Diwali Dhamaka 2016

Here’s wishing everyone a great Diwali and a prosperous new year ahead. As with last year, the market has kept up its volatility with new highs as well as precipitous falls at various times in the year, and not every time for sensible reasons. It thus continues to be a stock pickers market. 

After the initial hiccups, and to some extent the belying of lofty, if unrealistic, expectations, Modi sarkar seems to be settling down with a few accomplishments on the national as well as the economic front. While the surgical strikes against Pakistan will come in handy for the govt. to show that it means serious business with notorious neighbors and won’t take things lying down as was done by oast govts., the passing of GST Bill (the Const. Amendment, not the actual one which will come up in the winter session shortly) will no doubt boost its morale as well as that of the industry no end.

As I have been mentioning over the last 2 Diwali blogs, it never pays to get carried away in the stock market, in either direction, especially in India. So any serious dip in quality stocks with proven managements should be considered as an opportunity to buy into those shares at lower prices, thus increasing the chances of reaping better gains, than would otherwise have been obtained. The recent Tata saga, which is still unraveling, is a classic case in point. Though spat between the top management is always a serious issue, if it doesn’t directly impact the businesses of the companies themselves, then it should be allowed to play its course without worrying too much about the company’s performance.  Tata Motors will not sell any less or more JLRs purely because either Cyrus Mistry or Ratan Tata is at the helm of the holding company. It would have been a different matter if either of them were directly heading the company.

In the last 1 year, the mid and small caps have outperformed the large caps by a wide margin. This has led to the situation where quite a few of these stocks are running far ahead of their fundamentals at elevated levels. This however should not be taken as a sweeping statement. There are pockets in midcaps which are still quoting at reasonable, even if high, valuations primarily because of their growth prospects going ahead. And these companies are likely to give rich dividends in the years to come if one has the patience to hold on to them for a few years through thick and thin. Some of the NBFCs like Manappuram Finance (which has tripled in the last 1 year) and SKS Micro are cases in point.

So given that this is a buyer’s market now, where should u place your bets? The focus this year has been on Consumption theme as well as the economy. Needless to say, management quality, business domain and growth prospects should always be primary factors while deciding on buying any stock. Some of these stocks have been beaten down due to a bad quarter here and there, but their pedigree remains unquestionable. 

Jain Irrigation Systems DVR (JIS)

Jain Irrigation Systems (JIS) is currently the world’s second largest and India’s largest micro irrigation company. Another little known feature is that JISL is the largest global player in mango processing. The stock was once the favourite of cognoscenti investors owing to its dominance in the Micro Irrigation systems (MIS) and soared to an all-time high of Rs. 265 in August 2010. However since then, it has been a downhill journey due to some ill-times moves by the company.

The reason the Company fell out of favour was because it changed its business model. It earlier used to sell irrigation equipment to farmers on credit which created severe stress on the working capital. To resolve the working capital problem, the Company demanded upfront payment from the farmers. However, the impoverished farmers had no money to pay for the equipment with the result that sales slumped and profitability went for a toss. To compound the problems, the Company availed of massive loans of up to Rs. 4,200 crore to enter into unrelated diversification. The huge interest burden itself crippled the Company.

However, that is now all set to be history. Over the last year, the Company has taken a series of strategic decisions which are designed to move it out of the unrelated businesses and reduce debt. The market has lost sight of these developments and has not given the Company any credit for its efforts.

Govt’s  ‘Pradhan Mantri Krishi Sinchai Yojana’ under which nearly Rs. 50,000 crore is be spent over the next five years on irrigation and allied farming related matters, will catapult Jain Irrigation back to the growth path. The fall in oil prices as well as polymers will also improve the margins for JIS.

The govt. has vowed to complete 99 major and medium irrigation projects by 2019 and bring 7.6 million hectares of land under irrigation in some of the most drought-prone regions of India. A long-term irrigation fund of Rs. 20,000 crore under the National Bank for Agriculture and Rural Development (Nabard) will also be created to fund irrigation projects.

All the above, with the addition of a good monsoon this time round, augur well for JIS, having a monopoly in drip irrigation.

The other 2 businesses of JIS – Piping products and Food processing are also high-growth areas due to govt’s initiatives in agriculture and food processing industries.

All the segments JIS is in are thus high-growth areas and have the potential to reap rich returns over the next few years.  Also, JAF Products Pvt Ltd (the promoter group company) infused capital worth Rs 112 crore in the form of equity (at a premium of Rs 78 per share on the face value of Rs 2) in FY16. It has already risen by 38% over that price and if things go as projected above, powered by its growth businesses, it could well be a multi-bagger in the years to come.

For retail investors, I would always go for the DVR which though trades at a discount to the parent, gives a better dividend and would always rise in the same proportion, thus making it cost-neutral and a better option.

L& T Finance Holdings (LTFH)

With a pedigree such as the one it has, this has only flattered to deceive so far. Since its issue @52 in July ‘11, it languished below this price for quite a few years immediately following the issue. However, the last couple of years, it has managed to break its shackles and has given great returns to investors who entered it post the IPO at a lower price. It is only now that the original IPO investors have some reason to smile.

However things are changing for the better at a fast pace as LTFH has embarked on a restructuring drive over the past year or so, with advice from McKinsey. It has been looking to prune several of its unprofitable units, including the asset management and alternate investment business, to concentrate on its hardcore infrastructure, rural, and wholesale financing as the company aims to improve the RoE to 18-20 per cent by 2020. 

On valuations LTFH is trading at P/B of 2.65, cheaper than its peers such as Cholamandalam Finance (5) and  Shriram City  Union Finance (3.55). And the restructuring has started to yield results. Company has improved its asset quality with GNPA coming down to 4.58% in Q1FY17 from 5.45% in the same period last year. Net NPA also improved to 3.13% from 4.43% in the same period. As the company has started focusing more on retail financing and low yielding assets, the asset quality stands improved.

The NBFC sector has had a massive run in the last 2-3 years or so, with some such as Manappuram Finance (up 3 times in the last year alone) & Cholamandalam  (up 5 times in the last 3 years) running up massively and therefore have relatively less steam left, due to expensive valuations. With the economy on the verge of a turnaround in the next year or so, LTFH, with a renewed focus on its core areas should yield good returns.

Kokuyo Camlin (KC)

This is an MNC stock and has been lying low in the current bull market. And the surprise is that it is not even dependent on the economy per se. The kids will go to school no matter what the interest rates are and will need most, if not all, of the things which KC makes. Agreed that it has had a dismal quarter recently, but there are a lot of triggers for KC to give rich returns

• The company has set up an integrated, state-of-the-art manufacturing facility at Patalganga, spread over 56,600 sq.mts. (14 acres) of land and, supposed to be “the largest stationery plant in the Kokuyo Group”. This is likely to benefit KC as economies of size, scale and scope unlock immense new potential in procurement, logistics, production and delivery. This may well be the inflection point the company was looking for.
• Promoters (Japanese MNC Kokuyo S&T Ltd.) hold 75% of the stake and some astute HNIs , among them Ramesh Damani (one of the most astute investors on Dalal Street) and Anand Rathi hold about 8% in KC leaving only about 17% of floating stock.  The thus stock has low liquidity which can work out to the advantage of investors owing to “supply scarcity” and “mis-pricing” of the stock.
• With 75% stake, there is always the possibility of delisting at some point in time. Ricoh India, also a subsidiary of a Japanese behemoth, has already unsuccessfully attempted delisting on two occasions. If this materialises, KC will shoot thru the roof as has happened in other cases unfailingly.

 A good company in a bad time is always a catch. And such opportunities should be grabbed with both hands.

Aksh Optifibre

Aksh is a company whose time has finally come.  I had written about Sterlite Technologies earlier and at that time as well I had mentioned that optical fibre business is likely to see good times ahead. Other than Aksh, the other 3 players in this area are Sterlite (which is the leader), Vindhya Telelinks and Birla Ericsson.

In India from 2000 onwards there was a boom in cell phone/telecom and internet usage but sadly the required optical fibre demand did not materialize in that period.. But instead of foraying into real estate / infra the promoters of Aksh kept improving the company by expanding capacity, doing backward integration and focussing on various facets of the same business - more particularly becoming leaders in production of FRP rods and also FTTH (Fibre to the home). Another foray in a field similar to FTTH was the e kiosk business in Rajasthan.

Another noteworthy aspect of Aksh has been that capacity expansion has been undertaken in a slow and steady manner without adding much of debt...therefore, now that optical fibre cable demand has finally come to India due to Digital India, Smart cities, 4G, FTTH and e- governance. Aksh has some unique features which will serve as at least a temporary moat (for 5-7 years).

•  It is fully integrated Optical fibre cable manufacturer focussing solely on this business and having developed considerable expertise and reputation and supplying quality goods to a host of big guys.
• It has very less debt and that combined with backward integration makes it a low cost producer of Optical fibres
• Its capacity expansion is perfectly time and will enable the company to grow rapidly, while there is no significant capacity addition by other two players Vindhya and Birla Ericcson.

Currently trading at 23, this has the potential to be a multi-bagger going by the prospects ahead.

Aditya Birla Fashion & Retail (ABFR)

This is a play on the brands in the premium apparel segment. Arvind has already multiplied manifold in the last 2 years and so has Raymond. This will be a beneficiary of the re-rating of brands the way it happened with Arvind and Raymond. Post its split with AB Nuvo, this hasn't really established its own identity. This is one stock in the Textile segment which is waiting to be discovered.

This company emerged from Madura Garments which was already known for its premium/upmarket brands such as Louise Phillipe, Van Heusen and the slightly lower Peter England. These brands have now come under ABFR fold. After firmly establishing themselves in the shirts and trousers category, these brands have now also expanded into other related segments of men's dressing such as belts, handkerchiefs and shoes, thus providing a complete wardrobe for a man. And now the logical expansion currently being targeted is women. Van Heusen already has a women's range and is probably only one of the few brands in the women's wear category which is generally catered to either by proprietary brands launched by the retail store chains such as Shoppers Stop or the unorganized sector. So there is ample scope for establishing themselves into this segment. And these brands have already learnt the ropes of marketing premium brands to the white-collar population.

The other major advantage that ABFR has is the recent merger of Pantaloons with itself. Now Pantaloon caters to the unbranded mid-market/economy segment which again is a big market. Here the competition is from local/regional brands such as Cambridge in Mumbai. Given the reach Pantaloons has, due to its long presence in this segment, expanding its share in this market also shouldn't pose major problems.

All in all, here is a company which straddles the entire segment from mid-market to premium in men's as well as women's wear waiting to catch market's eye. And the good part is that this segment is a high-margin business which augurs well for this company.

Though the fundamentals are not anything great to write about currently (it is making losses but these have reduced sequentially), this should be accumulated now as well as on occasional dips for great returns as market re-rates this stock..

Before concluding, let’s quickly look at the performance of last year’s recommendations:

Stock	Last Diwali	Current	Difference	%
Federal Bank	53.70	81.95	28.25	52.61
Motherson Sumi Systems	265.65	331.10	65.45	24.64
L&T	1347.45	1477.90	130.45	9.68
ICICI Bank	262.40	276.85	14.45	5.51
Ashok Leyland	89.50	90.25	0.75	0.84
Eros International	256.15	194.95	-61.20	-23.89
Overall	2274.85	2453.00	178.15	7.83

All prices in Rs.

So since last Diwali, this portfolio has given a return of 7.83% slightly less than 8% which is what Sensex returned. Over the same period Nifty gave 10% and mid-caps a whopping 22%. Given the circumstances, it is at best an average return, and could certainly have been better. While Federal Bank and Motherson Sumi delivered on expected lines, couple of stocks like ICICI Bank and Ashok Leyland didn’t perform as well as expected giving muted returns and in the process bringing down the overall portfolio returns. However, I believe that this set of stocks, except for Eros International which has not yet set its house in order and governance issues still haven’t been settled, certainly has the potential to perform well going forward and should certainly be retained and even averaged by adding more at the current levels as their growth prospects remain strong.

The current set of mid-cap stocks will hopefully return a far better figure next year.

HAPPY MUHURAT TRADING

Exit on BREXIT ! Rather the other way round....

Another event, another knee jerk reaction.

Indian markets’ penchant for knee jerk reactions to sensational events, local or global, are well known and don’t need more discussion here. There have been umpteen cases where stocks have fallen more than 20% even, only to bounce back handsomely and reward investors who did not get swayed by such fickle events.

Friday only proved what I was saying above. BREXIT has finally happened. So what? The way it has been portrayed in the media would lead you to believe that it is the end of the world (it may be the beginning of the end of Euro zone as we know it today, but that is another discussion)!

Take the case of Tata Motors. It tanked 15% initially and ended up around 8% lower than its previous close. And for what? Are Brits or Europeans going to stop buying JLR cars because Britain is not part of the EU? Hardly likely. Agreed that JLR derives 24% of its volumes and sources 35-40% of its components from Europe. And post Brexit, import tariffs may make JLR’s vehicles more expensive than German luxury cars in Europe. JLR’s costs would also go up if it has to pay import duties on components sourced from the EU and adversely impact JLR volumes as well as margins. But seriously, do u really think the people who buy JLR card or for that matter German luxury cars would care for a few thousand pounds more for a car if they really wanted it? And that I think is the basic fallacy in this argument. And negotiations regarding trade between Britain and EU are yet to start and may only fructify 2 years down the line. By which time, I am sure the Tatas would surely have a back-up plan in place. So why worry about something which is only likely to happen 2 years down the line, today? Remember what happened to Hero Moto when it broke from its long standing partner Honda. It was as if the whole world has closed on Hero while what happened subsequently was exactly the opposite. And I won’t be surprised by a similar thing happening in TaMo. Ideally retail investors should go for the DVRs as they not only provide a higher dividend than the parent, but also the differential between the 2 is quite wide currently and will likely come down over the years.

Now look at the bright side of things, The CV market in India is looking up and TaMo is the leader here. Once the monsoon passes as expected, the rural economy will get a boost and that’s where TaMo’s strengths lie.

A similar case is being played out at Motherson Sumi. A while back, they were hammered due to the VW issue and for no fault of theirs, since they were in no way involved in any of the parts which were apparently falsified. And make no mistake about this. They haven’t gotten to the position they are in now by just doing what everybody else was. Instead of doing different things, they chose to do things differently. Apart from the VW group, they do have other global clients whom they can serve in addition to VW, unless VW itself closes down, which is unlikely. And recently they announced the merger of their profitable subsidiaries with themselves. The company will emerge stronger and will be able to pare a lot of its high cost debt, become much more efficient, and remove a lot of the duplication that exists in some of the subsidiary companies.

So, I think it is an opportunity for long-term investors to get in, but lower price levels make you feel more comfortable from a risk reward ratio.

Same argument holds good for the other 2 stocks which bore the impact of BREXIT yesterday - Vedanta and Tata Steel. It is public news that Tata Steel is getting out of its UK operations and it is only a matter of time when they will formally announce a deal in this regard. So how does it matter if Britain is a part of EU or not?

A couple of years down the line, people who have bought these quality stocks and retained them in their portfolio are the ones likely to be laughing their way to the bank than the ones who sold these today citing volatility. As for Vedanta, it is only a matter of time when the commodity cycle turns and this producer which mines all sorts of metals and minerals will be one of the biggest, if not the biggest, beneficiary.

A couple of years down the line, people who have bought these quality stocks and retained them in their portfolio are the ones likely to be laughing their way to the bank than the ones who sold these today citing volatility. 

Opportunities in the current crisis - 2

On Jan. 22, when the market was halfway thru its current meltdown, I had mentioned that there are opportunities which need to be capitalized on, and which would provide rewarding in the long run. Among the stocks I had picked then were Infosys, SKS Micro, Sintex, and DHFL, among many more, and these have become even cheaper today than they were 3 weeks back. And this margin is not small either with the exception of Infy which has fallen by only about 5% while SKS Micro has actually gained about 3% since Jan. 22. Sintex has fallen by 13% while DHFL has been hammered by about 18% since then. If these scrips were attractive then, then doesn’t it follow that they are even more attractive now after the recent fall? And when the recovery happens, u can bet that these scrips will recover way more than the fall that they have gone thru now. It is just that there is a fear psychosis in the market currently when people just don’t want to see their money go down further from what they already have lost, and which is not insignificant either. And it all comes down to your holding power and risk appetite. As I have repeatedly said earlier, equity is a long term game and 10 years is the average time someone should remain invested in a stock to really reap the rewards. And if u do hold a stock for 10 years or more, even if it is average, I can say with confidence that barring crooked or dishonest promoters, it would give u returns which would be way above any other investment would give u.

 As they say history repeats itself, and I believe in this adage from personal experience,  and in the last 15 years, this has happened twice already, and I am sure the ground is well set for a third time in a few months time. The first time was in 2001 when people had assumed that the markets will close down any moment and then again in 2008 when nobody wanted to touch equities with a barge pole, only to regret a few years later when these very same stocks bounced back with a vengeance, more than wiping out the earlier bitter experience. And the stage is set now for an encore.

Since the last time I had written, as explained above, market has further gone down in the last 3 weeks, and more stocks are joining the potential multi-bagger list. And even if they do not turn out to be multi-baggers, they would surely make u smile all the way to the bank.

So let’s look at some of the stocks, which I personally believe would bounce back with a vengeance, once dust settles on this gloom and doom environment.

ICICI Bank

One of my Diwali picks, this has been hammered out of shape by a whopping 27% in just 3 months since then. Though there have been concerns about the asset quality for this bank, I have full confidence in the management to turn it around in the coming months to more than regain the lost ground. As I had said, the recovery would be far in excess of the current fall.

The main reasons for the hammering that ICICI Bank has been experiencing over the last few months, has been due to it reporting highest NPAs in past five years (jumped 33% q/q, 62% y/y), three-fold spike in provisioning and tepid profitability. And the ride may not be smooth immediately either especially in the light of the new RBI directive and the bank’s meaningful exposure to the leveraged corporate and troubled sectors of the economy.

The other factor, as I see it, which ICICI Bank has going for it is its multiple businesses which are as yet its majority owned subsidiaries - MF, Insurance arms, Broking, Home Finance etc. which will unlock tremendous value when the time comes. On a SOTP (Sum Of The Parts) basis, I believe ICICI Bank is valued at more than at least 50% from current levels and will start reflecting over the coming years, if not months. And it is again a scrip which is not likely to be impacted by global developments, be it China or oil, other than a pessimistic view by FII who hold a major hunk of it.

Axis Bank

This bank, one of New Year picks, is also following the same script as ICICI Bank. This is another one which has been hammered due to concerns over its asset quality. This is primarily because nobody expected a bank like Axis to go the way it has. And market doesn’t take kindly to unexpected/unpleasant surprises as has been seen numerous times, past and present. However, what Axis has going for it is its strong retail franchisee and healthy operating metrics. So once the economy is back on track, this again should go by at least 50% in the next couple of years if not earlier. In the last month alone, since the beginning of the year, it has fallen about 9% and gives a very good opportunity to buy for rewarding returns.

Wockhardt

The only way to describe the downward spiral in this pharma major’s price is that it has cracked down the middle. Impossible as it may sound, it is down by 50% since the beginning of the year. Volatility has been a major feature of this stock over the last few years, and it has made a lot of investors laugh as well as cry in this period. So it has become more of a trading stock rather than an investment grade one, much as I would like to consider it as otherwise. This is not a reflection on the promoters by any standard, but the reality is that it has happened. This has gone up and down by anywhere between 25-50% over the last few years which can’t be a feature of an investment grade stock.

And I think currently it is at a juncture where money can surely be made if u can wait for a few months. This is not to say that it won’t go down again in the current market mayhem, but that will only be another opportunity to accumulate. And in a few moths time I won’t be surprised to see this quoting at levels of 1200 or more, as it has done several times in the past. That in itself is 50% gain from the current level, and this is a conservative estimate. Chances of going even higher are much more, at which point money should be taken off the table.

Zicom

Another niche company which has been cracked similar to Wockhardt by close to 50% is Zicom. Again this is another company which is totally unrelated to china, oil etc., the very factors causing the current market upheavals. But the one thing which this company and some others like it would surely benefit from is the govt’s actual move on the Smart cities. I expect Zicom to have a large role to play here along with the likes of Schneider which are specialists in this area. So very good levels to enter Zicom and average out the earlier buys, if done, to reap net benefits, when the turnaround happens.

Profitable smoke

This development is not new and first occurred in Sept. ’15.  It has only in recent weeks started making the rounds again indicating that the end game is near.

The beleaguered Lalit Modi, hounded by ED for alleged financial irregularities, is looking to sell his family’s (K. K. Modi group) 47% stake in the cigarette major Godfrey Phillips. Philip Morris Global Brands (PMGB), a subsidiary of global cigarettes major Philip Morris International (PMI), holds 25% stake in the company and may be open to the idea of buying out Modi family and taking a controlling stake in GP. Since Sept. last year, when this first got out, the stock of GP has more than doubled in the last few months from 557 to the current more than 1200.

Though ITC dominates the cigarettes market with an 80% market share, with brands like Wills Classic and Gold Flake, GP is a distant second with reasonably well known brands like Four Square, Red & White and Cavanders. Additionally, GP also manufactures and distributes Marlboro brand of cigarettes under licence from PMI. The company has also forayed into the pan masala segment under the Pan Vilas brand.

Lalit Modi has been out of the country for 5 years because of the alleged financial irregularities in IPL and ED has been investigating the matter for quite some time now. And because of his continued absence from GP board meetings, he had to lose his board seat as well.

However, this deal may not simply sail thru. This is because govt. has been discouraging FDI in this sector for quite some time now. FDI in cigarette manufacturing is no longer allowed; moreover, activity relating to these products, including wholesale cash and carry and retail trading, are governed by restrictions laid down in the FDI policy. Smoking has been under the govt’s scanner for a while nnnow, so much so that there have been some far reaching measures such as ban on smoking in public places and sale of loose cigarettes, not to mention this being a favourite sector for the govt. to raise taxes annually. This has also led to the cigarette companies losing significant ground in the markets in the past few years, with the exception of ITC which, though earning a major part of its revenue from cigarettes, has other diversified interest as well which have served as a good hedge for it not to fall as much as its sectoral peers. So there may be a provision for special permissions to be taken by foreign companies if they do want to invest in manufacturing cigarettes here, and this condition may come under to PMGB’s rescue if the deal does go thru.

So in the current market turmoil, it may be a good idea to start accumulating this stock steadily. Once the news of Modi family’s interest in selling stake gets out, there may be other suitors also who may line up for the substantial stake, leading to a bidding war (remember Mangalore Chemicals and Fertilizers?). Already, the name of Japan Tobacco (JT), the world`s third-largest listed tobacco company and maker of popular brands like Camel and Winston, is doing the rounds, as a probable suitor for the stake on offer. JT surrendered its manufacturing licence and left India in 2011 after revised FDI regulations halted further foreign investments in the tobacco manufacturing sector, but has now been scouting for a re-entry into India. And even if there are no other suitors, the Lalit Modi family, by virtue of their controlling stake, would certainly expect a hefty premium over the market price. Also, since the stake on offer is more than 25%, it would inevitably invite an open offer from the acquirer. As has been seen earlier in numerous cases, the ultimate beneficiary would be the investor who latches on to it at a very early stage and enjoys the heady ride.

The caveat here is that the stock has more than doubled in the last few months since the news of stake sale has started circulating and a regular accumulation rather than a lump sum investment would be the way to go in such circumstances to minimize the risk, by averaging the net price of the total holding.

This is a tactical opportunity and should be viewed as such. Long term investment in a sector such as cigarettes is certainly not a winning proposition.

Opportunities in the current crisis

The current market meltdown has created a golden opportunity for investors (not traders). Quite a few of the blue-chip stocks, though they may not look blue now, are trading at their yearly lows, for no apparent reason. For e.g. it beats me as to how oil prices or for that matter Yuan devaluation will impact the business or profitability of a Sun TV or for that matter NBFC like SKS Micro or Manappuram Finance. It must be remembered that these are purely India-focussed companies and are not impacted by any of the 2 major issues facing the global markets currently – oil prices and Chinese economy and currency. It is only the traders who punt daily who are bearing the brunt of this fall.

If anything, India is heading into a period of lower interest rates and that will add heft to economic growth and corporate earnings. Most of the current turmoil in the Indian markets can be attributed to FII selling. These are the guys who are most impacted by the global issues and hence are pulling out their money from Emerging Markets, irrespective of their fundamentals, and moving to safer havens, or sitting on cash. What is surprising is that the DII haven’t really counterbalanced them by aggressive buying, in spite of attractive valuations.

So here are my picks from the beaten down stocks (except Infosys):

Infosys – Though IT industry has been facing a tough time in recent years, Infy has got its mojo back with Vishal Sikka at the helm. This man has really done wonders for the floundering firm. At this juncture, Infy is any time a better bet than TCS and should do well going ahead mainly for 2 reasons:

·    Rupee depreciation – this should certainly help it in rupee terms cushioning the fall in revenues due to reduction in IT spends by clients. And I don’t think rupee is done yet. Levels of 70 seem likely in the next few months.

·    Focus on niche and futuristic technologies – By his own admission, Sikka has clearly said that new technologies like machine learning analytics and automation are gaining traction. This is a good sign as it will reduce dependence of the revenues on human resources billability. Also, visa issues and costs will also get reined in, if less manpower is required to do the same things now.

SKS Micro – This is another one which has got absolutely nothing to do with China or the world economy at large. But in the current turmoil, this also has got hit, down about 20% from its yearly high, for no apparent reason other than market sentiment.

Sintex Industries – Another victim of market sentiment. Again, same logic as SKS Micro applies. No obvious reason to go down 25% from 100 levels to 75 now. Sintex’s business model is strongly connected with macro-outlook and boost in government spending. The company will be a major beneficiary from government’s strong focus on wide range of infrastructure and social improvement plans viz. education, healthcare, sanitation, housing etc.

Dewan Housing Finance (DFHL) – Another victim of market sentiment. Again, same logic as SKS Micro applies. It continues to perform well on growth and asset quality front and this parameter is under the microscope of the market and everybody else. Look at Axis and ICICI Bank, yesterday’s bluechips and today’s pariahs, solely because of this factor. The stock is trading at a steep discount compared to other HFCs (all trading above 2.4x P/B). Also, it is into Tier 2 and 3 cities where the ticket sizes are small but the reach is wide. All conducive factors for growth. It has come down by about 15% from Diwali i.e. in about 2 months for no apparent reason.