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 October 2024 Volume XVIII, Number 4

EDITORIAL POLICY
The goal of Wealth Insight, as with all
 Cover Story

publications from Value Research, is

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

EDITOR-IN-CHIEF Dhirendra Kumar

COPYEDITING Agnisheik Chatterji,

Harshita Singh, Khyati Simran Nandrajog,
Mithilesh Bhaumik and Ujjal Das

RESEARCH & ANALYSIS Anushka Vats,

Ashish Kumar Pal, Asif Ali, Hemkesh
Khattar, Karon Anand, Karthik Anand Vijay,
Kunal Bansal, Satyajit Sen, Shubham
Dilawari, Sneha Suri, Udhayaprakash J and
Vishal Goyal
 Words Worth Wisdom  Interview

DESIGN Aman Singhal, Anand Kumar, Success honours Why banking

Aprajita Anushree, Harish Kumar, Kamal
Kant Koner, Mukul Ojha, Nitin Yadav
and Sakshi
the steady doesn’t excite
DATA SOURCE FOR STOCKS AceEquity
Veteran investor Mohnish Pabrai on
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4 Wealth Insight October 2024

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Contents
Analyst’s Diary
 Q Swapping homes for
data centres
Q Will this health insurer’s

revival last?
Q Catching the cusp

Q From carbon to chemicals

Q An investing checklist

 First Page
by DHIRENDRA KUMAR Q How to analyse stocks like

Picking up the Charlie Munger

momentum
Investment Acorns
Evolving our Stock Ratings
without losing sight of
IPO Tracker
 D-Street debutants  Healthcare for a
fundamentals hearty portfolio
A good diversifier with ample
Twitter market-beating opportunities
 Pushing for prudence
Market Reporter
 Buzz of the month
Stock Story
 Putting care in  Straight Talk
by ANAND TANDON
healthcare Yield optimiser funds might Stock Advisor
How Narayana Hrudayalaya
has been reshaping
make sense now
Weighing the merits of yield
 by DHIRENDRA KUMAR

hospital services Fast and steady…

optimiser funds against REITs as
Value Research Stock Advisor
rate cuts draw closer
Big Moves equips you with the ‘what’ and
 The most significant ‘why’ of smart investing, guiding
your path to a winning
price movements
investment strategy
ABCD ETF
 Start small, grow big Stock Screen

Index Watch
 Top-rated stocks
 BSE FMCG  Everyday Economics
by PUJA MEHRA
All stocks with five-star
Stock Ratings

Market Barometer The problem with Google

 Trends and trails that we don’t see
The tech giant’s monopoly quietly
Wordsworth Now
 Quotable words from
Charts to understand current
shapes our digital lives
market valuations and returns prominent figures

‹9DOXH5HVHDUFK,QGLD3YW/WG
Wealth Insight is owned by Value Research India Pvt. Ltd., 5, Commercial Complex, Chitra Vihar, Delhi 110 092.

Editor-In-Chief: Dhirendra Kumar. Printed and published by Dhirendra Kumar on behalf of Value Research India Pvt. Ltd. Published at 5, Commercial Complex, Chitra Vihar, Delhi 110 092.
Printed at Option Printofast, 46, Patparganj Industrial Area, Delhi-110092
Total pages 72, including cover

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

October 2024 Wealth Insight 5

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 by Dhirendra Kumar
FIRST PAGE

Picking up the
momentum
described and discussed in detail in this issue’s cover
X Evolving our Stock Ratings without story. The addition of momentum as a factor to our stock
losing sight of fundamentals prices represents more than just a new metric–it’s a
broadening of our perspective on what drives stock

S
ome months ago, I wrote that “there’s performance. While our foundation remains rooted in
momentum, and then there’s momentum”. I fundamental analysis, it can hardly be ignored that
caught flak from readers, many of whom thought market sentiment and investor behaviour play crucial
it was a joke. However, the statement was serious. roles in a stock’s journey.
Few terms in investing have such a dual personality Why this change? In our years of studying markets,
as momentum. There really are two kinds of we’ve observed instances where fundamentally strong
momentum in stock prices. companies failed to deliver the expected returns.
As I’d pointed out, following prices is the most basic Conversely, we’ve seen stocks defy traditional
trading method, and it works. When a stock price rises, valuation metrics, driven by factors beyond balance
there’s always an underlying reason. It could be good: sheets and income statements. This occasional
investors have discovered why the price should disconnect between theory and practice prompted us to
legitimately be higher. Or bad: prices are rising revisit our methodology.
because somehow they’ve started rising, and people are By incorporating momentum into our framework, we
buying hoping prices will keep rising. Effectively, these aim to bridge this gap. We’re not abandoning our belief
are the two different types of momentum I mentioned. in solid fundamentals. Rather, we’re complementing it
A rise in stock price is a signal - it could be with insights into how the market perceives and values
meaningless, misleading, or useful. companies. This evolution didn’t happen overnight. Our
In the world of stock movements, not all signals are research team has spent months rigorously testing and
created equal. Sometimes, prices dance to their own tune, validating this new framework. We’ve applied it to
rising or falling for no fundamental reason whatsoever. historical data, analysed its performance across market
This is the meaningless signal, a common occurrence in conditions, and fine-tuned it to ensure it adds genuine
markets where a critical mass of traders jump on board value to our analysis and ratings.
simply because others are doing so. Then there’s the It goes without saying that our core philosophy stays
misleading signal, which is more of a problem. Here, unchanged. Our focus on quality, growth, and valuation
prices might initially move for seemingly valid reasons, remains as strong as ever. The addition of momentum
but then they take on a life of their own, detaching from doesn’t replace these fundamental pillars–it enhances
those initial catalysts. But it’s the useful signal that we’re them. The financial markets will continue to evolve, and
really after. This is when price momentum aligns with so will we. Our vision is to stay at the forefront of stock
improving fundamentals. Valuations rise, but they’re analysis, continuously refining our methods to provide
underpinned by tangible growth in earnings, sales, or you with the most relevant and actionable insights.
market share. Its momentum is built on a bedrock of In this issue’s cover story package, you’ll find an
business performance, not just market hysteria. exploration of our updated framework, including case
Following that concept, we have recently made an studies demonstrating its application. We encourage you
evolutionary change to our stock-rating system. For years, to dive in, explore the new stock screens on Value
we’ve prided ourselves on delivering insightful, Research Online, and see firsthand how this evolved
fundamentally driven equity research, which we have approach can benefit your investments.

October 2024 Wealth Insight 7

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 TWITTER

The prudent
investing advocate
Even SEBI cautioned investors about the SME space. There are risks in
the SME space that most people don’t really understand. And while we
Stable Investor can not be sure of anything in markets, this current trend in SME space
@StableInvestor won’t end well for many. It is just a matter of time, I guess.

51.7K | Followers
In markets, being right and making money are two very different things.
Why Follow

D
ev Ashish is a
While Nifty500 Equal Weight Index might look tempting and a novelty, it
SEBI-registered is also true that this structure will have a massive 80% combined
investment advisor allocation to mid-cap and small-cap stocks! And even within that, a big
and the founder of Stable chunk of 50% is to small-cap stocks.
Investor, which offers This structure is by design and compares differently from the normal
financial planning and Nifty500’s large-cap-heavy structure (grey inverted pyramid in image)
portfolio advisory services. Generally, a high allocation to mid+small cap doesn’t suit everyone’s risk
A committed long-term appetite. Hence, this index should be considered only by those who have
a suitable risk appetite.
investor, Ashish's tweets
reflect the same wisdom
while also covering broad
market trends and financial You cannot backtest emotions. Always remember that when backtesting
planning tips. Apart from everything else. And that is why figures like CAGR aren’t enough to
this, he also pens articles judge any investment strategy.
on his website, focusing
on financial planning and
portfolio building. If your equity portfolio has a large cap bias and it has worked well for
you, then keep it that way. Social media may force you to think that
money can only be made in small caps, but that is not completely true.
Do what your risk appetite allows you. Be at peace with yourself and
your approach.

Follow us on
social media
@VROStocks vrostocks VROStocks

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 The potential boost of equity.
The relative safety of debt.
Aim to keep
your financial goals on track.

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 MARKET REPORTER

Tata Steel signs £500

million grant deal with UK `64,000 crore
government The amount that Torrent Power will
Tata Steel recently signed a invest in its green energy projects until
£500 million grant funding agreement FY30 to achieve a 10 GW power
with the UK government. The funding generation capacity. It has already signed
will help Tata Steel install an electric
furnace at its Port Talbot plant in
an MoU with the Gujarat government for
Wales. The new furnace is part of Tata the supply of 5 GW of renewable power.
Steel’s £1.25 billion green steel project.
The electric furnace will be
operational in three years.
It wil replace the Adani Group to invest
coal-powered blast over $48 billion for
furnaces, reducing
the UK’s entire
green energy push
carbon emissions Adani Group, India’s largest
by 8 per cent. renewable energy company
by capacity, has pledged an
investment of $48 billion Nazara acquires
(`4.05 lakh crore) by 2030 to 48 per cent stake in
expand its green energy Pokerbaazi for
business. The company has
set a target to expand `832 crore
its renewable energy Gaming and media
Bajaj Housing Finance generation capacity from company Nazara
doubles investor money on current 11.2 GW to 50 GW Technologies recently has
through this investment. recently announced the
debut The group plans to acquisition of Moonshine
Bajaj Housing Finance clocked an expand its solar, wind, and Technologies, the parent
enormous 135 per cent listing gain on electrolyser manufacturing company of India’s largest
September 16, 2024. With this, the capacity while retaining online poker platform,
company became India’s largest public- its dominance in the ‘PokerBaazi’. Nazara Tech
listed housing finance player by Indian market. will acquire a 47.7 per cent
market cap. Its market cap of stake in Moonshine Tech
`1.37 lakh crore (as of September 18, for `832 crore, which will
2024) was higher than the combined be financed through a
market cap of all its listed combination of cash
competitors. The IPO, and equity. Nazara
which raised `6,560 crore Tech’s stock price
from the fresh issue, had hit a fresh 52-week high
seen bumper demand with after the announcement
the offer getting subscribed of the acquisition.
by almost 64 times.

Zomato acquires Paytm’s ticketing business for `2,048 crore

Zomato, India’s largest online food delivery platform, has acquired Paytm’s online ticketing
platform in an all-cash deal worth `2,048 crore. The company plans to expand its Going Out
segment by entering the online ticketing market for movies, music festivals, and sporting
events. Zomato plans to launch a new app called ‘District’ to manage this segment separately.
After the announcement, Zomato’s stock price surged to an all-time high (Sep 13, 2024).

10 Wealth Insight October 2024

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Bina Modi retains control of Godfrey Phillips, ending family feud
The prolonged family feud for the control of Godfrey Phillips ended at the company’s 87th
annual general meeting. The board re-appointed Bina Modi as the company’s chairman
and Managing Director with 87 per cent shareholder approval. Her son, Samir Modi, was
removed from the board because of retirement by rotation. This development ends the
bitter feud between the mother-son duo for the control of India’s second-largest tobacco
manufacturer. The outcome follows a Delhi High Court ruling in Bina Modi’s favour.

Suzlon Energy to acquire majority stake EaseMyTrip ventures into

in Renom Energy electric bus manufacturing
Suzlon Energy announced it will acquire a of a 76 per EaseMyTrip has forayed into the
cent stake in Renom Energy for `660 crore. Suzlon automobile industry through its
will acquire a 51 per cent stake in the first phase for new subsidiary Easy Green
`400 crore, and the remaining stake will be acquired Mobility. The company plans to
in the subsequent 18 months. Suzlon plans to manufacture electric buses, with
capitalise on Renom’s expertise in operating and an investment of `200 crore over
maintaining wind energy turbines to capture India’s the next three years The sum will
32 GW wind power generation market. be allocated towards research,
product development, and setting
up a manufacturing plant for the
new venture. The management’s
Key highlights from motivation behind this venture

RIL’s 47th Annual stems from India’s growing

demand for electric vehicles.
General Meeting Venturing beyond its core travel
Q Reliance Group will begin business, this expansion marks a
producing solar photovoltaic significant shift for EaseMyTrip.
modules by 2024-end. The initial
phase will have an annual
capacity of 10 GW per year.
Q Its first gigafactory for solar CCI approves $8.5
panels with 20 GW capacity will billion Disney-Viacom18
likely begin operations by FY25.
Q It plans to set up ‘gigawatt-
mega merger
scale’ AI-ready data centres The Competition Commission
in Jamnagar. These will of India (CCI) gave its green
be powered by Reliance’s light to the merger between

`1.12 lakh crore

green energy. Disney Star and Reliance
Q It plans to enter the luxury Industries’ Viacom18. Valued at
jewellery market.to commence $8.5 billion, this deal sets a new
operations by the end of FY25. record as the largest in the
country’s media and The amount REC will be loaning
entertainment industry. The out to many renewable energy
merged entity will command an developers over the next five
impressive portfolio of 120 years through non-binding MoUs
channels and two streaming
platforms, positioning it to
that it has signed with them. The
capture the largest viewer base company has committed to
in India across both sports and increase its renewables loan book
entertainment content. to over `3 lakh crore by 2030.

October 2024 Wealth Insight 11

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 MARKET REPORTER

`83,947 crore ECONOMIC METRICS

.:;JVSSLJ[PVU
Will be invested by Adani Group and 240 In ` '000 cr
Israel-based Tower Semiconductor to 180
build a new chip manufacturing facility in
120
Maharashtra over the next five to seven
years, targeting an annual capacity of 60
80,000 semiconductor wafers. 0
Aug '22 Aug '24

GAIL to form JV Mrs Bectors Food to 0UMSH[PVU!*VUZ\TLY7YPJL0UKL_

with US firm for raise `400 crore 9.0 % change YoY

bioethylene plant through QIP 7.5

GAIL has partnered with Mrs Bectors, bakery 6.0

US-based Petron Scientech, company, recently announced
4.5
signing a memorandum of its plans to raise `400 crore
understanding to establish a joint through a QIP (qualified 3.0
venture. Their collaboration aims institutional placement). The Aug '22 Aug '24
to explore the development of a company will issue 2.58
bioethylene plant and associated million fresh equity shares at
0UK\Z[YPHSHJ[P]P[`!
downstream units across India, a floor price of `1,550 per
0UKL_VM0UK\Z[YPHS7YVK\J[PVU
with a planned total capacity of share. The management plans
20 % change YoY
500 kilotons per annum. This to utilise these proceeds to
initiative represents a significant build new production 10
step in GAIL’s strategy for facilities in Madhya Pradesh
0
sustainable expansion, aligning and Maharashtra to achieve
with its ambitious goal to achieve geographic expansion. Its -10
net carbon-neutral status by the stock price reached an Aug '22 Aug '24
end of FY35. all-time high after the
announcement (Sep 12, 2024).
`]Z
78 Inverted scale

80

82

84

86
Sep '22 Sep '24

US Fed delivers first rate cut in four years *Y\KLVPS

The US Federal Reserve slashed its prime lending rate by 0.5 percentage 100 Brent $/barrel
points, its first rate cut since 2020. With this, the Federal
funds rate stands in the range of 4.75 to 5 per cent 90
compared to 5.25 and 5.5 per cent, previously.
Inflation in the US has been easing consistently after 80
surging to 40-year highs in 2022. To defend any
possible slowdown the Fed has signalled at more 70
interest rate cuts by the end of the year. Sep '22 Sep '24

12 Wealth Insight October 2024

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 STOCK STORY

Putting care in healthcare

How Narayana Hrudayalaya has been reshaping hospital services

I
n a healthcare landscape
where affordability often feels Agile focus
out of reach, Narayana It has been winding down beds in low-demand markets
Hrudayalaya stands out. The
hospital is known for 6,500 Operational beds

offering quality services at

pocket-friendly rates. Instead of 6,200
inflating treatment costs,
Narayana focuses on increasing 5,900
the number of patients it serves
to drive profits. And it’s 5,600
working, thanks to its domestic
and international expansion.
5,300
The Bengaluru-headquartered
hospitals chain has consistently
5,000
posted record-breaking revenue,
profits and margins. What’s more, FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24
its recent entry into the insurance
business can further elevate its
business to another level.

Efficient healthcare,right
from the start simple: provide affordable on patient turnover, rather than
Founded in 2000 by renowned healthcare without maximising revenue per patient, has
cardiac surgeon Devi Shetty, compromising quality. resulted in high returns on capital
Narayana Hrudayalaya started Since the beginning, the hospital and consistently decent margins.
with a 225-bed hospital in adopted a model that prioritises It has been smart on the cost
Bengaluru. Its motto was quick patient discharge. This focus side, too. It negotiates deals with

Narayana Hrudayalaya Sensex (rebased to stock price)

Jan 6, 2016
`337 Feb 7, 2020
`349

February 2, 2016 April 21, 2017 November 6, 2017 March 19, 2018 April 11, 2019
Narayana acquired Bought 230-bed Health City Cayman Commissioned super Received approval to establish
26 per cent stake in its capacity NewRise Islands was fully speciality hospital in a wholly-owned subsidiary in
surgical hospital from Healthcare from taken over by Gurugram. the US to set up a business
Infrastructure Development Panacea Biotech and Narayana process and technology
Corporation. It became a PanEra Biotech for Hrudayalaya. consultancy business.
wholly-owned subsidiary. nearly `180 crore. Proposed investment: $50,000.

14 Wealth Insight October 2024

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equipment manufacturers, uses
locally-made machines and even Revenue share mix over the years
ensures senior doctors get into the Sale of medical
In-patient Out-patient Others
operating theatre after their consumables and drugs
juniors prep the patient.
FY20 72.2 22.5 4.6
Over the years, Narayana grew
0.7
both geographically and in terms
FY21 73.4 21.1 4.7
of services. It oversaw organic and
0.8
inorganic expansions in cities like
FY22 74.5 19.4 4.6
Delhi NCR, Mumbai and Raipur.
1.5
It also expanded its international
FY23 79.7 15.9 3.6
footprint with its venture into the
0.7
Cayman Islands. It has also
partnered with the Asia Heart FY24 78.2 17.8 3.7

Foundation to manage the 0.2

Rabindranath Tagore Institute of

Cardiac Sciences, established the Unlocking future levers Performance metrics
Mazumdar Shaw Medical Centre (a As mentioned earlier, Narayana
Revenue (` ’000 cr, left side)
multi-speciality hospital) and has launched its first insurance
Profit after tax (` cr, right side)
acquired two Westbank Hospitals product ‘Aditi’. Besides, it plans to
6 1,200
in Howrah (West Bengal). spend around `1,600 crore in FY25
On the services front, it has in various brownfield and 4 800
diversified into cardiac sciences, greenfield projects.
2 400
oncology, gastro science and renal By Vishal Goyal
sciences. This steady expansion and 0 0
its cost-effective model have led to
impressive financial growth. Its -2 -400
revenue rose 16 per cent, and profit Feb 14, 2024 Aug 30, 2024 FY15 FY24
`1,417 `1,270
after tax surged 36 per cent annually Operating profit (` cr, left side)
in the last 10 years (FY14-24). Operating profit margin (%, right side)
1,200 20

1,092 900 15
Apr 4, 2022
`760
600 10

300 5
May 17, 2023
`754
0 0
FY15 FY24

36 ROE (%) ROCE (%)

24

12

February 19, 2021 September 5, 2022 January 5, 2024

Health City Cayman Islands Agreement with Shiva Narayana granted 0
built a new facility. and Shiva Orthopaedic health insurance
Estimated cost: Hospital to acquire licence. -12
$100 million. its Orthopaedic
and Trauma Hospital FY15 FY24
in Bengaluru.

October 2024 Wealth Insight 15

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 BIG MOVES

Large caps
3M Price to 3Y avg 3Y earnings
Stock Rating returns (%) earnings RoE (%) growth (% pa)

Kalyan Jewellers
 68.9 117.1 10.7 634.8
Its Q1 FY25 profit after tax was up 24 per cent YoY

Suzlon Energy  66.4 131.6 1.2 160.4

Won multiple orders including the recent 1,166 MW order from NTPC

Zomato  44.6 400.5 -0.8 41.4

Completed the acquisition of Paytm’s ticketing business

Lupin  42.4 45.4 4.4 11.1

Recently entered the CDMO business through a newly formed subsidiary

Rail Vikas Nigam  40.2 79.6 20.6 10.1

Bagged a `132 crore order from Central Railways

Persistent Systems  39.2 70.5 25.1 31.8

Its Q1 FY25 profit after tax was up 34 per cent YoY

Trent  34.9 150.6 22.3 408.6

Its Q1 FY25 profit after tax was up 140 per cent YoY

PB Fintech  32.8 597.0 -2.4 34.4

FIIs increased their stake by 2.6 percentage points

Oil India  27.2 14.0 16.4 59.5

Its Q1 FY25 profit after tax was up 45 per cent YoY

SBI Life Unrated 25.2 91.0 14.0 16.4

Its Q1 FY25 gross written premium was up 15 per cent YoY

Bajaj Holdings  25.1 2.1* 13.0 66.0

Its Q1 FY25 profit after tax was up 33 per cent YoY

Indus Towers  24.5 17.1 22.7 13.8

Completed a `2,700-crore buyback

Bajaj Auto  18.4 41.0 22.9 12.4

Launched the world’s first CNG bike

Hindustan Petroleum Corp  16.3 8.9 10.9 -2.8

The share price is up due to general market conditions

Solar Industries  10.5 108.6 30.5 40.7

Developed an explosive that is 2.01 times more lethal than TNT

*Price-to-book ratio. Our large-cap universe has 146 large companies making the top 70 per cent of the total market capitalisation. The list mentions stocks that saw wild fluctuations
in the last three months. Data as of September 13, 2024.

16 Wealth Insight October 2024

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 BIG MOVES

Mid caps
3M Price to 3Y avg 3Y earnings
Stock Rating returns (%) earnings RoE (%) growth (% pa)

PG Electroplast
Its Q1 FY25 profit after tax was up 151 per cent YoY
 104.6 87.0 13.0 58.1

Gravita India
Its Q1 FY25 profit after tax was up 30 per cent YoY
 98.4 69.3 40.4 53.5

Neuland Laboratories
Its Q1 FY25 profit after tax was up 58 per cent YoY
 92.4 47.7 17.4 63.0

PCBL
Its Q1 FY25 revenue was up 59 per cent YoY
 90.6 36.4 17.6 8.7

Wockhardt
Its novel cancer antibiotic Zaynich, successfully administered in the US
 80.3 - -18.4 -224.6

Inox Wind Energy

Promoters infused `900 crore into its subsidiary
 79.1 - - 825.5

Inox Wind
Won an order for 200 MW in Gujarat and Rajasthan
 74.8 437.5 -15.5 32.3

Godfrey Phillips
Announced the sale of its retail chain 24Seven
 72.6 44.4 20.8 27.8

Sarda Energy & Minerals

NCLT gave nod for Sarda Energy to acquire SKS Power
 65.6 24.5 21.3 2.5

Bombay Burmah Trading

Its Q1 FY25 profit after tax was up 14 per cent YoY
 63.4 17.6 -36.9 39.0

Jubilant Pharmova
Its Q1 FY25 profit after tax was up 64 times YoY
 62.7 34.4 2.6 -21.7

Suven Pharmaceuticals
Acquired 67.5 per cent stake in Sapala Organics
 61.6 127.7 24.9 -13.8

Deepak Fertilisers
Its Q1 FY25 profit after tax was up 76 per cent YoY
 61.4 24.0 9.6 9.0

Authum Investment & Infra

Its Q1 FY25 profit after tax was up four times YoY
 58.6 5.5 28.7 78.2

One97 Communications
Share price is up due to general market conditions
 57.0 - -18.7 -2.4

Our mid-cap universe has 322 mid-sized companies making the next 20 per cent of the total market capitalisation. The list mentions stocks that saw wild fluctuations
in the last three months. Data as of September 13, 2024.

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 BIG MOVES

Small caps
3M Price to 3Y avg 3Y earnings
Stock Rating returns (%) earnings RoE (%) growth (% pa)

Marsons
Share price is up due to general market conditions
 180.6 579.3 -44.7 72.8

Lotus Chocolate Co
Its Q1 FY25 revenue tripled YoY
 181.7 180.0 - 50.9

Pondy Oxides
Its Q1 FY25 profit after tax more than doubled YoY
 214.5 66.1 20.3 40.1

Kaycee Industries
Its Q1 FY25 profit after tax was up 72 per cent YoY
 218.5 207.9 17.2 76.9

Spright Agro -34.4 85.5 11.9 235.9

Unrated
It recently conducted a `45-crore rights issue

Refex Industries
Its Q1 FY25 profit after tax was up 38 per cent YoY
 184.5 55.3 33.4 39.1

Saraswati Commercial
Its Q1 FY25 profit after tax was up 115 per cent YoY
 193.0 15.4 10.4 62.7

Rajoo Engineers
Its Q1 FY25 profit after tax was up 117 per cent YoY
 184.2 200.5 13.9 30.9

Tribhovandas Bhimji
Its Q1 FY25 profit after tax was up 50 per cent YoY
 189.4 36.4 6.5 4.7

Balu Forge Industries

Raised `496 crore through preferential issue and convertible warrants
 160.7 78.9 21.3 105.5

PC Jeweller
Raised `2,705 crore through warrants on a preferential basis
 155.2 - -5.8 -258.8

Kkrrafton Developers 126.0 754.2 0.7 759.5

Unrated
Share price is up due to general market conditions

Vantage Knowledge 164.0 593.9 11.5 445.5

Unrated
Share price is up due to general market conditions

Kernex Microsystems
Share price is up due to general market conditions
 114.8 - -20.5 -336.0

Pooja Bhagnani
Share price is down due to general market conditions
 -39.6 95.9 2.7 429.1

Our small-cap universe (minimum market capitalisation of `700 crore) has 1,139 small-cap companies making the bottom 10 per cent of the total market capitalisation. The list mentions stocks
that saw wild fluctuations in the last three months. Data as of September 13, 2024.

20 Wealth Insight October 2024

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Start small, grow big
Imagine standing at Compounding works
the top of a hill, in the same way. Small,
forming a small consistent investments
snowball in your build upon themselves
hands. As it rolls over time, growing into
down, it picks up something much larger
more snow, than you might expect. The
gradually growing earlier you start, the more
bigger and gaining time your investments
momentum. have to benefit from this
compounding effect.

Every little contribution adds But is there a Passive funds, comprising

up, allowing compounding to simple way to index funds and exchange-
work its magic. This is where a harness this power traded funds/fund of funds,
systematic investment effectively? Enter simply track an
plan (SIP) comes into the passive funds. underlying index
picture. The best part? You and aim to seek to
don’t need a fortune to begin – Passive Funds generate returns, subject
just consistency and time. to tracking error.

With passive funds, you don’t need to actively manage your investments. Imagine
investing in the Nifty 50 Index, representing India’s top 50 companies by market
capitalisation, through a passive fund. This way, you seek to get underlying index returns.

Another advantage Waiting on the sidelines means

of going the passive missing out on valuable time for
way is that they your investments to grow. Take
typically have a control of your financial future today
lower expense – start small, stay
ratio than their consistent, and watch your
active counterparts. wealth snowball over time.

The views expressed here constitute only the opinions and do not constitute
any guidelines or recommendation on any course of action to be followed by the
Investing in passive funds is as easy as… reader. The data/information/opinions are meant for general reading purposes
only and are not meant to serve as a professional guide/investment advice
for the readers. Readers are advised to seek independent professional advice
and arrive at an informed investment decision before making any investments.
An investor education and awareness initiative by Mirae Asset Mutual
Fund. All Mutual Fund investors have to go through a one-time KYC (Know
Your Customer) process. Investors should deal only with Registered Mutual
Funds (RMF). For further information on KYC, RMFs and procedure to lodge a
complaint in case of any grievance, you may refer the Knowledge Center section
available on the website of Mirae Asset Mutual Fund.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.

October 2024 Wealth Insight 21

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 INDEX WATCH

BSE FMCG
With a 15 per cent return, the BSE FMCG index has been among the best performers
in the last three months. However, in the last five years, the index has been trailing the
Sensex. Due to its recent rally, the index appears expensive as its current P/E, P/B
and dividend yield are higher than their respective five-year medians.

.H\QXPEHUV ,QGH[PRYHPHQW
z BSE FMCG z BSE Sensex z Median

48.7
Price to earnings
10.6
Price to book
27,000

22,000

1.52 33.4
17,000

12,000
Dividend yield (%) Market cap (` lakh cr)
Sensex rebased to FMCG index
7,000
Sep ’19 Sep ’24
,QGH[ZHLJKWV
3ULFHWRERRNUDWLR 3%
Others
32.6 12
7.6
9
ITC
37.5
6
In %
3

0
Sep ’19 Sep ’24
Varun
Beverages
HUL
4.6 3ULFHWRHDUQLQJVUDWLR 3(
15.3
Tata Consumer 50
4.6 Nestle
5.3 40

9DOXDWLRQVGLYLGHQGVDQGUHWXUQV 30

    Dividend 1Y 38.3
20
Company 6WRFNRating P/E P/B yield (%) return (%)

Godfrey Phillips  44.4 8.6 0.8 253.4 10

Gokul Agro Resources  26.2 5.1 0.0 159.9 Sep ’19 Sep ’24

LT Foods  23.2 4.0 0.5 152.4

Heritage Foods  35.5 6.1 0.4 140.5
'LYLGHQG\LHOG
In %
Manorama Industries  117.8 14.2 0.1 134.5 2.5

Bombay Burmah Trading  17.6 3.7 0.0 123.0 2.0

Associated Alcohols  30.8 4.0 0.2 118.2
1.5
Kaveri Seed Co  18.2 3.8 0.5 98.4
Mrs. Bectors Food  81.1 10.4 0.2 93.0 1.0
1.76
Colgate-Palmolive  69.7 44.0 1.6 84.5 0.5
Data as of September 13, 2024. Sep ’19 Sep ’24

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 nd

ANNIVERSARY
ISSUE

On stands October 15, 2024

Subscription copy of [anupam799@gmail.com]. Redistribution prohibited.
 MARKET BAROMETER

Trends and trails

Charts to help you make sense of the current market in terms of
valuations and return potential
z Max Current z Median z Min

Sensex movement In ’000

95,000 The Sensex is a reliable gauge of the Indian
z
82,891
market’s overall performance.
80,000
82,891
The 10-year graph shows a secular market
z
rally, interrupted by several bearish phases.
65,000 Key setbacks include: Chinese growth concerns
z
(2015), demonetisation (2016), US–China trade
50,000 tensions (2018), and the Covid-19 crash
(March 2020).
After a strong recovery post-March 2020,
z
35,000
markets dipped due to the Russian-Ukraine
23,002 conflict and rising interest rates.
20,000
Sep ’14 Sep ’24 Now, with recession fears easing and rates
z
stabilising, Sensex is hitting new all-time highs.

Sensex price-to-earnings ratio

40 The price-to-earnings (P/E) ratio of the
Sensex is a straightforward indicator of market
35.1 valuation. Here’s a general valuation guide:
35
Deeply Significantly
30 undervalued Fairly overvalued
(attractive buy) valued (high-risk zone)
25
24.1
P/E
23.5 12 16 20 24
20
17.5 Undervalued Overvalued
15 This chart uses standalone data for Sensex companies. If
Sep ’14 Sep ’24 consolidated figures are considered, the P/E ratio would
likely be lower.

Sensex price-to-book ratio

4.5 The price-to-book (P/B) ratio reflects what
4.16
4.16 investors are willing to pay for each rupee of
4.0 net assets. With book value being more stable
than earnings, it’s often considered a better
valuation measure than P/E.
3.5
If:
P/B > Median P/B = Overvalued
3.0
3.06 P/B < Median P/B = Undervalued

2.5
2.36
2.0
Sep ’14 Sep ’24

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Sensex dividend yield
1.6%
Dividend yield represents the return an
1.52 investor earns through dividends. It’s
calculated as dividend per share divided by
1.4
price per share. Typically, higher dividend
1.20 yields indicate cheaper stock prices.
1.2 If:
Dividend yield > Median dividend yield
1.11
= Undervalued
1.0
Dividend yield < Median dividend yield
= Overvalued
0.8
0.72
0.6
Sep ’14 Sep ’24

Market cap-to-GDP
150% 142
The market cap-to-GDP ratio is Warren
142 Buffett’s favourite valuation metric, calling it
“the best measure of market valuations at
120
any given moment.”
If:
90 90 Market cap > GDP = Overvalued
Market cap < GDP = Undervalued
Considering the cumulative market cap of
60
57 BSE-listed companies and the nominal GDP
estimates: revised for FY23, provisional for
30
FY24, and advance for FY25.

0
FY11 FY13 FY15 FY17 FY19 FY21 FY23 FY25

10Y G-sec yield gap to Sensex earnings yield

4.5% The spread between the 10-year government
bond yield and Sensex earnings yield (inverse
3.87 of P/E) is a key valuation metric. A significant
3.6
deviation from the median indicates the
degree of the Sensex’s overvaluation or
2.7 2.74 undervaluation.
2.86 If:
Spread > Median = Overvalued
1.8
Spread < Median = Undervalued

0.9
0.79

0
Sep ’14 Sep ’24 All data as of September 13, 2024

October 2024 Wealth Insight 25

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 ANALYST’S DIARY

Swapping homes for

data centres
Real estate player Anant Raj plans to use its land to build data centres

T
he farther we look, the more our quest for technology sharing. It has joined
profitable ideas leads us to artificial hands with tech giant Google,
intelligence—such is the ecstasy around this too. It is a non-monetary
industry. Our September 2024 issue talked about how partnership where Anant Raj
Stock Rating
the AI boom is leading to a surge in demand for data will provide Google services in
centres, or facilities for storing and processing large its centres in exchange for 
amounts of data. And we laid a list of companies that technological assistance.
are set to ride the tailwinds. Anant Raj was one of The land leverage: Thanks to its
them. But it deserved a story of its own. It is a real existing land, Anant Raj claims it
estate player, eyeing to reap AI gains by building can build data centres at almost
data centres on its land. The growth projections are half the industry cost. The average
astronomical. Data centres will generate `3,300 crore cost is around `45 crore per MW
in revenue five years from now, as per its claim. We and the company says it will do 4/10
detail the company’s efforts and analyse the it for just `26 crore.
Quality Score
ambitious claim: The core business: Anant Raj
expects its core real estate
The game plan business to generate `15,000 crore
Big expansion for big revenue: The company has in revenue in the next five years. A
planned to devote over 4 million square feet of area in major contributor to this is said to
Delhi-NCR to develop data centres. Over the next five be a premium residential project
years, about 307 MW of data centre capacity is meant in Gurgaon, which is in 6/10
to come up over the allotted region. partnership with Birla Estates.
Growth Score
Its current capacity of 6 MW
generates `65 crore in revenue The challenges
and `54 crore in EBITDA The projections are lofty
(earnings before interest, and the road to achieving
taxes, depreciation, and them has rough terrain.
amortisation). This translates Here’s why:
to a revenue of `3,316 crore The cost of big opportunity: 2/10
and EBITDA of `2,763 crore in The opportunity pie of
Valuation Score
five years, once the 307 MW data centres is large. And
capacity is achieved. the AI boom has captured
Partnerships: Superior attention from everyone,
technical expertise is a including big
no-brainer for someone who conglomerates. The
wants to manage a data Adani Group, for instance,
centre business. Anant Raj, has stepped in with a plan 10/10
being a real-estate company, to put up massive data
Momentum Score
requires help. And it is centre capacity of 1 GW.
getting it from partners like The Reliance Group, too, Data as of
September 6, 2024
TCIL and RailTel for said it will establish

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A dominant force
Revenue has been growing 52 per cent annually in the last four years
FY20 FY21 FY22 FY23 FY24

Revenue (` cr) 276 250 462 957 1,483

Operating profit (` cr)

316
59 181
35 18

Operating margin (%) 12.5 7.3 12.8 18.9 21.3

Cash from -84 -150 423 33 -26

operations (Rs cr)

Profit after tax (` cr) 17 0 48 144 265

A soon-to-be data centre giant small shortfall in the proposed revenue will lead to a
Anant Raj plans to raise its data centre capacity by significant reduction in the `3,300 crore goal. If its
over 50 times in 4-5 years Rai revenue per MW falls from the projected `90 lakh to
`70 lakh, a 22 per cent drop, the revenue projection for
the segment falls by `737 crore!
How fair the price is: The stock presently trades at a
P/E ratio of around 70 times, thanks to a rally that
Panchkula
Manesar saw it more than double in the last one year. The five-
year median P/E is 39 times, demonstrating how
rapidly the valuation has ballooned.
21 MW 29 MW 57 MW 200 MW
Phase 1 Phase 2
Total capacity
Investors’ corner
Source: Company’s FY24 annual report
The revenue potential of `6000 crore in five years
(`3,300 crore from data centres plus `3,000 crore from
the real estate project spread over five years) seems to
‘gigawatt-scale’ AI-ready data centres in Jamnagar. Over justify the valuations, if you don’t account for the
the next four to five years, India’s total data centre challenges. The competitive heat and the company’s
capacity is pegged to reach 2 GW, as per industry reliance on others for technical expertise are threats
estimates. Anant Raj’s 307 MW, while significant, will to the revenue goal. The market has left no margin of
account for just 15 per cent of the market then, raising safety for these risks. The euphoria around AI could
concerns that it may lose out to big giants. blind the market to the risks, as is often seen when a
The fragility of projections: On a monthly basis, the revolutionary technology comes up the horizon. But
company claims it will generate `90 lakh per MW in seasoned investors know better than that. There are
revenue and `75 lakh in operating profit. We are lessons to learn from the dot com bubble, lest you
doubtful if these rates can sustain, given how heated want to lose money hand over fist by drifting off to
the market will become in coming years with big sentiment-driven optimism.
MNCs to local giants vying for a piece. Besides, even a By Satyajit Sen

October 2024 Wealth Insight 27

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 ANALYST’S DIARY

Will this health insurer’s

revival last?
Star Health Insurance’s remarkable recovery has failed to lift its stock

L
ockdowns, packed hospital beds, and a whiff of
fear in the air. That’s how history will
remember the Covid-19 pandemic that shook
us all. But it was also a massive wake-up call. The
need for reliable, quality healthcare suddenly
became undeniable. And the world had an epiphany
about how valuable health insurance is. Evidently,
health insurance companies took centre stage. And
one company, in particular, bore a massive brunt of
the pandemic. But it managed to emerge stronger in
the aftermath, which made it a deserving candidate
to be covered in this issue. The story is about Star
Health Insurance.
Like many, the financial toll of the pandemic was
heavy on the Chennai-based health insurer. As
hospitalisations increased, so did Star Health’s payout
for medical expenses. The company’s claims ratio shot
up to 93 per cent in FY21 from 66 per cent in FY20. With
payouts ballooning faster than premiums coming in,
the company found itself grappling with hefty losses.
But despite the pandemic’s gut punch, Star Health
staged an impressive comeback. As of FY24, the
company managed to capture a significant 33 per cent
market share to become the largest player in India’s
retail health insurance sector. Not only that, it also
posted the highest-ever profit of `845 crore in FY24. Its
net written premium surged 37 per cent annually
between FY21 and FY24.
How did Star Health bounce back from the
pandemic’s heavy blows? Losing out since listing
Q Pedal to the metal: Star Health played it safe in FY21 The stock has failed to keep its head above water to breach new highs
by keeping policy distribution limited. This kept the `1,600 z Star Health z BSE500
net written premium growth sluggish. However, as
the impact of the pandemic subdued, the company 1,200
hit the accelerator on its retail-focused strategy. As
a result, the company’s net written premium almost
800
doubled in FY22 over the previous year, and claims
ratio dropped below 70 per cent.
Q Retail-centred strategy: The recovery was primarily
400
December 2021 August 2024
led by its extensive scale in the retail segment. The
Data as of August 31, 2024. BSE 500 index rebased to Star Health’s share price.
retail-focus strategy, powered by its vast network of

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 But it won’t be easy
Clawing back strength The recovery has been remarkable and the
The company reported the highest-ever profit in FY24 management remains steadfast to resume
FY20 FY21 FY22 FY23 FY24 the growth. However, the company’s share
price, since its IPO in December 2021,
Net written premium (` cr) 4,693 5,023 9,809 11,262 12,938
hasn’t reflected the post-pandemic success.
Profit after tax (` cr) 268 -1,086 -1,041 619 845
And that’s because the market is wary of
Claims ratio (%) 93.4 94.4 87.1 65.0 66.5 some challenges:
Combined ratio (%) 65.9 122.1 117.9 95.3 96.7 Q A crowded field: The large market size has

ROE (%) 15.6 -40.4 -26.0 12.4 14.4 attracted numerous new entrants, resulting in
intense competition. For instance, the company
No. of agents (in lakh) 3.6 4.6 5.5 6.3 7.0
intends to expand its presence in the group
insurance market, which provides higher cash
agents, allowed the company to scoop up a lion’s flow visibility due to long-term contracts.
share in the market. This was also supported by its However, breaking into the market is going to be
investments in digital channels that made the tough. Incumbent giants like ICICI Lombard,
products more accessible. The retail segment Tata AIG, and HDFC Ergo have long-held
contributed nearly 91 per cent to its total premium relationships in this space, making it a tough
in FY24, with group and corporate insurance market to crack.
forming a 7 per cent share. Q Price sensitivity: Its aggressive, cheaper pricing

Q Fall in claim expenses: The decline in claims was a major contributor to its growth. However,
improved the company’s combined ratio to the company has now steadily been raising prices.
96.7 per cent, which is one of the lowest in the The latest hike of 15-20 per cent will be effective
industry. Most other players’ combined ratio is from the second half of FY24. Sales volumes are
100 per cent or above. For those unaware, more than likely to be hit, and its retail market
combined ratio is the sum of claim losses and share has already begun to decline. It dropped
operating expenses measured as a percentage to 31 per cent in Q1 FY25 from 34 per cent P
of earned premium. in FY23. v
Q Policyholder loyalty: While new business Q Risky underwriting: The company is ready to continue

increased, what also helped the company was the its aggressive expansion strategy. But aggressive
customer stickiness it enjoys. Over 98 per cent of targets are often accompanied by poor underwriting
its policyholders, for instance, renewed their quality. The company needs to maintain due
policies in FY24. diligence while underwriting policies to avoid any
possibilities of higher claim settlements.
The road ahead Q Service shortcomings: The management also needs to

Star Health aims to take advantage of the focus on improving its services offerings. Major
large market opportunity in health competitors have an edge over Star Health in terms
insurance by doubling its net written of accessibility of their products with higher
premium to `28,000-30,000 crore by FY28, number of partnered hospitals and availability of
while maintaining a healthy combined ratio cashless settlements, among other things.
between 94-96 per cent. The goal is achievable if one
goes by the sectoral tailwinds. The health insurance Investors’ corner
market remains highly underpenetrated and the While Star Health has overcome the
`
industry is expected to grow impressively by 15-18 pandemic woes, there are impediments to
per cent annually till FY28. The company is working its future growth trajectory. Challenges
towards the goal by expanding its agent network, like rising competition, pricing pressures,
increasing telesales, strengthening digital channels, and service gaps seem to be weighing heavily on
and deepening partnerships with corporates and investors’ minds. They will keep a close eye on how
small and micro enterprises (SMEs) to increase the company navigates these hurdles.
market share in the group insurance segment. By Hemkesh Khattar

October 2024 Wealth Insight 29

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 ANALYST’S DIARY

Catching the cusp

Is Whirlpool Of India the best bet to ride the rebound in consumer durables

Stock Rating



7/10
Quality Score

D
alal Street’s apathy towards most financials hint that the long-awaited
consumer durable stocks in recent inflexion point is here. The stock is up
years is just. Rising competitive 70 per cent from February levels, and a
intensity, tighter regulations, and a battered Momentum Score of 9 from our proprietary
supply chain following the pandemic made Value Research Stock Ratings means that
losses common in the industry. Whirlpool Of investor interest is on the rise.
India, a prominent player in the consumer But before you try to catch this cusp, it’s
7/10
Growth Score
durable space, was a notable casualty of this crucial to decipher whether the current
downturn. Between FY20-24, its annual sales momentum is grounded on fair expectations
growth stagnated at a meagre 3 per cent, and or fleeting market euphoria.
its operating profit margin contracted a
worrying 600 basis points. Add to this a Why Whirlpool is welling
sharp drop in the parent company’s stake As the mercury broke several records this
from 75 per cent to 51 per cent, and it’s no summer, demand for consumer durables,
surprise the stock was down 55 per cent from i.e., refrigerators, air conditioners, etc., 3/10
its 2021 peak by February 2024. rebounded. Expectedly, most players saw Valuation Score
But the refrigerator maker’s latest their sales rise between 17 to 75 per cent YoY

Leading the cash race

Whirlpool has historically commanded the highest FCF to PAT ratio

Metric
Revenue growth (% pa) 13 17 5 12 9/10
Profit after tax growth (% pa) 27 17 14 21 Momentum Score

Free cash flow to profit after tax -35 69 74 84

Data as of September
*Johnson Controls - Hitachi Air Conditioning India. We have considered growth numbers before the industry downturn (FY13-20). 6, 2024

30 Wealth Insight October 2024

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in Q1 FY25. Whirlpool Of India, too, witnessed a
24 per cent YoY jump in net sales. Yet to be conquered
However, an earnings growth of more than 2x Underpenetrated India markets offer immense growth potential
helped the company become an outlier in this Market penetration in % z Urban z Rural
resurgence. In addition, rumours of a potential
acquisition of Whirlpool, the company’s global parent, 80

by Bosch led many to pick Whirlpool Of India over its

peers. The belief is that shareholders of Whirlpool Of
India would be significantly rewarded if it becomes
part of Bosch’s grand plans to dominate the Indian 42
appliances market. In sum, the rising investor interest 34
17
in the stock is not a happenstance. Also, the
management has adopted two key strategies in hopes 6 7
of sustaining the current momentum.

Refrigerators A/Cs Washing machines

Going old-school for growth
One way to capitalise on the rising demand would be
to focus on R&D and innovation. However, Whirlpool generator (Refer to table “Leading the cash race”), which
Of India has chosen a different, increasingly adds to the optimism surrounding its future.
uncommon path: concentrating on what’s happening Furthermore, its global parent clarified that its
directly on the ground. divestments were aimed at capitalising on valuation
Q Incentive revamp: Previously, retail executives were arbitrage, not signalling a lack of confidence in its
rewarded based on total sales, often leading to high- Indian subsidiary.However, there are risks that
performing branches shouldering underperformers. potential investors should consider:
Now, executives are incentivised based on individual Q Valuations are stretched: Despite the potential for

branch sales, with higher rewards for premium margin expansion and revenue growth, current
product sales. The company is also expanding its retail valuations appear steep. The stock is trading at a P/E
executive count and increasing SKUs to drive growth. ratio of 93 times, and even factoring in a projected
Q Smart advertising: Whirlpool Of India has adopted a profit after tax of `350-400 crore for FY25, the forward
unique approach to advertising by partnering with P/E would still hover around 70x—indicating a
related product manufacturers, expanding its reach. significant premium.
A notable example is its marketing campaign for Q Cyclical vulnerabilities: The current tailwinds, while

washing machines, tied to HUL’s Surf Excel, promising, are not guaranteed to last. Consumer
allowing it to tap into a broader consumer base. spending is highly sensitive to macroeconomic
Q Diversification with Elica: The company has also been factors, and the sustainability of profitability is
expanding its product portfolio to capture more value uncertain. Despite the strong margins in the Elica
from India’s rising middle class. The Elica brand, segment, it accounted for just 8 per cent of total sales
launched to offer kitchen stoves and chimneys, grew in FY24, so further diversification will be crucial.
17 per cent annually between FY20 and FY24. This Q Capital allocation concerns: Whirlpool Of India’s strong

higher-margin segment (18 per cent compared to the cash reserves—`2,000 crore as of FY24—are another
company’s overall 5 per cent) now accounts for 22 per cent point of contention. With no clear plans for
of the company’s bottomline. Expanding Elica further significant investment, questions about the
could significantly improve margins going forward. company’s capital allocation strategy may sour
investor sentiment over time.
Before you invest In the end, Whirlpool Of India is a promising vehicle to
Whirlpool Of India’s promising outlook and strategic ride the upturn in the consumer durable industry.
initiatives make a solid case for investment. Additionally, However, it’s essential to look beyond the surface
the low market penetration in India’s consumer durables momentum and carefully evaluate whether you’re
industry offers a long-growth runway. comfortable navigating the uncertainties that lie ahead.
The company also has historically been a strong cash By Kunal Bansal

October 2024 Wealth Insight 31

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 ANALYST’S DIARY

From carbon to chemicals

Will Phillips Carbon Black’s bold diversification move pay off?

I
magine you’re running a successful ice non-rubber performance carbon black.
cream stand. Business is booming, These materials not only enhance product
life is sweet and creamy! But then, a quality but, more importantly, bring in
new health trend hits, and suddenly, Stock Rating fatter margins.
everyone’s clamouring for kale smoothies This diversification into specialty products
instead. You can’t afford to keep  is helping PCBL add muscle to its bottom line.
scooping the same flavours, hoping things Beefing up capacity: Once ongoing expansions
would turn around. This is where are complete, PCBL will have a total capacity
diversification comes in. of 7.9 lakh MT per annum. Of this, 1.12 lakh
Diversification isn’t just a corporate MT will be devoted to specialty black and non-
jargon. For a business, it’s about spreading rubber carbon black products.
its wings and expanding into new areas or Improved margins: The product mix shift has
industries. There are many success stories
of diversification. Take Disney, for instance,
4/10 paid off over the past decade. PCBL’s five-year
median operating profit margin has jumped
Quality Score
which went from making cartoons to from 3.8 per cent in FY15 to an impressive
becoming a global entertainment juggernaut. 11.3 per cent in FY24.
But there are cautionary tales too, like PCBL isn’t hitting the brakes yet.
Kingfisher Airlines, whose diversification
efforts went sour. Beyond carbon black
So, where does Phillips Carbon Black Here’s where the story gets interesting. As
(PCBL) fall on this spectrum? The largest part of its diversification strategy, PCBL
carbon black manufacturer (key chemical 6/10 recently acquired Aquapharm, India’s
used to improve durability of vehicle tyres) Growth Score largest manufacturer of phosphonates, a
of India is making moves into completely chemical used in water treatment, textiles,
new territories. Will this strategy pay off and detergents.
or fizzle out? Let’s explore. The acquisition cost? A hefty `3,800 crore,
which works out to be 66 per cent of PCBL’s
A quick look at PCBL FY23 revenue. It was funded through debt, and
PCBL had humble beginnings. The priced at a reasonable 9 times EV/EBITDA
company, part of the RP-Sanjiv Goenka valuation, signalling a well-thought-out capital
Group, began operations in Durgapur, West 3/10 allocation. But why dive into a business so far
Bengal, with a production capacity of just Valuation Score from your core operations?
14,000 MT (million tonnes) per year. Fast That’s because Aquapharm is a strong
forward to the present, PCBL has become a business with an EBITDA margin of
global heavyweight in carbon black, serving over 20 per cent. The company also has
customers in over 50 countries. Its long-lasting relationships with its customers,
plants are spread across Durgapur, Palej, an average of 10 years with its top
Mundra, Kochi, and recently Chennai, with 50 clients, which helps it maintain higher
research centres in Palej and Belgium. But
to avoid getting stuck in a rut, PCBL
9/10 profit margins than PCBL’s core business.
The Pune-based company’s products have
Momentum Score
decided to diversify. applications in sectors likesectors like
For a long time, the company focused on water treatment, desalination and oil and
carbon black. But over the last decade, it Data as of September gas chemicals, which have strong
6, 2024
has ventured into specialty black and growth potential.

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 Fueled by bold moves
Fu
From FY20 to FY24, PCBL’s revenue nearly doubled
FY20 FY21 FY22 FY23 FY24

Revenue (` cr)
Reve

3,244 2,660 4,446 5,774 6,420

Oper
Operating
367 396 500 578 771
profit (` cr)
profi

Operating profit
Oper
margin (%)
marg
11.3 14.9 11.2 10.0 12.0

Prof after
Profit
288 314 426 442 491
tax ((` cr)

Cash flow from

1,105
operations (` cr)
oper 532 385 504
290

ROCE
R OC (%) 16.8 17.5 19.2 18.0 14.5

The road ahead acquisition, PCBL’s debt-to-equity ratio jumped from

PCBL has set an ambitious goal: to grow its profit 0.3 times in FY23 to 1.5 times in FY24. Interest costs
after tax five times in the next five years! The have also more than doubled.
game plan? Drive sales growth and push Cyclical swings: Despite its diversification efforts,
margin expansion, with specialty carbon black carbon black, a cyclical product, still powers PCBL’s
leading the charge. revenue engine. A downturn in this market could
Specialty carbon black’s unique properties make dent the company’s earnings.
it essential for energy storage, particularly in Pricey valuations: PCBL currently trades at a P/E ratio
lithium-ion batteries. And this demand is expected of 37 times, above its five-year median P/E of 11
to quadruple by 2030. PCBL is already steering times, which raises eyebrows.
research efforts on specialty and performance So, is this diversification story worth betting on? With
carbon black for EV batteries, adding another its forward-looking strategies and efforts to diversify into
potential growth driver. high-margin sectors, PCBL is positioning itself for
growth. On paper, the Aquapharm acquisition looks like
Is PCBL a smart bet? a solid play. However, the million-dollar question is
While the company’s future seems bright, a few whether PCBL can smoothly steer this unrelated
bumps could throw it off course: business.
Debt stress: Following the debt-funded Aquapharm By Shubham Dilawari

October 2024 Wealth Insight 33

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 ANALYST’S DIARY

An investing checklist
15 points from Philip Fisher

I
nvesting in stocks can be both exciting and nerve-
wracking. Philip Fisher, a pioneer of growth
investing, offers us a timeless guide on how to
evaluate a company before making any investment.
His 15 points, outlined in ‘Common Stocks and
Uncommon Profits,’ give a clear, thorough approach
to what makes a company worth investing in.
Here’s a simplified checklist that will help you
determine whether a company is truly an investment
opportunity, alongside key pointers on when to buy and
sell your stocks.

Illustration: ANAND

What to buy
Market potential
Does the company have products or
services with the potential for significant
growth in sales over several years? Long-
term success often comes from companies
that can maintain and grow their market
presence.
Innovation continuity
Is management committed to developing
new products or processes as current
growth opportunities are exhausted?
Look for companies with a forward-
thinking approach to R&D and product
development.
R&D effectiveness
How effective is the company’s research
and development? High-performing

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companies tend to maximise the benefits of their Cost controls
R&D, turning innovation into profitability. Does the company have good accounting and
Sales organisation cost controls? Efficient cost management is key
Does the company have a strong sales and to profitability.
distribution network? Without an effective sales Industry-specific advantages
structure, even the best products won’t reach their Are there unique factors in the company’s industry
full potential. that set it apart? Strong patents, lower insurance
Profit margins costs, or innovative technology can give a company a
Are the company’s profit margins satisfactory? You valuable edge.
want a business that not only generates sales but Long-term outlook
turns them into strong profits. Does the company prioritise long-term over
Profit margin improvement short-term profits? Companies that reinvest
What is the company doing to maintain or in themselves and their relationships with
improve profit margins? Successful customers and suppliers usually perform
companies continually look for ways to better over time.
improve efficiency and cut costs. Financing for growth
Employee relations Will the company need significant equity financing
Are labour relations solid? Companies with happy that could dilute shareholder value? Ensure the
and productive employees are often more stable and company’s growth plans won’t require so much new
profitable in the long term. capital that your stake becomes less valuable.
Executive relations Transparency
How strong is the relationship between management Does the company communicate openly with
and executives? A collaborative, trust-filled investors, especially during tough times? Honest
environment often leads to better decision-making and transparent communication is a hallmark of
and corporate success. good management.
Depth of management Integrity of management
Does the company have depth in management? Finally, does the company have a management
It’s important that leadership isn’t concentrated team with unquestionable integrity? Without
in a single individual but spread among a ethical leadership, even the most profitable company
capable team. can falter.

When to buy When to sell

Timing your purchases There are only three reasons to sell a stock, according
can be tricky, but to Fisher:
Fisher believed that Q Mistake in purchase: If it becomes clear that

growth stocks should the company is not what you thought it

be bought when was, don’t hesitate. Accept the mistake
temporary issues and sell.
have caused a dip in the Q Company deterioration: If the company

price. If you trust the no longer qualifies under the 15 points –

company’s management and believe for example, management weakens or
that the challenges are only short- market opportunities dry up – sell
term, this can be an excellent buying immediately.
opportunity. Q Better opportunities: If you find a more compelling

It’s crucial to remember that investment, and you’re sure of your ground, it might be
patience pays off. Buying a strong time to sell, but only after careful consideration.
company at the right moment may By keeping these principles at the forefront of your
require waiting for a problem to investment decisions, you will be well-prepared to identify
surface – but when it does, act swiftly companies worth your time, money, and trust. Let Fisher’s
if you’re confident in the stock’s long- timeless wisdom guide you in making the best possible
term potential. choices for your portfolio!

October 2024 Wealth Insight 35

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 ANALYST’S DIARY

How to analyse stocks like

Charlie Munger
Master the basics and embrace Munger’s
wisdom to make sound investments

C
harlie Munger is celebrated for his sharp intellect and
multidisciplinary approach to investing. His stock-
picking philosophy is rooted in simplicity and clarity,
focusing on fundamental truths that often elude most
investors. Munger’s approach is not about complex algorithms
or financial engineering—it’s about understanding the very
essence of a business, its economics, and its leadership.
From using basic filters to eliminate poor investments to
taking a broader, interdisciplinary view of business, Munger’s
wisdom is about making intelligent decisions based on facts,
logic, and foresight.
If you want to invest like Munger, you need to simplify
your decision-making process while also expanding your
knowledge base. This balanced approach lets you focus on
high-quality opportunities and avoid costly mistakes. Let’s
Illustration: ANAND

dive into five powerful lessons from Munger that can

transform the way you analyse stocks.

Start by tackling the no-brainers Math is the language of investing

Don’t overcomplicate things. Identify the obvious Without understanding financials, you’re
decisions first. For example,would you invest in a blind in investing.
company with negative earnings and no path to Learn to read balance sheets, cash flow,
profitability? and P&L statements to see if a company is
financially strong. Here are a few metrics that
will tell you whether a company is speeding
How to remove more than 80% stocks toward success or veering off track.
from consideration?

Listed universe 4,740

TTM net profit > 0 3,005

Cash flow from 2,149
operations > 0 Revenue growth Operating profit margin
Debt-to-equity < 2 964

5-year avg. ROE > 12% 829

Data as of September 5, 2024

Debt-to-equity ratio Return on capital employed

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Invert, always invert Mix your knowledge
Don’t just think of what could go right - ask what Business isn’t just numbers - it’s psychology,
could go wrong? economics, and sociology too.
To truly understand a company, consider multiple
What could go wrong for ? disciplines.For example, Zomato has leveraged the
following three concepts
Strength Challenge
Network effects
Q Established brand in Q Aggressive marketing
the food delivery by competitors and
market new entrants As more customers
Q Strong partnerships Q Discontent among and restaurants join
with restaurants and partners due to the platform, the
delivery partners commission rates or more attractive the
better terms offered platform becomes
Q Leverages customer
data to offer by competitors
personalised Q Data privacy concerns More users, More users,
experiences or regulations higher more
validation triggers
Q .............. Q ..............
Success Discounts,
Q ................. Q ................. free delivery
trigger cognitive
User
Biases + biases such as
reviews
validation
Big wins come from many factors combined provide
work Q Loss aversion
A successful investment is rarely due to one thing. validation Framing effect
together Q

Look for companies with multiple strengths: Q Instant

strong management, innovative products, and gratification

solid financials.

NVIDIA: Combining factors for big wins Social proof Behaviour

economics
Breakthrough Collaboration with
in GPUs tech giants

Conclusion
By embracing these principles, you can sharpen your
stock-picking skills and invest like Munger, uncovering
Tapping into fast- CEO Jensen Huang’s opportunities where others might see complexity.
growing industries long-term vision and
beyond gaming focus on R&D
By Anushka Vats

Invest like pros

Learn the craft of investing by reading about the
investment styles of world-class money managers
https://shop.valueresearchonline.com

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 WORDS WORTH WISDOM

Success honours the steady

Veteran investor Mohnish Pabrai on why conviction matters in investing

A
lot has been said and written about the investing extraordinary investment opportunities are. And how
genius of veterans like Warren Buffett and Rakesh Buffett’s approach wasn’t about chasing every potential
Jhunjhunwala. But in this edition of Wordsworth winner but rather zeroing in on those few monumental
Wisdom, we sought to highlight their astonishing ability opportunities that could generate outsized returns.
of identifying and, more importantly, sticking with “If I go back to just the period when he ran Berkshire
winning investments, as described by veteran investor Hathaway, there was approximately one great idea every
Mohnish Pabrai, the founder of Pabrai Wagons Fund. five years. He acquired about 85 companies and I
In an interview, Pabrai talks about how discipline and estimate he would have invested in around
conviction have been the recipe of success for legends 400 stocks. So even if you take a total
like Buffett and Jhunjhunwala. He also talks about why universe of 400 bets made over 58 years,
valuations are just as important as discipline for it’s a 3 per cent hit rate by the god of
successful investing. We lay out some key takeaways from investing,” Pabrai says.
his chat. You can check the entire interview from this He, thus, believes that most investment decisions
link: https://tinyurl.com/ynfc874j require the discipline demonstrated by Buffett. And more
than that, they require the conviction that the legendary
g
Learning Buffett-like discipline 101
01
Did you know that in nearly 60 yearss of running
runnin ng
Berkshire Hathaway, Warren Buffett, tt, or the Oracle
Oracle
cle of
Omaha, as he is known, found only about 12 investment
in
nvesstment
ideas that turned out to be his biggest
st wealth creators?
ccreaators?
Pabrai recalls this tidbit to underscore
ore how rararere truly
truly

Illustration: ANAND

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investor has always displayed. “If you cannot do the Good business vs good investment
maths in your head that I’ll put this money in today. And Pabrai shares his insight on how investing in a good
in 3 years, I’ll get it all back. Or in four years, I’ll get it business and making a good investment are different
all back, it’s a pass.” things, and plays into the valuation aspect. It’s easy to
So, how can investors employ Buffett-like discipline confuse the two, but as he points out, they are not the
and conviction in their investing decisions? Pabrai uses same. Using Nvidia’s example, Pabrai explains that it’s
an example of another investing legend, the late a great business, but there remains a critical question
Rakesh Jhunjhunwala, to answer this. He points to for investors to ask before jumping into the business:
Jhunjhunwala’s absolute resolve in Titan, which paid off “How long will it take to get my money back?”
with the stock becoming a massive wealth compounder He emphasises that it might not be worth pursuing
for him. “Very early he bought Titan but what was an opportunity if it takes more than three or four
remarkable about Rakesh is he then loaded up more on years to recover the initial investment. “It doesn’t
Titan, paying 16 times his first investment. Most of us really matter whether they are growing, whether they
will never be willing to pay 10 or 15 times more for have flatline cash flows, or whether they have
something we bought two years ago. But he did that. In declining cash flows. All businesses have a value and
fact, he kept buying Titan repeatedly at higher and the value is the sum of all the future cash that will be
higher prices. And I believe by the time he passed away, produced till that business doesn’t exist anymore.
he never managed money for anyone else, just his own Now the problem we have is that we don’t know what
sum of $5.6 billion, and about $2 billion of that was those future cash flows are in most companies. So if I
Titan,” Pabrai recalls. take a business like Nvidia for example, and
He highlights Jhunjhunwala’s extraordinary belief in if I had a crystal ball that told me that in
the power of compounding and the importance of feeding the next 10 years, Nvidia will produce
the winners. The lesson is simple: if a company is doing $2 trillion in cash flow, and the market
well, and you are confident in it, then don’t hesitate to cap is $3 trillion…It’s an easy pass.”
invest more. But it’s crucial to take into account the Pabrai uses another Indian example to
aspect of valuation, another key determinant of drive the point home. He compares Varun Beverages,
investment success. a leading Pepsi bottler in India, to its global peers.
Despite being a strong business with impressive
growth prospects, Varun Beverages trades at steeper
prices against similar companies in other regions.
Pabrai cautions that while Varun Beverages is
an exceptional business, the high price may not
justify the investment.
“A Coke bottler based in Istanbul, Turkey has about
two times the volume that Varun does. The Coke and
Pepsi bottling business around the world is very
similar, the economics are very similar. The Turkey
business trades at close to 1/18th or 1/10th of the
effective valuation of Varun, and Varun trades at
something like five times the effective valuation of all
other Coke and Pepsi bottlers around the world.
There’s a big difference between investing in a great
business and making a great investment,” he says.
This distinction is critical for investors who
might be tempted to chase high-profile stocks
without considering whether they offer good
value. This principle protects investors from
overpaying for even promising companies and
ensures that their investments are grounded in
sound financial judgement.

October 2024 Wealth Insight 39

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 IPO TRACKER

D-Street debutants
Here is how the S&P BSE IPO Index has performed over the last one year
and how the biggest IPOs have fared

Highest
listing-day gain BSE IPO vs BSE Sensex
Tata Tech 165 z BSE IPO z BSE Sensex Rebased to 100

140.0%
150
Highest
listing-day loss 135
Gopal Snacks

-12.7% 120

105
Highest
post-listing gain
90
IREDA

363.2% September 2023 September 2024

Highest Most Least Biggest Total

post-listing loss subscribed IPO subscribed IPO IPO issue size
Flair Writing Gala Precision Popular Vehicles Bharti Hexacom

-34.7% 201.4 times 1.2 times `4,275 cr `70,791 cr

7RS,32VE\LVVXHVL]H
Subscription Issue Issue List Current Listing Change post Sensex Current
Company Listing date ratio (times) size (` cr) price (`) price (`) price (`) gain (%) listing (%) change (%) P/E

Bharti Hexacom Apr 12, 2024 29.9 4,275 570 755 1,361 32.5 80.2 11.6 134.9
OLA Electric Aug 9, 2024 4.3 3,535 76 76 112 0.0 46.9 4.0 -
JSW Infrastructure Oct 3, 2023 37.4 2,800 119 143 331 20.2 131.8 26.5 61.7
Brainbees Solutions Aug 13, 2024 12.2 2,308 465 625 656 34.4 4.9 5.0 -
Tata Technologies Nov 30, 2023 69.4 2,251 500 1,200 1,089 140.0 -9.2 23.7 65.1
Premier Energies Sep 3, 2024 74.4 2,009 450 991 1,110 120.2 12.0 0.4 216.2
RR Kabel Sep 20, 2023 18.7 1,965 1,035 1,179 1,655 13.9 40.4 24.1 64.9
Akums Drugs Aug 6, 2024 63.6 1,858 679 725 903 6.8 24.6 5.5 -
Juniper Hotels Feb 28, 2024 2.1 1,800 360 361 385 0.3 6.5 14.6 359.8
Honasa Consumer Nov 7, 2023 7.6 1,702 324 324 493 0.0 52.3 27.6 127.1
Concord Biotech Aug 18, 2023 24.9 1,551 741 900 2,074 21.5 130.5 27.6 69.3
IREDA Nov 29, 2023 38.8 1,501 32 50 232 56.3 363.2 23.9 7.0*
Inox India Dec 21, 2023 61.3 1,459 660 933 1,178 41.4 26.3 17.0 54.6
Go Digit General Insurance May 23, 2024 9.6 1,438 272 281 374 3.3 33.1 9.9 6.6*
Cello World Nov 6, 2023 38.9 1,430 648 831 916 28.2 10.3 27.6 60.2
*Price to book value. Data as of September 13, 2024

40 Wealth Insight October 2024

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 COVER STORY

The Momentum
Formula
Illu
str
ati
on
s:
AN
AN
D

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 COVER STORY

Why adding momentum to our

Stock Ratings is a game-changer
By Asif Ali, Udhayaprakash, Kunal Bansal and Harshita Singh

“M
ay the Momentum be with you.” If outstripping even the Nifty Small Cap 250, at
legendary Jedi Obi-Wan Kenobi was 46 per cent. So, combine Momentum with our three
a stock investor and not busy traditional pillars – Growth, Quality and Valuation –
training Luke Skywalker in your stock portfolio can be a real force to be
the world of Star Wars, this is the reckoned with. Our Stock Ratings will do the
catchphrase he would use throughout his job for you. We have included momentum
life. It makes sense, too. Momentum stocks in them to spot healthy businesses with
have been a magnetic force. The Nifty 200 share price gains to match. We have
Momentum 30 index, which tracks 30 best unearthed a list of top-ranked stocks based
market performers (adjusted for volatility) on the new framework. But before getting
of the biggest 200 companies, powered there, find out why adding momentum to
53 per cent returns in the last year, handily the mix makes sense.

Introducing momentum
Why it works and why it found a place in our Stock Ratings framework

A
three-word Gujarati saying “Bhaav Bhagwaan
Che”, which translates to “Price is God”, captures
the essence of momentum investing. For a
momentum investor, price is everything and its past
performance is an indicator of future performance. The
strategy picks stocks that have rapidly moved higher in
recent weeks and months. The idea is that the winners
will keep winning. Some potential explanations for this
belief point to behavioural inefficiencies: that investors
initially tend to underreact to positive news, or are slow
to acknowledge changes in a company’s fundamentals.
The news, thus, takes time to get reflected in stock
prices. For example, prices tend to increase for weeks or
months after a positive earnings surprise, as more bad news. Their overreaction triggers a stampede out
investors gradually revise their expectations upward. of the market. In both cases, a herd-like behaviour
What follows is investor herding as others take note of sustains prolonged gains or losses.
the strong performance and begin increasing their
exposure, leading to more price gains. Why we included momentum in
Likewise, a downtrend continues as investors begin our Stock Ratings
to engage in panic selling even at the slightest hint of Because momentum captures market opinion about a

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business and its prospects. Market opinion Performance of top momentum stocks
reflects investors’ belief in the business, z We created an equally-weighted portfolio of top
which is as important as other momentum stocks with the highest Momentum Scores
fundamentals for a stock to create over the last 10 years. These were stocks in the top 10
wealth. The Street often refuses to reward percentile of each market cap category.
companies that are fundamentally strong on z The portfolio contained about 80 to 120 stocks every
paper. Bandhan Bank serves as a good example. In the year. We rejigged the pool annually as the list of top
last three years, it has lost nearly 28 per cent of its momentum stocks was always changing.
market value, even when it is highly rated on our z We found that a sum of `10 lakh invested in this
Growth, Quality and Valuation Scores. This could mean portfolio, at the beginning of April 2014, would generate
the market lacks confidence in the stock’s future a corpus of `31 lakh in the subsequent five years,
potential. Or perhaps it is privy to something about the compared to just `18 lakh in the case of BSE 500 index.
business that is not reflected in traditional metrics. z At the end of 10 years, this outperformance was
Adding momentum to the mix addresses these gaps. even more staggering. Check graph ‘Momentum
It allows us to find companies that are not only healthy, portfolio for the win’.
basis their financial records but also recognised and
rewarded by investors. Of course, one still needs to
Momentum portfolio for the win
inspect companies using all the four metrics together
The portfolio of our top momentum stocks delivered staggering gains
to find out whether the underlying momentum has any over BSE 500 on a 10-year period
substance, or if it’s just a short-to-medium term
`150 lakh Momentum portfolio BSE 500 index
reaction to a sliver of temporary good news.
120 122

How do we calculate the 90

Momentum Score? 60
Our Momentum Score is calculated by 30 39
analysing a stock’s price performance
0
over the last six to 12 months, adjusted
FY14 FY24
for its volatility. We also compare its volatility to
Initial investment of `10 lakh made in April 2014
those of others in its market cap category. The
calculation involves arriving at three ratios:
Momentum Ratio: Measures price movement relative Performance of our top-rated stocks after adding
to volatility. A higher ratio is ideal; it suggests the Momentum Score
price trend has been less volatile. z We constructed two equally-weighted portfolios for
Momentum Ratio Score: Compares the price trend of the last 10 years starting FY14.
the stock against others in its market cap category, z The first portfolio consisted of our top-rated stocks
factoring in volatility. based on the old framework (four-and five-star rated
Weighted Average Score: Combines the 6-month and stocks based on growth, quality and valuation).
12-month Momentum Ratio Score to arrive at the z The second portfolio comprised top-rated stocks
final score. based on the new framework (four-and five-star rated
Once the above parameter is calculated for each stocks after adding Momentum Score).
company, their Momentum Score is assessed by z In every five-year period (except during FY18-23),
ranking the Weighted Average Scores relative to their the second portfolio outperformed both the BSE 500
respective market cap category. benchmark index and the first portfolio.
z It outstripped the benchmark index 83 per cent of the
Data that backs the time in the last decade! See graph ‘How momentum
momentum advantage adds extra muscle to long-term returns’
Before integrating momentum into The results from our backtesting confirmed our
our Stock Rating framework, we decision to include momentum in our rating system,
rigorously tested the strategy on as it consistently provided better outcomes than the
historical data to ensure its effectiveness. previous three-pillar framework.

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 COVER STORY

momentum suggests that the market is willing to

How momentum adds extra muscle to reward them for future potential. This helps
long-term returns avoid value traps and pick out fundamentally
The alpha over BSE 500 increased drastically once Momentum Score strong stocks that are also benefiting from
was added to Stock Ratings positive momentum.
BSE 500 index New framework Old framework
25% pa Addressing the drawbacks
20 of momentum
No investment strategy is free of risks.
15
One of the primary challenges with
10
momentum investing is its higher churn
5 rate, meaning, stocks need to be regularly rejigged
0 or replaced in a portfolio to maintain exposure
FY19 FY20 FY21 FY22 FY23 FY24 to the strongest performers. Additionally,
Returns calculated on a five-year rolling basis at the end of each financial year. momentum strategies can underperform during
New framework includes Momentum Score in the Stock Ratings.
periods of market reversals, where trends shift
abruptly, leading to significant drawdowns.
We continue to believe However, seasoned investors would argue that a
‘fundamentals bhagwaan che’ solid stock should not be dismissed simply because it
Momentum does not replace the falls out of market favour.
existing parameters of Quality, This is why our approach to momentum ensures
Growth, and Valuation. Instead, it that price movements alone do not have a bearing on
enhances them by providing a market-based signal stock selection. By combining momentum with
that complements fundamental analysis. Here’s how quality, growth, and valuation metrics, we ensure
momentum integrates with our existing scores: that momentum is not the sole driver of our Stock
Quality Score: High-quality companies with strong Ratings. This balanced approach reduces the risk of
momentum signal not only solid fundamentals but excessive reliance on short-term trends, allowing
also growing investor confidence. investors to benefit from momentum without
Growth Score: High-growth companies often attract abandoning long-term fundamentals.
market attention, and momentum signals that their
growth is being reflected in their price. This Your takeaway
alignment helps spot stocks where momentum is a When we launched our Stock Rating
result of underlying fundamental performance. system in January 2024, our goal was
Valuation Score: While some stocks may appear to provide investors with a universe of
expensive based on traditional valuation metrics, fundamentally sound stocks. The
addition of the Momentum Score enhances the
quality of this universe. Investors will now have
The relationship between value and momentum access to top-rated stocks that are not only
Undervalued stocks with positive momentum are the most ideal bets fundamentally strong, but also favoured by the
market. But we must remind you that our Stock
Momentum investing
Ratings are not stock recommendations. Rather, they
Positive Negative
serve as a tool to help you cut the market noise and
Undervalued

Early value investors narrow your list of investable stocks. We have

Best of
buy; Momentum traders
VALUE INVESTING

both worlds further made this easy for you. Find three stock
maintain sell
screens in the next section combining the
Momentum Score with Quality, Growth and
Overvalued

Value investors start

Naive investors/traders
selling; Momentum Valuation Scores. We have listed 15 companies from
averaging in losing stocks
traders hold
each screen and analysed two of them. The last
screen is of our top-rated stocks using the composite
Source: PPFAS Mutual Fund
ratings of all four parameters.

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Quality with momentum
High-demand stocks with solid qualitative metrics

O
ur Quality Score assesses the quality of a
company through parameters that measure
business efficiency and balance sheet quality.
Some of the crucial metrics that we use include return
on equity (ROE), return on capital employed (ROCE),
debt-to-equity and operating profit margin, among
others. This screener is intended to spot stocks that not
only stand up to our quality benchmarks but are also
recognised and rewarded by the market for meeting
these expectations. We applied the following filters to
find high-quality stocks with solid momentum:
z Market cap of more than `1,000 crore
z Quality Score of 10
z Momentum Score of 9 or above
The above filters returned 28 companies. To refine the remember not to construe the shortlisted stocks as Value
list further, we sorted the companies based on their five- Research recommendations. They only serve as a starting
year average ROCE and picked the top 15 listed in the point for your research list. The complete list of
below table. Of these, we have detailed the profiles and companies derived from this screener is available at:
prospects of two companies in this section. Please vro.in/quality-and-momentum

The quality favourites

Investors have been lapping up these shares recently
Quality Growth Valuation Momentum 1Y
Company Industry Mcap (` cr) Score Score Score Score Stock Rating return (%)
Colgate Consumer Staples 99,059 10 6 2 9  88.0
Tips Industries Consumer Discretionary 9,631 10 8 3 9  123.2
Gujarat Themis Biosyn Healthcare 3,784 10 5 3 9  118.4
3B BlackBio Materials 1,181 10 7 3 9  137.9
CAMS Financial 20,977 10 8 3 9  83.5
Swaraj Engines Industrials 4,138 10 7 4 9  66.1
Anand Rathi Wealth Financial 15,828 10 4 2 9  173.7
Aditya Birla Sun Life AMC Financial 21,553 10 6 4 9  91.9
Suven Pharmaceuticals Healthcare 27,484 10 2 2 9  119.8
Oracle Financial Services Technology 95,354 10 6 3 10  161.1
Cigniti Technologies Technology 3,762 10 5 4 9  71.4
Dr Agarwals Eye Hospital Healthcare 1,856 10 7 3 9  67.8
Godawari Power And Ispat Materials 12,700 10 7 5 9  49.3
Coromandel International Materials 51,711 10 6 4 10  58.6
Sharda Motor Industries Consumer Discretionary 7,775 10 6 3 10  160.3

Data as of September 2, 2024

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 COVER STORY

SWARAJ ENGINES

The tractor titan

A
subsidiary of Mahindra & Mahindra, Swaraj below 25 per cent in over two decades!
Engines is among India’s largest tractor engine The stock has been in vogue lately on the company’s
manufacturers. It supplies engines to M&M for announcement to expand capacity to 1,95,000 units by
their ‘Swaraj’ brand tractors. The company’s biggest 2025 from 1,50,000 units and due to the revision of
advantage is the ability to leverage its link with M&M, related-party transactions limit with M&M (the limit
given the latter has been the market leader in tractor was increased from `3,000 crore to `5,000 crore
manufacturing for over four decades. annually), which indicates more forthcoming demand.
Swaraj’s business model is simple: make tractors Additionally, lower horsepower tractors are expected
for Mahindra. This allows it to read demand better, to post relatively higher growth ahead, as segments
enabling it to maintain efficient capital such as horticulture remain buoyant. Swaraj
deployment. The company expands its can be a huge beneficiary of this trend.
capacity based on demand witnessed by However, investors should keep note of the
parent M&M. Since it has only one customer, risks. The seasonal nature of the industry
its business model makes it easier for the tops the list. For instance, the company’s
company to control costs and helps it 50.1 revenue declined in FY24 since the
significantly minimise certain expenses 5Y median agriculture industry was muted. Similar
ROCE (%)
related to supply chain and inventory disruptions can drag its numbers. Moreover,
management. This has resulted in consistent
margins with significantly low deviations. As
10.8 it operates in a relatively slow-growing
industry. Overall demand for tractors is in
5Y EPS
a result, the company’s ROCE has never fallen growth (% pa) around lower-single digits.

CIGNITI TECHNOLOGIES

Digital assurance all-rounder

C
igniti Technologies is a digital assurance engineering. More recently, Coforge acquired a
company that helps businesses ensure the controlling stake in the company. This enables
quality, security, and functionality of their Coforge to diversify its portfolio while allowing
digital products and services. It is among the leading Cigniti to join ranks with big IT giants in terms of
software quality testing companies, but differs on scale. Moreover, Cigniti will benefit from growing
many aspects from its competitors. While traditional investments in AI and machine learning-based tech
quality assurance companies simply test the and software as it has been rapidly increasing its
respective software and generate a report, Cigniti focus on these segments.
remains engaged with clients until the software But risks remain. There is uncertainty around how
achieves the desired result. its merger with Coforge will pan out. The
This advantage is what helps Cigniti attract current management is expected to be
new clients. Offering such additional services retained. But whether this will be the case
has also resulted in an impressive return on going forward is unclear. Any change in
investment for each project and client the ownership could impact operations and
company caters to. Beyond digital assurance, 39.7 efficiency. Another drawback to consider is
5Y median
the company has also been trying to make a that any potential slowdown in the US can
ROCE (%)
name for itself in the digital engineering have a huge impact on the company, given that
segment for which it acquired Aparaa Digital. 2.6 it derives 78 per cent of its revenue from there.
The stock has rallied 72 per cent in the last one
Aparaa Digital specialises in AI, machine 5Y EPS
learning, data analytics and blockchain growth (% pa) year, propping its P/E ratio to 29 times.

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Growth with momentum
Those that combine healthy financial track record and market demand

O
ur Growth Score depicts the historical performance
of a company in terms of many financial
parameters such as revenue growth, net profit
growth, consistency in cash flows and Piotroski
F-score that analyses the last one-year financial
performance. That said, our calculation also takes into
consideration whether the said growth has been
consistent or sporadic. By combining the growth
parameter with momentum, this screener will help you
find companies whose solid financial track record inspires
market confidence. And not only due to their past
financial performance, but also due to their future
potential. We used the following filters to find stocks
whose growth is accompanied by momentum: annual EPS growth and picked the top 15 companies
z Market cap of more than `1,000 crore based on that. You can find the complete list here:
z Growth Score of more than 7 vro.in/growth-and-momentum We have discussed
z Momentum Score of more than 8 profiles of two stocks whose growth is firing up their
We retrieved 41 companies from these filters. To momentum. No stock in our list should be considered
refine the list further, we sorted their five-year our recommendations.

Market’s growth picks

Businesses with healthy and consistent growth track record
Quality Growth Valuation Momentum 1Y
Company Industry Mcap (` cr) Score Score Score Score Stock Rating return (%)
Tips Industries Music Production & Dist. 9,631 10 8 3 9  123.2
Electrosteel Castings Steel Tubes & Pipes 13,232 5 8 5 9  206.2
Gokul Agro Resources Edible Oil 3,824 6 8 4 9  130.5
Neuland Laboratories API / Generic Pharmaceuticals 16,064 8 8 3 9  227.0
Trent Apparels & Footwear - Diversified 2,54,783 9 9 1 10  245.1
Dynacons Systems & Solutions IT Services & Consulting 1,941 4 8 3 9  107.4
ITD Cementation Const. & Eng. - Diversified 9,522 4 8 4 9  137.2
Pudumjee Paper Products Paper & Paper Products 1,165 9 8 6 9  162.3
Schneider Electric Electricity Distribution 19,781 4 9 3 10  132.7
Interglobe Aviation Air Transport 1,86,520 2 8 6 9  97.0
D.P. Abhushan Gems & Jewellery 3,006 6 9 2 10  170.9
Dixon Technologies Household Appliances 78,904 8 9 1 10  150.3
Tega Industries Industrial Machinery 11,349 7 8 3 9  72.7
ABB India Industrial Machinery 1,68,306 8 8 2 9  82.8
Voltamp Transformers Transformers & Transm. Equipment 14,267 9 8 3 9  42.5

Data as of September 2, 2024

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 COVER STORY

ELECTROSTEEL CASTINGS

From pipes to profits

E
lectrosteel Castings is among India’s largest The Indian water and wastewater supply industry
pipes and fittings manufacturers. The is expected to grow 10 per cent annually as per the
company’s primary revenue driver is its ductile company’s annual report, thanks to various
iron pipes segment, which contributed 88 per cent to government initiatives. To capitalise on this growth
its total revenue in FY24. The rest is generated by opportunity, the company plans to increase its total
cast iron pipes. installed capacity by 34 per cent by FY26 with a total
The company has been a huge beneficiary of the capex of `700 crore. The growth potential, capacity
growth in the pipes segment in the country. Since addition plans, and impressive earnings growth
its products are used for water and waste in FY24 have more than tripled the stock in the
management, the surge in demand in this last one year!
industry resulted in a 20 per cent annual That said, some risks that investors should
increase in the company’s ductile iron pipes consider include the cyclical nature of the
volumes. While favourable tailwinds did play industry and potential volatility in its raw
a prominent role in the company’s growth in materials. Besides, the recent growth is
recent years, changing its product mix 9.9 primarily a result of government initiatives.
5Y median Any slowdown there can be a key negative. As
towards ductile iron pipes over the years was
ROCE (%)
a key factor in its success. Since ductile iron far as valuations are concerned, its P/E of
pipes are more durable and also flexible,
they have become the first choice for the
66.3 15 times is not necessarily expensive but the
fact that the stock has tripled in a year
5Y EPS
water treatment industry. growth (% pa) warrants caution.

NEULAND LABORATORIES

Mastering custom manufacturing

N
euland Laboratories is a pharma company innovators on novel therapies.
operating in the active pharmaceutical This strategy has been advantageous for the
ingredient (API) manufacturing segment. company as the generic pharma industry suffered post
It manufactures over 100 APIs across 10 different FY22 due to demand normalisation and Chinese
therapeutic areas. The company is majorly oversupply in the market. The company focused on
export dependent. Exports constituted 78 per cent the high-margin segment of CMS, catering to
of its FY24 revenue. innovator or biotech companies with lower volumes
Over 15 years of expertise has enabled it to initially. But over time, it was able to receive large
transition from its core low-margin off-patent generic orders, as the early-stage drugs moved up the
APIs to high-margin complex specialty APIs commercial stages. This led to a sharp rise in
and the custom manufacturing segment (CMS). its revenue and profit after tax, which grew 28
The CMS segment involves manufacturing and 116 per cent annually, respectively, during
complex pharma ingredients customised for FY22-24 when the rest of the industry posted
novel molecules (newly discovered or created) muted growth numbers.
and supplying to innovator companies (those 12.8 While CMS segment makes up 49 per cent of
5Y median
who create the first drug with a specific active revenue, generic APIs still contribute
ROCE (%)
ingredient to receive approval for use). The significantly at 51 per cent with a growth rate
company has developed a portfolio of complex 78.7 of just 8 per cent since FY20. Moreover, the
company made 91 per cent of its FY24 revenue
specialty APIs like Paliperidone Palmitate, 5Y EPS
Salmeterol, and Apixaban while working with growth (% pa) from top 10 clients, which is a significant risk.

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Valuation with momentum
Inexpensive stocks whose gains have got more legs to go

V
aluation and momentum have an inverse
relationship. As a stock extends a rally, it’s
less and less cheaper. So we need to look out
for a balance between the two metrics. Together, they
inform where the stock is present in its price cycle
relative to the margin of safety. A stock with a low
Valuation Score (expensive) and a high Momentum
Score, for instance, suggests that it has run up
already, leaving little room for safety. The opposite
(high Valuation Score and low Momentum Score)
would mean the stock is in a downtrend, which has
perhaps made it cheaper. We want to avoid both
these instances. The ideal combination is stocks that
possess high Momentum and high Valuation Scores. z Momentum Score of more than 7
These are reasonably valued companies whose rally These filters returned 29 stocks. We sorted them based
still has some steam left, with a comfortable margin on their P/E-to-five-year median P/E and picked the top 15
of safety. We applied the following filters: that were the lowest-valued. Next, we have given insights
z Market cap more than `1,000 crore into two of these businesses. You can check the complete
z Valuation Score of more than 5 list from: vro.in/momentum-and-valuation

The long-distance runners

Reasonably valued companies despite recent price gains
Quality Growth Valuation Momentum 1Y
Company Industry Mcap (` cr) Score Score Score Score Stock Rating return (%)
Zuari Industries Sugar 1,174 2 7 6 8  178.8
Tata Motors Automobile Manufacturers 3,68,838 4 8 7 8  79.4
Ganesh Housing Corp Real Estate Development 7,066 7 7 6 8  89.0
Jaiprakash Power Ventures Power Generation - Diversified 12,275 5 8 7 8  116.0
KNR Constructions Const. & Eng. - Diversified 9,314 9 8 6 8  20.5
Anuh Pharma API / Generic Pharmaceuticals 1,007 6 6 6 8  52.7
The Sandesh Advertising & Marketing - Diversified 1,257 9 7 6 8  59.4
Interglobe Aviation Air Transport 1,86,520 2 8 6 9  97.3
EIH Associated Hotels Hotels & Resorts 2,444 9 6 6 8  62.7
The Great Eastern Shipping Co Oil & Gas Transportation 18,964 9 7 7 8  71.1
Mafatlal Industries Miscellaneous Textiles 1,270 3 7 6 9  39.8
SMC Global Securities Brokerage Services 1,532 5 3 6 9  88.6
The Federal Bank Banks - Diversified 47,768 8 7 6 8  35.8
Pudumjee Paper Products Paper & Paper Products 1,165 9 8 6 9  160.9
Aarti Pharmalabs Pharmaceuticals - Diversified 6,236 6 7 6 8  75.6

Data as of September 2, 2024

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 COVER STORY

INTERGLOBE AVIATION

Leaving turbulence behind

I
nterGlobe Aviation, or IndiGo, as it is known, is growth. While the share price is up 97 per cent,
India’s largest airline company with a leading its earnings for 12-months ending June 2024 are up
market share of 61 per cent. The company operates 103 per cent YoY!
a fleet of 382 planes covering 88 domestic and IndiGo has bigger plans going forward, with a
33 international destinations. major focus on international expansion. In June 2023,
After a challenging Covid-period, which resulted in the company placed the largest order ever recorded
consistent losses, IndiGo has made a remarkable across the global aviation industry. The order was for
U-turn. It recorded the highest-ever revenue and 470 aircraft (A320 planes with Airbus), taking its total
number of passengers in FY24, and doubled its net order book to over 1,000 aircraft. More recently, the
profit every single quarter in the year! What company placed an order for 30 long-body
also worked in favour of the company was the aircraft to meet its international ambitions.
turbulence that its other competitors have With these orders, IndiGo is expected to add
been facing. GoAir going bankrupt and Vistara one new aircraft to its fleet every single week!
and Air India combating internal company Additionally, it announced its foray in the
pressures resulted in a substantial increase in 1.0 premium business class. But the risks such as
market share for IndiGo. Its stock almost 5Y median fluctuations in fuel prices and any downturn
ROCE (%)
doubled in the last year. But despite this run- in the economy must not be overlooked.
up, it appears reasonably valued with a P/E
ratio of just 24 times. This is primarily because
120.2 Additionally, the merger between Vistara and
Air India will create a powerhouse competitor,
5Y EPS
its earnings growth has far outpaced the price growth (% pa) which may pose a threat to IndiGo.

KNR CONSTRUCTIONS

Touting engineering excellence

K
NR Constructions is an engineering, operations with internal coffers.
procurement, and construction (EPC) services So, we have a financially strong company with
company with major focus on roads and water good execution skills and whose road construction-
infrastructure. Over its lifetime of 25 years, the related revenue mostly comes in the form of
company has successfully executed more than annuities (the company undertakes various hybrid
8,700 kms of road projects across 12 states in India. annuity and build-operate projects), providing
During the past decade, when most of the Indian revenue stability. This company is available at a P/E
infrastructure companies were reeling under the stress of ratio of nearly 13 times, despite the stock rising
high debt and execution inefficiencies, KNR 30 per cent in the last year.
Constructions was marching ahead with its solid The company benefits from the
execution, growing its revenue by government’s focus on developing road and
17 per cent annually between FY13-24. The water infrastructure. Beyond the core infra
company has an impressive track record of projects, KNR is also looking to diversify into
successfully executing its projects, most of which other segments as well, one of which is metro
were completed even before the scheduled time. 0.8 projects. However, investors should be
5Y median
The company has a solid base of in-house cautious of its rising receivable days of 122,
ROCE (%)
construction equipment, strong management and which led to negative cash flows in FY24. Its
a headcount of 2,500 employees. Its debt-to-equity 23.5 current order book also warrants caution as it
ratio of below 0.5 times, as of FY24, demonstrates 5Y EPS is extremely concentrated geographically
the company’s ability to efficiently run its growth (% pa) towards Southern India.

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5-star momentum stocks
The all-rounders that score high on all four pillars

O
ur 5-star composite ratings combine the four
parameters in the following weights—Valuation
Score gets the highest weight at 35 per cent,
followed by Quality score at 25 per cent, Growth Score at
20 per cent and Momentum Score at 20 per cent.
The top-rated stocks (with four and five star ratings)
represent companies that are high in quality, fast-
growing, inexpensive and favoured by the market. The
three old metrics of growth, quality and valuation
ensure that stocks with poor fundamentals, no matter
whether they have been performing well or not, are
eliminated. So, adding momentum to our ratings allows
us to find companies that not only have impressive
fundamentals, but are also market favourites at the top 15 based on their one-year returns. Further, we have
moment. We applied the following filters: detailed business profiles and models of two of them.
z Market cap of more than `1,000 crore Please note that these are not stock recommendations, but
z Stock Rating of 5 only ideas for you to prepare a solid universe of stocks
z Momentum Score of 10 with great potential. You can check the full list here:
We got 18 stocks from the above filters and picked out the vro.in/momentum-and-stock-rating

The all-rounders
High-ranked stocks on quality, growth, valuation and momentum
Quality Growth Valuation Momentum 1Y
Company Industry Mcap (` cr) Score Score Score Score Stock Rating return (%)
Cupid Personal Hygiene 2,300 9 7 5 10  365.3
HUDCO Mortgage/Housing Finance 56,384 10 6 3 10  260.4
Trent Apparels & Footwear - Diversified 2,54,783 9 9 1 10  246.4
Oracle Financial Services Financial Technology 95,354 10 6 3 10  160.1
Chemfab Alkalis Comm. Chemicals - Diversified 1,276 9 7 2 10  152.7
Indus Towers Wireless Telecom Services 1,23,563 8 8 5 10  143.4
Amara Raja Energy Automotive Batteries 27,838 9 7 4 10  140.7
Force Motors Commercial Vehicles 10,956 7 8 5 10  139.0
Nava Diversified Others 13,790 8 8 5 10  128.5
Cummins India Diesel Engines 1,03,969 10 8 2 10  121.3
Zydus Lifesciences Branded Medicines 1,13,533 9 7 4 10  82.3
Mahindra & Mahindra Automobile Manufacturers 3,48,947 9 6 4 10  73.7
Bosch Auto Ancillaries 95,453 9 6 3 10  70.1
Coromandel International Fertilisers 51,711 10 6 4 10  58.5
Natco Pharma Pharmaceuticals - Diversified 27,529 8 7 4 10  70.3

Data as of September 2, 2024

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 COVER STORY

AMARA RAJA ENERGY & MOBILITY

Eyeing EV ambitions

A
mara Raja is India’s second-largest automotive project, which is set to be operational next year,
battery manufacturer and exporter. As of FY24, combined with various technological partnerships
the automotive division contributed 67 per cent with companies like GIB EnergyX and Ather Energy
to its revenue, while the industrial division has resulted in its share price more than doubling
contributed 29 per cent. in the last year.
Amara Raja has been the top-ranked company in The upcoming lithium-ion battery factory will have
our composite Stock Ratings, which means it tops the a total capacity of up to 16 GWh when it is fully
list on each metric from quality to momentum. The operational. Given the growth prospects of the EV
company has been consistently beating the market industry, Amara Raja will be a huge beneficiary.
leader Exide Industries in terms of efficiency Moreover, it has set up a lead recycling plant,
and capital allocation, thanks to its consistent which will help it improve its margins. What’s
backward integration initiatives and better more interesting is that despite its solid rally,
capacity utilisation. In terms of growth, it has the stock trades at a P/E ratio of just 29 times.
been benefitting from the current uptrend in However, there are risks to be watched out.
the automobile sector, which has resulted in 19.8 First and most important is the cyclical
its profit after tax almost doubling in the last 5Y median nature of the auto industry. Also, since the
ROCE (%)
five years. Its foray into the new energy company does not have adequate cash flows
business is also working out with revenue
from this segment more than doubling in
12.5 to fund its gigafactory project costing
`9,500 crore, it may have to seek external
5Y EPS
FY24. Further, its progress in its gigafactory growth (% pa) funds by raising debt or equity.

CUMMINS INDIA

Powering up profits
W
ith a rich history of 62 years, Cummins India, Moreover, the company says the new gensets (as a
a subsidiary of global giant Cummins Inc, has result of the new norms) are also seeing steady offtake
established itself as a leading manufacturer of in the market. The company has a history of being
diesel engines and gensets (generator sets) in India. It net debt-free with ROEs maintained at a median
makes revenue from three segments—industrial 19 per cent during FY15-24. It has rewarded its
(supplies diesel engines), power generation (supplies shareholders with an average dividend payout of
gensets), and distribution (provides after-sales service 59 per cent during the last 10 years. Moreover, it has
for the first two segments). Revenue from exports posted its recent growth without any excessive capex,
comprised 17 per cent of its FY24 revenue. thereby generating enough free cash flow.
After experiencing a sluggish growth As for its outlook, the growth in railways,
environment between FY14-21 when its defence and manufacturing sectors is
revenue grew just 1.2 per cent per annum, expected to keep driving its industrial
the company’s business has rebounded segment. The power generation business will
sharply since FY22, with a revenue growth of benefit immensely from the growing demand
27 per cent per annum. This was in part due to 23.9 for data centres in India, which require
5Y median
the growth in the country’s infrastructure and electricity backups. However, a crucial risk
ROCE (%)
manufacturing sector and the tightening of factor for the company remains the transition
regulatory norms for gensets (with CPCB-II 18.3 towards renewable energy, which can spoil its
prospects (its products mainly work on
emission limits), which led to increased 5Y EPS
stocking by its dealers before the deadlines. growth (% pa) diesel tech).

52 Wealth Insight October 2024

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 INTERVIEW

Motilal Oswal Midcap Fund

AUM (` cr)

15,940

Sectoral distribution
Debt Cash & cash
16.4 equivalents
5.3

Real Estate
1.4 Technology
24.0

Materials
In %
4.3
Healthcare
4.4
Financial Consumer
6.6 Discretionary
20.0

Industrials
17.6

Data as of August 31, 2024

NIKET SHAH
Chief Investment Officer at Motilal Oswal Mutual Fund

Why banking doesn’t

excite Niket Shah anymore
Niket Shah, CIO of Motilal Oswal Mutual Fund, reveals why his portfolio
has close to zero exposure to the banking sector

I
n a market reaching new highs, finding value From the outset, my focus has been primarily on
becomes challenging. Niket Shah, Chief Investment growth rather than value. Fundamentally, the first
Officer at Motilal Oswal Mutual Fund, shares his thing that we look at is the size of the opportunity of
proven strategy for identifying multibagger stocks the business and the industry where it is present. This
and businesses with strong compounding potential. is the primary criterion, as achieving 10 or 20 times
returns on stocks requires a sufficiently large and
Every investor has a unique style. Could you walk us continuously growing pool. For instance, the air
through your investment approach? What kind of market conditioning industry in India may seem substantial
environments do you find most exciting or opportunistic? from an external perspective. But if you look at the

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 INTERVIEW

profit pools of the companies, it’s less than `1,200 crore. years, markets have run up fast, but I think no one
On the other hand, the profit pool is very large if you has taken the time to focus on earnings. Earnings
look at capital goods, manufacturing, or IT companies. growth for Nifty companies over the last four years
So, when looking at those larger size opportunities, I has been about 22 per cent. The compound annual
think the chances of you finding a multibagger are growth rate (CAGR) for mid caps has been close to
very high. 36 per cent, and for small-cap companies, it’s nearly
Second is the growth of the industry itself; the 48 per cent. So when you have these kinds of growth
industry should grow at a faster pace, and the bare rates, which we have never seen for mid-cap and
minimum is two times the gross domestic product small-cap companies since the indexes were formed,
(GDP). Within that industry, the company you’re it’s bound to happen that we will see a material
selecting or looking at should be gaining market share, amount of rerating in those stocks.
which means it’s growing faster than the industry’s If you look at the returns of those indexes, it’s
growth rate. Fundamentally, market share gain actually mirroring earnings plus or minus 2 per cent.
translates into market cap gains over time. Similarly, the largest change in the liquidity side has
The third important parameter we consider is the been attributed to the increased participation of retail
promoter. Good promoters without a strong business investors. The number of demat accounts is
do not contribute significantly. We require a business increasing monthly, and mutual fund flows are quite
that is exceptional and has a strong promoter. strong. Domestic institutional investors and retail
Fourth, forensic financial analysis emphasises investors own 85 per cent of the market, while foreign
cash flows more than profit and loss (P&L) and the institutional investors own the remaining 15 per cent.
balance sheet. This is because, in the end, what So when 85 per cent of the market keeps buying, and
matters most to shareholders are the cash flows. So, 15 per cent keeps selling, there is no impact on the
if there are companies that don’t generate free cash overall market.
flow, it’s typically a red flag for us. Unless they are in
an expansion phase or operating in a business that
requires two or three years of significant capital
expenditure to reach a specific level, they should The chances of finding multibagger
eventually generate free cash flow. But we have to
dive deep into some of those companies with negative
stocks are very high in industries,
free cash flow, which is quite important for us from a which have sufficiently large and
quality of business standpoint. growing opportunities.
Last but not least is the capital allocation policy. Is
the business likely to generate at least 20 per cent
ROCE and ROE?
We prioritise a few key areas, followed by earnings These two factors have contributed to the market’s
growth. We don’t like businesses that grow at less than continued buoyancy. In the past, investors initially
20 per cent. So essentially, from a longevity standpoint, invested in large-cap stocks before transitioning to
we focus on businesses that can grow at 20 per cent mid- and small-cap stocks. But now we are seeing so
compounding over the medium-to-longer term. If you much passion and love for unlisted equities. So, the
can achieve these rare combinations, we would risk-taking ability of retail/HNI/institutional investors
definitely consider investing. This is why our portfolios on the domestic side has only gone up.
have had a lot of multibaggers, which has resulted in a
superlative performance vs peers and index. With valuations at record highs, is it getting tougher to find
good investment opportunities? How do you go about
The Sensex has been hitting new highs almost weekly. identifying value in this kind of market?
Do you believe this rally can be sustained? What key I believe that there is always value and mispricing in
factors do you think are driving the market, and what the market. We believe you should focus on sectors
could keep it going? where valuations are significantly lower while also
We consider two factors in the markets: considering earnings.
fundamentals and flows or liquidity. In the last three We believe that IT growth should resume once the

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US elections are over. Assuming a marginal increase in
growth for certain IT companies, the current Top 10 companies by weight
valuations would appear more affordable. This is why Company Sector Weight (%) 1Y return (%)
we took an overweight position in the IT sector a few Kalyan Jewellers Cons. Discretionary 9.7 208.8
quarters ago, which benefits us now. We also took
Polycab Industrials 9.0 26.1
overweight positions in the pharma sector, and that’s
Persistent Systems Technology 8.8 81.0
benefiting us in some sections. We have moved out of
real estate, capital goods, and some large beta stocks, JIO Financial Financial 6.6 48.7
such as banking. We have close to zero banking Coforge Technology 6.4 24.7
exposure and have invested in non-banking financial Tube Investments Cons. Discretionary 5.7 18.9
companies (NBFCs), where our weights are very high.
Voltas Industrials 5.5 118.7
Therefore, I would argue that our portfolios are
Zomato Technology 4.0 173.0
extremely well-positioned. Currently, our portfolios are
heavily weighted towards IT and telecom, consumer Balkrishna Industries Cons. Discretionary 4.0 22.3

discretionary, and some manufacturing sectors, where KPIT Technologies Technology 3.4 47.0
we anticipate significant earnings growth in the future. Total 63.0
We don’t want to take a disproportionate risk at this
Data as of August 2024. Return as of September 19, 2024
point in time and move up the quality curve. In fact, in
the last two to three months, we have invested in
small-cap stocks, which have gone up by 60-70 per cent investors should seriously consider adding them to
since we bought them. While valuation is expensive their portfolios?
and there is froth in certain segments, we should not Again, I think we have to bisect and dissect this
paint that brush on the entire market. There is still a sector, given that there are several companies in
lot of value in the market, a lot of stocks that we quick commerce, food delivery, fintech space, and the
continue to believe can give you a two to three-times insurance sector.
return in the next two to three years, and they’re still However, I would say that the food delivery and
available right in front of our eyes. quick commerce space is quite exciting, and we are
going to see more companies entering the listed space.
Which sectors hold the most potential for wealth creation This is probably the biggest and most powerful theme,
over the next decade? Conversely, should investors avoid at least in this decade, where customers are willing to
or be cautious about any sectors? pay a fee for convenience. I think the opportunity and
Investors should avoid high-flying sectors like banking. the growth runway are huge. I think we’ve just
We believe net interest margins (NIMs) have peaked, scratched the surface in some of these businesses.
and credit costs have bottomed out. Hence, with 12 to 13 There’s a long way to go if you have a three to four-
per cent credit growth, lower NIMs and higher credit year view. One can create enormous amounts of
costs going forward, bank earnings growth will be in wealth. I would not be surprised if some of the food
the high single digits to lower double digits. delivery or quick commerce businesses find a place
We continue to like IT. I don’t believe the arrival of among the top 10 companies in India based on market
AI will significantly reduce the workload for IT capitalisation within the next five years.
companies; in fact, I believe it will actually benefit
them. Last but not least, we are extremely excited On the flip side, what key indicators or warning signs
about the entire mobile component ecosystem, as major prompt you to sell a stock in your portfolio?
mobile companies, such as Samsung, Apple, etc., are That’s an interesting question, as we spend a
considering India as their manufacturing hub. Indeed, disproportionate amount of time selling and not only
our excitement extends to the entire energy transition buying. I have consistently stated that in India, the
from fossil fuels to solar and wind power. We find these importance of buying is significantly overshadowed
sectors appealing due to their long-term potential. by the importance of selling.
The earnings downgrade cycle is the first reason we
New-age tech companies have been making headlines. sell a stock. If we believe the earnings downward cycle
What’s your view on them? Do you think retail will start, we don’t want to own that stock. The second

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 INTERVIEW

factor is valuations; we will sell the stock if we come gaining market share.
across a better opportunity that can yield a higher Let’s examine the consumer discretionary sector,
return. For example, mid caps have done very well in specifically QSR companies, where the growth rate is
the last year, and IT has done well within mid caps. under pressure, and the same-store sales growth (SSG)
Large-cap and small-cap IT stocks have has been negative since the previous quarter.
underperformed. Could there come a time when you On the other hand, the food delivery business,
transition from mid-cap IT names to large-cap or previously operating at a loss, has recently begun to
small-cap IT names, where growth is resuming and an turn a profit due to various changes implemented by
earnings upgrade cycle is underway? This is just an the management. So, you’ve realised that, rather
example of selling a portfolio stock. than investing in a QSR company or restaurant
business, why not partner with the aggregator itself,
Can you elaborate on how you select stocks once a sector which is expected to grow at a rate of 60-70 per cent
or theme is zeroed in? over the next four to five years? This becomes
Let’s examine different scenarios. When examining interesting from the growth perspective, and there
the FMCG sector, we find no major increase in volume are moats in the business as the first guy has a
growth, which disqualifies it from our growth higher market share, and the second guy is losing
strategy. Now, let’s shift our focus to the jewellery market share. So, within the entire consumer
sector, where the leading player is experiencing a discretionary or consumption space, we are focusing
slowdown while the second and third players are on businesses that will grow at a faster pace for the
increasingly seeing higher growth rates pursuing next two to three years without diluting our quality
franchise opportunities. Consequently, the growth parameters. Ignoring or not investing in some of
rates of that company will surpass both the industry these businesses could result in growth rates that are
growth rate and the growth rate of the leader, thereby significantly lower than in the past.

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 STRAIGHT TALK

Yield optimiser funds might

make sense now
Weighing the merits of yield optimiser funds against REITs as rate cuts draw closer
investors, this means migrating to higher-duration
funds. This will lock in the current yield and
generate capital gains as bond prices rise. Double-
digit returns are still unlikely from a bond portfolio.
Unsurprisingly, this has generated interest in ‘yield
optimiser’ funds – funds that invest in real-estate
By
portfolios – like the AIF (Alternative Investment
Anand Fund) launched by ICICI Prudential Mutual Fund.
Tandon The AIF that ICICI Prudential has launched claims
to generate a pre-tax, pre-fee, indicative return of

T
he US Federal Reserve has finally indicated over 15 per cent through a portfolio that invests in
that the US economy is showing signs of office properties rented out to marquee tenants for
slowing, which enables it to reverse the over five years. At the end of this five-year period,
rate cycle and start to cut interest rates. This the property will be sold off. The fund will take on
usually impacts global markets as US investors seek debt equal to the invested amount to manage tax
higher yields overseas. In India, too, the rate cycle and enhance returns.
is widely expected to have peaked. The market Extending the computations using the figures in
now expects RBI to start reducing rates, the presentation, one can arrive at a post-tax
though the timing is uncertain. IRR (internal rate of return) of 12 per cent
Debt investors are advised to increase the for the investor. This is indeed an attractive
duration of their bond holdings. For mutual fund return – if it can be achieved.

Projected returns appear attractive

AIF’s cash flow and exit strategy In ` cr
Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Total

Rent & EMI

Net rental 8.0 8.4 8.8 9.2 9.6 44.0
Less: EMI -6.9 -6.9 -6.9 -6.9 -6.9 -34.5
Amount available for distribution 1.1 1.5 1.9 2.3 2.7 9.5
Exit
Exit value of property - - - - 123.5 123.5
Less: Repayment of outstanding borrowings - - - - -35.3 -35.3
Exit value to the fund - - - - 88.2 88.2
Distribution
Amount distributed to the fund* 1.1 1.5 1.9 2.3 90.9 97.9
Gross IRR (% pa) 15.1
*Cashflows are subject to deduction of management fees by the fund; Source: ICICI Prudential Office Yield Optimizer Fund AIF II presentation

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 STRAIGHT TALK

An attractive index-beating bet?

Even on a post-fee basis, the fund can generate a return of around 12 per cent
Particulars (` cr) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 IRR (% pa)

AIF Cash flow (pre fees) -50.0 1.1 1.5 1.9 2.3 90.9 14.9
Fees -1.0 -1.0 -1.0 -1.0 -1.0
Investor cash flow (post fees) -50.0 0.1 0.5 0.9 1.3 89.9 13.3
Capital gains for investor 39.9
Tax on Capital Gains -5.0
Cash flow in hand for investors -50.0 0.1 0.5 0.9 1.3 84.9 12.1

Analysing the forecast treatment. Dividends, in certain cases, are exempt

When analysing the forecast, it is necessary to depending on the REIT structure. REITs are larger,
understand the underlying assumptions and the perpetual, and have preferential regulatory treatment
sensitivity to changes in assumption. For example, the compared to AIFs, which is similar to the advantages
reason the fund life (five years) is extendible twice by a mutual funds enjoy over portfolio management plans.
year each, is because real estate markets are illiquid. In addition, unlike AIFs, there is a much smaller
Transactions may take longer to close than anticipated. investment threshold and no requirement to lock in
Q Timing and price: A key assumption is that the funds – listed REIT units can be sold in the market.
managers will be able to sell off the property at a
price that is 25 per cent higher than the purchase The listed market performance
price. Almost the entire cash flow to the investor is While regulations for REITs were issued over a decade
generated by the sale of property owned by the SPV
(special purpose vehicle) Both the value and timing
are crucial to the return. If prices don’t rise as
anticipated, the fund managers could decide to wait
longer. A delay of one year in the sale can reduce
the net IRR by 90 basis points.
Q Occupancy rate: The product presentation suggests

that 30 per cent of assets could be deployed in AIFs

“tactical investments” – properties in the pre-
commitment or completion stage. This will drop the
occupancy to less than 100 per cent and potentially
reduce returns.

A comparison to REITs
Real estate investment trusts (REITs) are instruments
designed to generate returns for investors by
investing in real estate. There are various kinds of
REITs with underlying assets like hospitals, hotels,
and retail spaces, with tenants that have long tenancy
requirements and steady cash flows to pay the rent.
Office REITs are the exact equivalent of the ICICI
product described above. They invest in office
properties that are then rented out.
REITs are regulated by SEBI and mandatorily pay
out 90 per cent of the taxable income to investors.
REITs distribute income in the form of interest,
dividends and capital gains. These attract differing tax

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Distribution snapshot of listed REITs Return performance of listed REITs
Mindspace wins in terms of performance despite lower distribution Impact of REITs’ price movement on yield
Distribution per unit (`) Yield (%)
Particulars FY21 FY22 FY23 FY24 3 year
REIT FY22 FY23 FY24 average
Brookfield India REIT - 22.2* 20.3 17.7
Brookfield India 10.0 6.5 6.3 7.6
Embassy Office Parks REIT 19.4 21.8 21.7 21.3
Embassy Office Parks 6.7 5.8 6.8 6.5
Mindspace Business Parks REIT 14.4 18.5 19.1 19.2
Mindspace Business Parks 6.3 5.5 5.9 5.9
Price at the end of each financial year (`)
3Y Com.
Particulars FY21 FY22 FY23 FY24 FY22 FY23 FY24 return (%) Ret. (%)

Brookfield India REIT 223 313 280 247 Brookfield India 40.3 -10.6 -11.6 3.5 11.1
Embassy Office Parks REIT 325 372 312 370 Embassy Office Parks 14.2 -16.0 18.4 4.3 10.8
Mindspace Business Parks REIT 295 347 327 345 Mindspace Business Parks 17.5 -5.6 5.6 5.4 11.3

*Includes distribution for FY21 from Feb 8, 2021 to Mar 31, 2021; Distribution data for Brookfield for FY21 is unavailable since it got listed at the end of FY21

earlier, REITs appeared in the market in India only in end price and current year distribution.
2019. There are currently three office REITs that are listed. The table ‘Return performance of listed REITs’
The ‘Distribution snapshot of listed REITs’ table approximates the returns an investor would have
lists the distribution per unit for each REIT and the generated from investing in these REITs. The
share prices at the end of March 31st. These pre-tax combined returns of around 11 per cent are about 1.25
returns have been computed based on the prior year- per cent lower than the pre-tax return projected for
the AIF. These vary widely over the years. FY22
witnessed strong price appreciation as business
resumed post-Covid-19. The next couple of years saw a
moderation in price returns. Note that over the longer
term, price moves are similar to what can be expected
from underlying real-estate price changes.
In the future, if the price of office property
REITs rises faster, it is likely to be mirrored in the
portfolios of these REITs as well. If interest rates
fall, REITs will behave as long-duration bonds. They
should appreciate faster than a shorter tenure
instrument like the AIF. REITs also benefit from
portfolio improvements – where the manager can
re-purpose buildings, make value-enhancing
improvements, better the tenant portfolio or lower
the cost of debt. This flexibility isn’t available in
shorter-duration products.

Investment rationale
In general, AIFs don’t have a compelling rationale to
outperform an equivalent REIT. The only analogy that
makes sense is that of a fixed maturity plan. Since the
AIF is a fixed-duration product, its returns may be
more predictable. Investors need to think whether it
makes sense to lock into an ‘fixed maturity plan’
compared to a long-duration perpetual product when
interest rates are expected to fall.
AI generated image

October 2024 Wealth Insight 59

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 EVERYDAY ECONOMICS

The problem with Google

that we don’t see
The tech giant’s monopoly quietly shapes our digital lives
more and more users access the default and also end
up in its ecosystem of interoperable services such as
Gmail, Google Maps, YouTube, etc., they tend to not
use products offered by its competitors.
This way, Google gains control over their data,
By which is the essential input tech companies need to
Puja develop new services and artificial intelligence (AI), an
advantage its competitors are denied in the process. In
Mehra
the jargon, this is called ‘network effects’; it helps a
tech giant unfold a winner-takes-all scenario.
In fact, Satya Nadella testified before the Judge that

T
he US government sued Google. The Judge Google’s dominance is constraining Microsoft’s efforts
hearing the lawsuit ruled that this tech giant is to develop AI. (Several key people in this case are indi-
a monopolist and acted illegally to maintain a viduals of Indian origin: Judge Mehta is hearing the
monopoly in online search. Now, a prospect looms of case, and Nadella testified against Google, which of
the ruling that, as a remedy, Google should be broken course, Sundar Pichai heads.)
down into smaller firms. Google will, of course, Users feel satisfied with Google without realising
appeal the ruling. that they could be losing out, even when its products
Consumers may wonder what all the fuss is about are free, as their choices – in the present as well as
when Google search is free and convenient. The risks over time – are being limited by the company’s market
monopoly behaviour poses to consumers aren’t easily competition-distorting behaviour.
visible when the product is free. That makes it That’s not all. Judge Mehta ruled that Google could use
difficult for non-economists to see why Google’s monop- its monopoly power to charge much more in ad
oly is problematic. Google has, in fact, long argued, and prices than it could have had it been operating in a free
did so in the case too, that it’s winning because it is market for ads. Inflating its revenues this way, in turn,
good. Judge Amit Mehta, hearing the US government’s allowed it to fork out billions of dollars for bribing
lawsuit, ruled that this isn’t how things are. devices and smartphone manufacturers to make its search
engine the automatic option, denying scale to its competi-
Google’s monopolistic practices tors. Judge Mehta noted in the ruling that 90 per cent of
Google has been paying billions of dollars to
companies like Apple (which received $18 billion in
just one year, 2021) and Samsung for making its
search engine the default on their smartphones, devic- Users feel satisfied with Google without
es, and web browsers. Judge Mehta ruled that Google
realising that they could be losing out,
maintains a monopoly over its competitors by making
these payments, which is illegal. even when its products are free, as their
Why would Google pay through its nose to be the choices – in the present as well as over
default search engine if it really was the automatic time – are being limited by the company’s
choice of consumers? Google’s payments, ‘bribes’
market competition-distorting behaviour.
essentially, to be the automatic search engine on
devices and web browsers are harmful because when

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 Illustration: ANAND

the online searches today are done on Google. broken up into 43 separate companies. Similarly, an
antitrust ruling by a court in the 1990s had called for
Broader implications Microsoft to be broken up to remedy its monopoly
This ruling against Google may well be a tipping point power. Microsoft appealed that ruling and was able to
for the US government’s lawsuits against other settle with the US administration of President George
American tech giants. In some of these, market Bush in 2001, and escape being broken up.
dominance may be more perceptible for consumers. Nvidia may well become the latest to be probed for
For instance, the US government has sued Apple, harm caused by the pursuit of profit. (Its shares, worth
alleging that the company’s “walled garden” doesn’t some $350 billion at the start of 2023, shot up to about
let consumers give up iPhones; you buy one, you end $3 trillion by mid-2024, briefly making it the world’s
up never buying a device of another brand. In another most valuable business.) The chip maker is a monopoly.
case, the US department sued Amazon for squeezing It supplies 80 per cent of the chips used globally for run-
small sellers in its online marketplace. ning artificial intelligence on computers, but this falls
The US government has been uncomfortable with short of the rapidly growing demand. And so, how it allots
how much monopoly power is, in general, increasing the chips is seen as a source of power that may need to be
across sectors in its economy, and that is making big looked at from the point of view of whether or not it could
companies bigger. Because of their market-distort- be market competition distorting.
ing behaviours, the going is getting tougher for Outside of the US, too, the mood globally is to
smaller firms and new innovators. On the other regulate Big Tech companies, as most countries fear
hand, while the profits of the big companies are that they may be amassing too much power over the
growing rapidly, the American middle class has economy and politics. And since Google, an American
struggled with stagnant wages. company, has been ruled to be guilty of illegal market
But Big Tech is particularly in focus now because behaviour by a US court, global efforts to place checks
of its growing control over how users consume on tech giants may pick up pace. Big Tech may no
information and shop online and how this dominance longer find the going as easy.
influences the economy, politics and elections.
Puja Mehra is a Delhi-based journalist and the author of
Long ago, in 1911, the US had used its antitrust laws ‘The Lost Decade (2008-18): How the India Growth Story Devolved
to regulate the power of Standard Oil, which was into Growth Without a Story’

October 2024 Wealth Insight 61

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 By WhiteOak
INVESTMENT ACORNS

Healthcare for a hearty portfolio

A good diversifier with ample market-beating opportunities
enhancing investor wealth over the long term and
serving as a valuable diversifier within the equity
asset class. Moreover, the diversity of business
models within this theme presents opportunities for
active fund managers seeking to generate alpha.

By Wealth creation over long term, low

Manuj Jain, correlation with broader market indices
Over the last 20 years (August 2004 to August 2024),
CFA
the BSE HC TRI has delivered a comparable return
of 16.8 per cent CAGR, versus 16.3 per cent CAGR

A
theme represents a broader concept, from the Nifty 50 TRI and 17.0 per cent CAGR from
amalgamating various the Nifty 500 TRI (an index representing the broader
interconnected sub-sectors. A equity market). What makes this
structural theme, also known as a strategic particularly interesting is the
theme, embodies a long-term, return stream compared to the
fundamental perspective on an broader market, specifically the
investment or market trend. It is correlation between these indices.
rooted in comprehensive analyses of The correlation between the
macroeconomic, demographic, BSE HC TRI and the broader market
technological, and other fundamental (Nifty 500 TRI) is 0.66 on a one-year basis and
factors expected to shape the market over only 0.31 on a three-year CAGR daily rolling
an extended period. In contrast, a tactical basis. This shows that the healthcare sector can
theme reflects a shorter-term, opportunistic provide a low-correlated return stream compared to
viewpoint influenced by near-term market the broader market, potentially enhancing the risk-
conditions, price movements, or specific events adjusted returns of an investor’s overall portfolio
impacting asset prices. over the long term.
Several structural themes prevail in India, such
as healthcare, consumption, BFSI (banking,
financial services, and insurance), manufacturing, Matching shoulders
Healthcare index and Nifty 500 had similar returns over 20 years
and digital. A structural theme is propelled by
shifts in the underlying economy, industry, or 2,500 z Nifty 500 TRI z BSE HC TRI
market structure, often exerting a lasting impact 2,000
spanning years.
1,500
The healthcare sector has significant long-term
growth potential, driven by factors such as the 1,000
rising prevalence of lifestyle diseases, increasing 500
health insurance penetration, under-investment in
0
healthcare infrastructure, an ageing population,
August 2004 August 2024
and global cost competitiveness. This includes
MFIE and internal research of WhiteOak Capital. Performance for understanding purpose
gaining market share in pharmaceutical exports only. Past performance may or may not be sustained in future and is not a guarantee
and capitalising on the growth of medical tourism. of any future returns. Index performance does not signify scheme performance.
Period: From August 23, 2004 (inception date of BSE HC TRI) to August 31, 2024. Nifty
The healthcare theme in India exemplifies a long-
500 TRI represents the broader market here.
term structural theme capable of potentially

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Providing cushion
Healthcare index showed resilience in difficult market periods z Nifty 500 TRI z BSE HC TRI

120 Calendar Year 2008 105 Calendar Year 2011

100 97

80 89

60 81

40 73

20 65
January 2008 December 2008 January 2011 December 2011

110 Q1 Calendar Year 2020 (Jan to Mar) 200 Q2 to Q4 Calendar Year 2020 (Apr to Dec)

100 180

90 160

80 140

70 120

60 100
January 2020 February 2020 March 2020 April 2020 December 2021
Source: MFIE and internal research of WhiteOak Capital. Performance for understanding purpose only. Past performance may or may not be sustained in future and is not a guarantee of any
future returns. Index performance does not signify scheme performance. Calendar year is from January 1, to December 31. Nifty 500 TRI represents the broader market here.

Heterogeneous healthcare
Opportunity for active fund managers

Pharmaceuticals Hospitals Diagnostic Services CRO / CDMO

Innovator companies Multi specialty Radiology Discovery

Branded-Generics Single special Pathology Pre-Clinical
Generic-Generic Asset Heavy B2B Clinical Development
API Asset Light B2C Commercial Manufacturing
Diversified pharma Hub and Spoke

For understanding purposes only. API = Active pharma ingredient, CRO = Contract research organisation, CDMO = Contract development & manufacturing organisation,
B2B= Business to business, B2C = Business to consumer

Defence during large market fall opportunities to active fund managers. Within each
As observed in the adjacent graphs, the Healthcare healthcare sub-segment, there are diverse business
index has limited downside during challenging years models with varying economic characteristics.
such as 2008 and 2011 compared to the broader Therefore, bottom-up stock picking is of utmost
market. The calendar year 2020, one of the most importance in this sector.
volatile years in recent times, saw the Healthcare
Manuj Jain, a CFA charterholder, is an Associate Director and
index deliver a better investor experience compared Co-Head of Product and Strategies at WhiteOak Capital Asset
to the broader market index. Management Company. He has been with the company for
over two years and has over 16 years of experience in asset
management. Part of the WhiteOak Capital Group, WhiteOak
A heterogeneous sector Capital Asset Management Company is the sponsoring entity
Healthcare is a heterogeneous sector providing of WhiteOak Capital Mutual Fund.

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 STOCK ADVISOR

Fast and steady…

Value Research Stock Advisor equips you with the ‘what’ and ‘why’ of smart
investing, guiding your path to a winning investment strategy

market-related social media discussions, leading them

into speculation and rapid trading. Others neglect
crucial aspects such as thorough research and proper
diversification. Consequently, substantial losses often
occur early in their investment journey, prompting
them to either abandon investing altogether or
by drastically alter their approach.
Dhirendra I believe one of the fundamental reasons so many
people have trouble investing in the stock markets is
Kumar
that they have severely flawed mental models of what
determines a stock price.

P
ractically, the first thing equity investors learn The most common model is: ‘There are people who
about investing is that to make money, they know when a stock’s price is about to rise. If one of
have to ‘buy low, sell high’. them tells me, then I can make money.’ This is the ‘tip’
In fact, here’s an old Wall Street joke that would
have been a cliche if it weren’t so true. A beginner asks
an old-timer, “How do you make money in the market?”
The wise man answers, “Nothing could be simpler: buy
low, sell high.” The beginner asks, “How can I learn to
do that?” The response: “That takes a lifetime.”
That’s not a joke, but investing advice is packaged
as a joke. The question is, what is that advice? What
does the joke try to teach us? Unfortunately, most
investors take it to mean that the way to make money
is to time the markets. In reality, the lesson is that
you CANNOT time the markets. It’s impossible to
learn even in an entire lifetime. And yet, that’s what
investors keep trying to do.
Considering the impressive growth of Indian stock
markets in recent decades, it’s surprising that any
equity investor could have lost money. The statistics
are compelling: market values have multiplied
2.2 times in five years, 3.2 times in 10 years, five times
in 15 years, 15 times in 20 years, and 18 times over a
25-year span. Logically, one might assume that in such
a thriving market, an investor need only participate
and adhere to fundamental principles like avoiding
poor investments and maintaining a diverse portfolio
to accumulate wealth. While this is true in theory,
most investors find the reality quite different.
Many investors veer off course, often influenced by
their brokers or the prevailing short-term focus in

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model of the stock markets. It isn’t so much a mental achiever stocks, there’s a decent chance one will be a
model as the lack of one. A little broader than the ‘tip’ 10-, a 20-, or even a 50-bagger, where you can make 10,
model is the ‘operator’ model. Under the operator 20, or 50 times your investment. With your stake
model, people believe that there are people divided among a handful of issues, all it takes is a
(“operators”) who manipulate stocks and what one couple of gains of this magnitude in a lifetime to
needs is to figure out what the operators are doing and produce superior returns.
then somehow manage to ride the stock while the One of the oldest sayings on Wall Street is, “Let
operator is pushing it. This model might be realistic your winners run and cut your losers.” It’s easy to
for fringe stocks but it’s actually useful only for the make a mistake and do the opposite, pulling out the
operators themselves. The individuals who believe in flowers and watering the weeds. If you’re lucky
it end up being the ‘greater fools’ that the clever enough to have one golden egg in your portfolio, it
operators need. may not matter if you have a couple of rotten ones in
The psychological factor that underlies both these there with it. Let’s say you have a portfolio of six
models is the fear of the big guy. Investors believe that stocks. Two are average, two are below average, and
there are others–professional investors of some kind– one is a real loser. But you also have one stellar
who possess some magic that the small guy cannot performer. In other words, you don’t always have to
access. This is partially correct. I mean, there is magic be right to do well in stocks.
in investing well, but the small guy can also master it Summing up, this leads us to a few steps: identify
and become a magician. likely stocks that will do sustainably well, research
them, buy them and track them. The question is, how
You just need a handful can we do all this without putting in the kind of time
If you put together a portfolio of five to 10 high and effort that a professional can? I’m sure you know
the answer to that.
This is exactly what Value Research Stock
Advisor does for you. It gives you not just a list of
stocks to buy but an investment thesis. More than
that, our researchers and analysts keep
re-examining the thesis and keep it updated and
fresh, so to speak. Members get not just the ‘what’
but the ‘why.’ You need all the help that you can get.
That’s the role of Value Research Stock Advisor. We
don’t pretend to make all the decisions for you–we
are your research assistant team, but our goal is to
make you the investor.
Let me just recap what you get when you become
a member:
z Access to all our stock picks
z Selected stocks from our recommendations. Use
this set to start building your portfolio right away!
z The complete investment thesis for all
recommended stocks so that you understand why
you are investing
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analyst team
z Tools and data to research and analyse any
other stock
To start immediately, head over to valueresearch-
stocks.com, read the details and become a member.
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 STOCK SCREEN

Top-rated stocks
All stocks with five-star Stock Ratings

T
ired of spending hours sifting through the vast businesses and sound investments. These concepts are not
listed universe? You need a reliable stock synonymous. A company with solid operational efficiency
screener. It can help you get a list of promising and a strong balance sheet does not automatically qualify
stocks that deserve your attention with just a as a wise investment choice. Quality does not inherently
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you only need to research them further to find growth does not guarantee wealth creation. If
the ones worth investing in. the growth is not profitable, there’s no real
Value Research offers several value being added.
carefully curated stock filters that can Is there a way to sidestep these pitfalls?
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Successful stock picking is a rather tricky A word of caution
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easy to make mistakes. due diligence before investing. If you are interested in
A common mistake investors make, particularly a list of stocks to invest in, subscribe to Value
beginners, is failing to distinguish between high-quality Research Stock Advisor.

Key terms
4HYRL[JHW various metrics, such as return on 10, and the higher the score, the :[VJR9H[PUN
Stands for market capitalisation. equity, return on capital employed, higher the historical growth. Value Research Stock Rating
Obtained by multiplying the stock debt-to-equity ratio, etc. The score is =HS\H[PVU:JVYL combines the three scores (quality,
price by the total number of shares. based on the relative ranking of all It gauges if a stock is reasonably growth and valuation) based on
Shows a company’s market value parameters after assigning certain priced. This quantitative rating assigned weights to arrive at a holistic
or size. weights to each. Both current values considers the stock’s current and stock rating. We have created a five-
and historical values drive the ratings. historical valuation parameters based star rating system. The higher the
7YPJL[VLHYUPUNZ7,
The score is out of 10. The higher the on metrics such as P/E ratio, free stock rating, the better.
The ratio of the stock price and
score, the higher the quality. cash flow yield, dividend yield, etc. :[VJR:[`SL
earnings per share (EPS). It shows in
multiples how much investors are .YV^[O:JVYL The score is out of 10. The higher the Derived from a combination of the
willing to pay for a share in a It evaluates a business’s historical score, the more attractively priced it is. stock’s valuation – growth or value –
company’s earnings. Note that a high- growth and scale, using metrics such 4VTLU[\T:JVYL and its market capitalisation – large,
growth stock often will have a high as revenue growth, operating cash It represents the market demand for a mid and small. For example, here is
P/E ratio, while a value stock will have flow growth, Piotroski F-score, etc. stock by assessing its historical price the stock style
a relatively lower P/E ratio. The score is based on absolute trend over six to 12 months. The score of a large-cap Growth Value
ranges and is driven by current is calculated by adjusting the price growth stock.
8\HSP[`:JVYL Large
performance and historical movement for volatility. A higher score
It assesses the quality of a company
consistency of growth. Per share data means the price performance has Mid
quantitatively, capturing two crucial
is considered for each parameter to been impressive with relatively lower
aspects, i.e., business efficiency and Small
calculate growth. The score is out of or digestible volatility.
balance sheet quality. It considers

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5-star rated stocks
Reasons to invest The filters No. of
169
companies
High-quality companies Companies with a 5-star that cleared
Moderate to high growth Stock Rating the filters

Reasonable valuations

Company Stock Altman Quality Growth Valuation Momentum Market Share 52-week
Industry style Z-Score Score Score Score Score P/E cap (` cr) price (`) high/low (`)

Amara Raja Energy

Automotive Batteries  9 7 4 10 26.5 25,464 1,370 1,775-599

ASK Automotive
Auto Ancillaries  9 8 2 10 46.1 9,017 447 478-240

Bikaji Foods International

Snacks & Food Confectionery  9 9 3 10 81.5 23,024 919 942-450

Black Box
IT Services & Consulting  8 7 4 10 56.1 8,466 495 584-176

Colgate-Palmolive
Personal Hygiene  10 6 2 10 69.9 98,804 3,644 3,709-1,968

Coromandel International
Fertilisers  10 6 4 10 34.9 50,907 1,693 1,789-1,019

Cupid
Personal Hygiene  9 7 5 10 49.4 2,270 86 140-19

Dhanuka Agritech
Pesticides  8 8 4 10 27.8 7,081 1,519 1,925-764

E2E Networks
Software & Serv. - Diversified  10 8 1 10 159.4 3,990 2,792 2,965-321

Emami
Household Products - Diversified  10 7 3 10 44.0 32,478 754 860-417

Hindustan Aeronautics
Defence & Aero. Diversified  10 5 3 10 36.0 2,96,712 4,243 5,674-1,767

Housing & Urban Dev.

Mortgage/Housing Finance  9 6 3 10 21.6 48,196 233 353-70

India Shelter Finance

Mortgage/Housing Finance  9 3 6 10 27.8 7,890 725 799-519

Indus Towers
Wireless Telecom Services  8 8 5 10 17.1 1,12,795 411 460-166

INEOS Styrolution
Plastic Materials  8 7 5 10 20.7 4,182 2,350 2,880-1,030

Innova Captab
Pharmaceuticals - Diversified  9 8 4 10 43.4 4,612 762 841-421

Jai Balaji Industries

Metals - Diversified  6 8 5 10 22.5 20,653 1,097 1,314-360

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 STOCK SCREEN
Company Stock Altman Quality Growth Valuation Momentum Market Share 52-week
Industry style Z-Score Score Score Score Score P/E cap (` cr) price (`) high/low (`)

Kaycee Industries
Switching Equipment  8 8 5 10 220.6 1,132 3,639 3,639-208

Mahindra & Mahindra

Automobile Manufacturers  9 6 4 10 31.6 3,49,282 2,842 3,013-1,450

Mazagon Dock
Shipbuilding & Maintenance  9 7 3 10 36.3 84,251 4,057 5,860-1,742

Nava
Diversified Others  8 8 5 10 18.4 19,113 1,218 1,347-374

Prudent Corporate Advisory

Brokerage Services  10 8 2 10 62.3 9,643 2,294 2,737-1,075

RS Software
Software & Serv. - Diversified  9 8 3 10 33.4 707 274 367-46

Trent
Apparels & Footwear  9 9 1 10 152.7 2,60,467 7,242 7,508-1,945

Voltamp Transformers
Transformers & Transmission  9 8 3 10 40.2 13,523 13,448 14,800-4,212

3B BlackBio Dx
Pesticides  10 7 3 9 32.9 1,203 1,394 1,550-660

ADC India Communications

IT Services & Consulting  9 8 4 9 31.2 865 1,900 2,309-678

Aditya Birla Sun Life AMC

Asset Management Companies  10 6 4 9 26.3 21,863 742 775-412

All E Technologies
IT Services & Consulting  10 8 3 9 40.3 879 437 512-144

Ashoka Buildcon
Const. & Engg. - Diversified  7 8 6 9 11.0 6,794 238 284-101

Authum Investment & Infra

Brokerage Services  8 7 6 9 5.5 28,329 1,651 1,830-732

Bajaj Auto
Cars & Multi Utility Vehicles  10 7 2 9 41.0 3,28,579 11,945 12,054-4,903

Bajaj Steel Industries

Industrial Machinery  9 8 4 9 16.1 1,363 2,585 2,798-1,004

Balmer Lawrie Investments

Investment Holding Companies  7 4 8 9 12.7 2,184 91 107-38

CDSL
Financial Services - Diversified  10 9 4 9 65.5 31,437 1,500 1,664-631

Cigniti Technologies
IT Services & Consulting  10 5 4 9 28.9 3,802 1,391 1,415-780

CMS Info Systems

Other Business Services  9 7 6 9 26.6 9,397 573 601-344

Cummins India
Diesel Engines  10 8 2 9 57.0 1,04,324 3,707 4,171-1,653

Data as of September 19, 2024

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Want more? Here you go
Other screens available on the Value Research website, along with
their themes and some of their stocks
P/E P/E

Top momentum stocks Shardul Securities 3.7 The Yamuna Syndicate 12.1

Gives a list of stocks that are in the

Authum Investment & Infra 5.4 Dolat Algotech 13.2
vogue right now Pudumjee Paper Products 10.0 Aditya Birla Money 14.2
Ashoka Buildcon 10.9 Career Point 14.8
Balmer Lawrie Investments 11.9 Bajaj Steel Industries 15.9

High momentum Hindustan Zinc 25.5 Siemens 98.4

largecaps Mahindra & Mahindra 31.9 Bharti Airtel 101.7

Gives a list of largecaps that are in the Hindustan Aeronautics 35.3 Avenue Supermarts 130.4
vogue right now Bajaj Auto 41.9 Trent 152.2
Sun Pharma 42.7 Zomato 408.4

High momentum Motilal Oswal Financial Services 16.2 Cochin Shipyard 52.1
midcaps Housing & Urban Dev. Corp 21.3 UNO Minda 66.0
Coromandel International 34.5 Bharat Dynamics 73.0
Gives a list of midcaps that are in the
vogue right now Nippon Life AMC 35.3 GSK Pharma 73.2
Godfrey Phillips 47.3 GE T&D India 142.8

High momentum IIFL Securities 16.0 Vesuvius India 42.1

smallcaps H.G. Infra Engineering 18.7 Symphony 48.7

Gives a list of smallcaps that are in the Balrampur Chini Mills 22.2 Blue Jet Healthcare Ltd 57.6
vogue right now Just Dial 24.6 Prudent Corporate Advisory 62.8
CMS Info Systems 26.6 Vijaya Diagnostic Centre 74.1
P/B P/B

Jindal Poly Investment 0.3 Shardul Securities 0.9

Book value discount
Jindal Photo 0.4 Maithan Alloys 0.9
Gives a list of companies that are trading at a
discount to their book values The South Indian Bank 0.7 Tamilnad Mercantile Bank 0.9
Bank Of India 0.8 Union Bank Of India 1.0
The Karnataka Bank 0.8 Bank Of Baroda 1.0

For all the screens and to customise them

as per your requirements, visit
z Stock Rating z Value Guru screens z Easy peer comparison

www.valueresearchonline.com/stocks-screener/

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 WORDS WORTH NOW

Narendra Modi, Prime Minister, India

On India’s potential and ambition
in the semiconductor space

Because of these policies,

India has attracted
investments worth more than
`1.5 lakh crore in a short time
and many more projects are
in the pipeline. Our dream is
that every device in the world
will have an Indian-made chip.
Semicon India 2024, September 11, 2024

Bhavish Aggarwal, CEO, Ola Cabs N Chandrasekaran, Chairman, Tata Sons

On the opportunity India On what businesses must
has in renewable space not overlook
One of the biggest changes in our lives is that Every company
the energy paradigm is going from a petroleum has to be focused on
paradigm…(which is) mine the oil, take it out, financial fitness. Don’t
refine it and then burn it…its going from that to worry about growth,
renewable generation and energy storage…a fix the fitness.
technology paradigm. And that’s where India Performance
has an opportunity to get into the cutting edge will come.
of this technology revolution.
Financial Express,
Business Today, September 15, 2024 September 17, 2024.

Nandan Nilekani, Co-founder and Chairman, Infosys

On why US companies have to spend consistently on AI
You have to look at the incentive for these guys (US companies), they
can’t afford not to do it…if there is a big platform shift in five years and
they don’t have it, then they’re out of the game permanently. So the
cost of not doing it is higher than cost of doing it.
WTF by Nikhil Kamath, September 14, 2024.

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