India Equity Research

Investment Style and Disclosure

2009-01-08T13:56:00.001-08:00

Disclaimer: I will post a new stock pick on the Second Monday of every Month. I (and the companies I'm associated with) may have Long/Short positions in the stocks recommended on this blog. Please use the material on this blog as reference only and contact your investment advisor for buying/selling securities. These stocks may not be suitable for your risk profile.

Portfolio Risk Analysis: We use Modern Portfolio Theory to balance portfolios; we prefer adding equities that are either uncorrelated or negatively correlated to maximize returns per unit of risk. This does_not mean that we would select stocks just because of their correlation to a portfolio; once a stock is selected for investment based on thorough bottom-up research, correlation is used to optimize the risk-return graph for different allocations within the selected list of stocks.

Investment Style & Performance:

Here's a link to the historical performance of my equity fund at Marketocracy.com: Performance.

My investment approach is a combination of top-down and bottom-up security selection process. I select sectors and geographies for a equity portfolio by conducting macroeconomic analysis of regions and sectors while maintaining portfolio risk within acceptable limits for investors. Macro analysis plays a prominent role in reducing the total risk (volatility) of the portfolio and maximizing expected returns for a particular level of risk. I also use a few derivative strategies to maximize portfolio returns without adding undue risk to the portfolio.

Once a sector or industry is selected for investment based on macro analysis and portfolio risk requirements, I use a bottom-up security selection process to find companies with sustainable competitive advantages with-in an industry. A quant screen comprising factors such as net profit margin, gross margin, financial leverage, asset turnover, EPS growth, revenue growth, PEG and PE ratio narrows down the list of companies to less than 10 in most instances. At this point, I apply industry specific parameters; every industry has specific measures that can be used to understand the competitive advantages of various companies. This will further narrow down the list to 3-4 companies.

Valuation: Furthermore, a detailed financial statement analysis helps me understand these 3-4 companies and how they are priced relative to peers; finally our time-tested equity valuation model, Scenario analysis, Sensitivity analysis, Comparable analysis and other such methods provide the target price of an equity. These companies are also analyzed for portfolio suitability based on expected returns, systematic risk and total risk of the portfolio.

However, every instance of the above analysis _does_not_ result in a recommendation. Sometimes the equity selected is overpriced and is placed on a watch-list. I follow companies for many years and repeat the above analysis when they get close to my preferred buying price. Most of the companies I recommend have been on my watch for atleast six months. Finally, the portfolio is analyzed regularly to sell equities that have reached their target price and provide a low return for the risk exposure.

For Questions, Comments or to discuss your portfolio: e-mail ketuls@gmail.com.

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Mast Equity Analysis

2009-01-08T13:48:00.000-08:00

Titan Industries - Stock Recommendation

2008-11-14T10:09:00.000-08:00

Indian Jewelry Market & Tanishq (Titan Industries)
ØBranding and Distribution are key competitive advantages; difficult for new entrants to gain market share

Ø Even highly educated customers find it difficult to gauge the value of Jewelry and so they rely on trustworthy Jewelers to make that decision; Tanishq is slowly but definitively occupying a mindshare of Indian consumers which could last for generations and it would be difficult if not impossible for unorganized retail Jewelers (90% of the market) to compete with Tanishq

Ø Trust in Jewelers is the most important part of a customer’s decision; the Tata name attached to Tanishq along with various initiatives such as a x-ray based Karat-meter are introduced to address this concern

Ø The long term prospects of survival of a Jeweler are also important since a lot of customers exchange Jewelry; Tata’s association with Tanishq seals that issue, moreover, Tanishq has a very simple nationwide Jewelry exchange policy

Ø Consumers are price inelastic to a certain extent owing to brand recognition and trust in Jewelers

Ø The price of gold is the same at any Jeweler and so the only variable is the cost of manufacturing & selling Jewelry; in this case larger production facilities (like Tanishq) could leverage economies of scale

Ø Organized Retail Jewelry is a growing market in India

Ø In almost all western countries, 70% of the population lives in urban areas; as India is globalized, population growth in old/new urban areas is bound to increase, a disadvantage for the traditional unorganized family-Jeweler based model

Ø Business model has high operational leverage

Ø Setting up a chain of nationwide Jewelry stores and a national brand entails high fixed costs; a major barrier to entry for new firms exploring this segment