stock portfolio for equity research

8/8/2019 Stock Portfolio for EQUITY RESEARCH

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OUR GROUP PORTFOLIO FOR EQUITY RESEARCH PEPAR

SECURITIES PRICE TOTAL AMOUNT INVESTED

Yes bank 507 shares @296 1,50,072 Sail 510 shares @196 99,960 If b 607 shares @165 1,00,320 O ngc 446 shares @1231 4,49,315 C adila healthcare 312 shares @642 2,00,304

9,99,971

TO TAL 9,99,971 Rs. INVESTED OU T OF AVAILABLE 10,00,000 R UP EES.

SUBMITTED TO SUBMITTED BY

P ROF . BIRENDRA P RASAD VIKRAM SHARMA

M O NMEE DAS

AASHISH SHARMA (F S)


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W HY CHOOSING THESE STOCKS

BANKING SECTOR

y Influenced by the global financial turmoil and repercussion of the subprime crisis, the globalbanking sector has been witness to some of the largest and best known names succumb tomulti-billion dollar write-offs and face near bankruptcy. However, the Indian banking sector hasbeen well shielded by the central bank and has managed to sail through most of the crisis withrelative ease. Further with the economic buoyancy the world over showing signs of cooling off,the investment cycle has also been wavering. Having said that, the latent demand for credit(both from the food and non food segments) and structural reforms have paved the way for achange in the dynamics of the sector itself. Besides gearing up for the compliance with Basel IIaccord, the sector is also looking forward to consolidation and investments on the FDI front.

y P ublic sector banks have been very proactive in their restructuring initiatives be it in technologyimplementation or pruning their loss assets. While the likes of SBI have made already attempts

towards consolidation, others are keen to take off in that direction. Incremental provisioningmade for asset slippages have safeguarded the banks from witnessing a sudden impact on their bottom lines.

y R etail lending (especially mortgage financing) that formed a significant portion of the portfolio for most banks in the last two years lost some weight age on the banks' portfolios due to their riskweight age. However, on the liabilities side, with better penetration in the semi urban and ruralareas the banks garnered a higher proportion of low cost deposits thereby economizing on thecost of funds.

y A part from streamlining their processes through technology initiatives such as ATM s, telephonebanking, online banking and web based products, banks also resorted to cross selling of financial products such as credit cards, mutual funds and insurance policies to augment their feebased income.

STEEL SECTOR

y India is currently the fifth largest steel-producing nation in the world with production of over 54 million tones ( MT ). However, it has a very low per capita consumption of steel of around46 kgs as against an average of 198 kgs of the world. T his wide gap in relative steelconsumption indicates that the potential ahead for India to raise its steel consumption ishigh

y Being a core sector, steel industry tracks the overall economic growth in the long term. A lso, steel demand, being derived from other sectors like automobiles, consumer durables

and infrastructure, its fortune is dependent on the growth of these user industries

y T he Indian steel sector enjoys advantages of domestic availability of raw materials andcheap labor. Iron ore is also available in abundant quantities. T his provides major costadvantage to the domestic steel industry, with companies like T ata Steel being one of thelowest cost producers in the world.

y However, Indian steel companies have to bear additional costs pertaining to capitalequipment, power and inefficiencies (low per employee productivity). T his has resulted in


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the erosion of the edge they would have otherwise enjoyed due to availability of cheaplabor and raw materials.

y T he government reinstated basic customs duty on steel imports in order to protect Indiafrom dumping of cheap steel products. It has also provided series of benefits to auto,housing and real estate sector in order to counter the slowdown in the economy.

PHA RM A CEUTIC A L SECTOR

y T he Indian P harmaceutical industry is highly fragmented with about 24,000 players (around330 in the organized sector). T he top ten companies make up for more than a third of themarket. T he revenues generated by the industry are approximately US$ 7.6 bn and havegrown at an average rate of 10% over last five years. T he Indian pharma industry accounts for about 1% of the world's pharma industry in value terms and 8% in volume terms.

y In the recent past, Indian companies have targeted international markets and have extendedtheir presence there. While some companies are exporting bulk drugs, others have moved upthe value chain and are exporting formulations and generic products. India also offers excellentexports opportunities for clinical trials, R& D, custom synthesis and technical services likeBioinformatics.

y T he drug price control order (D PCO ) continues to be a menace for the industry. T here arethree tiers of regulations on bulk drugs, on formulations and on overall profitability. T his hasmade the profitability of the sector susceptible to the whims and fancies of the pricing authority.T he new P harmaceutical P olicy 2006, which proposes to bring 354 essential drugs under pricecontrol has not been officially passed as yet and has been stiffly opposed by thepharmaceutical industry.

y T he R& D spend of the top five companies is about 5% to 10% of revenues. Despite growing ata CAGR of over 50% over the last four years, the ratio is still way below the global average of 15% to 20% of sales. However, despite the relatively low R& D spending, Indian companies arestepping up their research activities to make themselves more self sufficient in terms of productdevelopment, now that the product patent regime has come into force.

ENERGY SECTOR

y T here are two stages in the energy value chain, upstream (exploration and production) anddownstream (refining and marketing). A fter extracting crude oil from the reserves, it isprocessed to yield various petroleum products, which are then marketed.

y ONGC and O il India dominate the upstream segment contributing 85% to India's total oilproduction. In the downstream segment, major players include I OC , HPCL , BPCL and R eliance.

Independent refineries have now become subsidiaries of these bigger players. T here are a totalof 19 refineries in the country comprising 17 in the public sector and 2 in the private sector witha combined refining capacity of 178 MMTPA . IOC dominates the refining capacity with a totalshare of nearly 32% of the current refining capacity.

y R efining sector got deregulated in FY99 whereas marketing sector deregulation began to takeshape on 1st A pril 2003, although it largely remained so on paper. P olitical intervention persistsin the pricing of sensitive petroleum products.


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y ONGC is the major producer of natural gas accounting for 60% of domestic production. GA IL isthe monopoly player in the transmission and distribution of natural gas, accounting for about79% of the supplies. However, the country still witnesses shortage in supply of natural gas. Inspite of huge discoveries made by R IL in KG basin, the demand growth will outperform thesupply growth for some time to come.

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