Dear Aziz sir, I am listing my five companies (though the list is very exhaustive) along with fundamentals for

their quality score. 1.) AK Capital services is a very interesting company. It is a merchant banker and predominantly active in the Private placement of Debt issues. For the 8th Consecutive Financial year, AK Capital has emerged as largest mobiliser of debt through private placement of bonds and non convertible debentures during FY 2008-09 (non bank category). Market share of AK Capital in private placement of debt in FY 2008-09 was up by 15.40% to 32.60% as against 17.20% in the FY 2007-08. Source: Annual Report This is a very interesting market and they are very active and a market leader when it comes to private placement of debt for government institutions. They have also grown very fast in last few years. The figures are very impressive. This company is quoting at a market cap at 220 crores which seems to be a steal and I hence dug deeper into it. The numbers are also definitely very attractive. It seems to be available at a valuation of 5-6 times earnings.

The company is operating in a wonderful industry which can generate high ROEs for the investor. The average ROE/ROA for the last 10 years has been 20-25%. Their PAT Margin has averaged 30% in last 10 years. The business is easy to understand. The industry is growing at a rate of 10-12% and will keep growing. Placing Government debt is an evergreen function and is not likely to die out as long as the economy has to function, which means forever. The business is also not capital intensive since its a service business. The company will also benefit from two significant trends of this business: Increasing amount of debt placed and this is expected to continue in the future with corporate bond markets expected to open up. Indian debt markets are extremely undeveloped compared to the developed countries and this situation will change in the future. Link here on a news story. Increasing amount of Debt placed per issue: This benefits the company because the fixed cost in terms of time spent on a deal is almost same across deals whereas the money generated per deal will be higher with greater deal size i.e. Employee costs for AK Capital will not proportionately increase with the deal size and hence they will benefit significantly from this trend. These trends are evident from this graph:

However there were multiple issues for me in the annual report and I did not have the competence to evaluate. I hence finally gave it a pass though the company is still in my watch list. Some issues which cropped up: - Statutory auditors resigned in 2005-06 and no clear reason was given

- The MD&A revolves a lot around topline growth and how growth in itself is good and does not reflect on usage of capital etc -The revenues generated from investments are 40% of the total revenues and it is extremely unclear how this business works. -Significant related subsidiary transactions which I dont understand once again -Their cash flow statements are very difficult to comprehend. They have generated only 40 crores in CFO in last 5 years against 95 crores of PAT. They have CFI of -77 crores in 5 years and CFF of +45 crores in 5 years. It is unclear why they are borrowing money and where it is going. -Their CFO before working capital adjustments in last 4 years is 67 crores whereas post working capital adjustment the CFO is 26 crores. I could not tally the investments in working capital with increases in balance sheet current assets and liabilities. I spent considerable time trying to do the same. Also, I could not figure out why the company needs such huge working capital investments. -Most importantly, I found certain discrepancies in the cash flow statement and could not account for a reduction in 2 crores in their cash account 2-3 years back. In the 2007-08 Annual Report, the cash and cash equivalents at the end of year is Rs 8,27,70,690 (for the year 2006-07 which has been provided for comparison) whereas if one looks at the Annual Report for the year 2006-07 the cash balance is given as Rs 1,02,770,690. There is a mismatch of Rs 2 crores which can be accounted for by the reduction in CFO of Rs 13,10,000 and reduction in CFI of Rs 1,86,90,000 between the two Annual reports. I.e. For the same year, the figures are different across 2 annual reports and it is extremely unclear why this reduction in cash has taken place. I could not understand this at all. I felt my accounting knowledge was not sufficient enough to figure out these discrepancies. But since I could not call this company to be within my circle of competence when it comes to understanding their AR I felt a wait and watch approach is better. I mailed the company regarding tis 2 crores discrepancy but the reply did not clarify my doubt. I could not confidently answer how this business is generating money and how it is spending it. Hence, AK Capital Services is a pass as of now. However I will keep this under check since I am extremely attracted towards their core business of debt placements. 2.) Shakti Pumps is an Indore based manufacturer of various type pumps. Companys product list includes Stainless steel submersible Pumps, Submersible motors,SH Pumps..Etc. .Shakti is in the process of setting up a new manufacturing facility to produce booster pumps and it is expected to start commercial production in next month. Company is also planning to start a plant to produce waste water pumps in near future. At present company generating about half of its turnover from exports and the brand is well known for its quality and energy efficiency. Growth in sectors like agriculture,irrigation,sewage

treatment..etc are providing growth opportunities for the company.In the financial front company is showing steady growth for the past many quarters.Shakti Pump is one of the high margin pump maker in India.Booster pumps are expected to give a fillip to its bottom line from next financial year onwards.Company is targeting a sale of Rs.200 cr from the newly started booster pump division alone in 2013-14 financial year.For the latest December quarter company posted a turnover of Rs.65 Cr v/s Rs.47 Cr and a net profit of Rs.6 Cr v/s Rs 4 Cr ..Company having an uninterrupted dividend paying track record for the past five years.It also issued bonus shares in the ratio of 1:1 in 2011.In 2010 its share price touched a high of Rs.339/-(Pre bonus) .But due to the exit of a private equity investor, its share price crashed later.For the past few months promoters mopped up huge quantity from the open market which is really a confidence booster.At CMP of of Rs 53/-

3.) As in the case of Tasty Bite one year back ,some companies are silent performers overlooked by investors and analysts community.When such a company identified by some strong hands it will move like rocket and multiplied in few trading sessions. Veljan Denison seems to be such a company, unknown to most of the investors.Veljan is formerly known as Denison Hydraulics . This Company is located at Hyderabad and promoted by Sri. V C Janardan Rao. Mr Rao, is a qualified and experienced Engineer with specialization in the area of Fluid Power.Weljan has promoted with technical and financial assistance of Abex Corporation,USA .In 1987 parent company ie, Abex corporation transferred their interest in the Hydraulic Division to M/s. AB Hagglund & Sonerof Sweden and since then the Hydraulic Division came to be knowas Hagglunds Denison worldwide .This Swedish company is still holding 13% shares in Veljan through Incentive Fastighet A B.Indian promoter is holding 73.10% stake .This makes the total promoter holding is 86.1% in this tiny capital company with total capital of just 1.8 crore.This low equity base may be a reason for the overlooking of investors towards this wonderful company. Later the name of Indian company changed to Veljan Denison to reflect the interest of Indian promoter too Denison is a well known name in hydraulic Industry. Its products span across Hydraulic Valves,Cylinders,Vane pumps and Pneumatic equipments.In reality this small company is the only one listed player offering a product list of more than 200 products related with hydraulic and pneumatic sectors.We may have another listed players like Kirloskar pneumatic,Atlas Copco,Yuken India,Dynamatic technologies ..etc making these type of products .But none of this single company offering this much products under single fold.Company is producing these products from its three manufacturing units in an around Hyderabad.Veljan has its own in-house R & D for product development , enhancement and expansion of product range.Growth of companys products are closely related with the growth in industrialization. After a not so good year due to recession ,now company is returned to strong growth path.Companys Financial year ending is in September.Last FY ,Veljan posted a turnover of Rs.41 crore net profit of Rs.4.46 Cr.and an EPS of Rs.26/- .After this bad performance of last year now in half year March itself company already posted an EPS of Rs.20/-. In march qtr itself Veljan posted an EPS of Rs.11/- v/s Rs.3/- in last year same qtr.In September full year it is expected to post an EPS more than Rs.50/-.Notable point is that ,companys performance is improving steadily in each year(except last y ear).Company also increasing dividend payout and last year paid 50%on FV 10 shares.Its share price is now ruling around Rs. 375.Five year high is Rs.1044/ - touched in 2007 and lowest is Rs.160/- in last bear phase of 2009.Even

from current level this may surprise,which is now trading at a P/E of 7 to the expected full year EPS v/s industrial average P/E of 30.

4.) From the tea pack I am selecting one company which is not so familiar for many of you - Rossell India Ltd. There is many other companies in this sector but I feels this company's diversification plans makes it more attractive than other companies from the same sector. Company having Five tea estates in Assam in an area of 4000 hectares.For the last financial year Rossell posted a turnover of Rs.80 Cr and a net profit of Rs.18 Cr EPS is Rs.5/- ( FV Rs,2 Shares). In addition to the conventional Tea business company having two more divisions- Aerospace/defense , and Hospitality. Potential of these sectors differentiate this company from other tea companies.Under the Bangalore headquartered Aerospace and defense division - Rossell Techsys- company is offering services like custom embedded systems product design and development, product support services including Installation, testing, commissioning and maintenance, test solutions including test jigs, rigs, and simulators etc , and wire harness engineering and looming.Company representing many foreign companies like MacSema in India for their various products and services in Aerospace and defense.This division having an approximate employee strength of 70. Recently company started a hospitality division to increase its presence in this sector.It is a point to note that company already having some experience in this field through their strategic investments in a company which is running the franchise of 'YUM'( owners of brands like KFC, Pizza Hut, and Taco Bell) in Nigeria.Few months before Rossell decided to start fast food chains in various cities in India too .It is not clear at this point that whether this is through a master franchise agreement of any well known brands or not.Anyway their previous experience in this field will be an added advantage.Apart from this ,company also having some interest in Lemon Tree Hotels which is running 12 hotel properties across India. Company's share price is currently trading at Rs.40 /- with a P/E of 6 on the expected full year EPS of Rs.7/-. Considering the chances of an improvement in Tea prices, it is at the lower level .If the upcoming fast food chain venture turn as a success and defense and aerospace division posts decent growth after the expected opening of private sector in defense , this unknown stock may be re rated sharply. Only on the valuation of Tea division itself it is a better pick from the tea pack @ Rs.38/-

5.) J. Kumar Infraprojects Limited operates as a civil engineering and infrastructure development company. The Company focuses on the development of roads, flyovers, bridges, railway buildings, sports complexes and airport runways. J. Kumar also undertakes foundation work using hydraulic piling for major projects. J. Kumar Infraprojects is a decent bet in small-cap infra space. Its currently trading at a P/E of less than 7 with good dividend yields of well over 1% in the last 12 months. The company runs at a debt of 167 Crores, with cash in hand of 47 Crores. Revenues have risen sharply from 214 Crores to 946 Crores in the

last 4 years. Profits have risen from 20 Crores to 72 Crores in the last 4 years. NPM has dipped from over 9% to less than 8% over 4 years.

Below is a list of various stocks which I have bought and sold at different points of time. If you can segregate the leaders from the laggards = definitely creating wealth.

Particulars Investments Todays Gain Overall Gain Latest Value Stocks Add | Import | Edit 53,664 -28 (-0.04%) 9,459 (17.63%) 63,123

Company Sector Live Price Change Quantity Inv. Price Day's Gain Day's Gain% Overall Gain Overall Gain% Latest Value

A2Z Maintenance Engineering 125.55 -1.95 1 86.00 -2 -1.53% 40 45.99% 126 Aarti Drugs Pharmaceuticals 99.90 -1.30 1 80.00 -1 -1.28% 20 24.88% 100 Aarti Industrie Chemicals 55.10 -1.95 1 44.00 -2 -3.42% 11 25.23% 55 Aarvee Denim Manufacturing 36.50 +0.85 1 25.00 1 2.38% 12 46.00% 37 ABC India Services 104.05 +0.00 1 106.00 0 0.00% -2 -1.84% 104

ABG Shipyard Services 389.00 -4.65 1 300.00 -5 -1.18% 89 29.67% 389

Stocks with consistently high return on equity have a better probability to outperform the market It is fashionable during a market downturn to announce that stocks are available at attractive valuation. The various exhibits displayed to justify the proposition include P/E, BV and dividend yield. Another oft quoted currency is return on equity (ROE). The belief is that the market favors companies generation high ROE. Take for instance, Cummins India. The stock has consistently outperformed the overall market in calendar years 2006, 2007,2008, 2009 and 2010. The maker of diesel and natural gas engines gained 392% compared with the BSE Sensex, the bench markequity index, which returned 118.2% between30 December 2005 and 31 December2010. The clues to Cummin Indias marketperformance can be found in its financials.The stock has delivered superior ROE overthe last five years. Its ROE stood at 35.1%in 2010-11, 30% in 2009-10, 34.7% in2008-09, 27.6% in 2007-08 and 28.2% in2006-07%. Moreover, it is almost debt-free,with loan of mere Rs 18.2 crore against shareholders fund of Rs 1806.2 crore. Two other companies have outperformed the Sensex in each of the last five years. Thes eare Gruh Finance, which has delivered point to-point return of 468.7%, and Pidilite Industries,with a return of 271.4% between2005 and 2010. In both these cases, ROE ison the higher side. Gruh Finances ROE is inthe range of 23.6% and 31.4% in the last fiveyears. Pidilite Industries has posted ROEbetween 21.3% and 34.6%. Among the various financial ratios thatare considered important to evaluate stocksfor investment, ROE is one of the most important. ROE is determined as net profit upon shareholders fund. Net profit refers to profit after tax minus preference dividend,if any. Similarly, preference share capital is deducted from shareholders fund. Shareholders fund basically has two components: equity share capital and reserves and surplus. This is done to calculate returns generated on funds invested by the equity shareholders in a company. Preference share capital carries a pre determined and fixed dividend. It is not completely a risk capital. Preference shareholders get precedence over equity shareholders in redemption of their shares if a company goes into liquidation. A high RoE, expressed in percentage terms, reflects superior returns generated by the company. This ratio is also known as return on net worth (RONW). ROE of various players in an industry can be compared to determine who is better within the business. Investors can have a look at ROE of companies across industries to arrive at sectors that can generate better ROE.This even helps investors to churn their portfolio,and move to stocks with higher ROE. A gradual or year on year gain in ROE is an indicator of improving efficiency in utilisation of equity capital. It shows the management is making good use of money entrusted to it by equity shareholders. Castrol India has reported increase in ROEin each of the last four years. The companys ROE stood at 93.5% in the year ended 31December 2010 compared with 78.5% in2009, 57.9% in 2008, 51.5% in 2007 and38.2% in 2006.However, such improvement is exceptional.Investors instead could focus on stocks with lower volatility in ROE and improvement in ROE over a shorter period. Companies to have seen increase in ROE over the last two years include VST Industries,TTK Prestige, Ador Fontech, WendtIndia, Titan Industries, ITC, Gruh Finance,Grindwell Norton, Glaxo Smith Consumer Healthcare, City Union Bank, and Surana Corporation. I checked around 2,800companies listed on the Bombay Stock Exchange(BSE) to pick companies with superior ROE. For this, companies with market capitalisation of over Rs 100 crore were selected. Only those companies whose latest financial results were available were taken into account. The median ROE for all these companiesin each of the last five years was determined. Only those companies that had generatedabove median ROE in each of the lastfive years were shortlisted.

This way, greater significance was attributed to companies with consistent track record of profit and also generating higher ROE. At the end there were 85 companies (see googledocs file CM High ROE Stocks v26i13 As only profit-making companies in each year were included, the median ROE for each year is on the higher side. In that sense, these85 companies outperforming the median ROE in each of the last five years is commendable. The median ROE for companies stood at 18.3% in 2010-11, 19.4% in 2009-10, 18.2% in 2008-09, 21.7% in 2007-08 and20.9% in 2006-07. Internationally, ROE of15% is considered as a benchmark. All these85 companies are well above this threshold. The chief drawback of the filter is that turnaround stocks are left out. Turn around stocks could deliver superior returns. This is because consistency in ROE varies. Out of these 85 companies, 23 belong to the large-cap category (market cap Rs10000 crore and above), 44 are from the mid-cap category (market cap between Rs500 crore to Rs 10000 crore), and the remaining18 are from the small-cap category(market cap below Rs 500 crore). Out of these 85 stocks, 63 stocks have outperformed the Sensex, which reported again of 118.2% on point-to-point return between2010 and 2005. This means 74% of the companies with consistently high ROE over the last five years have managed to outperformthe overall market. The bottom lineis companies with consistently higher ROEhave the potential to deliver better returns. In the current calendar year, 75%, or64 companies, of the 85 beat the market between the BSE closing on 26 July 2011and 31 December 2010. The Sensex lost9.7% in this period. The prominent gainers in 2011 so farinclude Elantas Beck (23.2%), VST Industries(99.1%), TTK Prestige (90.3%),Ador Fontech (82.7%), Wendt India(54.4%), Hawkins Cookers (50.2%),CRISIL (39%), Novartis India (37.9%)and Foseco India (36.5%). The star performers in the large-cap category based on stock market performance between 2005 and 2010 comprised Exide Industries (558.5%), Sesa Goa (548.8%),Lupin (526.5%), Hindustan Zinc (457.6%),Asian Paints (397.9%), Crompton Greaves(393.2%), and Cummins India (392.6%).The gain is based on the BSE closing as on31 December 2010 compared with closingas on 30 December 2005. Among mid-cap companies, the biggest gainers were Hawkins Cookers (1756%),TTK Prestige (1171.8%), Coromandel International(790%), Amara Raja Batteries(643.1%), City Union Bank (537%), BajajElectrical (473.2%), GRUH Finance(468.7%), CMC (464%), Thermax(359.3%), and Areva T&D (357.8%). Among small-cap companies Bliss GVSPharma (1706.3%), Muthoot Capital Services(1073.8%), Ashiana Housing(703.4%), VST Tillers Tractors (514%), andGujarat Reclaim (473%) emerged at the top. The trends emerging from the ROE toppers reveal certain interesting facts. Out of these 85 companies, 26 are debt-free. The prominent debt-free companies include Infosys, Hindustan Unilever, GlaxoSmith Consumer Health, Crisil, Abbott India,Alfa Laval, Castrol India, Nestle India, andP&G Hygiene. Further, 15 companies have negligible debt (less than 2% of total shareholders fund). Colgate Palmolive, Novartis India,Siemens, Hindustan Zinc, Exide Industries,Wyeth, Glaxosmit Pharma, Crompton Greaves, Cummins India, TCS and ITC are among the companies with insignificant debt. Companies from industries such as pharmaceuticals(11), personal care (6), chemicals(5), software (5), engineering (4), and finance & investment (4) dominate the list of 85 companies with consistently high ROE. Another trend is that many companies command rich valuations. For instance, 20companies P/E is in excess of 30. Another20 companies P/E is in the range between20 and 30. Astrazeneca Pharma

(54.8),Elantas Beck (53.3), P&G Hygiene (50.2),Titan Industries (47.2), and Nestle India (47)are the most expensive stocks. The recent market carnage offers good opportunity to investors to pick stocks with consistently higher ROE as several stock shave reported sharp correction. These includeCrompton Greaves (-43.6%), JyotiStructures (-35%), Voltas (-34.2%), BlueStar (-33.9%), and Thermax (-31.5%). ROE has certain drawbacks. It providesno hint about debt levels. Equity could below, pushing the company to borrow to fundits business growth. Borrowing could begood way to finance growth when marketconditions are robust. But in difficult timeshigh debt could put companies in trouble ifprofitability dips. Interest cost is mostlyfixed and would not decline in case of slowdownin business. For instance, Balaji Amines has a debt-to-equityratio of 1.4 times, with debt of Rs165.4 crore compared with shareholdersfund of Rs 112.4 crore on 31 March 2011.The stock has underperformed the marketin the current calendar year so far. Anotherexample is Jyoti Structures, which hasunderperformed the market. Its debt-to-equityratio stood at 0.8, with debt of Rs 476.6crore as against equity of Rs 576.1 crore.So like all other parameters, ROEshould not be viewed in isolation but consideredas one of the checklists to shortlistor validate a stocks selection for inclusionin the portfolio.

Indian investors tend to put their money on stocks more for their ability to deliver capital gains than for their yearly dividend payouts. This is also justified by the fact the Indian market as a whole doesn't deliver much of a return by way of dividend. The current dividend yield for the constituents of the Nifty index (dividends/market price) is less than 1 per cent. Nevertheless, investing for dividends does make sense for investors due to a few reasons. If last year's evidence is anything to go by, dividend payouts tend to be less volatile than company profits, which decide valuations. While the market as a whole may not sport a high dividend yield, investors can still bet on the few stocks that do. Here's an analysis of the trends in dividend payouts of Indian companies and dividend yield stocks, based on a study of the CNX 500 stocks. Less volatile: Despite 2008-09 being one of the worst years in recent times for the Indian economy and its companies, the latter did not materially cut back on dividend payouts. Even as the overall net profit of the CNX 500 companies dipped by 6 per cent between 2007-08 and 2008-09, their total dividend payout saw only a 2 per cent dip, falling to Rs 52,500 crore from the Rs 53,360 crore in FY08. The overall dividend payout ratio actually edged up a little from 24 to 24.8 per cent, as companies dug deeper into their pockets to pay dividends. The number of companies that declared dividends in 2008-09 was 364, just 17 short of the previous year. Quite a few of the companies that paid dividends last year maintained their dividend rates despite a fall in net profits Amtek India, Godrej Industries, Jindal Saw, Nirma and Tata Chemicals being some instances. Tata Steel maintained its dividend rate at 160 per cent despite a small 10 per cent growth in its standalone profits. The message to investors is that dividend payouts may be less volatile than per-share earnings. During a downturn, this makes it preferable for investors to bet on dividend paying companies rather than non dividend payers. Consistent payers:

Investors looking for consistent dividend payers over the long term however may not have too many stocks to choose from. Scanning through the CNX 500 companies throws up a few names Neyveli Lignite, Chambal Fertilisers, Hero Honda Motors, Geometric, Havells India and Elder Pharma. The trick in identifying consistent dividend-paying companies seems to be low payout ratio. Most companies with a regular payout appear to have set a record of consistency by paying a limited share of profits as dividends; payout ratio has been less than 30 per cent in eleven of these companies. Elder Pharma has been declaring 25 per cent dividend every year in the last five years. But this is just 9-12 per cent of its profits. Geometric has been declaring 40 per cent dividends which are again just 10-20 per cent of its profits. A low payout ratio probably allows dividend-paying companies to maintain the payments even through ups and downs in earnings over the years. Higher stock valuation? If dividends and capital gains are the two components of return to an investor, how much do Indian investors value dividends? Not much, it seems. The market doesn't actually give higher valuation to companies that pay out consistent or high dividends. Hero Honda Motors with an annual dividend Rs 20 per share, for example, has never traded at valuations higher than TVS Motor (whose dividends have fallen from Rs 1.30 per share to 70 paise per share) in the last five years. Tata Chemicals (dividend per share risen to Rs 9/share from Rs 6.5 five years back) has been trading at lower valuations compared to RCF (dividend per share Rs 1.70-1.20); State Bank of India too (dividend per share up from Rs 12.5 to Rs 29) has been trading at a lower PE than HDFC Bank (dividend per share Rs 10, up from Rs 4.5). The markets also don't seem to mark down a stock's valuations when dividends are cut or don't materialise for a particular year. For example, JSW Steel's dividends dropped sharper than that of SAIL in FY09 but the market continued to give it a higher PE than the latter. Given that valuations are a function of a company's perceived "growth" potential, markets appear to value companies that plough back profits into the business better than those that pay out dividends. This means that if you are a dividend seeking investor, you may actually find your stocks trading at a valuation discount to peers. Dividend yield stocks Turning from dividend payouts to dividend yield (dividends as a proportion of stock price), though the index's average yield is low, there are a handful of stocks in the CNX 500 that have consistently delivered high yields to investors; with dividends rising in proportion to the market price of the share. Some stocks that have consistently delivered a 3-7 per cent yield every year over the last five years are Supreme Industries, Karur Vysya Bank, Wyeth, Nava Bharat Ventures, Supreme Petrochemicals, LIC Housing Finance and Andhra Bank. In some of these cases, the high dividend yield made up for the capital loss in the stock during the 2008 meltdown. In the case of Wyeth for example, dividends added 8.17 per cent (Rs 37/share) in FY09 to the returns of investors who had bought the share a year ago. This almost made up for the loss in the value of the share (Rs 38/share) in that period on crash in the stock market. However, investors basing their decision mainly on a stock's historic dividend to get at the yield may at times be misled by companies cutting back on dividends or reducing payouts after exceptional years. Someone who invested in Indo Rama Synthetics in

March 2008 looking at its attractive 13.5 per cent dividend yield was likely to have been disappointed the following year. With the company reporting a loss of over Rs 90 crore on a fall in sales and spike in interest cost the next, it didn't declare dividends at all. In the case of Monsanto India, the company's one-off dividends of Rs 297/share in 2007-08 lifted the dividend 'yield' to very high levels; but dividends normalised the very next year to Rs 25/share. Another instance of a company making a large payout due to one-time income was EID Parry which declared a 1000 per cent dividend in FY09 out of windfall profits on sale of investments. This however may not be the case in the current year. An unusually high dividend yield may also be a direct reflection of the low valuations that the market is willing to grant a particular stock due to uncertainties surrounding the business. Findings so far suggest three key takeaways for dividend seeking investors: Dividends for the more consistent companies may be less volatile than their profits; Look for a low payout ratio if you seek consistent dividends; and Beware of one-off payments while determining yield. Finally, are there any specific sectors that investors can look to, to unearth high dividend yield stocks? Investors though don't have too many choices. But fertiliser makers and banks seem to figure more often on the list of dividend yielding stocks.

Most of us might have faced a dilemma whether to buy the Industry leader or its nearest competitor. So lets take a look at historical returns over three years as these include 14 months of Bear market. Stock returns reflect how management of both the leader and its nearest competitor faced the global recessionary environment. I have excluded Tata Steel v/s SAIL comparison as the former has a global presence while the later is restricted to India, RIL v/s ONGC due to govt. intervention in the operation of ONGC, Sun Pharma v/s Cipla due to FDA issues at the formers subsidiary. SBI v/s ICICI Bank SBI delivered 82% returns compared to just 5% returns from ICICI Bank. HDFC Bank v/s Axis Bank The former delivered 72% returns while Axis outperformed with a huge margin with 127% returns. It is interesting to note that relatively SBI has outperformed even HDFC Bank which is considered to be the darling of Indian markets when it comes to financials. Infosys v/s TCS Surprise. Surprise. Returns from TCS (20%) are better than Infosys (12%) . Bharti Airtel v/s Rel Comm

The gap between both the stocks returns are huge with Bharti Airtel delivering 10% returns while RCOM with a negative returns of 57%. The problem with all the ADAG companies are their focus on market share rather than profitability. DLF v/s Unitech Unitechs returns were 2 times the DLF on the downside with -67% compared to -33% of DLF. Hero Honda v/s Bajaj Auto Inspite of losing market share to Hero Honda, Bajaj Autos stock has done relatively better with 185% returns compared to 112% from the leaders stock, since it was listed after its demerger of various businesses on 26/05/08. Voltas v/s Blue Star Blue Star did much better than Voltas with 101% returns compared to 59% from the later. Blue Stars focus on return ratios did the trick for them. Exide v/s Amara Raja Batteries Amara Raja Batteries did relatively better than Exide with 216% returns while the later delivered 197% returns. I guess Exides underperformence was due to its loss mak ing life insurance business. Welspun Gujarat v/s Jindal Saw The leader delivered a return of 215% compared to its nearest competitor (Jindal Saw) returns of 149% over the last three years. Conclusion: Its divided here with the leader doing relatively better to its competitor in 4 out of the 9 cases. So buying the second largest player may sometimes be the better option than the industry/segment leader.

Can I really do Fundamental Analysis? by nooresh on March 17, 2012 5:41 pm I have never understood the line which i listen from many Investors I buy only fundamentally sound stocks. So the next thing that pops up What is Fundamental Analysis which gives me so called fundamentally sound stocks. So in this post I am trying to make a note on Fundamental Analysis for myself and check whether I can do it. I am not qualified financially ( IT engineer by qualification) , not good at understanding businesses or people neither can i read through a balance sheet,annual reports or accounts. Let us look what is Fundamental Analysis. This is just one of the definition i got from stockcharts.com Fundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements. At the company level, fundamental analysis may involve examination of financial data, management, business concept and competition. At the industry level, there might be an examination of supply and demand forces for the products offered. For the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the economy. To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to derive a stocks current fair value and forecast future value. If fair value is not equal to the current stock price, fundamental analysts believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair value. Now let us look into some basic steps in analyzing a company or things I need to know. - > Business Plan - > Management - > Financial Analysis. Further to this there could be many approaches. One of the simplest books i read recently was Philip Fisher Common Stocks Uncommon Profits. There are 15 points to do a good quantitative analysis of the company Check Link here . When I go through the above three points let me look into how can I do the analysis myself. If i cannot then whom can I rely on. ( The best thing we learn in Engineering CTRL C and CTRL V or Copy Paste) So if i cannot do it will find some other sources who are doing it. The other people who do Fundamental Analysis according to me is Brokerages with a team of Sectoral Analysts, Investment Banks like Morgan etc, Independent Research Houses ( are there any Veritas is in Canada) , Equity Advisory Firms . But the problem here is we COPY from people who we can rely on but can i rely on the above firms ?? I really dont know the answer.

So lets try doing it on my own. - > Business Plan - How can i know the business plan or rather what business does the company do. Few ways that come to my mind. 1) Companys Official Website. 2) Last 5-10 years Annual Reports. 3) Initiating Coverage Reports by Brokers ( this is the nomenclature for first report detailing the company by brokers) Now can I actually understand how many business units does Reliance Inds, Larsen and Toubro, Ongc, Bpcl or how many countries does Tata Steel, Tata Motors, Sterlite inds operate in. The annual report of Larsen & Toubro for instance is 269 pages, Reliance Inds is 200 + and majority of the large cap companies have such huge books. I remember in Engineering we would skip the reference books and go for Classes Notes or even in school look for Guides . So the next option is to rely on Brokerage Reports. Out here one analyst generally focuses on one sector or 2-3 sectors max. He might have enough time to go through those Annual Reports and various businesses. The initiating coverage report contains a good concise detail of the company. But can you rely on these reports. Reason is simple if i am an equity research guy who meets the management understands every detail and then come out with a SELL report and a 60% down target . Will the management speak to me again. NOT AT ALL . So even if the Analyst is bearish he needs to sugar coat it. Baring Veritas never seen any reports bashing up companies. But that does not mean i chuck the reports. I read them but avoid looking into the Selll/Buy or Hold rating as well as the target price On this basis majority of the top 100-200 companies need to be chucked out if I were to make a detailed analysis of their businesses. Also we as professionals in our fields may barely understand a few businesses. Like i may never know Flower Business ( aka Karuturi Networks in Ethiopia ) is there for real or not. Also if a company has 15 business can i actually analyze all of them ? Never 2) Management. There can be many ways to look into it but following 3 come to my mind.

- Management Interviews and Actions. - Qualifications and Track Record.

- Technical Capabilities and Experience. Well there can be many such points about the management. But as an individual Investor or even a large Investor i can rarely get access to Managements and also to expect them to be true and fair in their approach. ( Can i say bad things about my Own Business Nope Never ) One can access public information on the management , speak to the competitor companies ( scuttlebut like Fischer defines it to speak to anyone but the company management.) and do as much as possible to understand the credibility and vision of the management. Also many other things like corporate governance, sharheolder friendly etc. There can be great companies and bad managements so this is very important. In india it becomes even more important as we do not have any investor protection cells or regulations to take action against bad managements. Like for example recently Ruias are delisting India Securities at 56 rs and they did the same with Essar Steel. 3) Financial Analysis. Is it that simple to buy stocks with low p-e ratios or available at 1/3rd book, Historically low p-e bands or positive cash flows. There has to be a detailed Financial Analysis of many aspects of the balance sheet and product pricing. There are way too many things which need to be seen. Right from p-e, cash flows, price to book value, dividiend yield and the list goes on and on. On that people add on to more data points. So if a company has many products/business units/subsidiaries the process gets more and more difficult to dig into the data points of each part. Above all whether al the data available can be trusted ( I remember this very well because i recommended Satyam at 140-110 and sold it at 160-180. Purely relying on the cash on books Check post here. Ever since that have become wary of cash on books. Never play on luck again) .Majority of the complex companies will get out of the list. Half the small cap IT companies we can never understand as we may never know that 100 million dollar acquisition in Europe ever existed. The process does not stop here. But even after this analysis every Stock quotes at a Price !! After all the analysis i need to figure out is the stock has Margin of Safety ( Do read Benjamin Graham ) and prospects of Growth or Appreciation over the next few months or years. Also when do we exit ? or accept that we picked a wrong company ? When do we book profits ? Can i just hold forever like Warren Buffet.

So when i look into the detailed aspects then i can barely analyze 5-10 companies with lesser products, few businesses and mainly in India or in few countries. Or i rely on the financial analysis with a simple assumption Everything stated in the balance sheet is true and historical

assumptions about the company. ( now this is too risky aka Satyam or a p-e derating in capital goods like Bhel and crompton ) If i am buying Reliance at 900 or at 700, Larsen and Toubro at 1400 or 1000 all I am trying to do is speculate on the future of the above two companies which i have NO IDEA of or neither do I understand if they will do well or do really bad !! . Also neither do i have any idea when to exit ? The simplest thing is I exit if there is profit or when i get scared about the markets. ( btw i did recommend Reliance and Larsen as investments at 700 and 1000 ) . If i were to do the above things playing on luck then I might as well increase my odds by applying technical analysis to the above so called Fundamentally Sound Stocks !!! Finally after a detailed working on this Blog Post I consider myself to be highly unqualified, unfit for doing Fundamental Analysis. But still I continue to read and speak to a lot of Value Investors who are doing it for a long time to get more insights and the process continues for the last 5 years. The reason i can do it is I am full time into Technical Analysis which focuses on keeping things Simple Some of the picks which i like on a bit of Fundamental Analysis which i do and have recommended as defensive bets continously Aditya Birla Nuvo ( was a buy below 820 always. A must buy according to me ) , Smartlink Network ( Oops this one has highly underperformed from my levels of 42. Is it a Value trap ? Well i trust the management so will wait for couple of quarters more) , Godrej Inds ( from 200-170 accumulation this has given every reader super returns. I stick to my long term view.) , Nesco ( a buy at 640-540 gave excellent returns and numerous ins and outs, But the story is simple and for long term at least 2 + years) , Bombay Burmah ( this is a value pick acc to me and more of technical timing got us quick 20% returns so can keep holding after booking part ) Recently looking into a few stocks like Bengal & Assam Holding, Numeric Power Systems, S Kumars Nationwide which look interesting and have taken a bet on. Please do your own research on stocks recommended by me on Fundamental Analysis as I am totally unqualified from the above post. On the Technical Analysis front there is always a Entry Level, Exit on Stoploss and Profit Target which is very clear and one can definitely put up with it easily. Also the track record of my Technical views is up for everyone to see as have been writing for last 6-7 years on this website so you can find where i have screwed up . I continue to learn Technical Analysis and more ways to increase the odds for a better hit ratio and good risk-reward strategies. One strategy which i look for novice investors is Index Funds or Top 200 cos fund. Simple reason is the exchanges throw out smaller or non performing companies out of the Index so you never see a huge fall in the portfolio over longer time. Like now Rcom, Rcap have been thrown out. Also as per market cap calculations Non performing companies start constituting a lesser weightage ( has its pros and cons) . Reliance Inds was 18% of index is now close to 10% . This can also be the reason why many Mutual Funds tend to underperform as they dont sell on the way down

Please note I have nothing against Fundamental Analysis and I accept and believe the fact that it is the Fundamentals of the company or country which drive growth. We as Technical Analysts try to find a way to time it and profit from it. Also we at Analyse India try to avoid Dabba Companies or Bad Managements as much as possible and focus on Technical Trades in companies with good track record with a honest approach btw this is a very long post. if you found it boring please comment. As people hardly comment here.