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January 2023
Volume XVI, Number 7 COVER STORY
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4 Wealth Insight January 2023

Columns
INSIGHT
EDIT
by DHIRENDRA KUMAR The prolific
Mea culpa investing contributor
Admitting your mistakes and Abhishek Basumallick
Followers
learning from them are crucial for Twitter page @a_basumallick 26.1k
becoming a successful investor
MARKET MOVES PASSIVELY YOURS

ESG investing with
passive funds
STRAIGHT TALK
by ANAND TANDON
Can India be
the next China?
A former RBI governor and a
former chief economic advisor have said that
Market Reporter:
India can’t be like China when it comes to
Top events of 2022 STOCK ADVISOR
manufacturing. What’s the truth?
Big Moves of 2022 Make it easy
Index Watch:
Indices in 2022

EVERYDAY ECONOMICS
by PUJA MEHRA
MARKET COMPASS
The airport mess Market barometer STOCK SCREEN
Why is the Delhi airport
Quality stocks available
mismanaged, who is responsible
cheap
and how to solve the problem?
ANALYST’S DIARY
Buzzing stocks of 2022 WORDS WORTH NOW
A bubble in the Best quotes of 2022
making?
Calendar 2023
MAIN STREET
by SAURABH MUKHERJEA
The $300 billion

opportunity
How India stands to gain from
the problems with China and which companies
will profit from this trend
',6&/$,0(5
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January 2023 Wealth Insight 5

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EDIT
Mea culpa investing

Admitting your mistakes and learning from them are crucial
for becoming a successful investor
DHIRENDRA KUMAR
As you open this issue, some of you Worse, as Buffett and Munger themselves have
must be thinking that surely, there’s nothing in admitted, one of their great failures was not buying
common between us and Warren Buffett. His investment Google. Back in 2004 or so, their own insurance
vehicle, Berkshire Hathaway, is holding around $145 company benefited enormously from the then-new
billion in cash. That’s about `12 lakh crore, give or take. advertising service of Google. It was clear to them that
I guess all my readers have less than that, and so do I. Google was a remarkable business. They observed
So, how can it be that we can learn anything at all from this, discussed it and yet never invested in it. “We just
Buffett or Munger or anything about Berkshire? They sat there sucking our thumbs,” Munger said of failing
are like a different species compared to us. to invest in Google.
But that’s actually not true. That’s like saying that a A lot of investors – regardless of their scale – would
young school cricketer can learn nothing from watching have rationalised what they did and pretended that it
videos of Sachin Tendulkar. We may have slightly less was the right thing to do. Most professional fund
money than Buffett does, but the principles of investing managers would also try to paper over their errors as
remain the same. Let me give you a perfect example. simply a job-survival strategy. However, Buffett and
One of the cornerstones of becoming a better investor Munger did not do that. Not only did they admit their
(better anything, actually) is to learn from one’s mistakes. mistake to themselves but they also fixed it by buying
Clearly, to learn from mistakes one has to admit one’s into Apple in a big way. What’s more, they openly
mistakes. Do Buffett and Munger do that? Well, they do. admitted to the mistake to the world in their annual
“I like people admitting they were complete stupid shareholders’ meeting and took questions about it. The
horses’ asses. I know I’ll perform better if I rub my nose net result is that their company and its shareholders
in my mistakes. This is a wonderful trick to learn.” have made better and more profitable investments out of
The words have the unmistakable voice of the 98-year- it. Admitting mistakes is a path to improvement.
old Munger. As you can see, Munger does not talk like a Of course, as is normal with Munger’s utterances,
dignified senior statesman of the business world. As a they are actually life lessons rather than just investing
result, the things he says are actually interesting and lessons. Everyone makes mistakes and most of us find it
useful, unlike the bland zero-meaning verbiage that well- difficult to admit that we were wrong. However, investing
known business people generally produce. mistakes are something that we can quietly admit to
This business of recognising and admitting mistakes ourselves and fix. Not only can we fix them but we can
is a recurrent theme with Buffett and Munger. These two also make sure that we learn something from them, thus
are almost enthusiastic about such confessions, and paving the way to better returns in the future. Look at
their decades-long tech problem is the biggest. the mass panic in the markets in March and April when
Historically, they did poorly out of investing in IBM and COVID began. Was it a mistake? It certainly did not look
bought Apple very late, although they have subsequently like it at that time. The better question is: did we learn
done very well out of it. anything from it? Or are we going to do it again?

INSIGHT
Abhishek Basumallick
@a_basumallick
26.1k | Followers
The prolific contributor

Why Follow
Study history. It’s more important to understand why things happen
than what happened. History gives us that perspective. As the saying
A
bhishek goes, history does not repeat but it rhymes.
Basumallick
is the founder
Uday Kotak and Rajiv Jain are two people whose concalls are a
and Chief Equity must listen/read to get a broad perspective of the economy across
Advisor of Intelsense various sectors.
and also a moderator of
the famous investors’ The practice of stopping to think or having an empty calendar is
forum ValuePickr priceless. Sometimes I just keep aside a few days where I have no
since its inception. work or reading planned. Helps a lot to come up with new ideas or
After completing his fresh thoughts.
engineering degree,
he got an executive Pessimists sound smart, optimists get rich. Same in the market. Be
an optimist. 3 out of 4 years markets are in an uptrend
management degree
from IIM Calcutta. He
has over two decades of Compounding is powerful. Focus on compounding your equity
portfolio. The individual components (stocks) can change. The equity
experience witnessing
curve should be steadily rising upward curve over time.
multiple cycles and
trends. He writes for his
By thinking only about the present, you sacrifice your future. By
company blog and also
thinking only about the future, you sacrifice your present. Life is
for various news outlets. about the balance across timeframes. So is investing.
On his Twitter account,
he shares his opinions
INTERESTING TRIVIA: Footwear accounts for ~20% of global
on news, trends, counterfeit products. The Counterfeit sneaker market is around $100
companies, industries bn globally. It is also ~25% of all confiscated goods in the world.
and the stock market.

MARKET
MOVES MARKET REPORTER: TOP EVENTS OF 2022
63,284 A year of
rate hikes
THE ALL-TIME HIGH HIT BY THE Central banks around the
SENSEX THIS YEAR. DESPITE ITS world raised interest
TEPID YOY PERFORMANCE (4.3 rates to tame inflation. At
the start of the pandemic
PER CENT AS ON DECEMBER 20, in 2020, a loose monetary
2022) AMID HIGH VOLATILITY, IT policy was enacted. Along
MANAGED TO OUTPERFORM MANY with various supply-side
disruptions, it led to
OF ITS GLOBAL PEERS persistently high inflation
worldwide. Higher
interest rates in the US
Ruins of a war also caused the rupee to

depreciate by 11.3 per
On February 24, 2022, Russia invaded Ukraine. cent (as on December 20,
Since the countries are the top exporters of crude 2022) against the dollar
oil, wheat, natural gas, nickel, iron, copper and from `74.4 per dollar (as
more, there has been a massive surge in input on January 3, 2022) to
costs for companies. Besides, the crisis has also `82.8 per dollar.
resulted in a huge supply-chain disruption.
The gloom in the tech sector

The world’s top tech stocks fell like a house of
cards. While the Nasdaq 100 was down by 32.9 per
cent in 2022 (as on December 20, 2022), companies
like Meta (-65.2 per cent), Intel (-48.7 per cent) and
Alphabet (-38.5 per cent), among others, fared far
worse. Rising interest rates are to be primarily
blamed for this meltdown. Moreover, big tech
companies announced huge layoffs, with Meta
letting go of 13 per cent of its employees. India
also witnessed a sharp fall in the IT sector (the
BSE IT Index is down 24.4 per cent).
Key government policies in 2022

z Defence allocation for domestic players: The government set aside
68 per cent of its defence budget (`5.25 lakh crore) for the domestic
industry. It also set apart 25 per cent of its defence R&D budget for
private players.
z Green Hydrogen Policy: Aimed at reducing dependence on fossil fuels
and encouraging renewable-energy sources.
z PM Gati Shakti: Highways to be expanded by 25,000 km in FY23
z National Logistics Policy: Designed to promote the seamless
movement of goods across the country and bring down logistics costs

MARKET
MARKET REPORTER: TOP EVENTS OF 2022 MOVES
2L`TLYNLYZ HJX\PZP[PVUZVM
Deal Value (` cr) `1,50,173cr
HDFC Bank–HDFC merger 4,58,805 WORTH OF BIDS RECEIVED BY THE TELECOM
Adani Group acquired Ambuja Cements and ACC 81,361
DEPARTMENT FOR 71 PER CENT OF 5G AIRWAVES.
L&T Infotech–Mindtree merger 55,600
RELIANCE JIO LED THE RACE, WITH TOTAL BIDS
Axis Bank acquired Citi Bank's retail assets 12,325
WORTH `88,078 CRORE.
PVR–Inox Leisure merger 6,686
Dalmia Group acquired Jaiprakash Associates' 5,666
cement and power units
A consortium led by Bandhan Financial Holdings 4,500
acquired IDFC AMC
RHI Magnesita acquired Dalmia Bharat Refractories 1,708
Ruchi Soya acquired Patanjali’s food business 690
ZEE–Sony merger NA
Adani Group acquired NDTV NA
SPOTLIGHT SPOTLIGHT
Reliance Industries Vedanta
z Became the first Indian compa- z Set a revenue target of $100 billion by 2030
ny to cross $100 billion in reve- z Planned to create a $10 billion fund to bid
nue in FY22 for BPCL and other PSUs
z Raised $4 billion in the larg- z Formed a JV with Foxconn to manufacture
est-ever foreign-currency bond semiconductor chips, with plans to invest
issuance `1.5 lakh crore
z Signed an MoU with the Gujarat
government for an investment
of `5.95 lakh crore in renewable
energy and other projects SPOTLIGHT
z Formed a joint venture with Adani Group
Sanmina Corporation’s Indian
z Planned to invest $20 billion in
entity to create a world-class
renewable power
electronic-manufacturing hub
z Acquired Holcim’s stake in Ambuja
z Entered the FMCG segment
Cements and ACC
with its brand ‘Independence’
z Adani Enterprises raised `20,000 crore
through an FPO
z Adani Wilmar got listed and acquired
the Kohinoor brand
z Adani Ports won multiple deals,
including Karaikal port
z Adani Power acquired the assets
of DP Power, stakes in SPPL and
EREPL
z Adani Transmission acquired Essar Power’s transmission line

MARKET
MOVES MARKET REPORTER: TOP EVENTS OF 2022
ECONOMIC METRICS
-90% .:;JVSSLJ[PVU
200000
150000
In ` cr
FALL IN THE PRICE OF FTT, THE

TOKEN ISSUED BY FTX, A DIGITAL- 100000
CURRENCY EXCHANGE WHICH 50000
APPLIED FOR BANKRUPTCY 0

November 2020 November 2022
The Musk–Twitter 0UMSH[PVU!*VUZ\TLY7YPJL0UKL_

saga 8 % change YoY
7
Twitter went on a roller-
coaster ride this year, 6
especially after Elon Musk
5
acquired it. Following the
acquisition, Musk fired over 4
50 per cent of the total November 2020 November 2022
workforce, including its
Public-sector banks CEO Parag Agarwal and 90
0UK\Z[YPHSHJ[P]P[`!0UKL_VM
on the boil per cent of Twitter India.
0UK\Z[YPHS7YVK\J[PVU
180 % change YoY
While the Sensex returned only 4.3
per cent in 2022 (as on December 20, 120
2022), public-sector banks gave
60
returns ranging from 28.4 per cent
(for SBI) to 136.2 per cent (for UCO 0
Bank). The 12 public-sector banks
-60
cumulatively witnessed a 20.6 per October 2020 October 2022
cent YoY increase in advances as of
September 2022 and a 43.1 per cent
YoY increase in net profit for the first 059]Z<:+
nine months of the calendar year. 84
81
In remembrance of 78
This year, we lost a few visionary 75

entrepreneurs and investors. Rahul Bajaj, the 72
Chairman Emeritus of both Bajaj Auto and December 2020 December 2022
Bajaj Finserv, took sales of Bajaj Auto from `7
crore in 1968 to over `5,000 crore in 2005.
Rakesh Jhunjhunwala, the Big Bull of Dalal *Y\KLVPS
Street passed away at the age of 62. Starting his 150 Brent $/barrel
journey with `5,000 in the 1980s, he was able to 120
turn it into a net worth of about `46,000 crore.
We also lost the former chairman of Tata Sons 90
Cyrus Mistry in a tragic car accident and 60
Tulsi Tanti, the wind-energy pioneer in India
and founder of Suzlon. 30
December 2020 December 2022

M u t u a l F u n d
WANT TO ACHIEVE
MULTIPLE GOALS,
CONSIDER GOAL
BASED INVESTING
As we grow in life, we tend to have multiple goals for ourselves and our family, which needs financial
planning. Investing in separate SIPs for each goal is a smart way to achieve your dreams. The biggest
advantage is you can set goal specific timelines, be it short, medium or long term.
It’s time to bid adieu to the traditional approach of one SIP fits all practice.
Invest through SIPs for your multiple goals!
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MARKET
MOVES BIG MOVES OF 2022
Large caps 12M returns (%)

Price to earnings Net profit (` crore)
3Y avg RoE (%) 3Y earnings growth (%) 12M price (`) movement
315
201.3 11.5 10,339

Adani Power
Despite a slew of projects, acquisitions and good quarterly
profits, poor Q2FY23 results put a dampener lately. 18.0 145.7 105
642
142.0# 120.4 669

Adani Wilmar
Following the acquisition of the Kohinoor brand, its revenue
jumped by more than 30 per cent YoY. 17.9 28.4
265
4,043
134.8 370.9 1,006

Adani Enterprises
While its parent acquired Ambuja Cement and NDTV, its
`20,000 crore FPO augured well. 3.9 12.2 1,722
1,383
132.1 62.8 1,501

Varun Beverages
It ventured into Morocco and Zimbabwe and started
manufacturing Kurkure Puffcorn. 15.9 49.4
596
185
101.7 1.0* 9,748

Bank of Baroda
It acquired a 21 per cent stake in IndiaFirst Life insurance and
posted record profits for two quarters. 4.1 15.1
92
2,604
101.0 14.7 5,866

Hindustan Aeronautics
It set up a rocket-engine-manufacturing hub, signed an
MoU with Israel Aerospace and won a `6,800 crore deal. 24.9 26.9
1,295
3,550
84.3 770.7 485

Adani Total Gas
It won 14 city-gas licences and a contract for EV-charging stations
and doubled its revenue in the last two quarters YoY. 28.3 14.7 1,926
90
81.0 0.9* 5,999

Union Bank
It launched digital-banking units and achieved double-digit
profit growth YoY in the last four quarters. 1.2 40.9 50
59
42.8 0.7* 2,064

PNB
The share price touched a 52-week high, following an
improvement in the bank’s interest income. 2.6 22.3 42
2,659
42.1 328.9 886

Adani Transmission
Although it acquired Essar Power’s line-and-bagging-smartmeters
installation, it reported poor Q1 and Q2 profits lately. 18.7 5.6
1,870
*Price-to-book value. #Returns since listing. Our large-cap universe has 105 large companies, making the top 70 per cent of the total market capitalisation. The list mentions the stocks that have
fluctuated most wildly in the last one year. Data as on December 15, 2022

MARKET
BIG MOVES OF 2022 MOVES
Mid caps Price to earnings Net profit (` crore)

12M returns (%) 3Y avg RoE (%) 3Y earnings growth (%) 12M price (`) movement
864
208.9 20.7 757

Mazagon Dock
In 2022, it recovered its profits, launched a new frigate and
reported a strong order book. 13.8 6.2
280
36
171.6 2.0* 1,251

UCO Bank
In Q2FY23, the company posted record interest income and
QHWSURILWVRZLQJWRWKHPDUNHWȇVSUHIHUHQFHIRU368EDQNVb -3.8 14.5
13
43
139.6 2.2* 1,130

Punjab & Sind Bank
Positive management commentary, highest-ever profits and
general market preference worked well for the stock. -18.7 12.9
18
812
118.5 8.9 1,175

Deepak Fertilisers
It posted the highest-ever revenue and profit in Q1FY23 and
signed a `FURUHGHDOZLWK$DUWLΖQGXVWULHVb 14.0 175.6
372
73
98.7 10.8 1,227

Rail Vikas Nigam
The company posted double-digit revenue and profit growth
in Q1 and Q2 FY23. 18.0 17.7
37
38.0 2.4 4,502

Mangalore Refinery
62
It bought cheap crude from Russia and posted record numbers,
EXWIDOOLQJFUXGHSULFHVDQGDORVVLQ4bSXWDGHQW -4.2 81.2
45
-43.0 – -1,171
Tata Teleservices
173
After an excellent 2021, the company continued
posting losses. – 14.7 99
150
-52.2 63.3 852

Samvardhana Motherson
The company posted its highest-ever revenues but inflation
affected its bottom line. 8.1 -16.2 72
1,095
-58.6 – -909
PB Fintech
Its loss widened quarter after quarter despite strong
revenue growth. -24.6 -174.9 453
1,391
-61.7 – -2,716
One97 Communications
532
An embargo on the payments bank, the stake sale by Softbank
and the widening of losses took a toll. -30.5 13.0
*Price to book value. Our mid-cap universe has 262 mid-sized companies, making the next 20 per cent of the total market capitalisation. The list mentions the stocks that have fluctuated most wildly in the
last one year. Data as on December 15, 2022

MARKET
MOVES BIG MOVES OF 2022
Small caps 12M returns (%)

Price to earnings Net profit (` crore)
3Y avg RoE (%) 3Y earnings growth (%) 12M price (`) movement
44
1,885.9 – -7.7
Alliance Integrated Metaliks
The company posted record profits in Q4 FY22 due to an
exceptional item. – 25.1
2
1,247
1,695.2 130.5 21.8

Gensol Engineering
It acquired a stake in an EV startup and won a `153 crore
VRODUSURMHFWZKLOHLWVTXDUWHUO\QXPEHUVTXDGUXSOHG<R<b 15.2 19.1 69
437
827.7 27.7 44.3

Magellanic Cloud
It acquired IVIS and Provigil Surveillance and posted
strong growth in Q1 and Q2 numbers YoY. 20.4 90.3 47
1,046
641.4 56.5 39.2

Knowledge Marine & Engineering
It bagged a `70 crore order and posted a 585 per cent
YoY jump in H1FY23 profits. 47.7 97.5 141
49
639.0 64.2 18.2

Axita Cotton
While FIIs increased their stake, it received a raw-cotton order
from Bangladesh and posted profit growth in Q1 and Q2. 23.5 215.8
7
135
375.4 27.9 31.1

Shankar Lal Rampal Dye
Its revenue increased by more than 50 per cent for
consecutive quarters but the stock is now on a downhill. 22.3 162.3
28
18
365.5 – -7.7
Toyam Sports
It signed sponsorship deals with Road Safety World Series
2022 and has sponsored the India-Bangladesh tour. 3.5 29.7 4
1,292
359.3 51.5 29.7

Jyoti Resins
Despite capacity expansion and record revenues for four consecu-
tive quarters, the stock faced the brunt of stake sales by FIIs. 59.5 64.9
281
331.5 501.4 2.3

Cressanda Solutions 27
Although it reported record revenue and profit growth in Q1
and Q2, headwinds in the IT sector put a dampener recently. 0.3 177.0
6
255
313.6 4.3* 2.7

Mufin Green Finance
It raised $5.7 million and acquired APM Finvest for
`76 crore. 9.1 -7.7 62
*Price-to-book value. Our small-cap universe (minimum market capitalisation `500 crore) has 941 small-cap companies, making the last 10 per cent of the total market capitalisation. The list mentions the
stocks that have fluctuated most wildly in the last one year. Data as on December 15, 2022

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MARKET
MOVES INDEX WATCH
Indices in 2022
Here is how the various S&P BSE indices performed in 2022 and where they
stand now in terms of valuations
For the period January 1, 2022 to December 15, 2022
Returns (%) P/E 5Y median P/E P/B 5Y median P/B Div yield (%) 5Y median div yield (%)
:LUZL_
59,183 4.4
61,799
23.6 25.7
3.5 3.1
1.2 1.2
):, 4PK*HW
24,140 25,245
4.1 25,128 3.4 26,116
24.5 26.1 3.3 2.9 1.2 1.2 27.3 31.8 3.1 2.7 1.2 1.0
:THSS*HW (\[V
29,808 29,802
25,173 29,613
-0.02 17.6
24.9 41.2 2.8 2.5 0.9 0.9 48.6 53.5 4.6 3.5 1.0 1.1
*VUZ\TLY+\YHISLZ *HWP[HS.VVKZ
45,178
34,977
-11.2 20.1
40,121
29,122
61.1 46.4 9.6 8.6 0.4 0.5 31.5 30.6 4.5 3.6 0.9 1.0

MARKET
MOVES
-PUHUJL -4*.
9,073 16,543
8,240
10.1 13,810
19.8
19.3 27.6 2.5 2.5 0.8 0.7 39.7 38.3 8.1 7.6 1.7 1.6
/LHS[OJHYL 0UMYH 313

26,152 273
23,388
-10.6 14.7
37.3 34.7 4.1 3.7 0.7 0.6 11.1 17.9 1.6 1.5 2.7 2.5
0; 4L[HS
38,195
20,575
-23.7 29,155 4.7

19,654
26.3 21.5 6.5 4.9 2.0 1.8 7.5 8.2 1.6 1.4 5.5 3.6
6PS .HZ 7V^LY

20,632
17,709
3,503
16.5 29.8 4,547
14.7 10.8 1.5 1.5 3.9 3.6 20.3 18.7 2.8 1.5 2.0 2.3
9LHS[` ;LSLJVT
3,884 1,833
1,811
-8.4 -1.2
3,559
42.9 27.1 2.9 2.0 0.3 0.4 – – – 1.9 1.3 1.1

MARKET
C MPASS
Market barometer
Here are some charts that will help you make sense of the current market in
terms of valuations and return potential
Sensex’s movement
In ’000 The Sensex is the most convenient indica-
72
tor to tell the state of the Indian market.
Max 63,284 The 10-year graph presented alongside
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
60 shows the secular run in the markets.
Current However, this rally was punctuated by sev-
48 eral bearish phases. The most prominent
61,338 ones include the following: Chinese
growth concerns in 2015, demonetisation
36
blues in 2016, the sell-off in 2018 due to
US–China trade war, and the March 2020
24 COVID-19 shock. After staging a remarka-
Min 17,906 ble recovery from the lows of March
12 2020, the markets yielded to the Russian
Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec invasion of Ukraine and rising interest
’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22 rates. With recessionary fears easing,
Sensex is reached a new all-time high.
Sensex’s price to earnings

40 The price-to-earnings ratio of the Sensex
is a simple market-valuation ratio. A
35
Max 35.1 general guideline to help understand the
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
valuation is:
P/E > 24 = Dangerously
30
overvalued
P/E > 20 < 24 = Overvalued
25 Current 23.6 P/E > 16 < 20 = Fairly valued
Median 22.6 P/E > 12 < 16 = Undervalued
20 P/E < 12 = Highly underval-
ued (mouthwater-
Min 16.8 ing valuations)
15
Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec This graph is based on standalone data of Sensex companies.
’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22 If one takes the consolidated data, the P/E will likely be lower.
Sensex’s price to book value

4.0 The price-to-book-value ratio tells us how
Max 3.83 many times an investor is ready to pay
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
for a rupee of net assets.

3.6
Current 3.47 Since book value is stable and less
volatile than earnings, some consider it
3.2
better than the P/E as a measure of
Median 2.97 valuation.
2.8
If
P/B > Median P/B = Overvalued
2.4 Min 2.36 P/B < Median P/B = Undervalued
2.0
Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec
’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22

MARKET
C MPASS
Sensex’s dividend yield
1.7% Max 1.61 Dividend yield is nothing but the return
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
an investor gets in the form of dividend
on his investment. It is measured as
1.5 dividend per share divided by price
per share.
1.3 Generally speaking, when stocks are
Median 1.23 cheap, dividend yields are high.
Current 1.15 If
1.1
Dividend yield >
Median dividend yield = Undervalued
0.9
Dividend yield <
Median dividend yield = Overvalued
0.7 Min 0.72

Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec
’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22
Market cap to GDP

115% This measure is Buffett’s personal
Max 111 favourite. He said, “It is probably the
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
single best measure of where valuations

100 Current 107 stand at any given moment.”
Here we have considered the market
85 capitalisation of all the listed companies
Median 80 on the BSE.
If
70
Market cap > GDP = Overvalued
Market cap < GDP = Undervalued
55 Min 56
Considering market cap of all the listed companies on
the BSE, provisional estimate of FY22 nominal GDP and
advance estimate of FY23 nominal GDP
40
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
10Y G-sec yield vs Sensex’s earnings yield

4.0% Max 3.97 The spread between G-sec yield and
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
Sensex’s earnings yield is another

Current 3.04 valuation measure. G-sec yield is the
3.2 yield of the 10-year government bond.
Median 2.86 Sensex’s earnings yield is the inverse of
the Sensex’s P/E ratio. The greater the
2.4 deviation from the median in either
direction, the greater the degree of
overvaluation or the undervaluation of
1.6
the Sensex.
If
0.8
Min 0.94
Spread > Median = Overvalued
Spread < Median = Undervalued
0
Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec All data as of December 16, 2022
’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 ’22

ANALYST’S
DIARY
Bu z zing stocks
of 2022
Stocks that stayed in the news throughout the year
By Udhayaprakash
`8,59,635 cr `21,000 cr
The wealth created by Adani The IPO size of LIC, the largest ever in the Indian
group companies, markets. But the stock failed to enthuse investors and
with Adani Power listed at a discount of 9 per cent and has fallen 18.3
giving the best per cent since listing.
returns at 211.4 per
cent. There was not
a day when Adani
-44.7% `15,017 cr
Group stocks were not in the news: SBI’s highest-ever
Fall in the stock price
from acquiring Ambuja Cements quarterly net
of Wipro, its worst
to taking over NDTV to winning profit. After
return in a calendar
multiple projects. witnessing
year in last 10 years. A fall
years of
in profit in last two quarters
underperformance,
contributed heavily to this, apart
-69.1% from the sector-wide sell-off.
India’s biggest bank rose
to the limelight thanks
Crash in the stock
to a record interest
price of Brightcom
income. As a result, SBI
Group. The stock
had delivered a `1,58,832 cr became one of the best-
Combined wealth performing PSU stocks
massive return of
destruction by the of the year.
3,996 per cent in
2021. This is the fourth time the start-up unicorns
Paytm, Nykaa and
stock has fallen more than 50 per
cent in the last 10 years. Zomato. They got -28.1%
listed only in 2021 Returns from
amid much fanfare. the Divi’s
Labs stock. It
-65.7% recorded
Crash in the stock price negative calendar-year
of Meta (Facebook). 55.4% returns for first time
Meta had the worst Returns generated by since 2016. Despite
year among FAANG ITC, its highest in a reaching the billion-
companies. calendar year in the dollar revenue mark in
Consecutive poor last 10 years. From FY22, lack of near-term
performance, combined with a being trolled for not going growth drivers made the
loss-making VR/AR pursuit, hit anywhere, the ITC stock finally market pessimistic about
the stock hard. found momentum. the company.
$44 bn
Price paid by Elon Musk to buy Twitter. As a result, the shares were delisted. Musk
has been busy making drastic changes to the company, including massive lay-offs.

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ANALYST’S
DIARY
A bubble in the making?

Passive investing could result in a market bubble, suggests Michael Burry,
who was one of the early voices to warn against the 2008 crash
W
hat should drive a stock’s price? In a perfect because the business has performed well. As we have
market, a stock’s price should be tied to its mentioned earlier, when the underlying performance
intrinsic value. But what happens when hype of a business is not the anchor for its stock price, it is a
takes over the market? Take the example of tech recipe for a bubble.
companies of the early 90s. The internet was still in its
infancy and everyone wanted a piece of it. This Can it happen in India?
skyrocketed the stock prices of companies like Pets.com, Burry argues that many stocks are traded at low
Webvan, Boo.com, etc., which, if one looked closely, volumes, even in the best of global indices. But the
were doomed to fail from the beginning. When they prices of even these less-traded stocks are at the risk of
finally failed, they took the market down with getting inflated because of vast amounts of
them. Economists call such episodes a bubble investments flowing into them thanks to
– a period where the stock prices greatly passive investing.
exceed their intrinsic value. And every This is especially true in India
time a bubble bursts, there’s a where indexing still requires some
massive sell-off in the market. For fine-tuning. For example, companies
instance, the housing bubble led to like Reliance Communications and
the 2008 financial crisis. YES bank were part of various NSE
indices for years even after it was
Passive investing and the possibility obvious that they were on the path
of a bubble to bankruptcy.
It’s hard to separate the 2008 financial While passive investing in India
crisis and the name Michael Burry, the still has a long way to go before it
then hedge fund manager of Scion catches up with the US markets, it has
Capital. He was among the first ones to grown briskly in the past few years.
sound the alarm about the brewing housing Moreover, since SEBI has capped the number of
bubble. And he is back with another warning. funds an AMC can launch per category, fund houses
In an interview with Bloomberg, Burry warned have been looking for novel ways to expand their
investors that the recent rise of ETFs and index funds offerings. This is where passive funds have come in
would eventually lead to another bubble. “Passive handy. As fund houses can launch a passive fund for
investing has removed price discovery from the equity every index that exists, a flood of new passive funds
markets. The simple theses and the models that get has hit the market, adding to the popularity of
people into sectors, factors, indexes, or ETFs and mutual passive investing.
funds mimicking those strategies – these do not require
the security-level analysis that is required for true price What should you do?
discovery,” said Michael Burry. Some might argue that since Burry’s pay cheque comes
But how can something as benign as a passive fund from being an active fund manager, he might have some
(ETF, index fund or fund of funds) lead to a bubble? vested interest in demonising passive investing. However,
Burry believes that the sole reason an investor in a given Burry’s knack for predicting bubbles, it is hard to
passive fund holds a stock is that it is present in the ignore what he has to say. There is no denying that
index. A crucial part of equity investing – researching excessive passive investing will eventually lead to money
businesses and performing fundamental analysis – is flowing into stocks that don’t deserve it. Investors would
thrown out of the window. In other words, a stock is do well to keep this fact at the back of their minds.
bought just because it is part of an index and not By Mithilesh Bhaumik

COVER
STORY
COVER
STORY

COVER
STORY
THE
BERKSHIRE
SYSTEM
How to pick stocks the Buffett & Munger way
By Karthik Anand
Ana Vijay Munger’, there are transcripts of various
O
speeches/talks given by Munger. We have
n of our favourite quotes that
ne considered a talk he gave to the students at the
describes the essence of investing
d University of Southern California Marshall
has been said by Charlie Munger.
h School of Business in April 1994. It is about the
He says, “Investing is simple but
H art of stock-picking as a subdivision of the art
not easy.” Don’t let those words
n of worldly wisdom. However, for our purposes,
fool you. ThThey carry more weight than you we have only considered the part related to
realise.
might realis stock-picking.
investing simple? It is simple because
How is inv Munger, in his talk, outlines what it takes to
you know wh what you have to do. You have to find be a successful stock picker. We have structured
businesses and invest for the long haul.
good busine the story based on various points he made in
Then, why is i it not easy? That’s because most his talk. You might get the answers to the
investors fail
fa to do so. Investors struggle to following questions:
good business and when they do, it
identify a go z Is it possible to consistently outperform the
may be too late. Besides, if you want to stay market? If yes, then how?
invested in a company for a long period of time z How do successful stock pickers operate?
(such as 10 or 20 years), you need to exhibit z What are the methods of stock-picking?
immense patience
pat and temperament. There are z What factors are present in a good business?
highs and th there are lows. Traversing through Before you turn the page, we need to tell you
these is fickle.
fick that simply reading about the Berkshire
So, we tthought we should help our readers system won’t make you a better investor.
become better investors. Thus, this cover Remember that investing is simple but not
story isi all about the art of stock-picking easy. We are helping you by pointing out the
the Be
Berkshire way. Fortunately, Charlie things that you have to do to succeed. But you
Munger
Mung had given the secret sauce in a need to learn to apply it. And that requires
talk hhe gave in 1994. tremendous hard work.
In tthe book, ‘Poor Charlie’s Almanack: Now, enjoy the wisdom of the great man and
The Wit and Wisdom of Charles T. imbibe it in your research.

COVER
STORY
Understanding the playing field

Are the markets efficient? If yes, then why do some investors outperform? If
no, then why do most investors underperform?
B
efore understanding the art of stock-picking, we
should first understand whether it is even
possible for investors to outperform the market
consistently. This issue was addressed in the 1960s by a
bunch of economists who came up with the efficient
market hypothesis (EMH).
The basic premise of EMH is that share prices reflect
all information about companies and therefore, it is not
possible to consistently outperform the market. This
theory has gained much popularity and even today, it
has become a part of the course curricula in colleges.
Having said that, a number of investors have been able
to consistently outperform the market (and by
significant margins). These include Warren Buffett,
Joel Greenblatt, Peter Lynch, Philip Fisher, Walter
Schloss and Rakesh Jhunjhunwala, to name a few.
So, what does that mean? Can anyone beat the
market? Here is what Munger has to say:
Well, the efficient market theory is obviously
roughly right – meaning that markets are quite
efficient and it’s quite hard for anybody to beat the market three to two (i.e., returns `3 for every `2 you invest)
by significant margins as a stock picker by just being and company B pays 100 to one. With this new
intelligent and working in a disciplined way. Indeed, the information, how would you decide which company
average result has to be the average result. By definition, to invest in? Not so obvious anymore, is it? As
everybody can’t beat the market. As I always say, the iron Munger said:
rule of life is that only 20% of the people can be in the The prices have changed in such a way that it’s
top fifth. That’s just the way it is. So the answer is that very hard to beat the system… It’s efficient, yes.
it’s partly efficient and partly inefficient. But it’s not perfectly efficient. And with enough
That means successful stock-picking (i.e., consistent shrewdness and fanaticism, some people will get better
outperformance) is not possible for most market results than others.
participants. It is the privilege of a handful of investors. Smart and knowledgeable investors would have
some edge over those who simply pick companies by
What makes stock-picking difficult? listening to news/social media, hot tips and other
Let’s consider two companies – A and B. Company A is unscrupulous sources. But even among knowledgeable
debt-free and has high ROE. On the other hand, investors (mostly institutional investors), it is not
company B has some debt to clear and has a low ROE. possible for all of them to be successful stock pickers.
Which company do you think is more likely to perform For instance, as on November 30, 2022, out of 357 open-
better in the next (say) five years? You would pick end equity-oriented mutual fund schemes in India
company A, right? That’s obvious. with a five-year history, only 87 (or about 25 per cent)
Given that company A has a better position than outperformed their respective benchmarks in the last
company B, the stock market will naturally give it a five years. Of course, the number of schemes that
premium valuation as compared to company B. Let’s consistently outperformed the benchmark will be
assume that the odds are such that company A pays even lower.

COVER
STORY
The makings of a successful

stock-picker
What actually makes you successful at stock investing?
How many investment ideas do you need?
I
t is clear that stock-picking is no child’s play and craziness with an occasional mispriced something or
that a majority of investors won’t be good at it. other. And you’re probably not going to be smart
Why can only a handful of investors be able to enough to find thousands in a lifetime. And when you
generate outsized returns? Will in-depth accounting get a few, you really load up. It’s just that simple.
and business knowledge make the difference? But how would you go about it? Let’s say that you
Although these are necessary skills, they are not the are restricted to investing only in one company per
holy grail for investing. To win the game, Munger year for the next 20 years. In such a scenario, your
deems you need to work really hard to find a research process will automatically improve. You
mispriced bet: will be rejecting so many ideas that you might have
It’s not given to human beings to have such otherwise been lured by. Your returns would be much
talent that they can just know everything about higher as well, simply because of the diligent research.
everything all the time. But it is given to human If you think about it, this is what most retail
beings who work hard at it – who look and sift the investors should do. They are not full-time investors
world for a mispriced bet – that they can occasionally and have limited time to devote to stock-picking.
find one. And the wise ones bet heavily when the Ideally, your mutual fund investments would be
world offers them that opportunity. They bet big when taking care of most of your needs. And to benefit from
they have the odds. And the rest of the time, they stocks directly, you would stringently scrutinise each
don’t. It’s just that simple. company you come across.
Instead of focusing more on a few chosen Here is where a stock screener comes in handy. It
companies, investors generally look for widely allows you to apply some basic filters and weed out
known information about most companies. Munger poor companies. The VRO stock screener (www.vro.
finds this puzzling. in/stocks/selector) can help you with this. For
To me, that’s totally insane. The way to win is to work, instance, you can start with a list of companies with
work, work, work and hope to have a few insights. (say) a five-year average ROE of at least 12 per cent
This brings us to the next question. and without losing 20 per cent ROE in any year. As on
December 9, 2022, 188 companies clear these criteria
How many insights do you need? (link: https://bit.ly/3UK8yul). Eliminate to arrive at
Quite obviously, you won’t have many great the one that you think fits the bill. Does it not seem
investment opportunities in a lifetime. Therefore, like a more logical way of picking stocks?
you need to make them count. Being selective is a
must. Munger explains this by giving the example of
Berkshire itself:
If you look at Berkshire Hathaway and all of its
accumulated billions, the top ten insights
account for most of it. And that’s with a very brilliant
man – Warren’s a lot more able than I am and very
disciplined – devoting his lifetime to it. I don’t mean
to say that he’s only had ten insights. I’m just saying,
that most of the money came from ten insights.
...just think of it as heavy odds against game full of

COVER
STORY
Beating the Street

Does sector rotation help you outperform the market? What’s the Berkshire system
and how does it differ from Benjamin Graham’s approach?
S
ector rotation, as the name suggests, is timing
your entry into and exit out of favourable and
unfavourable sectors, respectively. This entails
forecasting and predicting various macroeconomic
variables. For instance, if you expect oil prices to drop
materially, then you would exit oil-exploration
companies and enter those sectors that will benefit
from the price fall, such as airlines and paint.
However, it is easier said than done. To be successful
here, timing is the key and that is difficult to master.
Here is Munger’s take on it:
...I know of no really rich sector rotator. Maybe
some people can do it. I’m not saying they can’t.
All I know is that all the people I know who got rich – and
I know a lot of them – did not do it that way.
Value to a private owner business or management calibre or a combination of

This approach was preached and practised by Benjamin the two.
Graham. It involves figuring out what the business Munger states that the big money has come from
would sell for (i.e., enterprise value) if it were available high-quality businesses:
to a private owner. You would then compare the We’ve really made the money out of high-quality
amount with the company’s market value. If the market businesses. In some cases, we bought the whole
value is substantially lower than the enterprise value, business. And in some cases, we just bought a big block
then you would choose to invest in the company. The of stock. But when you analyze what happened, the big
gap between the enterprise value and the market value money’s been made in high-quality businesses. And most
represents your margin of safety. of the other people who’ve made a lot of money have
While Munger acknowledges that Graham’s method done so in high-quality businesses.
was a good one, he doesn’t attribute Berkshire’s Of course, the real skill lies in identifying those
success to it: high-quality businesses and then having the courage to
...if we’d stayed with classic Graham, the way Ben bet heavily. While the general perception among
Graham did it, we would never have had the record investors is that these high-quality businesses are
we have. And that’s because Graham wasn’t trying to do expensive, Munger argues that:
what we did… And so having started out as Grahamites Over the long term, it’s hard for a stock to earn a
which, by the way, worked fine - we gradually got what I much better return than the business which
would call better insights. underlies it earns. If the business earns 6% on capital
over 40 years and you hold it for that 40 years, you’re not
The Berkshire system going to make much different than a 6% return - even if
Insights developed by Buffett and Munger have helped you originally buy it at a huge discount. Conversely, if a
them create billions. They realised that even if certain business earns 18% on capital over 20 or 30 years, even
companies were not available at a valuation that if you pay an expensive-looking price, you’ll end up with
Graham would consider attractive, it was still a a fine result.
bargain. This was because these companies had some So, if these high-quality businesses are such a great
sort of an advantage either due to the economics of the force, then how would you identify them?

COVER
STORY
The quest for quality

What factors to consider when looking for a quality business?
What pitfalls should be avoided?
Most investors are aware that investing in quality
businesses for the long term is the essence of successful
stock investing. But what’s ‘quality’ as such? It can be
ascertained through a combination of quantitative
and qualitative metrics. Here are a few quality-related
qualitative factors that you can use to assess the
quality grade of a company.
Specialisation
Specialisation played a key role in advancing
capitalism. Businesses gained specialisations in
different areas. In the words of Munger:
Just as animals flourish in niches, similarly,
people who specialize in the business world – and
get very good because they specialize – frequently find
good economics that they wouldn’t get any other way.
A case in point is Balkrishna Industries. In 1987, the
company entered the tyre industry, focusing on
bicycles and two- and three-wheelers. However, the
stiff competition took a toll on it. Then in 1995, the
company ventured into the off-highway
segment (wherein the competition was
benign) by securing a contract from a
British company. Its sole focus on this
segment, coupled with continuous
improvement in manufacturing, has paved
the way for the company to become a globally renowned
brand, with its revenue having increased from `103
crore in FY95 to `8,267 crore in FY22.
Economies of scale are enjoyed by both
The advantages of scale manufacturing companies and service providers. For
As a company increases the size of its instance, larger banks leverage their size to pass on
operation, it tends to become more and lower costs of operation to their customers.
more efficient. Such efficiency results There are many advantages of scale. One such
in a lower cost per unit. This happens advantage has to do with advertising. For an FMCG
because fixed costs are spread out over company, advertising is the key to garnering
more units. These cost advantages are called consumer mindshare. Hindustan Unilever has spent,
economies of scale. Munger says they are a make-or- on average, 11 per cent of its revenue on it in the last
break factor for a business: five years (more than `4,000 crore each year). Its size
The very nature of things is that if you get a whole lot allows it to spend such a huge amount and keep
of volume through your joint, you get better at competition at bay.
processing that volume. That’s an enormous advantage. And Another advantage of scale is related to
it has a lot to do with which businesses succeed and fail. information. Despite being banned from selling its

COVER
STORY
In the airline industry, no company makes money, while in the

paint industry, five of the six listed companies had a five-year
median ROCE of more than 15 per cent during FY18–22
famous Maggi noodles in June 2015, Nestlé India was employees’ incentives are not aligned with the
able to recoup its entire market share in one year. company’s objectives, these organisations find
Consumers continued to trust it despite the existence themselves under layers of bureaucracy.
of several competing brands.
Scale also brings a rather unique advantage – one Industry dominated by few big competitors
from psychology – called social proof. It is a Several industries have few big competitors. But the
phenomenon where people copy the actions of others odd thing is that in some of these industries, most of
in an attempt to undertake acceptable or correct the companies are very profitable, while in
behaviour in a particular situation. That is, we think, others, none can make any meaningful
something is better if everyone is buying it. Social amount of money.
proof has helped Asian Paints maintain and extend its For instance, in the airline industry,
leadership. no company makes money, while in the
On the other hand, characteristics of certain paint industry, five of the six listed
industries result in one company becoming a companies had a five-year median ROCE of more than
monopoly. For example, Indraprastha Gas, which is 15 per cent during FY18–22. What explains this?
involved in distributing natural gas for transportation Probably, the main factor is brand identity. This
and domestic uses. Indraprastha Gas received the allows companies to earn a high return on capital.
authorisation from the Petroleum and Natural Gas Besides, paint manufacturers have learned not to
Regulatory Board to develop a city-gas-distribution ‘fight at all costs’ for the market share. On the other
network in a specified geographical area. Therefore, hand, in the airline industry, irrational pricing is the
Indraprastha Gas enjoys the monopoly status in Delhi primary form of competition.
and other areas under its ambit. Thus, it is important to figure out the competitive
Purchasing power is another important advantage intensity of an industry, as well as the
of scale. A large operation enables a company to factor(s) that drives the competition.
purchase raw materials at a lower cost, resulting in
higher margins. Retail chains are a perfect example. Patents, trademarks and franchises
A large chain like Avenue Supermarts (DMart) has A patent grants a business the
higher purchasing power than mom-and-pop stores exclusive right to make a particular
when it comes to dealing with suppliers. product or employ a specific process. Given the
exclusivity of the product or process and if it has good
Bigger is not always better economics, the company can earn higher returns.
While the scale has all these amazing Indian subsidiaries of foreign companies (especially
advantages, it also has its pitfalls. One in the agriscience and pharmaceutical sectors) have
disadvantage is that it becomes very benefited from patent protection.
tough to cater to a niche segment. Munger cites the Trademarks also help companies with large
example of a business-travel magazine that was part operations. It helps in distinguishing a company’s
of a larger organisation. Someone created a magazine products and services from those of its competitors.
that only addressed corporate-travel departments (a Trademarks could be a word, logo or design. For
niche segment under business travel). They got more instance, BATA and RELAXO are the trademarks of
efficient than the business-travel magazine and Bata India and Relaxo Footwears, respectively. This
eventually beat them. ensures that neither party uses either company’s
Another disadvantage is bureaucracy. Large trademarks to market their products.
public-sector banks are a classic example. As Lastly, franchising is a great way to benefit from an

COVER
STORY
Out of 54 textile companies with a market cap of more than

`500 crore, only 14 have reported an ROE of 15 per cent or
more in at least three out of five years over FY18–22
established brand or process. The brand owner (the again and again and again.
franchisor) gives the company (the franchisee) the Remember Moser Baer? The company was involved
right to sell its products/services. Jubilant FoodWorks in manufacturing compact disks (CDs).
is the franchisee of Domino’s Pizza (a US company) in In 1998, it secured private-equity
India, Bangladesh, Sri Lanka and Nepal, with funding to enter the compact-disk
exclusive rights to own and operate Domino’s Pizza business. Between FY98 and FY04, its
restaurants in these geographies. revenue soared from `72 crore to `1,519
These barriers to entry allow companies to develop crore. At that point, it was the world’s
a stronghold in their markets and usually, enjoy high second-largest optical-media manufacturer.
returns on capital. Thereafter, not only the price of CDs started
dropping due to the competition from Taiwanese
When technology is not your friend manufacturers, the storage-media industry
The development of technology in the last underwent a transformation again. Flash memory
few decades has resulted in significant came in vogue. The company kept adding debt and
wealth creation. This is not limited to the couldn’t keep up with the change. In 2012, it entered
typical Silicon Valley software/platform
X into a corporate debt-restructuring programme.
but even industrial technology. The lesson is that industry dynamics keep changing.
However, there are certain businesses Companies that are able to adapt to changes will
where technological improvement doesn’t benefit the thrive, while those cannot will die.
business. A typical example is the textile industry.
While advancements in textile machinery result in Surfing
improved productivity, the cost saving generated by This is Munger’s way of describing the first-mover
this new technology does not benefit the manufacturer advantage. He says:
due to the high competition. It flows through to the And when these new businesses come in, there
consumer. So, the company keeps upgrading its are huge advantages for the early birds. And when
technology but fails to benefit from it. you’re an early bird, there’s a model that I call
Out of 54 textile companies with a market cap of “surfing” – when a surfer gets up and catches the wave
more than `500 crore, only 14 have reported an ROE of and just stays there, he can go a long, long time. But if
15 per cent or more in at least three out of five years he gets off the wave, he becomes mired in shallows.
over FY18–22. These 14 companies have been able to Such an advantage allows a company to establish
do so due to some brand recognition and/or its leadership and set high switching costs. At the
technological prowess. dawn of the personal-computer industry, Microsoft
Therefore, it is important to understand whether or and Intel collaborated to set high entry
not technology is going to help a business. barriers by developing software and
hardware platforms for personal
Competitive destruction computers. Decades later, their
In a fast-changing world, entire industries get wiped advantage is still visible.
out. Munger calls it competitive destruction: However, such an advantage can also be
You know, you have the finest buggy whip factory short-lived if the first-mover has to invest significant
and all of a sudden in comes this little horseless sums of money in forming the market. For instance,
carriage. And before too many years go by, your buggy many of the tech companies that failed after the dot-
whip business is dead. You either get into a different com bubble were way ahead of their time. As a result,
business or you’re dead - you’re destroyed. It happens they failed to take off.

COVER
STORY
Getting into great companies

Should you invest in quality small caps? Should you stick to large caps?
Should you bet on a star CEO?
I
nvesting in a good-quality business when it is
small and staying invested for the next 10–20 years 4HYRL[JHWJOHUNLVMTPKHUKZTHSS
can give you returns of a lifetime. The small size JHWZV]LY`LHYZ
allows you to compound wealth at higher rates, while
Less than 15 and 25 per cent of small and mid caps, respectively, have
the meagre presence of institutional investors also moved to a higher market-cap category.
works in your favour.
Median count (%) Median return (%)
Of 563 small-cap companies (as per Value Research
criterion) in December 2012, 66 have become mid-cap :THSSJHWZ
companies in December 2022 (median 10-year CAGR of 57.6
31.1 per cent), while two (PI Industries and SRF) have 46.6
become large caps. 34.3
29.3
There are, however, many risks to contend with,
such as poor-information disclosures, a company’s 15.4
12.3
ability to scale, key-man risk, etc. As a result, only a
-5.1 0.8
small number of mid- and small-cap companies move
on to the higher market-cap categories. Small to micro Small to small Small to mid Small to large
4PKJHWZ
46.2
27.8 27.3
24.1
15.1
2.0
-25.2 -2.9
Mid to micro Mid to small Mid to mid Mid to large

Prepared for 13 10-year rolling periods starting from Mar ‘00–’10 to Mar ‘12–’22
Count (%) represents the median percentage of companies moving from small and mid cap
to other market caps
Buying them big

With a small company, the difficult part is figuring
out whether it has the qualities of a strong business.
However, with larger companies, their track record is
available. Most of us have a reasonable idea of which
large-cap companies are high on quality. And that is
why, they often trade at unattractive valuations.
Another issue with large-cap investing is growth
potential. How many of them have the potential to
grow at least at the same rate as the nominal GDP?
As can be seen in the graph ‘Market cap change of

COVER
STORY
Occasionally, you’ll find a human being who’s so

4HYRL[JHWJOHUNLVMSHYNLJHWZ talented that he can do things that ordinary
V]LY`LHYZ skilled mortals can’t… These people do come along -
and in many cases, they’re not all that hard to identify.
Almost 75 per cent of the companies continue to be large caps
If they’ve got a reasonable hand - with the fanaticism
Median count (%) Median return (%) and intelligence and so on that these people generally
73.9
bring to the party - then management can matter much.
Consider the case of Pratik Pota, the former CEO of
Jubilant FoodWorks. While the company had an
22.2 15.6 established brand before his joining in April 2017,
3.9 -1.4 profitability was quite poor. Under the leadership of
-19.9
Pota, the company emerged as a force to reckon with.
This was no fluke. He had over two decades of
Large to small Large to mid Large to large experience in FMCG and telecom with PepsiCo,
Prepared for 13 10-year rolling periods starting from Mar ’00–’10 to Mar ‘12–’22 Hindustan Unilever and Bharti Airtel. By leveraging
Count (%) represents the median percentage of companies moving from large cap
to other market caps his experience and the established brand of the
company, Pota was able to perform exceptionally.
Of course, over-dependence on a manager has its
large caps over 10 years’, most large-cap companies drawback as well. Once that manager leaves the
continue to be large caps but at lower returns as company, there is a big hole to fill. When Jubilant
compared to small and mid caps. FoodWorks announced the resignation of Pratik Pota,
However, opportunities do spring every once in a while. the market cap fell by `4,637 crore to `33,161 crore in one
These could be due to company-specific events or industry-/ day (a 12.3 per cent fall)! This is why Munger suggests
economy-wide events. A case in point is Infosys. In August that in most cases, it is better to bet on the quality of the
2017, then-CEO Vishal Sikka resigned. During his three- business than that of the management:
year tenure, the stock price rose only 6 per cent (absolute ...if you have to choose one, bet on the business
return). This is reflective of the questionable practices, momentum, not the brilliance of the manager.
including large severance pay-outs, expensive acquisitions,
whistle-blower complaints, etc., at the company. Untapped pricing power
Had you spent time understanding what was ailing A rare investment opportunity shows up in companies
the company and what it was doing to treat it (such as that have not priced their products and services as high
the appointment of Salil Parekh as the CEO in December as the market can absorb. Importantly, this occurs
2017), you would have been able to invest in the company without a drop in volumes. Munger says that investing
at an opportune time and price. Assuming you invested in such companies is a no-brainer.
at the close of January 2018, your return would have He cites the example of Disney. The managers at
been 22.9 per cent CAGR (as on December 9, 2022) as Disney realised that they could raise the prices of the
compared to the Sensex’s return of 11.9 per cent. rides in Disneyland and still people would come in
There are many such examples of big companies droves.
messing up temporarily and providing good
opportunities to new investors. Patience and the Cancer-surgery formula
ability to spot such instances are all required. This is basically a model to benefit from turnaround
situations. The idea is to get rid of poor segments (e.g.,
When the CEO is the all-important factor low ROE, loss making, etc.) and keep the good ones.
There are situations where a CEO holds the key to a A great example of this is Eicher Motors. In 2004,
company’s fortune. Such managers have the ability to Siddhartha Lal (the CEO) decided to divest 13 out of the
drive the company forward. Quite often, such CEOs 15 businesses of Eicher Group. His premise was simple.
are appointed when the company is in a precarious He didn’t want to be a mediocre player in 15 businesses
position. Other times, it could be a routine change but rather a good player in one or two businesses. The
that has brought an established manager on board. substantial returns generated by the company since
Here is how Munger describes these opportunities: then are a testament to his strategic call.

COVER
STORY
Investor beware
What are the risks of this philosophy? How to overcome them?
N
o investment philosophy is without risk. This
is particularly true for the investment
philosophies of most renowned investors, as
most retail investors are likely to overdo it or
interpret it incorrectly. One of the risks that Munger
points out is:
Since it’s so obvious that investing in great
companies works, it gets horribly overdone from
time to time… Thus, a large investment disaster
resulted from too high prices. And you’ve got to be
aware of that danger.
It is understandable that investors want to invest in
quality companies. Such companies have formidable
competitive advantages that enable them to overcome
various challenges. However, investing in quality
companies will only be rewarding if you invest at a
fair or less-than-fair price. A buy-at-any-price
philosophy will only lead to wealth destruction. trade at a premium valuation. As a result, its potential
Consider the ‘P/E range and median ROE’ table. It to offer great returns, going forward, is limited. The
gives the number of companies in a P/E range and the greatest returns are generated in companies whose
median five-year ROE of that P/E range. As you can quality characteristics are yet to be acknowledged.
see, the higher P/E multiples, on average, have a Once such a company is ‘discovered’ by many
higher median ROE. You could argue that is where participants, early investors will have a remarkable
quality lies. However, whether or not that quality compounder in their portfolio.
will translate into a good return for investors is a Another aspect that investors have to contend with is
separate question. the identification of a quality company. Even though we
When a company is acknowledged by the market have laid down various factors that you can consider, at
participants as a quality company, its shares usually the end, you have to perform a thorough analysis to
identify quality companies. Here, your circle of
7,YHUNLHUKTLKPHU96, competence plays a big role. Munger says:

You have to figure out where you’ve got an edge. And
Companies with higher P/E multiples tend to have higher ROEs.
you’ve got to play within your own circle of competence.
5Y median ROE (%) No. of companies If you do not know the limits of your own circle of
competence, you would not be able to differentiate
10 between truly high-quality companies and those that
56 53 25
397 318 20 19.3 appear to be high-quality.
210 15.7 15.7 So, while you know what the Berkshire system is,
13.9 15.0 14.9 14.2
11.9 81 applying it with success is another ball game altogether.
5.7
However, the rewards of applying it are astounding. As
144
Munger puts it:
0.0
Nothing is automatic and easy. But if you can find
NA 0–10 10–25 25–50 50–60 60–70 70–80 80–90 90–100 Over some fairly priced great company and buy it and sit,
P/E range 100
that tends to work out very, very well indeed – especially
Data as of December 9, 2022. Based on companies with m-cap of more than `500 crore.
for an individual.

SECTORAL
OUTLOOK
2023
10 fund managers share their outlook on the key
sectors of the economy to help you make the right
investment choices in the year ahead

SECTORAL
OUTLOOK
Automobiles
‘We expect the commercial-

vehicle segment in India to
continue to do well’
The auto index is one of the top performers over the last one year. It is also the top
holding in your fund. Will the momentum continue in 2023? Which pockets within the
auto sector will likely do well? Which could be the laggards?
G
lobally, the automobile sector
has been in a transition mode. We foresee increased
Customer preference for adoption of hybrids in
better and greener products has led the four-wheeler
to a change in positioning across automotive segment until full
the automobile value chain. A transition to electric vehicles
rising per-capita income, better happens over the period
infra and availability of finance will
continue to act as key drivers for equipment manufacturers), we have
automobile growth in a country like adopted the approach of investing
India where the purchase of in auto ancillaries that benefit from
automobiles is still considered to be being suppliers to these OEMs as
of aspiration value. Global auto well as being a low-cost destination
majors have realised this and have for global exports.
come up with multiple products to We expect demand momentum to
cater to various preferences of the continue, albeit a bit soft, as supply-
emerging middle class in India. chain disruptions globally ease out
PRANAV GOKHALE Fund Manager,
The need for personal mobility and the world returns to normalcy. Invesco Mutual Fund (manages Invesco
post COVID-19 and pent-up demand For CY23, we expect the automotive India Mid Cap Fund, which has 17.68 per
have led to an improved scenario for industry to have improved gross cent of its assets in the auto sector as of
automobile players who have been margins on falling raw-material cost November 2022)
able to pass on the higher cost to while being the beneficiary of
consumers. Over and above, better operating leverage. Over a slightly commercial-vehicle segment.
entry valuations at the start of CY22 longer-term period, we expect We expect the commercial-vehicle
have led to improved performance electric vehicles to continue to gain segment in India to continue
for the automobile sector in CY22. market share from internal to do well backed by the
The advent of technology has led combustion engines over the longer economic tailwind.
to disruptions in the market share term. We foresee increased adoption Hence, we have chosen to stay
across many players, where of hybrids in the four-wheeler invested in globally competitive
challengers have come up with automotive segment until full auto ancillaries which benefit
newer products and have disrupted transition to EVs (electric vehicles) from domestic as well as overseas
market shares of incumbents. Given happens over the period, while we demand, commercial-vehicle
the lack of clarity as regards who expect a quicker adoption of EVs in players and select OEMs in
will emerge as leader amongst the the case of two-wheeler, economy, the automotive space in our mid-
automotive OEMs (original three-wheeler and small cap portfolio.

SECTORAL
OUTLOOK
Banking & finance
‘The fundamentals seem to be

healthy for the next few years’
The banking sector has done well in 2022. Will the momentum continue in 2023?
What could spoil the party? How are NBFCs and housing-finance companies placed?
T
he banking sector has been one are unlikely to get affected because
of the standout performers of of the ongoing recovery in Indian
2022. We believe that the sector real estate and the wealth effect of
was ripe for performance since 2020 the past few years’ stock market.
but first COVID and then the Real estate is also the collateral for a
relentless selling by FIIs over the large part of secured loans in the
next few quarters delayed the banking system and a combination
performance despite the improving of increased liquidity plus asset-
results quarter after quarter. price inflation provides additional
However, the burning question now security to the banking system. The
is if the sector will continue to revival in housing and auto sales
perform. The answer to that question also bodes well for the NBFC
has become a little more complicated segment as NBFCs in India are
due to the ongoing monetary mainly into housing, asset financing,
tightening across the developed VINAY SHARMA Fund Manager, SME financing and microfinance.
economies and the follow-through of Nippon India Mutual Fund Cyclically, all these segments look
that in emerging markets like India. (co-manages Nippon India Banking & ripe for an upturn in their fortunes.
We still believe that the positives Financial Services Fund) Finally, the key risk to my
outweigh the negatives and if the hypothesis would be twofold. First is
anticipated recession in the US and a major deleveraging exercise for the if the global slowdown is very
Europe is a mild one, we do not past few years and it’s unlikely that a sharp, it could percolate into Indian
anticipate any significant mild global recession would inflict a balance sheets and the NPL threat
deterioration in corporate balance major damage to their balance could emerge again in some
sheets or Indian macroeconomic sheets. Domestic-focused sectors are segments of banking system. A
fundamentals. While there could be a likely to do quite well, given the slowdown, combined with lagged
temporary blip because of that strength in the domestic economy. impact of monetary tightening, could
downturn, I believe the Indian credit The same is true for mid-corporates also lead to emerging markets facing
cycle has just started and like and SMEs, except that the export- outflows and a resultant weakness in
previous episodes in history, it could oriented segments are likely to face stock markets. The other key risk to
continue for a few more years. some turbulence ahead. Households macroeconomic fundamentals is
The reasons for that confidence energy prices. If oil prices were to
are manifold. Primarily, the banking rise above a certain level, it could
NBFCs in India are
sector reflects the health of its lead to weakness in Indian current
mainly into housing,
clients’ balance sheets and account deficit and fiscal situation.
asset financing, SME
profitability. The three major client So, to sum it all up, the banking-
financing and microfinance.
groups for Indian banks are large sector fundamentals seem to be
Cyclically, all these segments
corporates, mid-corporates and healthy for the next few years and
look ripe for an upturn in
SMEs, and retail or households. fingers are crossed for the impending
their fortunes.
Indian corporates have gone through slowdown in developed economies.

SECTORAL
OUTLOOK
Chemicals
‘The chemical sector is poised

to grow faster than India’s
overall nominal GDP over
the next decade’
Chemicals is among the top three sectors in your fund’s There is ample room
portfolio. What makes you bullish about this space in for growth for the
Indian chemical
the year ahead? Which segments within this sector are manufacturers through
you betting on and why? import substitution and
capturing export
A
s a fund house, we prefer opportunities
businesses which have a
high-growth potential, along re-investing their earnings to
with the ability to generate return capture this opportunity. Over the
on equity (ROE) higher than the last five years, the leading
cost of equity. We believe that the specialty-chemical companies have
Indian chemical sector is poised to grown their operating profits at
grow faster than India’s overall more than 20 per cent CAGR and
nominal GDP over the next decade. have re-invested more than 70 per
There are many structural reasons cent of these profits to build
to support this. capacities, hinting towards a strong
We are observing that customers growth runway in the future.
globally are looking at India as a We believe that the Indian
stable source of supply for basic as chemical industry is still small as
well as specialty-chemical products. compared to that of China, Europe
HARDICK BORA Co-Head of Equity,
And the market opportunity is Union AMC (co-manages Union and Japan. Factors like the rising
large. As per the World Trade Midcap Fund, which has 13.4 per cent cost of production, stricter
Organisation, China’s total of its assets in the chemical sector as environment compliance norms, the
pharmaceuticals and chemical of November 2022) Chinese government’s blue-sky
exports stood at over $300 billion policy are only accelerating this
against India’s total exports of over growth for the Indian chemical shift to India. There are already
$80 billion. Additionally, India has manufacturers through import precedents of global customers
also imported pharmaceuticals and substitution and capturing getting into large multi-year supply
chemicals worth over $80 billion. export opportunities. deals with Indian companies.
This provides ample room for Indian companies are also

SECTORAL
OUTLOOK
Commodities
‘The fund remains overweight on

OMCs and gas utilities’
The Russia–Ukraine conflict kept the oil sector in the
news for much of 2022. What’s your outlook for oil
producers, refiners and marketers in 2023? Which
areas in the metal and mining space may outperform in
2023? Which ones would you avoid?
Oil producers, refiners and marketers
We expect crude oil (Brent) to be in
the $75–85/barrel range but one will
The profitability of
have to watch geopolitical
Indian oil producers is
situations, the US starting to rebuild
capped due to the ROHIT SINGHANIA Co Head -
its strategic reserves and China
windfall tax. Therefore, they Equities, DSP Investment Managers
reopening. These events could lead
will not benefit from a rising (manages DSP Natural Resources and
to short-term higher moves in
crude price. New Energy Fund)
crude. The profitability of Indian oil

producers is capped due to the crude prices, margins have started Index to soften in 2023, which bodes
windfall tax (realisations pegged at to recover. While diesel retail well for affordability/commodity
about $70–75/barrel). Therefore, margins still remain negative, petrol demand. Further, Fed interest-rate
Indian upstream companies will not margins have turned positive. increases have translated into a
benefit from a rising crude price. We Despite the softening in prices, we higher cost of capital, not just
feel owning offshore funds is a expect retail prices to remain draining liquidity. It had its
better way to play the bullish crude- constant as OMCs will recoup losses contribution to commodity pricing
price view vs Indian listed players. amid high crude prices. Valuations and lower physical inventories. We
As far as refining is concerned, of OMCs keep us constructive on the factor incremental demand/
CY22 tailwinds should recede. GRM space. The fund remains overweight inventory re-stock to aid the pricing
(gross refining margins) spiked in on OMCs and gas utilities. outlook. Lastly, near-term risks on
CY22 to as high as $30/barrel led by the back of China’s COVID policy
a low inventory post COVID, global Metals (zero COVID or lesser of it)
demand recovery and lower Chinese We remain optimistic about remains. That said, factoring
exports. Margins have already commodities as an attractive asset China’s carbon-neutral
normalised ($7/barrel currently) as class, taking into account the long- commitments by 2060 and peak
global refinery utilisation improved term fundamentals of demand and emissions by 2030 and the theme of
and with an increase in Chinese supply, specifically taking note of China reopening eventually playing
exports in recent months. Expect the underinvestment in the space out, it’s likely to bode well for
CY23 margins to be about $5–7/ and the consequent lack of adequate demand–supply fundamentals and
barrel range in line with the supply. The improvement in the the pricing outlook. On the stock
historical average. balance sheets of a number of metal- level, we like integrated players
Marketing margins in India sector companies makes it likely for which have significant value-added
suffered a huge blow due to high them to traverse lean periods of products and those which have
crude prices and capping of the lower prices and patchy demand. managed to clean up their balance
selling price of transport fuels by Despite the Bank of Japan’s sheets in the last two years of the
OMCs. However, with softening in surprise move, we expect the Dollar commodity upcycle.

SECTORAL
OUTLOOK
Consumption
‘Indian consumption investment

universe offers a range of
sustainable opportunities’
eat segments, eating out (QSRs),
India is an unbeatable consumption story. That’s also branded spices/masala, pulses and
the reason behind the high valuations of consumption other essentials are likely to grow
stocks. What’s your strategy for approaching this space rapidly over the next few years and
in 2023 to optimise returns? Do comment specifically therefore, we have aligned our
portfolio with this thought process.
on the staples and the discretionary sub-sectors. Also, consumer penetration in
segments like consumer appliances
T
hriving domestic consumption (i.e., kitchen appliances, fans, ACs,
has been a key bulwark for etc.) is still below half of the staple
the Indian economy and this penetration. Improved electricity
underlying trend is likely to availability across India in the last
continue over the next decade as few years should allow these
well. India took 12 years to double categories to double penetration
its per-capita income to over $2,000 over the next five years.
by 2020. Based on the basic rule of Another sub-segment that holds
compounding, the next doubler exciting prospects is the home-
should be achieved in half the time. improvement/building-material
Thus, India’s current per-capita space, i.e., paints, sanitaryware,
income of about $2,200 is likely to furniture decor-related, etc.
double over the next five-six years. Companies in this segment too are
This incremental $2,200 income is likely to witness doubling of the
likely to flow to financial savings, SONAM UDASI Senior Fund Manager, market size, led by increased
housing and of course, improving Tata Mutual Fund (manages Tata India urbanisation trends, demand for
standard of living through Consumer Fund) housing, rising per-capita trends
consumption. and aspirational demand.
While staple companies may of the total market. As Indian India’s 29 states have at least two-
continue to deliver steady growth, consumers become aspirational, the three cities and several other towns
going forward a better strategy next leg of staples growth should be which are becoming rich faster.
would be to focus on consumer led by branded food-focused This has led to an explosion in
segments where penetration levels companies chasing a higher share lifestyle-led consumption demand.
are still nascent and offer high of the consumer wallet. Ready-to- This is visible in organised
growth potential. Therefore, within jewellery, high-end cars, healthier
staples, I believe food-focused Within staples, eating and liquor demand trends.
companies can deliver superior I believe food-focused All these segments mentioned
growth over detergents or companies can deliver above are led by a strong investible
household-care segments. The food superior growth over universe of companies. Therefore,
segment is largely dominated by detergents or household- the Indian consumption investment
unbranded/regional players. The care segments universe offers a range of
branded share is not even one-third sustainable opportunities.

SECTORAL
OUTLOOK
Healthcare
‘The recent underperformance

provides a decent entry point’
key plants getting off the hook.
Pharma and healthcare • As per commentaries of many
seem to have fallen off corporates, pricing pressures are
investors’ radars in normalising, which may lead to gross
2022. What hope does margins stabilising for the sector.
2023 bring? Which areas

• Key complex investments done
by companies are expected to
within healthcare would start monetising, which would
you be bullish on? Which further help cash flows and the
would stay lukewarm? earnings trajectory.
• 2022 has been also quite active in
E
quity investment in any sector terms of M&A, specifically in the
is about taking a call on what domestic market. As the business
kind of earnings growth is consolidates and starts driving
priced in. As the pandemic synergies, expect stronger domestic VRIJESH KASERA Fund Manager, Mirae
intensified, earnings growth business for many companies. Asset Investment Managers (India)
expectation across the value chain • Cost increases in raw materials (manages Mirae Asset Healthcare Fund)
was high. This was followed by and freight have started seeing green
actual unprecedented strong growth shoots of normalising and should
and margin expansion. However, the have a positive impact on the
We remain cautious on
scale of the earnings growth and the operating profits going ahead.
the diagnostics and the
CDMO space mainly on
profitability benefit were different • A favourable currency should also
account of valuations despite
within the healthcare value chain. help improve the earnings
Towards the mid-2021, as the trajectory.
long-term growth potential
vaccinations started to have a
positive impact and the world Healthcare services In terms of valuations, the sector
started to open up, increased growth • Diagnostics and CDMO (contract is trading at close to its historical
experienced by the sector during the development and manufacturing) means of 20-21 times on a one-year
pandemic normalised and so did the business should see some forward basis. We believe the recent
earnings expectation. This led to normalisation of earnings as the underperformance provides a
almost a 15–30 per cent cut in base effect starts to kick in. decent entry point and the expected
earnings across segments, excluding • Hospitals, considering calibrated recovery would help the sector
hospitals, where the earnings approach towards capex and outperform over the medium to long
delivery has been far superior to increased focus on consolidation and term. We remain cautious on the
what was expected at the start of the profitability, should continue to diagnostics and the CDMO space
year. Moving ahead to 2023, here are report steady growth. mainly on account of valuations
a few things that we expect: The consensus earnings for the despite long-term growth potential.
sector are expected to grow at high However, we are constructive on
Pharmaceuticals teens for hospitals, diagnostics and pharma companies due to earnings
• As the USFDA issues may turn pharmaceuticals, while CDMO, even recovery from the lows of 2022 and
negative for some in the sector, it though expected to recover, could hospitals due to the continued
could provide opportunities for see a slower pace of low teens in the strength of footfalls and improved
others in terms of better pricing or next two years. capital allocation.

SECTORAL
OUTLOOK
Infrastructure
‘Power and construction are two

sub-sectors that we are positive
on right now’
Gati Shakti, the National
Infrastructure is an Infrastructure Pipeline and the
umbrella term for many National Logistics Policy are
diverse sectors. How examples of government initiatives
would you be that have improved cooperation
between many ministries and
approaching this space departments, resulting in enhanced
in 2023? Which areas planning and execution of
would you be bullish/ numerous infrastructure projects.
bearish on and why? The sector has also benefited
from the introduction of platforms
T
here are many different like REIT (real-estate investment
industries included in the trust) and InvIT (infrastructure
infrastructure theme. It investment trust). An asset
ranges from construction, developer and asset owner typically IHAB DALWAI Fund Manager, ICICI
manufacturing and logistics firms have different levels of risk Prudential AMC (manages ICICI
to developers and owners of assets, tolerance. An operational Prudential Infrastructure Fund)
including ports, power plants and infrastructure asset is suitable for
real estate. financial investors because it gives rising evening peak demand. For
Investors should consider the them steady cash flows over a long this, there is a case for continued
theme since India offers a sizable period of time, whereas asset investment in conventional power
market for infrastructure creators take on execution risk and capacity till a scalable storage
investment. The central hence have higher return solution is established. The number
government has committed expectations. Hence, structures of asset creators in this space has
enormous funds to building such as REIT and InvIT help the decreased over the past decade,
extensive infrastructure projects asset creator to churn capital which enhances the prospects of
and supporting numerous quicker by transferring the future returns for the enterprises
initiatives to enhance social completed asset to such a platform. that have survived.
infrastructure. Power and construction are two The industry has undergone
sub-sectors that we are positive on significant consolidation and the
right now. Investment in power will underlying demand outlook is
The central positive. The construction sector
continue to increase as the
government has currently trades at a fair valuation.
government focuses on promoting
committed enormous Future demand from all three
renewable power generation.
funds to building extensive segments, namely the government
Investment in the transmission
infrastructure projects and for infrastructure, corporates for
network will also be needed to
supporting numerous capacity creation and households
support the shifting generation
initiatives to enhance for housing, is anticipated to be
mix. Additionally, as a nation, we
social infrastructure quite robust.
will require capacity to handle the

SECTORAL
OUTLOOK
PSUs
‘Select sectors in the PSU theme

will continue to do well’
remains larger vs history).
PSUs have given great Defence and railways: We remain
returns in 2022. What is structurally positive on government
changing in this space spending and policymaking in the
or was it just value defence and railway sectors over the

next three to five years. In the
buying? How do you see defence sector, tailwinds from the
PSUs doing in 2023 and positive lists announced by the
which pockets would you government in 2021-22 should start
like to bet on? yielding opportunities for domestic
defence companies (indigenisation). DHAVAL GALA Fund Manager,
W
e are happy to see the PSU In railways, the government’s focus Aditya Birla Sun Life AMC (co-manages
theme outperform in 2022 is expected to shift from capacity Aditya Birla Sun Life PSU Equity Fund)
after sighting a cyclical building to equipment procurement.
investment opportunity in 2019 on Increasingly, we also believe the the government has been
account of decadal low stock government’s focus on growing undertaking several reform
valuations, strong balance sheets exports in both defence and measures which have already
with high ROEs and steady cash railways should start becoming started bearing fruit. We remain
flows from operations, along with visible in the next one-two years. constructive on the power sector
high dividend pay-outs. Stock performance now builds in across names for the next two-three
In CY22, we witnessed an most of the optimism from the years basis visibility of capacity.
improvement in growth in domestic- policy and government focus. We Oil & gas: This sector has
facing sectors which has also helped need large order flows and underperformed in last one year on
PSUs (core to the economy) and earnings execution for the stocks adverse macro conditions like
there has been a global trend of to outperform. global energy crisis, geopolitics and
value buying in a rising-rate Power: After almost a decade of COVID restrictions. Given the
environment. We remain positive being in surplus, the power sector is weaker crude oil price, strong
on PSU banks, defence and power, now likely to start facing refining margins, windfall tax
despite the sharp re-rating in PSU intermittent peak power deficit/ collection, earnings visibility will
stocks in the last couple of years. shortfall especially in peak seasons improve going forward. With the
PSU banks: PSU banks registered (i.e., summers). As a result, there is valuations being that of the
strong earnings growth in the need for coal/hydro power capacity regulated era, we believe there is a
current fiscal year, with all key addition to meet the peak power tactical play on upstream and
metrics like loan growth, margins, demand. Moreover, to resolve the OMCs in the coming year.
and asset quality surprising on the past issues of delayed payments and Overall, select sectors in the PSU
upside. We expect sustained strong poor financial health of discoms, theme will continue to do well in
earnings next year, with further the coming year. We remain
improvement in the return ratios. constructive on India’s economic
With the valuations
Though PSU banks have seen growth story in the next few years
being that of the
strong stock performance in recent and that bodes well for PSU
regulated era, we
months, their valuations remain companies (core to the economy)
believe there is a tactical play
reasonable, coupled with improving like banks, power, industrial and
on upstream and OMCs
ROEs (discount to private banks manufacturing sectors.

SECTORAL
OUTLOOK
Services
‘For the next six to 12 months,

banking will outperform all the
other sectors’
their profits to sufficiently provide
Your fund bets across a for losses emanating from these
number of sectors. NPAs. The slippages from COVID-
Which areas in the related restructuring are much
services space do you lower than what markets feared and

are already well provided for. The
think will stand out in banking sector today stands well-
2023? Which could lag capitalised with a clean balance
behind? Please share sheet. This, coupled with India’s
the rationale as well. improving macro growth story, has
given it the confidence to grow its
S
ervices is a secular high-growth books, leading to all-time high ROHIT SEKSARIA Fund Manager –
theme, especially for a country system credit growth rates of 18 per Equity, Sundaram Mutual Fund
like India with a large young cent. All the segments, viz., retail, (co-manages Sundaram Services Fund)
population and growing affluence. industry and services are
So, in the longer term, all the sectors contributing to this growth, which
and subsectors in the services space gives confidence on its sustainability. The key risk is that
are expected to do well and give The rising-rate environment is deposit growth is
market-leading growth. However, in generally positive for banks as assets significantly lagging
the short term, some areas may do reprice faster than liabilities, leading credit growth and banks
relatively better than others. For the to a margin expansion. NACH debit may be forced to reprice
next six to 12 months, we believe bounce rates at four-year lows and deposits much more, leading
banking will outperform all the other good collection numbers give to margin compression
sectors, while export-oriented IT confidence that credit costs will
services will underperform. We have remain low for some time. The have just started seeing the effects of
seen a part of this trade play out this valuation of banks is still reasonable these actions in terms of higher
year and we expect this momentum compared to the market and they furloughs and budget cuts.
to continue next year as well. offer some of the highest upsides. Fundamentally, the demand from
The banking sector is coming out The key risk is that deposit growth higher cloud adoption and
of hibernation after a painful decade is significantly lagging credit growth digitisation remains intact, though it
during which NPAs ballooned and and banks may be forced to reprice seems to be getting deferred due to
the credit cycle stalled. Slowly and deposits much more, leading to macro uncertainty. This will lead to
steadily, these banks cleaned up the margin compression. a slowdown in revenue growth in the
NPAs with support from the On the other hand, our IT sector short term. Though valuations have
government and the RBI. The is highly dependent on demand from cooled off a bit, they remain well
Insolvency and Bankruptcy Code the US and European geographies. above the last decade’s mean. The
gave ammunition to banks’ effort to Both these geographies are seeing only silver lining in the short term is
pursue large errant borrowers, who very high inflation, which has forced that the attrition pressure is cooling
were forced to pay up or lose their central banks to raise rates off and this may lead to a stabilisation
assets. Banks raised capital and used aggressively to cool the economy. We of employee cost and margins.

SECTORAL
OUTLOOK
Technology
‘We can expect some time

correction in IT stocks till
valuations settle to attractive levels’
The IT index was among While there are topline
the worst-performing threats, the supply-
side environment is
indices in 2022. Will turning benign for Indian IT
anything change in companies, with lower
2023? What are the attrition numbers already
opportunities and threats being reported
in the year ahead for
Indian tech? the same is normalising rapidly,
led by headwinds from worsening
I
ndian IT companies showed global macros and base effect (as
tremendous resilience during one-off COVID-related cost
COVID and as the world came savings continue to reverse). In
out of it. Globally, clients had to addition, clients could adopt a
ANAND RADHAKRISHNAN
invest in technological initiatives meticulous approach to spending
MD & CIO – Emerging Markets Equity
for their omnichannel presence. and are likely to ask for - India, Franklin Templeton
Clients continued to spend productivity-based pricing (co-manages Franklin India Technology
aggressively supported by (1) reductions as well going forward. Fund)
government stimuli and (2) savings This can depress growth rates for
on business-running expenses, Indian IT. growth. Rupee depreciation could
given the work-from-home business While there are topline threats, also contribute to EPS growth.
deliveries. These factors led to the supply-side environment is However, growth moderation
healthy business growth for Indian turning benign for Indian IT prospectively can impact the
IT companies, especially given companies, with lower attrition valuation multiples. A part of it is
their strong low-cost proposition numbers already being reported. already reflected in 2022
based on India delivery. In the wake of weaker growth, performance. Going forward, we
While there has been a Indian IT companies are likely to can expect some time correction
structural improvement in global protect/improve their operating in IT stocks till valuations settle
technology spends, the growth of margins to ensure some EPS to attractive levels.
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STOCK
ADVISOR
Make it easy
Investing in stocks is not like doing exercise – making it harder does
not get better results. In fact, the opposite is true.
DHIRENDRA KUMAR
The second most enjoyable part of being the randomness of the markets?
an equity investor is discovering new investment ideas So, what can Value Research Stock Advisor do for
and investing in those companies. Some of you might be you? The answer is simple and straightforward – it
wondering what the most enjoyable is but I won’t tell makes the boring, hard and stressful part of investing
you right now. When you come upon a good stock that easier and simpler. Not just the ones above but even
you haven’t considered before, or maybe haven’t even those that come long before you start investing. Those
heard of before, it’s an exciting, thrilling feeling. You are just some of the things that our team of analysts
rub your hands with anticipation – figuratively speaking and researchers does for you – the vetting of dozens of
– and buy that stock. ideas down to a few, the incessant checking and
Now the fun part is over, and the hard work and the double-checking of the data, the months and years of
boring part begin. You have to monitor the company constant monitoring. Essentially, all the non-fun parts
and the stock. You have to track corporate news, of investing.
financial results, competitors, any sector-specific If I have to give a bland description, Value Research
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stressful because, unlike when you were researching available at a reasonable valuation with a long-term
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money at stake. With every bit of negative news, you Everyone in the investing world says this or something
need to take a call about whether the stock is worth like this. I mean, who would ever say the opposite? Can
holding on to. With positive news, you have to decide you imagine someone saying that they are focused on
whether to buy more. The price rises – does that mean low-quality stocks that are available at high valuations
better value for buying more or a warning signal or just and only have a short-term perspective? However, talk
Value Research Stock Advisor

balances all parts – the numbers
validate the story and the story
validates the numbers. We make
sure that the validation works in
both directions and points to the
same conclusion.

STOCK
ADVISOR
position where they don’t really understand anything

What Value Research Stock meaningful. The opposite can be a problem too. There
Advisor members get are many businesses, including, unfortunately, the
ultra-hyped ‘start-up’ types, where the narrative is
great but the numbers don’t match up to the narrative.
Access to all our (currently 56) In fact, the narrative is all there is, and a reliance on the
stock picks narrative alone leads to misunderstanding and mistakes
in valuing the business.
It’s fun to listen to the stories and get carried away by
16 Best Buy stocks selected the stories. Value Research Stock Advisor balances all
from our recommendations. Use parts – the numbers validate the story and the story
this set to start building your validates the numbers. We make sure that the validation
portfolio right away! works in both directions and points to the same
conclusion. The temptation we never fall for is to let one
of them compensate for a weakness in the other. That’s
The complete investment thesis always a mistake in equity investing and one that’s easy
for all recommended stocks so to make in the thrill and excitement of finding a new
that you understand why you stock to invest in.
are investing The other important element that we deliver to
investors is the continuous evaluation and revaluation
New recommendations as soon of what we have recommended. The numbers and the
narrative must stay intact and must keep moving
as they are released
forward. At no stage can an investor afford to get ahead
of reality or to fall behind it. This second part is just as
Continuous updates and important. Investors make mistakes when stocks
analysis on all recommended decline, as well as when they rise fast. I remember,
stocks straight from our many years ago, paying `40 a share to buy a stock that
dedicated analyst team eventually became one of India’s greatest blue chips.
When it crossed `80, the broker started chasing me to
sell because, as far as he was concerned, the job was
Tools and data to research and done, and it was time to churn my holdings and earn
analyse any other stock some commission. I didn’t listen and the stock eventually
became a multibagger. It’s still going strong and selling
is cheap, and many people end up actually doing this it at `80 because the money had doubled would have
kind of anti-investing despite the best of intentions and been a colossal mistake. We not only point our members
the grandest of statements. to such stocks but prevent them from making this kind
Our process is well thought out, tried and tested. We of mistake. That is actually more valuable.
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perform a matrix of checks and balances that ensure systematically and the boring parts are never ignored!
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– quality, value and the long-term perspective – all stay
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STRAIGHT
TALK
Can India be the next China?

A former RBI governor and a former chief economic advisor
have said that India can’t be like China when it comes to
manufacturing. What’s the truth?
ANAND TANDON
Dr Raghuram Rajan, former RBI now better infrastructure, should be the natural
governor, has, for some time now, advocated that beneficiary. But, as Subramanian and Felman argue, it
India should not follow China in focusing on the may not be.
manufacturing-led export model. Instead, it should
continue and enhance its services-led export model India hasn’t witnessed investment growth it should have
(source: outlookindia.com, https://bit.ly/3jfOX80). Despite competitors in its neighbourhood like Sri
The Government of India is attempting to grow Lanka and Bangladesh facing their own internal
India’s manufacturing base by offering a production- challenges, foreign investment into India has not
linked incentive (PLI) plan for select sectors that it significantly improved. Commitments like that of
deems important. Apple sourcing more from India or Foxconn working
In a piece published in ‘Foreign Affairs’ in the towards a semiconductor fab in India remain rare.
second week of December, Arvind Subramanian, Domestic investors too have not demonstrated a
former Chief Economic Advisor to the Government of rush to set up new facilities, with CMIE reporting
India, and Josh Felman, former Senior Resident new project starts at levels lower than those in the
Representative in India for the IMF, argue that India early part of the century. Subramanian and Felman
cannot, in fact, replace China as a production argue that this reflects a fear on the part of investors
powerhouse. Let’s examine why. that policies could change adversely once they
invest. Alternatively, policies could be tweaked in
China is increasingly less attractive favour of local companies. They highlight losses by
Post COVID, China has increasingly become less companies like Amazon and Vodafone, while groups
attractive to consuming countries. Rising political like Adani prosper.
risk and domestic costs, its failed policy of zero They also argue that PLI requires increased tariffs
COVID and local unrest, its slowing economy, and its on foreign-made components and this is a deterrent to
need to increase domestic consumption instead of an international players. Simultaneously, they point to
unrelenting focus on export – all point towards a need growing imports and a high current account deficit as
for an alternate production base. Along with an a structural problem. India lost a large part of its
acceptance of a diversified supply chain, even at a informal economy due to demonetisation, GST and
higher cost, ‘China + 1’ is now an accepted policy COVID. As a consequence, domestic consumption
around global boardrooms. India, with its large land remains depressed as jobs at the lower end have not
mass, local resources, a large consumption base and recovered, pointing towards India’s continued

STRAIGHT
TALK
dependence on a few high-end knowledge workers to purpose of PLI, i.e., to help industries scale and then
drive growth. India’s growth remains sub-par – the increase value-add will be restricted to just the first
argument goes. part – scale but only for assembly facilities. Importantly,
it is only by increasing exports that the problem of
Are these arguments consistent and logical? current account deficit (CAD) can be addressed. So, to
Let us first look at the debate of services vs be critical of CAD but disdainful of attempts to reduce
manufacturing. Rajan argues for increased services, it is disingenuous at best.
while Subramanian points out that this only creates Policies are always gamed by those connected to
high-skill jobs. Both are correct. Services are easier power to ensure that their interests are covered. Is
for India to offer, as evidenced by its growing basket there any other reason why the back-offices of banks,
of offerings. This actually doesn’t need much input securities companies and other financial service
from the government except to help negotiate free- providers are still operating out of the US? Or why are
trade agreements that allow Indian professionals to phytosanitary conditions used to restrict market
offer more services overseas. But it offers no upside access for agricultural produce? Or why does the
to that vast majority of lower-end workers. To assume USFDA bans exports from a factory in India for some
that better education and healthcare (both desirable drugs under the guise of improper manufacturing
objectives) will enable a vast majority of these practices while allowing imports of some other drugs
workers to become knowledge workers is unrealistic. produced in the same factory? Entrepreneurs take
This is where the focus returns to manufacturing. risks – it’s what they do! This doesn’t take away from
Without this, large-scale employment for people is the need for clearer policies that are more ‘game-proof’
difficult to achieve. but there is no holy grail to reach. Business will go
Since domestic markets are relatively small, to where opportunities exist.
generate China-size facilities (even significantly The slow uptake from investors is more likely
smaller ones) requires global markets. PLI schemes about timing – in a world that is slowing down and
are meant to reduce the impact of unreimbursed with major economies flirting with recession, the
domestic costs to help exports, so Subramanian’s need for fresh capacity seems difficult to justify. And
criticism about import tariffs is unjustified and surely the purpose of GST and digitisation is to bring
irrational. If imports are not disincentivised, the more people out of the informal sector and into the

STRAIGHT
TALK
How to improve the industries, leading to fragmented companies that can

each never enjoy the advantages of scale.
policy framework One way of managing this problem is to offer PLI
schemes to companies that are on the verge of
breaching the small/medium-scale markers and
PLI schemes should be offered simultaneously, remove incentives from those
to companies that are on the companies that remain small and sub-scale after a
verge of breaching the small/ period of, say, five to seven years. This will incentivise
medium-scale markers. companies to become larger, use better technology and
scale, and not remain dependent on government
support. India has too many small companies and not
Simultaneously, incentives enough bigger ones.
should be removed from those States currently have little incentive to attract
companies that remain small industry. Large industries are offered sops in the form
and sub-scale after a period of, of payback of state GST, lower electricity tariffs,
SAYlVETOSEVENYEARS developed industrial parks, etc. The employment for
most industries is of the order of one-two persons per
crore of investment. If states were to actually end up
Governments should focus paying out to industries, they would not earn anything
on reducing the cost of doing back from them for the next seven to 10 years. As a
business rather than on consequence, states overpromise and underdeliver.
offering subsidies. Instead, if governments focused on reducing the cost of
doing business rather than on offering subsidies,
Policy stability should industry would benefit. For example, capital costs can
be brought down by ensuring that electricity is
be ensured through
guaranteed 24 × 7 without a break. This could remove
government changes. the need for industry to set up its own generation
capacity, reducing capex as well as improving the
formal, so to mourn its slow demise is to reveal environment. Industrial parks are often positioned well
policy confusion. outside urban areas. They need good access roads, and
The criticism of India’s policies seems more increasingly, plug-and-play facilities. These require
ideological than economic. policy stability that cannot be changed at every change
of government. Ensuring this exists would allow
Changes in priority reducing the up-front cost of setting up new facilities.
This is not to say that the policies for growth These could be paid over a long period by securitisation
adopted by the government are perfect. Here are a but only if contract terms are not changed mid-way.
few suggestions. There are several other policies that are costless to the
Medium- and small-scale industries are often touted government but reduce investment risks.
as the engines of employment and growth. There are India remains a land of promise but transitioning
several incentives offered to this sector, yet the sector to one that achieves its potential requires a greater
continues to disappoint. This is a case of warped policy consensus. The pushback on agricultural
priorities. Small-scale companies are worth supporting reforms and recent moves to bring back a defined-
when they start and for the first few years of operations. benefit pension system reveal that there is still a
Post the initial phase, they should morph into larger long way to go to get there. Till then, the path to
enterprises if they have to survive and add economic sustained growth will remain perilous – just not for
value. The reality is that most don’t. Those the reasons that Subramanian or Felman or even
entrepreneurs that do have the ability to scale set up Rajan suggests.
another entity to enjoy the benefits offered to small Anand Tandon is an independent analyst.

Price
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72%(38%/,6+(',17+(),567:((.2))(%58$5<
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EVERYDAY
ECONOMICS
The airport mess

Why is the Delhi airport mismanaged,
who is responsible and how to solve the problem?
PUJA MEHRA
Before Delhi’s airport was privatised headlines and complaints on Twitter by high-profile
by the Manmohan Singh-led government in 2006, it used travellers, it’s because just as the VIP accesses and
to be a pretty chaotic place. I recall the congestion on a lounges create a disconnect between the average flying
particular day distinctly. The poet Gulzar, in crisp white experience and ministers and officials, similarly a gulf
kurta-pyjama and gold-embroidered ornate shoes, was exists between common passengers and the top brass of
standing by the baggage carousel. The bags started the private operators that can skip the queues.
arriving but no one moved. You could have heard a pin Many explanations have been offered for Delhi’s
drop. Gulzar picked up a small carton of mangoes, one of airport congestion. It is being said that the queues at
the earliest pieces dropped on to the conveyor belt, and security checks grow sluggish in winters because jackets
made his way towards the exit, walking with an air of and woollens have to be put through the x-ray scanners.
authority – as if he owned the airport. The But that’s nothing unique to
rest of us also waiting for our bags, sort of
The problem at Delhi Delhi’s x-ray-scanning queues. In
mesmerised by his demeanour and fact, Delhi’s airport-security drill
personality, parted duteously to make way,
airport actually is of is less hassling than in many
opening up a path through a sea of people. He bunching of flights at airports of the world. It doesn’t
was gone in moments. A mad chatter peak hours when air require removing shoes and
immediately replaced the heavy silence. seats are more putting them through x-ray, as is
There was much pushing and grabbing. required elsewhere. I forget
Baggage carts were crashed into ankles. Bags
profitable which airport it was at: ahead of
were toppled from the carousel. Flea markets me in the security queue was
must probably be less messy. Tracy Chapman, who that airport’s security officers
We fly to save time and reduce the hassles and stress asked to strum her guitar to check if it actually was one.
of travel. The air-travel industry, comprising airports Indian airports don’t even profile flyers the way it is in
and airlines, duty-free shopping and other services, many other countries. Pulling out and putting into a
pitches itself as one that makes life easier. In the years segregated queue of passengers for being born in Iran or
after privatisation, the experience of the airport for traveling to Afghanistan used to be common for first-
improved. But congestion and disorder have returned to time flyers in the US. In Boston, I saw a US Marine in
the Delhi airport. Don’t economists always insist that fatigues put in a separate queue of passengers to be
privatisation is the antidote to poor government service grilled by the airport officials because he was flying to
standards? I put this question to a friend well-versed in Afghanistan as a US Army reserve, having been pulled
many private airports in the country. The answer was: out of the vacation, because of which he had lost money
privatisation isn’t the cause of the chaos. If the on booking cancellations.
authorities have taken time to respond to the news Another reason being given is the surge in the number

EVERYDAY
ECONOMICS
of flyers. But after privatisation, growing traffic can no incentivise airlines to shift some traffic from the peak to
longer be an excuse for poor airport services. The non-peak hours is to offer discounts on air-traffic service
private management should be in a better position than charges, aircraft landing and parking slots. Most major
the government to anticipate growth and roll out airport airports in the world encourage non-peak-hour flights
expansions required. through a mix of incentives and other policies. This
The problem at Delhi airport actually is of bunching includes incentivising the use of smaller airports built
of flights at peak hours when air seats are more for accommodating traffic spillovers from iconic but
profitable. A scramble for select flying congested airports. These tools have
slots and as a result less-than-optimum
Incentives to both been used to decongest main airports
use of the airport during non-peak airlines and in many cities around the world. For
hours seems deceptively like a case of passengers to fly in instance, besides Heathrow, there are
airport congestion but is actually a non-peak hours can be five airports in London, all connected
policy issue. Incentives to both airlines
one way to decongest by public transport (Gatwick, Stansted,
and passengers to fly in non-peak Luton, London City Airport and
hours can be one way to decongest the
the airports at the Southend). Just a few months ago,
airports at the peak timings. peak timings Heathrow made airlines cancel flights
Microeconomics has solutions. in peak hours to decongest the airport
Surge pricing – the concept that makes the cost of Uber – something that the Emirates airline expressed great
rides jump at office hours or when demand is strong – annoyance about.
can be used by the airport authorities for air-traffic In India too, a large private airline slapped a court
service charges, aircraft landing and parking slots suit on Delhi airport some time back on being asked to
during peak hours. In turn, airlines can use it for seat shift its operations out of a terminal building to another
prices in those hours. This would require the airport one so as to facilitate the planned airport-expansion
authorities and the regulator to work with the airlines projects. The airport fought the case in court so that a
so that passengers aren’t penalised by airlines. The precedent could be set, dissuading airlines from
market will not be able to do it without the concerted obstructing or delaying expansion works in future.
effort of the authorities as the incentive for the airlines Similarly, friction can be expected when the new airport
is to carry on with current flight schedules. But for the near Delhi comes up at Jewar. Airlines and passengers
passenger inconvenience to reduce, airlines must add would have to be incentivised to use it.
seats during the non-peak-hours. These seats must be Puja Mehra is a Delhi-based journalist and the author of ‘The Lost Decade
available at prices that would incentivise the (2008-18): How the India Growth Story Devolved into Growth Without a
development of non-peak-hour flying habits. One way to Story’

MAIN
STREET
The $300 billion opportunity

How India stands to gain from the problems with China and
which companies will profit from this trend
SAURABH MUKHERJEA
With the recent ‘elections’ to the Chinese Smartphones and the related ancillaries
Communist Party’s Politburo resulting in the exit of all z The global market size of the smartphone industry is
economic reformers from the Politburo and their around $540 billion (source: ibef.org, https://bit.
replacement by military men and spies loyal to Xi ly/3v3LIDE).
Jinping (source: theguardian.com, https://bit. z China’s smartphone exports account for roughly a
ly/3BNIoA7), scarcely a day passes now without a quarter of the global smartphone industry, i.e., around
western government acting to ‘contain’ China. Alongside $130 billion (source: Indiaherald.com, https://bit.
this, China’s never-ending COVID-19 lockdowns – thanks ly/3FDG7Zt).
to the lack of a credible COVID vaccination campaign – z In contrast, India exports a mere $6 billion of
are exacerbating the economic slowdown in the country. smartphones (sources: India.com, https://bit.
Even as China experiences social, political and ly/3BKWKS2).
economic turmoil, the Indian economy seems to be in z India’s domestic smartphone market is around $27
fine fettle – chart ‘India and China’s quarterly real GDP billion of which about $16 billion is imported from
growth’ visually demonstrates the contrasting fortunes China (sources: Business-standard.com, https://bit.
of Asia’s two biggest economies. The Government of ly/3BL04MP; ETtelecom.com, https://bit.ly/3hC4sH3).
India’s tax collections are growing at 34 per cent YoY What is India’s ‘right to win’ here?
(source: hindustantimes.com, https://bit.ly/3V6MXfM), In other words, why do we believe India can be
more than twice as fast as the nominal GDP growth. competitive in the large-scale manufacture of
Credit growth in the banking system is running at 18 per smartphones? Given that the gap between India’s and
cent YoY, the highest in a decade. Car and truck sales are China’s exports of smartphones is massive and India
growing at 13–26 per cent YoY (source: SIAM, 2022). still imports around 60 per cent of smartphones from
More importantly, as China unravels, the possibility China, just internalising its $27 billion per annum of
grows by the passing month that large chunks of the smartphone imports from China will give India the
Chinese economy will migrate to other, more stable, first layer of manufacturing presence in this sector. In
countries including (but not restricted to) India. As this context, the $1.1 billion per annum of production-
Peter Zeihan writes in his bestselling book ‘The End of linked incentives (PLI) can help shift the manufacture
the World is Just The Beginning: Mapping the Collapse of India’s domestically consumed smartphones from
of Globalization’ (2022), “China absolutely faces China to India (source: financialexpress.com, https://
deindustrialization and deurbanization on a scale that is bit.ly/3WaT7wC).
nothing less than mythic…India, with all its endless Over and above the domestic consumption of
internal variation, hopes to take a bite out of everything.” smartphones, we already know from Apple’s
The question therefore is which segments of the announcements that: (a) over the last eight months, it
Chinese economy can India aspire to yank away. has already exported $1.3 billion worth of iPhones from

MAIN
STREET
India and plans to shift over the next couple of years a

significant part of its iPhone production to India 0UKPHHUK*OPUH»ZX\HY[LYS`YLHS.+7
(source: economictimes.indiatimes.com, https://bit. NYV^[O
ly/3jdiBLt); (b) it plans to make its AirPods in India;
25% India China
and (c) it is having trouble making the other
20
(approximately) $200 billion of iPhones in Foxconn’s
15
factories in China due to COVID lockdowns.
10
Opportunity size
5
As explained in the preceding para and according to a
Bloomberg report, Apple plans to shift 25 per cent of its 0
iPhone production to India by 2025, which is -5 -23.9%

-10 (June 2020)
approximately $50 billion (i.e., 25 per cent of the total
iPhone production; source business-standard.com, June 2005 June 2022
https://bit.ly/3PzxIuN). Even if Apple ends up shifting Source: Marcellus Investment Managers, Bloomberg; India's real GDP growth pegged at
2004-05 prices before 2011 and then at 2011-12 prices; China's real GDP growth rate pegged
only half of this target, which amounts to $25 billion at 2005–09 prices until 2009, 2010–14 prices until 2014 and 2015 prices thereafter to date
per annum of iPhones (iPads and AirPods are over and
above this) to India, it will give India a close to $60
billion per annum smartphone-manufacturing sector
*VTWVULU[ZVM[OLIPSSPVU
over the next couple of years. VWWVY[\UP[` In $bn
In the longer term, if we assume that a fourth of Indigenisation in Current

India of goods domestic Total
China’s exports shift to India over the next decade and
imported from production expected
the Indian domestic market continues to grow at 12 per China (grown at 10 years opportunity
cent p.a. (at nominal GDP growth rate), an opportunity 3.5% p.a. over hence (grown 10 years
Industry 10 years) at 12% p.a.) hence
of close to $130 billion will be created in India in the
Smartphones 46 83 128
smartphone industry in the next 10 years.
APIs 32 62 94
APIs and the related ancillaries Medical devices 35 37 73

z The global market size for APIs is around $200 billion Total market opportunity 295
(source: grandviewresearch.com, https://bit. 10 years hence
ly/3BL8mnO). Source: Marcellus Investment Managers, Business Standard, Live Mint, Economic Times,
CNBC, Grandview Research, IBEF, FrontiersIN. org, beroeinc.com and EIN news. Chinese
z Chinese exports are 45 per cent of the global market export shift assuming a fourth of its current exports shift to India over the next decade. World
size, or around $90 billion (source: beroeinc.com, https:// nominal GDP growth rate of 3.5% used to grow export shift for the next 10 years. Indian
nominal GDP growth rate of 12% used to grow domestic production for the next 10 years.
bit.ly/3BL1GpR).
z India’s domestic API market is around $20 billion, of
which a staggering approximately $14 billion is imported Opportunity size
from China (sources: einnews.com, https://bit. If we assume that over the next decade, a fourth of
ly/3YxB19E; cnbc.com, https://cnb.cx/3v3ObOq). Chinese API exports transfer to India and India’s
What is India’s ‘right to win’ here? domestic consumption increases steadily at 12 per cent
As the West gets increasingly apprehensive about its p.a. (at nominal GDP growth rate), the sector has the
dependence on China for APIs, the next natural preferred potential to expand to $94 billion in a decade hence.
location of choice for API production is India given: (a)
the production capacity that already exists in the Medical devices and the related ancillaries
country; (b) the process chemistry know-how that z The global market size for medical devices is around
already exists in India; and (c) that no other country $650 billion (source: globenewswire.com, https://bit.
barring India and China produces API on a large scale. ly/3V75tVq).
A second dimension is that not only can India displace z Of this, Chinese exports are around $100 billion
China to some extent as an API supplier to the West but (source: frontiersin.org, https://bit.ly/3W53Fxk).
it can also reduce its own dependence on China for APIs. z India’s domestic medical-device market is around $12

MAIN
STREET
billion, of which $10 billion is imported implying that

domestic production is a mere $2 billion (source: ibef.
org, https://bit.ly/3HOhWKI).
What is India’s ‘right to win’ here?
Given the mismatch in size between India and China’s
medical-device industries, clearly India cannot be cost
competitive in this sector, even with $2.5 billion of PLIs
kicking in (source: investindia.gov.in, https://bit.
ly/35vzZ2A). However, India’s trump card is that western
governments are wary of their reliance on China for
diagnostic and therapeutic medical devices. In 2016,
therapeutic devices (like orthopaedic appliances and
parts, hearing aids, artificial joints, pacemakers, etc.),
which typically are either inserted in the human body or GMM Pfaudler: GMM manufactures the glass-lined reactors
are at least in close contact with it, accounted for around that API manufacturers and pharma companies need to
31 per cent of all medical devices exported by China, make their products. Its recent acquisitions have
with both therapeutic and diagnostic equipment essentially translated into GMM being the leader (being
constituting about 52 per cent of all medical devices about twice the size of its closest peer) not only in India
exported by the country. The same COVID-related but across the globe with massive economies of scale
production issues which are impacting Apple in China alongside high productivity and low-cost labour as
are also impacting the production of medical devices in compared to the global behemoths.
China (source: usitc.gov, https://bit.ly/3vkddch). Alkyl Amines: It is the leader in the production of chemicals
In addition, the increasingly erratic behaviour of like aliphatic amines, acetonitrile and dimethylamine
China’s legal system when dealing with entrepreneurs hydrochloride (DMA HCL), which are the key components
who are not in Xi Jinping’s good books has also alarmed in a multitude of pharma products. It has been using its
MNCs and made them wake up to the fact that they have position as the lowest-cost producer to its benefit. Because
zero IP protection there. As a result, western of the aforementioned dynamic playing out in the API
manufacturers and users of medical devices are keen to industry, the chemicals that are produced by companies
reduce their dependence on China and make cost a like Alkyl will become ever more critical for India.
secondary consideration. This gives India an opportunity Unsurprisingly, Alkyl is investing in new plants and
to grow its domestic production from the current capacity as it gets ready for the demand ramp-up.
pitifully small figure of $2 billion. Divi’s Laboratories: A leading manufacturer of generic
Opportunity size APIs and nutraceutical ingredients, Divi’s has utilised
Even if one assumes that over the next decade, only a its position of being a reliable and timely supplier to Big
fourth of China’s exports migrate to India and India’s Pharma, establishing its superiority in the space. Its
domestic consumption of medical devices continues to ability to deliver products as per specified quality
grow at 12 per cent per annum (i.e., nominal GDP parameters within the contracted time and that too at a
growth), a decade hence, this sector could be crossing very large scale underpins its success. Also, Divi’s is
$70 billion in size in the next 10 years. amongst the few API players globally (outside China)
that have undertaken backward integration of their
Marcellus’ current investments to capitalise on major key starting materials. This helps them control
this $300 billion opportunity costs and also provides assurance of continued supply.
Tarsons Products: It manufactures quality plastic labware. Marcellus’ staff and their clients have invested in
As the Chinese struggle, Indian companies like Tarsons Tarsons, Divis, GMM Pfaudler, and Alkyl Amines
are in a prime position to leverage this situation and Saurabh Mukherjea is part of the Investments team at
establish their hegemony in not only the domestic space Marcellus Investment Managers (www.marcellus.in). He is the
but also all across the globe, thus creating a massive author of ‘Diamonds in the Dust: Consistent Compounding for
opportunity for the company and its shareholders. Extraordinary Wealth Creation’.

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STOCK
SCREEN
Quality stocks available cheap

Here is a ready-made list of stocks that clear essential checks on solvency,
accounting, recent financial performance and valuations
A
stock screen filters out companies based on companies that cleared the essential checks. This
certain criteria. Its main advantage is that it ensures that companies with a cheap and reasonable
helps you generate stock ideas with just a few valuation are selected.
clicks. Once you have the list of ‘deserving’ This screen is one of the largest of all our screens
stocks, you can research them further to find the ones in terms of the number of companies clearing the
worth investing in. filters. The reason is that it only focuses on the
The Value Research website provides you many soundness of companies and not on their growth or
ready-made stock screens. Here we will be covering efficiency characteristics. So, some companies
the ‘quality stocks available cheap’ screen in detail. would have better growth prospects than others. It is
We have also given a concise stock list from the your job to figure out what those companies are. We
other screens. To get the full list in real time, visit have taken care of checking the soundness of their
https://www.valueresearchonline.com/stocks/ financial position and financial statement for you.
selector/.
(^VYKVMJH\[PVU
>OH[KVLZ[OPZZJYLLUVMMLY& Note that mere inclusion in a stock screen does not
This screen lays stress on the soundness of mean that a stock is investment-worthy. Consider
companies. Quality for this screen means clearing the output of stock screens as the starting point for
our essential-checks metrics. These essential checks your research. You must apply your own analysis to
remove companies with a high probability of select companies.
encountering financial distress, companies trying to However, if you are interested in a list of stocks to
paint a better picture of their reality and companies invest in right away, then subscribe to our
that performed poorly in the current year as recommendation service at Value Research Stock
compared to the previous year. Advisor. You can access the details by visiting:
Then we apply three valuation filters to the www.valueresearchstocks.com.

STOCK
SCREEN
REASONS TO INVEST THE FILTERS

Safety Market cap greater than PEG less than 1 No. of companies that
CLEAREDTHElLTERS
Soundness `500 cr P/E to median P/E less
Z-Score greater than 2.99 than 1.5 1,301
Good performance
Reasonable valuations F-Score greater than or equal to 7 Earnings yield greater than 5% 877
C-Score less than 4 211
Banking and finance companies were removed from this analysis as the metrics don’t apply to them. 202
75
Top companies by market cap

Company Stock Altman Piotroski Modified Earnings Market Share 52-week
Industry style Z-Score F-Score C-Score yield (%) P/E PEG cap (` cr) price (`) high/low (`)
Coal India
Coal & Lignite 3.8 8 0 34.5 5.3 0.20 1,37,860 224 263-141
Adani Power
Electricity Generation 3.0 9 1 10.5 10.8 0.35 1,12,063 291 433-97
GAIL (India)
Natural Gas Utilities 4.8 8 2 20.5 5.3 0.24 62,595 95 116-83
Indus Towers
Communication Equipment 5.2 9 3 14.6 10.8 0.35 51,433 191 278-181
Oil India
Oil & Gas Exploration 3.4 9 1 35.8 2.7 0.06 22,236 205 306-168
National Aluminium Co
Aluminium 4.4 8 1 33.5 5.6 0.16 14,271 78 133-67
Kalyan Jewellers India

Gems, Jewellery & Accessories 3.3 9 3 5.6 30.2 0.29 12,726 124 132-55
Suven Pharmaceuticals
Drugs & Pharma 19.7 8 3 5.5 28.7 0.86 12,365 486 632-391
Allcargo Logistics
Logistics 4.2 8 0 13.6 9.6 0.28 10,178 414 495-249
Godfrey Phillips India

Tobacco Products 7.7 8 1 7.5 17.9 0.68 10,119 1,944 2100-933
Deepak Fertilisers
Misc.Chem. 3.2 8 2 18.5 7.7 0.16 8,956 707 1062-358
Gujarat Narmada Valley

Nitrogenous Fertilizer. 4.8 9 3 35.3 4.3 0.16 8,594 553 912-403
Supreme Petrochem
Other Forms-Primary Plastic 17.6 8 1 13.7 11.3 0.34 7,220 768 1025-632
TV18 Broadcast
Media & Entertainment 6.8 8 1 10.2 16.7 0.23 6,395 37 83-35
Shipping Corp Of India

Shipping 3.8 9 0 10.8 9.0 0.21 6,326 136 151-86

STOCK
SCREEN

Intellect Design Arena

Software 13.1 8 1 7.4 18.7 0.23 5,805 428 987-407
Meghmani Finechem
Caustic Soda 3.9 8 2 10.0 13.7 0.09 5,028 1,211 1736-715
GHCL
Soda Ash 3.7 8 3 26.2 4.5 0.47 4,871 510 709-359
Transport Corp Of India

Road Transport 19.2 8 1 6.9 15.3 0.48 4,858 625 859-527
PDS
Trading 3.8 8 2 9.0 16.1 0.20 4,434 341 408-280
Usha Martin
Steel Wires 5.2 8 1 9.0 12.5 0.56 4,222 139 165-81
NIIT
Software 13.1 8 3 8.9 20.0 0.27 4,121 308 659-271
Greenpanel Industries
Wood 11.7 9 0 10.8 13.9 0.11 4,047 330 626-329
West Coast Paper Mills

Paper 4.0 9 1 25.6 6.0 0.54 3,614 544 664-217
Sarda Energy & Minerals

Finished Steel 3.6 9 0 26.1 4.9 0.11 3,568 1,014 1360-700
Tinplate Company Of India

Stainless Steel 5.0 9 2 13.2 12.9 0.32 3,356 321 443-258
Maithan Alloys
Ferro Alloys 8.5 8 3 65.2 3.2 0.09 2,811 968 1596-777
Surya Roshni
Steel Tubes & Pipes 4.8 8 1 10.7 12.4 0.49 2,633 483 673-324
Globus Spirits
Liquors 5.9 9 2 8.4 18.0 0.27 2,491 865 1760-722
Steel Strips Wheels

Auto Ancillaries 3.1 9 0 11.8 12.7 0.46 2,460 157 190-135
Pricol
Fiem Industries
Auto Ancillaries 6.6 8 3 8.1 18.9 0.80 2,366 1,802 2087-807
Panama Petrochem
Lubricants & Grease 5.6 8 0 14.6 9.2 0.26 2,231 369 425-214
Sharda Motor Industries

Gokaldas Exports
Readymade Garments 5.7 8 3 10.7 12.4 0.35 2,184 361 520-271

STOCK
SCREEN

Gufic Biosciences
Drugs & Pharma 8.3 9 2 5.3 25.9 0.58 2,137 220 290-192
LG Balakrishnan & Bros

Thirumalai Chemicals
Organic Chemicals 4.5 8 0 22.9 7.9 0.44 2,068 202 319-187
Sandur Manganese
Minerals 4.0 9 1 39.7 5.1 0.08 2,039 755 1703-655
J Kumar Infraprojects
Construction 4.9 9 1 22.4 7.7 0.38 2,011 266 352-152
Cosmo First
Packaging & Containers 3.3 9 2 23.2 5.2 0.14 1,995 730 1428-658
Vadilal Industries
Dairy products 6.0 8 1 7.3 20.3 0.44 1,926 2,680 2859-824
Vishnu Chemicals
Inorganic Chem. 3.9 9 1 9.0 15.0 0.23 1,842 1,541 2170-785
Aditya Vision
Retailing 7.7 8 0 5.1 30.8 0.37 1,770 1,472 1845-599
Andhra Paper
Paper 3.9 8 1 27.1 5.8 0.17 1,688 424 510-205
Lumax Auto Technologies

Data as of December 21, 2022. This is not the full list. For the full list, visit https://bit.ly/3FKPkiJ
2L`[LYTZ
<UP]LYZLJVTWHUPLZ! Should have traded on all the days for the last enterprise value. Enterprise value is the market cap added to total debt
two quarters and should have a market capitalisation of more than and less cash and equivalents.
`500 crore, the lower cut-off for small-cap stocks as per the Value (S[THUA:JVYL! Developed by Edward Altman of New York University,
Research criteria. the Z-Score predicts a company’s financial distress or the possibility of its
4JHW! Stands for market capitalisation. Obtained by multiplying the going bankrupt within two years. A Z-Score of more than three is desirable.
stock price and the number of shares. Shows a company’s market value. 7PV[YVZRP -:JVYL! Developed by Joseph Piotroski, the F-Score high-
^LLR OPNOSV^! The highest and the lowest levels of the stock lights financial performance as compared to that in the previous year. It
price in the last one year. thus points out the current outperformer in terms of profitability and
7YPJL[VLHYUPUNZ7,! The price-to-earnings ratio is simply the ratio of financial improvement. An F-Score of seven or above is good.
the price of a stock to its earnings per share. It shows in multiples how 4VKPMPLK *:JVYL! Tells the probability of financial manipulations. To
much investors are willing to pay for the earnings. The thumb rule of develop it, we have modified James Montier’s C-Score. A C-Score of less
valuing a stock is that a high-growth stock will have a high P/E ratio, while than four is desirable.
a value stock will have a relatively lower P/E ratio. :[VJR:[`SL! Indicates the style of the stock. It Growth Value
7YPJLLHYUPUNZ[VNYV^[O7,.! This ratio demonstrates how high a is derived from a combination of the stock’s Large
price we are paying for the growth that we are purchasing. It is the ratio valuation – growth or value – and its market
of price to earnings to the EPS growth of the stock. In all our analyses, Mid
capitalisation – large, mid and small. For exam-
we have taken five-year historic EPS growth. ple, on the right, we have shown the stock style Small
,HYUPUNZ `PLSK! Earnings before interest and taxes (EBIT) divided by of a large-cap growth stock.

STOCK
SCREEN
Want more? Here you go

Other screens available on the Value Research website, along with their
themes and some of their stocks
([[YHJ[P]LIS\L 1. Aarti Industries 6. Emami

JOPWZ 2. Coforge 7. KPR Mill
3. Coromandel International
Gives you large caps with strong fundamentals 4. Deepak Nitrite
and solid growth that are trading at a 5. Divi’s Laboratories
reasonable valuation
https://bit.ly/3hNDzA7
+PZJV\U[[VIVVR 1. Elpro International 6. Nava

]HS\L 2. Shree Global Tradefin 7. Allied Digital Services
3. Jindal Poly Films 8. SAIL
Presents companies that are available at less 4. Nahar Spinning Mills 9. GAIL
than their net worth 5. HEG 10. Rain Industries
https://bit.ly/3PNSWVH
9LHZVUHIS`WYPJLK 1. Agarwal Industrial Corporation 6. Binny

NYV^[OZ[VJRZ 2. Andhra Paper 7. Coal India
3. Aurionpro Solutions 8. DCW
Combines growth and value investing and 4. Automotive Stampings 9. Exide Industries
spills out companies with high earnings growth 5. BF Utilities 10. GOCL Corporation
trading at a cheap valuation
https://bit.ly/3PT2fE0
/PNOKP]PKLUK`PLSK 1. Hinduja Global Solutions 6. Visaka Industries

Z[VJRZ 2. REC 7. Tamilnadu Petroproducts
3. Power Finance Corporation 8. Cosmo First
A screen for those looking for a steady stream 4. IRFC 9. Manali Petrochemicals
of dividends 5. MOIL 10. Sutlej Textiles and Industries
https://bit.ly/3WTOVSb
:THSSJHWNYV^[O 1. Gujarat Themis Biosyn 6. Lux Industries

JVTWHUPLZ 2. Tips Industries 7. Balaji Amines
3. Dolat Algotech 8. Hindware Home Innovation
Wades through the small-cap maze and gives 4. Kama Holdings 9. Carysil
out fundamentally strong small caps that are
5. Rajratan Global Wires 10. Mastek
available at a reasonable valuation
https://bit.ly/3BTN4og
For all the screens and to customise them as

per your requirements, visit
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WORDS
WORTH NOW BEST QUOTES OF 2022
India deserves to be called a bright spot

on this otherwise dark horizon because it
has been a fast-growing economy.
Kristalina Georgieva MD, IMF,
The Economic Times, October 14, 2022
Arjuna was aiming
at the eye of the
I’m proud of the fact that I
avoided it [cryptocurrency]. We must turn revolving fish during
the Swayamwar
It’s like some venereal disease.
I just regard it as beneath India into a in Mahabharata;
surely he would
contempt. Some people think
it’s modernity, and they developed have examined
welcome a currency that’s
so useful in extortions and country in the surroundings.
No one can match
kidnappings [and] tax evasion.
Charlie Munger Vice Chairman,
the next 25 Arjuna, but our
target has been to
Berkshire Hathaway, economictimes.
indiatimes.com, February 17, 2022 years. It’s a big keep Arjuna’s eye
resolution, and on inflation.
we should work
Shaktikanta Das
RBI Governor, cnbctv18.com,
November 2, 2022
towards it with
all our might. The three largest
economies, the US,
Narendra Modi China, and the Euro
Prime Minister, in his Independence Day
area will continue to
speech, Financial Express,
August 16, 2022
stall. Overall, this year’s
shocks will re-open
I won’t see this as the economic wounds that
rupee sliding butut as the were only partially
dollar strengthening.
ening. It is healed post-pandemic.
a matter of fact that the In short, the worst is yet
to come and, for many
rupee has withstood
stood the people, 2023 will feel
rise of the dollar.
ar. But it like a recession.
has performed better than Pierre-Olivier Gourinchas
many other emerging
erging Director of Research, IMF,
BusinessLine, October 12, 2022
market currencies.
ies.
Nirmala Sitharaman Finance
nce Minister,
economictimes.indiatimes.com,
com,
October 17, 2022

SPOT OPPORTUNITIES
IN EMERGING MARKETS
Templeton India Equity Income Fund is an
open-ended equity scheme predominantly
investing in dividend yielding stocks. The fund
invests in Indian and overseas companies that
have the potential to provide growth through
capital appreciation as well as regular income
through dividends.
Call your Mutual Fund Distributor or visit

www.franklintempletonindia.com
PRODUCT LABEL
Alternative to: Suitable for: This fund is suitable for investors who
are seeking*:
• Long term capital appreciation
• A fund that focuses on Indian and
emerging market stocks - a value fund
Investments in Retirement Long Term Education taking into account dividend yield of stocks
Dividend Corpus Wealth Corpus
Paying Creation
Companies advisers if in doubt about whether the Riskometer is as on November 30, 2022
product is suitable for them.


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Editor: Dhirendra Kumar.

4 Wealth Insight January 2023

 MARKET MOVES  PASSIVELY YOURS

The $300 billion

January 2023 Wealth Insight 5

Subscription copy of [vkpabby121@gmail.com]. Redistribution prohibited.

Mea culpa investing

January 2023 Wealth Insight 7

The prolific contributor

8 Wealth Insight January 2023

Ruins of a war also caused the rupee to

The gloom in the tech sector

Key government policies in 2022

10 Wealth Insight January 2023

January 2023 Wealth Insight 11

FALL IN THE PRICE OF FTT, THE

CURRENCY EXCHANGE WHICH 50000

APPLIED FOR BANKRUPTCY 0

The Musk–Twitter 0UMSH[PVU!*VUZ\TLY7YPJL0UKL_

This year, we lost a few visionary 75

12 Wealth Insight January 2023

An Investor Education and Awareness Initiative of Bank of India Mutual Fund

Large caps 12M returns (%)

201.3 11.5 10,339

142.0# 120.4 669

134.8 370.9 1,006

132.1 62.8 1,501

101.7 1.0* 9,748

101.0 14.7 5,866

84.3 770.7 485

81.0 0.9* 5,999

42.8 0.7* 2,064

42.1 328.9 886

14 Wealth Insight January 2023

Mid caps Price to earnings Net profit (` crore)

208.9 20.7 757

171.6 2.0* 1,251

139.6 2.2* 1,130

118.5 8.9 1,175

98.7 10.8 1,227

38.0 2.4 4,502

-52.2 63.3 852

January 2023 Wealth Insight 15

Small caps 12M returns (%)

1,695.2 130.5 21.8

827.7 27.7 44.3

641.4 56.5 39.2

639.0 64.2 18.2

375.4 27.9 31.1

359.3 51.5 29.7

331.5 501.4 2.3

313.6 4.3* 2.7

16 Wealth Insight January 2023

4.1 25,128 3.4 26,116

18 Wealth Insight January 2023

/LHS[OJHYL 0UMYH 313

MARKET MOVES PASSIVELY YOURS

7,YHUNLHUKTLKPHU96, competence plays a big role. Munger says: