Where to Invest in 2018

With the Indian economy on the growth path in line with the global economy, investors can look forward to positive returns in 2018, albeit amid heightened volatility. Yogesh Supekar and Nikita Singh find out how stocks have performed in 2017 and share their market outlook for 2018.

The global economy has been in an excellent growth trajectory in 2017 and indeed has been one of the key reasons behind the stupendous rally in global equity markets. The year 2017 will be remembered as one of the few years where both the developed economies and developing countries both expanded, thus leading to higher profits for corporates. Barring Venezuela, most of the major economies managed to deliver growth, and in the coming year 2018, the growth momentum in the world economy is expected to pick up. The world economy is forecasted to grow at 3.4 per cent in 2018, compared to its growth of 3.2 in 2017. 

The US economy is in good shape and is expected to further improve its strength in the coming year. The full employment level and price stability are expected to support US growth. Barring Venezuela, almost all of the nations are expected to grow in 2018. The crude oil prices may inch up, thus affecting the growth negatively in oil importing nations such as India. 

INDIAN ECONOMY 

The year 2017 was undoubtedly one of the most happening and vibrant year since 1990, when the Indian economy opened up for foreign investors. The demonetisation happened in November 2016 and its effects were felt till the beginning of the second half of CY2017. The growth rate slowed down for the Indian economy in 2017, but the economy is now on the growth trajectory once again. 

With the effects of GST and demonetisation already behind us, the coming year augurs well for the Indian economy. The latest UN report suggests that the Indian economy will grow at 7.2 per cent in the coming year and that will again be a world-beating GDP growth rate. Even though there is enhanced confidence in the Indian economy amongst the global investors, the report suggests there is a risk of sudden capital withdrawal by foreign investors as the developed countries are expected to normalise their monetary policies soon. 

GLOBAL MARKETS IN 2017 

The global markets rallied in 2017 owing to the liquidity flux aided by healthy economic environment. In USD terms, emerging markets proved to be the best performing asset class yet again in 2017 (as on December 18, 2017). 

The MSCI Emerging Markets index was up by 29.7 per cent on a YTD basis , followed by EMU (European Economic & Monetary Union) which was up by 23.9 per cent on a YTD basis. Japanese market impressed with its 20.2 per cent gain, while the UK markets managed to stay in the green by 12.6 per cent, notwithstanding the Brexit issue, which threatens the economic stability of the country. The US markets gained 19.6 per cent on a YTD basis.

Within the emerging market space, the Emerging Markets Asia index was most impressive with its performance, clocking gains of 36.3 per cent on a YTD basis. The Emerging Markets Latin America index gained nearly 16 per cent on a YTD basis. 

The year 2017 started with reflation trading in the US markets, which helped the developed markets to rally. The highlight of the whole year 2017 was the lack of volatility in the equity markets. The calmness in the equity markets was so vocal that traders and investors would associate such calmness as a sign of imminent correction in the markets, only to be proven wrong as the markets kept on making record highs. 

The excellent performance of technology stocks was one of the highlights of 2017 as is reflected in superlative performance of Nasdaq which gained more than 25 per cent on a YTD basis.

DSIJ Portfolio Performance 

In the past four years, our portfolio has consistently outperformed the Indian benchmark index S&P BSE Sensex. The DSIJ portfolio has generated an average return of 36.34 per cent, as compared to the average return of 13.61 per cent generated by the S&P BSE Sensex. In 2014, the DSIJ portfolio boasted of an extraordinary return of 76 per cent, as against 31 per cent return generated by the Sensex. The year witnessed Gruh Finance and Eicher Motors, comprising the DSIJ portfolio, surging by 106 per cent and 197 per cent, respectively. In the year 2015, while the beaten down Sensex recorded a 9 per cent decline, DSIJ overwhelmingly outperformed the Sensex with over 29 per cent gains with stocks such as Garware-Wall Ropes rising by over 80 per cent. The year 2016, which was largely tormented by demonetisation, DSIJ portfolio recorded returns of 12.64 per cent, as against the Sensex returns of 5.42 per cent. The portfolio comprised of 7 stocks, out of which only one recorded decline in 2016. 

In the year 2017 till date, DSIJ portfolio has recorded gains of 27 per cent, which is in accord with the gains recorded by S&P BSE Sensex. In 2017, while the portfolio saw some unexpected stocks plummeting, with Advanced Enzyme Technologies going down by 36.27 per cent and MT Educare declining by 33.69 per cent, strong performances of APL Apollo Tubes, heavyweight HDFC Bank, and Navin Fluorine International cushioned the decline in the portfolio returns. Navin Flourine International recorded a return of 37 per cent during 2017, whereas APL Apollo Tubes and HDFC Bank posted 31.51 per cent and 30.36 per cent returns, respectively. 

Amar Ambani 
Partner and Head of Research 
IIFL Wealth Management 

Which sectors you think will do well in 2018?
In the times to come, we can expect dramatic improvement in regional air, road and rail connectivity. Metals is another space likely to fare better incrementally in the wake of several positives. A few cycle-impacted stocks should also do well in line with the gradual capex recovery. 

What are the key risks for markets to watch out for in 2018? 
I foresee no major risk emanating in the domestic economy, certainly none that would be strong enough to derail this rally. If there is any threat, it could potentially emerge on the global front, maybe in the form of a geopolitical event, or a tech bubble in the US equities, or from the policy normalisation spree by central banks worldwide. 

Do you see steady liquidity flow into markets in 2018 as well? Will FIIs continue to invest in India in 2018? 
If a risk on rally does hit global shores, FPI money is bound to flow into a buoyant growth market like India. Yes, FIIs have indeed been secondary market sellers in the recent past, but it’s pertinent to note an almost offsetting effect that saw their money finding its way into the Indian primary market through IPO participation. Let’s not forget, they have been net buyers of Indian equities for the last three years. There’s no reason why they won’t remain buyers in 2018. 

Rajat Jain 
Chief Investment Officer
Principal PNB Asset Management Company

What is your view on the markets in 2018 and will small-caps outperform the major indices?
Global growth is expected to be strong in 2018. The Indian economy too is expected to witness better growth momentum as the challenges of GST and demonetisation seem to be receding and the consumption outlook remains positive. The best of the macros are behind us and there are challenges building up in terms of rising interest rates.

However, we expect earnings growth to pick up in the second half of FY18 and going into FY19 on the back of favourable base effect and improving demand conditions and that would be the key driver for the market. 

Valuations are slightly on the expensive side and that is what restricts the potential returns to modest double digits 

Where will the Sensex be by December 2018? 
We expect the market to continue to reward companies with good growth prospects and good visibility of growth. Mid and small-cap companies with good growth potential and good track record would thus outperform the major indices. 

We, however, expect the market to be much more choosy in rewarding those companies with a scalable and sustainable business model along with good growth prospects. 

INDIAN MARKETS IN 2017 

Indian markets have had a dream run in 2017 with a broad-based rally ensuring investors are richer this year when compared to previous year. 

The benchmark Sensex notched up an impressive gain of 25 per cent on a YTD basis. Hang Seng and Nasdaq are the only other major global indices that did better than India, managing to clock gains of 29.39 per cent and 25.99 per cent, respectively

The year gone by saw small-caps and mid-caps rule the markets, with these indices recording gains of 49.40 per cent and 40.50 per cent, respectively. The consumer durable index was the best performing index among the sectoral indices, as it gained more than 90 per cent on a YTD basis, followed by the realty index, which was up by 84 per cent. All of the sectoral indices closed in the green in 2017, reflecting the bullish undertone in the markets during the year. The IT index was the only index that did not manage to post a double digit return.

Out of the total 5,373 companies that are listed on the BSE, nearly 2,416 companies saw some trading activity. There were as many as 688 companies that delivered negative returns on a YTD basis (as on December 5) while the number of companies that delivered positive returns stood at 1,728. Out of the 1,728 companies that delivered positive returns on a YTD basis, there are at least 4 companies that delivered returns in

excess of 1000 per cent. These four companies that generated more than 1000 per cent returns are SORIL Holdings & Ventures Ltd., Indiabulls Ventures Ltd, California Software Company Ltd and HEG Ltd. The number of companies that delivered returns in excess of 500 per cent returns, but less than 1000 per cent, is 13.
The total number of companies that managed to deliver returns higher than 25 per cent is 1,232. In other words, there were as many as 1,232 companies that outperformed the Sensex in 2017 as of December 5, 2017. The number of companies that more than doubled in 2017 is 417. 

Sanjeev Zarbade
Vice-President-PCG Research
Kotak Securities
  
"T Going ahead, future direction of the market would be influenced by global monetary developments and fund flows from domestic and foreign investors. Central bank tightening and high oil prices would be the key risks.” 

 Ajay Bodke 
CEO & Chief Portfolio Manager, PMS 
Prabhudas Lilladher 

"The demonising of major structural reforms like the GST and demonetisation was squarely rejected by the electorate. This would reinforce government's resolve to roll-on reforms juggaurnaut benefiting the economy and the markets. This would lead to an acceleration in foreign and domestic direct and portfolio investments"

 

PENNY STOCKS' PERFORMANCE IN 2017 :- 

With almost 516 penny stocks trading on the bourses, the performance of penny stocks was not that remarkable as one would have expected. Out of these 516 penny stocks, nearly 214 stocks managed to generate positive returns, with almost 53 stocks managing to generate returns in excess of 100 per cent. 

IPOS IN 2017 

The year 2017 saw several quality companies hitting the markets for the first time and raising good amount of capital. We saw 35 companies raising Rs 73,857.11 crore from the markets and, on an average, delivering highly impressive listing gains of 20.31 per cent. Only in 2014 did we see better listing gains, but in 2014 we saw only five companies raising money from the primary markets. The BSE IPO index managed to deliver more than 40 per cent gains on a YTD basis, thus indicating that those investors who focused on IPOs for their investments managed to beat the major benchmark Sensex. 

The upcoming year is expected to be vibrant for the primary markets as the overall market condition is expected to be sound in 2018. Investors would be looking forward to the Reliance Jio IPO in 2018. 

MUTUAL FUNDS IN 2017 

One of the dominant participants in the Indian equity markets in 2017 were mutual funds in India. In fact, mutual funds and insurance companies, whom we together club as domestic institutional investors, continued their buying spree throughout the year. The consistency in MF buying into Indian equities nullified any negative impact on equity markets owing to FII selling in the Indian markets in 2017. The retail investors' confidence in the Indian equity markets led to mutual funds mopping up investments from the retail category in the form of SIPs (Systematic Investment Plans). The FIIs remained net sellers to the tune of Rs43,205.7 crore in Indian markets, while the DIIs were net buyers to the tune of Rs88,263.81 crore as on December 18, 2017.

Kaustubh Belapurkar
Director of Fund Research,
Morningstar India

How have mutual funds performed in 2017. Which category of MFs have managed to surprise on the positive side? 

Equity mutual funds have had a stellar year so far in 2017. Many small and mid-cap funds have delivered returns in excess of 35% so far in 2017. Large-cap funds and flexi-cap funds have also done rather well and on an average delivered returns in the range of 25-30%. Small and mid-cap funds have continued to surprise on the upside. Given that valuations were already looking expensive at the end of 2016, there was an expectation of tempering of returns this year. Instead, 2017 witnessed continuing interest in small and mid-cap counters and the stocks continued to rally, with many of them hitting all-time highs. 

How many MFs have managed to beat benchmark when it comes to equity category? 

Looking at YTD 2017 returns, the number of equity funds beating their benchmarks has been lower at an average of 55%. Small and mid-cap funds specifically had a hard time beating their benchmarks as small and mid-cap stocks witnessed a huge dispersion in returns. 

Over the medium to long term (5 years), funds have had a good run with more than 80% of the funds beating their respective benchmarks. It is important to articulate, though, that most funds are benchmarked against a “Price Return Index”, which does not account for dividends paid by the constituent stocks, which is typically in the range of 1.5-2% p.a. If compared against a “Total Returns Index” (TRI), over a 5-year period 65-70% of the funds would have beaten the TRI benchmark. This is still a fairly healthy number, which suggests there is still merit in active management in India. 

MARKET OUTLOOK – 2018 

Markets in 2018 are all set for another year of economic growth and prosperity across the globe, leading to continuity in positive momentum in equity prices. The synchronous growth in the developed world and the emerging markets will ensure that the equity markets remain in good shape. There is a consensus among global fund managers on the potential upside in the Asian equities and chances are that the Asian markets may outperform their global peers in 2018. India markets, with its economy projected to grow by more than 7 per cent, can be expected to attract foreign investments in 2018. 

The only risk that the broader emerging markets are likely to face is that if the developed world moves towards normalisation of their monetary policies in respective countries, there might be flight of capital outside the emerging markets and that might put pressure on the stock prices. What will determine the capital movement is how fast the interest rates in the developed world move up and by how much. With all indications that the US Federal Reserve will be increasing interest rates three times in 2018, global fund managers will be keenly watching its impact on the bond markets and money flows. As interest rates increase in the US and other developed economies even as the interest rates decrease in the emerging economies, there is little incentive for the global money to be parked in the emerging markets. 

In 2018, all eyes will be on the US Fed's decisions and on the next chairman of the apex bank and whether the new leadership will continue the policy tone set by Jannet Yallen, who is due to retire in February 2018. 

What happens in the US with the tax bill is something that will set the trend for the global markets in 2018. As of now, the US tax bill has been passed by both the House and the Senate and is with the lead negotiators who will finalise the details. There is a good chance that the bill will be passed into a law, and once that happens, the equity markets will react positively and the underlying bullish tone in the US markets will only gain further momentum.

With the passage of this law that will cut the taxes for the corporates in the US, it is expected that the earnings will grow by at least 13 to 15 per cent for S&P 500. With such earnings growth, the index will show similar kind of growth in one year. Without the tax cuts, the consensus earnings growth in the S&P index is nearly 7 per cent for 2018. 

The market sentiments will be driven by what happens in the US with reference to the tax bill and the interest rates, as the US tax cuts will translate into cash cows for Corporate America. 

With the positive outlook for global equity markets, Indian markets will stand to gain as we expect foreign investment inflows into India to strengthen in 2018. As the global economy aims higher growth in 2018, Indian exporters will find opportunities to flex their muscles. 

The budget in 2018 will be the biggest event and, in all likelihood, it will be an expansionary budget. An expansionary budget will cheer the markets and the stability of the current government will allow investors to remain confident on the prospects of the Indian markets. The BJP win in the recent election not only augurs well for the Indian markets, but also for the whole economy as the current government can now undertake necessary reforms to accelerate the economic growth of the country. 

India will, in all probability, be the fastest growing economy in the world and will continue to see good amount of domestic money coming into equities. 

If we look at the major indices such as Sensex and study the drawdowns it has experienced in the last 21-odd years, we find that the average drawdown for the Sensex has been about 15 per cent from the start of the year, while it has gained nearly 30 per centon an average from the beginning of the year in its history so far. If we exclude the exceptional years such as 1998 (impact of Asian financial crisis), 2000 &2001 (IT bubble meltdown), 2004 (political uncertainty) and 2008 (global financial market meltdown), the average drawdown that Sensex has seen in all these 21 years is nearly 10 per cent. What this goes to show is that from the current levels, if we go by the averages, Indian markets may see a drawdown between 10 to 15 per cent in the coming year, unless a contingent event, either global or local, pulls the market further down. 

In its history of 39 years, Sensex has delivered returns in excess of 20 per cent for 27 years, which is an impressive 69 per cent of the total life of the index. Only on 10 occasions the Sensex generated negative returns in its history so far. 

Given the comfortable liquidity condition we are in and the sound economic growth expected in the coming year, Indian equity markets may not find it difficult to deliver double digit returns in 2018. Higher double digit returns is possible under certain assumptions, such as better-thanexpected revival in earnings, FIIs' positive flows, interest rates remaining soft throughout the year, pick-up in private investments in India, better-thanexpected domestic flows into equities, expansionary fiscal budget, income tax reforms, etc. 

The infrastructure sector will be in focus along with the banking sector. The efforts taken in 2017 to tackle the NPA mess will show its positive impact in 2018, and thus the banking sector, especially the PSU banking sector, is expected to show some positive traction in 2018. There is no reason to suggest that the sectors that have done well in 2017, such as consumer durables and realty, will reverse their momentum in 2018. Overall, the secular bull trend may continue in the coming year even as the valuations remain above their historical averages. 

The current bull run is exhibiting a rational exuberance as there is growth in corporate earnings across the globe. The irrational exuberance will be seen when the P/E multiple expands next year from the current levels. All eyes will be on the earnings and the probability is very high that the earnings will improve in the coming quarters in CY2018. Markets, ultimately, are slaves of earnings. Globally, all corporates are expected to deliver higher earnings which will translate into higher stock prices. 

Markets in 2018 are all set to make new record highs as the bullish undertone for the markets remains intact. There is some private corporate capex growth seen in the last quarter of 2017. With private consumption at its best, signs of private investment picking up and export markets expected to do well in 2018, the market condition is ripe to deliver positive returns in 2018. 

One thing investors must do for the next year that is prepare themselves for slightly higher volatility as the year 2017 was sublimely steady and less volatile. Volatile 2018 may provide several entry set-ups for those with market insight. 

Overall, the market condition remains positive and investors can expect equity to outperform any other asset class in the coming year. The second half of 2018, however, will start factoring in the likely outcome of the 2019 general election and may show some added volatility

"Global EPS rose 16 per cent in 2017 and further expected to increase by 10 per cent in 2018 "

Ramnath Venkateswaran 

Fund Manager – Equity , 
LIC MF 

Where will the outperformance come from next year?

Resolution of the well-recognized NPL problem is likely to see concrete action next year. This will benefit banks with high NPLs and also companies in these sectors (metals, power, etc.) that can use this resolution process to buy good operating assets at a reasonable valuation. The companies in IT and pharma sectors are likely to see an improvement in their earnings profile at the margin, which can be a good trade given the valuations. 

How will the markets perform in 2018 and what would be your Sensex target for 2018? 

It is difficult to predict annual returns for equity markets. However, we remain confident that the equity markets are likely to deliver healthy post-tax returns over the next 3-5 years as the economic cycle is showing definite signs of cyclical improvement and the overall leverage in the system is within manageable levels. 

What are the expected positive triggers for the market in 2018?

Resolution of some of the big tickets stressed accounts and putting these assets to economic use will be a major trigger for the markets. 

Nilesh Shetty
Associate Fund Manager, Quantum AMC 

What are the key risks according to you for markets to watch out for in 2018? 

One is, of course, lack of earnings recovery, which was seen so far. Then, the other is state elections in Gujarat and the verdict is not as strong as earlier for the BJP, so I think there could be a reaction in the market. Third is, of course, globally inter-state conflicts arising, that is also applicable for India. Increase in crude oil prices is again a risk. 

What are the positive triggers you may be expecting for the markets in 2018? 

Crude prices will correct sharply from the current levels and if the political mandate is very very strong, there might be some positiveness. Otherwise, I don’t see any major positive trigger. If the earnings start recovering, we might see some positive traction and improvement in markets. 

Which sectors you think will do well in 2018? 

Technology and pharma sector are relatively attractive right now because valuations being comfortable there, these would do better. 

 

Which sectors you think will do well in 2018? 

We feel infrastructure aided by government spending has the potential to do well. There could be select opportunities in every sector and a bottom-up approach would help investors outperform in the coming year. 

what would be your Sensex target for 2018? 

We do not give a Sensex target. However, given that general elections are due in 2019, next year should witness a lot of economic activity, which should be good for the markets. 

What are the positives to look out for the markets in 2018? 

The earnings could start to look up in FY18 and the positive benefits of GST and implementation of a whole lot of measures announced by the government could help the economy get back on the growth track. 

Many of the initiatives like Smart Cities, Bharatmala, NamamiGange and large infrastructure projects along with Make in India and defence and railways' modernisation could start firing together as the current ruling party sets its eyes on the 2019 elections. Two good monsoons and a buoyant rural economy could help as well.

Rakesh Tarway 
Head Research, Reliance Securities: 

"Financial Chronicle" victory in a hard fought Gujarat election for incumbent government of 22 years will provide further impetus towards reform orientation of ruling party. This government has brought on the table reforms which are more than incremental in nature. Any further impetus on the same will prove to be a sentimental boost for equity markets. Having said that, equity markets are eventually slave of earnings and will track the same for future performance."

 

Avanti Feeds 
BSE CODE 512573
Face Value Rs2
CMP Rs2561
Market Cap F F (Cr.) 3,610.70

HERE IS WHY
Robust financial performance
Capacity expansion
Growing global demand

Avanti Feeds operates in the field of aquaculture industry and it is engaged in the manufacture of high quality feed for shrimps, operating Vannamei hatchery and processing and exporting of shrimps. 

The company’s growth rate has been exceptional over the last 4 to 5 years. Its revenue has grown at a CAGR of 47.3 per cent over FY13-17 and its PAT has grown at CAGR of 49.7 per cent over FY13-17. 

The company has a subsidiary named Avanti Frozen Foods. The company’s shrimp processing plant at Yerravaram in East Godavari district of Andhra Pradesh has capacity of 15,000 MTA. Further, the company is planning for expansion with capacity of 1,75,000 MTA of shrimp feed at Bandapuram, West Godavari district of Andhra Pradesh. This will take the total capacity of shrimp feed to 6,00,000 MTA. The plant is expected to get operational by the end of FY18. 

The company is also planning to set up 400 mn shrimp feed hatchery as part of its backward integration plan. The implementation of this plan would begin in FY18 and it would be implemented in two phases of 200 mn each.

Currently, the share of shrimp exports and shrimp feed in total revenue is 13 per cent and 87 per cent, respectively. The company is planning to change this ratio to 40:60. On the financial front, the net sales of the company increased 21.44 per cent to Rs854.02 crore in the second quarter of FY18, as against Rs703.23 crore in the same quarter of the previous year. 

The company’s PBT increased 218.96 per cent to Rs191.28 crore in the second quarter of FY18 on a yearly basis. The company’s net profit also increased 212.64 per cent to Rs125.68 crore in Q2 FY18, as compared to a net profit of Rs40.20 crore in the Q2 of the previous year. 

On an annual basis, the company’s net sales increased 35.42 per cent to Rs2701.98 crore in FY17 on a year-on-year basis. The company’s PBT increased 40.73 per cent to Rs335.18 crore in FY17, as against Rs238.18 crore in the previous fiscal.The net profit of the company increased 42.63 per cent to Rs226.75 crore in FY17, as compared with Rs158.98 crore in the previous fiscal. 

On the valuation front, the company maintained a PE ratio of 31.93x. The company’s return on equity (RoE) and return on capital employed (RoCE) stood at 41.88 per cent and 116.91 per cent, respectively. 

The company is virtually debt-free. The company has been maintaining a healthy dividend payout of 20.90 per cent.

 We recommend our reader-investors to BUY the stock. 

Bank of Baroda 

BSE CODE 532134
Face Value Rs2
CMP Rs167 Market Cap
F F (Cr.) 15,738.79

HERE IS WHY
Strong domestic presence
Improved Operating Performance
Diversified Credit Portfolio 

Bank of Baroda (BoB) is an Indian state-owned banking and financial services company headquartered at Vadodara in Gujarat. It is the second largest bank in India, next to State Bank of India. As of September 30, 2017, Bank of Baroda has 5451 branches across India and 107 branches overseas. 

The bank is engaged in providing various services, such as personal banking, corporate banking, international banking, small and medium enterprise (SME) banking, rural banking, non-resident Indian (NRI) services and treasury services. BOB Capital Markets and Bobcards Ltd are the bank’s subsidiaries. 

Ever since its re-branding in 2005, BoB has consistently promoted its major strengths, viz. large international presence, technological advancement and superior customer service. 

Bank of Baroda’s key revenue segments include interest and discount on advances and bills, which contributed 65.22 per cent to total revenue, income from investment which contributed 25.10 per cent to revenue and interest on balances with RBI and other inter-bank funds contributed 4.71 per cent of total revenue for the year ending March 31, 2017. Recently, the finance committee of the bank's board has approved the proposal to raise up to Rs 6000 crore through rights issue or private placement. 

BoB reported a 36 per cent YoY decline in net profit at Rs 355 crore during the second quarter of FY18. The NII for the quarter saw 8.6 per cent YoY increase to Rs 3,720 crore, as compared to Rs 3,426 crore in Q2FY17. This was largely due to 2.6 per cent YoY increase in interest income to Rs 10,753 crore. The asset quality for the quarter showed steady performance. The GNPAs for the quarter rose by 8 per cent YoY to Rs 46,306 crore. The GNPAs as percentage to total advances declined by 19 bps to 11.16 per cent as compared to 11.35 per cent in Q2FY17. The NNPAs also declined by 41 bps to 5.05 per cent, as against 5.46 per cent in previous year corresponding quarter. The provisions for the quarter continue to inch upwards for ageing stressed asset problem. 

The provisions for the quarter rose by 30 per cent YoY to Rs 2,329 crore, as against Rs 1,795 crore in Q2FY17. The resultant net profit for the quarter declined by 35.7 per cent YoY to Rs 355 crore in the corresponding quarter of the previous year. Further, advances and deposits grew by 9 per cent and 3 per cent YoY to Rs 3,87,301 crore and Rs 5,83,212 crore, respectively. 

On the valuation front, the bank maintained a PE ratio of 39.49x. The company’s return on equity (RoE) and return on capital employed (RoCE) stood at 3.24 per cent and 16.10 per cent, respectively. The stock is trading at 0.93 times its book value. We recommend our reader-investors to BUY the stock.

Caplin Point Laboratories 

BSE CODE 524742
Face Value Rs2
CMP Rs635
Market Cap F F (Cr.) 1,539.11

HERE IS WHY
Consistent profit growth
Robust Financial performance
Expansion in more profitable segments

Caplin Point Laboratories Limited, established in 1990, is a pharmaceutical company. The company was listed in 1994 following its IPO, which was oversubscribed 117 times, the proceeds of which were deployed in setting up a manufacturing facility at Puducherry. Thereafter, the company expanded its product range and increased its production capacity. The company's product segments include antibiotics, non-steroidal anti-inflammatory drugs (NSAIDS), ophthalmics, pain management and anti-ulcers. It also manufactures a range of ointments, creams, gels and lotions. 

The company focused on the emerging markets of Latin America, Caribbean, Francophone and southern Africa and is today one of the leading suppliers of pharmaceuticals in these regions, with over 2,000 product licences across the globe. The company's manufacturing facilities are located in Puducherry, Tamil Nadu, and Himachal Pradesh. 

The Company is entering into the regulated markets for injectables; its manufacturing plant is capable of handling liquid injectables in vials, ampoules, lyophilized vials and ophthalmic dosages. The company has branches and subsidiaries established in China and Hong Kong, and is in the process of establishing more subsidiaries in Colombia and other locations, as part of its expansion strategy. Over the last one year, the company has entered into more profitable segments like pharma over-the-counter (OTC), soft gel and wellness category. 

On the financial front, the net sales of the company increased 39.95 per cent to Rs 114.80 crore in the second quarter of FY18, as against Rs 82.62 crore in the same quarter previous year. The company’s PBDT increased 113.05 per cent to Rs 50.13 crore in the second quarter of FY18 on a yearly basis. The company’s net profit also increased 94.59 per cent to Rs 32.75 crore in Q2 FY18, as against a net profit of Rs 16.83 crore in the Q2 of the previous year. On an annual basis, the company’s net sales increased 50.34 per cent to Rs 347.72 crore in the financial year 2017 on a year-on-year basis. The company’s PBT increased 62.41 per cent to Rs 106.67 crore in FY17, as against Rs 65.68 crore in the previous fiscal. The net profit of the company increased 56.32 per cent to Rs. 70.86 crore in FY17, as against Rs 45.33 crore in the previous fiscal. 

On the valuation front, the company maintained a PE ratio of 49.65x. The company’s return on equity (RoE) and return on capital employed (RoCE) stood at 44.24 per cent and 56.68 per cent, respectively. It also has a good RoE track record, with a 3-year RoE of 46.02 per cent. The company has reduced debt and is virtually debt-free. The promoter's stake in the company has also increased. Caplin has a good consistent profit growth of 53.95 per cent over 5 years. The company has been also been maintaining a healthy dividend payout of 17.79 per cent. 

We recommend our reader-investors to BUY the stock. 

Fairchem speciality 

BSE CODE 530117
Face Value Rs10
CMP Rs493
Market Cap F F (Cr.) 701.51

HERE IS WHY
Strong Financial performance
Strong R&D capabilities
Expansion Plans 

Fairchem Speciality Limited operates as a specialty oleochemical manufacturing company in India and internationally. The company was formed with the merger of the businesses of Adi Finechem Ltd (manufacturer of oleo chemicals and nutraceuticals) and Privi Organics Ltd (manufacturer of aroma chemicals). It offers oleo products, such as dimer fatty acids; monomer fatty acids; linoleic fatty acids; distilled fatty acids for use in alkyd resins and textile auxiliaries; saturated fatty acids; glycerine for use in textile auxiliaries and paints and oil for industrial purposes. 

The company also provides intermediate nutraceutical and health products, such as natural concentrated tocopherols for the natural vitamin E/food, feed, and cosmetic industries; and natural concentrated sterols for the natural sterol, food, and pharmaceutical industries. 

Priv Organics has been in the process of expanding manufacturing capacities of its existing products as well as creating capacities for newer and exclusive aroma chemicals. Further, Privi has been conducting applied research which has been successful so far in converting some of the byproducts formed during manufacturing into high value and specialised products. 

It has a manufacturing unit in Sanand, Ahmedabad, which has one of the largest processing capacities for natural soft oil-based fatty acids in India. The company’s aroma chemicals manufacturing facility comprises three manufacturing plants (Unit-I, II & III) that are located in the MIDC area of Mahad, Raigad district in Maharashtra and one manufacturing plant at Jhagadia, near Ankleshwar, Gujarat. These units together have a total production capacity of 28,000 TPA, which is the highest among any aroma chemical producer in India. 

On the financial front, the net sales of the company increased 35.70 per cent to Rs. 57.4 crore in the second quarter of FY18, as against Rs. 42.3 crore in the same quarter previous year. The company’s PBDT also increased 212.28 per cent to Rs. 8.9 crore in the second quarter of FY18 on a yearly basis. The company’s net profit rose exponentially by 547.83 per cent to Rs. 5.96 crore in Q2 FY18 as compared to a net profit of Rs. 0.92 crore in the second quarter of the previous year. 

On an annual basis, the company’s net sales increased 22.31 per cent to Rs. 185.57 crore in the financial year 2017 on a year-onyear basis. The company’s PBDT decreased 6.65 per cent to Rs. 18.25 crore in FY17, as against Rs. 19.55 crore in the previous fiscal. The company reported a net profit of Rs. 8.46 crore in FY17, as compared with a profit of Rs. 10.6 crore in the previous fiscal. 

The company has a PE ratio of 60.49x and a debt-to-equity ratio of 0.67x. The price-to-book value of the company stands at 3.59x. We recommend our reader-investors to BUY the stock. 

Force Motors

BSE CODE 500033
Face Value Rs10
CMP Rs3468
Market Cap F F (Cr.) 1,807.79

HERE IS WHY
Consistent profit growth
Diversifying into non-auto segment
Sole supplier of powertrain components
for Mercedes and BMW 

Force Motors Limited is a part of the Firodia group of companies, one of India’s industrial houses focusing exclusively in the automotive domain. Incorporated in the year 1958, the company focuses on design, development and manufacture of a range of automotive components, aggregates and vehicles. 

The company's product portfolio includes five products namely, tractors, three-wheelers, light commercial vehicles, multi-utility vehicles and heavy commercial vehicles. The company has manufacturing facilities at Akurdi and Chakan (Maharashtra), Pithampur (Madhya Pradesh) and Chennai (Tamil Nadu) and employs over 8,500 people.

Recently, the company entered into a non-binding joint venture agreement with Rolls-Royce Power Systems AG to produce engines for power generation and rail application and complete power generation systems, including spare parts, for Indian and global markets. This is the company’s first step towards diversifying into the non-auto segment.

The company is the sole supplier of powertrain components for Mercedes and BMW, thus reaping direct benefits from the growing (and relatively underpenetrated) luxury car market in India. 

The speed of change with regard to electro-mobility and the developing resistance to diesel fuel are twin technical challenges which threaten to bring about far-reaching changes in the automobile industry. The company with its strong R&D team and investment in facilities and projects, is well-placed to gain from the opportunity. 

On the financial front, the net sales of the company decreased 7.51 per cent to Rs. 892.99 crore in the second quarter of FY18, as against Rs. 965.54 crore in the same quarter previous year. The company’s PBDT also decreased 6.42 per cent to Rs. 88.2 crore in the second quarter of FY18 on a yearly basis. The company’s net profit slumped 17 per cent to Rs 41.74 crore in Q2 FY18, as against a net profit of Rs. 50.28 crore in the second quarter of the previous year. On an annual basis, the company’s net sales increased 14.21 per cent to Rs. 3,494.57 crore in the financial year 2017 on a year-on-year basis. The company’s PBDT increased 2.01 per cent to Rs. 348.08 crore in FY17, as against Rs. 341.22 crore in the previous fiscal. The company reported a net profit of Rs. 179.92 crore in FY17, as compared to a profit of Rs. 179.42 crore in the previous fiscal. 

On the valuation front, the company maintained a PE ratio of 26.34x. The company’s return on equity (RoE) and return on capital employed (RoCE) stood at 11.36 per cent and 10.94 per cent, respectively. The company is virtually debt-free. The company has good consistent profit growth of 33.98 per cent over the last five years. We recommend our reader-investors to BUY the stock. 

GAIL
BSE Code: 532155
FV: Rs.10 CMP: Rs.500
Market CapF F (Cr.):38,050.52 

HERE IS WHY
Expansion Plans
Dominant Market share
Robust Financials

GAIL (India) Limited, formerly known as Gas Authority of India Limited, is an integrated energy company in the hydrocarbon sector engaged in marketing of natural gas. The company was given the responsibility of construction, operation and maintenance of the Hazira- Vijaypur-Jagdishpur (HVJ) pipeline project, one of the largest (1800 km long) cross-country natural gas pipeline projects in the world. GAIL also possesses a vast telecommunication network that contributes significantly to the high level of system reliability of operations, on-line real-time communication and monitoring higher productivity. The company has its registered office in New Delhi. 

GAIL's revenue for FY17 from gas marketing stood at 71 per cent, while gas transmission contributed 10 per cent to the revenues. The company's gas transmission network (of 10,000-plus km) has a pan-India reach with a capacity of 206 mmscmd. The company is also engaged in petrochemical production and city gas distribution. The company, through its gas distribution business, operates close to 63 per cent of the CNG stations and about 50 per cent of the PNG connections domestically. 

Recently, GAIL announced plans for capital expenditure of Rs 6,000 crore by the end of the FY19. The investment will be used to construct an additional 2,500 km of gas pipelines by 2020. Of the planned 2500 km, the 380-km Kochi-Mangalore pipeline is already under execution. 

On the financial front, the net sales of the company increased 7.25 per cent to Rs 12,409.65 crore in the second quarter of FY18, as against Rs 11,570.38 crore in the same quarter previous year. The company's PBDT increased 18.60 per cent to Rs 2,269.73 crore in the second quarter of FY18 on a yearly basis. The company's net profit also increased 27.69 per cent to Rs 1,309.63 crore in Q2 FY18, as against a net profit of Rs 1,025.64 crore in the Q2 of the previous year. 

On an annual basis, the company's net sales decreased 6.87 per cent to Rs 48,474.9 crore in the financial year 2017 on a year-on-year basis. The company's PBT increased 95.24 per cent to Rs 5,757.3 crore in FY17, as against Rs 2,948.88 crore in the previous fiscal. The net profit of the company increased 112.54 per cent to Rs 3,947.94 crore in FY17, as against Rs 1,857.54 crore in the previous fiscal. 

On the valuation front, the company maintained a PE ratio of 39.49x. The company's return on equity (RoE) and return on capital employed (RoCE) stood at 10.11 per cent and 16.26 per cent, respectively. The company has reduced debt and is virtually debt-free.GAIL has been maintaining a healthy dividend payout of 38.24 per cent. Considering the company's robust financial performance and valuations, market share and strong technology leadership in the industry, we recommend our reader-investors to BUY the stock. 






JK Cement
BSE Code: 532644
FV: Rs.10 CMP: Rs.1070
Market CapF F (Cr.):2,468.07 

HERE IS WHY
Robust Financials
SC allowed use of Pet coke
Capacity Expansion Plans

JK Cement is a part of the J.K. Organisation. The company has over four decades of experience in cement manufacturing. The company, with an annual capacity of 600,000 tonnes, is the second largest manufacturer of white cement in India. It is also the second largest producer of wall putty in the country with an annual installed capacity of 700,000 tonnes. JK Cement was the first company to install a captive power plant in the year 1987 at Bamania, Rajasthan. 

The company has made its first international foray with the setting up of a greenfield dual process white cement-cum-grey cement plant in the free trade zone at Fujairah in U.A.E to cater to the GCC and African markets. 

JK Cement is planning to add capacity of up to 8 million tonnes per annum (MTPA) in the next five years, taking its total installed capacity to around 18 MTPA for grey cement. 

The company is planning to expand capacity by 3.5 to 4 million tonnes in brownfield and greenfield projects separately. It would also invest around Rs.1,200-1,500 crore in brownfield expansion at its Mangrol facility in Rajasthan in the next 24-30 months. The expansion will be funded by a combination of internal funding and debt.

Also, the Supreme Court has allowed the use of pet coke, the primary fuel and input material for cement makers. This comes as a big relief for the cement companies. 

On the financial front, the net sales of the company increased 2.94 per cent to Rs.1,107.68 crore in the second quarter of FY18, as against Rs.1,076.08 crore in the same quarter previous year. The company's PBDT increased 77.79 per cent to Rs.170.48 crore in the second quarter of FY18 on a yearly basis. The company's net profit also increased 127.75 per cent to Rs.93.15 crore in Q2FY18, as against a net profit of Rs.40.9 crore in the Q2 of the previous year. 

On an annual basis, the company's net sales increased 24.17 per cent to Rs.4,420.71 crore in the financial year 2017 on a year-onyear basis. The company's PBDT increased 67.17 per cent to Rs.500.53 crore in FY17 against Rs.299.41 crore in the previous fiscal. The net profit of the company increased 155.64 per cent to Rs.259.58 crore in FY17, as against Rs.101.54 crore in the previous fiscal. 

On the valuation front, the company maintained a PE ratio of 20.30x. The company's return on equity (RoE) and return on capital employed (RoCE) stood at 14.93 per cent and 14.05 per cent, respectively. The company has a debt-to-equity ratio of 1.39. JK Cement has been maintaining a healthy dividend payout of 21.52 per cent. We recommend our reader-investors to BUY the stock.

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