The Most Profitable Research this year from JainMatrix Investments

  • Apex Frozen Foods Ltd.
  • A 225% gain for our Subscribers for purchases from open markets in just 3 months. 
  • The IPO allottees still holding have got a 324% gain in 3 months. 

At JainMatrix Investments, we’ve done a lot of research reports in the last year. We’ve had our share of (many) successes and (a few) failures. This has been a good year for the stock markets so no surprises that our success rate has been high. Even so, lets focus on the best success we have had this year.

On 20th August 2017, we published an IPO report on Apex Frozen Foods Ltd. This was a public report, and you can see it even now at Apex Frozen Foods IPO – An Apex Buy.

jainmatrix investments, apex frozen foods

The subscription for this IPO was not impressive, it went just 6.1 times subscribed, not much by this years standards.

But at JainMatrix Investments we were very positive about it. So much so that before the firm’s listing on 4th Sept, we published a Pre-Listing Note on Apex. This was a Premium report, available only to subscribers, but the Summary is shared below:

JainMatrix Investments, Apex Frozen Foods IPO

The listing was good but not very impressive, it closed at Rs 210, a rise of 20% on first day. Thereafter, restricted by its 5% upper and lower price limit, it rose 5% every day for a few days, then actually fell by 5% for a few days too.

Our Subscribers who took our instructions got ample opportunity to buy this share below Rs 230.

And very soon, with the seafood industry doing well, and some news flow such as good results declared for the Half Year and Quarter ended Sept 2017, the share has done very well, see graphic.

jainmatrix investments, apex frozen IPO

Today we are happy to note that investors who took our recommendation to buy the share below Rs 230 have seen a 225% gain. IPO applicants still holding today have got a 324% gain on their investment in just 3 months. 

Clearly the share has by far exceeded our 1.75 year target of Rs 469, to reach Rs 742 today. This is a success beyond our imagination.

This is a marketing article. At this point we do not express any opinion of BUY, SELL or HOLD on Apex Frozen Foods. We are just happy to share with you that this is Our Most Profitable Research this year. 

Happy investing,

Punit Jain

DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Punit Jain discloses that he holds Apex Frozen Foods shares since the IPO this year.  Other than this, JM has no known financial interests in Apex or any group company. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

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Bharat Financial Inclusion – News Based Exit from MSC Model Portfolio

  • Date: 30th Oct 2017
  • Bharat Financial Inclusion is dropped from the JainMatrix Investments – Mid and Small Cap (Multi Bagger) Model Portfolio

News Update

  • The merger of micro finance lender Bharat Financial Inclusion (BFIL) and IndusInd Bank (IIB) was announced on 14th Oct. BFIL will merge into IIB in a swap where BFIL shareholders will receive 639 shares of IIB for every 1,000 shares of BFIL. On the day of announcement, the premium on BFIL was 12.6%. It has now narrowed to 7.4%.
  • The merger offers mutual synergies on network, customers and products. IIB will grow its rural network and increase priority lending. There are synergies with cost reduction and BFIL will lower the cost of wholesale deposits. The merger is mutually beneficial.
  • The merger is expected to complete over the next 6-9 months. The timelines are as follows:

jainmatrix investments, bharat financial inclusion

Source: BFIL News Release

Record of Performance

  • BFIL had entered the MSC at Rs. 427 in Feb 2015. We had reported on BFIL (formerly SKS Microfinance) in Sept 2015, see link SKS Microfinance – A Magical Mix jainmatrix investments, bharat financial inclusion
  • We exited BFIL on 21st Oct at Rs. 995 (entry at Rs. 427 in Feb 2015). It gained 133% absolute and 37.8% CAGR in 2.5 years.
  • The MSC Model Portfolio has a good 4.5 year Track Record 

Opinion and Reasons

  • BFIL would cease to exist post the merger. Hence if investors continue to hold BFIL they will become IIB shareholders.
  • BFIL is a good mid-cap stock with appreciation potential as an independent firm.
  • IIB is 1) a large cap Bank of Rs 97,000 crores mkt cap. 2) It has been a high performance stock in the past 3) However we at JainMatrix do not track IIB 4) It will not meet the objectives of MSC Model Portfolio. So BFIL is dropped from the JainMatrix MSC Model Portfolio.
  • Subscribers may exit BFIL and enter the other BUY rated stocks of the MSC Model Portfolio.
  • They may also, at their own discretion, choose to become IIB shareholders. But JainMatrix is not covering this stock.

Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Punit Jain has been a long term investor in BFIL since Nov 2014. Basis this note he intends to exit his positions in BFIL. Other than this, JM has no known financial interests in BFIL or any related group. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

A Note on Crypto-currency

Introduction

  • Cryptocurrencies (CC) are digital currencies that utilize blockchain technology to provide improved security, anonymity and decentralization. There is no central authority to manage it and no third parties are needed to facilitate transactions.
  • The most popular currencies on the market are bitcoin and ethereum, which have market caps of $44.86 B and $6.7 B respectively. Bitcoin was released as open-source software in 2009, and has nearly tripled from a price of under $1,000 a coin to nearly $2,800 since Jan 2017 while ethereum has jumped from $8 to $220 in the same timeframe.

Recent News and Events

  • The Chicago Board Options Exchange said they will launch bitcoin derivatives by end 2017 pending regulatory approval.
  • On Tuesday, the blockchain supporting Bitcoin split into two creating two competing versions of the virtual currency with the new version being BitcoinCash. With the rapid rise in Bitcoin usage over the last few months, its blockchain technology was slow in processing transactions and developers and miners disagreed with how to expand resulting in a new version being created. BitcoinCash will be able to process 56 transactions per sec. compared to 7 tps.

  • In July, digital currency trading platform BTC-e, was suspended by Dept. of Justice for involvement in criminal activities of money laundering, identity theft, and drug trafficking transactions.
  • Start-up CC firms are using Initial Coin Offerings (ICOs) in favor of VC funding. ICOs are crowdfunding events where firms release their own CC tokens. These differ from IPOs as there is no govt. regulation or required documentation for the sale. In 2017, ICOs raised $1.3B for start-up CC firms with only $358M in traditional VC funding.
  • The large run-up in price of CCs over the last few months has fueled a bubble in the blockchain world through ICOs. The lack of regulation here has enabled start-ups to gain access to funding from unsophisticated individual investors than they would normally be able to receive through venture capital.
  • Bitcoin is gaining acceptance as many ecommerce websites and producers of repute are allowing online payments.
  • The arrest of Alexander Vinnik of BTC-e, seems to indicate that blockchain analysis can connect identities to users.

Opinion and Outlook

  • The growth in transactions and value of CC seems to be driven more by traders and speculators looking to profit off the massive volatility than the fundamental use of exchanging currency for goods and services. Also due to the anonymity in transactions, criminals are attracted to them as a mechanism for money laundering.
  • While blockchain technology is an exciting innovation, we feel it has much better applications than currency in banking – to facilitate international trade and streamline processes and healthcare – to store records securely.
  • In its current form and usage, CCs may continue to grow as a unregulatable digital currency in much of the free world.
  • As investors, we feel the CC market is overheated with the introduction of ICOs, and the high volatility does not meet our standard for conservation of capital. It is not a safe asset class for the masses.

JAINMATRIX KNOWLEDGE BASE

See other useful reports:

  1. Security and Intelligence Services IPO
  2. IRB Infra Developers – In INVIT We Trust – 25 JULY
  3. Stock Market Awareness Presentation by JainMatrix – July 
  4. Equity Investment Made Easy by JainMatrix – Updates July 2017
  5. A Rural focused Stock Pick – premium – 08 July
  6. Eris Life IPO – and Pre listing note – premium – 28 June
  7. AU Small Finance Bank IPO – 26 June 
  8. The JainMatrix Investments Outlook – 22 June
  9. MSC Portfolio Review – 10.8% CAGR Alpha – premium – 21 June
  10. JainMatrix – Track Record – 31 May
  11. IndiGo Airways – Flying High, Wide and Handsome – 30 May
  12. Eicher Motors – It’s Firing on Both Engines – 16 May
  13. Hudco IPO – Sector Uncertainties, AVOID – 09 May
  14. S Chand IPO: An Educational Content Powerhouse – 27 Apr
  15. Vikas Ecotech – Get ‘Vikas’ for your Investments – 24 Apr

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Disclaimer

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

The JainMatrix Investments Outlook – June 2017

A short market note

  • When demonetization happened in Nov-Dec 2016, there was high uncertainty and markets fell sharply. By end Dec however, the Indices bottomed out. The cash shortage was being overcome and other fears receded. Since then, the key indices recovered smartly by about 21%. We feel that the event is behind us and even the worst affected firms are now nursing back to pre-demon health.
  • The budget in Feb and the 5 state elections after this strengthened the positivity and good feel factor. Markets appear to be resuming the broad multi-year bull-run.
  • The next major event is the imminent GST implementation which is bringing many changes, many good and some bad:
    • As GST rates are being declared, companies are reacting to them eg. Gems and Jewellery firms rose sharply on 5th June, reacting to the 3% GST on gold, which was positive.
    • Sectors like Logistics, Transportation and FMCG are beneficiaries of GST and they have appreciated in the last 6 months on GST news.
    • However, the destocking and restocking by dealers /wholesalers to deal with GST and compliance requirements and changes to systems and processes at all levels will take a quarter to settle. Incremental tax fears may see weak June orders but a strong July may cover up.
    • Unorganized sector and MSME may see a net increase in taxes as GST compliance covers all, and this may affect profits and competitiveness.
  • Round UP of other factors:
    • The INR remains stable in the Rs 63-68 zone with a strengthening bias in light of lowered inflation, good forex reserves and exports looking robust.
    • In Indian markets, liquidity flow is strong from retail and FII investors into Indian markets. This reflects in the IPO markets, which look strong with the CDSL IPO subscribed 170 times, a new record. GoI too is planning a number of disinvestments.
    • The 3rd Fed rate hike happened and it did not appear to affect Indian markets. Fear around inflation looks unfounded, and a bad monsoon in 2017 looks unlikely.
  • The risks or negatives that we see now are – 1) bank NPAs need resolution, the GoI is focused on this and there needs to be some progress here  2) along with some clarity around PSBs restructuring 3) cross border and terrorism issues 4) The Q4FY17 results were fair, and the market is in ‘above average’ valuations zones. However current levels are not excessive. Mid and small caps continue to do well.
  • Stay positive on the markets !!

Happy investing,

Punit Jain,

JainMatrix Investments

JAINMATRIX KNOWLEDGE BASE

See other useful reports:

  1. Eris Lifesciences IPO
  2. JainMatrix Investments – Track Record 
  3. IndiGo Airways – Flying High, Wide and Handsome
  4. Eicher Motors – It’s Firing on Both Engines
  5. Hudco IPO – Sector Uncertainties, AVOID
  6. S Chand IPO: An Educational Content Powerhouse
  7. Vikas Ecotech – Get ‘Vikas’ for your Investments
  8. Investment Notes – Euphoria
  9. Whats different about the Investment Service from JainMatrix? – A video
  10. Why are Indian stock markets attractive for Investments? – A video
  11. Why Stocks, and Investment Outlook – Dec 2016 – A Video
  12. Investment Outlook – Short Term Pain, Medium Term Gain
  13. Do you want to be a value investor?
  14. Announcement – SEBI approval as a Research Analyst

DO YOU FIND THIS SITE USEFUL?

  • Visit the Investment Service page to find how you can get more. Or Click LINK
  • Register Now to get our Free reports and much more, on the top right of this page, or by filling this Signup Form CLICK.

DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Adviser. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

Investment Notes – Euphoria

Three positive events have occurred. Demonetization is over; the Feb 2017 budget was good, and the 5 state elections threw up BJP as a likely winner in 4. At this point, we are overwhelmingly positive on the investment outlook.

Investment Notes

It was 18th Feb 2015. The Sensex had just closed at 29,320. It had been 9 months since the Modi led BJP won the parliamentary majority – they got 272 seats – to form a government. In the last one year, the Sensex had jumped from 20,536 to these levels, a gain of 43%.

An investor asked me a simple question: So what has changed on the ground and among the companies that has resulted in a 43% jump in Sensex? I just nodded, unable to express the reasons. I’d like to try to answer this today. The simple answer – NOTHING !! Most of the companies were 5-10% up on financials/ EPS in the last one year. Nothing special to report here.

So what gives? What explains the big jump? The answer is optimism and sentiment. Just like most things in life, people act on the basis of heart (emotions) and head (rationality). The Modi govt. won a resounding victory, after a bitter, negatively fought election. A lot of people now looked to the future with renewed hope and optimism, and felt we have a govt. that is cleaner, more decisive and which is thinking long term.

The positivity changed the outlook of investors. Retail bought Mutual Funds. Investors took fresh 2-3 year, long term positions. FIIs entered and took new 10+ year investments on the basis of longer term trends like consumption and housing shortages. Sensing all this, traders bet positively.

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” ― Benjamin Graham

So while nothing changed on the ground, the 2 year forward outlook changed sharply. The stock market always tries to look a few years ahead. At a stock level, most large caps have 1-2 year financials baked into the prices. Mid-caps are divided into the well-known and the lesser known. The well-known firms too have 1-2 year financials baked into the prices. Since growth rates are higher here, valuations parameters like P/E and P/B can look expensive. The lesser known mid-caps and small caps can flounder at low valuations until they get discovered. Many opportunities are available here for investors to find high quality firms that can be great investments.

So what happened after Feb 2015? The 43% jump due to euphoria and positivity gave way to rationality. Whats really happening on the ground? Is business looking up? What big bang reforms are the govt. conducting?  The answers were not immediately obvious. The parliament became a logjam – the lower house had things easier but the upper house blocked new initiatives.  Massive industry specific issues such as coal and power can’t be wished away with a govt. owned magic wand. It takes time and resolve and good administration.

Post Demonetization Post Budget 

By Feb 2016, the Sensex had fallen to 23,154, a fall of 21%. Post budget, once again there was optimism. The govt. has given a positive budget. No major worries. Toward Nov 2016, we had demonetization. There was confusion, discomfort and a cash shortage. Recovery from this started by end Dec. The cash shortage now looked likely to be resolved in a few months with few residual issues. Recovery was sharp, aided by another good budget in Feb 2017.

The Budget 2017 was overall positive. Small sops for the people included lower tax at entry levels. There were benefits for real estate transactions and Industry status for affordable housing. There were no major negatives, and fears dissipated. GST is likely in 2017-18.

The direction from the govt. is very clear. Black money is to be legalized and cleansed, and black money sources are to be capped. Cash and real estate cannot be a store of ill-gotten wealth. Taxation and compliance has to go up. Big ticket reforms are to be made, opening up new sectors. Foreign and local investors must be encouraged. Abject poverty has to be eliminated. The average man is honest, hard-working and follows the rules. Lets make life easier for him. Plus big changes have to be made to make the country a better place. All subsidies must be targeted using Aadhar to avoid waste. We hope that tax rates – both direct and indirect, are peaking now, and as compliance improves, rates should ease.

The FIVE State Elections

The 5 state elections of Uttar Pradesh, Uttarakhand, Punjab, Manipur and Goa have just concluded. Its been a strong victory in the biggest state, UP, and Uttrarakhand, for BJP. Manipur and Goa may also go BJP way per latest reports. So even the tricky UP population is convinced. In a delayed fashion, BJP will also get more seats in the Rajya Sabha. While it is unclear when BJP will get majority, but certainly over time the statewise support for BJP will increase.

These three big positives combined makes things look good for a 3-6 month period.

We signal a new euphoria for the Indian market

jainmatrix Investments

We welcome – the Bull

India and USA markets:

Just like in India, there appears to be an election led upswing in the USA. The Trump administration too is looking to take bold steps. The focus is on domestic improvements. Jobs, some elements of domestic protectionism, better healthcare, etc. Optimism has shot up in USA. Rather than fearing the world, USA may move to strengthening its own country.

jainmatrix investments

A quick look at Sensex and Dow Jones over the last 2 years indicates a good correlation. See figure – thanks Google Finance. Barring some big local events like demonetization, the two markets are moving in sync. This is another factor that makes me positive about Indian market outlook – its difficult for Indian indices to outperform year after year unless at least some of the global markets are also moving in a similar way.

The potential Risks or negatives that I see now are – 1) Fed rate hike expected this week – will it affect Indian Indices? 2) INR strengthening against USD – is this even possible? 3) Higher inflation – we have early signs of increase 4) Bad monsoon in 2017.

There are always risks and negatives. But at this point, we are overwhelmingly positive on the investment outlook.

JAINMATRIX KNOWLEDGE BASE

See other useful reports:

  1. Avenue Supermarts IPO: The Mart of Choice 
  2. Bharat Electronics OFS
  3. Whats different about the Investment Service from JainMatrix? – A video
  4. Why are Indian stock markets attractive for Investments? – A video
  5. BSE IPO: Put this Exchange on Hold – Report plus Video
  6. CPSE ETF FFO – An Energizing Offer – Report plus Video
  7. Balmer Lawrie – An Update
  8. Why Stocks, and Investment Outlook – Dec 2016 – A Video
  9. Investment Outlook – Short Term Pain, Medium Term Gain
  10. The Natural Quotient: A Sustainability Metric for Business
  11. PNB Housing Finance IPO: A Transformed Lender
  12. GNA Axels IPO
  13. RBL Bank IPO 
  14. New Banks: Big Changes in Small Change 
  15. Equitas IPO – Leader in SF Banks
  16. Do you want to be a value investor?
  17. Mahanagar Gas IPO 
  18. A Repurpose for our PSUs
  19. How to Approach the Stock Market – A Lesson from Warren Buffet
  20. Announcement – SEBI approval as a Research Analyst

DO YOU FIND THIS SITE USEFUL?

  • Visit the Investment Service page to find how you can get more. Or Click LINK
  • Register Now to get our Free reports and much more, on the top right of this page, or by filling this Signup Form CLICK.

DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. JM has no known financial interests in any company mentioned here. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any equity investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

How will Brexit impact Indian investors?

  • Date: Monday June 27th, 2016
  • Report Type: News Analysis 

What is Brexit?

Brexit refers to the UK including Britain, Scotland, Wales, Ireland and Northern Ireland, exiting from the European Union. This is a significant historic event as if it goes through UK will have broken off from the European Union, and will go independent in terms of economics, government, immigration, business & commerce, etc.

So what is Brexit actually about? It was about the British identity. The concern among the people of UK was about immigration and jobs. Do the British have shared interests with other European countries? Was the association helpful or harmful? People started having doubts on all these aspects, which resulted in the Brexit vote.

What were the results?

So to decide this, a referendum was held in UK on Thu 23rd June, 2016. 51.7% people voted for UK to exit the EU. It was a close decision. The Prime Minister, David Cameron has resigned as PM after people voted to leave the EU and will leave his post in 2-3 months.

Immediate Effect of Brexit Vote

It was an unexpected vote. By next day, Friday, the pound sterling had crashed by 10% against USD, the highest fall in its trading history and its lowest level since Sept 1985. The INR too weakened and stock markets across the world fell sharply – FTSE fell by 500 points while the Sensex closed lower by more than 600 points.

What might happen next?

But quitting the EU for UK is not an automatic process. It has to be negotiated with the remaining members. These negotiations are meant to be completed within 2 years but the European Parliament has a veto over any new agreement formalizing the relationship between the UK and the EU. What will happen is difficult to predict. A flow chart from BBC captures the next steps for UK and European Union:

Post Brexit-20160625, JainMatrix Investments

Click to enlarge image

Our take on Brexit Referendum Effects

Europe hasn’t been doing too well in terms of growth and economics over the last few years; this will be a further blow. One fear is that this may encourage many countries to rethink EU and conduct their own referendum. However my feeling is RoE (Rest of Europe) barring maybe some East Europe countries will stay together. They have strong ties of culture, language, proximity and history. The EU may actually become faster and more responsive to each other’s economic and financial necessities, after this shakeup.

The UK is now exposed to several new uncertainties. It will be affected by some new barriers to trade with the EU, which will come into effect soon. Many work immigrants from RoE who were allowed easy access to UK may now have to head back to their countries. This will improve job prospects locally. However UK may suffer as a financial capital, and as European headquarters for many businesses. The red hot real estate market of London may cool a bit.

How will Brexit impact Indian investors?

We have seen a high volatility in the GBP against most major currencies. Indian firms with an exposure to UK and Europe too have fallen sharply. Certainly the unexpected Brexit vote has increased uncertainties.

  1. However UK has been quite resilient to currency fluctuations in the past. The country is both a big importer and exporter, and the net effect of the recent changes has to be calculated by sector and by company to understand the specific impact.
  2. The UK based manufacturer-exporters may actually see a gain due to weaker GBP. However if they need to import significant raw materials, then product prices may have to be adjusted upwards partially.
  3. Exports from UK to the EU may see some tariff and non-tariff barriers in future. However this may be compensated by other markets and new bilateral ties. And a weaker currency.
  4. Indian companies which have invested a lot in the UK have concerns. Over 800 Indian firms have invested $2.75 billion into Britain in the last few years. Listed Indian firms with operations or subsidiaries in UK may see an immediate 10% drop in revenues and other financials due to the weakened currency.
  5. Indian firms with EU assets or subsidiaries should be less affected, as the Euro has weakened only 1.5-2%  so far. However higher pessimism prevails as the 27 country EU looks weaker economically.
  6. However note that in a 3 month period post Brexit, very little will change except these currency rates. Investors should take this as an opportunity to invest in high quality firms. The Indian investor needs to stay calm and take advantage of the situation. Read here: THE TOUGHEST LESSON IN LONG TERM INVESTING https://jainmatrix.com/2014/12/10/the-toughest-lesson/
  7. Investors in JainMatrix Investments – Model Portfolios may note that there is no change in the recommended firms due to Brexit. They may continue to hold these or invest in a SIP format as per their investment plan.

Regards,

Punit Jain

JAINMATRIX KNOWLEDGE BASE 

See other useful reports

  1. Mahanagar Gas – A Hot Piping IPO
  2. How to Approach the Stock Market – A Lesson from Warren Buffet
  3. An IPO Roundup and Update 
  4. Parag Milk Foods IPO – Let This Drink Go
  5. JainMatrix Track Record May 3rd, 2016
  6. Thyrocare IPO – Wellness for your Wealth
  7. New Banks: Big Changes in Small Change
  8. Equitas IPO – Leader in SF Banks
  9. JainMatrix Investments Announcements
  10. A Superior Investing Process – Do a DIP SIP
  11. JainMatrix Investments presents the Investment Outlook for 2016
  12. Alkem Labs IPO
  13. Goods And Services Tax (GST): Integration And Efficiency
  14. Café Coffee Day IPO – Very Hot Coffee 
  15. Syngene IPO: Good Pharma R&D spinoff from Biocon.
  16. JainMatrix IPO Reports deliver 60.5% returns

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DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst (SEBI Registration No. INH200002747) under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com.

A Repurpose for our PSUs

Thought for the day

Background: 

The Central Public Sector Enterprises were set up with the purpose of promoting “national interest” and “public investments in large industries” – something which could not be done by the private sector. This was done way back in the 1960s and 70s.
Forty years on, a lot has changed in the economic and business environments. Private sector lead by Reliance, Tatas and Bharti Group has surged ahead and shown them quite capable of setting up and handling global scale industries. Even the holy grail of “Defense” production is now being handed over slowly to Indian private sector firms. So why should GoI own large swathes of sectors like Oil & Gas, steel, other metal producers, telecom, banks, FMCG, pharma, even Indian Railways? In fact govt. ownership has actually allowed a lot of firms to fall back and wither away in terms of competitiveness and financial health (Air India!!??).

The Repurpose: 

The GoI appears to be relooking at our national “family silver” in this new environment and gearing up to repurpose our CPSEs. We feel the main purposes now should be:

  1. Just retain a few PSUs of strategic and national importance in the long run.
  2. Wherever the CPSE is in good health, is listed, and serves no major national interest, monetize these assets quickly. This can be through dividends, divestment and/or strategic sales (like Maruti !!??).
  3. Improve the health of the others, and set them up for listing, divestment and/or strategic sales.
JainMatrix Investments, CPSE

Please … not the Taj Mahal

The Capital Restructuring: 

The Central Govt. has issued comprehensive guidelines on capital restructuring of CPSEs by way of buyback, dividends, issue of bonus and splitting of shares to rake in more revenue. The finance ministry issued fresh norms which are as follows:

  • CPSEs having surplus cash can no longer invest funds in FD’s in banks, which generate a poor post-tax return of 4-5%. Every CPSE having net worth greater than Rs 2,000 crores and cash & bank balance of over Rs 1,000 cr. would have to buy back their shares.
  • Related to dividend, the new guidelines mandate that every CPSE would have to pay a minimum annual dividend of 30% of PAT or 5% of the net worth (whichever is higher) subject to the maximum dividend permitted under the current regulations.
  • CPSE’s will have to issue bonus shares if their reserves and surplus is equal to or more than 10 times of its paid up capital. Further, all CPSEs have to consider issue of bonus shares if their reserves and surplus are more than 5 times of the paid up capital.
  • The order has replaced the general guidelines on splitting of shares, by mandating that every CPSE, whose market price or book value of its share exceeds 50 times of its face value, will have to split its shares to make it affordable for retail investors. (Source Financial Express)

A quick look at some of the CPSEs we track reveals that many of these firms meet the stated criteria. The chart indicates likely corporate action by these PSUs.

  • In green are the firms that pass the criteria for the corporate action.
  • We have also calculated the dividend payable threshold, in crores, for the firms per these guidelines. It is still subject to the maximum dividend permitted regulations.
JainMatrix Investments

The new norms applied to a few PSUs

Benefits:

  • Most of these new norms are very good and uniformly benefit all shareholders. Buy backs improve the Earnings per Share of the firm, and should soon raise their market prices. Dividends, splits and bonuses are shared by both GoI promoters and all other shareholders.
  • This is also superior to the Follow on Public Offer method of encashing the GoI’s PSU shareholding, which was damaging to the share price and generally manipulated by the market participants.
  • Funds raised from these divestments/ sales should be used for infrastructure, education and capital expenditures rather than mere funding of deficits. Of course one can only hope for this kind of discipline from the GoI.

Open questions:

The real challenge before the government is to decide if it wants the CPSEs to become:

  • Independent institution and public owned firms, like ITC and L&T, benefiting the broad investing public, or
  • Owned by strategic partners/ new owners, like Maruti Suzuki, where they take over the firm for a large ownership premium, benefiting the coffers of GoI.

Either way, I have a feeling the CPSEs, PSUs and who knows, maybe even PSBs, may once again become valuable for the public shareholders !!

JAINMATRIX KNOWLEDGE BASE 

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DISCLAIMER

This document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an Investment Advisor. Punit Jain is a registered Research Analyst (SEBI Registration No. INH200002747) under SEBI (Research Analysts) Regulations, 2014. JM has been publishing equity research reports since Nov 2012. Any questions should be directed to the director of JainMatrix Investments atpunit.jain@jainmatrix.com.