Taking Stock Of Our Recommendations

The auspicious festival of lights, prosperity and opulence is just around the corner. However, judging from the way the equity markets have been volatile in the recent past, it seems that the investors’ fraternity has become cautious about the markets despite the forthcoming festive mood. This is evident from the kind of returns the equity markets have generated since the previous Diwali. The combination of factors like BJP coming to power with clear majority, consistent FII inflow and positive cues from the global markets seems to be vanishing from the market and we are at the same juncture as we were a year ago, atleast in terms of equity indices. Diwali, being a fresh start to another year has, is a reason to measure our performance for the stocks which we have recommended over the past 12 months.

At the time of making recommendations in this issue, a few weeks back the leading indices were soaring and everyone on the street was harbouring an optimistic view about the markets. A lot changed in the preceding week. Owing to some global factors, the benchmark indices witnessed some decline after touching a new all-time high level in the first week of September. If we take a look at the movement of the indices and the reaction of the market participants in the preceding week, it seems that in just a few days of profit booking (or we can say consolidation) there seemed to be a lot of cautiousness coming to the fore.

However, amid this cautiousness, the broader market indices like mid-cap and small-cap indices witnessed a strong up-move, outperforming the benchmark indices. Rather, the scenario was such that the mid-cap and small-cap indices constantly provided positive returns over the past one week when the Sensex and Nifty witnessed a southward movement. Investors are now finding themselves in a very confusing situation as the leading benchmark indices are very range-bound and the mid-cap and small-cap space does not provide any comfort.

Hence, the dilemma here is that the large-cap space is already full and retail investors are skeptical about mid-cap and small-cap stocks. An important question that every retail investor now faces is: Is this the right time to enter the equity market or will they once again get stuck after entering at higher levels? Is there still some steam left? And naturally an extension to the questions would be which stocks to invest at this level?

We at Dalal Street Investment Journal have always understood the requirements of investors and in the past have guided them though such confusing times. To address the same situation at that time also we had recommended a portfolio of seven stocks to our readers. After almost a year, the recommended stocks as a portfolio have yielded extraordinary returns of almost 30 per cent against the Sensex which gave marginal negative returns of 1.11 per cent during the same period.
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Vol. 29 Issue 24, Cover Story – ‘Acche Din’ for Auto Industry

At the time of this cover story, the picture in the rear view mirror might not have been all that pleasant for the automobile industry in India. The windshield, nonetheless, was showing that the industry was gearing up for brighter days ahead after a lacklustre performance in the last couple of years. Although the total domestic sales of automobiles had increased by a mere 3 per cent on a yearly basis in 2014, the overall growth figure masked the disappointing sales recorded underneath by the various segments.

However, the fortune of the automotive industry is closely tied with economic activity and is reflected in the performance of the economy and industry. The automotive industry had seen a strong annual growth of 21.3 per cent over the period of 2012 when the economy grew at an average rate of 8 per cent. Nonetheless, in the next two years the GDP growth rate fell below 5 per cent and growth slumped to an average 3 per cent. The BSE Auto index, tracking the share performance of major automotive companies, saw 2 per cent drop in its value for the year ending March 2014.

However, the good news was that the economy seemed to be turning a corner now and growing at 5.7 per cent for the first quarter of 2015, the highest in the previous nine quarters. The ‘acche din’ for the economy seem to be coming and so what does this hold for the automotive industry and their stocks? Automobiles, the early cycle outperformer, have already run ahead of their financial performance. Is this a euphoria created by the overall better sentiment in the economy or something is materially changing on the surface? Our story tried to find out what was happening on the ground and suggest the right pockets of investments.

Though the economy and in turn the automotive industry has failed to show good resilience over the last one year since our coverage, the BSE Sensitive index is down by 3.43 per cent and the BSE Auto index is down by 1.99 per cent during the period. But we, at Dalal Street Investment Journal, always handpick strong fundamental investment avenues for our readers, which shows that the portfolio of three automotive-recommended stocks outperformed the barometer and gave 15.73 per cent returns during the same period.
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Vol. 30 Issue 1, Cover Story – PSB Pendulum Ready to Swing

The Indian banking sector presents a perfect dichotomy of performance between two sets of banks i.e. the public sector banks (PSBs) and their private counterparts. Despite largely operating in the same economic environment, we have been witnessing a strong contrast in the performance of these two sets of banks. There is no better way to gauge this contrast other than the analysis of stock price movement of these banking stocks. Since the start of 2011 till last year, returns provided by the Bank Nifty, consisting of five public sector banks with total weightage of around 20 per cent and seven private sector banks, has yielded return of 56.96 per cent. Comparatively, the CNX PSU Bank index consisting of 12 major public sector banks remained flat with return of a mere 1.4 per cent in the same period.

The stock prices that largely track the financial performance for these banks have remained weak in the last few years. The net profit on an aggregate basis for 26 PSBs, including associates of SBI, has declined by 6 per cent annually for the three years ending FY11. What is worth noting is that 21 out of 26 banks have seen their profits declining or their profits have de-grown between FY11-14 with two banks going into loss for FY14 after posting profit in FY11.

Regardless of this scenario however, the tide seems to be turning around now if the stock prices are any indication to go by. Since the start of October 2014, the CNX PSU Bank index is up by almost 23 per cent compared to 18 per cent returns provided by the Bank Nifty till December 2015. In our story we tried to analyse the factors that had changed in the last few months which led to an exciting outperformance and how these would impact the banks in time to come. 

However, the expected outperformance by PSU banks was not seen; rather the private banking stocks too showed subdued performance over rising NPAs and limited credit growth. Despite the start of a big interest rate cut cycle by the RBI, the PSU banks did not show a good performance. But we recommended three PSU bank stocks’ portfolio which showed marginal outperformance with negative 22.98 per cent against negative 24.09 per cent return by the benchmark index CNX PSU Bank. 
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Vol. 30 Issue 2, Cover Story – Where to Invest in 2015?

In 2014, there were early signs of a multi-year Bull Run when the country’s voters gave their first decisive mandate in the general elections of 2014. This change in mandate after 30 years was cheered with more than 30 per cent returns. In fact, the year started with a whole lot of expectations from the general elections that were held in May. The anti-incumbency mood across India, the muted growth phase over the last couple of years, and the corruption cases and scams finally pushed the voters to open the doors for the BJP.

This was quite a change from the previous year when the markets were struggling to move upwards due to disappointing macroeconomic data while inflation remained consistently high. At that time the rupee was depreciating rapidly against the dollar, the current account deficit was soaring, and the fiscal deficit was also alarmingly high. Policy paralysis was taking its toll on growth parameters and no wonder even the financial performance of India Inc. was not that great due to higher interest cost and the volatile rupee impacting the bottomline.

In 2014, the FIIs poured in more than USD 17 billion in Indian equities which took the indices to a completely new orbit. Small wonder then that with such kind of returns investors had enough reasons to be cheerful last Diwali as well. Despite such a considerable run-up, we found some good fundamental stocks for our readers to build a portfolio in 2015. The portfolio is currently giving 27.81 per cent handsome returns against the negative 2.19 per cent returns by the Sensex till date. 
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At the time of this story, the equity market in the past one year had yielded tremendous returns to investors and it now seems that all the low hanging fruits had already been picked. As such, investors were in search of new themes and avenues to grow their investments. Corporate actions remain one of the most sought after indication by the investor fraternity to gauge the future performance of the shares. Many empirical studies suggest that the markets react positively to most of the corporate action news.

In fact there are many other ways in which shareholders are rewarded by the companies. Some of the prominent corporate actions include dividends (regular and special), rights issue, bonus issue, stock split, and capital appreciation. Of these, dividends and rights issue have a direct bearing on an investor’s cash flows; while there is a cash inflow in the former case there is cash outflow in the latter. Though bonus issue and stock splits are non-cash events, in general the capital appreciation seen in these stocks in the near to short term is better than the market. However, on the flip side, in certain cases the return has been in the negative territory due to some adverse events pertaining to the respective companies or the sectors in which they operate.

Out of the 10 stocks predicted by Dalal Street Investment journal, two companies had given a bonus issue to their investors. Va Tech Wabag and Bharat Electronics gave bonus issue of 1:1 and 2:1 to shareholders. Adjusting these bonus issue, the combined average return of these 10 stocks are 3 per cent against the Sensex return of 2.47 per cent since our recommendation.
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Vol. 30 Issue 9, Cover Story – Auto Ancillary: Gearing Up for the Big Race

The Indian equity market has been firing on all cylinders for more than one and a half years now. From the lows of August 2013, the bellwether indices have moved up by around 60 per cent till now i.e. March 30, 2015. Nonetheless, there were a few sectors whose share price performance in the same period dwarfed the huge performance of the frontline indices. The automotive ancillary sector was one such that was running at full throttle and had provided phenomenal returns in the above mentioned period.

For example, the shares of Bharat Forge, Motherson Sumi Systems, JBM Automotive and Mahindra CIE Automotive moved up by a massive 524 per cent, 247 per cent, 1,506 per cent and 240 per cent respectively. Such a huge performance in such a short span of time casts a doubt about the future returns from these scrips. Despite such huge historical returns, we at Dalal Street Investment Journal dared to list down good automotive ancillaries’ stock for our readers. However, the Amtek Auto fiasco and the Volkswagen emission scandal have recently spread bearish sentiments across the automotive ancillary industry. Despite of bears, our recommendation survived to outperform the benchmark index. Our recommendations gave negative 5.68 per cent return against negative 8.08 per cent return of BSE Auto index. 
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Vol. 30 Issue 10, Cover Story – Turnaround Candidates

The Indian equity market has been witnessing a continuous uptrend since one and a half years now. Every month frontline and broader market indices are touching new highs, barring for a few months in between. As the rising tide lifts all boats, the rising market has helped lift many stocks to their 52-week high or even lifetime high. This is despite the fact that nothing may have changed materially on the ground level with regard to the fundamentals of the companies. Although the formation of the new government at the centre had ushered in high hopes that the economy will turn the corner sooner rather than later and corporates will follow suit, nothing substantial has changed and recovery still looks a few quarters away.

The December quarter financial results of India Inc. would bear testimony to this. According to CRISIL, India Inc.’s revenue growth was expected to slip to a seven-quarter low of 2.5 per cent on a year-on-year (YoY) basis in the March 2015 quarter. In the preceding quarter as well, revenue growth was a tepid 5.4 per cent. On the profitability front though, they foresee a marginal uptick in EBITDA margins.

Nonetheless, we at DSIJ believe that there are themes and companies that would definitely yield good returns to investors from here on. One of such themes is turnaround companies. The transition of companies from loss-making to profit-making makes them an ideal investment opportunity and gives better return to their investors. Going beyond financials and including the track record of the management and the strategies adopted to help turn the fortunes of the companiesled us to four companies viz. Asahi India Glass, Kokuyo Camlin, Panasonic Appliances and Dhanlakshmi Bank to be able to present a diversified portfolio to our readers.

Though the recommendation time horizon was one year, we are reviewing our recommendations and suggesting holding all the recommended stocks as we expect the desired price movement and improved financial performance in days to come. 
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Vol. 30 Issue 11, Cover Story – Best Dividend Paying Stocks

The rally in the equity market in the last one and half years has led many investors to believe that return from investment in equities comes from price appreciation or an increase in share prices. And that the dividend earned on investment on these equities plays a second fiddle role to price appreciation, and therefore usually gets ignored. The assumption might be true to some extent, particularly in the shorter period and that too during a Bull Run. However, in the longer run, dividend plays an equally important role in terms of the potential return you get from investment in equities.

We tried to study the impact of dividends and their re-investments with other stocks, especially those that have a consistent dividend paying policy, and the result was not very different. For example, if you would have invested Rs 2,625 in the shares of Balmer Lawrie & Co. at the start of FY02, you would have got Rs 18,750 from dividends and would have recovered your cost of investment in the first seven years only through dividends.

Furthermore, a commitment to dividend also indicates a strong business and management priority on returning cash to shareholders. This also prevents the management from unnecessary diversification or aggressive acquisition and keeps them focused on the core business. Our recommended dividend yield stocks are doing well with average returns of negative 2.16 per cent against the Sensex return of negative 2.13 per cent. Hence we are still bullish on the stocks recommended which were already giving a good dividend yield.

Vol. 30 Issue 16, Cover Story – Smart Cities......Smart Opportunities

At last another dream project of Prime Minister Narendra Modi has seen the light of the day. In a bid to transform the face of India’s urban infrastructure and make it more resident-friendly, PM Modi had announced the ‘Smart City Mission’ along with the ‘Atal Mission for Rejuvenation and Urban Transformation (AMRUT) named after former prime minister Atal Bihari Vajpayee. Alongside, an ambitious project to provide housing for all has also been launched to provide around 2 crore houses till 2022. While these announcements had been made in July 2014, they have now finally taken off the ground after proper planning and deliberations with all the concerned stakeholders.

The Smart City Mission and AMRUT will call upon the government to pump in around Rs 1 lakh crore, out of which Rs 50,000 crore would go into developing 100 smart cities across the country while the budget for AMRUT would be around Rs 48,000 crore in a bid to improve the urban infrastructure of 500 cities. The huge investment would definitely give a boost to companies which support the Smart Cities’ amenities, infrastructure or services. We at Dalal Street Investment Journal handpicked some of the good stocks to take advantage of this dream mission.

The stocks were doing pretty well as far as their stock price performance is concerned despite the fact that actual work is yet to be started for Smart Cities in reality. Hence, we are still of the opinion that one should hold these stocks for a longer time horizon to gain handsomely. So far the recommended stocks are giving average 17.25 per cent return against the Sensex returns of negative 3.78 per cent since our recommendation.
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Vol. 30 Issue 17, Cover Story – Eight Stocks, A Holistic View

The confluence of global events in the last couple of months has increased volatility in the equity market globally and the Indian market has not remained immune to that. The Greece crisis, Chinese stock meltdown, the expectations of US Fed rate hike happening in September and the Iran deal has dominated every business channel and newspaper. These global events along with domestic triggers such as ongoing results’ season, progress of monsoon, RBI’s bi-monthly monetary meeting in August and start of the monsoon session of parliament were to shape the direction of the equity market in the short term.

Year till date (July 17, 2015), the frontline equity indices in India moved up by 3.5 per cent; however, it masked the volatility in between. After touching an all time high of 29,681 on a closing basis on January 29 and 30,024 on an intraday basis on March 4, the Sensex corrected by little more than 11 per cent in the next couple of months as the Greece drama plot thickened and early signs of a crack in the Chinese stock market were clearly visible. In this story, we tried to understand how these events would play out in the coming months; what would be their impact on the Indian equity market returns; and how should you build up your portfolio.

Though the reviewing of these stocks will be premature as the recommendations are for a longer term horizon, however, considering the recent market correction, the recommended stocks are still giving positive returns of 0.39 per cent against negative 2.38 per cent returns by the Sensex.