Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
December 2015
Volume IX, Number 6
EDITORIAL POLICY
The goal of Wealth Insight, as with
all publications from Value COVER STORY
H T
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TO BET ON
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Editor
Dhirendra Kumar
Special Correspondent
Mohammed Ekramul Haque
Research & Editorial
Vikas Vardhan, Prasobh
& Vibhu Vats
Design
Mukul Ojha, Kiran Sindhwal
Production
Hira Lal
5IJTUJNFJUT
EJGGFSFOU
STOCK ANALYSTS CHOICE
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of Delhi courts only. ALL RIGHTS RESERVED
,JMMJOH UIFVOEFBE
The new Insolvency and Bankruptcy Bill will be a significant reform, with a
wide-ranging impact on Indias business practices
DHIRENDRA KUMAR
CONSEQUENCES ARE WIDE RANGING FROM THE THINNESS OF
"NPOH UIF TUSBOHF UFSNT UIBU BSF THE CORPORATE BOND MARKET TO THE REFUSAL OF BANKS TO
USED IN CONJUNCTION WITH BUSINESSES IN )NDIA IS @ZOMBIE EASILY LEND TO SMALLER BUSINESSES
3EARCH THE INTERNET AND YOU WILL FIND LOTS OF HEADLINES 4HE DRAFT BILL IS AN IMPRESSIVE PIECE OF WORK 4HE
ABOUT THE ZOMBIE COMPANIES AND BUSINESSES IN )NDIA !T BROAD GOALS OF THE BILL ARE TO ENSURE THAT INSOLVENT
ONE POINT OVER PER CENT OF THE COMPANIES LISTED ON THE BUSINESSES ARE WOUND UP OR SET ON A VIABLE REVIVAL PATH
"3% WERE SAID TO BE ZOMBIES /N 7IKIPEDIA THE ENTRY IN A TIME
BOUND MANNER WITHIN DAYS THOSE
FOR A ZOMBIE STARTS WITH THIS DEFINITION @:OMBIES ARE MANAGING THE BUSINESS ARE UNABLE TO STRIP ITS ASSETS AND
FICTIONAL UNDEAD CREATURES CREATED THROUGH THE CRUCIALLY OBSTRUCTIONIST LAWSUITS ARE UNABLE TO DERAIL OR
REANIMATION OF HUMAN CORPSES :OMBIES ARE MOST DELAY THE PROCESS )T ALSO SETS UP CONDITIONS UNDER WHICH
COMMONLY FOUND IN HORROR AND FANTASY GENRE WORKS SUCH BUSINESSES CAN CONTINUE TO OPERATE
4HE INTERESTING WORD HERE WHICH FITS THE WORLD OF /NE EXTREMELY SIGNIFICANT POINT OF THE BILL IS THAT IT
BUSINESS AND INVESTMENTS IN )NDIA WELL IS @UNDEAD DEFINES THE CONCEPT OF @OPERATIONAL CREDITORS WHO HAVE
.EITHER ALIVE NOR DEAD BUT UNDEAD n BUSINESSES WHICH EQUIVALENT RIGHTS TO @FINANCIAL CREDITORS /PERATIONAL
ARE DEAD AND YET CANNOT BE RECOGNISED AS SUCH CREDITORS WOULD PRIMARILY BE SUPPLIERS WHO HAVENT
5NDER THE MUTANT SOCIALIST LEGACY BY WHICH )NDIA IS RECEIVED PAYMENTS CUSTOMERS WHO HAVE PAID IN ADVANCE
STILL GOVERNED WE CANNOT BRING OURSELVES TO ADMIT THAT AND ARE YET TO RECEIVE THE GOODS OR SERVICES AND
BUSINESSES FAIL AND DIE )N REALITY NOT ONLY DO THEY DIE IN EMPLOYEES WHO ARE YET TO BE PAID SALARIES AND OTHER
A COUNTRY WITH LAKHS OF BUSINESSES A FEW HUNDRED MUST DUES )N )NDIA SO FAR THESE ARE THE GROUPS THAT ALWAYS
BE DYING EVERY DAY !ND YET OUR LEGAL CODE AND PRACTICE END UP BEARING LOSSES &OR EXAMPLE UNDER SUCH A LAW
HAS NO RATIONAL TREATMENT FOR THIS EVERYDAY OCCURRENCE THE COUNTLESS CUSTOMERS OF ZOMBIE REAL
ESTATE FIRMS LIKE
$ECLARING A BUSINESS UNVIABLE AND WINDING IT DOWN IN A 5NITECH AND OTHERS WOULD HAVE BEEN ABLE TO FORCE A
MANNER THAT ITS CREDITORS GET WHATEVER RECOMPENSE IS LIQUIDATION OF THE ASSETS /R IN +INGFISHERS CASE
POSSIBLE IS PRACTICALLY IMPOSSIBLE 4HE ROUTINE THING THAT EMPLOYEES WITH YEARS OF UNPAID SALARIES WOULD HAVE
HAPPENS IS THAT IF THERES ANY VALUE LEFT IN THE BUSINESS RIGHTS EQUAL TO THOSE OF THE BANKERS
THEN THE PROMOTERS WHO RAN IT AGROUND STRIP IT OUT LONG "EYOND ACTUAL INSOLVENCY PROCEDURES ) THINK THERES
BEFORE ANY CREDITORS CAN GET NEAR IT 4HERE ARE NUMEROUS A HIDDEN ADVANTAGE IN SUCH A LAW .OT PAYING CREDITORS
EXAMPLES OF THIS WITH +INGFISHER !IRLINES BEING ONLY OR SUPPLIERS OR ENORMOUS DELAYS IN PAYMENT IS A
THE MOST HIGH PROFILE AND NOTORIOUS ONE STANDARD TACTIC OF UNSCRUPULOUS )NDIAN BUSINESSES )N
(OWEVER ALL THIS IS SET TO CHANGE NOW !MONG THE FACT FOR MANY BUSINESSES NOT PAYING ON TIME SEEMS TO
REFORMS THAT THE .$! GOVERNMENT HAS INITIATED THE BE THE PRIMARY SOURCE OF WORKING CAPITAL 4HIS LAW
)NSOLVENCY AND "ANKRUPTCY "ILL IS AS CRUCIAL FOR THE COULD IN TIME LEAD TO A CHANGE IN SUCH BEHAVIOUR
FUTURE OF )NDIAN BUSINESS AS ANYTHING ELSE )N )NDIA ON /F COURSE THESE ARE EARLY DAYS AND JUST THE DRAFT OF
AN AVERAGE CREDITORS MANAGE TO RECOVER A MERE PER THE "ILL HAS BEEN RELEASED )N OUR COUNTRY THE BIGGEST
CENT OF THE VALUE DUE TO THEM FROM INSOLVENT BUSINESSES OBSTACLE TO ANY REFORMS IS THE POLITICAL OPPOSITIONS
4HE EQUIVALENT NUMBER IN DEVELOPED COUNTRIES IS ABOVE DETERMINATION TO NOT LET ANYTHING POSITIVE HAPPEN 3O
PER CENT 4HESE ARE 7ORLD "ANK FIGURES 4HE LETS KEEP OUR FINGERS CROSSED
-1.75% -31.15%
TTM SALES (` cr) 43,913 TTM PROFIT (` cr) 2,109 TTM SALES (` cr) 29,184 TTM PROFIT (` cr) 930
MKT CAP (` cr) 40,807 P/E 19.35 MKT CAP (` cr) 44,081 P/E 47.40
One of its branches accused of money laundering Continuous decline in profitability
-15.12% 15.11%
TTM SALES (` cr) 5,913 TTM PROFIT (` cr) 27 TTM SALES (` cr) 65,362 TTM PROFIT (` cr) 1,862
MKT CAP (` cr) 24,711 P/E 9.44 MKT CAP (` cr) 30,902 P/E 16.60
Crude prices remain low To delist; Rosneft acquires 49% stake
Motherson Sumi Systems PRICE `273 Punjab National Bank PRICE `137
-19.12% -10.47%
TTM SALES (` cr) 37,206 TTM PROFIT (` cr) 1,640 TTM SALES (` cr) 47,644 TTM PROFIT (` cr) 2,423
MKT CAP (` cr) 36,417 P/E 31.75 MKT CAP (` cr) 27,530 P/E 11.36
Volkswagen-emission-scandal fallout Asset-quality concerns
15.30% -15.58%
TTM SALES (` cr) 39,638 TTM PROFIT (` cr) -3,317 TTM SALES (` cr) 70,601 TTM PROFIT (` cr) -12,240
MKT CAP (` cr) 1,16,268 P/E 15.23 MKT CAP (` cr) 26,252 P/E
Improving JLR sales Global commodity meltdown
The mid-cap universe has 218 mid-sized companies, making the next 20 per cent of
the total market cap. Trend lines show rebased stock prices against the BSE Midcap
index over three months.
Central Bank of India PRICE `67 Force Motors PRICE `3,296
-34.95% 24.94%
TTM SALES (` cr) 26,610 TTM PROFIT (` cr) 628 TTM SALES (` cr) 2,623 TTM PROFIT (` cr) 135
MKT CAP (` cr) 11,285 P/E 17.96 MKT CAP (` cr) 4,435 P/E 32.97
Gross NPAs remain over 6% Improving profitability; Q1 profit up over 80% YoY
37.08%
69.82%
TTM SALES (` cr) 2,503 TTM PROFIT (` cr) 174 TTM SALES (` cr) 28,902 TTM PROFIT (` cr) 903
MKT CAP (` cr) 5,886 P/E 33.85 MKT CAP (` cr) 14,147 P/E 15.66
Rally in the stock; cigarette price hike; GST to benefit the company Government to privatise it
14.16% 22.75%
TTM SALES (` cr) 3,613 TTM PROFIT (` cr) 537 TTM SALES (` cr) 91,062 TTM PROFIT (` cr) 894
MKT CAP (` cr) 4,338 P/E 8.07 MKT CAP (` cr) 20,569 P/E 23.01
To sell part holding in NSE Gets fresh orders; Valcambi buy a positive
9.52%
-20.98%
TTM SALES (` cr) 21,946 TTM PROFIT (` cr) 594 TTM SALES (` cr) 2,893 TTM PROFIT (` cr) 347
MKT CAP (` cr) 16,751 P/E 21.98 MKT CAP (` cr) 7,517 P/E 21.68
To merge with Sistema Shyam (MTS brand) Abrupt sell-off
Data as on November 13, 2015
The small-cap universe (minimum market cap = `400 crore) has 599 small-cap
companies, making the last 10 per cent of the total market cap. Trend lines indicate
rebased prices of the stocks with BSE Small Cap index over three months.
Amtek Auto PRICE `43 Castex Technologies PRICE `23
-70.22% -79.65%
TTM SALES (` cr) 3,982 TTM PROFIT (` cr) 117 TTM SALES (` cr) 3,022 TTM PROFIT (` cr) 15
MKT CAP (` cr) 954 P/E 2.64 MKT CAP (` cr) 849 P/E 4.62
Non-disclosure of financial information; bond credit rating suspended Amtek Group, the parent, embroiled in financial troubles
121.96% 117.14%
TTM SALES (` cr) 835 TTM PROFIT (` cr) 9 TTM SALES (` cr) 332 TTM PROFIT (` cr) 37
MKT CAP (` cr) 545 P/E 60.82 MKT CAP (` cr) 785 P/E 21.16
Strong growth in Q1 and Q2 profits Multifold growth in Q1 and Q2 profits
Gold Line International Finves PRICE `184 Kellton Tech Solutions PRICE `136
92.90%
-53.92%
TTM SALES (` cr) 6 TTM PROFIT (` cr) 1 TTM SALES (` cr) 238 TTM PROFIT (` cr) 22
MKT CAP (` cr) 953 P/E MKT CAP (` cr) 620 P/E 28.09
Companys name appears in a stock-price manipulation scam Strong growth in Q1 and Q2 profits; targets `2,000 crore revenue
-66.65%
195.19%
Q1 and Q2 profits grow 39% and 51%, respectively Amtek Group, the parent, embroiled in financial troubles
The management of
money is, in much, the
management of self. The lack
Wealth consists not in having EDWARD BULWER LYTTON of money
great possessions, but in is the
having few wants. Wealth is root of all
evil.
EPICTETUS the ability to
fully experi- MARK
Never spend your money ence life. TWAIN
before you have earned it. HENRY DAVID
THOMAS JEFFERSON THOREAU
Institutional moves
Tracking increase/decrease in stakes by institutions, viz., FIIs, mutual funds
and insurance companies
RACKING CHANGES IN INSTITUTIONAL INVESTORS
4 STAKES IN LISTED COMPANIES GIVE US INFORMATION
ABOUT THE MOOD OF THE MARKET 7HEN
INSTITUTIONS RAISE THEIR STAKES IN THE MARKET IT
SUGGESTS A BULLISH TREND AND VICE VERSA 4HE THREE
BIGGEST INSTITUTIONAL INVESTORS IN THE )NDIAN STOCK
MARKET ARE FOREIGN INSTITUTIONAL INVESTORS &))S
INSURANCE COMPANIES AND MUTUAL FUNDS -&S
RESPECTIVELY IN THE ORDER OF THEIR SIZES 3INCE THE NEW
SHARE HOLDING PATTERN IS OUT FOR ALL THE COMPANIES WE
CHECKED WHAT HAS HAPPENED TO INSTITUTIONAL HOLDINGS
4HE FOLLOWING TABLES GIVES THE LIST OF COMPANIES WHERE
INSTITUTIONS HAVE EITHER RAISED THEIR STAKES OR PARED
THEM DOWN IN THE LAST ONE QUARTER 'OING BY THE PAST
TREND &))S AND -&S HAVE ACTED IN OPPOSITE DIRECTIONS
4HE STAKES OWNED BY INSURANCE COMPANIES ARE
DOMINATED BY THE STATE
OWNED ,)# OF )NDIA WI
Large caps
Mutual funds: Increase in stakes Mutual funds: Decrease in stakes
Mkt cap (` cr) Mutual funds (%) Change Mkt cap (` cr) Mutual funds (%) Change
Company name Sector Sep-15 Sep-15 Jun-15 (% points) Company name Sector Sep-15 Sep-15 Jun-15 (% points)
IndusInd Bank Bank 55,797 9.82 7.58 2.24 Indiabulls Housing Finance 33,193 0.81 1.83 -1.02
Bank Of Baroda Bank 42,235 9.32 7.60 1.72 REC Finance 27,022 3.01 3.85 -0.84
Vedanta Iron & Steel 25,230 3.44 1.75 1.69 Bharat Electronics Electricals 27,289 7.93 8.67 -0.74
Yes Bank Bank 30,553 10.26 8.61 1.65 Torrent Pharma Healthcare 25,381 5.95 6.62 -0.67
Cipla Healthcare 51,222 5.92 4.31 1.61 BPCL Crude Oil 61,437 5.79 6.44 -0.65
Mid caps
Mutual funds: Increase in stakes Mutual funds: Decrease in stakes
Mkt cap (` cr) Mutual funds (%) Change Mkt cap (` cr) Mutual funds (%) Change
Company name Sector Sep-15 Sep-15 Jun-15 (% points) Company name Sector Sep-15 Sep-15 Jun-15 (% points)
Thomas Cook Hospitality 7,395 7.83 2.33 5.50 Strides Arcolab Healthcare 7,295 10.80 13.16 -2.36
PVR Media & Ent. 3,797 13.99 8.89 5.10 Dewan Housing Finance 6,419 1.56 3.52 -1.96
Tata Motors DVR Automobile 11,019 32.05 29.10 2.95 Shriram Transport Fin. Finance 20,976 1.46 2.88 -1.42
Redington Cons. Durables 4,410 15.82 13.20 2.62 Cyient IT 6,285 11.09 12.29 -1.20
Mphasis IT 8,603 4.86 2.31 2.55 Page Industries Textile 14,760 5.18 6.32 -1.14
Small caps
Mutual funds: Increase in stakes Mutual funds: Decrease in stakes
Mkt cap (` cr) Mutual funds (%) Change Mkt cap (` cr) Mutual funds (%) Change
Company name Sector Sep-15 Sep-15 Jun-15 (% points) Company name Sector Sep-15 Sep-15 Jun-15 (% points)
Titagarh Wagons Automobile 1,188 18.37 7.57 10.80 Sasken Comm. IT 414 0.42 10.03 -9.61
KEI Industries Electricals 747 10.89 0.12 10.77 Tara Jewels Diamond & Jewel. 83 2.11 10.91 -8.80
Pantaloons Fashion Retailing 2,028 10.17 0.08 10.09 Omkar Speciality Chemicals 396 4.51 11.74 -7.23
Insecticides Chemicals 833 7.94 1.30 6.64 Himatsingka Seide Textile 2,047 7.73 14.86 -7.13
Astrazeneca Pharma Healthcare 2,914 6.01 6.01 Mcdowell Holdings Finance 36 4.20 9.21 -5.01
Market barometer
Key ratios can give an indication as to whether a stock or the market is
valued fairly at any given point
O YOU KNOW THE LEGENDARY INVESTOR 7ARREN MARKET PUNDITS LIKE "UFFETT HAVE THEIR OWN FAVOURITE
Sensexs price/earnings
30 SCALE The historical average Sensex P/E, like
any average, is used to put in perspec-
High 28.57 tive the current scenario. A general
26 guideline to help understand the valua-
tion is:
P/E > 24 = Dangerously
22
overvalued
P/E > 20 < 24 = Overvalued
Historical average 19.27
18 P/E > 16 < 20 = Fairly valued
Median 19.16 P/E > 12 < 16 = Undervalued
P/E < 12 = Highly underval-
14 ued (mouthwater-
ing valuations)
Currently, the Sensex P/E stands at
10 20.52, slightly above the historical
November 2005 November 2015 Min 10.36 average P/E.
2
November 2005 November 2015 Min 2.20
35 Median 82.38%
Currently the market cap to GDP stands
at 83.82 per cent, which is near its
0
historical average of 82.28 per cent.
Min 53.15%
Sources : RBI, BSE
November 2005 November 2015
) A DREAM DEBUT ON THE BOURSES )TS SHARES ARE
TRADING ABOVE THE ISSUE PRICE OF ` /N THE
OTHER HAND INVESTORS FOUND THE VALUATION OF #OFFEE
PROSPECTS OF )0/ INVESTMENTS THE CHANCES OF MAKING
SHORT
TERM RETURNS ARE MUCH HIGHER /VER OF
THESE STOCKS LISTED WITH DOUBLE
DIGIT GAINS !ND ONLY A
$AY %NTERPRISES ,TD TOO HOT TO HANDLE )TS SHARES ARE FIFTH ENDED THE FIRST DAY OF TRADING IN THE RED
TRADING BELOW THE ISSUE PRICE 7HATEVER THE PURISTS MAY SAY HOW CAN ONE BLAME
0URISTS SAY THAT GETTING EXCITED ABOUT THE SO
CALLED )NDIAN INVESTORS FOR PREFERRING TO RIDE THEIR LUCK WITH
LISTING POP DOESNT MAKE MUCH SENSE AND WHAT PROSPECTIVE LISTING GAINS
MATTERS MORE IS LONG
TERM RETURN 4HAT SHOULD GO )TS EVIDENT FROM THE POOR LONG
TERM PERFORMANCE
WITHOUT SAYING "UT INITIAL PUBLIC OFFERINGS )0/S THAT )NDIAN )0/S ARE BY AND LARGE OVERPRICED
DATA SUGGESTS THAT INCENTIVES ARE SKEWED AND PROMOTE 'IORDANO #OGLIATI ET AL FROM THE 5NIVERSITY OF
A CULTURE OF SHORT
TERM OPPORTUNISM "ERGAMO )TALY HAD FOUND IN A &EBRUARY STUDY THAT
/NLY THREE IN EVERY STOCKS HAVE DELIVERED DOUBLE
THE MEDIAN )0/ COMPANY IN &RANCE )TALY AND 'ERMANY
DIGIT ANNUAL RETURNS FOR A LONG
TERM )0/ INVESTOR &IVE IS OVERVALUED AT THE OFFERING ISSUE PRICE BY
STOCKS DELIVERED NEGATIVE RETURNS AND IN THE 7HAT ABOUT THE CORRELATION BETWEEN LISTING GAINS
REMAINING TWO INVESTORS MAY HAVE BEEN BETTER OFF AND LONG
TERM PERFORMANCE
PARKING THEIR FUNDS IN SAFER FIXED
INCOME )NTERESTINGLY IT TURNS OUT THAT STOCKS WHICH GAIN
INSTRUMENTS MEANINGFULLY ON LISTING STAND A BETTER CHANCE AT
Subscription Issue size Issue Listing Adj listing Current Return since listing (%)
Company name ratio (` cr) price (`) Listing date gain (%) price (`) price (`) Stock Sensex
Monte Carlo Fashions 7.83 350 645 19-Dec-14 -9.30 585 448 -23.44 2.54
Shemaroo Entertainment 7.39 132 170 1-Oct-14 5.88 180 259 37.78 4.96
Sharda Cropchem 59.97 352 156 23-Sep-14 62.88 254 244 -3.52 4.16
Snowman Logistics 59.75 197 47 12-Sep-14 59.57 75 91 17.98 3.12
Wonderla Holidays 38.06 181 125 9-May-14 31.80 165 394 76.74 13.90
Just Dial 1.88 719 530 5-Jun-13 11.32 590 805 13.47 15.81
Repco Home Finance 1.65 270 172 1-Apr-13 -4.07 165 685 71.58 16.27
V-Mart Retail 1.20 80 210 20-Feb-13 2.86 216 437 29.31 13.88
Bharti Infratel 1.30 4,156 220 28-Dec-12 -9.36 200 393 26.28 13.53
PC Jeweller 6.85 609 135 27-Dec-12 2.96 136 387 43.66 13.76
Credit Analysis And Research 40.98 540 750 26-Dec-12 25.34 949 1,329 12.31 13.55
Tara Jewels 1.98 157 230 6-Dec-12 5.22 242 32 -49.49 13.15
VKS Projects 1.03 55 55 18-Jul-12 1.45 2 0 -56.36 15.82
Speciality Restaurants 2.54 150 150 30-May-12 2.00 153 122 -6.38 16.91
Tribhovandas Bhimji Zaveri 1.15 200 120 9-May-12 -4.17 115 104 -2.78 16.27
NBCC 4.93 121 101 12-Apr-12 -0.70 100 928 85.50 14.30
MT Educare 4.80 88 80 12-Apr-12 7.56 86 132 12.53 14.30
Olympic Cards 0.00 25 30 28-Mar-12 -0.17 30 14 -18.21 14.52
MCX 54.13 568 1,032 9-Mar-12 34.40 1,387 858 -12.19 13.62
Indo Thai Securities 1.18 30 74 2-Nov-11 1.35 75 19 -28.57 12.43
Vaswani Industries 4.16 49 49 24-Oct-11 -31.73 33 4 -40.55 13.20
Ujaas Energy 1.57 93 186 20-Oct-11 -3.23 18 17 -1.39 13.16
Taksheel Solutions* 2.99 83 150 19-Oct-11 4.93 157 3 -82.97 25.42
Flexituff International 1.17 105 155 19-Oct-11 0.00 155 229 10.02 12.91
Onelife Capital Advisors 1.53 37 110 17-Oct-11 4.55 115 58 -15.36 12.99
Tijaria Polypipes 60 60 14-Oct-11 3.33 62 5 -46.96 12.87
RDB Rasayans 1.50 36 79 7-Oct-11 7.59 85 25 -25.80 14.21
Prakash Constrowell 2.21 64 138 4-Oct-11 5.07 15 2 -35.12 14.82
PG Electroplast 1.34 121 210 26-Sep-11 -4.76 200 125 -10.71 14.41
SRS 1.25 203 58 16-Sep-11 -5.17 28 21 -6.68 12.86
TD Power Systems 2.92 227 256 8-Sep-11 -1.72 252 285 3.00 12.42
Brooks Laboratories 1.60 70 100 5-Sep-11 10.00 110 73 -9.39 13.11
Tree House Education 1.85 109 129 26-Aug-11 2.95 133 233 14.21 14.45
L&T Finance Holdings 5.34 1,236 52 12-Aug-11 0.00 51 65 5.90 12.70
Inventure Growth 4.58 82 117 4-Aug-11 1.71 30 11 -20.18 11.34
Bharatiya Global Infomedia 2.06 55 82 28-Jul-11 2.44 84 4 -51.53 10.55
Kridhan Infra 1.68 35 108 13-Jul-11 6.48 23 95 38.34 9.91
Rushil Decor 2.62 41 72 7-Jul-11 12.85 81 269 31.54 9.23
Birla Pacific Medspa* 1.18 65 10 7-Jul-11 1.00 10 0 -59.55 10.24
Timbor Home* 1.01 23 63 22-Jun-11 14.29 72 2 -55.08 11.39
Data as on November 19, 2015. Returns for the periods more than one year are annualised. *No longer traded.
SAURABH MUKHERJEA
Churning your portfolio, i.e., buying least earned the highest returns. The implication here
and then selling stocks frequently is one of the easiest is that people who might have suffered the most from
ways to produce sub-optimal returns in the stock mar- myopic loss aversion and acted upon it by selling
ket. This point has been made by several investment stocks did less well much less well than those who
gurus. For example, in his highly readable book, were able to resist the natural impulse and instead
Investing: The Last Liberal Art (2013), Robert hold their ground.
Hagstrom says: Appreciating the destructive power of churn, most
In 1997, Terence Odean, a behavioural economist at thoughtful investors have tried different ways to
the University of California, published a paper titled, reduce churn and thus hold stocks for much longer
Why Do Investors Trade Too Much?. To answer his periods of time. Amongst the more novel attempts in
question, he reviewed the performance of 10,000 this regard has been the Coffee Can Portfolio con-
anonymous investors. struct created by Rob Kirby of Capital.
Over a seven-year period (19871993), In his 1984 paper, Kirby narrated an
Odean tracked 97,483 trades among ten incident involving his clients husband
thousand randomly selected accounts of
INSIDE CCP who had purchased stocks recommend-
a major discount brokerage. The first We used two simple ed by Kirby in $5,000 denomination each
thing he learned was that the investors
rules to create our CCP. but did not ever sell anything from the
sold and repurchased almost 80 percent portfolio. This process led to enormous
of their portfolios each year (78 percent We looked for stocks wealth creation for the client over a
turnover ratio). Then he compared the which over the period of about ten years, mainly on
portfolios to the market average over
preceding ten years had account of one position transforming to
three different time periods (four a jumbo holding worth over $800,000,
months, one year and two years). In generated an ROCE of which came from a zillion shares of
every case, he found two amazing at least 15 per cent and Xerox. Impressed by this approach of
trends: (1) the stocks that the investors
revenue growth of at buy and forget followed by this gentle-
bought consistently trailed the market, man, Kirby coined the term Coffee Can
and (2) the stocks that they sold actually least 10 per cent. Portfolio (CCP) the concept harkens
beat the market . back to the Wild West, when Americans,
Odean wanted to look deeper, so he next examined before the widespread advent of banks, saved their
the trading behaviour and performance results of valuables in a coffee can and kept it under a mattress.
6,465 households. In a paper titled, Trading Is At Ambit, my colleagues and I have discovered that
Hazardous to Your Wealth (2000), Odean, along with this approach works well in the Indian stock market.
Brad Barber, professor of finance at University of We used two simple rules to create our CCP. We looked
California, Davis, compared the records of people who for stocks which over the preceding ten years had gen-
traded frequently versus people who traded less often. erated return on capital employed (ROCE) of at least
They found that, on average, the most active traders 15 per cent and revenue growth of at least 10 per cent.
had the poorest results, while those who traded the Using this approach, we constructed CCPs in each of
ITC Marico
Asian Paints Page Industries
Lupin Amara Raja Batteries
HCL Tech Berger Paints
Cadila Healthcare eClerx Services
Britannia Astral Poly Technik
Colgate-Palmolive V-Guard Industries
GSK Consumer Cera Sanitaryware
THE PAST YEARS 3O FOR EXAMPLE IN THE YEAR WE EXERCISES ACTUALLY REDUCES RETURNS BECAUSE THE
USED DATA FROM TO TO IDENTIFY THE COMPANIES INVESTOR IS SELDOM ABLE TO GET BACK INTO THE STOCK
WHICH PASSED THE TWO FILTERS MENTIONED ABOVE AND WE BEFORE IT BEGINS ITS ASCENT 3O FOR EXAMPLE WHILST
THEN KEPT THIS PORTFOLIO UNTOUCHED OVER THE NEXT TEN ,UPINS SHARE PRICE HAS GENERATED PER CENT #!'2
YEARS 7HAT WE FOUND IS THAT EACH OF THE ##0S CREATED OVER THE PAST DECADE THERE HAVE BEEN TWO LONG PERI
OVER THE PAST YEARS INCLUDING THE SEVEN ##0S WHICH ODS OF AROUND THREE YEARS EACH IN WHICH THE STOCK
HAVE COMPLETED A FULL TEN
YEAR CYCLE HAVE OUTPER
HAS RETURNED ONLY
PER CENT PER ANNUM !N
FORMED THE 3ENSEX USUALLY BY n PERCENTAGE POINTS INVESTOR WHO SOLD ,UPIN IN THESE SIX YEARS OF WEAK
PER ANNUM )N FACT NOT ONLY HAS THIS @BUY AND FORGET RETURNS WOULD HAVE IN ALL LIKELIHOOD MISSED OUT ON
APPROACH TO INVESTING HANDSOMELY OUTPERFORMED THE THE PER CENT #!'2
3ENSEX EVEN IN RISK
ADJUSTED TERMS IE ACCOUNTING 3O WHAT WOULD A ##0 CREATED TODAY CONTAIN (ERE
FOR MAXIMUM DRAWDOWN OUT OF THE ITERATIONS OF ARE THE COMPANIES WHICH OVER THE PAST DECADE HAVE
THE ##0 HAVE OUTPERFORMED THE 3ENSEX DELIVERED 2/#% OVER PER CENT EVERY YEAR AND REV
%VEN MORE INTERESTINGLY MY COLLEAGUES FOUND THAT ENUE GROWTH OF GREATER THAN PER CENT EVERY YEAR
INVESTMENT RETURNS ARE BETTER IF YOU BUILD A ##0 IN )4# !SIAN 0AINTS ,UPIN (#, 4ECH #ADILA
YEAR T AND LET IT RUN UNTOUCHED UNTIL T RATHER THAN (EALTHCARE "RITANNIA #OLGATE
0ALMOLIVE '3+
TRYING TO ANNUALLY REBALANCE THE PORTFOLIO AS IS THE #ONSUMER -ARICO 0AGE )NDUSTRIES !MARA 2AJA
NORM IN THE INVESTMENT
MANAGEMENT INDUSTRY 4HIS "ATTERIES "ERGER 0AINTS E#LERX 3ERVICES !STRAL 0OLY
COUNTERINTUITIVE RESULT ARISES FROM THE FACT THAT THE 6
'UARD )NDUSTRIES AND #ERA 3ANITARYWARE WI
SHORT
TERM IN THIS CONTEXT ONEnFOUR YEARS FINANCIAL Saurabh Mukherjea is CEO - Institutional Equities at Ambit Capital and
DATA ON WHICH INVESTORS BASE SUCH ANNUAL REBALANCING the author of Gurus of Chaos: Modern Indias Money Masters.
4 RUN FOR QUITE SOME TIME IN THE MARKETS !
STRENGTHENING !.$! ACRONYM FOR
!BBREVIATED .EW $RUG !PPLICATION AN APPLICATION
APPROVALS AMONG )NDIAN FIRMS IN THE FIRST HALF OF
THIS CALENDAR YEAR WITH APPROVALS SO FAR !LMEBIC
0HARMA IS THIRD IN THE LIST OF HIGHEST !.$!
FOR GENERIC DRUG APPROVAL IN THE 53 PORTFOLIO AND APPROVALS THIS YEAR BEHIND ,UPIN WITH NINE
HIGHER EARNINGS GROWTH VISIBILITY HAVE BEEN THE APPROVALS FOLLOWED BY EIGHT OF 'LENMARK SEE THE
MAIN BOOSTERS FOR THE PHARMA CHART BELOW
SECTORS OUTPERFORMANCE %VEN CUMULATIVELY MID
RUNG
"IG PHARMA COMPANIES LIKE 3UN PHARMA COMPANIES ARE RACING
0HARMA ,UPIN $R 2EDDYS HAVE AHEAD WITH HIGHER NUMBER OF
BEEN IN HIGH DEMAND AND ARE !.$! FILINGS n EVEN AHEAD OF
MARKET FAVOURITES (IGH EARNINGS LARGER PLAYERS !UROBINDO 0HARMA
VISIBILITY AND SECULAR EARNINGS AGAIN TOPS THE LIST WITH A PIPELINE
GROWTH MEANT THAT LARGE
CAP OF !.$!S FOLLOWED BY #ADILAS
PHARMA STOCKS WERE PREFERRED SEE THE SECOND CHART BELOW
OVER THEIR MID
RUNG PEERS 4HIS !NOTHER ADVANTAGE GOING MID
HAS TAKEN VALUATIONS OF LARGE
CAP RUNG PHARMA COMPANIES WAY IS
PHARMA STOCKS TO HEATED LEVELS VALUATIONS 30 "3% (EALTHCARE
/N THE OTHER HAND THE OFTEN
INDEX TRADES AT TIMES EARNINGS
IGNORED MID
RUNG PHARMA STOCKS ,ARGE
CAP PHARMA STOCKS TOO TRADE
HAVE BEEN CHUGGING ALONG IN A SIMILAR RANGE )N CONTRAST
INCREASING THEIR EARNINGS !UROBINDO 0HARMA TRADES AT
VISIBILITY WITH A STEADY BUILD
UP OF THEIR !.$! TIMES EARNINGS #ADILA AT TIMES EARNINGS AND 4ORRENT
PORTFOLIOS ! SPATE OF MID
RUNG PHARMA COMPANIES AT TIMES EARNINGS 4HIS BEGS THE QUESTION IS IT THE
IN RECENT TIMES HAS SEEN A HIGHER RATE OF !.$! TIME FOR MID
RUNG PHARMA STOCKS TO TAKE THE LEAD WI
APPROVALS AS COMPARED TO THEIR LARGER PEERS Ekramul Haque ekramul@valueresearch.in
Mid-rung pharma stocks lead in ANDA Mid-rung pharma companies also lead from
approvals this calendar the front in ANDA pipeline
: )RON 3TEEL !SSOCIATION SAID h#HINAS STEEL
DEMAND EVAPORATED AT UNPRECEDENTED SPEED AS
THE NATIONS ECONOMIC GROWTH SLOWEDv
)N A COUNTRY WHERE INVESTMENTS IN FIXED ASSETS
MAKE UP PER CENT OF THE '$0 THAT IS A
WORRYING SIGN 3TEEL IS A VITAL INGREDIENT IN #HINAS
GROWTH STORY AND PRIMARY RAW MATERIAL FOR MANY
INDUSTRIES INCLUDING REAL ESTATE ! SLOWDOWN IN STEEL
DEMAND THUS SIGNALS A SLOWDOWN IN THE CORE
ECONOMY AS WELL
3TEEL DEMAND CONTRACTED PER CENT IN 3EPTEMBER &ALLING LOCAL DEMAND THAT HAS NOT BEEN MET WITH A
THIS YEAR 9O9 0RODUCTION THAT PEAKED AT MATCHING CUT IN SUPPLY HAS MEANT THAT STEEL PRICES
MILLION METRIC TONNE LAST YEAR SOUNDS A FAR
AWAY HAVE NOSEDIVED -ANUFACTURERS n BOTH LOCAL AND FROM
TARGET FROM THE MILLION TONNE PRODUCED IN THE ROUND THE WORLD AS IN "RAZIL AND !USTRALIA n IN A BID
FIRST NINE MONTHS OF THIS YEAR 3TOCKPILED INVENTORIES TO INCREASE THE MARKET SHARE HAVE REDUCED PRICES
n A HEADACHE FOR PRODUCERS n ARE UP PER CENT TO FURTHER )N THE LAST ONE YEAR ALONE IRON ORE PER
MILLION TONNE AS OF /CTOBER 8U ,EJIANG CENT CONTENT HAS CRASHED FROM PER METRIC TONNE
#HAIRMAN OF "AOSTEEL THE COUNTRYS SECOND LARGEST AND RECENTLY TOUCHED THE MARK
STEEL PRODUCER WITHOUT GIVING A TIME FRAME HAS
WARNED THAT STEEL OUTPUT IS LIKELY TO FALL PER CENT More trouble ahead
"OTH 'OLDMAN AND #ITIGROUP HAVE PROJECTED ORE
Steel prices lowest since 2009 PRICES TO HIT PER METRIC TONNE BY -ANY
#HINA IS THE WORLDS LARGEST STEEL PRODUCER CHURNING LARGE AND MEDIUM
SIZED MILLS ARE ALREADY REPORTING
OUT HALF OF THE WORLDS ANNUAL STEEL PRODUCTION 9OU LOSSES )N THE NINE MONTHS OF THIS YEAR #HINAS STEEL
CAN GAUGE HOW BIG #HINAS STEEL INDUSTRY IS WITH THIS INDUSTRY HAS REPORTED LOSSES TO THE TUNE OF
FACT #HINA PRODUCES MORE STEEL THAN THE 5NITED BILLION !CCESS TO FINANCE AND DEBT REPAYMENT AND
3TATES THE %UROPEAN 5NION 2USSIA AND *APAN RESTRUCTURING HAS BECOME SEVERELY AFFECTED AS THE
COMBINED BANKING INDUSTRY RESTRICTS LENDING TO THE INDUSTRY
!NOTHER HEADACHE IS THE COUNTRYS TRANSITION TO A
CONSUMPTION
LED GROWTH 4HAT WILL MEAN THE COUNTRY
Movement of iron-ore prices
LOOKS AT OTHER CONSUMER
FOCUSED SECTORS FOR THE NEXT
90
LEG OF GROWTH AND NOT INFRASTRUCTURE AND STEEL AS IT
HAS TRADITIONALLY 4HAT ALSO MEANS NEW HOUSING
80
Prices in $ per metric tonne
CONSTRUCTION AND MANUFACTURING COULD REMAIN UNDER
PRESSURE KEEPING A CHECK ON STEEL
PRICE REBOUND
70 4HIS ALSO PUTS INTO DOUBT THE ECONOMIC GROWTH
RATE OF THE COUNTRY #HINA HAS TARGETED PER CENT
GROWTH THIS YEAR WHICH MANY ANALYSTS HAVE
60
QUESTIONED 4HOUGH STEEL PRICES APPEAR UNLIKELY TO
RECOVER MUCH THIS METRIC WILL REMAIN A KEY
50
BAROMETER OF THE COUNTRYS ECONOMIC HEALTH WI
October 2014 September 2015
Ekramul Haque ekramul@valueresearch.in
Allcargo Logistics 247 154 430 311 6.7 4.5 0.32 0.55 1.04 0.95 9.5 8.9 1.52 1.42 9
Bharat Forge 764 522 1,029 716 9.7 6.9 0.74 0.95 1.80 1.37 20.3 16.8 0.99 0.91 9
Birla Corporation 175 130 282 359 3.5 2.8 0.50 0.56 3.65 2.58 12.4 11.0 0.75 0.74 9
Emami 485 402 534 428 32.6 30.2 0.03 0.04 2.96 2.65 28.0 27.3 1.52 1.39 9
Eveready Industries 49 14 72 93 4.4 1.2 0.36 0.38 0.86 0.74 9.5 8.2 1.19 1.09 9
Force Motors 102 78 226 116 5.1 4.0 0.01 0.02 1.63 1.50 8.1 6.8 1.31 1.17 9
Grindwell Norton 104 84 106 106 11.8 10.4 0.02 0.03 1.95 1.87 16.3 15.1 1.38 1.29 9
Gujarat Pipavav Port 387 192 444 290 19.5 10.8 0.00 0.22 2.00 1.80 62.5 52.8 0.44 0.29 9
JSW Energy 1,377 776 3,393 2,269 6.7 3.7 1.24 1.54 1.05 0.94 41.1 39.7 0.46 0.42 9
Kansai Nerolac Paints 275 209 309 195 11.8 9.6 0.03 0.05 2.14 1.79 11.1 10.0 1.83 1.73 9
Max India 365 209 2,579 2,160 1.1 0.8 0.17 0.23 1.03 0.83 5.0 4.3 0.46 0.43 9
Navneet Education 130 115 162 59 15.7 14.8 0.26 0.49 2.15 1.64 24.2 23.7 1.20 1.16 9
NHPC 2,798 1,633 4,061 3,824 4.5 2.6 0.67 0.74 2.01 1.84 81.6 70.1 0.13 0.12 9
Nirlon 33 32 205 175 1.3 1.3 3.00 3.06 0.18 0.15 77.6 77.5 0.10 0.08 9
Relaxo Footwears 103 66 110 125 13.7 10.6 0.65 0.72 1.20 1.10 13.4 12.2 2.00 1.97 9
Solar Industries 156 130 230 170 11.4 10.5 0.48 0.74 1.67 1.41 18.1 17.7 1.07 0.99 9
Star Ferro and Cement 120 5 261 160 5.5 0.2 1.29 1.44 1.22 1.05 29.6 22.0 0.67 0.55 9
VRL Logistics 91 57 232 203 9.4 5.9 1.24 1.65 0.51 0.40 16.8 14.6 1.73 1.54 9
Whirlpool Of India 211 123 300 204 12.3 8.3 0.00 0.00 1.64 1.46 8.9 6.8 2.44 2.37 9
CY: Current year; PY: Previous year; CFO: Cash flow from operations
ABG Shipyard -901 -227 -880 -221 -7.2 -1.9 8.36 3.97 1.30 1.18 -62.3 28.0 0.04 0.14 2
Astrazeneca Pharma -21 -1 -46 -1 -5.0 -0.1 0.00 0.00 1.01 1.13 -1.1 -0.8 1.27 1.34 2
Bajaj Electricals -14 -5 88 -7 -0.5 -0.2 0.60 0.50 1.03 1.03 2.6 2.4 1.57 1.65 2
Cipla 1,254 1,417 1,173 1,563 7.8 10.5 0.16 0.12 1.95 2.20 20.3 23.3 0.72 0.76 2
Escorts 76 247 5 343 2.2 7.0 0.27 0.24 1.00 1.05 5.4 7.1 1.19 1.87 2
Future Consumer -95 -15 -249 -79 -7.0 -1.5 0.88 0.14 1.36 2.32 -1.2 3.5 0.96 0.80 1
Godrej Industries 382 296 -1,050 -394 3.1 2.9 1.88 1.50 1.17 1.18 6.6 7.3 0.75 0.78 2
Godrej Properties 236 236 -941 -689 3.4 4.1 1.89 1.40 1.46 1.50 18.5 30.3 0.26 0.21 2
HCL Infosystems -215 -80 -798 257 -3.8 -1.4 0.77 0.60 1.20 1.47 0.4 0.9 1.40 1.60 2
IVRCL -1,568 -882 -332 -493 -11.0 -6.4 12.15 4.28 0.94 0.81 -4.2 5.8 0.27 0.36 2
Larsen & Toubro 4,964 4,875 -669 -7,143 2.7 3.1 2.31 2.25 1.22 1.25 18.1 17.5 0.51 0.54 2
M&M 2,593 4,323 1,055 -244 2.8 5.3 1.47 1.52 1.18 1.44 12.3 13.6 0.83 0.95 2
Network 18 Media -688 -75 -46 -38 -17.7 -1.8 0.20 0.15 0.06 0.25 -7.9 -17.2 0.02 0.02 2
Oberoi Realty 317 311 -971 -517 5.0 5.8 0.19 0.02 2.77 3.18 67.1 61.9 0.15 0.15 2
Tech Mahindra 2,659 3,062 2,409 1,596 15.2 25.1 0.06 0.04 1.77 1.82 18.8 22.8 1.29 1.54 2
CY: Current year; PY: Previous year; CFO: Cash flow from operations
PFC (STANDALONE)
PROFIT & LOSS FY14 FY15 FY16E FY17E FY18E
THE SCHEME MAY HIT POWER
FINANCE COMPANIES
Net interest income (` cr) 8,553 9,887 10,359 9,811 9,244
What is UDAY? !T ITS CORE THE 5$!9 5JWAL $)3#/-
NII growth (YoY; %) 37.00 15.60 4.80 -5.30 -5.80
!SSURANCE 9OJANA SCHEME CALLS UPON STATE
PAT (` cr) 5,418 6,524 6,843 7,148 7,358
GOVERNMENTS TO TAKE OVER ALL OF THE DEBT OF POWER
PAT growth (YoY; %) 22.60 10.00 9.20 2.70 0.50
DISTRIBUTION COMPANIES n PER CENT OVER THE NEXT TWO
Loans growth (YoY; %) 18.00 14.70 12.60 -0.70 13.30
THREE YEARS AND THE REMAINING PER CENT BACKED BY
STATE GUARANTEES 3TATES WILL ALSO BE REQUIRED TO BEAR ANY YIELDS/MARGINS (%)
Why has the government taken this route? 0OWER
DISTRIBUTION Net interest margin 4.82 4.79 4.39 3.74 3.16
COMPANIES HAVE RACKED UP LOSSES TO THE TUNE OF AN PROFITABILITY (%)
ESTIMATED ` CRORE 7HAT MAKES MATTERS WORSE IS Return on assets 2.97 2.81 2.70 2.49 2.25
THAT DISTRIBUTION COMPANIES IN A NUMBER OF STATES Return on equity 20.78 19.64 18.14 16.04 14.39
CANNOT HIKE RATES TO COVER THE TARIFF LOSSES OF PREVIOUS
REC (STANDALONE)
YEARS !S A RESULT OVER THE YEARS LOSSES HAVE PILED ON
PROFIT & LOSS FY14 FY15 FY16E FY17E FY18E
9ET IF FULLY IMPLEMENTED THIS SCHEME IS EXPECTED TO
Net interest income (` cr) 7,271 8,703 9,525 8,813 8,234
RESULT IN REDUCTION OF LOSSES BY ` CRORE
NII growth (YoY; %) 33.10 19.70 9.40 -7.50 -6.60
Bad news for some 4HE 5$!9 SCHEME MAY APPEAR JUST
PAT (` cr) 4,684 5,260 6,397 5,983 5,591
WHAT THE DOCTOR ORDERED FOR POWER
DISTRIBUTION
COMPANIES )T HOWEVER SPELLS TROUBLE FOR ANOTHER SET OF PAT growth (YoY; %) 22.70 12.30 21.60 -6.50 -6.50
POWER SECTOR COMPANIES n THE FINANCIERS SPECIFICALLY Loans growth (YoY; %) 16.70 20.70 17.80 -8.00 12.30
4 INDUSTRIES n SOME THAT ARE DOING WELL OTHERS THAT
ARE BITING THE DUST 6ALUATIONS ARE A
COMMON INDICATOR OF HOW MUCH A SECTOR IS IN
UP MORE FOR HIGHER GROWTH THAN REMAIN RISK
OFF
4HE PREMIUM LOT IS THE CRME DE LA CRME OF
)NDIA )NC 4HESE ARE THE INDUSTRIES WITH SALES
DEMAND 4HERE ARE THREE DISTINCT VALUATION GROWTH EARNINGS GROWTH AND MOMENTUM ON
GROUPS VISIBLE IN THE MARKETS TODAY THEIR SIDE 4HEY ARE THE TOAST OF THE
4O GET A CLEARER PICTURE OF WHERE EACH MARKETS AND INVESTORS ALIKE
INDUSTRY STANDS WE SEGREGATED THEM 4HE PREMIUM LOT IS INHABITED WITH
BASED ON 0% VALUATIONS 4HE INDUSTRIES MUCH OF THE USUAL SUSPECTS n MEDIA
TRADING AT A 0% OF OR ABOVE MAKE THE &-#' PHARMA AND TELECOM 3URPRISE
PREMIUM LOT 4HOSE TRADING AT OR BELOW ENTRANTS INCLUDE CEMENT AND INDUSTRIALS
BELONG TO THE DOWN
AND
OUT LOT !ND THE 4HOUGH THE HOUSING SECTOR IS DOWN CEMENT
REMAINING CONSTITUTE THE IN
BETWEENERS STOCKS HAVE RALLIED ON THE BACK OF THE
4HE RESULTS ARE REMARKABLE 4HE PREMIUM LOT GOVERNMENTS @(OUSING FOR !LL AND @3MART #ITIES
BEATS THE DOWN
AND
OUT CATEGORY BY A CLEAR MAJORITY SCHEMES )N INDUSTRIALS FALLING EARNINGS WITHOUT A
CORRESPONDING FALL IN SHARE PRICES HAS RESULTED IN HIGHER
Whats hot, whats not VALUATION MULTIPLES
The market has more industries in the premium lot, sig- 7ITHIN THE PREMIUM LOT MEDIA IS THE MOST EXPENSIVE
nalling rising valuations and hence a bullish sentiment AT TIMES EARNINGS ! CHARGED POLITICAL ENVIRONMENT
THE PREMIUM LOT (P/E ABOVE 25) AND A PENCHANT FOR )NDIANS TO ENJOY SOAPS HAVE CREATED
Industry P/E P/B Div. yield (%) RoE (%)
HIGH EARNINGS GROWTH FOR MEDIA COMPANIES 4HE
MARKETS LOVE MEDIAS PERFORMANCE TODAY DISPLACING
Media 42.6 6.3 0.8 14.7
&-#' THE TRADITIONAL MOST EXPENSIVE SECTOR
Consumers 32.4 11.9 1.8 36.6
4HEN THERE IS THE DOWN
AND
OUT LOT n THOSE COMPANIES
Industrials 31.9 2.4 1.0 7.5
THAT ARE NOT MARKET FAVOURITES AND DO NOT EXTOL ANY
Pharmaceuticals 31.4 5.8 0.6 18.4
ADMIRATION %NERGY IS THE MOST UNLOVED SECTOR &ALLING
Cement 26.5 2.6 1.0 9.7
CRUDE PRICES WHILE POSITIVE FOR SOME HAVE DISTURBED THE
Telecom 25.2 2.1 0.8 8.3
ECONOMICS OF OTHERS LIKE OIL EXPLORERS 4HERE IS NO
TELLING WHERE CRUDE WILL SETTLE GIVING LITTLE CLARITY ON
THE DOWN-AND-THE-OUT (P/E BELOW 15)
HOW MUCH EARNINGS OF DRILLERS AND THEIR ASSOCIATED
Industry P/E P/B Div. yield (%) RoE (%)
INDUSTRIES WILL FALL
Energy 10.6 1.1 2.6 10.8
5TILITIES AND METALS PICK THE SECOND AND THIRD MOST
Utilities 12.1 1.4 2.2 11.3
UNLOVED SPACES 7HILE ARBITRARY GOVERNMENT POLICIES
Metals & Mining 14.2 1.5 3.6 10.8
AND FREE DOLES HAVE WRECKED THE BOOKS OF UTILITIES METAL
COMPANIES REEL FROM THE GLOBAL CRASH IN PRICES FOLLOWING
THE IN-BETWEENERS
A SLOWDOWN IN #HINA
Industry P/E P/B Div. yield (%) RoE (%)
!ND THEN THERE ARE THE IN
BETWEENERS n INDUSTRIES
Banking 16.8 2.2 1.3 13.3
THAT BELONG TO NEITHER CAMP !UTOMOBILES TECHNOLOGY
Technology 18.8 4.9 2.0 26.0
AND BANKING TAKE THIS SPACE 4HIS IS A SPACE THAT HAS
Automobiles 18.9 3.4 1.0 18.2
SHOWN EARNINGS GROWTH ESPECIALLY IN AUTO AND
Infrastructure 19.6 4.4 0.6 22.4
TECHNOLOGY AND WHERE VALUATIONS HAVE NOT HIT THE ROOF
All data are for FY16E 6ALUE CAN BE FOUND HERE WI
Source: Kotak Institutional Equities report, November 9, 2015
Ekramul Haque ekramul@valueresearch.in
-BCPVSJOH VOEFSMBXT
The maze of labour laws in India has made it difficult for the country to
rejuvenate its manufacturing sector
VIVEK KAUL
&BSMJFS UIJT ZFBS JO "QSJM
XIJMF SMALL !ND GIVEN THIS 0ANAGARIYA UNDERSTANDS WHAT
ADDRESSING BUSINESSMEN AT A MEET ORGANISED BY THE THE REAL PROBLEM IS FOR )NDIAN MANUFACTURING
BUSINESS LOBBY #ONFEDERATION OF )NDIAN )NDUSTRIES !S "HAGWATI AND 0ANAGARIYA WRITE h4HE MINISTRY
#)) !RVIND 0ANAGARIYA THE 6ICE
#HAIRMAN OF THE OF LABOUR LISTS AS MANY AS FIFTY
TWO INDEPENDENT
.)4) !AYOG SAID h(ERE IS MY CHARGE TO YOU IF ) LOOK #ENTRAL GOVERNMENT !CTS IN THE AREA OF LABOUR
AROUND NONE OF YOU INVEST IN INDUSTRIES IN SECTORS !CCORDING TO !MIT -ITRA THE FINANCE MINISTER OF 7EST
THAT WOULD GENERATE LOTS OF EMPLOYMENT ALL OF YOU JUST "ENGAL AND A FORMER BUSINESS LOBBYIST THERE EXIST
RUN AWAY FROM HIRING PURPOSEv !S 0ANAGARIYA FURTHER ANOTHER STATE
LEVEL LAWS IN )NDIA 4HIS COUNT PLACES
SAID h%VERY YEAR MILLION ENTER THE LABOUR FORCE THE TOTAL NUMBER OF LABOUR LAWS IN )NDIA AT
7HAT IS YOUR PLAN FOR THE COUNTRY SO THAT MORE PEOPLE APPROXIMATELY v
ARE EMPLOYED 7E REALLY NEED TO THINK 9OU KNOW THE &URTHER THESE MULTITUDE OF LAWS ARE hNOT ENTIRELY
GROUND CONDITIONS WHY YOU ARE NOT CONSISTENT WITH ONE ANOTHER LEADING A
INVESTING IN SECTORS WHICH ARE MORE WIT TO REMARK THAT YOU CANNOT IMPLEMENT
LABOUR
INTENSIVE SUCH AS FOOD PROCESSING
THE CURE-ALL )NDIAN LABOUR LAWS PER CENT WITHOUT
ELECTRONIC ASSEMBLY LEATHER PRODUCTSv Success in VIOLATING PER CENT OF THEMv
0ANAGARIYA OF COURSE KNOWS THAT 4HIS SURFEIT OF LABOUR LAWS ESSENTIALLY
SUCCESS IN MANUFACTURING IS IMPORTANT manufacturing is ENSURES THAT MOST )NDIAN
FOR ANY COUNTRY TO SUCCEED ECONOMICALLY important to succeed MANUFACTURING FIRMS START OF SMALL AND
TO DRAW PEOPLE OUT OF POVERTY AND NOT
economically, to draw REMAIN SMALL 4AKE THE CASE OF THE
CONTINUE TO BE A DEVELOPING COUNTRY OR GARMENT MANUFACTURING INDUSTRY )NDIA
TO PUT IT MORE EUPHEMISTICALLY AN people out of poverty BARELY HAS ANY BIG FIRMS IN THIS SECTOR
EMERGING MARKET and not continue to be a !S 4 . .INAN WRITES IN HIS BOOK 4HE
!S -ATT 2IDDLEY WRITES IN 4HE
developing country 4URN OF THE 4ORTOISE 4HE #HALLENGE AND
%VOLUTION OF %VERYTHING h4O THIS DAY IT 0ROMISE OF )NDIAS &UTURE h2IGID LABOUR
IS VERY HARD FOR A COUNTRY TO BECOME A LAWS PREVENT FLEXIBILITY IN MANNING FOR A
KNOWLEDGE ECONOMY WITHOUT BEING AN AGRICULTURAL SEASONAL INDUSTRY AND HARDLY ANY LARGE
SCALE
SUCCESS AND THEN A MANUFACTURING SUCCESS FIRSTx )TS OPERATION EXISTS THAT COULD DELIVER ECONOMIES OF SCALE
THE PATH THAT "RITAIN AND !MERICA FOLLOWED AT A MORE 4HE COUNTRY HAS ONLY THREE OR FOUR GARMENT MAKERS
LEISURELY PACE IN THE EIGHTEENTH NINETEENTH AND WITH TURNOVER IN EXCESS OF MILLIONv
TWENTIETH CENTURYv 4HE LABOUR LAWS COME IN THE WAY )N FACT THINGS HAVE
!T THE SAME TIME 0ANAGARIYA WAS PERHAPS BATTING NOW REACHED A STAGE WHERE "ANGLADESH EXPORTS MORE
FOR THE CURRENT POLITICAL DISPENSATION THAT HE IS CLOSE GARMENTS THAN )NDIA )N "ANGLADESH EXPORTED
TO )N HIS BOOK )NDIAS 4RYST 7ITH $ESTINY WRITTEN GARMENTS WORTH BILLION )NDIA WAS AHEAD AT
WITH *AGDISH "HAGWATI HE EXPLAINS IN GREAT DETAIL BILLION "ETWEEN THEN AND WHILE "ANGLADESHS
WHY )NDIAN MANUFACTURING DOESNT SCALE UP OR WHY GARMENT EXPORTS JUMPED TO BILLION )NDIAS WENT UP
MOST FIRMS START OF SMALL AND CONTINUE TO REMAIN TO ONLY BILLION )NDIAS GARMENT EXPORTS ARE NOW
WAY BEHIND THOSE OF "ANGLADESH #HINAS GARMENT INDUSTRY WOULD ADD MORE THAN MILLION JOBS 4HE
EXPORTS MEANWHILE JUMPED FROM BILLION TO NUMBER WOULD GROW TO A TOTAL OF MILLION JOBS IF
BILLION DURING THE SAME PERIOD )NDIA REACHED "ANGLADESHS EXPORT TARGET FOR
4HE TEXTILE INDUSTRY IN ORDER TO CATER TO EXPORT BILLION 4HAT TRANSLATES INTO MILLION ADDITIONAL JOBS
MARKETS NEEDS TO DELIVER LARGE ORDERS AT A QUICK PACE EVERY YEAR FOR THE NEXT FIVE YEARSv )N FACT THE GARMENT
!S -IHIR 3 3HARMA WRITES IN 2ESTART 4HE ,AST #HANCE MANUFACTURING SECTOR CAN EMPLOY A LARGE NUMBER OF
FOR THE )NDIAN %CONOMY h2EALLY LONG ASSEMBLY LINES WOMEN AS WELL
STILL MATTER IN TEXTILES IN SOME CASES PEOPLE CAN 4O CONCLUDE THERE IS A PROBLEM AND IT HAS A SOLUTION
SEQUENTIALLY WORK TO MAKE A PAIR OF TROUSERS IN LEAST 4HE SOLUTION IS WELL KNOWN IMPROVE THE LABOUR LAWS
TIME )N "ANGLADESH THE AVERAGE NUMBER OF PEOPLE IN A "UT NOTHING MAJOR HAS BEEN DONE ON THAT FRONT BY THE
FACTORY IS BETWEEN AND IN THE 3OUTH )NDIAN .ARENDRA -ODI GOVERNMENT
TEXTILES HUB OF 4IRUPUR ITS AROUND v !S .INAN PUTS IT h4HE GOVERNMENT IS UNWILLING TO
4HIS BEST EXPLAINS WHY EVEN "ANGLADESH HAS DO WHAT IT TAKES TO GET GARMENT EXPORTS TO TAKE OFF )T IS
OVERTAKEN )NDIA WHEN IT COMES TO GARMENT EXPORTS A TELLING ENOUGH COMMENT THAT THE COUNTRYS MOST
&URTHER GARMENT MANUFACTURING CAN CREATE A MASSIVE LABOUR
INTENSIVE LARGE INDUSTRY RECEIVED BETWEEN
NUMBER OF JOBS IN )NDIA !S .INAN WRITES h)NDIAS AND A TOTAL OF JUST BILLION AS FOREIGN
GARMENT EXPORT INDUSTRY EMPLOYS MILLION PEOPLEOR INVESTMENTv !ND THAT IS INDEED VERY SAD WI
ABOUT A MILLION JOBS FOR EVERY BILLION OF EXPORTSx Vivek Kaul is the author of the Easy Money trilogy. He can be reached
'ETTING TO THE SIZE OF "ANGLADESHS GARMENT EXPORT at vivek.kaul@gmail.com.