly Technik 449 1,137 25,324 31.2
VST Tillers Tractors 1,380 2,165 15,690 15.7
May-15 Just Dial 1,253 569 4,540 -20.9
Shriram Transport Finance 1,099 1,335 12,140 6.9
PORTFOLIO TOTAL 33,07,082 23.7

#
Stopped trading since Jun ‘13. ##Stopped trading since Apr ‘17. Returns for less than one year are absolute. Total returns include dividend income. Returns as on
August 21, 2018. Transactional fees not taken into account.

Stock Ad sor

STOCK
SCREEN
Ideas to delve deeper

S
ound investment methods outlast cycles and However, please note that they are not our
fads and generate profits over the long run. recommendations.
Value Research presents stock screens based on Each stock screen explains the reason behind picking
time-tested principles. the stock, which over time will help you develop your
What are stock screens? These are a listing of attractive own investing rules. As we will be evolving such models
stocks based on the objective principles of sound and implementing changes to the methodology to be in
investment. We apply stock filters carefully crafted by line with economic and market cycles, the list will be
Value Research analysts on the universe of Indian stocks dynamic and updated periodically.
to identify these attractive stocks. The filters are devised In the following pages of ‘Stock Screen’, we present
to identify stocks of the following kinds: five categories that collectively list a number of
Quality stocks available cheap stocks. With these, you will be well-equipped to select
ttractive blue chips
A stocks to build your own portfolio after doing further
Stocks available at a steep discount to book value research. If you think that stock picking is a lot of
High dividend-yield stocks hard work, you can get started with these screens and
Growth stocks available at reasonable prices with time understand the way the ideas are shaping to
We believe that stocks listed in this section are a good make your own judgement on stock selection.
starting point to start a close scrutiny before adding Great investments are not easy to find, but practice,
them to your portfolio. patience and sound principles are all that you need.
Key terms
Universe companies In order to arrive at our universe of companies, we checked ICR of more than two implies that it can service more than twice its current
if the companies traded on all the days for the last two quarters. We considered interest charges.
the companies with a market capitalisation of more than `400 crore. Debt-equity ratio The debt-equity ratio is calculated as the ratio of total out-
Price to book value (P/B) Price to book value is the ratio of the price of a stock standing borrowings of the company to its total equity capital. It essentially tells us
to the book value per share of the company. It shows how much premium investors which companies use excessive leverage to achieve growth. Conventionally, the
are willing to pay for the underlying net assets of the company. debt-equity ratio of less than two is considered safe.
Price to earnings (P/E) The price-to-earnings ratio, or the P/E ratio, is simply Return on equity (RoE) This is measured by taking profit after tax as a percent-
the ratio of the price of a stock to its earnings per share. It shows in multiples how age of net worth of the company. It indicates how efficiently the company has been
much investors are willing to pay for the earnings. The thumb rule of valuing a stock able to utilise investors’ money.
is that a high-growth stock will have a high P/E ratio, while a value stock will have Stock return Stock return is calculated by taking the percentage change in the
a relatively lower P/E ratio. price of the stock adjusted for bonus or split.
Earnings per share (EPS) Earnings per share, or EPS, is calculated by dividing Dividend yield This is defined as the percentage of the dividend paid per share
the company’s net profit with the total number of outstanding shares. to the current market price of the stock. Since the denominator in this ratio is the
EPS growth Growth of the EPS over a specified time period – trailing 12 months market price, a stock’s dividend yield changes every day.
(TTM), a quarter or five years. Quarterly comparisons are on a year-on-year basis. Dividend-payout ratio This is the total dividend paid to the shareholders as a
For five years, the figures are annualised. percentage of net profit.
Price-earnings to growth (PEG) This ratio demonstrates how high a price we Altman Z-Score Developed by Edward Altman of New York University, the Z-Score
are paying for the growth that we are purchasing. It is the ratio of price to earnings predicts a company’s financial distress or the possibility of its going bankruptcy
to the EPS growth of the stock. In all our analyses, we have taken five-year historic within two years. A Z-Score of more than three is desirable.
EPS growth. Modified C-Score It tells the probability of financial manipulations. In order to
Earnings yield Earnings before interest and taxes (EBIT) divided by enterprise develop it, we have modified James Montier’s C-Score. A C-Score of less than four
value. Enterprise value is market cap added to total debt and less cash and is desirable.
equivalents. Piotroski F-Score Developed by Joseph Piotroski, the F-Score highlights financial
Dividend per share Total dividend declared during the year divided by the total performance as compared to that in the previous
number of outstanding shares. year. It thus points out to the current outperformer Growth Value
Net sales This is simply the income that a company derives by in terms of profitability and financial improvement.
selling the goods and services that it produces. The downside of taking sales as an An F-Score of seven or above is good. Large
indicator of growth is that it may not be matched by a similarly scintillating bot- Stock style It indicates the style of the stock. It
tom-line (net profit) performance. A company may be earning revenue at a high is derived from a combination of the stock’s valu- Mid
rate. But if it is doing so by incurring a very high cost, the bottom line may not grow ation — growth or value — and its market capital-
in proportion to the growth in the top line (sales). isation — large, mid and small. For example, on the Small
Interest-coverage ratio (ICR) This indicator is generally used to gauge right we have shown the stock style of a large-cap
whether a company has the ability to service its debt. The interest-coverage ratio growth stock.
is calculated as the ratio of operating profit to interest outgo. A company with an

STOCK
SCREEN
Reasonably priced growth stocks

Growth investing is about picking companies that are fast growing their
bottom lines. But make sure that the valuations are not overheated.
No. of companies that
cleared the filters
REASONS TO INVEST THE FILTERS
All-weather style Market cap greater than

At least 20% in the trailing 12 1,169
Companies with strong `400 cr months YoY

At least 20% in latest quarter 226
fundamentals Earnings growth of:
YoY
Greater stability vis-a-vis
At least 20% in the past five Stocks with a P/E of less 56
value or growth years than 15
On fast track
Stock 5Y median Quarterly EPS TTM EPS 5Y EPS Market cap Share 52-week
Company style P/E P/E PEG growth (%) growth (%) growth (%) (` cr) price (`) high/low (`)
Andhra Petrochemicals
Chemicals
9.4 – 0.08 4,952.1 1,262.2 51.2 674 79 84-27
Asian Star Company

Cons Durable
11.3 16.7 0.59 31.0 79.5 37.1 1,393 870 1614-680
Bajaj Holdings & Inv

Financial
10.3 7.8 0.54 32.2 33.4 31.1 33,594 3,007 3248-2501
Balaji Amines
Chemicals
14.3 10.5 0.44 48.6 51.5 32.6 1,775 548 782-308
Bhageria Industries
Chemicals
12.6 5.4 0.15 163.7 24.3 77.2 658 300 365-254
Bharat Bijlee
Engineering
9.5 36.8 0.17 431.0 511.0 102.1 741 1,317 1790-964
Birla Cable
Engineering
14.6 13.5 0.38 3,459.2 1,786.2 40.2 401 134 135-39
BL Kashyap & Sons

Construction
12.8 56.8 0.32 123.9 347.8 35.3 713 34 72-29
Can Fin Homes 14.1 20.2 0.36 454.9 54.3 34.2 4,352 326 590-308
Financial
Centrum Capital 5.9 63.2 0.06 3,863.1 742.3 133.5 2,163 52 67-50
Financial
Chennai Petroleum Corp 4.4 5.3 0.19 365.9 74.5 27.0 4,538 304 481-262
Energy
Cigniti Technologies 14.0 29.0 0.27 764.8 118.1 55.5 1,079 393 492-204
Technology

STOCK
SCREEN
DIL
Healthcare 14.3 23.8 0.16 478.9 443.0 98.8 799 871 1123-148
DLF
Construction 8.5 42.0 0.18 56.1 702.4 59.4 38,327 215 274-158
Firstsource Solutions
Services 12.8 9.8 0.74 34.2 27.3 28.3 4,475 65 84-33
Gallantt Metal
Metals 6.8 7.7 0.43 175.5 120.4 34.2 453 55 63-33
Goa Carbon
Energy
13.1 12.1 0.26 29.6 285.6 30.6 726 795 1215-266
Graphite India
Engineering
11.7 18.6 0.19 2,759.9 1,227.7 84.8 20,350 1,042 1127-242
Gujarat Alkalies & Chem

Chemicals
6.7 7.1 0.29 92.1 96.4 23.4 4,197 570 935-405
Gujarat Ambuja Exports

FMCG
11.6 7.6 0.67 215.0 91.6 24.7 2,502 220 310-110
Gujarat Narmada Valley

Chemicals
7.0 8.1 0.25 178.8 69.1 35.6 6,354 409 549-265
HEG 8.9 11.0 0.10 9,237.6 6,416.0 108.3 16,516 4,132 4542-465
Engineering
India Glycols 10.5 0.0 0.62 411.0 193.5 26.7 1,382 449 621-160
Chemicals
Indiabulls Housing Fin 13.4 12.3 0.38 29.6 32.6 33.9 55,165 1,296 1440-1081
Financial
JK Paper 11.3 10.3 0.17 50.0 35.6 145.5 3,347 189 191-92
FMCG
JSW Steel 10.4 17.5 0.15 276.4 233.9 67.4 82,560 342 351-228
Metals
Kellton Tech Solutions 6.0 12.2 0.07 32.7 30.8 64.9 444 46 85-37
Technology
KSE 12.2 10.4 0.16 52.5 194.5 86.1 912 2,874 4000-1196
FMCG
Lincoln Pharmaceuticals 11.3 11.7 0.36 227.3 94.4 50.9 517 258 290-150
Healthcare
Maharashtra Seamless 12.5 17.0 0.70 169.4 64.6 30.9 3,275 485 552-384
Metals
Meghmani Organics 11.8 12.3 0.14 93.8 98.7 93.4 2,379 94 129-68
Chemicals

STOCK
SCREEN
National Aluminium Co
Metals 7.3 13.9 0.25 432.8 186.9 82.9 13,820 72 98-57
NR Agarwal Industries
FMCG 8.6 7.9 0.09 35.6 66.3 95.4 846 501 600-250
Orient Paper & Industries

FMCG
13.9 27.6 0.37 126.2 96.3 34.9 832 39 175-25
Pennar Industries
Metals
7.6 13.3 0.43 22.8 94.1 21.1 551 46 79-41
Polyplex Corporation
Chemicals
9.7 34.0 0.09 789.8 282.8 73.4 1,606 508 602-406
Prakash Industries 4.7 6.8 0.17 169.6 254.3 32.1 2,284 140 276-100
Diversified
Rain Industries 6.7 8.7 0.25 94.6 158.4 39.6 7,322 218 475-133
Construction
Rane (Madras) 14.3 25.4 0.60 346.9 137.1 36.2 754 648 1050-457
Automobile
Renaissance Jewellery 9.2 5.1 0.47 36.4 48.3 25.7 607 322 412-167
Cons Durable
Sadhana Nitro Chem 12.8 3.8 0.06 3,572.0 3,266.8 71.5 678 718 791-53
Chemicals
Sandur Manganese 8.3 9.4 0.34 182.1 102.8 27.7 1,164 1,331 1470-751
Metals
Sanwaria Consumer 8.7 11.4 0.27 72.8 118.0 31.6 996 13 34-7
FMCG
Satia Industries 7.1 5.5 0.10 78.2 67.4 44.9 549 538 549-77
FMCG
Stovec Industries 14.4 19.1 0.46 28.3 31.9 50.9 517 2,475 3875-2211
Engineering
Sunflag Iron & Steel Co 8.4 11.1 0.09 59.4 99.2 72.7 1,208 67 100-50
Metals
Tata Power Company 4.8 22.5 0.06 379.1 240.0 77.1 18,920 70 102-67
Energy
Tata Steel 5.0 0.0 0.14 91.5 10,370.8 32.1 72,175 599 756-493
Metals
Technocraft Industries (I) 10.6 9.6 1.10 46.2 38.8 34.7 1,227 504 620-383
Metals
Thirumalai Chemicals
Chemicals
9.4 9.9 0.18 21.7 126.5 54.6 1,679 164 244-117

STOCK
SCREEN
Universal Cables
Engineering
13.2 12.2 0.24 141.4 82.5 45.2 690 198 210-101
Vardhman Special Steels

Metals
14.8 18.0 0.19 233.6 42.1 70.0 469 132 195-113
West Coast Paper Mills
FMCG
9.0 11.4 0.14 56.5 51.6 267.3 2,284 347 374-173
WPIL
13.4 22.5 0.43 354.4 181.3 42.6 892 913 960-450
Engineering
Data as on August 20, 2018. EPS growth rates are annualised. Median P/E is for less than five years if five-year data are not available. New entrants.
Quality stocks available cheap

The stocks listed below clear essential checks on solvency, accounting,
recent financial performance and valuations
REASONS TO INVEST THE FILTERS 1,169

Safety Market cap greater than C-Score less than 4 694
Soundness `400 cr PEG less than 1
127
Good performance Z-Score greater than 2.99 P/E to median P/E less than
F-Score greater than or equal 1.5 120
Reasonable valuations
to 7 Earnings yield greater than 5% 44
Banking and finance companies were removed from this analysis as the metrics don’t apply to them.
Safe bets
For updated numbers, visit: www.ValueResearchOnline.com
Stock Altman Piotroski Modified Earnings Market Share 52-week
Company style Z-Score F-Score C-Score yield (%) P/E PEG cap (` cr) price (`) high/low (`)
ABC Bearings
Engineering 5.3 9 1 5.1 30.1 0.70 505 437 569- 380
Action Construction Equip
Construction
7.2 9 0 6.3 24.9 0.45 1,633 139 204- 59
Ambika Cotton Mills
Textiles
6.8 8 3 12.3 11.6 0.88 733 1,285 1860- 1200
Banco Products (India)

Automobile
7.9 8 0 12.7 12.6 0.83 1,581 221 277- 195
Bhansali Engg Polymers

Chemicals
7.9 9 2 7.1 22.5 0.20 2,240 135 225- 78
Bharat Seats
Automobile
4.9 9 1 8.4 17.6 0.45 545 172 274- 112

STOCK
SCREEN
Bodal Chemicals
Chemicals 6.3 8 2 12.8 11.1 0.11 1,503 123 190- 110
Cigniti Technologies
Technology
4.8 8 2 7.1 14.0 0.27 1,079 393 492- 204
DCM Shriram
Diversified
3.9 9 2 14.3 9.2 0.51 6,016 376 628- 237
Federal Mogul Goetze

Automobile
6.3 8 2 5.7 29.1 0.19 2,503 451 592- 403
Filatex India
Textiles
3.3 8 2 8.8 17.8 0.26 1,169 55 58- 26
Goa Carbon
Energy
5.0 8 3 13.5 13.1 0.26 726 795 1215- 266
GP Petroleums 5.6 8 2 7.0 27.0 0.91 436 85 97- 67

Energy
Graphite India 16.7 8 2 13.7 11.7 0.19 20,350 1,042 1127- 242
Engineering
Grauer & Weil (India) 7.7 8 1 8.9 17.8 0.76 1,203 53 86- 42
Chemicals
HEG 11.7 8 3 16.8 8.9 0.10 16,516 4,132 4542- 465

Engineering
Himadri Speciality Chem 5.1 9 3 7.6 20.4 0.20 5,502 131 197- 82
Energy
Insecticides (India) 4.3 8 1 9.2 16.1 0.84 1,407 680 964- 642
Chemicals
International Paper APPM 4.0 9 1 9.4 17.8 0.33 1,850 464 503- 277
FMCG
Jubilant Life Sciences 3.0 8 1 8.0 16.7 0.41 11,628 731 1039- 600
Healthcare
Kellton Tech Solutions 5.9 8 1 22.5 6.0 0.07 444 46 85- 37

Technology
Maithan Alloys 7.3 8 1 26.6 6.0 0.11 1,802 621 1026- 446
Metals
Manali Petrochemicals 5.4 9 3 16.6 10.2 0.39 700 41 56- 32

Chemicals
Meghmani Organics 4.5 9 2 15.2 11.8 0.14 2,379 94 129- 68

Chemicals
National Aluminium Co 4.2 8 2 19.1 7.3 0.25 13,820 72 98- 57

Metals

STOCK
SCREEN
NR Agarwal Industries
FMCG
3.4 9 1 13.1 8.6 0.09 846 501 600- 250
NRB Bearings
Engineering
3.6 8 1 8.0 16.5 0.85 1,712 177 193- 115
Phillips Carbon Black 3.3 8 1 8.2 15.9 0.39 4,432 257 319- 121
Chemicals
Quick Heal Technologies 42.8 8 1 10.8 19.4 0.22 1,866 265 404- 174
Technology
Rico Auto Industries 3.7 8 0 7.4 19.5 0.17 1,152 85 111- 65

Automobile
Sandur Manganese 8.2 9 1 23.6 8.3 0.34 1,164 1,331 1470- 751
Metals
Sharda Motor Industries 5.4 8 1 11.1 14.6 0.65 1,175 1,988 3140- 1743
Automobile
Shemaroo Entertainment 13.2 8 2 9.4 17.7 0.90 1,324 480 595- 331
Services
Shree Pushkar Chemicals 8.5 8 3 9.3 18.2 0.50 623 202 337- 172
Chemicals
Star Cement 4.7 8 1 7.4 14.9 0.93 4,679 112 152- 102
Construction
Sunteck Realty 4.1 8 2 5.6 28.3 0.31 6,992 478 490- 249
Construction
Suven Life Sciences 9.9 8 3 9.3 17.6 0.67 2,951 232 251- 158
Healthcare
Tata Metaliks 4.0 8 0 12.2 10.0 0.25 1,601 632 976- 605
Metals
UPL 3.5 8 2 8.8 15.3 0.66 31,493 619 856- 537

Chemicals
Vadilal Industries 3.2 8 2 9.3 18.2 0.69 423 589 1173- 587
FMCG
Vardhman Textiles 3.8 9 0 11.7 11.0 0.27 6,520 1,137 1560- 1130
Textiles
VenkyS (India) 6.1 9 1 8.9 18.5 0.23 4,051 2,877 4725- 1787
FMCG
Zee Learn 4.3 8 2 8.1 20.6 0.76 1,198 37 51- 31

Services
Data as on August 20, 2018. New entrants.

STOCK
SCREEN
Attractive blue chips

Investing in blue chips at reasonable valuations is one of the simplest
methods of wealth creation with limited pain
REASONS TO INVEST THE FILTERS cleared the filters
Liquidity Large and mid caps
334
Large companies in respective businesses Debt-equity ratio of less than two
Strong balance sheets Interest coverage ratio should be more than 276
Liked by institutions two 214
Average ROE should not have fallen more than
93
20 per cent in any year
Annualised earnings growth of more than 20% 36
over the past five years 17
PEG of less than 1.5 6
Five-year average return on equity above 20%
Solid foundation
Stock Debt-equity Interest 5Y avg 5Y EPS Market cap Share 52-week
Company style P/E PEG ratio coverage ratio RoE (%) growth (%) (` cr) price (`) high/low (`)
Aarti Industries
Chemicals
33.2 1.3 1.1 4.5 22.0 31.5 11,374 1,389 1445-821
Aurobindo Pharma
Healthcare
16.4 0.4 0.4 42.7 31.0 21.6 38,644 660 809-527
Avanti Feeds
FMCG
16.1 0.2 0.0 147.7 48.7 71.5 6,213 457 980-390
Minda Industries
Automobile 32.5 0.5 0.4 12.6 20.4 58.7 10,810 412 459-253
Sundram Fasteners
Engineering 36.0 1.1 0.5 15.8 20.9 43.1 13,804 651 684-381
Tata Elxsi
Technology 33.9 0.6 0.0 456.5 39.1 55.3 8,834 1,420 1491-792
Data as on August 20, 2018. EPS growth rates are annualised. New entrants.
For real-time, customisable stock screens, subscribe to
Stock Ad sor

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
Cushion against volatility Market cap greater than Stocks with sustained per 1,169
Higher total return `400 cr share dividend and amount
1,017
Generate regular tax-free Dividend payout ratio of less over the past five years
income than 40% 21
Stocks with a current dividend
10
yield of more than 3%
Dear dividend
Stock Dividend Dividend Dividend Earnings Market cap Share 52-week
Company style P/E PEG per share (`) yield (%) pay-out ratio (%) yield (%) (` cr) price (`) high/low (`)
BSE
Financial
16.2 -0.2 36.0 4.8 27.0 26.5 3,870 747 1039-726
General Insurance Corp 16.3 – 11.7 3.8 34.8 – 58,772 334 450-325
Financial
NLC India 8.2 1.2 4.5 5.8 35.2 9.8 11,862 78 119-69
Energy
NTPC 12.7 -3.2 4.8 3.2 36.8 6.8 1,30,691 159 188-150
Energy
Polyplex Corporation 9.7 0.1 7.0 7.0 10.1 15.8 1,606 508 602-406
Chemicals
PTC India 7.9 0.4 3.0 4.7 21.4 4.8 2,498 85 130-68
Energy
PTC India Financial

Financial
47.6 – 1.5 8.2 27.9 – 1,175 18 44-15
REC
Financial
4.8 1.2 9.7 8.5 30.2 11.2 22,307 113 184-89
Ucal Fuel Systems

Automobile
– – 5.0 4.5 33.5 12.7 489 221 339-180

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
1,169
Really cheap Market cap greater than Companies must have a five-
Relatively undervalued `400 cr year earnings growth of more 920
Companies with assets Debt-equity ratio of less than than 10%
Price at least 10 per cent 597
1.5 times
Return on net worth of more below the book value
434
than 10% in the most recent
year 11
Bargain hunt
Stock Dividend Debt-equity Market cap Share 52-week
Company style P/B P/E PEG yield (%) ratio RoE (%) (` cr) price (`) high/low (`)
Cosmo Films
Chemicals
0.75 7.2 0.06 2.5 1.3 10.8 472 243 415-189
Dhampur Sugar Mills

FMCG
0.56 4.8 0.05 3.4 1.4 15.9 579 87 331-72
Eros International Media

Services
0.50 4.8 0.50 0.0 0.3 13.1 1,144 120 260-104
Hindustan Media Ventures

FMCG
0.90 8.8 1.21 0.7 0.1 14.8 1,204 169 278-154
HT Media
FMCG
0.52 4.9 0.46 0.7 0.5 11.2 1,324 57 118-53
Indian Metals
Metals
0.70 7.5 0.28 4.7 0.7 16.4 863 321 799-287
Kuantum Papers
FMCG
0.85 8.1 0.21 0.4 0.5 11.1 603 691 1032-470
NLC India
Energy
0.89 8.2 1.15 5.8 1.0 15.4 11,862 78 119-69
Prakash Industries
Diversified
0.79 4.7 0.17 0.0 0.3 14.5 2,284 140 276-100
Srikalahasthi Pipes
Metals
0.87 8.1 0.07 2.7 0.6 18.6 1,035 221 449-187

WORDS WORTH
NOW
From being counted among the Fragile Five... India

has become the destination for multi-trillion-dollar
investments. Today India is discussed for ‘reform,
perform and transform’... We are poised for
record economic growth... the sleeping elephant
has woken up and has started to run.
Narendra Modi Prime Minister in his Independence Day speech
We have had eight very difficult ...Everybody is responsible,

years, often very painful years, be it the bankers, industry or
where we have had three borrowers, government and,
successive programmes. But now without inviting contempt of
Greece can finally turn the page the court, even the judiciary
in a crisis that has lasted too has played a role in this (NPA
long. The worst is over. crisis) situation.
Pierre Moscovici European Commissioner for Economic Rajnish Kumar, Chairman, SBI,
and Financial Affairs, Financial Express, August 21, 2018 Mint, August 21, 2018
Lots of shareholders
have lost money. The current demand for steel is
I feel guilty and more than expected, buoyed
embarrassed. by robust performance
Naresh Goyal,
of the automobile and
Chairman, Jet Airways, construction sectors. The
Financial Express, demand for steel was
August 10, 2018
projected to grow by 5-6%
but it has been 8%.
T V Narendran CEO, Tata Steel, LiveMint.
com, August 15, 2018
Before you ask me again next year to make

scooters, can you please ask Siddhartha Lal to
make scooters? If he makes scooters... I will also
make scooters.
Rajiv Bajaj, MD, Bajaj Auto, Mint, August 14, 2018

Mirae Asset Hybrid Equity Fund
(Aggressive Hybrid Fund - An open-ended hybrid scheme investing predominantly in
equity and equity related instruments)
Mutual Fund investments are subject to market risks,

read all scheme related documents carefully.


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Total pages 68, including cover

4 Wealth Insight September 2018

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When technical ‘Reassessing investment hypothesis

44 8 MONTHLY AGENDA 53 STOCK ANALYST’S CHOICE

investing 14 MARKET COMPASS

Investing practices based on Index watch Reasonably priced

and advising companies on how

September 2018 Wealth Insight 5

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Micro is beautiful but also ugly

September 2018 Wealth Insight 7

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Swaying with the interest rate

HDFC Bank ICICI Bank

8 Wealth Insight September 2018

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Bajaj Finance Shriram Transport Finance

700 -0.24 2 400

LIC Housing Finance Sundaram Finance

Bharat Financial Inclusion Manappuram Finance

900 Correlation 6 90 Correlation 6

September 2018 Wealth Insight 9

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Buy businesses with long-term visibility

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12 Wealth Insight September 2018

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Nifty Energy Index

Nifty Energy Nifty Median

8000 Power Grid 97,935 -14.7

3.8 NTPC 12.6 1.2 3.2

14 Wealth Insight September 2018

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71.3 172.1 274

44.8 100.4 386

38.0 57.5 2878

-8.2 17.8 1692 1326

-11.1 27.7 1459

-13.0 15.3 2149

-17.1 20.7 1821

-21.4 18.9 2337

September 2018 Wealth Insight 15

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64.2 29.4 347

41.8 54.7 149

-7.5 18.7 327

-16.9 9.0 526

-24.3 36.3 382

-24.7 19.8 422

-26.4 15.6 753

-33.9 16.1 407

16 Wealth Insight September 2018

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-41.0 6.9 574

-69.4 15.7 100

September 2018 Wealth Insight 17

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The leader vs the rest

Paints Housing finance

2,112 Asian Paints 1,34,340 12,808 HDFC 320,239