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May 2020
Volume XIII, Number 11
EDITORIAL POLICY
The goal of Wealth Insight, as with
all publications from Value
26
COVER STORY
Research, is not just limited to
generating profitable ideas for its
The
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
portfolio
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
tonic
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
Stocks to boost
our style. Our writing style is
simple and so is the presentation your portfolio’s
of ideas, but that should not be
construed to mean that we immunity to the
over-simplify.
Read, learn and earn – and let’s pandemic
grow and evolve as we undertake
this voyage together.
Editor
Dhirendra Kumar
Senior Associate Editor
Vibhu Vats
Copyediting
Debjani Chattopadhyay,
Rachael Rajan 39 SPECIAL REPORT 43 INTERVIEW
Research & Analysis
Danish Khanna, Rajan
Gulati and Yash Rohra
Which tax slabs are ‘The outlook for the
Design
Mukul Ojha
better for you? healthcare sector is
Production
From this financial year, you will have a positive over
Hira Lal choice between old and new tax slabs.
Data source for stocks
AceEquity
We help you choose the right tax slab the next
for you. two-three
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Total pages 68, including cover
4 Wealth Insight May 2020

Columns
7 8 INSIGHT
EDIT Value all the way

by DHIRENDRA KUMAR
Restarting 10 WORDSWORTH WISDOM

stock selection Beating volatility
While only time will tell how
disruptive COVID-19 will be, we already blues with
know how to pick companies that investment greats
can survive this crisis
46 22 STOCK STORY
EVERYDAY ECONOMICS In the dust

by PUJA MEHRA The story of IndusInd Bank’s
The haircuts economy rise and fall.
India’s unorganised haircutting
market highlights the problems
of reaching out to the vulnerable 24 STOCK ADVISOR
sections in times of distress. What changes, and what
does not
The market goes through
good and bad phases. That
12 MONTHLY AGENDA
doesn’t mean we also have
A crude fact to change our investment
A fall in crude-oil prices approach.
doesn’t often result in a
market gain 54 STOCK SCREEN
Reasonably priced
48 14 MARKET COMPASS growth stocks
MAINSTREET Market Barometer High dividend-yield
by SAURABH MUKHERJEA Big Moves stocks
Knowing the Attractive blue chips
Our understanding of the present
unknowable 19 ANALYST’S DIARY Discount to book value
tends to be incomplete and the future is even more Bucking the trend
difficult to predict. Narrative reasoning can help.
Bang, bank! 66 WORDS WORTH NOW
50 21 IN FOCUS
STRAIGHT TALK
by ANAND TANDON India and value

Marvels of gene and investing
genomics Mrinal Singh Deputy
Genetic engineering can help CIO - Equity, ICICI
fight deadly diseases but its wider Prudential AMC
applications pose many questions
',6&/$,0(5
The contents of Wealth Insight published by Value Research India Private Limited (the ‘Magazine’) are not intended to serve as professional advice or guidance and the Magazine takes no responsibility or liability, express or implied, whatsoever for any investment
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May 2020 Wealth Insight 5

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EDIT
Restarting stock selection

While only time will tell how disruptive COVID-19 will be, we already
know how to pick companies that can survive this crisis
DHIRENDRA KUMAR
For the moment, the best thing for capability of many investors, the latter is practically
investors to do is to forget about the bigger picture and impossible to do on a sustained basis.
focus on the smallest possible unit of investing. What I’ll explain what I mean. Do we have all the inputs
is the big picture here? The motherhood questions: the required to estimate how much the world economy will
state of the world, the progression of COVID-19, the slow down over the next two years? And even if we did,
impact on China being the default source of everything do we have the skills or the inputs required to translate
to the world, the fate of the oil economy, etc., etc., etc. that into specific investing actions? Clearly not.
There is no answer to these questions that can be However, let’s look at the situation from the bottom
derived now from any information that you or I have. up. Do we have the inputs to decide which companies
If you are a punter, you can trade the daily ebb and are stronger than others? Which have enough stored
flow of fear, uncertainty and doubt in these things but up strengths to overcome adverse conditions better
you can’t invest in those things. than their competitors? Whose managements have a
And so what is the smallest unit of investing? track record of operational excellence and financial
Obviously, the stock itself. As I’ve said many times prudence? Who haven’t loaded up with beyond what
earlier, it’s tempting for us investors to get obsessed they can continue servicing in bad times? Whose
with big issues. From time to time, we all fall under managements have actual skin in the game in the well
the illusion that equity investing is about identifying being of the business?
and exploiting macro trends. We feel that our ability to The answer to all these questions is a resounding
make money from stocks can be enhanced by studying, yes! All this, and more, is visible from the way
understanding and anticipating broad trends in the companies were run before COVID. Some of these will
economic conditions of a country or the world. fall upon bad times, but we have enough clues to make
Nowadays, when the world is facing the largest macro informed judgement calls that we can use in our
trend in decades, the temptation is all the more. investing even in these volatile times.
Every investing decision seems subservient to the Our cover story of this month is a way of restarting
estimations of how COVID will go. This sounds logical this ‘normal’ way of investing. Ever since the pandemic
but it’s not. The issue is the very idea that equity broke, we have all been too guilty of focusing too much
investors should pay attention to the large scale, on the macros and the larger issues concerning the
macro issues and invest accordingly. The problem is details of the disease itself. It’s time to get down to
that investing well and getting good returns requires a brass tacks and start looking at individual stocks
combination of skills of different kinds. Broadly, these again. Of course, as is the case with all such stories
can be broken up into figuring out which stocks will do that we do, this is not a list of recommended stocks.
well on the one hand and figuring out broader, market- It’s an exercise in evolving shortlisting criteria that
wide or economy-wide trends on the other. After years may be suitable at this time. See this as part of a
of observing the markets and investors, I have formed process of stock selection that we all have to start,
a firm belief that while the former is well within the sooner rather than later.

INSIGHT
Value all the way

Investors are so desperate to know where and when the market
bottom will come. They don’t realize the indicator is right under
their nose. “You” are one of the best market indicator out there.
The day you sell in desperation is when the bottom would have
been made.
Value Investor Journal

You don’t need to outperform every year to outperform over a ten
@VJ_Rabindranath or a twenty year time frame. However, ensure you don’t or lose
very little in between. That’s the crux of risk management.
Followers
18.5K
Think really long-term, in decades. But take action in short-term,
as soon as facts change. Till then do nothing.
What’s investment? Usain Bolt won 8 gold medals in 3 Olympics

& he only ran for less than 115 seconds on the track, earning
Why Follow $119 million. That’s economy of effort.
But for those 2 minutes, he trained for 20 years. That’s
Coimbatore-based Vijay investment. Think long term. Patience pays.
Rabindranath identifies
himself as a value investor,
and uses his Twitter account ‘Never ask a barber’ said Peter Lynch ‘if you need a haircut’.
Likewise, never ask an economist if his forecasts will be accurate
to share investing wisdom
and never ask a money manager if he can beat the markets.
gleaned from years spent
in investment research. He
claims that he now “no longer Quality merchandise at fire sale prices. Buy socks or stocks.
works for money,” as instead Everyday low prices. Mega sale. Offer valid only till coronavirus
his investments work for him. lasts. Hurry up!
He is inspired by Warren
Buffett, Charlie Munger, and If your investing time horizon is:
Howard Marks, and this
1. Less than one year, you are in the wrong place to start with
reflects in his posts, many of
which are quotes from these 2. Less than three years, then valuations are important, damn
greats. important
3. More than five to ten years and beyond; then the quality of
business is more important than valuations
At last, people who were waiting for a long overdue correction

has finally arrived. Never allow a crisis go waste. Events like the
one we are going through now would look like a blip few years
from now. Stay the course. Keep investing.
Compiled by Rachael Rajan

WORDS WORTH
WISDOM
Beating volatility blues

with investment greats
The ongoing volatility in the equity markets worldwide has unnerved investors. But volatility is
a part and parcel of equity investing. Indeed, it can help you boost your returns. The following
quotes by some all-time investment geniuses will bring home the point.
TOLERATING MIND YOUR

VOLATILITY IS TEMPERAMENT
PART OF EQUITY The most important quality for an
INVESTING investor is temperament, not intellect.
WARREN BUFFETT
The investor’s chief problem—and his worst enemy—is

Unless you can watch your likely to be himself. In the end, how your investments
behave is much less important than how you behave.
stock holding decline by BENJAMIN GRAHAM
50% without becoming
panic stricken,
n, A lot of people with high IQs
you should are terrible investors becausee
not be in they’ve got terrible
the stock temperaments. You need to
market. keep raw, irrational emotion
WARREN BUFFETT
under control.
CHARLIE MUNGER
You get recessions, you have stock
market declines. If you don’t Your success in investing will
understand that’s going to
depend in part on your
happen, then you’re not ready, you
won’t do well in the markets.” character and guts and in
PETER LYNCH part on your ability to
realize, at the height of
The stock market is the story of
ebullience and the depth of
cycles and of the human behaviour
that is responsible for despair alike, that this too, shall
overreactions in both directions. pass.
SETH KLARMAN JACK BOGLE

WORDS WORTH
WISDOM
RECOGNISE AVOID
OPPORTUNITY FOLLIES
I will tell you how to become rich. Close the Look at market fluctuations
doors. Be fearful when others are greedy. Be as your friend rather than your enemy; profit
greedy when others are fearful. from folly rather than participate in it.
WARREN BUFFETT
WARREN BUFFETT
The intelligent Far more money has been lost by

investor is a realist investors trying to
who sells to anticipate
optimists and buys corrections, than
from pessimists. lost in the
BENJAMIN GRAHAM corrections
themselves.
A market downturn doesn’t bother us. It is PETER LYNCH
an opportunity to increase our ownership of
great companies with great management at If you are shopping for common stocks,
good prices. choose them the way you would buy
WARREN BUFFETT groceries, not the way you would buy
perfume.
Generally, the BENJAMIN GRAHAM
greater the stigma

or revulsion, the
better the bargain. KEEP A
SETH KLARMAN
LONG-TERM VIEW
The first rule of investment is ‘buy If you aren’t thinking about owning a stock
for ten years, don’t even think about owning
low and sell high’, but many people it for ten minutes.
fear to buy low because of the fear WARREN BUFFETT
of the stock dropping even lower.
Then you may ask: Investing should be
‘When is the time more like watching
to buy low?’ The paint dry or
answer is: When watching grass
there is maximum grow. If you want
pessimism. excitement, take
JOHN TEMPLETON $800 and go to Las Vegas.
PAUL SAMUELSON

MONTHLY
AGENDA
A crude fact
A fall in crude-oil prices doesn’t often result in a market gain
Returns (%)
1\UL[V6J[VILY
40500 Sensex Crude oil 100 61.3
Crude oil
Crude oil prices are for Brent in $/barrel
37000 80 12.8
Sensex
33500 60
Correlation
30000 40 0.86
Returns (%)
1HU\HY`[V+LJLTILY
Crude oil
28000 50 8.9
Sensex
25000 35
Correlation
22000 20 0.67
Returns (%)
+LJLTILY[V(WYPS
Crude oil
17000 110 68.6

Sensex
12000 75
Correlation
7000 40 0.74
Returns (%)
1HU\HY`[V1\S`
Crude oil
18000 90 56.2
Sensex
14000 70
Correlation
10000 50 0.90
MONTHLY
AGENDA
I
ndia imports around 85 per cent of its total oil has been a sharp fall in crude, our stock market has
demand. Naturally, this makes the country a big also fallen; it has risen with an increase in oil prices.
beneficiary of falling crude-oil prices. According to The possible reason for this could be that crude-oil
CARE Ratings, with everything constant, every $1 fall prices also indicate economic expansion and
in crude-oil prices leads to a saving of around $1.6 contraction. Often oil prices rise due to economic
billion per year for India. expansion and fall when there is a slowdown. A case in
Given this, logically, India should benefit from falling point is the recent crash in crude-oil prices. The Indian
oil prices and vice versa. However, the reality is market has also fallen in tandem. Both are driven by
different, as seen in the graphs below. Whenever there fears of an economic slowdown. WI
Returns (%)
+LJLTILY [V(WYPS
43000 Sensex Crude oil 90 -75.0
Crude oil
37000 65 -25.6
Sensex
31000 40
Correlation
25000 15 0.95
Returns (%)
1\UL[V1HU\HY`
Crude oil
28000 100 -1.4

Sensex
24000 60
Correlation
20000 20 -0.20
Returns (%)
-LIY\HY`[V1\UL
Crude oil
17500 120 -5.7

Sensex
16500 105
Correlation
15500 90 0.74
Returns (%)
1\S`[V+LJLTILY
Crude oil
13000 120 -30.0

Sensex
9000 70
Correlation
5000 20 0.88
MARKET
C MPASS
Market barometer
Here are some charts that will help you make sense of the current market
in terms of valuations and return potential
Sensex’s movement
In ’000
45 Max 41,953 The Sensex is the most convenient
indicator to tell the state of the Indian
market. The 10-year graph presented
39
alongside shows the secular run in the
markets. However, this rally was
33 punctuated by several bearish phases.
Current The most prominent ones include the
27
31,648 following: a bear market driven by
weakening economic fundamentals in
2011, Chinese growth concerns in
21
2015, demonetisation blues in 2016,
and the sell-off in 2018 due to US–
15 China trade war and rise in US interest
Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Min
rates. Lately, the markets have tumbled
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20
15,175 due to the coronavirus spread.
Sensex’s price to earnings

30 Max 28.4 The price-to-earnings ratio of the Sensex
is a simple market-valuation ratio. A
general guideline to help
27
understand the valuation is:
P/E > 24 = Dangerously
24
overvalued
P/E > 20 < 24 = Overvalued
21
Median 20.0 P/E > 16 < 20 = Fairly valued
P/E > 12 < 16 = Undervalued
18 Current 18.3 P/E < 12 = Highly underval-
ued (mouthwater-
ing valuations)
15
Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Note that this graph is based on standalone data of Sensex com-
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 Min 16.4 panies. If one takes the consolidated data, the P/E will be lower.
Sensex’s price to book value

4.5 Max 3.88 The price-to-book-value ratio tells us how
many times an investor is ready to pay
for a rupee of net assets.
4.0
Since book value is stable and less
volatile than earnings, some consider it
3.5
Median 2.99 better than the P/E as a measure of
valuation.
3.0
If
P/B > Median P/B = Overvalued
2.5
P/B < Median P/B = Undervalued
2.0
Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr
Current2.33
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 Min 2.33

MARKET
C MPASS
Sensex’s dividend yield

2.0% Max 1.80 Dividend yield is nothing but the return
an investor gets in the form of dividend
on his investment. It is measured as
1.8 dividend per share divided by price
per share.
1.6 Generally speaking, when stocks are
cheap, dividend yields are high.
Current 1.44 If
1.4
Median 1.36 Dividend yield >
Median dividend yield = Undervalued
1.2 Dividend yield <
Median dividend yield = Overvalued
1.0 Min 1.03

Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20
Market cap to GDP

100% Max 89.6 This measure is Buffett’s personal
favourite. He said, “It is probably the
single best measure of where valuations
90 stand at any given moment.”
Here we have considered the market
80 capitalisation of all the listed companies
on the BSE.
Median 71.0 If
70
Market cap > GDP = Market
overvalued
60 Market cap < GDP = Market
Current 59.1 undervalued
50 Min 57.7
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
10Y G-sec yield vs Sensex’s earnings yield

5% Max 3.94 The spread between G-sec yield and
Sensex’s earnings yield is another
valuation measure. G-sec yield is the
4 yield of the 10-year government bond.
Sensex’s earnings yield is the inverse of
3
Median 2.88 the Sensex’s P/E ratio. The greater the
deviation from the median in either
direction, the greater the degree of
overvaluation or the undervaluation of
2
the Sensex.
If
1 Spread > Median = Overvaluation
Current0.74 Spread < Median = Undervaluation
0 Min 0.74
Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr All data as on April 20, 2020. Market cap to GDP
’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 graph is as of December 2019 as the GDP data is
released quarterly.

MARKET
C MPASS BIG MOVES
Large caps Price to earnings Net profit (` crore)

3M returns (%) 3Y avg RoE (%) 3Y earnings growth (%) 3M price (`) movement
-55.4 11 3,055
Bandhan Bank 488
With around 61 per cent of the loan portfolio tied to micro credit,
the bank is vulnerable to default from low-income borrowers. 22.3 68.9 217
-45.8 25 5,492
Bajaj Finance
Amid the lockdown, the company reported a slowdown in
its AUM growth in Q4 FY20. 21.3 44.9 4,262
2,308
128
-40.3 5 22,360
ONGC
The massive fall in crude-oil prices is negative for oil
producers like ONGC. 13.2 35.5
76
-37.0 28 4,807
Axis Bank
762
The banking and finance sector is especially hit in the
ongoing slump in the market. 5.2 9.1
480
-36.5
572
Mahindra & Mahindra 21 1,131
In the wake of the nationwide lockdown, the company
suspended its manufacturing operations. 14.7 19.7
363
-36.2 8 5,320
JSW Steel 277
Weak production due to the lockdown and slowing steel demand
will impact the financials. 21.6 24.5
177
-29.0 9 5,084
Grasim Industries
767 545
CCI imposed a `302 crore penalty on the company for abusing
its dominant position in the fibre market. 9.6 8.0
1,303
-28.4 13 10,707
Larsen & Toubro
With lockdowns around the world, company’s order book
growth will slow down. 16.1 19.4
933
-26.5 – -20,606
Yes Bank 34
The bank is undergoing restructuring after capital infusion by
the SBI-led consortium. 14.3 29.0 25
-21.3 46 1,149
ICICI Pru Life Insurance Co. 370
470
A volatile stock market can impact the income from investments
for insurance companies. 24.2 -11.6
Our large-cap universe has 73 large companies, making the top 70 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly in the last three months.
Data as on April 17, 2020.

MARKET
BIG MOVES C MPASS
Mid caps Price to earnings Net profit (` crore)

-65.6 7 4,502
Indusind Bank
1,378
The bank fell on concerns of falling deposits and exposure to
stressed sectors. 15.0 25.1
475
-60.6 17 705
Canara Bank
221
A weakening economy can slow down credit growth and elevate
stress. -2.5 14.2
87
-58.1 – -151
Tata Motors
183
In February, JLR retail sales in China dropped by 85 per cent.
-6.5 -128.0
77
-51.3 14 619
Prestige Estates Projects
372
The real-estate sector will be further impacted due to
demand slowdown and a difficult borrowing environment. 8.9 24.6
181
-51.0 7 1,498
M&M Financial Services
367
NBFCs have come under strain post lockdown due to the risk of
default and inability to raise capital at desirable rates. 13.1 31.3
180
112
-50.9 13 728
Aditya Birla Capital
NBFCs have come under strain post lockdown due to the risk of
default and inability to raise capital at desirable rates. 0.2 -361.3 55
-48.1 – -3,419
Jindal Steel & Power
178
Steel companies are cutting operations due to lower demand,
-7.1 -3.8
92
unavailability of labour and supply constraints.
-44.2 – -953
General Insurance Corporation of India
246 137
After reporting a loss of `1,556.5 crore for 9M FY20, company’s
investment income would suffer because of a volatile market. 13.4 -2.8
-39.0 20 1,501
Motherson Sumi Systems
142 87
The European market, which constitutes 40 per cent of the
revenue, has been worst impacted by the COVID-19 outbreak. 25.1 -7.0
-29.9 6 3,025
Shriram Transport Finance 1,146
803
S&P lowered the company’s rating as NBFCs are more prone to
lockdown risks than banks. 16.5 29.4
Our mid-cap universe has 160 mid-sized companies, making the next 20 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly in the last three months.
Data as on April 17, 2020.

MARKET
C MPASS BIG MOVES
Small caps Price to earnings Net profit (` crore)

-75.7 6 691
Future Retail
334
High promoter debt and pledge invocation by lenders
resulted in a group-wide fall in the share prices. 12.9 264.8 81
-69.4 15 164
Future Lifestyle Fashion 401
resulted in a group-wide fall in the share prices. 9.6 70.2
122
-68.8 – 10
Future Consumer 23
resulted in a group-wide fall in the share prices. -1.7 29.2 7
-68.3 7 284
Varroc Engineering
474
The stock fell in sync with other small-cap stocks.
13.8 4.2
150
-67.5 – -2,311
Jaiprakash Power Ventures
2 1
The stock fell amidst market-wide volatility.
-13.2 -18.9
-63.3 2 1,268
505
PNB Housing Finance
Ind-Ra downgraded company’s non-convertible
debentures. 14.3 49.1
185
-61.0 5 307
Welspun Corp
An order to the company’s US facility was deferred. Its
order book may deteriorate due to the fall in crude oil. 4.7 98.7 173 68
297
-60.2 3 –
Sterling and Wilson Solar
A lockdown in China has led to supply-chain issues for
the company. – – 118
-58.2
300
Indiabulls Housing Finance 2 3,040
Moody’s downgraded certain borrowing instruments of
the company amid capital-raising concerns. 27.0 3.4 125
-50.4 6 344
Sobha
430 213
The real-estate sector will be further impacted due to demand
slowdown and a difficult borrowing environment. 8.5 40.8
Our small-cap universe (minimum market capitalisation `500 crore) has 481 small-cap companies, making the last 10 per cent of the total market capitalisation.
The list mentions the stocks that have fluctuated most wildly in the last three months. Data as on April 17, 2020.

ANALYST’S
DIARY
Bucking the trend

In March, when there was blood all over due to the outbreak of COVID-19, a
few stocks managed to stay in the green
5V[PTL»ZIHK[PTL
N
o stock investor can forget the month of March
2020, when the markets all over the world
In spite of market-wide fall in March 2020, the following companies man-
tumbled rapidly in a fashion never seen before.
aged to give positive returns
Shaken by the outbreak of COVID-19, the Sensex fell
almost 23 per cent, from 38,144 at the start of the month Company name Sector Returns in Mar ’20
to 29,468 at the end of it. It’s still not certain when this Ruchi Soya Industries FMCG 164.0
pandemic will end and how deep its impact will run India Cements Construction Materials 15.4
over the next many months. Unichem Laboratories Healthcare 11.9
However, amid the bloodbath in March, a handful of
BASF India Chemicals 11.2
stocks did give positive returns (see the table). Many of
these are healthcare companies. Healthcare companies Dr. Reddys Laboratories Healthcare 7.6
are likely to gain in the current times as people will Cadila Healthcare Healthcare 7.0
look out for more medical and healthcare assistance. Hindustan Unilever FMCG 6.5
Abbott India’s parent, Abbott Laboratories, received
GSK Consumer FMCG 6.4
USFDA’s approval for its five-minute coronavirus test
Indoco Remedies Healthcare 6.0
kit. That kept the company in positive light.
A few FMCG companies also registered positive Cipla Healthcare 4.8
returns in March 2020 as the demand for their products New India Assurance Co. Insurance 3.7
might not be as affected as compared to other sectors, Bliss GVS Pharma Healthcare 2.1
where production has been completely stalled due to
Bharat Electronics Capital Goods 2.0
the lockdown. Though many FMCG companies are
operating at reduced capacities, their continued FACT Chemicals 1.9
operations are crucial for our day-to-day life. Nestle India FMCG 1.1
One interesting name in the list is the topper Ruchi Panacea Biotec Healthcare 1.1
Soya. Having been acquired by Patanjali, the company
Abbott India Healthcare 0.4
showed a secular rally. Earlier the company was
undergoing insolvency proceedings. WI
By Danish Khanna

ANALYST’S
DIARY
Bang, bank! 7YP]H[LIHURZ

Private banks have been the major sufferer since March 2020 owing to a
number of factors, which have raised a question about their future.
The fall in bank stocks has created Company Name
Gross
NPAs (%)
Net
NPAs (%) NIMs (%)
Return in
March (%)
3M
return (%)
opportunities. But the danger may IndusInd Bank 2.18 1.05 4.15 -67.5 -64.9
RBL Bank 3.33 2.07 4.57 -52.2 -62.7
still be lurking in the background. The Federal Bank 2.99 1.63 3.00 -50.4 -49.9
Karur Vysya Bank 8.92 4.13 3.33 -49.3 -51.8
T
he banking and finance sector was the worst
Bandhan Bank 1.93 0.81 7.91 -48.2 -54.8
sufferer in March 2020. The S&P BSE Bankex
Axis Bank 5.00 2.09 3.57 -44.4 -35.1
fell by a third. A number of reasons were
responsible for this, apart from the COVID-19 crisis. IDFC First Bank 2.83 1.23 3.86 -43.6 -39.4
First, the Yes Bank crisis resulted in erosion of trust DCB Bank 2.15 1.03 3.71 -40.5 -51.3
in private banks. There were reports of some states Dhanlaxmi Bank 7.13 1.62 3.31 -40.3 -32.7
withdrawing their funds from private banks, afraid
City Union Bank 3.50 1.95 3.96 -39.0 -46.0
that the Yes Bank contagion may spread.
Second, the Supreme Court’s AGR ruling meant South Indian Bank 4.96 3.44 2.72 -36.0 -46.1
that telcos had to somehow cough up massive sums, ICICI Bank 6.39 1.60 3.77 -35.8 -29.2
which would jeopardise their operations. Many J&K Bank 11.10 4.36 3.68 -35.8 -52.0
private banks had exposure to telcos, especially the
IDBI Bank 28.72 5.25 2.27 -34.9 -40.9
embattled Vodafone Idea.
Karnataka Bank 4.99 3.75 2.83 -33.3 -35.3
Third, as the country went into a lockdown, it
became apparent that there may be payment CSB Bank 3.22 1.98 3.40 -30.8 -41.5
defaults in the future. The RBI also asked the Lakshmi Vilas Bank 23.27 9.81 0.00 -30.5 -19.3
banks and finance companies to offer Yes Bank 18.87 5.97 1.40 -29.0 -36.1
moratoriums on loan payments to the
HDFC Bank 1.42 0.48 4.20 -27.1 -28.8
customers. These payment defaults would
be especially negative for NBFCs, which Kotak Mahindra Bank 2.46 0.89 4.69 -18.9 -30.1
had in turn borrowed from banks. Data as on April 17, 2020
The tables list the publicly traded
private-sector and public-sector banks.
Investors are asking if they 7\ISPJIHURZ
should invest in banking Public-sector banks have already been hit hard due to their bad-loan prob-
stocks, given the lems. The recent fall again shaved a few points off their stock prices.
attractive levels.
Gross Net Return in 3M
The table also lists Company Name NPAs (%) NPAs (%) NIMs (%) March (%) return (%)
the gross and net non- Indian Bank 7.20 3.50 2.91 -38.6 -54.5
performing assets (NPAs)
Bank of India 16.30 5.97 3.45 -35.6 -50.3
and net interest margins of the
banks. They can help make a choice. Canara Bank 8.36 5.05 2.36 -34.5 -60.8
Gross NPAs are total NPAs as a per cent of advances State Bank of India 6.94 2.65 3.59 -31.5 -39.2
made. Net NPAs are gross NPAs minus provisioning. Punjab & Sind Bank 13.58 8.71 1.74 -28.5 -21.9
The lower these figures, the better. Net interest
UCO Bank 19.45 6.34 0.00 -27.2 -35.1
margin is the spread between a bank’s interest income
Bank of Baroda 10.43 4.05 2.88 -24.7 -48.5
and interest paid. The higher this number, the better.
However, things aren’t so simple. For instance, Punjab National Bank 16.30 7.18 2.36 -24.2 -49.6
IndusInd Bank has suffered a massive decline in Union Bank Of India 14.86 6.99 2.55 -20.9 -44.7
March in spite of lower NPA numbers and higher Central Bank of India 19.99 9.26 2.92 -20.3 -26.0
margins. See the ‘Stock Story’ section for details.
Indian Overseas Bank 17.12 5.81 1.94 -19.1 -36.0
Hence, research thoroughly before you decide to
invest in any of these. WI Bank of Maharashtra 16.77 5.46 2.86 -15.9 -30.3
By Danish Khanna Data as on April 17, 2020

MRINAL SINGH DEPUTY CIO - EQUITY, ICICI PRUDENTIAL AMC IN FOCUS
India and value investing

FOCUS QUESTION India is widely thought to be a growth
market. What place does value investing have here?
What are the attributes of a value stock?
Mrinal
V
alue is the difference years, the probability of making
between the intrinsic double-digit compounded returns Singh’s
worth of a business and is very high. As value gets top 10
the price an investor is unlocked, investors will be value
paying for that investment. In beneficiaries of exponential gains
bets*
Net asset (%)
general, value investing is about from these investments. Market
maintaining a high margin of A combination of inexpensive value (` cr)
safety. This does not mean valuation, cash-generation Infosys
investing solely based on an capability, strong management 9.62
optically low price-to-book or and comfortable balance sheet are 1123
price-to-earnings alone. the attributes we look for when it Sun Pharma
While growth remains one of comes to picking a value stock. 9.06
the major styles of investing in Mrinal Singh manages ICICI 1057
India, there is room for value Prudential Value Discovery
Mahindra &
investors here as well. This can be Fund, the largest mutual fund Mahindra
seen through the long-term track (assets of `11,664 crore as of 6.86
record of ICICI Prudential Value March 2020) following the value 801
Discovery Fund. Over a decade, strategy. WI
NTPC
the fund has been a wealth creator
and has delivered a CAGR of 10.13
6.83
per cent and over 15 years, the
796
fund has delivered a CAGR of 15.3 Bharti Airtel
per cent (as of April 13, 2020). 6.58
The difference between a value 767
and growth investor is the point ITC
of beginning. A growth investor is 4.32
interested in zones of certainty, 504
while a value investor is PI Industries
interested in the margin of safety 4.11
(given that they operate in the 480
zones of uncertainty). Therefore,
Wipro
when value calls play out,
exponential gains are made.
3.66
From an investor’s perspective,
427
in an up-trending or a momentum Indian Oil
Corp
market, value performance is
likely to take a back seat. That is
3.08
why in value investing, patience is
359
a prerequisite to reap gains. An Grasim
Industries
investor should stay put with
their investments whether
2.83
through SIP or otherwise for at
330
*Holdings of
least five years plus. Rolling- ICICI Prudential
Value Discovery
return analysis shows that if one Fund. Data as of
remains invested for seven to 10 March 2020.

STOCK STORY INDUSIND BANK
In the dust
In March 2020, IndusInd Bank was the worst-hit bank, falling by 68 per cent.
Here is the story of its rise and fall.
T
he massacre in the markets worldwide due to the coronavirus outbreak
has spared few stocks. IndusInd Bank is one such company.
However, in its case, it’s not just the virus that has caused the
damage. The bank has been surrounded by a lot of negative
news – decreasing deposits, rising bad loans, high exposure to
telecom companies and NBFCs, exit of a long-time CEO and
so on. The crisis at Yes Bank has also put a question
mark on rest of the mid-size private lenders. In the
month of March alone, the stock corrected by
about 68 per cent. Investors are afraid that
the bank might share the fate of the
Indus Valley Civilisation, after
which the bank has been
named. WI
By Danish Khanna
FEB 2008
New management
team under Romesh
Sobti, MD & CEO.
zOrganisational restructuring and
change in business strategy
zBank to increase focus on corporate and
commercial loans
zAdds 553 new corporate and commercial clients. JUN 2008
Earlier the loan book was dominated by retail loans. Issues global
zBank to open new branches to establish the brand and garner retail depository
deposits to reduce the cost of funds and boost magins. receipts to
raise
`222 cr
JUN 2004
JAN 1998 Merges with Ashok Leyland
Raises `180
Finance. Branches increase to
cr 115 from 61 a year earlier.
through an IPO
2003
`39.3 2008
Gets RBI’s permission to set up Highest ratings for commercial deposits
overseas branches from ICRA and for FDs from CRISIL

STOCK STORY
`1985
Rapid expansion Going corporate DEC 2017
The bank’s branches have grown at Over the years, the bank’s exposure to RBI imposes
a breakneck speed. corporates has risen. `3 cr
2000 zRetail zCorporate penalty for
100 %
90 under-reporting
1500 80 of FY16 NPAs
70
1000 60
50
40
500 30
20
10
`424
0
2003 2007 2011 2015 2019 0
Dec ’19 2008 2010 2012 2014 2016 2018 2019
March-end data if not otherwise indicated
OCT 2017
Plans merger with Bharat
A great performer? Financial Inclusion, a
While the bank has reduced its microfinance company
NPAs and increased its margins, the
numbers in the next few quarters are APR 2018
worth watching.
NOV 2016
Reports
z NPA z NIM divergence in
4.5% Promoters FY17 NPAs of
4.0 pledge 4.5% `1,350 cr
3.5 of stake
3.0 from RBI’s
2.5 estimates
2.0
1.5 SEP 2018
1.0 Discloses exposure of
0.5
0.0
`3,000 to IL&FS, a
2004 2007 2010 2013 2016 2019 crisis-ridden NBFC
Dec ’19
March-end data if not otherwise indicated JULY 2019
JUL 2015
Completes merger with
Bharat Financial Inclusion
Raises `4,200 cr
through institutional JAN 2020
placement Posts disappointing Q3 results, provisions
rise by 72%, gross NPAs more than double
AUG 2009 YoY, asset quality worsens, Sobti set to retire in
Raises Mar 2020
`480 cr
through FEB 2020
institutional Moody’s downgrades bank’s outlook to negative from stable
placements
RBI approves the appointment of Sumant Kathpalia as CEO,
successor to Romesh Sobti
MAR 2020
APR 2011
Buys Deutsche Stock falls over 60% in March amidst the outbreak of COVID-19
Bank’s credit- zBank has exposure of `3,995 cr to Vodafone
card business zReports 2% erosion in deposit base as state governments shifted deposits
zYes Bank fiasco cascades to other private lenders
zPromoters ask the RBI to allow them to increase stake
JUN 2009
APR 2020
Opens 30 new
branches After domestic investors dumped the stock, FPIs raised their stake from 55.22%
in Dec 2019 to 72.07% in Mar 2020. Promoters reduce pledged stake.

www.valueresearchstocks.com
What
changes,
The market goes through good and bad phases. That doesn’t
Dhirendra Kumar best we can deal with this in terms of our

personal savings and investments.
I
t’s an uncertain time for stock inves- In any upheaval, there are losers and
tors. Or is it? One of the rules of there are winners. The question is, how
investing (or rather, of anything in can we increase the chances of enhancing
life) is that when everyone agrees our savings and returns by choosing win-
on something, then you must con- ners? For someone who is familiar with
sider the possibility that everyone is the Value Research way, the answer should
wrong. Contrarianism for its own sake be obvious: by doing what we should
may not be good but it’s a good mental always have been doing anyway.
exercise. It ensures that one does not fall Whenever there is a crisis of any sort in
into the trap of ready-made opinions. the economy or in a sector, the better com-
So, getting back to the question of wheth- panies suffer setbacks but the nature and
er it’s an uncertain time. What if it isn’t? extent of their setbacks are much less
What is certain at this time, and what is than those suffered by weaker companies.
uncertain? After all, there is never any This means that our recipe for success is
high degree of certainty in equity invest- the same as it ever was, good times, bad
ing. There are never any guarantees. Since times, or pandemic times!
my investing life has started, we have had
some huge upheaval or the other every few The recipe
years. Every time, it looked like the biggest This recipe is to raise your investing game
ever. And every time, it turned out to be to the highest level. This can only come
very big in some ways but smaller than from knowledge, from understanding, and
expected in other ways. Might the current from having some basis for looking at the
global pandemic follow the same pattern? future. It cannot be obtained from just the
There is little doubt that this pandemic numbers of the past. It can also not come
will be a huge setback for the world econo- from naive projections of those numbers
my and for the lives of people. There is into the future. Numbers can guide us to a
also little doubt now that sporadic out- company, but investment decisions can
breaks and lockdowns will continue for a only be made by understanding the busi-
long time, months or perhaps years. The ness of a company. At Value Research
question for us reading this magazine and Stock Advisor, that’s exactly our approach.
for other Value Research members is how Our analyst team is numbers-driven, but

and what
does not
mean we also have to change our investment approach.
only for part of the process. tation for absolute integrity and
Once the numbers have done
Unlike the independence that we have creat-
their job, our real task begins – mass ed and preserved by our conduct
that of understanding the busi- over a quarter of a century.
ness. Only then can one have
‘management The benefit for this goes to the
confidence in the investments. interactions’ subscribers of our premium ser-
However, the job continues after vice, Value Research Stock
we recommend the companies. that brokerage Advisor. While they get to read
As I mentioned earlier, in recent analysts have, the interviews and watch the
weeks, we have spent – I have videos, our entire research pro-
personally spent – hours with there’s no one cess gets enhanced and benefits
the CEOs of some of the compa- else in our them in a variety of ways.
nies that we have recommended. Not just the recommendations
In each of these companies, we interactions. It’s For you, if you appreciate the
had a long conversation which just the Value process, then the right thing to
was not just about the company do is to see our list of recom-
itself, but about the sectoral envi- Research team mendations and our ‘Best Buys’.
ronment, about competitors and However, do not stop there.
about the economy in general.
and the senior That’s just the endpoint of our
Moreover –and this is truly managers from process. As I have detailed
important – each of these inter- above, for each one of our choic-
actions was one-to-one. Unlike
the companies. es, we reveal our entire thought
the mass ‘management interac- process. If you go through that,
tions’ that brokerage analysts it will give you confidence to fol-
have, there’s no one else in our interac- low what we are doing, as well as learning
tions. It’s just the Value Research team and to apply it elsewhere.
the senior managers from the companies. In a time of uncertainty, that confidence
We have this privilege because of the repu- is of greater value than anything else. WI
Value Research Stock Advisor is a premium service where you get promising stocks along with their full analyses.
We also actively track the underlying companies for you and keep you posted on the major developments in
them, including when to sell a stock. Additionally, members get exclusive access to a range of tools and data
which they can use to study any other stock. You can subscribe to the service at www.valueresearchstocks.com.

COVER STORY
The
portfolio tonic
Stocks to boost your portfolio’s immunity
to the pandemic

COVER STORY
Danish Khanna, Rajan Gulati

and Yash Rohra
edge as in absence of operations, SELECTION CRITERIA
they are better placed to sustain
HYGIENE CHECK
A
fter suffering a historic fall themselves. The box alongside
Market cap greater than `5,000
in March 2020, the markets mentions the filters that we applied
crore: To remove very small
have recovered a bit. But to arrive at the companies discussed companies, which may find it
given the uncertainty, no in this article. Note that all numbers hard to weather the crisis.
one can say if they have bottomed in this story are as of April 9, 2020. Promoter pledging less than 5%:
out or the disease has been Given that the stocks of the High promoter pledging can hurt
contained. Amid all this, our companies discussed in this article a company if the stock falls in a
readers have been asking us to have also corrected by about 20 per market downturn.
suggest some stocks that can beat cent (as of April 9, 2020) from the
VALUATION CHECK
the coronavirus crisis. That’s not time Sensex hit a high, they are
easy as the entire business worth considering. Our filters have Correction of more than 20% since
January 17, 2020: This was when
ecosystem has been impacted and is ensured that they are available at
the Sensex hit a high. To spot
being transformed by this crisis. reasonable valuations. While the
companies at a bargain.
Not being able to operate, markets will make their moves by
Current P/E and P/B less than their
businesses are forced to take strict the time you read this story, you can
5- and 10-year medians: To ensure
measures, including pay cuts and keep these companies on your watch attractive valuations.
laying off the staff. Some others are list. If you can’t buy them now, you
innovating. Almost all have realised might want to include them in your SOLVENCY CHECK
the importance of digital. portfolio whenever they dip next. Net debt to equity ratio less than 0:
So, when we started the quest for However, do consider these only as Net debt is total debt minus cash
‘corona-proof ’ stocks, all we had was ideas and not our recommendations. and current investments.
history. There are indeed some Research thoroughly before you Negative net debt means cash and
investments are more than debt.
businesses that have weathered decide to invest in them. Those who
crises in the past. Such businesses would like to get a list of our Working-capital requirements less
than 20% of sales: The company
have higher chances of beating the recommended stocks can opt for our
is running its operations
odds. Financially strong, especially premium Stock Advisor service at
efficiently and doesn’t need much
cash-rich businesses, will have an www.valueresearchstocks.com. capital for generating sales.
CASH-FLOW CHECK
Positive cash flow from operations
in each of the last 10 years: To
ensure that the company
generates cash from its
operations.
10-year total free cash flow is at
least 10% of the market cap: To
assess the strength of free cash
flows. Free cash flows are cash
remaining after making capital
expenditure.
PROFITABILITY CHECK
Adjusted EPS growth positive in at
least 7 out of the last 10 years:
The company has been increasing
its profits.
10-year median adjusted EPS
growth greater than 10%: The
profits are at a decent rate.
ROE greater than 15% in at least 7
of the last 10 years: To ensure
that the company generates good
returns on shareholders’ capital.

COVER STORY
EICHER MOTORS
Not just a motorcycle

Eicher’s Royal Enfield motorcycles have high aspirational value, which makes them
almost immune to economic downturns
E
icher Motors increased sixfold by 2014. At
manufactures the iconic
Royal Enfield brand of
motorcycles, which owns
present, the company is selling
more than eight lakh bikes a year.
For its dormant truck division,
8 lakh
Motorcycles sold by Eicher in a year
models like the Bullet, the Classic, Eicher Motors has entered into a
the Thunderbird and the
Himalayan. Besides, the company
sells trucks as well.
joint venture with Volvo, wherein
Eicher Motors brought its
distribution network and the
43%
10Y annualised EPS growth
Eicher was incorporated in 1948 latter its manufacturing expertise.
to import trucks. In 1995, it Kerala, was badly hit by floods,
acquired Enfield Motorcycles. In FINANCIAL STRENGTH significantly impacting its sales
2006, Siddhartha Lal took control Over the last 10 years, Eicher’s over the last two years. Also, the
of the company. Under his revenues and profits have company’s stock has been under
leadership, the group divested 13 increased by 18 and 43 per cent, the hammer because of the
out of its 15 businesses to focus respectively. Operating margins, increased competition from Jawa
only on bikes and trucks. too, headed north – from about 4 Motorcycles in the 350 cc segment,
In 2009, time tipped in Eicher’s per cent to 31 per cent. Its return where the company has been the
favour with the launch of Royal on equity more than doubled from leader over the last decade.
Enfield ‘Classic’. While retaining 9 per cent in December 2008 to 25
the look and feel of old-generation per cent in 2019. However, over the WHY EICHER CAN
motorcycles, the new version last one year, the company has WEATHER THIS STORM
incorporated high-end technology, been facing major headwinds, Over the years, Royal Enfield has
engine and transmission with owing to the slowdown in the auto created brand loyalty, which is
improved reliability. The bike sold sector, the added cost of new safety not easy to replicate. In 2019, the
like hotcakes and had waiting norms and mandatory third-party company launched two 650 cc
periods of more than six months. insurance that together increased twin-engine cruiser bikes called
In 2010, the company sold more the ownership cost by as much as the ‘Twins’. The company
than 50,000 bikes. The sales 13–15 per cent. Its largest market, considers them as its next
growth engine. The idea behind
these launches was that
customers in the 100–125 cc
segment will ultimately upgrade
to more powerful cruiser bikes.
Also, its own 3.5 million classic
350 riders will be a potential
choice for them when they start
looking for an upgrade.
With its presence in more
than 50 countries and many
under-penetrated markets in
India, such as Rajasthan, Uttar
Pradesh, West Bengal, among
others, the company is well-
positioned to increase its
volume growth.

COVER STORY
EXIDE INDUSTRIES
Charged up
A wide range of offerings, pan-India distribution and low prices of lead – the chief
raw material – bode well for the company’s future
P
romoted by the Raheja cheaper than pure lead. This helps
Group and headquartered
in Kolkata, Exide Industries
is India’s largest
reduce the risk from volatility in
lead prices. 48,000
No. of direct and indirect dealers
manufacturer of lead-acid storage FINANCIAL STRENGTH
batteries. The company has a Exide’s total debt stood at `185 crore More than 40 per cent of
diversified portfolio of batteries (inclusive of `130 lease liabilities) as Exide’s demand for lead
ranging from 2.5 ampere-hour to of September 2019. However, the is met through recycled
20,600 ampere-hour. The company company has been net debt-free over lead, which is cheaper
caters to three segments: automotive the last 10 years. During the same
than pure lead
batteries and those for inverters and period, the company has generated
gensets; industrial batteries used in an return of at least 20 per cent on
power, telecom, railways, IT, etc.; its capital employed and revenue company has faced several
and submarine batteries. growth has been 12 per cent headwinds, owing to its dependence
In 2013, Exide ventured into the compounded annually. The company on the auto sector, which is going
life-insurance business, which it also has strong cash flows, through a slowdown. The
acquired from ING Vysya Life amounting to `8,150 crore, over the company’s cash-conversion cycle
Insurance. Exide Life Insurance last 10 years. earlier stood at about 17 days. It has
generates 25 per cent of the Over the last one year, the deteriorated over the past few years
company’s revenues. However, over to about 37 days.
the past couple of years, the life-
insurance segment has been
incurring losses and dragging down
the company’s overall performance.
In the automobile segment, the
company’s clientele includes most of
the major original equipment
manufacturers (OEMs). It also has a
high share in replacement batteries.
The company recycles lead, the main
raw material for its products, from
exhausted batteries. More than 40
per cent of its demand for lead is WHY EXIDE CAN WEATHER THIS STORM
met through recycled lead, which is While short-term hiccups are expected to continue, the company’s long-
term story remains intact. Being the market leader, Exide boasts of a wide
distribution network of over 48,000 direct and indirect dealers. Although
the demand for new cars has been subdued over the last one year and may
remain so for the next few months, the robust growth in car sales over the
last few years has ensured the medium and long-term opportunity for
replacement batteries. The prices of lead, its major raw material, continue
to be soft, owing to a weak global economic outlook. This will help the
company maintain or improve its operating margins.
For capitalising on future opportunities for electric vehicles, Exide has
launched e-rickshaws and entered into a joint venture with Leclanché, a
Switzerland-based company, to build lithium-ion batteries in India.

COVER STORY
GRINDWELL NORTON
Rough and tough

The company is a major producer of abrasives and silicon carbide and hence will
see a faster turnaround as the situation improves
A
bout 50 per cent of India’s 2014 due to a contraction in
`3,500 crore abrasives Grindwell’s promoters industrial growth, high inflation and
market is controlled by haven’t wasted capital by a depreciating rupee. In March 2014,
only two companies: venturing into unrelated its revenue grew only by about 2 per
Carborundum Universal and cent, while the profit fell by about 10
businesses. Since 1997,
Grindwell Norton. Abrasives, per cent. To arrest falling margins,
basically ceramics, are used in
the company’s cash flows the company introduced new
making cutting and grinding from operations have products, entered new markets and
equipment, car brakes and clutches. always been positive. hiked prices.
This is because they have high Currently, apart from the
endurance and can operate at high further divided into three divisions: coronavirus crisis, the slowdown in
temperatures. silicon carbide, performance the auto sector is another pain point
Grindwell was started in 1941. ceramics and refractories (PCR) and for the company.
Following its partnership with performance plastics (PPL). Silicon
Norton Co. in 1971, the company was carbide is used as a raw material for FINANCIAL STRENGTH
incorporated as Grindwell Norton. manufacturing abrasives, Grindwell’s promoters haven’t
Later in 1990, France-based Saint refractories and polishing stone. The wasted capital by venturing into
Gobain took over Norton and company is its largest manufacturer unrelated businesses. Since 1997,
became the promoter. in India. PCR provides solutions in the company’s cash flows from
Over the years, the company has designing, engineering and operations have always been
diversified into several related manufacturing refractory systems positive.
businesses. Its business is divided for high temperature and wear In the last five years till December
into two segments: abrasives (65.4 applications. PPL manufactures 2019, Grindwell’s revenues grew by 8
per cent revenue in FY19) and high-performance polymer products per cent YoY, while its net profit
ceramics and like bearing seals, tubing, increased by around 13 per cent on
plastics. The and hoses and fabrics. the back of stable and improving
latter is Grindwell faced margins and an increase in other
a difficult time income. However, the business
during 2011– remains susceptible to changes in
raw-material prices (imports raw
material from China and Europe),
economic slowdown and rupee
depreciation. The company has
consistently delivered an ROE of
more than 15 in the last five years
till March 2019.
WHY GRINDWELL CAN WEATHER THIS STORM

The company has a strong balance sheet. As of
September 2019, it had zero debt and a cash reserve of
`234 crore. A stable currency, along with deteriorating
crude-oil prices, should reduce the company’s input cost.
Bad times for the industry often turn into good times for
bigger players. Grindwell, being one of the market
leaders, can further consolidate the abrasive market.

COVER STORY
HAVELLS
Retaining its spark

Havells’s brand appeal and diversified offerings
insulate the company from economic headwinds
H
avells is India’s leading
electric and consumer-
goods maker. It has a
significant market
share in all its segments: MCB
and switchgear (14.3 per cent),
cables (12.4 per cent), lighting (12
per cent) and electric appliances
(14.4 per cent).
Incorporated by Qimat Rai
Gupta in 1958 as a small electric-
trading business in Chandni
Chowk, New Delhi, the company
was branded as Havells in 1971.
Gupta bought this brand name
because of its foreign appeal.
Through this brand, the company and ventured into the electric become a net-cash company, thanks
was able to differentiate its consumer-goods segment. With to its high cash flows. The
commodity-like products. Gupta this move, Havells transformed acquisition of Lloyd in 2017
focused heavily on advertising, itself from an industrial to a without any external support bears
thereby creating a positive brand consumer-facing company, thereby testimony to its cash-rich position.
image. We all remember Havells’ growing its revenues and The company has consistently
famous ad campaign ‘Wires that profitability by five and 11 times, increased or kept its dividends
don’t catch fire’. Currently, the respectively, in a span of just four stable in the last 13 out of 15 years.
company is being managed by his years. Thereafter, following the
son, Anil Rai Gupta, who has been acquisition of Lloyd in 2017, it WHY HAVELLS CAN
with the company since 1992 and strengthened its presence in WEATHER THIS STORM
played a key role in transforming switchgears, cables, lighting, In 2008, Havells survived another
it into a consumer-goods company. electrical consumer durables and tough phase, when its leveraged
Before 2003, Havells focused on air conditioners. buyout of Sylvania – a European
products like switchgear, cables Havells manufactures 90 per company 1.5 times its size –
and wires, which were mainly cent of its products in-house, backfired, leading to huge
industrial products. Later in 2003, which also helps the company operational losses. These losses
the company spotted the maintain its product quality. It and a huge debt pile almost
opportunity in the retail segment also takes care of its more than resulted in the takeover of
10,500 distributors by providing Havells by its lenders. But the
The acquisition of Lloyd in them with add-on incentives like company came out of the crisis.
insurance, investments in mutual Currently, it has a comfortable
2017 without any external
funds and guaranteed loans. This cash position with no debt and
support bears testimony to ensures a long-term relationship. almost negligible working-
Havells’ cash-rich capital requirements. Given its
position. The company has FINANCIAL STRENGTH market-dominating position,
consistently increased or A high market share has enabled minimal rent expense and 75 per
kept its dividends stable in the company to strengthen its cent of costs being variable,
financial position. Over the years, Havells appears to be well placed
the last 13 out of 15 years.
it has also reduced its debt and to bear the impact of this crisis.

COVER STORY
HCL TECHNOLOGIES
When change is the game

Transforming from a hardware company to a software one, HCL has displayed the
knack of foreseeing changing times and quickly adapting to them
H
CL Technologies is the market in 1977 and subsequently the
third largest Indian IT government providing relaxation for To reinvigorate its software
company in terms of the import of technology, the business, the company
market capitalisation, company grew rapidly in the 1980s acquired seven products
after TCS and Infosys. Like many and 1990s. However, by the end of from IBM for $1.8 billion in
other IT firms, the company derives 2000, the company’s hardware
a major part of its revenue from business started slowing, while its
late 2018
North America (63 per cent of software application and
Q3FY20 revenue). Financial-services outsourcing services started gaining cloud-related services; and IP-driven
and manufacturing industries pace. products and platforms.
continue to be its major customers, In 2005, under Vineet Nayar, the
accounting for about 42 per cent of company relentlessly focused on FINANCIAL STRENGTH
its Q3FY20 revenue. Unlike its peers, infrastructure management services The company’s revenue grew by
HCL is relatively insulated from (IMS), which were the key around 14.4 per cent per annum and
growing visa issues as around 70 per differentiating factor between HCL profit was up by around 7.5 per cent
cent of its US workforce is local. and its competitors like TCS and yearly over the trailing five years
Earlier known as Hindustan Infosys. During 2005–09, the ending December 2019. However, its
Computers Limited, HCL started as company tripled its revenue and operating margins have contracted,
a hardware company in 1976. It was doubled its market cap. Now headed mimicking the sector-wide trend,
founded by Shiv Nadar along with by C Vijaykumar, HCL operates in owing to intense competition, more
his five colleagues. Against the three areas: traditional businesses onsite work and bigger deals at
backdrop of IBM like IMS, application, lower margins.
leaving the engineering, R&D and To reinvigorate its software
Indian BPO; digital and business, the company acquired
analytics, seven products from IBM for $1.8
internet of billion in late 2018. This deal will
things likely diversify the business risk as
and the company will now compete
with both service- and software-
oriented IT firms. In the last five
years till March 2019, HCL
generated an average ROE of 27,
while its debt-to-equity ratio
remained comfortable at 0.1.
WHY HCL CAN WEATHER THIS STORM

In view of the coronavirus impact, on March 30, 2020, the management
said that it did not foresee any significant impact of the pandemic on its
Q4 FY20 numbers. Moreover, the company has a well-distributed
revenue presence across sectors. It receives a sizeable chunk of its
revenues from less-affected ones like technology and services (15.1 per
cent of Q3FY20 revenue), telecom (9 per cent), and life science and
healthcare (12.2 per cent). Also, as of December 2019, the company had
cash and investments worth $1.7 billion, which are sufficient to meet its
borrowings worth $0.57 billion.

COVER STORY
HINDUSTAN ZINC
The shining star

Thanks to its monopoly position and low-cost operations, Hindustan Zinc shines
bright even in gloomy times
T
he second-largest zinc–lead
miner and fourth-largest
zinc–lead smelter globally,
Hindustan Zinc Ltd (HZL)
enjoys a monopoly position and
controls almost 80 per cent of the
India’s zinc market. It is also the
ninth-largest silver producer
in the world.
HZL started its journey as a PSU
in 1966. Now Vedanta is its major
shareholder. In 2002, the
Government of India sold 45 per
cent of its stake in the company for
just `769 crore. In 2020, its remaining
29.5 per cent stake is valued at more which averaged
than `20,000 crore. This excludes the around 23 per cent
massive dividends the company has in the last 10 years,
distributed during this period. even though it is
Hindustan Zinc owns Rampura depressed by its high cash
Agucha mine, which is one of the balance. It is often said that
largest zinc–lead mines in the world. is still significantly below the turnover is vanity, profit is sanity
Also, it owns the entire value chain, market price of $1,900/tonne. and cash is a reality. This also holds
true for this company, which has
FINANCIAL STRENGTH generated free cash flows of around
`48,000 cr
Dividends distributed over the last five years
In FY19, zinc and lead accounted for
87 per cent of the company’s total
60 per cent of its current market cap
in the last 10 years.
revenue, while silver accounted for In the last five years alone, the
12 per cent. Though it is a metal company has distributed dividends
`70,000 cr company, HZL’s margin profile
closely aligns with that of a high-
of `90 per share, which is about 55
per cent of its current market price
HZL’s current m-cap
margin, service-based businesses. Its (total of `48,000 crore as against the
10-year average operating and net market cap of `70,000 crore). Its
from extracting and smelting to margin stand at an exceptional 62 current dividend yield stands at 12
generating power for its captive use. and 46 per cent, respectively. It also per cent.
Its large-scale operations, boosted by scores high on return on equity,
a fully integrated process, help the
company keep its cost of production WHY HZL CAN WEATHER THIS STORM
in the lowest decile globally. The The company is debt-free and has cash of `19,600 crore on its balance
company is likely to remain sheet, accounting for 28 per cent of its market cap and equivalent to
profitable even after the fall of more around two years of its total expenses. Additionally, around 65 per cent of
than 22 per cent in zinc prices since its costs are variable, which provide it sufficient liquidity to manage this
January on the back of demand lockdown. These make the company a low-cost producer. Another positive
slowdown triggered by the COVID-19 for the company is the government’s stake in it, which inspires confidence
pandemic. Its cost of production in the company.
stands at around $1,000/tonne, which

COVER STORY
INFOSYS
The able crisis manager

Time and again, Infosys and its growth story have hit roadblocks, but the company
has forged ahead in spite of them
T
he second-largest IT complaints against the CEO and
23,300 cr
services company in India, CFO. However, this time, the
Infosys is known for its
high corporate-governance
` internal audit committee and the
SEC, the US market regulator, found
Cash on Infosys’s balance sheet
standards and business delivery. no merit in the complaints and the
Like other IT services companies, gave a clean chit to the management.
Infosys’s primary geographic business, in 2014, the company
location is North America (60.5 per ventured into digital services, such FINANCIAL STRENGTH
cent of the FY19 revenue), followed as AI, cloud, mobility and analytics. As of March 2020, the company’s
by Europe. A majority of the These services have gained revenue stood at `90,791 crore.
company’s revenue comes from momentum and now account for 40.6 Over the last five years till March
financial services, followed by retail, per cent of the total revenue 2020, the company’s revenue grew by
communications, energy and others. compared to 31.5 per cent in 11 per cent, while the net profit grew
Focusing mainly on the US December 2018. by 6 per cent on the back of
market, the company was involved In 2014, when Vishal Sikka joined deteriorating margins. The company
in maintaining and updating its the company as the CEO, it was the has won large deals in the recent
clients’ mainframe systems during first time that a non-founder held past and continues to grow its digital
its initial days. Post 1991 economic that position. But accusations of business. However, an attrition rate
reforms, the company brought to corporate misgovernance and of around 20 per cent, heightened
India all the activities that did not payment of hush money paid to competition and visa restrictions in
require constant client interaction. former CFO Rajiv Bansal forced western markets remain some
During the 2000s, IT companies Sikka to end his three-year stint in concerns.
enjoyed high margins. However, August 2017. In 2018, Salil Parekh
these margins started to erode due from Capgemini joined as the CEO. WHY INFOSYS CAN
to intense competition. Infosys, too, In October 2019, the company was WEATHER THIS STORM
faced the heat. To arrest again hit by The company has a history of
the fall in its whistleblower emerging out victorious from
crises. As of March 2020, the
company had cash and current
investments of about `23,300
crore. It is debt-free. The
management expects zero or
negative growth for the IT
sector in FY21 and its presence
in sectors like financial
services (31.5 per cent of
Q3FY20 revenue) and retail
(15.3 per cent) are likely to
impact the business negatively.
However, long-term business
relations with clients, an
annuity-based business,
depreciating rupee and settled
management should provide
some cushion to the revenues.

COVER STORY
ITC
The budding FMCG behemoth

The company’s growing presence in the FMCG space, coupled with its cash-rich
balance sheet, should expedite its recovery
A
dominant cigarette player initiative, which touches the lives of
in India, ITC commands a
market share of more than
80 per cent by sales. It is
over four million farmers, helps the
company procure its raw material
directly from farmers. Further, the
300%
ROCE of ITC’s cigarettes business
also the country’s largest buyer, company has presence in the hotel
`61,000 cr
processor, consumer and exporter of business, with presence in 70
Indian leaf tobacco. locations and 110 properties
Established in 1910, this over operating under brand names ITC 10Y free cash flow
100-year-old company has survived Hotels, Fortune, Welcomhotels and
two world wars and multiple WelcomHeritage. `25,000 crore in the last 10 years,
recessions. Over the years, it has ITC’s strength lies in its fully the company has generated a free
diversified its business in the Indian backwards-integrated process, cash flow of more than `61,000
FMCG market (with its brands like starting right from the procurement crore. This capital expenditure has
Aashirvaad Atta and Sunfeast), of raw materials from farmers to helped the company increase the
stationery (with its Classmate manufacturing products and then revenue share of its non-cigarette
brand) and others. Also, it has packaging them. businesses from 34.5 per cent in
emerged as a prominent player in 2010 to 53.5 per cent in 2019.
Indian paperboard used for FINANCIAL STRENGTH However, the cigarette business
packaging. Collectively, its FMCG ITC’s core cigarette segment is a cash still accounts for around 85 per cent
brands are touching the lives of 124 cow, with a return on capital of its profitability, which has often
Indian million households on the employed (ROCE) of more than 300 been a concern for its investors.
back of a direct and indirect retail per cent. This segment is the primary Lower volume growth of cigarettes,
network of six million retailers. driver of the company’s exceptional growing penetration of illegal
Besides, its free cash flows. Even after cigarettes, lower profitability of the
e-Choupal incurring a capital company’s other businesses, and an
expenditure of inability to find high-yielding
businesses to deploy its cash have
led to the underperformance by its
stock price. The stock continues to
trade near its decade-low P/E of 14
times, which is at more than 50 per
cent discount to its 10-year median.
Overall, the company has
generated a return on equity of
more than 23 per cent every year in
the last 10 years.
WHY ITC CAN WEATHER THIS STORM

ITC has a debt-free balance sheet with a cash balance of over `17,000 crore,
which should be sufficient to pay salaries and meet its fixed obligations
during the lockdown period. Additionally, its plants manufacturing
essential products, like biscuits, soap, sanitisers under the Savlon brand,
aata, snacks and noodles are still operating partially. This should further
help the company cushion the financial impact of the ongoing lockdown.

COVER STORY
MARICO
The power of innovation

Time and again, Marico has leapt ahead through radical innovations. The present
times call for yet another round.
M
arico is India’s leading adopted the strategy of diversifying
FMCG company. It is
the owner of Parachute
brand of coconut oil,
into different product lines and
countries. Its India business
contributed around 78 per cent to its
61%
Marico’s share in India’s coconut-oil market
which is the world’s largest. Marico revenue in FY19, with the
has a 61 per cent share in the international business making up The introduction of
Indian coconut-oil market. The the rest. plastic packaging and
company also has a number of Bangladesh alone accounted for one-rupee mini bottles
other well-known brands such as 46 per cent of the international for Parachute coconut oil
Hair & Care, Revive, Saffola, Livon, revenue in FY19. The company
Mediker, Set Wet, etc. enjoys a market share of 82 per cent
helped the company
Harsh Mariwala, who joined his in the coconut-oil market of increase its market share
family business Bombay Oil Bangladesh. Besides, it has a
Industries in 1971, conceived the presence in Vietnam (26 per cent of FINANCIAL STRENGTH
idea of branded coconut and refined its international business), the Marico generates high cash flows –
edible oil. This resulted in the Middle East and North Africa and a result of its limited working-
Parachute brand. He later founded South Africa. capital requirements. It is also debt-
Marico in 1990. Marico’s strength lies in its free and has significant cash
In 2013, the company went ability to innovate. Its famous blue balances. However, due to its
through a massive restructuring. It Parachute bottle exemplifies the dependence on copra, which is its
merged its domestic and fact. From tin cans, the company key raw material, its margins tend
international businesses and switched to plastic bottles. This was to be volatile. To reduce its
demerged the loss-making skincare a great move as it helped the dependence on the coconut-oil
business Kaya into a separate entity. company gain market share. In business, the company is now
This move boosted Marico’s villages, Marico introduced one- focusing on its Saffola portfolio and
profitability. rupee mini bottles against diversifying its operations across
Over the years, the
the company’s sach
traditional sachets. These again countries. Besides, it is eyeing
management hass proved to be a game changer. greater share in the rural market.
The company has delivered an
average return on equity of
more than 35 per cent in the
last 10 years. Its earnings
per share have also grown
at 19 per cent per annum
over the same period.
WHY MARICO CAN WEATHER THIS STORM

Marico has cash of `1,175 crore, which is enough to meet its expenses
during the lockdown period. The company is also operating its plants
partially, producing edible oil and oats, which qualify as essential items. It
also has a significant presence in countries like Vietnam and Bangladesh,
which are relatively less affected by this pandemic. This may further
expedite the company’s recovery.

COVER STORY
MARUTI SUZUKI
The people’s carmaker

Selling one out of every two passenger cars, Maruti Suzuki
has always been the car buyer’s first choice
M
aruti Suzuki sells one and more than 2.8 million units of
out of every two
passenger cars in India.
The company is the
this model were sold. The
subsequent years witnessed the
launch of a slew of blockbuster
43,000 cr
`
Maruti’s 5Y cash flows from operations
leader in the mid and small products, including Omni, Gypsy,
segments, which attract masses
and first-time buyers. Despite being
in a highly competitive industry,
Esteem, Zen, Wagon R, Swift and
Dzire. Through these launches,
the company created one of the
1.75 million
Maruti’s annual car-making capacity
Maruti commands a market share most successful portfolios of car
of more than 50 per cent. It has a models in India.
total annual capacity of 1.75
WHY MARUTI CAN
million cars at its three plants in FINANCIAL STRENGTH WEATHER THIS STORM
Manesar, Gurgaon and Gujarat. Over the last five years, Maruti’s Several factors set Maruti apart
The company’s history dates cash flows from operations have from its peers. Over the years,
back to 1981, when it was been more than `43,000 crore. It the company has established its
incorporated as Maruti Udyog, a has a strong balance sheet with brand on the back of its
joint venture between the zero debt on its books. However, distribution and service
Government of India and Suzuki the stock has been under stress network, which provides its
Motor Corporation of Japan, with primarily because of the ongoing buyer cheaper spare parts and
an aim to import and sell cars slowdown in the auto sector service costs. It has earned a
manufactured by Suzuki. Later, caused by the increasing cost of reputation for producing cars
the government disinvested its fuel and vehicle insurance and with better fuel efficiency, lower
holding in the company and now, because of the company’s exit maintenance costs, better
it is owned by Suzuki, with a 56.2 from the diesel segment. Now, interiors and higher resale
per cent stake. potential buyers are deferring value. Hence, the company may
In 1983, the company launched their plans to purchase new cars see continued high demand for
its first car, the iconic Maruti 800 owing to the economic slowdown, its products driven by the low
the transition from BS-IV to penetration of cars in India,
BS-VI and confusion higher disposable income and
over the electric rising aspiration of the middle
vehicles. class to own a car.
The company has been a low-
cost car maker, catering to the
masses and depending on
volumes to drive growth. And
therefore, it is not tapping much
into the EV segment for now,
where the cost of owning a car
is relatively high. Nevertheless,
the company has recently
entered into the premium
segments such as sedans and
SUVs. With people showing
more interest in purchasing
these, Maruti is now keeping
pace with its peers.

COVER STORY
TATA CONSULTANCY SERVICES
A safe pair of hands

Being the second largest listed company of the country with capable management,
TCS is one of the safest havens in market turmoils
FINANCIAL STRENGTH
T
CS is India’s largest IT revenue growth rate, the top line
services provider. Catering growth fell to single digits. To Over the last five years till March
to over 2,400 clients across counter this, the company followed 2020, TCS’s revenue increased by
sectors and geographies and some aggressive steps like the around 11 per cent, while its net
having a market cap of more than reorganisation of the business into profit grew by around 10 per cent.
`6.6 lakh crore, it accounts for smaller units, pay and job cuts, With an increase in its client
around 72 per cent of the combined hiring freeze, etc. count, the revenue garnered per
market cap of all listed companies TCS has been run by strong client also increased. Over the last
of the Tata Group. managements. In its 50-year history, five years, TCS cumulatively
The company offers IT solutions, the company has witnessed generated free cash flows of
infrastructure services, consulting leadership changes only thrice. The around `1 lakh crore. Of this,
and BPM (business process latest one came in 2017 when around `88,000 crore was paid to
management) services. BFSI company veteran Rajesh Gopinathan the shareholders in form of
(banking, financial services and took over the reins. dividends and buybacks. The
insurance) continues to be its company is debt-free and in the
biggest business segment, last five years, its ROE has
accounting for about 40 per cent of
the FY19 revenue, while retail and
` 35,000 cr
Cash and investments on TCS’s books
averaged at 36.
consumer products, TMT (telecom,

WHY TCS CAN
media and technology) and In its 50-year history, WEATHER THIS STORM
manufacturing are some other
the company has
major segments. As of March 2020, the company
In terms of geographical
witnessed leadership had cash and investments
distribution, the Americas changes only thrice worth about `35,000 crore. Its
contributed the most (53 per cent) to receivable days improved to 65
its FY19 revenue, followed by Europe days in March 2019 from 75
(29.7 per cent), India (5.7 per cent) days five years back. The
and others (11.6 per cent). company’s major fixed cost is
The company has a first-hand employee expense (about 50 per
experience of handling crises. In cent of the revenue).
2008-09, the company was badly hit In its last investor call, the
by the global financial crisis as management indicated that the
around 55 per cent of its revenue major impact of the lockdown
used to come from the banking and will be seen during Q1FY21 and
financial sector. From double-digit things should stabilise by Q3.
The management expects the
current crisis is going to
accelerate the growth of digital
services, including cloud and
automation.
A diversified client base with
long-term relationship, strong
leadership and the ability to
scale up business rapidly
provide TCS with a unique
advantage. WI

SPECIAL
REPORT
Which tax slabs are

better for you?
From this financial year, you will have a choice between old and new
tax slabs. Here’s how you can choose the one suited to you.

SPECIAL
REPORT
Which should you choose?
T
he start of the new impossible for a taxpayer to com-
financial year has ply with the Income-tax law with- The new tax slabs are indeed sim-
brought with it the new out taking help from profession- pler. You don’t have to worry
tax slabs. The old ones als.” She highlighted that over the about documentation or last-min-
also remain. You have to choose past several decades a number of ute tax planning. For those who
between the two. While the older tax exemptions and deductions got want more money in hand, such
ones allow you to avail many incorporated in the income tax as those in lower income brackets
exemptions and deductions, which legislation. She said, “It was sur- or those who want to take control
can bring down your overall prising to know that currently of their finances rather than let
taxable income, the new tax slabs more than one hundred exemp- the government decide where to
have lower rates of taxation but tions and deductions of different invest, these could be useful.
you will have to forgo your nature are provided in the Income However, this simplicity
exemptions and deductions. In Tax Act. I have removed around 70
such a scenario, many are of them in the new simplified
wondering which tax slabs they regime. We will review and
should choose. Before we start, rationalise the remain-
have a look at both the old and ing exemptions
new tax slabs: and deductions
in the coming
;H_ZSHIZ!6SKHUKUL^ years with a view to
further simplifying the
While the new slabs have lower tax rates, they
tax system and lowering the
don’t have any deductions or exemptions
tax rate.”
Existing New In the new tax structure, while
Slab (`) tax rates tax rates
some 70 exemptions have been
0–2.5 lakh Exempt Exempt removed, about 50 do stay. These
2.5–5 lakh 5% 5% include the deduction for agricul-
5–7.5 lakh 20% 10% tural income, leave encashment comes at a cost.
on retirement, standard deduc- The first cost is that
7.5–10 lakh 20% 15%
tion on rent and some other mis- you don’t really pay less
10–12.5 lakh 30% 20% cellaneous items. However, all tax with the new tax structure,
12.5–15 lakh 30% 25% those exemptions and deductions as claimed by the finance minis-
that are generally the mainstay ter. The table ‘New vs old: Which
Above 15 lakh 30% 30%
of tax-planning are gone in the is more beneficial?’ shows that if
new tax structure. Fortunately, you claim the basic exemptions
the new tax structure is optional. and deductions – `1.5 lakh under
Why the new slabs? If the existing slabs and Section 80C, `50,000 under Section
In her Budget speech, the exemptions save you 80CCD(1B) and `25,000 under
finance minister said more tax, you can Section 80D, apart from the default
that simplification was very well adhere to standard deduction of `50,000 –
the main motive behind them. What’s you can pay less tax than that in
the new tax slabs, apart more, the sala- the new system. Of course, if you
from easing the tax ried can choose include other exemptions and
burden. She said, between the origi- deductions, such as house-rent
“Currently, the Income nal and the new allowance, you could be paying
Tax Act is riddled with tax structures even less tax. Even if you exclude
various exemptions and every year. But busi- the `50,000 NPS contribution in
deductions which make nesspersons don’t have the table, still you save more than
compliance by the taxpay- this flexibility. They have to that in the new system.
er and administration of follow the same taxation The second cost is that if you
the Income Tax Act by system in the future after follow the new tax slabs, you may
the tax authorities a they have chosen between compromise on savings. No matter
burdensome pro- the two options. if tax-planning is pesky for some
cess. It is almost of us, it forces us to save. If not

SPECIAL
REPORT
5L^]ZVSK!>OPJOPZTVYLILULMPJPHS& For the stock lovers

Those who want to invest in stocks
If basic exemptions and deductions are claimed (as stated in the footnote of this table), the existing
tax system beats the new one hands down. for their tax-saving requirements
have the following options: tax-sav-
TAXABLE INCOME TAX PAYABLE ing funds, National Pension
Income Deductions* Old regime New regime Old regime New regime Gain/Loss System (NPS) and unit-linked
7,50,000 2,75,000 4,75,000 7,50,000 0 39,000 -39,000 insurance policies (ULIPs). Even
10,00,000 2,75,000 7,25,000 10,00,000 59,800 78,000 -18,200 the Employees’ Provident Fund
invests part of its corpus in index
12,50,000 2,75,000 9,75,000 12,50,000 1,11,800 1,30,000 -18,200
ETFs. All these come under the
15,00,000 2,75,000 12,25,000 15,00,000 1,87,200 1,95,000 -7,800 Section 80C of the Income Tax Act.
17,50,000 2,75,000 14,75,000 17,50,000 2,65,200 2,73,000 -7,800 Let’s see them one by one.
20,00,000 2,75,000 17,25,000 20,00,000 3,43,200 3,51,000 -7,800 ULIPs provide you insurance
cover and invest your premiums
22,50,000 2,75,000 19,75,000 22,50,000 4,21,200 4,29,000 -7,800 in the stock market. This sounds
25,00,000 2,75,000 22,25,000 25,00,000 4,99,200 5,07,000 -7,800 like a great deal but it isn’t.
27,50,000 2,75,000 24,75,000 27,50,000 5,77,200 5,85,000 -7,800 Neither the insurance cover nor
the returns are optimal. The costs
30,00,000 2,75,000 27,25,000 30,00,000 6,55,200 6,63,000 -7,800
involved are high and there is
32,50,000 2,75,000 29,75,000 32,50,000 7,33,200 7,41,000 -7,800 often a lack of transparency. At
35,00,000 2,75,000 32,25,000 35,00,000 8,11,200 8,19,000 -7,800 Value Research, we advise inves-
37,50,000 2,75,000 34,75,000 37,50,000 8,89,200 8,97,000 -7,800 tors to keep their insurance and
investments separate. For life
40,00,000 2,75,000 37,25,000 40,00,000 9,67,200 9,75,000 -7,800 insurance, buy a good term plan.
42,50,000 2,75,000 39,75,000 42,50,000 10,45,200 10,53,000 -7,800 Next comes the NPS, which is a
45,00,000 2,75,000 42,25,000 45,00,000 11,23,200 11,31,000 -7,800 retirement-investment vehicle. It
provides auto and active options.
47,50,000 2,75,000 44,75,000 47,50,000 12,01,200 12,09,000 -7,800
The auto option has a pre-decided
50,00,000 2,75,000 47,25,000 50,00,000 12,79,200 12,87,000 -7,800 equity and fixed-income mix that
1,00,00,000 2,75,000 97,25,000 1,00,00,000 31,23,120 31,31,700 -8,580 keeps tapering with your age in
favour of fixed income. The active
2,00,00,000 2,75,000 1,97,25,000 2,00,00,000 68,53,080 68,62,050 -8,970
choice lets you decide your equi-
All numbers in `. *We have assumed the following deductions: standard deduction of `50,000; `1.5 lakh under Section
ty-debt mix subject to some age-re-
80C, `50,000 on investment in NPS under Section 80CCD(1B); `25,000 on payment of health insurance premium
under Secion 80D. lated upper limits.
The NPS is especially
forced to, many of us may not save Any further deductions from these useful to avail an addi-
enough. This can result in finan- equilibrium points will make the tional tax deduction
cial complications in the future, old system beneficial as your
including during retirement. For tax outgo would reduce. If
the young generation especially, your tax-admissible
the new tax slabs can result in expenses and
higher spending and less saving. investments (not
With rising consumerism, there just 80C and 80D
are many avenues to spend and ones but also your
with the new tax slabs, one major HRA, donations
saving avenue will be gone. under Section
Everyone will have their own 80G, etc.) are
set of deductions and exemptions. more than the
Hence, We have worked out equi- given equilibri-
librium points for various income um level, you
groups. These represent the can stay with the
amount of deduction that brings old tax structure.
the old and new tax structure at Otherwise, the new
par in terms of the tax payable. one’s for you.

SPECIAL
REPORT
;OLLX\PSPIYP\TWVPU[Z of `50,000 under Section

80CCD(1B). Its low-cost is another
If you claim the deductions mentioned across various incomes, your tax outgo in the old and new plus. However, since it’s a retire-
tax systems will be the same. To save tax in the old system, go beyond your equilibrium point. ment tool, the NPS locks in your
money until you turn 60, though
6.00 lakh 50,000
there are some avenues when you
6.50 lakh 75,000 can make partial withdrawals. On
maturity, you must use 40 per cent
7.00 lakh 1,00,000
of the proceeds to buy an annuity.
7.50 lakh 1,25,000 The rest 60 per cent can be with-
drawn as a lump sum. NPS pro-
8.00 lakh 1,37,500
ceeds are tax-free but annuity pay-
8.50 lakh 1,50,000 outs are taxable as per your slab.
Tax-saving funds are the most
9.00 lakh 1,62,500
efficient way to save tax and build
9.50 lakh 1,75,000 a long-term corpus. They invest
in equity and can invest in com-
10.00 lakh 1,87,500
panies of all sizes. They are
10.50 lakh 1,87,500 transparent, have the shortest
lock-in period of three years
11.00 lakh 1,87,500
among 80C investment options
11.50 lakh 1,87,500 and can be most rewarding if
held for the long run. The compe-
12.00 lakh 1,91,667
tition between the ELSS schemes
12.50 lakh 2,08,333 of various fund houses ensures
that the fund managers are on
13.00 lakh 2,16,667
their toes to deliver.
13.50 lakh 2,25,000 You can find an elaborate cover-
age of tax-saving funds on www.
14.00 lakh 2,33,333
valueresearchonline.com. If you
14.50 lakh 2,41,667 type the name of such a fund in
the search bar, you will get a page
15 to 50 lakh* 2,50,000
full of information about that
All numbers in `. Equilibrium points include the standard deduction of `50,000.
fund, including its rating, returns,
portfolio, expense and so on.
;VW[H_ZH]PUNM\UKZI``LHYYL[\YUZ The table lists top 10 tax-saving
funds over the last 10 years.
The recent market turmoil has resulted in artificially low returns for most equity funds.
Because of the recent fall in the
RETURNS (%) market, their returns may appear
Scheme name 10Y* 5Y* 10Y# 5Y# subdued but if you see their
Axis Long Term Equity Fund 13.67 4.20 17.06 9.70 returns until February 2020, they
are not just ahead of inflation but
Invesco India Tax Plan 10.26 2.99 13.70 8.10
also highly rewarding.
BNP Paribas Long Term Equity Fund 9.67 1.45 12.68 6.35 For Wealth Insight readers, who
Tata India Tax Savings Fund 9.56 3.30 12.97 8.69 are enterprising stock investors,
DSP Tax Saver Fund 9.31 3.36 12.98 8.71 tax-saving funds are the best
choice to save tax and build a cor-
Canara Robeco Equity Tax Saver Fund 9.19 3.33 12.51 7.75 pus for a long-term goal.
Aditya Birla Sun Life Tax Relief 96 8.72 2.69 11.82 7.51 Systematic investments in them
ICICI Prudential Long Term Equity Fund (Tax Saving) 8.57 1.20 11.66 5.34 throughout the year don’t just
help you efficiently save tax but
Franklin India Taxshield Fund 8.19 -1.00 11.87 4.80
also help you average your invest-
L&T Tax Advantage Fund 8.02 1.54 11.50 6.82 ment cost. WI
* As on April 15, 2020. # As on February 29, 2020.

SAILESH RAJ BHAN INTERVIEW
Deputy CIO – Equity Investments, Nippon India Mutual Fund
‘The outlook for the

healthcare sector is positive
over the next two-three years’
T
he recent market crash has hit almost all
sectors. But the healthcare sector didn’t suffer
much damage, with the BSE Healthcare Index
sporting a year-to-date return of over 12 per cent (as
on April 22, 2020). After underperforming the market
for a few years, the sector has come back on investors’
radar due to the outbreak of COVID-19.
We speak to Sailesh Raj Bhan, who manages Nippon
India Pharma Fund, regarding what’s changing in the
sector and whether it is poised to regain its lost
charisma. Please note that the graphs in this interview
are based on Nippon India Pharma Fund.
In the fall of March 2020, the pharma sector was least

affected. Why did it happen?
The pharma sector was resilient in the recent fall,
given that the sector is one of the least-impacted
sectors in the current environment. The earnings of
the sector have also been on the mend over the last 12
months, while valuations were inexpensive. The
profit share of the India business, which is more
lucrative, has also increased in the last five years for
most Indian companies. The outlook for healthcare as
a sector is positive over the next two-three years
0UJYLHZPUNKLJYLHZPUNJVU]PJ[PVU
Top companies in which his investments have gone up/down in
the last one year
(TV\U[`JY (TV\U[`JY
Aurobindo Pharma 45 Abbott India -120

Narayana
Hrudayalaya 36 Divis Laboratories -110
Syngene
International 32 Alkem
Laboratories -81
Thyrocare
Technologies 23 6DQRÀ,QGLD -60
Dr. Reddys
Laboratories 23
Mayy 2020
M
Ma 2020
20 2200 Wealth
Weaal
We alth
t IInsight
n iigght
ns ht 43
43
INTERVIEW
when compared to most sectors of the economy, Indian companies primarily are operating in three
which will undergo slowdown on account of the categories: (1) branded markets like India and emerging
economic impact of the lockdown. markets; (2) generic markets like the US and Europe;
and (3) hospitals and diagnostics businesses. MNCs in
Many global pharma giants are vying to develop the vaccine India operate in branded generic market, while Indian
for the coronavirus. Where do Indian companies stand? companies operate in large scale in both markets.
Where is the opportunity for investors? The branded markets are like consumer businesses
Global research to develop a vaccine is progressing with demand coming from rising per capita income,
very fast with a large amount of resources being leading to more awareness and diagnostics, new
deployed. India is significantly ahead in product introductions to meet disease needs and better
pharmaceutical manufacturing, but it lags in core compliance. India can be called the chronic disease
research and development efforts, given the large scale capital of the world. It has among the largest patient
funding of these programmes. Global players have a base in diabetes, cardiac, thyroid, etc. Rising new
clear edge in terms of vaccine development, while patient population creates an ever-increasing need for
India can scale its manufacturing processes to meet pharmaceuticals, thus fuelling demand. While India
global demand post the development of the vaccine. has a young demography, it also has one of the largest
senior population in the world, whose per capita
After being a laggard for the last three-four years, when do consumption of drugs rises disproportionately with
you see the sector coming in the forefront? What are the age. Companies in this category generate high returns
key opportunities and threats for the sector’s reemergence? on equity and strong cash flows, have all consumer-
The pharma sector’s revenues and profitability are business characteristics and are highly lucrative. Most
already on an uptrend in many sub-segments like emerging markets have similar characteristics and
domestic branded business and diagnostics. Post many economics as Indian markets.
measures to course-correct on the R&D and other As for the generics markets, India is the pharmacy
operating costs, improvement in the profitability of US to the world. Among the largest manufacturers of
generic business is also visible. The annual 8–10 per pharmaceuticals, India sells to over 150 countries with
cent price declines in US markets have now normalised a high market share in developed markets. No other
to a much more muted level of 3–4 per cent, which is industry from India has this type of scale and
manageable through productivity and cost changes. credibility in developed markets. India’s
Pharma as sector is firmly set on an earnings-growth manufacturing scale and regulatory capabilities have
trajectory even in these difficult circumstances. enabled this success. This is one of the markets where
India leads China by a huge margin in selling
Many investors have difficulty understanding the pharma formulations to the world. India manufactures nearly
sector, given the nature of business. Can you help our 40 per cent of all oral generics and nearly 20 per cent
readers understand the kinds of businesses Indian pharma of all injectable generics sold in the USA, which
companies operate in? Which are most lucrative? Which explains the degree of success India has achieved.
are laggards? Given that this market is highly competitive and
;VWOVSKPUNZ ;VWLX\P[`Z[HRLZ
Companies that form biggest part of the portfolio Companies in which he holds highest equity stakes
% of assets ` cr % of equity ` cr
Dr. Reddy’s Laboratories 11.0 242 Thyrocare Technologies 4.4 122
Sun Pharmaceutical 10.1 222 Indoco Remedies 2.6 47
Divi’s Laboratories 10.0 219 Narayana Hrudayalaya 1.2 68
Cipla 9.7 211 Fortis Healthcare 1.1 115
Aurobindo Pharma 8.5 186 Healthcare Global Ent 1.0 8
Abbott India 6.0 132 Syngene International 0.9 96
Thyrocare Technologies 5.6 122 Aurobindo Pharma 0.8 186
Fortis Healthcare 5.2 115 6DQRÀ 0.7 113
6DQRÀ 5.1 113 Cipla 0.6 211
Lupin 5.1 112 Dr. Reddys Laboratories 0.5 242

INTERVIEW
“Among the largest manufacturers of pharmaceuticals, India sells to over 150

countries with a high market share in developed markets. No other industry
from India has this type of scale and credibility in developed markets.”
consolidated, margin pressure has remained high in Over the last 15 years, Nippon Pharma Fund’s
the last three years. Indian companies have (erstwhile Reliance Pharma Fund) focus has always
reorganised costs and capital allocation to adjust to been on sustainable business models which have some
this level of profitability. India also has some of the right to win the marketplace. For example, in branded
best contract-manufacturing and services companies, markets, the focus is on sizing the market opportunity
with global cost competitiveness, serving the world’s and mapping the brand potential with emphasis on
largest pharmaceutical companies. chronic therapies. For US markets, it’s primarily the
Hospitals are significantly underpenetrated in India investment in pipeline ability to generate sustainable
on a per-bed basis. This segment suffers from high profits either through backward integration or scale.
upfront investment and continuous investment in the Indian pharma markets continue to have a high
upgrade of technology. On the other hand, diagnostics degree of under-penetration, attractively profitable
companies have a very high return on capital and are business models and decades of growth ahead, which
highly profitable. These markets are also make them very lucrative. International businesses
underpenetrated and have years of growth ahead. present a huge opportunity to scale but require much
disciplined capital allocation. Diagnostics are high ROE
Two-three years ago, Indian pharma companies had businesses with strong growth prospects, while hospi-
suffered due to USFDA observations. What is the situation tals are capital-intensive businesses, which require dis-
now? Have they come of age? ciplined capital allocation to generate returns.
Indian companies have scaled their businesses multi- Nippon Pharma Fund is roughly 85 per cent invested
fold in the last decade but faced some challenges in in the pharmaceutical sector with a near equal mix of
continuously upgrading all their processes to rising domestic and export businesses. The rest 15 per cent is
regulatory scrutiny. Huge investments in people invested in hospitals and diagnostics companies.
training, equipment and technology have allowed
many companies to meet the rising demands of global The Indian listed space has quite a few multinational pharma
regulatory agencies. While routine observations will names, such as Abbott, Pfizer, Sanofi, etc. Do these
be the norm, critical observations have started to come companies offer some special opportunity to investors?
down in the last couple of years, which reflects the Some of the largest global companies in pharma have
effort Indian companies have made in the recent years. their Indian businesses listed for investors to
capitalise upon. Most of these businesses have high
Healthcare is a varied lot. How do you pick stocks? Which profitability and strong long-term growth prospects
sub-segments look most promising from a growth due their dominant brands and marketing prowess and
perspective? the ability to launch new products.
5L^LU[YHU[Z What is the situation on the domestic front in terms of price

His new bets over the year regulation and the move towards generics in place of
% of assets
branded medicines? How will that impact the sector?
Pharma pricing has always been under regulatory
Apollo Hospitals 0.5
pressures, given the need to push accessibility and
Astrazeneca Pharma 0.1 reduce healthcare burden. The role of generics is
increasing in India, with the government’s effort in
*VTWSL[LL_P[Z this area. Given the current state of the market, both
Companies from which he has exited in the last one year branded as well as generic drugs have a long journey
Max % of assets over last 1 year of growth ahead and it is not likely to be an ‘either-
Max India 2.1 or’ market. Rising incomes and better compliance and
testing are expanding the market. Indian pharma
Torrent Pharmaceuticals 2.0 products are among the cheapest in the world
FDC 1.4 already. WI

EVERYDAY
ECONOMICS
The haircuts economy

India’s unorganised haircutting market highlights the problems of
reaching out to the vulnerable sections in times of distress
PUJA MEHRA
The growing video library of bad- cheerfulness, and when times are hard, hemlines fall,
hair accidents on the internet is a rare lighter side of in character with the uncertainty and dreariness. It’s
the awful coronavirus crisis. The lockdown to control the same with hair. Upkeep of short hair involves more
the spread of the virus has shut down the country. This frequent trips to the salon and requires more sprays
has spawned a do-it-yourself (DIY) economy. From and gels. It’s definitely more expensive than letting
cleaning to cooking and medication to AC servicing, your tresses down.
every activity has turned into a DIY project. Home- Fewer trips or more, everybody needs to see their
bound people with no skill or practice in cutting hair hairstylist sooner or later, which often makes the hair-
giving themselves a trim can have funny outcomes. styling business a recession-proof industry. When even
Men missing sizeable tufts or with just a tiny bit of hair recession-proof industries have to shut down, then
left on the crown and fashionable women with sloppy that’s a worrying indicator of how uniquely bleak the
bangs – it is all happening. economy is.
Although entertaining, these flicks are no laughing The hairstyling industry portrays India’s complex
matter for the economy. Each of the DIY haircuts rep- economic structure well. Barbers under trees and by
resents lost income for a hairstylist and that says a lot roadsides are part of the unorganised sector. Their
for the economy’s suffering due to the lockdown. The incomes are typically unstable and depend on the num-
hairstyling industry is normally recession-proof. ber of days they work. They do not have the benefits of
Even at the peak of the Great Recession in 2008, when paid leave, minimum legal wage, pensions, etc. Work
the US economy lost more than a million jobs, the US conditions are harsh – often made tougher by bullies
spas and salons industry beat the downturn and added and rent-seekers. The mom-and-pop salons are less vul-
75,000 jobs. nerable and also part of the unorganised sector, as they
Many market watchers watch the length of women’s are usually too small to have to register for income tax
hair closely for tell-tale signs of the economy’s health. or GST unlike the upmarket chains with thousands of
Japanese researchers studied years of employees and hundreds of stores and
data on women’s hairstyles in advanced
countries and came up with a bellweth-
Even at the peak of luxe haircare boutiques.
Every haircut adds to the economy’s
er for the economy’s health. They found
the Great gross value added (GVA), but should the
that when economies do well, women Recession in 2008, GVA of the roadside barbers and mom-
wear their hair long; and when there is when the US econ- and-pop salons be measured? Unlike the
a slump, they keep it short. Another omy lost more than organised-sector haircare stores, there
popular offbeat indicator is the hemline a million jobs, the are no financial statements to look at.
index that the US economist George
Taylor introduced in the 1920s.
US spas and salons And so, the statisticians use various
extrapolation and survey-based tech-
According to Taylor, when the economy
industry beat the niques. There’s no knowing how accu-
is good, women’s skirts get shorter, downturn and rate these might be. Just like they pose
reflecting all-round optimism and added 75,000 jobs challenges for GVA estimation, the com-

EVERYDAY
ECONOMICS
plexities make policy-making quite difficult. ber of barbers and mom-and-pop stores can start oper-
The haircare sector illustrates the pressing question: ations with small sums of money, which keeps a check
how can the government, should it decide to, deliver on inflation in prices of hair trims. But rarely can they
relief in times of distress? Once the lockdown gets over, grow and size and improve their own quality of life.
a cut in corporate tax or GST on hair colour and gels, Irregular and low incomes from these odd jobs can buy
etc., subsidies for the wage bill could be announced. food and basic necessities to keep off starvation but
But only the organised industry will be able to take quality education and vocational training for children.
advantage of it. How should the government reach the These are normally not sustainable livelihoods or scal-
barbers and mom-and-pop stores? The tax channel of able businesses. The microeconomics of a barber shop
delivering relief is ruled out. The individuals are are such. One chair allows for a fixed number of cli-
unlikely to have pensions, scholarships, NREGA or ents. Client volume can fluctuate on a day-to-day basis,
PM-KISAN accounts into which cash could be trans- but there is a ceiling on the maximum number of cli-
ferred. The government has very few delivery channels ents and, therefore, income a chair can yield. This is
through which relief can be reached to this segment why successive generations fail to break out of the trap
other than PDS food through ration cards. MUDRA of low-income, low-security informal labour.
loans are another option but sanction and transmission People that are not poor often don’t understand these
cannot be carried out urgently. The mom-and-pop constraints. “Why can’t poor people work hard to break
stores can be given one-time relief on water or electric- out of poverty,” is a common refrain. A miniscule num-
ity user charges. ber of gifted people study under streetlamps and crack
Like barbers and the mom-and-pop stores, there are open opportunities. But the masses remain poor gener-
scores of informal labourers across industries suffer- ation after generation because they cannot set up scal-
ing due to the coronavirus crisis and lockdowns. But able businesses or acquire skills that labour markets
they do not have recourse to relief from the govern- value highly. One way to disrupt these socio-economic
ment because of the nature of their work. A universal rigidities is to have a robust public-education and voca-
social-security system in which government could tional-training system that will allow the children of
transfer income support could have helped them. the non-rich to get into the fast lane. WI
Is the differentiated nature of the haircare industry
Puja Mehra is a Delhi-based journalist and the author of
a good thing, though? It is good for consumers since The Lost Decade 2008–18: How the India Growth Story Devolved into
they have a variety of options to pick from. Any num- Growth Without a Story

MAIN STREET
Knowing the unknowable

Our understanding of the present tends to be incomplete and the future is
even more difficult to predict. Narrative reasoning can help.
SAURABH MUKHERJEA
As the coronavirus crisis raged, needs. Let’s illustrate by using our dietary and exercise
hundreds of investors reached out to my colleagues at habits as an example.
Marcellus seeking assurance that all is not lost for the Nobody needs to be given an FY21 GDP growth esti-
Indian market. As the panic in the market intensified mate for India or a forecast of how many people will
through March, we realised that at the core of all of contract the coronavirus globally to know what we
these investors’ queries is the same underlying have to eat in FY21. We know that regardless of how the
question: ‘What will happen in the financial year that economy or COVID-19 pans out, we need to get our
lies ahead of us?’ basics right, i.e., eat healthy foods like fruits and vege-
By and large, our response is that neither we nor tables, avoid sugary and fatty foods, and get regular
anybody else knows what the future will bring. But exercise so that we can build a robust physique. All of
through the year, especially during the corona crisis, this sounds like commonsensical stuff.
we realised that not many clients like this answer. That However, unfortunately, things rarely stay as simple
led us to ask ourselves why it is that intelligent people as that. As we become more prosperous as a society,
want us to become latter day descendants of more propaganda is pumped into our heads as to what
Nostradamus. constitutes a good diet (is it keto, Atkins, intermittent
At one level, it is easy to see and say that man has fasting, Dubrow, endomorph?). Rationality is thus sus-
always wanted to know the future. That is why the pended as we hire dieticians who tell us what to eat
pseudoscience of astrology is the second-oldest profes- knowing full well that they have to come up with some-
sion on this planet. Great kings and ordinary mortals thing different in order to build a following/client base.
have for many millennia needed the services of a local The more prosperous we become, the more dieticians
soothsayer. However, that did not make such people any the free market supplies to us. Soon elementary eating
less able than they naturally were. For example, Julius decisions are no longer elementary (is more ghee/clar-
Caesar’s glory as a great Roman ruler was not dimmed ified butter good for me or bad for me?). Conversely,
by his use of the druids for astrological forecasts. decisions that seemed crazy once are made to come
So, why then today are we rendered vulnerable by across as the way to go (for example, should I fast every
our grasping need to know the future? The answer, we day for the entire length of my working day and then
believe, lies in the way the free market abuses our basic stuff myself twice a day?).
Thus, something which was a basic skill – how to eat
a relatively healthy diet – has become an industry char-
acterised by moral hazard, i.e., most of these dieticians
(SS[OH[^LJHURUV^PZ[OH[^LRUV^ have a conflict of interest with us. They are interested
UV[OPUN(UK[OH[PZ[OLZ\T[V[HSVM in building their differentiated brand and hence their
O\THU^PZKVT franchise. On the other hand, you and I are interested
in a healthy and easy-to-follow diet, which our grand-
– Leo Tolstoy, War and Peace (1867) mothers could have taught us.

MAIN STREET
Investment implications
As in dieting, so in the world of investing. As the Indian
rich leave behind the wreckage of their residential
real-estate investments, the financial-services sector is
throwing at them an array of fund managers. As a
result, high-risk portfolio constructs are presented to
affluent Indians as being conservative/safe investments.
For example, a very popular product in India is a ‘bal-
anced’ portfolio of stocks and bonds, which promises to
give you a 1 per cent dividend every month and therefore
a 12 per cent dividend per annum (in a country where a
decent corporate bond has a 9 per cent yield and a
high-dividend-yielding stock has a 5 per cent yield).
In contrast, straightforward portfolio constructs –
like investing in a dozen or so clean companies selling
essential products/services with little or no competition
– are, as we discover every day at Marcellus, sometimes
considered to be debatable investments. After all, as the
critique of our Consistent Compounders Portfolio goes,
who knows what will happen to Nestle or Divi’s Labs or
0HTUV[PU[OLI\ZPULZZVMWYLKPJ[PUN
Abbott India or Dr Lal Pathlabs in FY21? Maybe people
will stop using these products/services due to COVID
NLULYHSZ[VJRTHYRL[VYI\ZPULZZMS\J
and run away into the forest, never to be seen thereafter. [\H[PVUZ0M`V\[OPUR0JHUKV[OPZVY[OPURP[
So, in these uncertain times, how we can we maintain PZLZZLU[PHS[VHUPU]LZ[TLU[HWYVNYHT`V\
our rationality? Several answers to this question lie in a ZOV\SKUV[ILPU[OLWHY[ULYZOPW
new book from our guru John Kay and his distinguished Warren Buffett’s Partnership Letter (1966, source: https://bit.ly/3b3rHRT)
friend and co-author Mervyn King. In Radical
Uncertainty: Decision Making Beyond the Numbers
(2020), the authors take the reader on a riveting tour of
contemporary areas of decision analysis, behavioural pound and a messed-up operation might have meant war
economics, finance, and policy studies to show what is with Pakistan. Before he greenlighted the operation,
wrong with the conventional reasoning in the world of Obama used not only the assessment given to him by his
business and policymaking. What is their panacea to the generals but also his basic assessment of the downside
pseudoscience of quantitative analysis and manage- risk (which wasn’t very high compared to the upside of
ment jargon that pervades many investment banks, getting bin Laden).
asset-management houses and boardrooms? With the far more modest resources available to us,
This ‘radical uncertainty’ of the title of the book we have and will continue to do something similar in
refers to: (a) the fact that our understanding of the pres- India. In both Consistent Compounders and Little
ent is incomplete; and (b) our understanding of the Champs, we will invest in Indian companies that: (a) do
future is even more fragmentary. As a result, say the not cook their books; (b) provide essential products/
authors, we must understand ourselves and explain the services; and (c) build impregnable barriers to entry.
world to others by way of “narrative reasoning…the Such a style of investing limits downside risk – we have
most powerful mechanism for organizing our imperfect fallen half as much as the market over the past three
knowledge,” creating stories about the world that assim- months – whilst creating abundant upside opportunity.
ilate our experiences, the experiences of others, and We will then continue to use narrative reasoning to
whatever reliable data we are able to collate in a “world explain this portfolio construct to our audience.
of uncertain futures and unpredictable consequences.” Disclosure: Nestle, Divi’s Labs, Abbott India and Dr
An example that John and Mervyn use several times Lal Pathlabs are part of most of Marcellus Investment
in the book is the probabilistic assessment Barack Managers’ portfolios. WI
Obama received when determining whether to launch
Saurabh Mukherjea is the author of The Unusual Billionaires and
the raid that killed Osama bin Laden. It wasn’t 100 per Coffee Can Investing. He’s the founder of Marcellus Investment
cent clear that bin Laden was in that Pakistani com- Managers, a SEBI regulated provider of portfolio-management services.

STRAIGHT TALK
Marvels of gene and genomics

Genetic engineering can help fight deadly diseases but its wider
applications pose many questions
ANAND TANDON
“Biology will be the next great among the more accurate thus far is ‘CRISPR’. This
computing platform, DNA will be the code that runs it, opens up wide-ranging and fascinating options of what
and CRISPR will be the programming language.” This is can be achieved by changing DNA – human beings are
a quote from Hacking Darwin: Genetic Engineering and already playing ‘God’.
the Future of Humanity, a fascinating book on possible
future developments in genomics written by Jamie From eliminating disease to ‘improvements’
Metzl, investor, writer and futurist. Initial use of genetic editing was to eliminate single
In the context of COVID-19, where scientific man- gene diseases like Huntington’s disease and Marfan
power across the globe is focused on developing a cure syndrome. Most people will likely agree that if you
for the virus, developments in biology and, in particu- could identify and correct the genes of a cell that other-
lar, genetic engineering offer exciting opportunities wise has a high probability of causing a painful
and threats. life-threatening disease, it would be perfectly accept-
able to do so. In fact, in his book, Metzl argues that to
Understanding the DNA not do so would soon put you into the category of the
Human understanding of genetics took a major leap luddite who doesn’t inoculate his children with, say,
forward when in 1953, Watson and Crick determined measles vaccine – putting the child and society at risk
the double-helix structure of the human DNA. Only a of an avoidable disease. Would you draw a line at mak-
decade had passed since the role of DNA in determining genetic ‘improvements’ though? Is an edit that is
ing genetic inheritance had been estab- likely to help increase longevity by a few
lished. The next big step forward was years an acceptable improvement?
when the human genome project was set
Recent Clearly ‘grey’ dominates these issues.
up to map and sequence all the genes of developments have Metzl explains how it is now possible to
our species. The project that started in enabled humans to create over 10,000 fertilised eggs for a
1990 was finally completed in 2003 now ‘write’ the human couple (something not possible
(https://www.genome.gov/human-ge- naturally), and map each egg’s propensity
nome-project).
language in the for developing certain characteristics –
If you think of the genetic code as a form of ‘edits’ to largely genetic ones like skin colour or
language in which nature expresses itself, the DNA. One such height or even combination features (in
decoding the genome was the equivalent technology, among combination with environment) like pro-
of learning to read the language. Recent pensity for sports or social likeability.
developments have enabled humans to
the more accurate Parents could then choose to take one or
now ‘write’ the language in the form of thus far is more to term – essentially helping their
‘edits’ to the DNA. One such technology, ‘CRISPR’. progeny along in their life. Would we be

STRAIGHT TALK
comfortable in making these ‘improve- In a few years, it is ‘Cultured meat’ has been discussed for
ments’? What is the ethical dilemma of several years now. Technologically feasi-
choosing a child based on ‘design’ parame-
expected that a ble, the issues that hold back its commer-
ters? It’s important to remember that the high-school kid with cial production revolve around regulatory
child is in no way less ‘natural’ than one some understand- views, market acceptability and, most
birthed from a normally fertilised egg. ing of programming importantly, commercial viability.
Assume that a society does not use this
new technology to make these changes.
will be able to use However, it’s likely a matter of time before
companies come up with meat that is
Would it not be at a significant disadvan- the latest version of indistinguishable from the one got from
tage against another society that does? A a CRISPR-like tech- slaughtering animals. GM or ‘genetically
15 per cent improvement over a genera- nology to make a modified’ food and seeds have been around
tion could compound over a few genera-
tions to create a difference between a
virus within a week for years. These changes are now not far
away – indeed, they are upon us.
superhuman and a ‘normal’ individual.
The technology described above would also allow this And the risks
inter-generational improvement to be compressed As tools to manipulate and edit the genome become
within a single birth period. better and more ubiquitous, that also brings with it
risks. In a few years, it is expected that a high-school
Genetic engineering in manufacturing kid with some understanding of programming will be
Modifying DNA has other far-reaching applications able to use the latest version of a CRISPR-like technol-
too. Catalog (https://www.catalogdna.com/) is a com- ogy to make a virus within a week. With 3D printing
pany engaged in using DNA to store data – with a claim facilities already widely available, it will be possible to
that it can store a million times more data in a DNA per make and release a COVID-like virus into the world.
cubic metre than current storage technologies allow. Weaponisation of these technologies by governments is
Manufacturing based on genetics can ‘reprogram’ a an ever-present threat.
microbe to convert sugars into the desired output via A clear implication of all this is disruptions of busi-
fermentation. Alcohol that is produced by this process nesses and the process will come through at a faster
is one such ‘naturally’ manufactured product. However, rate than we have ever imagined. Investing in such a
there is no reason why other products could also not be world will require both imagination and speed. Will
produced in similar manner. Zymergen (https://www. valuations permanently compress to compensate for
zymergen.com/) claims to have developed a bio-based the higher uncertainty (risk)? Only time will tell.
polymide film that can be used in electronics. Be pre- Interested readers can watch a short TedX talk of
pared to have your phone (and maybe your computer) Metzl’s thesis here: https://bit.ly/2VAtKGK WI
come as a foldable film! Anand Tandon is an independent analyst.

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STOCK
SCREEN
Ideas to delve deeper

S
ound investment methods outlast cycles and However, please note that they are not our recommen-
fads and generate profits over the long run. dations.
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 `500 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
REASONS TO INVEST THE FILTERS cleared the filters
All-weather style Market cap greater than

At least 20% in the trailing 12
779
Companies with strong `500 cr months YoY
fundamentals Earnings growth of:

At least 20% in latest quarter
YoY 61
Greater stability vis-a-vis
At least 20% in the past five Stocks with a P/E of less
value or growth years 26
than 15
On fast track
Company Stock 5Y median Quarterly EPS TTM EPS 5Y EPS Market cap Share 52-week
Industry style P/E P/E PEG growth (%) growth (%) growth (%) (` cr) price (`) high/low (`)
Advanced Enzyme Tech

Food Processing 12.4 19.7 0.99 37 23 41 1,620 145 225-98
APL Apollo Tubes

Steel Tubes & Pipes 11.9 21.3 0.41 451 83 27 2,888 1,161 2219-1030
Bannari Amman Sugars

Sugar 12.9 21.1 0.35 79 49 35 1,117 900 1600-639
Bombay Burmah Trading

Tea & Coffee 5.6 9.8 0.27 3,233 220 34 6,080 871 1388-535
Caplin Point Laboratories 11.0 30.6 0.24 28 33 47 2,369 314 467-176

Drugs & Pharma
Dredging Corporation 5.0 19.9 0.13 220 345 38 609 217 444-121
Transport Support Services
E.I.D. Parry 5.6 20.6 0.25 86 6,834 26 2,602 147 245-102

Sugar
Fertilisers & Chem Trav 3.1 15.4 0.09 2,075 226 21 2,689 41 55-21
Other Fertilisers
Hindustan Oil Exploration Co 2.9 43.8 0.11 41 318 27 508 38 136-31

Crude Oil & Natural Gas
Huhtamaki PPL 9.4 36.0 0.44 280 387 21 1,596 211 305-162
Paper prod.
Ion Exchange 9.5 26.5 0.14 216 62 70 961 656 1071-360

Industrial Machinery
Kama Holdings 5.2 6.9 0.17 106 38 23 2,693 4,173 6390-3100

Synthetic Yarn

STOCK
SCREEN
Company Stock 5Y median Quarterly EPS TTM EPS 5Y EPS Market cap Share 52-week
Industry style P/E P/E PEG growth (%) growth (%) growth (%) (` cr) price (`) high/low (`)
Kei Industries
Wires & cables 10.2 20.9 0.24 49 25 71 2,573 288 615-208
Kingfa Science & Tech

Plastic Resins 13.7 57.0 0.29 43 153 37 500 415 770-302
Manappuram Finance
Hire Purchase 6.5 11.4 0.20 62 57 33 8,625 102 195-74
Motilal Oswal Fin Services

Misc. Fin.services 12.6 29.0 0.33 312 257 37 7,369 497 905-426
PNC Infratech 5.0 15.3 0.18 491 45 38 3,168 123 219-80

Road Transport
Raymond 5.0 32.2 0.45 393 110 26 1,656 249 869-210

Cloth
Satia Industries 7.2 7.4 0.20 48 31 43 752 75 810-50

Paper
Supreme Petrochem 11.9 20.8 0.28 112 130 42 1,410 146 231-113
Torrent Power 9.7 13.1 0.30 77 35 32 14,262 297 333-231

Electricity Distribn.
Transpek Industry 9.8 13.3 0.18 107 149 56 769 1,377 2032-1077
Inorganic Chem.
Voltamp Transformers 8.2 15.6 0.24 58 51 34 901 891 1483-739

Transformers
Welspun Corp 5.0 21.8 0.16 655 169 50 1,725 65 234-60

Steel Tubes & Pipes
Data as on April 22, 2020. EPS growth rates are annualised. Median P/E is for less than five years if five-year data are not available. New entrants.
For the list of

‘quality stocks available cheap’, visit
www.valueresearchonline.com/stocks/
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
cleared the filters
REASONS TO INVEST THE FILTERS
Cushion against volatility Market cap greater than Stocks with a current dividend 779
Higher total return `500 cr yield of more than 3%
650
Generate regular tax-free Dividend payout ratio of less Stocks with sustained per
income than 40% share dividend and amount 86
over the past five years
62
Dear dividend
Company Stock Dividend Dividend Dividend Earnings Market cap Share 52-week
Industry style P/E PEG per share (`) yield (%) pay-out ratio (%) yield (%) (` cr) price (`) high/low (`)
Allcargo Logistics
7.0 1.45 3.5 4.9 35.5 15.8 1,763 72 123-49
Andhra Sugars
Diversified
3.4 0.16 10.0 4.8 14.2 38.5 569 209 417-117
Apollo Tyres
Tyres & Tubes
11.2 -0.88 3.3 3.4 27.3 9.3 5,400 94 217-73
Automotive Axles
Auto Ancillaries
11.4 0.44 19.5 4.0 24.8 13.8 743 490 1235-336
Birlasoft
Computer Software
8.1 -3.60 2.0 3.1 18.9 24.2 1,789 65 106-47
Cochin Shipyard
Shipping
5.7 0.27 13.0 5.1 35.8 97.9 3,344 254 492-209
Cyient
Computer Software
5.0 0.58 15.0 7.0 34.6 36.9 2,364 215 637-210
DCM Shriram
Diversified
5.2 0.27 9.8 3.6 16.9 21.7 4,224 271 639-173
Deepak Fertilisers
Inorganic Chem.
11.2 -0.55 3.0 3.5 37.4 9.7 778 88 160-57
Edelweiss Fin Services

Invest.Services
7.9 0.68 1.4 3.8 12.5 16.7 3,431 37 211-30
Excel Industries
Pesticides
6.4 0.12 18.8 3.3 15.4 23.0 725 575 1159-376
The Federal Bank

Banking
5.2 0.38 1.4 3.2 21.3 113.0 8,788 44 110-36

STOCK
SCREEN
Gateway Distriparks
2.5 0.16 4.5 5.0 13.4 10.4 983 90 154-71
GHCL
Soda Ash
2.3 0.09 5.0 4.8 14.0 31.6 988 104 277-69
Graphite India
Welding machinery
7.3 0.08 55.0 24.1 31.6 40.2 4,455 228 459-103
Gujarat Industries Power Co

Electricity Generation
2.5 0.19 2.9 5.0 17.2 40.7 878 58 87-44
Gujarat Mineral Dev Corp

Coal & Lignite
4.4 -0.34 2.0 5.0 28.9 31.2 1,269 40 84-29
Gujarat State Fertilizers

Nitrogenous Fertilizer.
11.8 1.56 2.2 5.1 17.8 10.5 1,719 44 111-30
HIL
Cement & Asbestos prod.
5.1 0.14 25.0 3.4 18.4 15.8 553 738 2030-518
Himatsingka Seide
Silk Textiles
4.4 0.38 5.0 8.6 25.0 14.4 572 58 228-43
Hindustan Aeronautics
Air Transport
6.4 0.43 19.8 3.7 29.2 18.8 18,092 541 896-470
Housing & Urban Dev Corp

Housing Finance
2.9 0.17 0.8 3.8 14.0 10.5 4,404 22 47-18
IIFL Finance
Invest.Services
3.4 0.27 5.0 6.4 23.1 14.1 2,510 79 456-67
IRB Infrastructure Dev

Construction
3.5 0.41 2.5 3.3 10.3 15.7 2,699 77 139-46
Jagran Prakashan
Books & Newspapers
3.9 0.48 3.5 7.8 37.8 31.2 1,268 45 124-32
Jamna Auto Industries

Auto Ancillaries
14.9 0.46 1.0 3.6 27.5 12.1 1,048 26 62-21
Jindal Saw
Steel Tubes & Pipes
3.1 0.05 2.0 3.9 7.5 12.5 1,650 52 103-40
JK Paper
Paper
3.3 0.07 3.5 3.8 14.6 34.3 1,642 92 154-62
Kalyani Steels
Finished Steel
4.0 0.22 5.0 3.6 16.6 49.0 612 140 269-92
Kirloskar Industries
Industrial Machinery
6.7 0.60 21.0 4.0 24.3 -54.4 506 511 922-398

STOCK
SCREEN
Kirloskar Oil Engines

Auto Ancillaries
7.4 1.56 5.0 4.5 33.0 37.2 1,598 111 205-76
Lumax Industries
Auto Ancillaries
14.2 1.36 35.0 3.3 31.5 8.9 990 1,059 1848-678
Magma Fincorp
Equipt.Leasing
3.6 -0.91 0.8 4.0 7.1 12.4 534 20 138-16
Maharashtra Seamless
Steel Tubes & Pipes
5.0 0.38 6.0 3.1 17.2 29.3 1,279 191 485-185
Mahindra Lifespace Dev

Real Estate
16.1 -0.39 6.0 3.1 25.7 3.7 995 194 455-182
M&M Financial Services

Misc. Fin.services
6.1 0.56 6.5 4.3 21.9 12.3 9,316 151 442-128
Mastek
Computer Software
5.4 0.15 8.5 3.7 20.1 33.5 554 229 509-166
National Peroxide
Inorganic Chem.
33.2 1.07 65.0 3.5 24.3 4.5 1,075 1,871 2949-821
Nava Bharat Ventures

Diversified
2.4 0.22 1.5 3.9 7.5 22.1 677 39 115-32
NCC
Construction
3.6 0.03 1.5 5.6 15.6 31.4 1,628 27 119-16
NOCIL
Thermoplastics
9.1 0.18 2.5 3.1 22.4 15.2 1,322 80 142-45
NRB Bearings
Ball Bearings
19.1 0.72 2.6 3.6 23.3 7.3 693 71 198-48
Nucleus Software Exports

Computer Software
8.2 1.87 9.0 4.1 35.1 27.4 638 219 399-156
Phillips Carbon Black

Carbon Black
5.0 0.11 3.5 4.3 15.7 20.8 1,414 82 167-54
Piramal Enterprises
Drugs & Pharma
8.7 -1.62 28.0 3.3 35.1 11.6 18,949 840 2586-607
PNB Housing Finance

Housing Finance
2.8 0.14 9.0 4.3 12.6 11.5 3,490 208 886-146
PTC India
Electricity Distribn.
3.1 1.85 4.0 9.8 27.8 12.8 1,208 41 74-32
Rane Holdings
Auto Ancillaries
22.0 -0.12 19.0 5.0 26.2 10.1 539 387 1603-280

STOCK
SCREEN
Seshasayee Paper
Paper
4.1 - 4.0 3.1 13.1 46.3 822 131 226-80
Shriram City Union Finance

Equipt.Leasing
4.3 0.32 22.0 3.0 14.5 16.5 4,838 729 1845-693
Siyaram Silk Mills

Cloth
11.0 1.53 4.4 3.3 20.8 10.9 617 131 424-109
Sobha
Real Estate
6.2 0.94 7.0 3.1 22.4 22.5 2,120 223 588-121
Srikalahasthi Pipes
Pig Iron
3.6 0.18 6.0 4.5 23.8 47.3 629 135 236-96
Sterlite Technologies
Communication Equipt.
7.1 0.09 3.5 3.8 25.0 17.3 3,702 92 217-59
Sun TV Network
Media & Entertainment
10.3 0.75 12.5 3.3 34.4 16.1 14,804 376 610-260
Tata Power Company

13.4 -3.14 1.3 4.0 16.0 10.0 8,791 32 74-30
Tata Steel Long Products

Sponge Iron
– – 12.5 4.8 15.5 -23.3 1,006 221 769-164
Tata Steel
Finished Steel
6.0 0.51 13.0 4.8 14.6 10.4 32,337 268 562-251
Welspun Enterprises
Construction
8.8 0.09 2.0 3.8 23.4 35.7 788 53 143-33
West Coast Paper Mills

Paper
2.8 – 5.0 3.6 11.2 43.0 913 139 297-100
Zensar Technologies
Computer Hardware
7.3 2.76 2.8 3.1 20.1 23.0 2,028 89 271-64
Data as on April 22, 2020. EPS growth rates are annualised. New entrants.
For Indian stocks selected as per

investment gurus’ criteria, visit
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
237
Large companies in respective businesses Debt-equity ratio of less than two
199
Strong balance sheets Interest coverage ratio should be more than two
Liked by institutions Five-year average ROE of more than 20% 156
Annualised earnings growth of more than 20% over 74
the past five years
PEG of less than 1.5 17
Five-year average return on equity above 20% 9
5
Solid foundation
Company Stock Debt-equity Interest 5Y avg 5Y EPS Market cap Share 52-week
Industry style P/E PEG ratio coverage ratio RoE (%) growth (%) (` cr) price (`) high/low (`)
Aarti Industries
Organic Chemicals
29.4 1.08 0.9 4.4 24 25 15,874 911 1071-668
Godrej Consumer Products

Cosmetics & Toiletries
24.7 1.35 0.5 9.8 27 20 54,341 531 772-425
Hindustan Petroleum
12.0 0.30 0.9 12.6 23 44 32,412 213 334-150
Procter & Gamble Health

Drugs & Pharma
43.0 1.45 0.0 0.0 23 30 6,830 4,126 5121-2891
Vinati Organics
Organic Chemicals
26.4 1.04 0.0 196.2 26 25 9,005 877 1256-651
Data as on April 22, 2020. EPS growth rates are annualised.
To select stocks by sectors, industries

and indices, visit
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
cleared the filters
REASONS TO INVEST THE FILTERS
779
Really cheap Market cap greater than Companies must have a five-year
Relatively undervalued `500 cr earnings growth of more than 641
Companies with assets Debt-equity ratio of less than 1.5 10%
Price at least 10 per cent below 468
times
Return on net worth of more than the book value
294
10% in the most recent year
55
Bargain hunt
Company Stock 5Y EPS Dividend Debt-equity Market cap Share 52-week
Industry style P/E P/B growth (%) yield (%) ratio RoE (%) (` cr) price (`) high/low (`)
Andhra Paper
Paper
4.0 0.8 123 0.0 0.0 30.1 727 182 464-112
Andhra Sugars
Diversified
3.4 0.5 30 4.8 0.3 15.9 569 209 417-117
Balrampur Chini Mills

Sugar
3.9 1.0 136 2.5 0.8 30.5 2,221 101 195-69
Bodal Chemicals
Organic Chemicals
6.7 0.7 33 1.5 0.2 18.7 634 52 129-34
Capacite Infraprojects
Real Estate
5.3 0.6 10 1.1 0.3 12.2 594 88 295-70
Century Textiles & Ind

Diversified
5.2 0.9 191 2.6 0.9 22.1 3,181 285 1067-219
Cochin Shipyard
Shipping
5.7 0.9 16 5.1 0.0 14.5 3,344 254 492-209
Cyient
Computer Software
5.0 0.9 13 7.0 0.1 19.3 2,364 215 637-210
Dalmia Bharat Sugar & Ind

Sugar
2.9 0.3 125 2.6 0.7 11.5 505 62 135-40
DCB Bank
Banking
7.5 0.9 13 1.1 0.9 12.0 2,735 88 245-74
Delta Corp
Media & Entertainment
8.9 0.9 61 1.8 0.0 10.9 1,907 70 250-54

STOCK
SCREEN
Dhampur Sugar Mills

Sugar
3.1 0.5 48 6.4 1.5 22.5 678 102 246-66
Excel Industries
Pesticides
6.4 1.0 49 3.3 0.0 24.9 725 575 1159-376
Future Supply Chain Sol

- 0.7 72 1.0 0.4 12.5 552 126 711-81
Gallantt Ispat
Finished Steel
10.9 0.7 55 0.3 0.3 15.2 558 20 44-16
Gateway Distriparks
2.5 0.7 17 5.0 0.6 25.8 983 90 154-71
GHCL
Soda Ash
2.3 0.5 27 4.8 0.7 19.8 988 104 277-69
Graphite India
Welding machinery
7.3 1.0 92 24.1 0.1 84.1 4,455 228 459-103
Gujarat Alkalies & Chem

Caustic Soda
4.9 0.5 30 2.4 0.1 17.0 2,408 328 596-180
Gujarat Industries Power

2.5 0.3 13 5.0 0.2 10.3 878 58 87-44
Gujarat Narmada Valley

Nitrogenous Fertilizer.
5.9 0.4 20 5.1 0.0 15.5 2,135 137 326-96
HEG
Welding machinery
3.8 0.9 108 8.8 0.2 107.0 3,498 907 2020-410
HIL
Cement & Asbestos prod.
5.1 0.8 70 3.4 1.1 16.9 553 738 2030-518
Hindustan Oil Exploration

2.9 0.8 27 0.0 0.0 33.6 508 38 136-31
Indiabulls Real Estate

Real Estate
7.9 0.7 10 0.0 1.4 17.0 2,676 59 151-37
India Glycols
Organic Chemicals
7.1 0.8 23 2.1 1.0 14.8 872 282 397-175
Indian Oil Corporation

6.1 0.7 21 11.1 0.9 14.0 78,232 83 171-74
Jindal Saw
Steel Tubes & Pipes
3.1 0.2 60 3.9 0.9 13.0 1,650 52 103-40
Jindal Stainless (Hisar)

Stainless Steel
2.8 0.5 55 0.0 1.3 20.7 1,057 45 95-30

STOCK
SCREEN
JK Paper
Paper
3.3 0.7 45 3.8 0.8 23.1 1,642 92 154-62
J Kumar Infraproject
Construction
3.0 0.4 11 2.7 0.4 11.1 633 84 182-65
Kalyani Steels
Finished Steel
4.0 0.6 18 3.6 0.0 15.7 612 140 269-92
KCP
Cement
14.3 0.7 20 2.3 0.7 13.9 559 44 97-35
Kiri Industries
Dyes & Pigments
4.1 0.6 59 0.7 0.1 10.8 973 290 611-190
LT Foods 4.7 0.5 12 0.7 1.3 11.0 713 22 37-13

Other Agri.prod.
Maithan Alloys 4.8 0.9 86 1.6 0.0 25.8 1,087 373 699-289
Ferro Alloys
Mastek 5.4 0.7 13 3.7 0.1 16.4 554 229 509-166

Computer Software
National Aluminium Co 23.3 0.6 30 17.1 0.0 16.5 6,278 34 55-24

Aluminium
NCC 3.6 0.3 128 5.6 0.6 13.3 1,628 27 119-16

Construction
NHPC 6.9 0.8 19 6.9 0.8 12.1 21,245 21 29-15

Parag Milk Foods 6.7 0.8 36 1.1 0.3 15.7 765 91 276-49
Dairy products
Phillips Carbon Black 5.0 0.8 45 4.3 0.5 25.3 1,414 82 167-54
Carbon Black
Polyplex Corporation 3.5 0.4 88 12.7 0.3 21.9 1,281 401 657-288
Plastic Films
Rail Vikas Nigam 5.2 0.7 31 5.1 0.7 14.6 3,649 18 30-10
Construction
Ramkrishna Forgings 15.5 0.7 63 0.8 1.1 14.8 633 194 524-133
Auto Ancillaries
Siyaram Silk Mills 11.0 0.8 10 3.3 0.6 13.8 617 131 424-109
Cloth
Take Solutions 5.3 0.6 21 1.6 0.3 12.6 924 63 160-36

Misc.Other Services

STOCK
SCREEN
Tata Chemicals
Soda Ash
5.1 0.5 33 5.0 0.5 11.0 6,365 250 780-197
Tata Steel
Finished Steel
6.0 0.5 12 4.8 1.5 14.2 32,337 268 562-251
Technocraft Industries
Steel Tubes & Pipes
5.3 0.6 11 0.0 0.8 15.5 540 218 530-144
Time Technoplast
Other Forms-Primary Plastic
3.9 0.5 15 2.5 0.5 13.3 803 35 104-22
Triveni Engineering & Ind

Diversified
3.4 0.8 34 1.9 1.5 18.8 934 38 88-29
Varroc Engineering
Auto Ancillaries
6.7 0.6 52 2.8 0.8 14.1 1,930 143 580-120
Welspun Enterprises
Construction
8.8 0.5 39 3.8 0.4 10.2 788 53 143-33
West Coast Paper Mills

Paper
2.8 0.7 114 3.6 0.3 30.6 913 139 297-100
Data as on April 22, 2020. EPS growth rates are annualised. New entrants.
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WORDS WORTH
NOW
Nobody in America’s ever seen anything else like this.

This thing is different. Everybody talks as if they know
what’s going to happen, and nobody knows what’s going
to happen… Of course we’re having a recession. The only
question is how big it’s going to be and how long it’s going
to last. I think we do know that this will pass. But how much
damage, and how much recession, and how long it will
last, nobody knows.
Charlie Munger Investor, WSJ.com, April 17, 2020
We’re only down 15% [S&P It is a crisis like no other. High wages to the top management
500] from the all-time high of In scope, we are now in the results in weakening the generation of
February 19. It seems to me worst recession since the internal resources. It is necessary for all
the world is more than 15% businesses including dealers, vendors
screwed up… It took seven
Great Depression. We are
and small companies to understand
years to get back to the 2000 experiencing a 3 per cent the importance of building internal
highs in 2007. It took five- contraction of global GDP, resources which means
and-a-half years to get back and 170 countries are going keeping salaries of top
to the 2007 highs in late to see income per capita management as low as
2012. Is it really appropriate falling versus what we possible, minimizing
that, given all the bad news expected three months ago dividend payments
in the world today, we should and putting money
get back to the highs in only for 160—for them
back into the company.
three months? That seems to go up.
R C Bhargava Chairman,
inappropriately positive. Kristalina Georgieva MD, IMF, Business
Standard, April 17, 2020 Maruti Suzuki India, Mint,
Howard Marks Co-founder, Oaktree April 13, 2020
Capital Management, markets.busi-
nessinsider.com, April 21, 2020
Anything to do with the online medium will be significant
in the post Covid world. Whether it is e-learning or online
shopping or digital payments or even virtual events and
launches. As the lockdown gets extended, this behaviour
will get pronounced and companies will have to pay greater
attention to this trend…
Harsh Mariwala Chairman, Marico, Business Standard, April 15, 2020
It is true that many smaller and younger NBFCs are at higher risk than the more established
and larger ones. These NBFCs must shore up their capital requirement, keep additional
liquidity, and maintain conservatism in their lending practices. These are prudent business
practices that companies forget in good times, and in a race to grow or show early success,
forget that strong businesses are built over multiple growth and credit cycles.
Sanjiv Bajaj Chairman & MD, Bajaj Finserv, Business Standard, April 22, 2020


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May 2020 Wealth Insight 5

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Restarting stock selection

May 2020 Wealth Insight 7

Value all the way

Value Investor Journal

What’s investment? Usain Bolt won 8 gold medals in 3 Olympics

At last, people who were waiting for a long overdue correction

Compiled by Rachael Rajan

8 Wealth Insight May 2020

Beating volatility blues

TOLERATING MIND YOUR

The investor’s chief problem—and his worst enemy—is

10 Wealth Insight May 2020

The intelligent Far more money has been lost by

greater the stigma

May 2020 Wealth Insight 11

17000 110 68.6

28000 100 -1.4

17500 120 -5.7

13000 120 -30.0

Sensex’s price to earnings

Sensex’s price to book value

14 Wealth Insight May 2020

Sensex’s dividend yield

1.0 Min 1.03

Market cap to GDP

10Y G-sec yield vs Sensex’s earnings yield

May 2020 Wealth Insight 15

Large caps Price to earnings Net profit (` crore)

16 Wealth Insight May 2020

Mid caps Price to earnings Net profit (` crore)

May 2020 Wealth Insight 17

Small caps Price to earnings Net profit (` crore)

18 Wealth Insight May 2020

Bucking the trend

May 2020 Wealth Insight 19

Bang, bank! 7YP]H[LIHURZ

20 Wealth Insight May 2020

India and value investing

May 2020 Wealth Insight 21

22 Wealth Insight May 2020

May 2020 Wealth Insight 23

Dhirendra Kumar best we can deal with this in terms of our

24 Wealth Insight May 2020

May 2020 Wealth Insight 25

26 Wealth Insight May 2020

Danish Khanna, Rajan Gulati

May 2020 Wealth Insight 27

Not just a motorcycle

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Bank & Branch 6DYH

All-weather style Market cap greater than