Hello, over the last few weeks, we are seeing increasing policy developments which augurs well for long term investors. We have covered those along with some curated reads. Happy reading!
1. Market snapshot – Telecom rallies on AGR relief
The week that was: Telecom was the key gainer last week with ~6%, in the light of policy developments around moratorium of AGR dues. IT, Industrials and Power & Utilities were the other gainers with 1.7%, 1.6% and 1.4% gains respectively.
Last 6 months: Top performing sectors for the last 6 months are Power Utilities, Commodities/ Materials and IT with 36.1%, 35.6% and 32.1% returns respectively.
Large caps have gained 7.7% last month compared to 4.4%/4.5% for small and midcaps.
2. Policy making – Action packed week
This was an action packed week from policy perspective with several key policy measures being announced:
- Relief for the telecom sector including a 4-year moratorium on dues payment, change in AGR definition, and 100% FDI amongst others
- PLI scheme was approved for the auto (only for EV and hydrogen fuel vehicles) and drone sector.
- Cabinet approved the set-up of a Bad Bank with c. INR 310 BN earmarked as a sovereign guarantee. Here is a good read by Neelkanth Mishra to better understand the context of Bad banks.
- GST Council meeting concluded with decisions to leave petroleum products outside the purview of GST for now. Importantly, they set-up two Groups of Ministers for examining rate rationalization and correcting the inverted duty structure – an impediment for Indian export growth.
3. Management Matters!
Author: Yashika Narang
Zee Entertainment shares soar nearly 40% as top investors seek CEO’s removal from board. Legendary investor Philip Fisher quoted:
“Profitability of a company depends 90% on the management, 9% on the industry and 1% on the company”.
While investing, financial-valuation metrics and share prices should be looked for but it is crucial to understand what actually drives this- “Mindset of management” which can make or break the company.
We have some interesting examples where a change in management’s focus has led to the transformation of the business.
- ICICI Bank Ltd: Sanjay Bakshi took over in 2018 replacing Chanda Kochar and he focused on improving the company’s culture, cleaning up the bad loans, focusing on operating profits and digital transformation.
- Garware Technical Fibres: Vayu Garware was appointed as Chairman in 2011 and since then the company’s focus has been on shifting from commodity-type products to value-added products (contributing +70% of total sales now) and this has led the company’s margins and ROIC to increase significantly.
There are many examples like United spirits (acquired by Diageo), Tata group (when Chandrashekhar ex- TCS CEO became chairman of Tata Group) and Vinati Organics (Vinati turned the operations that were incurring losses into profitable ones) where growth trigger was not majorly any industry tailwind but the “Make it happen- mindset of people running the business”.
4. Visual weekly – Some interesting charts
4.1 Largest midcap Capex announcements in the last 3-6 months
In Midcaps, incremental Capex announcements majorly from companies engaged in the Cement industry (Grasim Industries, Orient cement & Ramco cement), Automotives (MG Motor, TVS Motors), Textiles (Welspun India, Century Textiles) and Specialty chemicals (Deepak Nitrite & Aarti Drugs).
4.2 The post-Covid world – Sector wise analysis on cash flow components
While the chart is self-explanatory, what clearly stands out for me is that Large Banks are major beneficiaries with stronger Balance Sheet and we might see some consolidation in this space.
4.3 TCS has the highest ROIC in the IT peer set
5. Good reads of the week
- Avoiding the monkey trap
Ferg has explained by using a wonderful analogy that how investors get greedy in a bull market even after having an idea that valuations at that particular point might not be supporting the actual fundamentals but still as they see the prices rising, they try to seek more returns.
As we can see in Newton’s story, it is important to not sell your winners too soon at the same time it is important to leave the party when you see madness before the music stops and we suffer due to our self-made monkey trap.
- Gas stations make most money from utility stores and not gas.
An insightful read on understanding the value chain
6. Founder Series #1 – Understand Tracxn and the unicorn rush!
This week we started a new podcast called “Founder Series” and our guests for 1st episode are Neha Singh & Abhishek Goyal: Founders of Tracxn, and they discussed a wide range of topics including Tracxn’s journey, the future of the Private market investing, the evolution of the Indian startup ecosystem, Indian IPOs, and much more.
You can watch our podcast here or listen here.
7. Tweets of the week
Thought will share some good threads I came across:
- How to double your Gmail productivity
- Gurwinder on another 40 more concepts you should know.
- How to get rich by Naval – an illustrated thread
That’s all for this week. If you enjoyed reading this weekly, please share with your friends 🙂 Happy weekend!