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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.ea tala CC CC MOL Mao AC Chhote benefit ke Liye bade fayde ka maula mat bhoolna. easter C MOL Mao AC aaa Oy a CO CA a UL MeO re “9 . Waise hi, Tax saving ke liye wealth creation ka mauka mat bhoolna. Oe Rm eu Ree nn tuo eau E L S S Sea CharT Ca Rk * Lock-in period of 3 years a a RSE TS Sere Cu eu Rca ne PTS CMLL Dace ag CUCU Ung ace TO Vins Pan the highest for equity schomes, dividends capital ga le surplus, Mutual Fund investments are subject to market risks, read all scheme related documents carefully.Wealth Insi February 2018 Volure Weer EDITORIAL PoLicy “The goa ath nage wen alpeseaters ton ibe esearch irs rt eran prt as fr ereratng a ow of her own We Eimstngincgendrs urbones Store atl hop youn ang eterna nesta sein, exuagh ol © Inaulg ai of soarh or our tonal, ‘Acari ae ack by ware di To iw 938 rus quate eseoth bia by seating a we ‘aro of saorelrs. i iy ‘cour oa! dana ‘aporoach 9s Bs best way fo earn weathinihe socenarat aul Ira isa unerngy feezson eg om lai, ‘Sioplty se Rama cae eg sj ‘ring Read narod am —ana ets yew ar vive stn saat is verge loathe tor Dhiersra Kumar aa tor spect canespontent emer Shania Roy Data Supper Prac Nar Deen Mat Oe, Kran Sadhwal Data sue forsee necui Pea Oe a ‘Your tax-saving hiwuncance | action plan Invest in quality no zc Ayu ned ic know oma eesaing businesses the investments as tis financial year crams 7 " Socroyera aera toa dose . Warren Buffett way 4.1 Wealth insight Fotrary 2018Columns 7 $6 oeavew wooxer by DHIRENORA KUMAR ‘The true stock investor The bei het the future wilbe beter ectnmeeet “Rather than being too ‘equity investing flamboyant, it's important to generate sustainable returns Mahesh Patil Co-CIO - Eauty Aitya Birla Sun Life AMC 52 orreeat 8 woros worth wisoom 38 anacvers ore by saweev Larry Page, @ It's the EPS, silly! PANDIYA Co-founder, Google ¢ All it takes is three years Preparing i for the fall 10 seaaxer covrass 56 coveawies wins woars wnyte ——@ Index watch The watch list secrete 2 ig moves - ‘what options | Tracking the TPOs 58 stock anatysrs choice iyestors of 2017 Our scorecard ° ¢ What value funds are - buying now 638 stock screen ‘® Quality stocks available bd 24 veaws cheap cio Building the nation ‘© Attractive blue chips ‘ate ae ‘* High dividend-yield stocks by ANAND RO sip sant wal ‘* Reasonably priced “TANDON ‘Tax planning and STPs growth stocks Playing desl 98 pay . Discount to book value 2 ‘© Walter Schloss stocks advocate Maruti Suzuki: Counteri om eleetrie Two fund managers ‘make cases ‘ora _the challenge market corecton ——_yghicles ‘Ayukawa MO and CEO, 70 woros worn now OISCLAMER February 2018 Weath insight |S3 DAILY Good Habits ee, | Reading the newspaper. Exercising. Drinking eight glasses of water. — Cultivate another. Invest through LAW RTE systematic invesiment Plan) Start investing early, regularly and stay invested. Mutual funds offer you the convenience of the Systematic Investment Plan(SIP). It's the affordable way to create wealth over the long term. An investor education initiative by —a \ LIC MUTUAL FUND http://niveshguru.licmf.com Mutual Fund investments are subject to market risks, read all scheme related documents carefully.i The true stock investor The belief that the future will be better than the past lies at the core of equity investing e DHIRENDRA KUMAR As I write this on the evening of 23rd January, the BSE Sensex and the Nifty are at an all-time high. So are the 27 other indices of the BSE and the NSE. Prime Minister Narendra Modi is in Davos. He is the toast of the party, the leader of the fastest-growing large economy in the world. Corporate results for the December quarter have started trickling in, and the carly sign of a corporate revival are clearly visible. For months now, sceptics have been asking why the markets arerising, despite poor corporateperformance. guess now they have their answer: In times like these, the basic contradiction between actual investors, who have skin in the game, and the tribe of sceptics, on the other hand, becomes clear. We, equity investors, by our very nature, are optimists. We are cautious optimists, but we understand very well that the future will be better than the past. Even in the worst of times, the economy grows and businesses make more money than they hhad the past. The process has its hiccups. There are ups and downs. However, we investors are extremely confident that 2018, say, will be a lot better than 2008 and 2028 will be a lot better than 2018, Shorn of all the theory and the maths, this belief lies at the heart of Jong-term investing, ‘The patron saint of this belief is, of course, Warren Buffett. Back in September last year, he predicted that in a 100 years, the Dow Jones index would hit a million points (it was at 22,400 at the time). Obviously, this was just a round-number extrapolation. In fact, it's quite a modest number since it implies a growth of 3.9 per cent per year: If the BSE Sensex grows at 10 per cent a year (which is a modest number in India), it would hit 49,60,00,000 (49.6 crore) in a 100 years. These are not numeric projections, although they can be taken as such. Instead, they are a declaration of faith in the continuity of the country’s economic environment, and the success of human beings’ urge to improve their lot. Once an investor believes in this, the problem devolves to choosing the right stocks to invest in, ‘There too, instead of starting with companies and sectors, it is helpful to understand the basis on which such selections are made. You can look at the valuation (price to earnings) of a stock; you can look at its dividend yield; you can compare its price to its book value; you can look for stable earnings; you can look for high growth; you can look for turnarounds; you can look for businesses that are opening up new technologies and markets; you can look simply for companies that have some kind of investor momentum, behind them; and you can look for companies that have some combination of these factors. Finally, on top of all this, companies whose managements have a track record of competent execution are another layer of selection. Therefore, it's obvious that what we equity investors do has two steps. We believe, as optimists, that there will be growth and there will be more prosperity. On the basis of that, we have to choose for ourselves the best investments that can benefit from that. It is definitely not necessary to be able to foretell what will happen. Sometimes, when Idiscuss long-term investing with some investors, they come up with objections like what the predicted EPS of so-and-so company at the time is, what the GDP growth will be, what oil prices will be, ete., ete Investors who feel that investing is about predicting EPS and GDP have a different set of problems. People like us, all we need is faith that the world will grow, and a rough sense of which companies are well-run. ‘That's enough. February 2018 Weath insight 17MON ea WISDOM BEST QUOTES OF LARRY PAGE, CO-FOUNDER, GOOGLE “My goal is for Google to lead, not follow.” 6 What is the one-sentence summary of how you change the world? Always work hard on something uncomfortably exciting! 6 It’s very hard to fail com- pletely if you aim high enough. 6 We feel like right now, com- puters are still pretty bad. You’re just messing around. You’re scrolling on your touchscreen phone, and trying to find stuff. You're in a car. It’s bouncy, and you can’t — it doesn’t really work. I think the actual amount of knowledge you get out of your computer versus the amount of time you spend with it is still pret- 6 The ultimate search engine would basically understand everything in the world, and it would always give you the right thing. And we're a long, long way from that. 6 | Wealth insight Fotrary 2018 ty bad. So I think our job is to solve that, and most of the things we’re doing make sense in that context. 6 You know what it’s like to wake up in the middle of the night with a vivid dream? And you know that if you don’t have a pencil and pad by the bed, it will be completely gone by the next morning. Sometimes it’s impor- tant to wake up and stop dreaming. When a really great dream shows ‘up, grab it.¢6¢ Optimism is important. You have to be a little silly about the goals you are going to set. You should try to do things that most people would not do. 6 I think it is often easier to make progress on mega-am- bitious dreams. Since no one else is crazy enough to do it, you have little competition. In fact, there are so few people this crazy that I feel like I know them all by first name. 6 Lots of companies don’t suc- ceed over time. What do they fundamentally do wrong? They usually miss the future. I try to focus on that: What is the future really going to be? And how do we create it? And how do we power our organization to really focus on that and really drive it at a high rate? 6 For a lot of companies, it’s useful for them to feel like they have an obvious competitor and to rally around that. I per- sonally believe it’s better to shoot higher. You don’t want to be look- ing at your competitors. You want to be looking at what's possible and how to make the world better. 6 Invention is not enough. [Nikola] Tesla invented the electric power we use, but he strug- gled to get it out to people. You have to combine both things: inven- tion and innovation focus, plus the company that can commercialize things and get them to people.” a Always deliver more than expected. ee Have a healthy disregard for the impossible. 66 You never lose a dream; it just incubates as a hobby. @¢ Many leaders of big organizations, I think, don’t believe that change is possible. But if you look at history, things do change, and if your business is static, you're likely to have issues. Februar 2018 Weath insight |@Wa CCOMPASS INDEX WATCH: BEST PERFORMING INDEX OF 2017 Nifty Realty Index 76.16 1.65 0.02 1.33 Price to earnings Price to book Dividend yield (%) Market cap lakh NityReaty Nity Mecano gainers/losers NIFTY Reallty has utperfomed te ity 50 in 2017 Company name Meeapt) year change (8) 400 Indiabulls RealEstate 12216 227 350 ote Poperies 18.009 454 300 Sobha S79 28 250 oF argon 200 Unitech 2ast at 150 wees M17 tun OT—n'18 gage Enemvises —4252«=«108 D Price /eamings is at 142% premium othe ve year median P/E 0f 3.4 ProsigeExate Pec 12,786 98 18 Prec Mis sar ° Oberoi Realy 17300 66 6 ow 288 OY ® Valuations and dividend ° - Dens is date dt dada TH 8 ompany nae re a a D Price/book value sat 7% premium tothe ve year median P/8 of 0.83 me 40 m0 2300 2th ae A Nn pile are te Ray ws toa 2a ose Prpertis| wes 870 ee) 16 Presa Ente rts oa el Phoeiis sos 3604 ° Sobha aa 2a . Brgade Exerpises mo 188 Dividend yield is31wasspeint oer tan tere yearmecian of 0.83%, Untecn - 03 oo 20 wo, 19702 a0 18 anal Ne Data et on January 33,2018 12 oe oa. hats bet bis bate bet sts 10 | Weath insight Febrary 2018WHEN YOUR INVESTMENTS ARE LO C KE D J YOU NEED NOT WORRY ABOUT MARKET VOLATILITY wea 1 <—cKE SP | ‘Short term volatility may sometimes lead you to give into emotions and compel you to redeem your investments; often at the cost of long term gain. Here is a fund that protects you against such temporary emotional decisions. Motilal Oswal MOSt Focused Long Term Fund comes with a 3 year lock-in to prevent you from falling prey to short term market volatility and also helps you save tax. While we ‘Buy Right’ using our unique stock picking process ‘QGLP’ where we buy Quality stocks with Growth potential with Longevity advantage at a fair Price. The lock-in period helps you ‘Sit Tight’ con them till you reap their full growth potential Contact your Financial Advisor or Visit www.motilaloswalmt.com Ts OTe: j |NG eS INDEX WATCH: WORST PERFORMING INDEX OF 2017 Nifty Pharma Index 47.79 4.20 0.4 4.73 Price to earings Price to book Dividend yield (%) Market cap NityPtama vty Medan Top gainers/losers NIFTY Pharma tas lagged behind tne nity 500 2017 Company name ——-Mecap (Fe) _-year change (%) 13000 Piramal Eterpises 49,436 12000 “m Dis ibertones 28,840 11000 Catia Heatieae 45,915, 10000 000 ila 49.45 000 urbindo Phama 39,108, est yet MT dant CMTS gk ona 2090s D Price /eamings is 9.1% premium othe te year median P/E 0439 Sun Pharma 140.180 88 emanate 70 ‘Glenmark Pharma 17617 © a NNN eee ae 8 Valuations and dividend 10 Diveene met bath at an dat A818 ompanyname wenn Baits ) Price/book value is 2.29% aiscountto the fe yearmedtanP/8 of 601. Auobinge Pram ‘6237087 as ceca eather wi € on s0 Gina as a7 038 es Drs Lateran aa 53082 50 Reds abs ma 34082 38 tata a0 lena Pham ue 38 03 vais dike EE D Dividend yield is 15 ass pit over tan te veyear mean of 0.55% Prana Enemies 383 13) ‘Sun Pharma. 44 38 06 15) Data as on Janusry 11, 2028 2 og os a a set bh dat andar tt +2 | Weath insight Febrary 2018IVE MORE POWER Indiabulls TO*"YOUR SAVINGS ne a) Indiabulls A Tax Savings POTENTIAL Fund Cea UL en) . Growth Potential: Indiabulls Tax per year under Secton 80¢ investment (_ Dual, Sevings Fund being an equi inked Has the lowest lock-in period compared | Benefits savings scheme has potential to other 606 investment instruments, to deliver returns commensurate ° inves instrumen! with equity markets, Y “Under Sec 80 C of IT Act fr investment upto 1.5 lakhs forthe highest tax bracket of 30.00% What we offer? Ideally companies that are segment leaders or challengers would be part of our portfolio, Stocks would be picked up after detailed fundamental research High quality portfolio of reputed “brands! Product Suitability ~ atta atten wsxoweren ‘Gober Acset Management SIP SAHI HAI ‘An nvestor Education Initiative Tax planning and SIPs By investing your tax-saving money in mutual funds through SIPs, you not only save the tax outgo but also build wealth ‘any of us approach tax planning as a Uinta it somehow, As the end of the financial year approaches and the accountant asks for investment proofs, we tend to scramble for any tax-saving investments. Many of us even fall prey to “unscrupulous salespeople, who peddle us some investment product not quite suited to our needs. Once \we have unwittingly put our money into some investment, we feel the job is done. Later, we forget about the money. Not planning for your income tax properly is a serious investment mistake, As the process described above is repeated over the years, your chances for wealth creation are diminished, Here is how. Let's say you invest the entire tax-exempt amount of “1.5 lakh in a mutual fund every year for 40 years at 12 per cent rate of return. After 40 years, you will have ‘12.89 crore. You get this enormous sum without making any additional investments but just by carefully investing your tax-saving money. So by not taking your tax-saving investments seriously, you actually lose the opportunity to build wealth in a simple manner: But what exactly stops us from making prudent tax planning decisions? The devil les in deferring the tax-planning activity to the last moment. The right ‘way to plan for your taxes is to start investing at the beginning of a financial year, not when it is drawing toa close. By systematically investing in tax-saving plans, also called equity-linked savings schemes (ELSS), you can bring discipline to your approach. ‘Just pick one or two good tax-savers and start SIPs in them at the start of the financial year. You can even opt for the auto-deduction facility. With it, the speci fied amount gets debited from your bank account peri odically and is invested in a fund. This does away with manual intervention and hence precludes missing out ‘on your monthly investment. ‘Another benefit of SIPs is that they help you invest over the market eycle and hence you don't catch a mar- ket peak. What does this mean? Let's say you are sud denly reminded that there is something such as tax planning and you have to invest in the next two days to avail tax benefits, You quickly find an investment, say, a mutual fund, You invest "5 lakh in it in one go The right way to plan for your taxes is to start investing at the beginning of a financial year, not when it is drawing to a close and feel happy that the job is over. But you don't real- ise that the stock market was at its peak when you made that investment. As the stock market corrects, your investment goes into red. It takes many months or perhaps years to recoup your losses. With SIPs, you could have avoided this. Since SIPs help you invest over the market cycle, you invest at both market highs and lows. This averages your cost. ‘You automatically buy fewer units when the market is high and more when it's low. A market downturn doesn’t hit you as much hard as it would have if you had invested a lump sum. Properly investing your tax-saving money through SIPs kills two birds with one stone: you save the tax ‘outgo and you build wealth, What else could be a bet- ter deal? WI February 2018 Weath insight | 25Finance your rears | wy through SIPs Mutual fund investments are subject to market risks, read all scheme related documents carefully. Issued by HSBC Asset Management (India) Private Limited, 16,V.N. Road, Fort, Mumbai - 400001 | Email: hsbem{@camsonline.com | Website: www.assetmanagement.hsbe.convinAny dream can be achieved if you work towards it. Building wealth is no different. A Systematic Investment Plan (SIP) can help you work towards your financial goals. Let us look at the features of a Systematic Investment Plan and how it ean help you fulfil your investment objectives. @ Finance your future dreams: ‘The ultimate objective of investing is to achieve financial goals ike buying ‘a house or creating a corpus for your children’s future education, SIPs can help you achieve these goals over 1 period of time through small but regular investments. © Become disciplined with savings: SiPs Rep you culate a regular saving habit they require you to vest fined sum of money on a regular basis, Investing gut in smal amounts mma often lad to beter result han investing a ump sum, © sis otter texibitty: SIPs offer you te lexi to solect an amount that you intandt invest. SIP a simple, convenvent and affordable way to vest for yout future wih a itl a8 €600 very month, © Minimise your exposure to stock market volatility: Through an SIP, you have the option to invest regularly in equity markets irrespective of the bull and bear phases. By investing a fixed amount every month, you may 60 able to pick up more units when the prices are low and vice versa 0 thet, over a period of time, ‘the acquisition cost per unit may come down. This is called rupee cost averaging © create wealth with the power of compounding: Compounding sa cisciplined investor's best tend. A Systematic Investment Plan SIP) is one of te most ettectve means to beat market volatity and benefit frm the enormous power of compounding over timo With SIPs, you can dream bigger and achieve much more over a period of time. Start investing through a SIP today and work towards realising your dreams. HSBC Global Asset Management An investor education initiative by HSBC Mutual FundKENICHI AYUKAWA Managing Director and CEO, Maruti Suzuki India 1en Kenichi Ayukawa started his stint as manag- ig director of Maruti ‘Suzuki India in 2013, he had to initi- ate an overhaul of the company fol: owing a riot at its plant in ‘Manesar, an industrial town in Haryana, by militant workers. ‘Maruti's market share in the pas: senger-vehicle segment since recov- ered from 38 per cent in 2012 to 51 per cent in the first three quarters of the current financial year and that has propelled the company's stock to an all-time high - breach: ing the €10,000 mark — and made it the sixth most valuable company on the BSE. Maruti Suzuki is going back to the drawing board again as, the India automobile industry stands at the cusp of a shift to elec tric mobility. In an interview, Ayukawa suggests it will be a chal- lenge for Maruti Suzuki to establish an ecosystem for electric vehicles 26 | Wealth Insight February 2018 (EVs) ~ just as it was a challenge in 1988 when it started to manufacture vehicles with internal combustion engines (ICE), Edited excerpts: | get a sense that you are going back in time when you set up an ecosystem for ICE vehicles in India... Ina sense, we are trying to chal- lenge ourselves as time has come to change the game. Hence, we have to review (our strategy) and start again from zero, ‘And the lithium-ion battery plant in Gujarat s just one step in that direction in the curent context. Exactly! We set up the plant earlier for hybrids, but now we are consid- ering it for EVs, Do you think this move gives you an upper hand inthe Indian market? First come, first serve gets the bene- fit. But the point is that the time is ‘moving but not quickly changing. Even if we provide EVs, the indus- ‘try will not change into one that runs on electric completely So, we have time, and the share of EVs in the market will gradually increase, With the advent of electric cars, wll we getto see sinall cars as well? ‘That is a big challenge. We have to study that. It is not easy to find out a solution for that, Cost difference 4s, of course, high. We also have some added cost in the case of implementing EVs. The battery cost of stall cars is so much different ~ very expensive. Automatically, the cost goes up. Where will you source lithium from? ‘The availabilty of lithium itself is a problem worldwide. We need to decide if we want to buy from a (Latin) American country or some other country: We need to find‘a source for that, At this moment, ‘we have to find concern points and problems and then take count ermeasures. We are just starting off, First, we are trying to study what kind of vehicles a customer expects and what the government expects. The idea is to look at some other countries and we can also earn a lot from them. The initial momentum that was buit in the favour of EVs on the policy front seems to be fizling out. The EV policy is not yet in place. Does that put the industry ina dilemma since many ‘carmakers have changed their strategies from hybrid to electric cars? ‘The point is (that a) sudden change at any time is not easy. A sudden ‘game change is also not easy since wwe have three-four million people employed in the industry If we make any change, we will have to ‘transform those people also. That is not easy. The government also mows that, What is it that you would want from the government on this front? ‘The point is that they are also look. ing for a good solution and so are wwe. So, we have to collaborate and find out a good solution. But I think that is not easy work and it takes time. Even if we set up some direc tion, we have to modify some points looking at a realistic situation, We want to set up a lithium-ion battery plant, but which country will provide lithium? If we cannot get lithium, we cannot make such a kkind of product. How much is pos sible at how much cost? We will have to start such studies and take counter-measures on how we can reduce costs. It will be impossible for people to buy a %5 lakh car if it becomes a 20 lath car, Nobody would buy that. ‘Once you have your EV ready, which is in 2020, will you also set up your own charging stations? “A sudden game change is also not eas sy since we have three-four million people employ edin the industry. If we make any change, we will have to transform those people also.” ‘Those kinds of arrangements need to happen gradually It is very diffi cult to arrange those kinds of things nationwide. We have to focus on some area or something like that, As far as we are concerned, we have to set up some charging sta tions in some parts by collaborating with dealers and business partners. We have to collaborate with govern- ments and other players would also have to do so. So, if am sitting out of Patna with a ‘Maruti EV, will you provide me with charging solutions? As long as we sell the vehicle, we have to arrange something for the customer and that is a simple logic. It will be difficult to offer electric vehicles on the rural side, but in cit. ies, itis possible to arrange charging stations at some points. We are just starting those studies, At this moment, I have no idea. How will Suzuki's partnership with Toyota come into play? Toyota, as you know, has a lot of technology - more than Suzuki. ‘Through this tie-up between Toyota and Suzuki, we may get access to some of Toyota's technology through Suzuki. Will Toyota have any role in manufacturing? ‘That is their decision and I don’t have any knowledge of it. In India, we have a bigger busi: ness than Toyota, and that is why in India, we requested them that from our side we want to lead the mar- ket. Maybe Toyota can help imple- ‘ment some technology in Maruti Suzuki products. At this point, we have no idea about whether Toyota will need those vehicles. Right now, we have our products and they have theirs. WI By Malyaban Ghosh. In arrange ‘ment with HT Syndication | Mint February 2018 Weath insight | 28The authoritative guide > Build winning portfolios for all needs > Expert analysis and detailed data on every Indian mutual fund scheme Early-bird discount! Save %100 TO BE PUBLISHED IN THE FIRST WEEK OF FEBRUARY 2018 The key to riches > Get access to timeless investment wisdom > Understand the basics of mutual fund investing » Find out how to monitor and optimise your portfolio > Know how to avoid the common follies of investing Mutual Fund Yearbook (at a pre-publication discounted price of 895) The Way to Save & Prosper (€395) Name. Phone. Adress E-mal Cheque Number Date Bank & Branch Pade Vale Research Now Dh Mail it to Value Research, 5, Commercial Complex, Chitra Vihar, Delhi-110092, India, Buy online at www.valueresearchonline.com/productsYour tax-saving action plan Here is all you need to know to make tax-saving investments as this financial year draws to a close February 2018 Weath insight | 3123018 nae nvesting to save income tax is perhaps the easiest way to build wealth. Just by saving 1.5 lakh every year, which is the current tax-deduction limit under Section 80C, one can accumulate significant corpus. Since this corpus is invested in some tax-saving avenue that generates returns, one also gets to benefit from the power of compounding, But, unfortunately, not many of us see tax planning like that, We tend to postpone it tll the last moment and then in haste make sub-optimal decisions. Worse, some of us may altogether fail to make any tax-saving investments due to a lack of sav- ings or outright ‘busyness’. This can severely hamper their prospects of wealth creation. The right time to start tax plan ning is at the beginning of the financial year. A prudent decision taken at that time ‘can go a long way in not just avoiding the Iast minute hustle but also generating max imum returns, ‘The objective of this special report is to give you a quick view of your tax-saving options and help you pick the right ones. Since the current financial year is drawing to a close, it will help you make an invest: ‘ment choice if you haven't already made one. Also note that the Union Budget will be presented on February 1, 2018. While planning for taxes for the next financial year, take into account any changes that may be introduced in it. How to approach tax saving What drives you to save tax? OF course, itis the money that you tax. Wrong. This is not how you should approach tax saving. While it's true that you get to save the tax outgo if you make tax-saving invest rents, the tax outgo itself 32 Wealth insight Fbrury 2018 Tax slabs h \erysenor Senior nde wer Totaincome eens” cers "60 yeas Upto25 ahh i Nil Nil 25@%-5lakh Nil Se 5-10 ak 20% 20% 20% ‘oove 10lakh 30% —~—=—«SO% «OH ‘yer at Ooo ar bo alr ln TS pam oa ester coe 3 perenne eo {200% ean tose cups tacdearons 9 wT a 10% se Tec ean me aC a a {non 1 erat uta ah rs ene or shouldn't be the reason for tax saving invest ments, Instead, tax planning should be moti- vated by the desire of wealth creation. Saving on the tax outgo is just the by-prod- uct and should be seen just like that. When your primary intention is wealth creation and not just saving the tax outgo, that helps you in two ways: you pick the option best suited to you and you become disciplined, So, by just changing your mind. set, you can reap greater rewards, Calculating income tax For most of us, itis the accountant at our office who tells us how much we need to invest to save income tax. If you want to know your taxable income, you need to first take a sum of your income from all sources. ‘Many of us have just one source of income ~salary But others can have multiple sources like income from property or busi ness or capital gains, etc. Overall, there are five such categories: © Salary ‘© House property, © Profits and gains from business or profession © Capital gains © Sources other than the four soure es mentioned above, such as interest income from bank deposits, income from lottery, etc, Once you have combined income from all sources,NATIONAL PARIVAR MEDICLAIM POLICY 7% Complete Health Insurance” For the Entire Family is a floater health insurance policy * covering the members of a family with many covers like National Insurance) “°° s tls Serer eon any Kolkata - 700 071123018 nae you arrive at your gross taxable income, From the gross taxable income, you deduct your tax-saving investments, These fall under many categories, as described subse quently You need to deduct these invest ‘ments and expenses from your gross tax. able income. What you are left with now is your taxable income. Check the tax slabs to know how much tax you need to pay. Understanding Section 80C When it comes to tax plan: ning, Section 80C is the ‘most important. But what is it? Section 80€ is a sec- tion in the Income Tax Act which mentions tax-saving avenues. Currently, one can invest up to %1.5 lakh in the instruments men tioned in Section 80C. Keep an eye on the upcoming budget for any changes in this limit, Section 80C consists of many avenues: Public Provident Fund, National Savings Certificate, fixed deposits and so on, The Sukanya Samriddhi Yojana is 4 meant specially for the girl child. Investments made towards the National Pension System (NPS) also come under ‘this section. ‘The table below lists the various tax-sav- ing avenues available under Section 80C, along with their specifications, Most of us also have provident-fund deductions. These deductions (not the employer's contribu- tion) are also included in Section 80C. Do take them into account when you calculate your investment amount. For instance, if you have made a providentfund contribution of %50,000, you need to make investment of only @1 lakh ‘towards Section 80. Which insurance? ‘The premium paid towards life insurance also come under Section 800. Life: insurance policies come in many forms. But the best is term insurance. Term insur- ance provides you a large cover at low premiums, ‘Term insurance is Tax-saving options Fo-year bark er se fed cepest PF Suhanya Sari Returns (8) 76 76 665 865 a1 Mininvestment/y ®) 500 100 1000 —-<12%ofbasiesalay 1,000 11000 by employee and employer Maxinvesiment/ye @) 15 lakh No limit Blak ‘Nott Tota One-time investment No Yes Yes, No Ne No ‘Compounding Yearly Yearly Yeary Yearly NA Yearly inekin gear) 15 5 5 Employmentinked Uni 60yrs ofage** See Note 1 in footnote Extension after Inblocks No Tn blocks of Ermploymentinked Until 70yrs of age Account will keep earn- loekin of years S years Ing interest if not closed Guaranteedretums Rates set every qtr Ratesset every qr Fuedintovest As decaredby the EPFO No Rates set very at Taxonmaturty —Taxree Interest Tntorestis Partially 40% ofthe corpus Taxfree taxable taned Istacttee i ard abi emo of. aloe Seon FOG oe Gn al emg of ar toon Eos 60 of oe, 80% cf rewrite wed tbo aay a 6 {nal 5,00 nd Son EC) ‘ew To eure mas ta 21a of peng, 50 anor ea be water he estan oF MAES 24 | Wealth insight February 2018SPECIAL nee Best term-insurance plans ay age awenue Poly tm Years Sum assured) roul premium Tin War matury age Wine (ei ere) axle Online Term Plan Plus 18 80 % 10 425k —~*100eoe—~« TB TtaAIALie insurance Raksha Supreme 18) 70 30 10 Solakn —_Nolinit 3.510 ‘AEGON fe insurance Tem 8 (100 5 25lakh—_Nolimit 7497 HFC Standard fe Giek2Pretect 30 Pus 18 oy ola Neti 378 ici Prudential Le Protect Smart 8 5 % 5 ‘Subjectto Noli 10,798 premium of 2,400. excluding tax different from endowment and unit linked policies (ULIPs). Endowment and unit linked policies are also savings plans and the premiums paid towards them are accu mulated over time. In the case of ULIPs, the premiums are invest ed in the stock market. On the other hand, while term insurance provides a large cover, you don't get your premiums back. This makes many investors think that endowment poli cies and ULIPs are better than term plans. That's not the case, however. ‘The primary function of insur ance is to provide protection. The insurance products that double up as investments fail to provide both - the insurance cover is inad. equate and the investment returns are disappointing. Therefore, as a general rule, don’t mix insurance and investment. For investments, buy pure investment products, For protection, buy pure insurance products. ‘The table above lists the best term-insur- ance plans, along with their features. Life insurance isn't meant for everyone, It is meant only for those who have finan cial dependents. Non-earning members don’t need life insurance. Many parents buy life insurance in the name of their lit- tle children. While buying life insurance in the name of your kids is emotionally appealing, it doesn’t have any financial logic. Since parents are not financially dependent on their children, they should not buy insurance in children’s name. Rather, they should buy it in their name. The necessary insurance While life insurance isn’t meant for everyone, there is one type of insurance which we all rust bay: health insur ance. Medical emergen cies can severely impact our financial health Section 80D of the Income Tax Act allows eduction of health insur- ance premiuim of up to £50,000 for senior citizens and «ap to 225,000 for insurance of self, spouse and dependent chil: dren, Additionally, a deduction of up to €30,000 is available for Best tax-saving funds 10,ear ig vetums ast 10 ym ratings “(3) ian Reliance TaxSaver Saad 3632 Tata Inia Tax Savings «AAR 1888284 ‘diya Bite SLTaxRelcfO6 waARR 1867 32.08 SPER Tax Saver wee 1864187 inveseo dla Tax Pa wee BSS CLAD ‘diya Bia SUTaxPian ARRAS «LOS Principal Tax Savings tee 1807 ~—«1 iatTaxAav wae -1799 ~~ HSBCTaxSaverEquiy AH 3021 Frankia ndiaTaxsield 98 29.99 ion Dee, 207 ar areata 02 Wort 10,000 Wor of t20,000 Maly SP over ine ry SIP oer the 158103 with 10% yi nce cre (rain)* February 2018 Weath insight | 25123018 nae Tax-saving expenditures Expense Amount Seaton ‘School or college fes pad for upto 2 children Upto 1.5 lak 00 Interest pad on education loan for yourself or spouse or children Nolimit 80E ‘Medical insurance premium pld for sel spouse & dependant eidren 25,000 (30,000 policyincudes seniorcitizens) 80D ‘Mealeal insurance for parents 30,000 300 ‘Expenses incuned onthe medical veatmet of sl or dependants (pectiegde- €40,000 ‘8008 ceases only) (60,000 for 60-79 yrs; €80,000 for 80 yrs & above) “Medical expenses fora deabed dependant 75,000 (€1,25,000 if severe asabiliy) 8000 House rent Lowest of the folowing Up to €5,000/mth; actual vent paid 80GG ‘minus 10% ofthe total income; 25% ofthe total income Interest on home loan (or first-time buyers, tere is an additional eduction Sei- occupied: Up to @2 lakh 2400) ‘0f 50,000 under Section BOEE ove and above the amounts mentioned in the adjacent column) Not occupied: Up to 22 lakh Let out No limit tun bella be ten nag ide weralers thats as inde! tapers catlnernruanen a persona elec seuss wc oe in ay heh ote inert hath nsec Been fuera ci (( ffl ly to fall short of the expendi- ture incurred | Saving tax through ELSS ‘Tax-saving equity mutual funds are given the name equi tyelinked savings schemes (ELSS). ELSS is a good taxsaving option as it provides the advantage of equity and hence better returns than most other 80€ options ELSS has a lockcin peri od of three years. For most other tax saving options, the S ne 26 | Wealth insight February 2018 TAX TIME Be 3 Money deadline refund Ee lock-in period is five years, For the PPE the lock-in period is 15 years. ELSS is one of the few 80C options which provide equity exposure. The other options are ULIPs and NPS. The EPFO has also started investing in equity, so a part of your provident fund gets invested in equity through exchange-traded funds (ETFs). ULIPs have an opaque structure and high costs. On the other hand, ELSS has a trans. parent structure and is professionally man: aged. Fund houses must regularly file disclosures of their activities. The NPS allows you to invest in equities but the best equity exposure you can get is 75 per cent (in the ‘Aggressive Life Cycle Fund), ‘This also keeps coming down as a person gets older: Also, being a retirement tool, the NPS is illiquid An Indian individu. al normally already has debt component in his portfolio in the form of provi- dent fund and fixed deposits. This makes ELSS all the more important to generate infla- tion-beating returns and to properly allocate assets between equity and debt. WIOnline Term oMex | Plan Plus When it comes to securing your family’s financial future, leave nothing to chance. TERM GET YOUR ED) BEAN 10 Reasons to Buy b & + 3D g 97.81% claims Pay till age 40 crtieal Cover against Additional paid percentage 60 for coverage illnesses covered? death, disability accident protection? IRDA annual tillage 75° and disease? report FY16 -175 n 1 w & z & — ne ee ee om an ene pl Siem “reno oes ercptn No iaTam mares an sen nar of Mn de arptren eaeh e Re ah Sas ead fe snes ache males sr resraorcon. Yok nao eo ete aro wT Eras ee abenaneorea= = bg pbs ono snore Max nares Geees med ans its ameamo Restores Cot respec at nab Mx fe nance Cn ner Ke SA OF SOLS NE CALS RETITBUNRADINEN OFFS FRoA!-heperoton no Tox Woo! Coport en Mme CN U7eBvIUIOOT Qa tax Financial Services and @MS Joint VentareCN ee? DIARY It's the EPS, silly! The top 10 gainers in 10 years show how their stock prices have moved in sync with the earnings os Se - _ en ie oe oe = too 58x Cito 54 oe oa Se o ‘oo 52k ans woo 495 aia = = = = =a owe = 236 | Wealth insight February 2018. All it takes is three years These companies have a history of doubling their profits every three years rising profits. The logic is simple: companies that show rising profits also see their stock prices racing, Given this, who would not like to know about companies that have doubled their profits every three years in the last 10 years? Here they are: [= like to chase companies which can show Caplin Point Laboratories: Caplin Point Lab is among the fastest-growing pharmaceutical companies in India. It sells more than 2,000 products around the globe, with the majority being in Latin America, Ajanta Pharma: The company has a track record of introducing first time launches in India, It exports Profit doubling ANALYST’S LTS ‘majority of its product to Africa and has lower exposure to US markets. PI Industries: PI Industries is a crop-protection company It contract: manufactures and exports agri- chemicals for global agri-MNCs and introduces new agri-discoveries made anywhere in the world in India, It earns the second-highest margins in its industry, just behind the global major Monsanto. Kridhan Infra: Over the years, through a series of, acquisitions, Kridhan Infra has evolved into a high- ‘quality service provider in foundation engineering across the construction and infrastructure sectors, both in India and South East Asia Eicher Motors: Eicher Motors manufactures the Royal Enfield brand of motoreycles. Over the years, Royal Enfield has faced little or no competition and that has led to it charging premium for its products. Avanti Feeds: Avanti Feeds is India’s largest seafood processor: It has a joint venture with Thai Union Frozen Products PCL, which is among the largest seafood processors in the world, 8K Miles Software Services: 8K Miles Software Sorvices is engaged in online outsourcing of software and other knowledge services over the Internet. Over ‘the years, it has jomed forces with leading providers in the cloud space, such as AWS, MS Azure and IBN Welspun India: Welspun India is the world’s second- largest terry towel producer. It exports over $4 per cent of its home textile products to more than 50 countries. In the past five years, it has entered into strategic partnerships, which have created value for its stakeholders. Bajaj Finance: A subsidiary of Bajaj Finserv, Bajaj Finance is a non-banking finance company dealing in consumer finance, SME and commercial lending, and wealth management. WL Nanreas eoscnen eos cAGR__ SCRAPS sete ey HE ONS 01.) @OiZ 200K, 5) (008-2011,%) CATCH) IO" ROE CH) ‘es SotwareSerices Techlony 268 186 aT 3 % 8 19 ‘Nanta Prana eatieare 121823 2 38 2 a a Ivar Feeds Maine Foods ines 302 6 160 8 ©. Bajaj France Farell 0204472 32 30 29 s 6 ‘apie Pint Laeratores Heaticare 4998387 5 0 7% ose Eicher Motors ‘loa 70-8 ot 28 8 a 38 ‘eichan a Metal 1is2 282 2 25 A “oF Prinduses ‘Aro Chencals 333 34 33 113 80 ‘Wespur na Tele 151 57 27 Fry Fry 16 Data onfaroany 5, 2058 February 2018 Weath insight | 38Where to invest in showing no sign of losing momentum. At the time of this writing, the Sensex had scaled 36,000 levels. In fact, it has now become a normal event to hear the markets scaling a new peak every other day. Fuelling the rally are hordes of retail investors, dumping debt to join the party in the equity market. Uday Kotak, Vice-Chairman of Kotak Mahindra Bank, warned of exuberance in the mid-cap and small-cap space and that investors are now perceiving debt to be riskier than equity. Amidst the exuberance, value is drying up. When we set forth to search for sectors where you could still find value, we couldn’t come up with even five broad sectors. Of course, you will find niches here and there, small sub-groups in a large sector and even select stocks in expensive sectors, but entire sectors offering value are a rarity these days. In the following pages, you will find four sectors that still offer value and hold the promise of broad industry growth in the year ahead. Also, featured are the select stocks in these sectors. A fter a solid outperformance last year, the markets areeee NG AGRICULTURE Riding high on reforms The government's aim of doubling farm income by 2022, along with the many reforms it has introduced, augurs well for the sector I ast year was the second consecutive year of good direct benefit transfer to do away with delays should rains in the country. This led to a higher farm add to the government's goal to doubling farm output and consequently higher rural wage income by 2022, Wider acceptance of Pradhan Mantri growth. Additionally, minimum support price (MSP) Fasal Bima Yojana (crop-insurance scheme) should hikes, direet benefit transfers and loan waivers also work in the farmer's favour contributed to higher farm incomes, leading to higher volumes for retail, FMCG, farm-equipment, tractors, Key headwinds automobiles and durables companies, Even as the Rising input costs, especially daily wage labour advantages of the monsoons kicked in last ‘year, the effects of demonetisation ‘were visible in rural India as well. Also, an excess increase in the supply of pulses saw prices fall below MSP. costs, could dampen realisations for farmers. Daily wages for male labourers, for instance, has moved up from 250 per day to €350 per day. Slow implementation of farm-loan waiver scheme could also hurt the prospects ahead. Procedural delays, lack of clarity and hesitance by farmers to take up the Pradhan Mantri Fasal Bima ‘Yojana also need to be addressed, What's in store in 2018? Improvement in realisation, along with increasing number of schemes coming under the direct benefit scheme, augur well for farmers. The governments goal to double Valuations farmer incomes by 2022 should see it ‘Though valtations in the sector have gone up, introducing more reforms and policy changes to you can still find pockets of value, MINC agri-input expedite that goal companies generally trade at higher premiums owing to their strong network, high farmer reach, Key tallwinds brands and bigger marketing budgets. This is why Better MSPs would be a key driver of farm income, _the MNC agri-input companies dominate the pan- ‘Also, the government is likely to push ahead with India market. Farm equipment manufacturers further reforms and policies to boost farm income in continue to be attractive, with demand expected to the upcoming budget. Moreover, better execution of remain strong well into 2019. Top agriculture-related stocks conouy ane owe) Nets) teow races ostoe TUNE ery) im wee aia tuonandelnonaional 10570187 497 2248189 saa natin uss tas ang 9a Bay Copscene aes) aa iain mae ag) Sa at ie sewd Comma ated eae ons al EE Draka ech ET insects naa a 1 mosses ‘erties taco 5S rusty 12, 2048 For deta ofa Z Sere, F Score and Sao, ae page 64 or VaR wwsaluereearconle 42 Wealth insight Fbrury 2018ee EG HOUSING AND BUILDING MATERIALS After the triple blow Having hit by demonetisation, RERA and GST, the real-estate and housing sector is trying to regain its mojo last year as the industry reeled from triple blows of demonetisation, followed by the enactment of the real-estate regulation act (RERA) and finally the introduction of the GST. Fresh sales have taken a hit nationwide as buyers put off buying in expectation of further fall in prices. Under such, circumstances, most realty players were unable to pass on the higher cost of GST toa fast-falling customer base. New property launches are already at seven-year lows. What's in store in 2018? ‘The government's focus on housing will continue to fuel investment in the sector: It has committed 444 billion to build 2.9 million urban houses. That should be positive for cement and building-material manufacturers. The implementation of RERA has meant that smaller, ‘more unorganised players are selling off assets at lower prices. Though demand is still weak, lower sales nationwide are further driving prices down. ‘Two trends are at play that could spur demand ahead, lower-ticket housing and greater affordability. T: housing sector saw one of its toughest years Key tallwinds With property prices down 20-30 per eent from their peak levels, affordability will continu to come under Top housing-related stocks play The implementation of RERA will favour organised players first as they get their act together faster. The concept of ready-to-move-in flats is also ‘taking hold, alleviating much of the concerns of dishonest builders siphoning off buyers advances, ‘This is also expected to help bring much needed confidence in the sector. Key headwinds With both property launches and new purchases down at multi-year lows, realtors are now offering discounts, waiving GST or stamp duties and offering other freebies like no maintenance for a number of years to incentivise buyers. That trend reversal has not happened vet. Any delay in fresh purchases could put more pressure on the sector in the near term, Valuations ‘Though realestate companies have been under pressure on weak earnings, cement and building material companies have largely been trading at premium valuations. Cement manufacturers are set ‘to gain from the government's affordable housing scheme, Similarly, building-material manufacturers, selling wiring, pipes, tiles, electricals, sanitaryware and other allied sub-segments, are set to gain from the government's push, camoan Name (ep eau REE) Seo Score Cem Mewar P/E) Metan 78 ace aso 000 SAD 6 3 sr ose ‘eee Reaty mms ois TSC 4 a a 8a a9 ‘Gece Properties 1005199 ~~=«OC 3 = 385 at ‘Santek Reaty 5025 0SsTSC« 3 2 ws 2a 22 ite Pat 290088 «OAC 7 1 264153 12 ‘apace naprjeas 2673 ost si ~—«8O 6 2 35 aT 78 ‘ator Conrats 252018 7 1 25724 at ‘Matin tespace 258 038 «10230 5 2 mo 159 1 sb rfets 20807888 5 a 1360 ~=«BS CT ‘shana Housing 1895 012d 3 5 2a 250~=O« ST ‘A ata won January 12,2018 Far dtl of te Sew, Fore and O Scr, ae page February 2018 Weath insight | 43eee NG PHARMA Recuperating fast Once a star sector, pharma suffered the last year due to USFDA scrutiny. It has now started to come out of the woods. ast ear sw a number of marguee pana JUSFDA, the US drugs regulator, picked them off ior falling its eringont regulations. bac at home domestica foctsed pharma companies a 2 ough Contd atthe beginning ofthe yea, flowed by channel destcking ltr on account of Ge implementation othe GST What's in store in 2018? ‘The generics market in the US has got tougher in the last couple of years, with limited launches and increased competition. On the domestic front, with channel restocking post demonetisation and the GST, the sector is recovering. According to CRISIL, “Strong demand will help firms maintain 10-11 per cent growth and healthy profitability, despite intense competition and frequent regulatory actions.” ‘The sector can be sub-divided into three broad groups. First are companies with upcoming limited- competition launches in the US. These are likely to ssee a good year ahead. Next are companies that face USDA restrictions or warning letters. A quick resolution of all outstanding issues is going to be the primary driver for earnings growth for them. Finally, Top pharma stocks domestically focused companies stand to gain from low base effects and channel restocking, which was brought by the demonetisation and GST introduction. Key tallwinds ‘There are a number of factors that still go in favour of pharma companies: long-term growth opportunity in the country; increased penetration of healthcare and medical insurance: Indian companies doing ‘well in non-US markets, especially Africa; debt free balance sheets and excess cash: and attractive valuations. Key headwinds ‘The primary headwind in 2018 is how auickly the USFDA warning leter issues are addressed by the companies affected. If resolution is slow or delayed, they could see continued downward pressure on earnings and share prices, Price crosion in the US generies business is another concern, Valuations Restriction on new launches in the US on a number of ‘companies and consequently depressed earnings growth have led to an earnings derating across the board. Though some sector stocks have held up valuations, this is a fertile ground to look for value. Niet bwags man tt Ce ipa ane St ee Eran gs) eeu) le) Sonam 13986822260 5 2 89 889 CTC ope win «88 5 woz ‘ea eareare ae 30 SCC iio as 50S 285928808 ~«O De Reda aborts a B70 tela ~C« ‘aroingePrarma 312 . 162187 ~=«SASCtRSSSCS Biocon a0 1626 . mo 183~—=288 ~~ Divs Laboratories 20% 258 28a 6 8 256~—O«SASCSC« Toren Phar 23305 386 . 23st ‘sk Pharma mem 9938 oC ‘A ate won Tay 12,2018 Far dtl of te Some, Fore and O Score, se page 4 | Wealth insight February 2018eT Eee TECHNOLOGY Negatives priced in Indian IT companies have witnessed tough times due to visa and wage reforms in the US. They are available at reasonable valuations now. ‘year. US President Donald Trump's repeated. attacks against what was perceived to be the Indian ITT services continues. A spate of reforms, which include the tightening of the H-1B visa, increasing minimum eligible wages and other regulations, are particularly negative for Indian IT. companies. Indian tech companies too suffered from To companies faced a difficult time last (BFSD), a key revenue source, as also from Key tallwinds Look out for commentary about IT budgets, especially in the key vertical of BFSI, as sector companies announce results. Larger long-term deals in digital are more likely. Higher investments by US companies post tax cuts are also expected in the sector Key headwinds ‘Trump administration threaten to impact Indian, tepid demand from the banking and finance services 3 ‘The ever-changing US taxation reforms headed by the healtheare and retail verticals, Another trend seen in recent months has. been the scaling up of mid-tier tech, companies, especially at a time when IT budgets have been shrinking and larger client ‘companies have been more willing to parcel out large orders to smaller companies. What's in store in 2018? ‘Things to watch out for in 2018 include IT budgets, especially in the banking, healthcare and retail segments, and demand in digital services. Also to be seen are marketshare gains on the back of investments in re-skilling of employees and acquisitions in the past two years, Newer services of cloud, mainframe upgrade, internet of things, automation are expected to drive incremental revenue growth for select IT companies. Top IT stocks oe, e technology companies, These include changing the definition of H-1B dependant companies, increase in minimum H-1B wage levels and addition of the BEAT (Base Erosion Anti-Abuse Tax), which aims to discourage US based MNCs from transferring profits to lower-tax jurisdictions. Also, the strengthening of the rupee against the US dollar is another key headwind the sector is likely to face this year. Valuations Anumber of key companies now trade at reasonable valuations as compared to their historic averages. The top IT companies have announced buybacks last year in a bid to better utilise their cash hoards and increase earnings for existing shareholders, Many of ‘them still have large cash hoards. WI set tage man ‘toe Motes amines Onwing ey cosy ae soit) MOE ZSeoe seo Seo TIE Pe _yle 5) rains) sty ed es woz 538A 5 i707 mt 68S COO ines 2528620 1 m2 te1~~=«tOO~=C«EBSC~C« Wee 142058 5 ° 17 160~SC SCC ie Tecoioges wasn 285187 . ° ma 180 Teh Mahinda 07 iat 2 ws 888A ‘race Fane 3520 SCS 5 CE eC) iexawar Tecmologos tase 274288 5 1 2a 62—~=«SSCB~C«( nates 1038516819 4 © 22 ~«tk2~SCiASC«SASC*«t vent os 68 TO ° we 162~«RT C=C Tae 4c 367232 5 2 wa 858A CRTC ‘A ate wz on lary 12,201 For deta of the Snr, FScre and O Scare, sas page 64 of vai wvwsaluceasechontne com February 2018 Weath insight | 45MAHESH PATIL Co-CiO - Equity, Aditya Birla Sun Life AMC “Rather than being too flamboyant, it’s important to generate sustainable returns’ Known among investors as Mr Consistent, Mahesh Patil, Co-ClO - Equity, Aditya Birla Sun Life AMC, oversees over 20 funds that hold %85,000 crore in assets. As a seasoned investor who manages other people's money, Patil is extremely calm and composed. In an interview with Wealth Insight’s Kumar Shankar Roy, the man behind the fund house's equity prowess shares his views on what to do when a stock goes up fast, how to react when a good company faces bad times and why valuations can be let go a bit if everything else in an investment is sound. Read ‘on to know more such fascinating nuggets. 9 46 | Woalth Insight February 2078When did you get interested in the markets? Thave had interest in the stock market right from the time when I ‘was studying management (at Jamnalal Bajaj Institute of ‘Management Sciences) in the carly 90s. I got early exposure to equity research (at Parag Parikkh Financial Advisory Services). 1 liked equity research because it gave me an understanding of com: panies, Being an analytical per- ‘son, I got a lot of food for thought from that. Slowly, as I progressed and had a good knowledge of dif ferent sectors, my aspiration turned to managing money. That's when I got an opportunity at Aditya Birla around 12 years back and it’s been an exciting journey for different reasons. The nature of this job always keeps you on your toes and there are new things to learn, Then, there is a passion to generate returns and when I see how we are able to make a differ cence to the lives of investors, it brings a sense of responsibility. How has your thinking changed ever since you began your investment- management role? You have seen different market cycles from a very close quarter. ‘There are a lot of changes that happen as one matures. The mar- ket keeps teaching us new lessons. ‘The lessons taught during large crises are extremely important, The first big lesson is that we need to respect the markets Secondly, we have to try and become more process oriented towards investing, This has to con- tinue even as we devote time to finding winners, Thirdly, as a portfolio manager, discipline is everything. Discipline ensures consistency Rather than being too flamboyant, it’s important to generate sustainable returns, ‘Also, not depending on individu- als and instead trying to work as a team brings greater dividends. Put together, there are about 27 people in the equity team. It is important to delegate, empower, and share information within the team. ‘What have been the biggest successes and setbacks in your investment journey? That we were able to pick certain funds has been a source of big suc: cess, The Frontline Equity Fund, for example, which we acquired 10, years back, and the way we were able to shape it up have been very encouraging, The way we are able to achieve scale and size has been the biggest success. ‘The disappointment in this jour ney would be around the times after the global financial crisis. There were some funds that we were managing very aggressively: Then we had a very tough period in some of these funds. Our bal: ance in those portfolios in terms of risks taken was not good. That was a setback for us. Then again, we quickly came out of that period also, Our first objective then was to beat the benchmark. Once you do that, you start assuming more risk Itis important to objectively look at your mistakes, That can only happen if there is a strong review and control mechanism, “The market keeps teaching us new lessons. The lessons taught during large crises are extremely important. The first big lesson is that we need to respect the markets.” How do you identify multi-bagger ‘opportunities? ‘What appeals to us is a set of key drivers. The opportunity of the business is very important. We should be able to see longer-term sustainable growth in the busi- ness. This can happen if the pene: tration levels of the business can, be raised or the company is trying to do things differently or has a very strong competitive advantage —a moat. A moat not only allows a company to gain market share but also protects it, Obviously, the ‘management has to have a vision and the capability to execute it properly. We have seen our biggest gains in stocks from all these situ: ations. Of course, we like to spot ‘them before others in the market, which means valuations are better early on, The ability to sit on such stocks for long is equally import ant. There should be conviction to stay put. Or else, there will be temptation to sell if the stock price reaches the target price. Rarely does it happen that you have a ‘company trading at cheap valuations when the business opportunity is great, management is of top quality and there is a durable moat. What do you compromise on in this kind of situation? Clearly, you can compromise on the valuations a bit. There have to be clear drivers of growth. Good com- panies have a sustainable moat. From a longer perspective, strong and good return on capital, free cash flow, etc., are very important, When a stock performs very well, many investors often sell it. But you are saying you don’t. Why is that? Im such a situation, it's important, to go back and see your invest ment hypothesis of that stock. Are there incremental drivers that can take the stock higher? There needs to be something that will sustain that performance and take it February 2018 Weath insight | 47aay “Short-term noise will always happen... What you have to do is continuously question the inve: stment hypothesis... Find out whether an event is short term or will impact the busine: beyond that level. For that, you will need a deeper understanding of the company Of course, your understanding of a company grows with time, If all the analy- sis convinces you, you hold onto the stock despite it having touched your initial target price. Ihave seen you hold onto stocks, like Nestle, when they were going through crises. At such times, when there is so much noise and headline tisk, how do you manage that investment? Short-term noise will always hap- pen. Truthfully, we cannot ignore it as well. What you have to do is continuously question the invest ment hypothesis. Any company can go through short-term pain. Find out whether an event is short term or will impact the business materially. Meanwhile, you will have to ride the short-term volatil: 45 | Wealth insight Fbrury 2018 s materially.” ity. Hold onto your position, Defining what is short term and what is long term is very import ant as well Can you tell us how you construct portfolios? How do you assign different weights to different stocks? We first shortlist stocks. Then, we look at those stocks where we have the highest conviction. This is where we take inputs from the analyst team also, As fund manag ers, we have to understand what our expectations from that stock are. Once that's done, we ensure we take enough active bet on the stock. Active bet is vis-a-vis the benchmark. We also have to do some top-down work to find out which sectors are doing well. You can say it’s a mix of top-down and bottom-up approaches. As an investor, we have to decide how much risk we want to take at the stock level. The level of risk will decide the maximum underweight or overweight position. Once you set up a portfolio under risk-man- ‘agement framework, your job is not over. A continuous monitoring needs to happen. This monitoring tells us which stock bet is contrib. uting and which is not. Once you know that, you can take necessary stops to add or correct positions. Vast amounts of money always chase ood stocks, But in India, over the past one-two years, liquidity has been plentiful. In such a scenario, how do You remain focused because others are buying and continuously pushing the stock prices up? ‘One has to understand the funda- mentals of a stock. At the end of the day, we are relative managers. So, it is important to stick to com. panies with strong fundamentals. Even if the stock is slightly expen: sive, you should be assured of ‘good growth. At times when mar kets are awash with liquidity, it is important not to get carried away. ‘You may miss certain opportuni- ties. Iam okay letting them go. Ina market which is highly liquid tydriven, we are okay if we are not the best fund or investor: Our endeavour is to be in the top quar- tile, but during such times we are ‘okay to be in the second quartile. I can’t chase stocks irrationally: We also maintain some liquidity in the portfolio, When there is huge liquidity, there will also be shocks. ‘We have to take advantage of them. What is the margin of safety you look in stocks? Do you have your own way of calculating it? ‘There is no simple formula. It depends on different factors. ‘Margin of safety depends on the characteristic of a particular stock, For a high-quality but low-volatility stock, we are okay giving away some margin of safety. WIVALUE GURU Invest in quality businesses the Warren ire than 50 years ago, Charlie told me that it was far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price. Despite the compelling logic of his position, I have sometimes reverted to my old habit of bargain hunting, with results ranging from tolerable to terrible, Fortunately, my mistakes ‘have usually occurred when I made smaller purchases. Our large acquisitions have generally worked out well and, in a few cases, more than well.” - Warren Buffett. in Berkshire Hathaway's Annual Letter, 2012 One of the most important factors while picking. stocks is to look at the quality of the business. It’s not, enough for a stock to be backed by a big name investor, or be an upcoming IPO. When investing your hard- earned money, it pays to remember Benjamin Graham's, 66 Buffett way Buffett's mentor, wise words: “Investment is most intel- ligent when it is most businesslike. I should add that it is most successfull when it is most businesslike.” Buffett's transition to quality investments Buffett himself transitioned from Graham's quantita- tive-based investing to giving precedence to quality. Here's Charlie Munger, Buffett's partner at Berkshire, commenting on their See's candy investment “if See's had asked $100,000 more, Warren and I would have walked - that’s how dumb we were. {[Munger's friend] Ira Marshall said you guys are crazy ~ there are some things you should pay up for, like aquality businesses and people. You are underestimat. ing quality. We listened to the criticism and changed our mind.” February 2018 Weath insight | 42ate Declining returns on capital conan sete focets) cant 0/E)carnD/EO) camecpee ree) Src Byte ROOT) Syke re Japranan Ascaes __onsincton toa wae area 2 a ® ‘tech feat 2 ie cae 2 a ieee Noa Tones 7% as es @ et ‘aanPower over Ey a co = ea Titbeacan Heda tneramer za os a =» an Ofte nde a 2 ee ‘ence Communications Teo 3 1 rr 16 = ae idea car Teco a ae a aa~=~wmSsSCtiaSSC Tora ator Tea Ey a mC ‘Shopper Sop ietaing 2 a aa a Jaa Sem Ton Se 3 32 10 ao We iWespun Com Tatebie KAviaes a 70 0S Sana or ana OTR ROGET rao ala lye DET oe oa Low-quality businesses business? If the management is able to turn things ‘Think about it. Would you invest your hard-earned around and returns improve, it's another story, but ‘money in a venture that, say, earns 2 per cent per ‘when managements cannot improve already low annum? You wouldn't, But many investors forget to returns that a business earns and in fact returns fall pay attention to the quality of the business that they _even further, external financing generally goes up and are putting their money into shareholder returns come down, ‘What happens when you invest in a low-quality ‘The table above lists out companies that started off Increasing returns on capital coroun seer OCE(s) Curent Ef) Curent) came pece Pee) SCAR Syetece —ROCETS) —Sypteck Lat Syback ems) Stpreme Pevochen ‘Chemie Ea 567 os 00 382 e488 ‘ite aa we 192 550 00 Ce atc Pharma Healt 187 32 08 oa 101s 2 Sonata Sofware T 08 358 on on 308 =e oar ‘hema 133 a0 02 00 202 7 Today Network Mecia Enertainment 51 28 02 on 453 2 a Batemper Ci its ae a6 23 16 ut 2 a8 Filoxinduses Paste Produts| m2 252 16 00 362 as arobinge Pharma Heatheare 12 249 1 04 6 ee Johnson Contos Hachi Consumer Duabes a8 260 08 ol 2682 BT bret ‘ude oF 30) 7229) 19 12 a7 wa ‘sai na Glass Construction Natale at 187 Ey 27 370 ao ie a nasties ‘Automobile & cians 63 159 30 29 180 ee ‘bat ie Sciences Chemicals 38 14a a 12 a 26 «ae Fintsoure Soins a a5 Ey 15 05 e a Sta a on anna 9, 20IR, ROSE returns on canta empayed: DUE So 50 | Wealth insight Fbruary 2018High-quality companies VALUE GURU xmoany Sea roc) canon sector rock ‘stl ina ‘ama relies wae arcs ae! a5 Windustan Univer FCs: 984 ‘are ates ratings 468 Calg Pamolve ce 739 Hero Metocom ‘Atoll & Aneilaes a apin Point iaboratores _—_Heatheare 708 Coaitnla ang 467 PAG yon aiHeatO Care FCG 228 ‘Nanta Phare Heaticare a ‘vant Feeds ce 226 ‘race Financia iG 443 Pagolnausties Tele eo Tes ry Symphony Consumer Durables 588 BombayBumahTadng gh a7 ‘Rios Software 7G 30 Vatrangeo 2 ‘Supreme Petrochem Chereals 567 ‘SunTVNetwonk Weal & Enertainment 08 Bajacom cs 358 ‘Zee Eeranment ed & Enertainment aa Taathsh 7 358 rate dusties Chemica 00 Wstinaanties FNC a7 ‘aan Pas Chemical 3a ‘Sealer Ener Capital Goods 539 Hato Phama Heaticare 392 “Gites naa FNS 330 ‘tien Soniene T a8 erst, tings 528) ‘Vouardinsties Captal Genes ae ‘itarna naan PMCS 518 Falisinaia Chemical 386 Tien Taine Capital Goods 57 inde Count Insties Textile 362 eter tow ‘Automabie& Aneliates 296 tte Fee: 360 este nla FMCG ov ‘Whtipat fata Consumer Durables 38 Data a on Januar 19, 2038, ROCE ie returs on capa empayed.D/E deb eau aio with low returns on capital employed (ROCE) five years ago but couldn't improve the quality of the busi ness, Make a note of the debt and stock-price returns, Improving prospects When companies start improving their returns, the opposite happens, External debt often reduces and stock, prices move up ina significant manner. See the table Increasing returns on capital’. It lists out companies that reported poor ROCE five years back but have improved those numbers since. Look atthe stock prices that have followed the ROCE High-quality businesses No stock price performance can escape the quality of the underlying business, Whenever picking stocks, keep an eye out for the quality of the business if you ‘want sustained long-term outperformance of your investment. Here's Munger again explaining what investing in high quality business does to your portfolio returns. “We've really made money out of high-quality busi nesses. In some cases, we bought the whole business, And in some cases, we just bought a big block of stock, But when you analyze what happened, the big money's been made in the high-quality businesses. And most of the other people who've made a lot of money have done so in high-quality businesses. Over the long term, it’s hard for a stock fo earn a much better return than the business which underlies, it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going fo make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result. So the trick is getting into better businesses.” See the table ‘High-quality businesses’, It ists out some of the highest quality large businesses you can find today. Keep in mind a high ROCK is just the start. ing point. There are a number of other factors that you should consider before you make up your mind to invest in any of them. WL February 2018 Wealth insight |Oita Preparing for the fall Why the stock market is overheated and what options investors have now SANJEEV PANDIYA The Nifty is at some 27 times trailing earnings (don't trust forward-earnings estimates which seem to be forecasted linearly), We already have a sense that the projected earnings growth of 20 per cent is not going to meet expectations for even the first year, let alone the three years of compounded 20 per ‘ent growth that is built into expectations just now. Here's how the arithmetic goes. At 27 times trailing ‘earnings, £100 of current earnings (last four quarters) is available at £2,700. Now the long-term valuation of a steady market is that it should be valued at the nominal rate of growth (of the r. economy). This is on the steady-state Ml g, place to is currency (equilibrium) assumption that corporate profits as a percentage of GDP will stay the same. This ignores the cyclicality of corporate profits (as a percentage of GDP), which follow the waxing and waning of capacity utilisation, the stage of the capex cycle (ie, leveraging or deleveraging), etc, Without going into the details of the various scenarios, let’s say that the nominal growth of the Indian economy is 7 per cent (real growth). Add to it 5 per cent inflation and you get 12 per cent nominal growth. With some small increases coming from the tightening capacity utilisation, you can assume that the existing 3 per cent of GDP that corporates earn will go up somewhat, Hence, you can expect earnings growth of 15 per cent over the foreseeable future. Frankly, that is what the markets seem to have said on an average for a very long time. So, for these markets to be valued reasonably, earnings must rise 80 per cent, ie., 2,700/15 = 180, against the indexed base the US dol index but which will stabilise 52 Wealth insight Fbrury 2018 old is a good on a reversal in bet on a reversal in euro/pound, somewhere here] ‘earnings of 100. That’s a CAGR of 20 per cent for the next three years, This may be a fair assumption in certain cyclical plays (metals, maybe industrials, for example), but I ‘can't see it happening in, let's say, IT or banking, which are seeing 1 per cent revenue growth and 5-6 per cent credit growth, respectively If these expectations are belied, where should the markets be? The most conservative estimate would be 12 per cont growth at 15 times earnings, an indexed value of 1,680 compared to the current 2,700 (which is 62.22 per cent), close to the Fibonacci bottom (61 per cont) of a bear market if it were to start today. That means, for those who can't follow this train of thought, the market is worth 7,200, about 62.22 per cent of the current Nifty of 10,800. ‘That's close to the last bearmarket bottom. The actual bear-market bottom may be slightly higher because actual earnings growth may come in a little higher than my conservative 12 per cent, and some patient holders may be discounting two years of forward growth. In a hardening interest-rate environment, I can’t see it getting better than that. ‘This is also just when the interest- rate cycle has definitively turned. Inflation is up, from the ‘death of inflation’ projections of 1-2 per cent to an out-of-the-comfort zone of 5-6 per cent, warranting at east a small hike to communicate the turn of events to ‘the market. Worldwide, the negative interest-rate policy (NIRP) regimes are ending everywhere, which is going to somewhat harden the cost of capital. The hardening le. So y. Bet Har don’tOita ‘may not be painful or steep enough to trigger material deleveraging, but it should stop the frenzied bull markets across the world. The Bitcoin (and other cryptocurrencies) blowouts prove that sanity will return to pricing in money markets. Nothing about ‘mass human behaviour is ever orderly, but this might be the year when some of us will start using our logical brains, 1 can’t believe that crowds can process events (the turn of the interest-rate cycle) so quickly after they have happened, so maybe this fact is in the process of getting absorbed into markets. I have been clearly telling everyone to leave equities and start building hedges in currency/commodities (like gold/silver), ‘waiting for the lemmings to run off the cliff. The actual top may be some months away. (Disclaimer: Through my writing years, I have been consistently wrong in my timing, sometimes by up to two-three years, Mostly, it is because I see things, and talk about them, too early. From the first kid who says that the king has no clothes to the time that the whole crowd is saying it, the process ‘can sometimes take quite a few months. Just don't try to time this.) “Markets can be irrational longer than you can stay solvent’, so don't take any naked positions that are Jooking for a crash. But hedged positions, like buying dollars against a bond portfolio, would be a good way to short the market, Does that mean that you should be selling everything and putting your money under a mattress, Well, new ‘money, perhaps yes, but large chunks of the market are a hold but not a sell. Will it be orderly? No, because I don’t like how people have become sanguine that they ‘can't see the end of the bull market (who can’), but they can see a correction. Gold is a good place to hide. So is currency. Bet on a reversal in the US dollar index and some moderate dollar strength but don’t bet on a reversal in euro/ pound, which will stabilise somewhere here. The obvious place to hide is short-term bonds or bank FDs, ‘A possible scenario is that there is no material price decline but a long ‘time correction’, which exhausts any but the most patient long-term investors. Don’t make the mistake of counting on domestic flows to shore up the exit of foreign money. The rise in capacity utilisation and some moderate pick-up in private-investment demand might be two jokers in the pack, which might sive some uptick to our assumptions of actual earnings growth taken above. This will be patchy, affecting some sectors more than others. It won't be enough to shore up the entire market and the major indices. So, what does the ordinary, lazy investor do? In the genuine, long-term compounders, they should hold, Companies with enterprise value of six-10 times EBITDA and low to moderate debt should be held, Anything above that should be exited. If the ROCE is 15 per cent, you should be willing to pay about 1.25 times book and then push up your willingto-pay price proportionately. If you apply these mathematical filters, you should be able to weed out the most expensive segments of the market, Lastly, the ‘Warren Buffett ratio” of market cap to GDP is also in the danger zone. If cyclical profits as a percentage of GDP double, the current valuations will hold. That would require some tightening of the demand-supply balance. Given the low credit growth, any real growth in demand will add to the pricing power in the corporate sector but so would you see an impact ‘on manufacturing inflation, which could bring an immediate impact on monetary policy. Those sectors ‘with a material slack in capacity utilisation might see an uptick in their fortunes, so some stock specific stories ‘will see a big change. But the composition of the market is skewed in favour of financials and defensives, so it ‘will not be a secular spread of wealth across the market, If inflation is the one constant in all the scenarios, it makes sense to buy that. In the short run, it makes sense to stick with shortduration bonds or simple EDs. And in the long run, shift to long-duration bonds, ‘once real interest rates shift downwards. Specific stocks that give you an earnings yield above the bond. yield should be held. That's actually a pretty large part of the market, WI ‘The author teaches, trades and wiles at spanalva Dogspatsom February 2018 Weath insight | 53Playing devil's advocate Two fund managers make cases for a market correction aN ee ANAND TANDON The New Year, 2018, started a roaring bull market both in India and across the world, Most asset classes remain in an upswing despite rising risks. Commodity prices continue to witness strength and interest rates show signs of firming up. Valuations are ata significant premium, Typically, this would lead to fund managers taking money off the table ~ something that is yet to be witnessed, Turning cautious carly can lead to significant performance issues, forcing asset managers to hug their benchmarks closely while extolling the virtues of long-term investing, Amidst stich a scenario, the story of John ‘Hussman has many lessons. ‘more correlated to the market, as shown in the chart. Since then, however, the performance has come apart. Since June 2010, the fund is down by half (62.5 per cent), while S&P 500 index is up almost 155 per cent. The fund has shrunk to about $300 million as investors have left in droves and Hussman has had to bear significant criticism ‘on social media, Despite this, his updates regarding his portfolio positioning are worth reading, Hussman's outlook for 2018 ‘To quote from his website, https://wwwhussmanfunds, com/comment/mmclg0101/, “If Wall Street believes that stock prices could i advance further because investors, Who is Hussman? A key point temporarily have a speculative bit in their John Hussman is presidentof themutual 08M teeth, and that they care more that the fund Hussman Investment Trust, He is a Hussman environment “feels good” than about any seasoned investor and has a Ph.D. in makes in careful evaluation of long term investment economics from Stanford University He fetter ig that _Pspects, we have no strenuous objection is said to have predicted the tech crash of 2000 and once managed a nearly $7 billion ‘mutual fund, He's also a former professor lower interest rates do not to that argument. Indeed, that’s exactly why, until we see more than the early deterioration in market internals we of economics and international finance justify a observe at present, our immediate at the University of Michigan. He writes 5 investment outlook is rather neutral. On regularly on his investment outlook and —-Nigher the other hand, if Wall Street believes that goes to great lengths to explain his valuation current valuations are actually “justified,” investment methodology. Hussman’s performance over the past seven-year period is amongst the worst in the industry. However, this was not always the case. Since inception in 2000 till 2010, Hussman Strategic Growth Fund outperformed the S&P 500 index handsomely. Of particular importance is the way the fund navigated the fall of 2008, when its hedges seem to have worked to reduce volatility extremely well, The fundreported its unhedged NAV, which wassignificantly 54 | Wealth insight February 2018 ai hac io-a year sep oon total returns are likely to be meaningfully positive, or that the S&P 500 will avoid a collapse on the order of -65% over the completion of the current market cycle, my view is that these beliefs are strenuously at odds with the evidence from a century of market history.” ‘A key point he makes in the letter is that lower interest rates, if they are reflective of lower growth opportunities in the future (as they must be - why ‘would investors not borrow ‘free money’ and invest itSU clay Comparison of the change in value of a $10,000 investment in the Hussman Strategic Growth Fund versus the Standard & Poor’s 500 Index and the Russell 2000 Index s23500 Hussman Strategic sao? Growth Fund s21s00 Average anal total e- {ure (or periods ended s1ss00 November 30, 2010) ss7s00 2.01% 16207, 15,500 ‘yea 13500 -1,.12% 11500 3-year 3075 39.500 1.03% $7,500 S.year $5,500 y = et a eae aw a aw ww 201% 10-year — sone tate owt ind SEN SGPC aut iestnents ans euialens ony mbar Gross expense ratio 7.63% = Russet 2000inéer Fiscal yearend June 30, 2010: 1.05% : — supsooineer Since inception Saree Ripa mnboehea Oe have negative returns), do not justify a higher valuation, Stock prices have to reflect the sum of all future dividend streams, ie, D/(r - g), where D is the expected dividend per share, ris the rate of return required by the investor and gis, the expected growth rate. In effect, if rand gare both reduced by the same number, the stock price remains unchanged. The suggestion that lower interest rates justify longterm higher prices is not correct. 1 recommend that investors have a close look at the argument that he makes here. Jeremy Grantham, Co-founder and Chief Strategist of GMO, a Boston based asset manager managing over $70 billion is also a prolific writer GMO puts out seven-year forecasts that they update periodically and have built an extremely successful business around disciplined asset allocations. Its current forecast predicts that US large-cap equities will likely deliver a negative 2 per cent annual return over the next seven years. However, in his note at the beginning of the year, unless they think that the investments will r. G years MO’s current forecast predicts that Us large-cap equities will likely deliver a negative 2 per cent annual return over the next seven Mr Grantham has forecast a near-term “melt up” in the market - something that could last from six to 21 months, The ‘melt-up phase could take the S&P 500 up another 60 per cent with a symmetric fall once the market tops of a similar percentage, which of course implies that the market could eventually settle significantly below the current levels, Again, the note (at https://goo.gl/ vJYZwa) is a must read for investors. Akey takeaway is something Hussman would agree with ~ an early exit in the bubble phase can lead to significant underperformance. How easily investors can rush out the exit when the bubble does eventually burst will determine the investors’ financial health. Since we are ina synchronised global rally, the views on the Indian markets cannot be significantly different. We will all need a large dose of luck as and when the bubble is pricked. Till then enjoy the rally: WL ‘Anand Tandon fs an dependent analyst February 2018 Weath insight | 55easy TUL SS The watch list Being near-monopolies, these companies have high chances he concept of moats was popularised by Warren. advantage ora bari fo ent Companies that consistency of returns, Hence, moat investing is a sophisticated form of fundamental investing. of delivering consistent returns In the 2016 anniversary issue of Wealth Insight, we had presented the latest list of moat companies in India, The following watch list gives moat companies with their updated numbers. Many of these companies have high valuations, which may not make them an ideal buy currently: WL company ane secer OES) __Preetbook Phen vamings_SYimedan P/E _Phen®)__S2wekhnow AIA Engineering Capital Goods 182 5.24 363 223 15781702276 Amara Raja Batteries Automobile 203 sat a4 302 850 955-665 Asian Pints Chemicals ms un 593 509 a.t94 1261-985 Bajaj Auto ‘Automobile 240 5.07 238 203 3185 3381-2684 Bajaj Comp Fcc 44g 1st 387 212 si7 525-343 Bajaj Finance Finance 27 653 453 269 1,702 1989-908 Bayer CropScience Chemicals 149 880 SLT 352 4588 ——_—5050-3685 Bharat Electonics Capital Goods 176 552 252 218 14 193432 Blue Dart Express Logistics 345 20.70 973 ms 422 Baza.asan Bosch ‘Automobile 190 658 463 482 19879 25245-18602 Britannia Industies Fuca 370 19.80 627 a1 4m2 964018 asta nla ‘Automobile 11521405 289 326 190 2arany Colgat-Palmolve (nda) FMCG 5051953 530 439 1.139 1176-863 Container Corporation _Logisties 97 3.82 353 215 1,430 s4o9-12 nisi Ratings 362 13.05 456 442 19st 2185-1752 ‘cummins nia ‘Automobile m5 on 353 314 933 1096-822 Daburindia Fcc 20 1198 504 304 359 364-263 Divs Laboratories Heattheare 20 536 322 257 1.105 1142533 Emami Fuca 22 | 1601 386 49:7 1.239 1428-985 Essel Propack Past Products 138 ait za 150 294 317-226 56 | Wealth insight Fbrury 2018COMPANIES WITH MOATS company ae sector OES) __Preetobook _Plcetoeamines Stinecan P/E Price) Se-vekhleviow @) Exide Industies ‘Automobile ma 3am 30.1 237 27 250-183 GSK Consumer Healthcare FMCG 222 8a 423 a8 6490 6732-4856 HoL Technologies r 285 4.08 148 160 952 963-778, HOFC Bank Bank 184 sit 308 2a 1891 1910-1231 Hero MotoCorp ‘Automobile 337 6.30 208 203 3.566 4200-3045 Hindustan Unilever FMca e718 38.22 586 aa 1372 1390-838, Hore Finance 156 470 260 204 1,860 1886-1281 Indraprastha Gas Inds. Gases & Fels 195 6.95 362 153 315 344-184 Infosys 2.0 3.25 158 181 1.152 1160-862 mre FMcc 243 721 308 30.7 266 353-250 Marco ag 3751489 519 420 310 348-258 Maruti Suzuki naa ‘Automobile a7 736 38 280 9312 too00-s644 MRE ‘Automobile 187 3.35 304 121 70,434 74499-49600 Navneet Education Media & Entertainment 28.4 4.68 236 168 157 194-115 NCC (nda) Realty 219 ait 586 443 245 292-161 Neste India Fog 3182001 692 603 7,759 8001-5830 Oracle Fin Services Software TT 3 853 2a 247 4086 4220-3202 Pidilite Industies Chemicals 282 1256 548 445 896 972-624 Power Grid Com Of ndia—Power 168 2it 128 139 197 226-188 P&G Hygiene & HealthCare FMCG 339 48.08 68.6 sia 9378 9900-6667 Schaefer India ‘Automobile 142 5.84 ag 344 5,708 960-3803 Capital Goods. 157 6.08 aut 261 4312 1470-1123 SKF india ‘Automobile 140 567 364 324 1853 2010-1268 ‘Sun Pharmaceutical nd Healthcare 225 3.78 440 378 583 728-433 Sundaram Finance Finance 150 5.55 396 323 1975 2002-1220 Tata Consultancy Services TT 336 6.82 a7 224 2889 2925-2158 Titan Company Diamond & Jewellery 18.1 1739 m2 424 804 938-358 Zee Entertainment Media &Entertainment 38.8 748 12 328 593 619-465 Data as on January 17, 2038 February 2018 Weath insight | 57STOCK ANALYST’S} cestol[es Our scorecard O= the years, we have analysed and recommended sever Performance Jal stocks. The table below shows our performance since a July 2011. Yes, we have a few failures, but we also have Total returns* since July 2011 ‘many successful picks. A portfolio comprising the stocks below hhas delivered an IRR of 2562 per cent, including dividends, ~ assuming one had invested £10,000 in each of the stocks at the 0 0 time of the recommendation. In all one would have invested e ‘0 e ‘0 +10,10,000. The current value comes to %35,15,970 (including divi ends) on Jan 18, 2018, whereas investing the same amount in Stock Analyst's Choice Nifty 50 Index the Nifty would have generated %20,20,769 (including dividends), yielding 14.13 per cent, as per the total returns index. WI As on January 18, 2018 fecommendes caret. Yas 10K Recommendation ate men PaO NMRSSEER tat tu pea) uit @ Asian Paints| 295 1.188 40,258 247 = Bosch eat? 19904 28,75 183 = Castrol India 12 185 15255 88 1 Colgate-Palmolive 438 1.159 25310 m0 = RISIL 83 1,960 39,206 19.0 = ‘Cummins India 48 906 18845 125 : Exide Industies 49 2m want 78 1 me 123 23 22186 184 = Larsen & Toubro 730 1361 18640 114 . Nestle india 3.888 1736 13898 123 / Noe 288 1a 5608 80 1 Pidlite Industies 159 393 56052 aia = Titan Company m9 885 38694 231 = ugtt @ Lupin 461 oa. 19999 124 . Opto circuits 213 10 453 7s Sept Q Bank of Baroda 182 162 10,708 18 i Castrol India 127 186 14088 84 t Power Grd Corporation 103 197 19,191 128 = Rural Electitication a 153 17661 150 I Tata Coffee 10 156 22,195 139 Torent Power m1 293 13864 64 1 Zee Entertainment Ent. 123 596 48266 28.1 = oct @ cmc 8 2032 ager 25.7 = Graphite India 8 151 7735 45.4 = Zyog Systems 197 4 24 40 elu ss han ano year are able. Toll tun nude divide income. Relun as on Janary 18,2078 ransactonl os rat akan ina account. “CMC merge wih TCS wi fect fom Seplaber 2, 2015, Is cure pie she as aed price Get fresh recommendations Value Research Stock Advisor www,valueresearchstocks.com 56 | Wealth Insight February 2018STOCK ANALYSTS} CHOICE Recommended Curent Vale of 10K Recommendation date nce pre) Invested) Total etur (% per annum) Novt1 ® Godrej Consumer Products 198 1,035, 52,215 312 = Tata Consultancy Services 1087 2918 26,856 204 = Transformers & Rectifiers 20 39 19,973 18 a Dect Gujarat State Petronet 92 2a 23.284 15.6 = Noida Toll Bridge B 2 5.279 0.9 | Tata Motors, 180 ag 25,438 16.0 Jani2 @ GAIL at 469 16087 10.4 9 akin spc 25 sams sz t MRF 6,859 68,804 100,288, 46.4 Mart2 @ BajajFinance 8 1.661 222,584 68.0 Gabriel India 2 190 83341 447 Opto Circuits 2a 10 437 40.9 ‘Ierl2. @ Shriram Transport Finance 581 1456 25,085 18.2 TK Prestige 2647 8,506 32,134 22.7 May12 Q Bata India “23 721 17,051 10.4 4 eKcommerteticoe io eate oss t ‘Swaraj Engines: 395 2076 52,560 38.6 Junt2 @ Ajanta Pharma 1 1533 203,387 18 Elecon Engineering 53 8 16610 4 Kirfoskar Pneumatic 470 965 20533 154 ‘hugi2 Q Hero Motocorp 2,082 3.593 17,259) 13.4 Supreme Industries 237 1407 59,444 40.8 VST Industries 1695 3029 anit 42 Sep2 Amara Raja Batteries 195 833 42,679 31.8 Redington india 7 190 26.536 21.3 ett2 @ Lupin 567 921 16234 10.4 MinaTree m 684 39,796 32.4 Solarindusties 197 134 51,672 39.8 Novt2 @ Grindwell Norton 130 55 41,961 33.2 KpIT Technologies 120 192 16018 10.4 Mcleod Russel 306 183 5,988 8.0 Deel2 City Union Bank 48 aT 39,583 29.9 Petronet LNG 7 236 23949 254 Wockhardt 1.687 913 5,586 10.2 Feb13 @ Balkrishna Industies 5 1125 77,506 514 KEC Intemational 6 362 56,792 424 Torrent Pharmaceuticals 365 131 39,161 346 Mart3 @ Emami 410 1.261 30,742 26.8 Gruh Finance 108 598 55,469 43.0 Relurs els han ano year are abs. Toll rtuns nude iden income, Returns as on January 18, 2018 Transactoal fees taken ile account Get fresh recommendations Value Research Stock Advisor www,valueresearchstocks.com February 2018 Weath insight | 52STOCK ANALYST'S CHOICE acommended —Cuent ‘ala 0 Recommendation ate ee prcet)—__inested()—__—_—Ttaletum pera) ‘Apri @ Berger Paints India ry 253 36,853 319) = Innoventive Industies* 103 4 407 628 May-13 Kaveri Seed Company 252 sit 20,280 169 = Navneet Education 8 157 27,339 268 = \V-Guard Industries: Ey 235 67,870 50.5. — ‘hugs Calm india” 296 285 9650 29 I Indraprastha Gas. 6 305, 49,449, 442 = Nesco 146 606 41535 379 —_ NovAs Bajaj Comp 231 503 21,198 2.9 = HL Technologies 581 964 16,436 15.4 = Dec-13 @ Voltas 89 600 67,202 59.3 Ll Fait O Jkt is nessa Tata Consultancy Services 2213 2918 13,184 94 7 Mar44-Q Cummins india 433, 906 20907 238 = ‘Swaraj Engines 622 2016 33392 408 = Ayrld_Q AIA Engineering 560 1581 28,238 324 = Godrej Consumer Products 382 1,035 77,104 30.5 = May4 Ralls india 167 265 15,886 146 = I Titan Company 286 886 34,650 40.0 = Jun4 Q Finolex Cables 164 mu 43,362 50.3 — NBCC 40 238 60,038 645 Ei ‘Aug-l4 Gateway Distriparks 22 238 10,294 38 1 @mpc 154 151 9,821. 17 | V-Guard Industies a7 235 50,116 59.4 ni ‘Sept4 @ Finolex industries 237 645 21,788 28.1 = Hindustan Media Ventures 155 255 16420 165 Oct14 Mahindra Holidays & Resorts 199 364 18,293 21.0 = Tata Coffee 93 156 16,163 179 -— Nov-l4 © Infosys 966 1,153 11,928 13 ' Tata Motors 482 419 9078 420 1 Jan-t8 Apollo Tyres: 208 262 12,895 88 ' voris @ watson: oi eases t Voltas 256 600 23,432 347 = AprAS Astral Poly Technik 449 837 18,652 206 = VST Tillers Tractors 1,380, 2577 18,676 25.7 = May15 Just Dial 1253 558 4449 234 Shriram Transport Finance 1,099 1486 13,208 a7 : PORTFOLIO TOTAL 32,00,948 25.6 "Slapped wading ance Jun 7a "Slapped ding ence Apr 17 Reus ols han ane yaar are abvolla. Tol eure nduide vend core. Ratu ae on January 18, 208. Tansactona fos rot akan no aoeount. Gel fresh recommendations Value Research Stock Advisor www,valueresearchstocks.com 60 | Wealth insight Fbrury 2018Te | DIGITAL DIGITAL + PRINT OO 3 years for 82,754 OO 3years for 23,780 Save 49% Save 30% 76.50 per month C1 year for %1,026 Save 43% 85,50 per month Start my subscription from Name (MeiMrs/Ms) Adress 2105 per month 1 year for €1,494 Save 17% '%125 per month Delivery by courier in Cade Phone Email Cheque Number Bank & Branch Payele lo Mutua Fund insight, New Dei © GO ONLINE \wwu.valueresearchonline.com WHATSAPP MAIL +¥91-9868891830 +91-9868891890 5, Commercial Complex, Chitra Vihar, Delhi-t10092 rmfi@valueresearch inDo += Subscribe No) Insights into the Indian stock market and companies DIGITAL 3years for 21,980 Save 45% 255 per month (1 year for %840 Save 30% 70 per month Start my subscription from Name (MeiMrs/Ms) Adress [t+ DIGITAL + PRINT OO 3years for 22,880 Save 20% 80 per month 4A yoar for 21,116 Save 7% 283 per month ovary by couror in Cade Phone Email Cheque Number Bank & Branch Payele lo Wealth insight, New Dah © GO ONLINE \wwu.valueresearchonline.com State Date +91-9868891890 WHATSAPP MAIL +¥91-9868891830 5, Commercial Complex, Chitra Vihar, Delhi-t10092 wi@valueresearch.nSTOCK SCREEN Ideas to delve deeper ound investment methods outlast cycles and fads and generate profits over the long run. ‘Value Research presents stock screens based on. time-tested principles. ‘What are stock screens? These are alistingof attractive stocks based on the objective principles of sound investment, We apply stock filters carefully crafted by Value Research analysts on the universe of Indian stocks to identify these attractive stocks. The filters are devised to identify stocks of the following kinds: + Quality stocks available cheap Attractive blue chips Stocks available at a steep discount to book value High dividend yield stocks Growth stocks available at reasonable prices + Value Guru stocks ‘We believe that stocks listed in this section are a good starting point to start a close scrutiny before adding Key terms Current rato isthe rato ofa companys canentasets (he mostlquid asses, such as cash ad cash equivalents, erount reahatis, et) tots cuenta es lables hat are closest to matury ara Nence need tobe paid back rs 2 conparng tre later wn te forme, an meter can get an idea of how aud a companys assets ar. However In cera ceustances, a hig cument rato Could be due to the fact tat the compay is facing problems in reoreing recehabes Atematie, i coud be facing a protien seling Is ivetory. Net Current Asset Value (NCAV) 1 tr creates by Benjamin Gram. is ae by subracting the total abies from a companys curert zs, Universe companies (847) vie have revise our univese. We ceca ifthe compares vaded on alte ays for the last to quater. We conscered the Companies wit a maetcapalsaton of more tan €400 cro Pree to book value (P/BV) Prieto book value ete rao of he pie of ‘stock to te ook valve pe share a te campany. shows how ch prem investor ar lng to pay forthe unceyng net asec of te company Price to earnings (P/E) The prce-to earings ro, ote B/E rato, s simply ‘ne a of he pie of 2 sok seaming er shar, shows n mips how ‘ch investors ae wig tay forte eaings The hunt ue of aling a tock Is that high-pown stock wil havea high 2 ato, while a vale stock wil have 2 lately lower 9 ato Earnings per share (EPS) Faring per shave, or FF, scalelated by dng ‘he compan/s net prt with he total number ef oustanding shares. Earnings yield £31 vided ty ertrise value. Eee vale Is markt cap ‘add ott! debt and less cash and exe, Net sales. Tis is simply the Income that a company derives. by sling he goods and services that t produces The downside of taking tls as an incleatr of growth is that may nt be imatenes by 2 sity sling boton-lne pefarmance. company maybe farrngrvenue ata Nigh rte But is congo by icing 8 very hgh coe, ‘he otto ine may not gow i Operon to He gmt Inte tp le. Interest covorage ratio (ICR) Tis inccatris genera weed to gauge wheter company has the ably osreb. The terest coverage ao scaled as ‘he ra of operating rf oat cutg. A campany wih i of more Bano ipl tat can sence mote than Wes corer eres charg. them to your portfolio, However, please note that they are not our recommendations. Each stock screen explains the reason behind picking the stock, which over time will help you develop your own investing rules, As we will be evolving such models and implementing changes to the methodology to be in line with economic and market eycles, the list will be dynamic and updated periodically. In the following pages of ‘Stock Screen’, we present five categories that collectively list a number of stocks. With these, you will be well-equipped to select, stocks to build your own portfolio after doing further research. If you think that stock picking is a lot of hard work, you can get started with these screens and with time understand the way the ideas are shaping to make your own judgement on stock selection. Great investments are not easy to find, but practice, patience and sound principles are all that you need, Debt-equityratie (DE Ratla) The cebt-equty at is caluatd asthe ato of {otal outstanding borowings ofthe cmpary tits ttal equity capa. Te DE rato ‘essenialy tes whlch companes use exceshe leverage to acleve govt CConertonally, the DE rato of less than two is considered sate. Return on equity (ROE) This nasured by tvngoroft ater tx a a paren age net worh ofthe company Kindates how effet the company has bean able to ue nestor’ none. Net worth Net worhis tenet alu of te company that sharhoiers can calm a case ofa banlupo. is composed of broadly the equity capt and the reer held by 9 company One rk n wing ts ncaa that companies ‘old potartaly ita this Fgueby sung mor egy at regular into. ‘Stack return (stk return) Stock ret scaleltes by ang the percentage change nthe pe ofthe sock suse for bonus opt. Dividend yield (yeld) Tiss defne a the peeatag ofthe dividend pis per hao t he cant marl price of be sock. Sine the denominator ins rao ste market pre, a stock’ vider yield changes every day. Price-earnings to growth (PEG) This aio denansatos now hgh a pice we ae baying ote pont Dal we ae purrasing Ue aio of ice earns 0 EPS [Bont ofthe tock. nal or anaes, we hae taken fear Nstar FPS Bow Dividend payout ratio (DPR) hss he oa evden paid othe snaehoders as 2 percemage of net prot ‘Operating profit margin (OPM) OP¥ s operating profi as aperantage oe sale, Net profit margin (NPM) NPM isthe net profit as a percentage of total income (sales pis othe income) ‘Stock style it inscates te sve ot Growth Value ook Rs domed om a eee tion ofthe stock's valuation — growth : | or vale ~ ands mare capt ton ~ lag, mi and smal For exe 7 ple, on the ght me have shown the ad Sock sy of ae ap owt stock Large Small February 2018 Weath insight | 63STOCK SCREEN Quality stocks available cheap The stocks listed below clear essential checks on solvency, accounting, recent financial performance and valuations REASONS TO INVEST wm Safety = Soundness 1 Good performance 1 Reasonable valuations fone deve. THE FILTERS 1m Z-Score greater than 2.99 1 F-Score greater than or equal to 8 = C-Score less than 4 1m PEG less than 1 P/E to median P/E less than 1.5, Eamings yield greater than 5% Baca an fence cr artemis doa paramanc 2 compare io atin he {nda ned nn on The Fa Safe bets company te tSon Fanm Coun past) PEPE) pent) naw) Adani Ports 65 90 30 54 241 09 89631 433 «443-283 Allsoc Technologies = 322 90 00 120 103 0.2 664437 535-306 Panam Global Senvces = 108 80 00 99 91 04 807 137 168-92 pow eam = 37 80 10 94 13.2 03 9,208 567 628-260 ‘ublant ule Sciences m 32 80 10 61 255 O04 13,921 924 952-600 tomas Solutions = 63 80 10 151 91 OL 521 111 150-81 Koval Mestcal Center a oF 90 10 73 23.4 0.7 1,428 1,315 1480-997 Mahan lays = 91 80 20 147 9402 TTT 954 984-343 NR Agarwal Industries = 35 90 10 100 109 02 916 549 600-223 Stem Bel = 38 80 20 62 138 o7 473° 331-375-155 es Eatbon Black = 32 80 20 56 318 0.2 4,600 1,313 1594-249 Pokama = 33 80 20 103 139 04 713 230 324-197 £4 | Wealth insight Fobrary 2% 8STOCK SCREEN Sted Atran Potedi Netlog Eangs Mosel Sheath comoay Ge 2son Foe Come yd) PE eect) et) now Seshasayee Paper = 39 90 10 115 119031457 1,185 1295-642 uso SMES 62-80-1071 291.842. 2,679 3140-1119 see a 45 80 10 75 23309 2,668 260 292-141 ‘ona 90 9.00074 20.6 «052693 204 280-155 ardhman Testes = 41 90 00 98 129 03 8127 1,408 1560-1110 Veni (nda) fice a ST 90 10 87-18 07 3.540 2,516 3050-476 West Coast Paper Mills 3590 20 94 113 02 2142 327 348-132 : Data as on January 17,2018 Indicates new entrants Attractive blue chips Investing in blue chips at reasonable valuations is one of the simplest methods of wealth creation with limited pain REASONS TO INVEST THE FILTERS = Liquidity = Companies with a = Debt-equity ratio of less equity above 20% 1 Large companies in capitalisation of above than two 1 Average ROE should not respective businesses 24,150 crore 1m Interest coverage ratio hhave fallen more than 20 1 Strong balance sheets = Annualised eamings growth should be more than two per cent in any year = Liked by institutions of more than 20% over the Five-year average retum on _m PEG of less than 1.5, past five years Solid foundation conan mre pen am aac) oom) eal nt) Naw) Bart Industies m 316 14 11 45 220 215 9,156 1,114 1174-653 Adan Ports Tot 09 13 40 248 264 89,941 433. 443-283, Ajanta Pharma m 277 06 0.0 186.7 40.2 45.6 13,384 1,524 1853-1120 ‘Aurobindo Pharma "159 02 04 468 288 450 38,296 661 809-503 February 2018 Weath insight | 65STOCK SCREEN company fle FE PEG a aw svin) vey eon pent) nao Avanti Feeds = 291 06 00 701 430 464 11,310 2,475 2940-541 Phindustries = 334 09 O14 591 29.6 36.2 13,700 995 1034-675 UP is "005 08 09 35 240 221 39,179 778 903-680 Data as on Janvary 17,2018. EPS growth rates are annualised High dividend-yield stocks Good dividends are not just a bonus in addition to stock returns, they also accumulate to become sizeable in the long run REASONS TO INVEST THE FILTERS 1 Cushion against volatlty 1 Stocks with sustained perm Dividend payoutratioof Stocks with aeunent 1 Higher total tum share dvdend and amount less than 40% dividend yield of more m= Generate regular tax-free income (over the past five years than 3% Dear dividend suk Dviird —ierd Dnicrd poy Eorings Mcp — Shea Company Shit PE EO push) yal) owt) yoda) aw(®) tion) DCM Shriram Industries Diverifed 46 O01 100 35 142 191 499 286 385-250 Hindustan Petroleum Energy 105 01 300 48 37.0 116 63,604 417 493-320 Perel hana Senos 82 07 15 40 279 107 2399 38 51:35 a a Stl 28 125 32 28359930. 391—512-304 RuralElectifcatonComn. #55 95 97 62 302 112 30552 153 224137 Data as on January 17, 2018. EPS growth aes are annualised. inicaies new eniranis Mutual Fun stments are subject ue rch Fund Rating: walueroseé ionline.com/Ratings 66 | Wealth insight Fbrury 2018STOCK SCREEN Reasonably priced growth stocks Growth investing is about picking companies that are fast growing their bottom lines. But make sure that the valuations are not overheated. REASONS TO INVEST 1 Allweather style ‘= Companies with strong fundamentals THE FILTERS = Eamings growth of: + Atleast 20% inthe past, * Atleast 20% inthe 1 Stocks with a P/E ‘walling 12 months YoY of less than 15 1 Greater stability vis-a-vis value or growth repens vane On fast track Company Se pe Be” ree wma) gewmis) av Meat peat) han Achim : 105 0.0 0.0 5827 1788 236 441 34 38-14 Avanta mn «122 108 03-672 489 400969 119 132-72 Claris ifesclences = 10 © 105 00 5,582 11,856 81.6 1,981 364 426-291 Crest Ventures n «78 «GAOL 811.9 868 1829 643 249 298-89 DOM Shriram = 130 97 02 880 86.7 534 9,063 563 628-260 PewanHousngFinco m3 81 O01 25.9 254.0 459 18,984 603 679-269 Pharmpur Sugar Mil nm fT 00 OL GAT 428 44.0 1,350 202 331-161 Forest Kanto Cylinder . 8! 0.0 0.3 2,739.2 2086 287 746 66 7830 AES Engineering : 43 00 O01 145.5 1713 25.2 654 50 66-31 aru Papers a 19 3402465682515 82D 925 1032-389 oes 2 75 0.0 5,900.2 964.7 72.4 1,165 290 340-168, Hatha Ato a 84 8402 S79 280.7 25.7 2,770 967 984948 National Fertzers 4 17 162 04 HL 258 334 3488 72 BO February 2018 Weath insight | 67STOCK SCREEN conany fener Me “gue ou) BVO) ah pnt) NT Mehete ™ 43° 82 04 852 3282 235 16081 107 12387 NR Agarwal Industies 107 770.2 314-760-618 898. 535 600-223 Cenaissqncedewellay 1005.05 127.2 288 225 © «GOA 321-385-129 Sandur Manganese am «(145 95 OL 220.2 1,733 96.0 1,232 1,405 1470-541 SiLinvestments a «(137 67 (05 2582 1496 27.3 528 495 582-120 MP Slobal Ventures = 138 200 00 441.8 489.1 424 «= 731 587 620-136 Biol Engreatng lod = 64 00 Ot ABA 69.4 504 1,893 74 108-67 Uttam Sugar dlls a 42 44 OL 2718 91.2 30.7 532137 241-70 Yardhman Holdings nm 81 1030.3 954.0 482.6 73.2 1,711 5,384 6200-1881 Welspun india = 143° 132 05 1066 1583 249 7,490 76 100-61 West Goast Paper Mis 12 13902878 2024 558 2126 324 348-192 Data as on January 17, 2018 EPS growth aes area Discount to book value Stocks available at a discount to their book value indicate bargain and inherent value, provided the business fundamentals are sound THE FILTERS 1 Price at least 10 per REASONS TO INVEST 1 Really cheap 1 Relatively undervalued ‘= Companies with assets Bargain hunt Seek rrualsed ndetes new ectrans cent below the book = Retum on net worth ‘of more than 10% in the most recent year riders Deteonuty 1 Debt-equity ratio of less than 1.5% Mioap = Companies must have a five-year earings growth of ‘more than 10% Company mF PE PEG outs) mn REN) Ratt) Now) Gentry Enka = (09 106 01 20 OL 114779356 454-290 66 | Wealth insight Fbrury 2018STOCK SCREEN pay mp8 FE PEG yaa) mie” ROEM) “el peet) toe lai ifescences = OT 10 00 06 00 140 1,981 364 426-291 EuleiatindPowerco, 09 82 OT- 0210.7 1,976 130 181-100 Saar Industral Ent = 06 29 04 09 13 107 436 109 150-87 Pobiex Corporation a (OF 10 04 13 03 149 1,762 550 602-356 Wied Labs = OF 39 02 04 15 368 838 102 154-91 Data as on January 17, 2018. Iciceies now errant Walter J. Schloss stocks Here are Indian stocks selected as per value guru Walter Schloss’s criteria, modified according to the Indian context Walter J. Schloss was a disciple of the Benjamin Graham. Schloss asserted that the lows of the stock price over the last couple of years give us a good idea of where the stock can land in case of a weakness, and the highs of the past can indicate the level of fall the stock has seen. It is also better if the management owns a lot of the company, though the management's reputation can be a deal breaker. Depressed stocks need about four-five years to turn around. His screener looked for long-standing but undervalued companies with high promoter holdings. REASONS TO INVEST THE FILTERS = Margin of safety = Exclude service companies Promoter's holding at least = Average 3-year ROCE more = Available at a discount to ™ Debtto equityless than 0.50 25% than 12% inne value 1 Price to bookvalue ess ® Companies with operations 1 Limited isk but good upside than 1 of atleast 10 years Value guru’s choice canny Sek Date 2¥y Pro's. Prey Madani Masel Son ie eau) ROC(H) a(S) mak PB_camngs catenin) Century Enka : O1 124 253° 09 «05 = 106 = 779 454-291 Kothari Products 03155 «750 08 06 121 644 248164 . aarasttra Seooters 00 208 510 04 40 $22 3,199 3450-1583 omobie = Data as on January 17,2018, February 2018 Weath insight | 62Me Ne i) The common man expects honesty; he expects to get what he deserves. He doesn’t —y 1 demand sops and freebies. It is our myth and I trust the common man of the country... a Narendra Modi, Prime Minstor, Mint January 22,2018 In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending. When it happens or how or anything else, I don't Ifl We are not throwing the British out. We would like the British to stay, and if they so wi hould be allowed to do so. Even if the British leave under Article 50, then Article 49 would allow them to a . again, and I would be happy to fac that. Jean-Claude Juncker, President, European Commision, Financial Express, January 18, 2018 y ear put on every one of the cryptocurrencies, I'd be glad to do it... Warren Buffet, conic investor, ‘Mint January 1, 2018 [telecom companies] need to wake up. Their first duty is towards the customer. Before the acquire any new customer, they have to ensure the existing customer is serviced to some reliable degree... we are going to give them a very clear signal and after thal we are going to put them on watch and monitor it strictly. We also want customers to rank their service provider. And then kind of ‘name and shame” them. We need to do that because all these lovely advertisements are fine, but at the end of the day if your service is so poor, then how does that help? ‘Aruna Sundararajan, Telcom Secretary, Mint, January 18,2018, It’s a sense of great beginning. Now I have the opportunity to relaunch operations across the country. We’ll not list Patanjali on the stock exchanges. We will list Patanjali in people’s hearts. We are transforming Patanjali into a non-profit organization. GRGopinath, Charman, Ar Doctan Business Standard, December 23,2017 Baba Ramdev, Yoga guu, Min, January 17,2018 70| Wealth insight Fbrury 2018Who says you can’t have it all? Aim for growth é%: stability with Balanced Funds Call 1800 209 2726 or contact your Financial Adviser @000e “salt smarTomorrows.in CANARA ROBECO vate Mutual Fund Mutual Fund investments are subject to market risks, read all scheme related documents carefully.SVT eR Be At yS Pa ye ae UES #ASKWHATELSS OL SEO | Conn Sue es Se oe ae tg Tonys Sirona aay ‘ver 3,90,000 unique investors® inthis fund. Call your Mutual Fund Distributor or visit www.askwhatelss.com PRODUCT LABEL Aernative to Sule fa This fund is suitable for investors who ate seeking”: & 7 ‘© Long term capital appreciation E fo ‘An ELSS fund offering tax benefits 3 eS ‘under Section 80C ofthe Income Tax Act ae weg WARE, | “lve stl const tfc ties * if in doubt about whether the product is suitable “Investors understand that ther principal fethen tibet cert it Scheme spect risk factors: All investments in Franklin Inia Taxsheld are subject to lockin-priod of 3 years rom the date of respective allotment and the Unit holders cannot redeem, transfer, assign or pledge the units during this period, The Trustee, AMC, ther crectors or their employees shall not be Hable for any of the tae consequences that may arse in the event that the Equity Linked Savings Scheme is wound up before the completion af the lockin period Investors are requested to review the prospectus carefully and oblainexzert professional advice with regars to specific legal, tax and fvancial implications of the ivestmentpariipation inthe s2heme Follow us at: (&) 9 © ‘as on December 31,2017 ‘Mutual Fund investments are subject to market risks, read all scheme related documents carefully.THE MARATHON OF SaaS TO BEGIN AOC UUM LCRIE CS Cod CM SLL Se Watch Manmohan's story on ‘thegoodemi.com/marathon eee eae? "Mutual Fund investments are subject to market risks rea all scheme related documents carefullyMarathon Fever The Marathon fever has caught the fancy of general citizens over the last few years. With increasing participation, there has also been an appreciation of the running culture. It is no longer an interest or passion restricted only for athletes but has opened doors for people to take up running as a healthy lifestyle. The same is the case with Mutual Funds. Unlike traditional savings options, Mutual Funds with their potential for higher inflation adjusted returns besides variety and convenience have emerged as a popular investment choice. Not just restricted to the elite or the experts, Mutual Funds are seen as a practical alternative ‘for the average consumer's investment needs. Given the similarities, the Marathon has become a great metaphor while explaining . Mutual Funds. So what are the similarities? Both require discipline, dedication, planning and commitment. Most importantly, both can have positive life-altering effects in the long term. Mutual Funds have the potential to create wealth by pumping energy, pace and strength to your money just like a marathon does to your body and health! In this booklet, The Marathon of Life, we seek to highlight some of the key qualities that investors should possess to help them reach their financial goals by drawing analogies between a Marathon and Mutual Funds. @ FRANKLIN TEMPLETON ) INVESTMENTSDiligently follow these six tenets to Tm ie eS HAVE A GOAL NWF] toachieve atarger purpose. START EARLY To reach your goals. BE RESILIENT Through highs and lows. o.lU8lC® y a IXToe Cem ER Neu And your investments. STEP UP To go faster, higher, stronger. IT’S NEVER TOO LATE TO BEGIN The right time is now. HAVING THE O RIGHT GUIDANCE HELPS To realise your goals. FRANKLIN TEMPLETON INVESTMENTS,Have A Goal To achieve a larger purpose. In life. And your investments. Setting goals is the first step in turning the invisible to the visibl After all, what ate we without our goals? Ifwe didn't have a destination inmind, would we embark on the journey? And yet, goals can help ‘you achieve a larger purpose in life. They ean help you go beyond just milestones For both running and investing, a purpose beyond goals is very important. For example, you have invested in Mutual Funds for your daughter’ higher education and you also reach the desired corpus. However, your bigger purpose is not just investing that money every ‘month and getting a corpus at the end, it to see your daughter in a top notch university: It's the larger purpose of having given her an opportunity (a successful career and secure future. Similarly, you may run many marathons but think about running for a cause that is closer to your heart, So, whenever you cross the finishing. line, you achieve not just the goal but also a larger purpose. Even ifnot running for a charity, the bigger purpose of health and fitness is always inherent!Start Early To reach your goal In life. And your investments. ‘Time is free and yet, itis priceless. Whether Mutual Funds or marathon, the earlier you scart the better itis + Anearly tart gives you greater flexibility with time to learn, as personal obligations and commitments are much lesser during a younger age. + Running at 20 years of age as compared to 30 or 40 years will also have ‘much more long term health benefits. The same rule applies to ‘your finances. + “The more you train yourself spending enough hours on practice, the greater would be the potential ta better your PBs’ (personal bests) Similarly, with Mutual Funds, the longer you invest, the higher would be the effect ofthe power of compounding. @. FRANKLIN TEMPLETON ESTMENTSOne doesn't ran a half or full marathon from day one, Likewise, one doesn't need to start investing into Mutual Funds with a huge sum of money but can start with Systematic Investment Plans (SIPs) of even 500 to 81000 per month, Starting Early Let's consider what the power of compounding does ifone starts investing. early. Renu starts investing 10,000 per month via SIPs from the age of 20. She allows the corpus to grow and plans to withdraw the amount only after 30 years, ie. when she turns 50, Her friend Megha, on the other hand, invests three times the amount, ie. 30,000 per month but starts 10 years later, at the age of 30 and continues for 20 years tll she also turns 50. Who do you think has accumulated more? Renu or Megha. Renu invested a total of 836 lac over 30 years and received &3.08 crore (assuming a 12% p.a compounded rate of return) when she turned 50. ‘That's 9 times her principal invested. On the other hand, Megha invested 72 lac over 20 years but ended up accumulating 2.76 crore which is just under 4 times the principal invested. ‘thus Renu, despite investing a far lesser amount has accumulated a larger corpus than Megha due to the power of compounding effect, that is the benefit you get from starting early. Starting Early RI Mutual Fund Investment Starts At aoyears | soyears Monthly Sip Amount (in) 10,000 | 30,000 ‘Assumed Compounded Rate of Return (in ¥% pa.) ee wae ‘Mutual Fund Investment Stops At soyears | soyears ‘SIP investment Tenure goyears | z0years re (Ec BT aero err ah Please note thatthe above example is hypathetial and the rate af returns (2% pa ‘compounded) ae assumed for the above caleslcion, The example seeks co highlight the Prine ple of the power of compounding and should not be construed as an assurance Huarantee of returns by investing inary Mutual FundBe Resilient ‘Through highs and lows. 4 ‘We are not what happens to us. We are what we choose to become. Actimes, runners hit the “runner's wall” One needs to work around it. You may have prepared and given your best, but it may still go against you and you may not achieve your desired results, Notto be deterred, one needs to break the plateau. + Pastachievements aren't absolute unless we improvise and relearn constantly, with changing times and circumstances. + Keep negative thoughts at bay, and train well. Remember, a marathon is not merely inked tothe body butis also a mind game. So hone both your body and your mind to face hard times. FRANKLIN TEMPLETON INVESTMENTS+ Curb the urge to take the easy way and quit. Be determined and stay put + Asan investor, you need to be resilient and stay invested across market cycles. The benefits of SIPs can be seen more in a down cycle than an up yele as SIPs have the concept of Rupee Cost Averaging that help one buy ‘more units when markets are down and less units when markets are up. Asan investor you may feel the urge to stop or cancel your SIPs when the economy and markets are not doing well. But history has shown that long term investors who stayed the course have created wealth. Stay the course “The longer you stay invested, the better your chances of wealth creation, Consider the example of an SIP of 10,000 per month growing at an compounded annual rate of 12% (assumed) p.a. With time, the compounding effect comes into play and this results in the growth of principle on an exponential rate. Stay The Course Principat | Final Vatue | Growth of Principal Tae a eC Ss rt) to years » 22.4 Almost 2 times ss years 8 4759 Almost 3 times 20 years 24 91.99 Almost 4 times as years 30 170.22 Almost 6 times: Please note thatthe above example is hypothetical andthe rate of returns (12% pa ‘compounded ) are assumed fr the above calculation. The example seeks to highlight the Prineple ofthe power of compounding and should nt be construed as an assurance o [Bosrantee of returns by investing inary Mutual FundStep Up To go faster, higher and stronger. In life. And your investments. ‘Sometimes the smallest step in the right direction ends up being the biggest step of your life. ‘Once you have trained and started running, you must push yourself to improve your timings on your smaller runs like the half-marathon and then ‘over time, push yourself to graduate to the full marathon, That's how one ‘can embrace growth and kick-out stagnancy. Along with aiming for more FRANKLIN TEMPLETON INVESTMENTSchallenging milestones, you experiment by running uphill, stair runs or beach runs, to test your tenacity and add to the excitement. Similarly while investing in Mutual Funds, stepping-up your investments as your salary or income grows is an important tenet. Logically, at an earlier stage in your career, the 1,000 per month SIP may have made sense, but as your own income and subsequently your needs grow, the SIP amounts should also grow. Satish started investing 10,000 per month through an SIP and kept this contribution constant for 20 years. His friend Manoj too invested 710,000 per month but kept increasing his investment by 10% every year for 20 years. In both cases, et us assume a compounded retum of 12% p.a. With constant investment, Satish invested €24 lac over 20 years and accumulated a corpus of 91.98 lac. With a 10% yearly incremental investment, Manoj accumulated about 71.86 crore on an investment of 868.73 lac. So, by investing 10% more every year, Manoj has managed to receive more than double the corpus of Satish, Constant vs Step-up SIP Pod Pry (Conca) ED) Ea) Initia Monthly SiP (In) 10,000 10,000 ‘Total investment after 20 Years (Principal) | €2g lac Zonyalac [Assumed Compounded Return on Investment (pa) we ueIt’s Never Too Late To Begin ‘The right time is now. In life. And your investments. Nobody can go back and start a new beginning, but anyone can start ‘today and make anew ending. Similarly, one is never too young or too old to invest or run, What is more important is to make a start. There are many who feel that they should have started running in their 20s and it's (oo late now. Similarly, there are many investors who feel that they should have saved more in their younger days rather than over spending. Now with a family and kids, they have higher expenses leaving very little room to save. Itis certainly easy to start running and investing at an early age buteven ifone starts late, there is no such thing as ‘missing the bus! You need to be determined to make a start and then be persistent in your efforts ‘to meet your goals. Even, ifyou may save less on. a regular basis, you can invest the larger cash flows like incentives, ex-gratia etc, more prudently to create a larger corpus. Yes, the later you start may mean that ‘you may need to invest larger amounts to get to your goal but it’s always FRANKLIN TEMPLETON INVESTMENTSHaving The Right Guidance Helps To realize your goals. In life. And your investments. Ifyou want to go fast go alone, if you want to go far go with amentor. ‘When you decide to run a marathon from scratch, itis easily said chan done. You may be self-motivated but you need help. You need guidance to help you on this path to become a successful marathoner. These may include a coach or mentor, running buddies, fitness trainers, nutritionists as well a like-minded peer groups. Your physical trainers may guide you in terms of exercises and hours of running needed daily as well as ways {o up the ante. On the other hand, nutritionists can help you in your food intake, weight control, etc ‘The same is the case with Mutwal Funds. I's very easy to research on the internet, ask a few friends and family and think you know enough to start investing, However, only a professional financial adviser or Mutual Fund. distributor will be the able to guide you across your investment life cycle, over the years, As an expert, he or she would suggest products based on your specific goals and risk appetite and design an appropriate financial plan. Importantly, your adviser or distributor would also help you to monitor your portfolio, track your investments on a periodic basis and be able to hand-hold you especially when markets are volatile.To Conclude Much like a marathon, Mutual Fund investments necessitate fixing your financial goals and relentlessly working towards achieving them in a disciplined manner, Investors stand to gain not only from investing through SIPs, but also from a professional money manager's, expertise. Starting early helps, but it’s never too late to start investing, ‘A meticulous plan and a disciplined approach can help you reap the benefits over the long-term. When you choose Mutual Funds as your investment vehicle, you will have to do the hard yards, butit could help ‘you get past the finishing line without breaking too much of a sweat aE ‘An investor education and awareness initiative by Franklin Templeton Mutual Fund. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. ‘The article is dated January 1, 2018. Information contained in this article is not a not a complete representation of every material fact and is for informational purposes only. The recipient is advised to consult its advisor/ ‘tax consultant prior to arriving at any investment decision. Statements/ opinions/recommendations in this article which contain words or phrases such as “will, “expect”, “could”, “believe” and similar expressions or variations of such expressions are “forward - looking statements”. Actual results may differ materially from those suggested by the forward-looking statements due to risk or uncertainties associated with our expectations with respect to, but not limited to, exposure to market risk, general economic and political conditions in India and other countries globally, which have an impact on the service and / or investments. FRANKLIN TEMPLETON INVESTMENTSNet To achieve a larger purpose. In life. And your investments. Watch Tara's story on thegoodemi.com/marathon ed een eee