Tag: SEBI Research Analyst

Rule #4 – To Win Big in Investing, you have to Deal with Losses

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Early in my investing career, a loans expert asked me, “what are you going to do, if the firm you have invested in suffers a large share price loss”?

No one invests to lose money.

But investing in equity markets is different from giving a loan or buying a product from Amazon. If you buy a product on Amazon and it is defective, you return it and should get a refund. When you give a loan, you try to ensure it is repaid to you in full. If repayment is interrupted, you try to understand why and encourage compliance.

In Direct equity investing, one has to expect some amount of losses. If you do a lump sum investment in 10 companies of an equal amount, the returns in a 5 years period will look something like this. 5 companies will be loss making for you. 3 will be barely giving average returns. But 2 should give you outsize returns, of 5-10X. All this together should give you Sensex average or Sensex plus returns.

The right thing to do when you see an equity investment fail, is to exit fast and reinvest in the stronger firms. Exit the losers and reinvest in the winners.

To the loans expert, my answer is, “book your losses, and lose the battle, to win the war”.

Here’s where JainMatrix Investments services can help you. To find out more reach out to us on

CONTACT US

Or explore on this website

OFFERINGS

Comment, leave a reply below, and like and share this post with your friends.

Regards, 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. This is a marketing collateral. The securities quoted here, if any, are for illustration only and are not recommendatory. 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. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. Registration granted by SEBI, and certification from NISM in no way guarantee performance of the RA or provide any assurance of returns to investors. 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. Name of the RA as registered with SEBI – Punit Jain, SEBI Registration No. INH200002747.

Rule #3 Investing timeframes

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Dear investors,

One of the biggest hurdles for Investors is patience.

Fundamentals based investing is about identifying mismatches between Share price of a company and value lying within the company. This value may be created by 1) Expected growth of the company or business revival, and 2) a share price correction or fall, due to an external event.

In both these scenarios, the mismatch may take some time to unfold, or be recognized and understood. An Equity Research on a company may identify the mismatch, but the firm may still be far from the value unlocking.

Rule #3 – Investing based on Fundamentals should be done with minimum timeframe of 2-3 years

All fundamentals based investing is prone to unexpected news, internal and external, and business cycles. Sometimes we can be lucky, and get quick returns from our investments. Most other times, its worth it to wait for value unlocking, even using a SIP method of investing, where we systematically buy the shares of a target company based on the Equity Research recommendations.

Another aspect I have come across is “triggers for investments”. Here the analyst identifies a target company, but waits patiently for the triggers to be in place for share price revival, rather than investing from earlier. This however is fraught with unknowns. Will we recognize the triggers in time? Will we be able to buy at this time?

Thus its better to give investments a 2-3 year timeframe to unlock value. Here’s where JainMatrix Investments services can help you. To find out more reach out to us on

CONTACT US

Or explore on this website

OFFERINGS

Comment, leave a reply below, and like and share this post with your friends.

Join us for a Q&A session on 10th June. Register for this on https://forms.gle/ZPsHbz8h6dfVE99u8

Regards, 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. This is a marketing collateral. The securities quoted here, if any, are for illustration only and are not recommendatory. 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. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Punit Jain is a registered Research Analyst under SEBI (Research Analysts) Regulations, 2014. Registration granted by SEBI, and certification from NISM in no way guarantee performance of the RA or provide any assurance of returns to investors. 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. Name of the RA as registered with SEBI – Punit Jain, SEBI Registration No. INH200002747.

Investor Charter and Complaint Data in respect of Research Analyst (RA) JainMatrix Investments

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Updated Jan 2026

Investors can read this Investor Charter for SEBI guidelines, to set expectations and complaints redressal.

SEBI Annexure A – Investor Charter for Research Analyst (RA)

A. Vision and Mission Statements for investors.

  • Vision – Invest with knowledge & safety.
  • Mission – Every investor should be able to invest in right investment products based on their needs, manage and monitor them to meet their goals, access reports and enjoy financial wellness.

B. Details of business transacted by the Research Analyst with respect to the  investors.

  • To publish research reports based on the research activities of the RA.
    • To provide an independent unbiased view on securities.
    • To offer unbiased recommendations, disclosing the financial interests in recommended securities.
    • To provide research recommendations, based on analysis of publicly available information and known observations.
    • To conduct audit annually.
    • To ensure that all advertisements are in adherence to the provisions of the Advertisement Code for Research Analysts.
    • To maintain records of interactions, with all clients including prospective clients (prior to onboarding), where any conversation related to the research services has taken place.

C. Details of services provided to investors (No Indicative Timelines)

  • Onboarding of Clients.
    • Sharing of Terms and Conditions of research services
    • Completing KYC of fee paying clients
  • Disclosure to Clients
    • To disclose, information that is material for the client to make an informed decision, including details of its business activity, disciplinary history, the terms and conditions of research services, details of associates, risks and conflicts of interest, if any
    • To disclose the extent of use of Artificial Intelligence tools in providing research services
    • To disclose, while distributing a third party research report, any material conflict of interest of such third party research provider or provide web address that directs a recipient to the relevant disclosures
    • To disclose any conflict of interest of the activities of providing research services with other activities of the research analyst.
  • To distribute research reports and recommendations to the clients without discrimination.
  • To maintain confidentiality w.r.t publication of the research report until made available in the public domain.
  • To respect data privacy rights of clients and take measures to protect unauthorized use of their confidential information
  • To disclose the timelines for the services provided by the research analyst to clients and ensure adherence to the said timelines
  • To provide clear guidance and adequate caution notice to clients when providing recommendations for dealing in complex and high-risk financial products/services
  • To treat all clients with honesty and integrity
  • To ensure confidentiality of information shared by clients unless such information is required to be provided in furtherance of discharging legal obligations or a client has provided specific consent to share such information.

D. Details of grievance redressal mechanism and how to access it

  1. Investor can lodge complaint/grievance against Research Analyst in the following ways:
    • Mode of filing the complaint with research analyst
      In case of any grievance / complaint, an investor may approach the concerned Research Analyst who shall strive to redress the grievance immediately, but not later than 21 days of the receipt of the grievance.
    • Mode of filing the complaint on SCORES or with Research Analyst Administration and Supervisory Body (RAASB)
      • SCORES 2.0 is a web based centralized grievance redressal system of SEBI for facilitating effective grievance redressal in time-bound manner (https://scores.sebi.gov.in)
      • Two level review for complaint/grievance against Research Analyst:
        • First review done by designated body (RAASB)
        • Second review done by SEBI
      • Email to designated email ID of RAASB
  2. If the Investor is not satisfied with the resolution provided by the Market Participants, then the Investor has the option to file the complaint/ grievance on SMARTODR platform for its resolution through online conciliation or arbitration.
  3. With regard to physical complaints, investors may send their complaints to:
    • Office of Investor Assistance and Education, Securities and Exchange Board of India, SEBI Bhavan, Plot No. C4-A, ‘G’ Block, Bandra-Kurla Complex, Bandra (E), Mumbai – 400 051

E. Rights of investors

  • Right to Privacy and Confidentiality
  • Right to Transparent Practices
  • Right to fair and Equitable Treatment
  • Right to Adequate Information
  • Right to Initial and Continuing Disclosure -Right to receive information about all the statutory and regulatory disclosures
  • Right to Fair & True Advertisement
  • Right to Awareness about Service Parameters and Turnaround Times
  • Right to be informed of the timelines for each service
  • Right to be Heard and Satisfactory Grievance Redressal
  • Right to have timely redressal
  • Right to Exit from Financial product or service in accordance with the terms and conditions agreed with the research analyst
  • Right to receive clear guidance and caution notice when dealing in Complex and High-Risk Financial Products and Services
  • Additional Rights to vulnerable consumers – Right to get access to services in a suitable manner even if differently abled
  • Right to provide feedback on the financial products and services used
  • Right against coercive, unfair, and one-sided clauses in financial agreements

F. Expectations from the investors (Responsibilities of investors).

  • Do’s
    1. Always deal with a SEBI registered Research Analyst.
    2. Ensure that the Research Analyst has a valid registration certificate.
    3. Check for SEBI registration number. Please refer to the list of all SEBI registered Research Analysts which is available on SEBI website in the following link: (https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doRecognisedFpi=yes&intmId=14)
    4. Always pay attention towards disclosures made in the research reports before investing.
    5. Pay your Research Analyst through banking channels only and maintain duly signed receipts mentioning the details of your payments. You may make payment of fees through Centralized Fee Collection Mechanism (CeFCoM) of RAASB if research analyst has opted for the mechanism. (Applicable for fee paying clients only)
    6. Before buying/ selling securities or applying in public offer, check for the research recommendation provided by your Research Analyst.
    7. Ask all relevant questions and clear your doubts with your Research Analyst before acting on recommendation.
    8. Seek clarifications and guidance on research recommendations from your Research Analyst, especially if it involves complex and high risk financial products and services.
    9. Always be aware that you have the right to stop availing the service of a Research Analyst as per the terms of service agreed between you and your Research Analyst.
    10. Always be aware that you have the right to provide feedback to your Research Analyst in respect of the services received.
    11. Always be aware that you will not be bound by any clause, prescribed by the Research Analyst, which is contravening any regulatory provisions.
    12. Inform SEBI about Research Analyst offering assured or guaranteed returns.
  • Dont’s
  1. Do not provide funds for investment to the Research Analyst.
  2. Don’t fall prey to luring advertisements or market rumours.
  3. Do not get attracted to limited period discount or other incentive, gifts, etc. offered by Research Analyst.
  4. Do not share login credentials and password of your trading and demat accounts with the Research Analyst

SEBI Annexure B – Complaint Data for JainMatrix Investments

Data for the month ending – Dec 2025

Sr. No.Received fromPending at the end of last monthReceivedResolved*Total Pending#Pending complaints > 3 monthsAverage Resolution time^ (in days)
1Directly from Investors00000n.a.
2SEBI (SCORES)00000n.a.
3Other Sources (if any)00000n.a.
 Grand Total00000 

No. of complaints received during month against the RA due to impersonation by some other entity: 0
Note: In case of any complaints received against the RA due to impersonation of the RA by some other entity, the RA may adjust the number of such complaints from total number of received/resolved complaints while preparing the above table. Further, RA must close such impersonation related complaints after following the due process as specified by SEBI/ RAASB.

* Inclusive of complaints of previous months resolved in the current month.

#Inclusive of complaints pending as on the last day of the month.

^ Average Resolution time is the sum total of time taken to resolve each complaint, in days, in the current month divided by total number of complaints resolved in the current month.

Trend of monthly disposal of complaints

Sr. No.MonthCarried forward from previous monthReceivedResolved*Pending#
1Oct 20250000
2Nov 20250000
3Dec 20250000
 Grand Total    

* Inclusive of complaints of previous months resolved in the current month.

# Inclusive of complaints pending as on the last day of the month.

Trend of annual disposal of complaints

SNYearCarried fwd from previous yearReceivedResolved*Pending#
12022-230000
22023-240000
32024-250000
 Grand Total0000

*Inclusive of complaints of previous years resolved in the current year. #Inclusive of complaints pending as on the last day of the year.

Disclosure wrt compliance with Annual Compliance Audit

Disclosure in compliance with Annual Compliance Audit requirement under Regulation 25(3) of SEBI (Research Analysts) Regulations, 2014 for last and current financial year are as under:

Sr. No.Financial YearCompliance Audit StatusRemarks, If any
1FY 2022-23ConductedNone
2FY 2023-24ConductedNone
3FY 2024-25ConductedNone

Regards,

Punit Jain

Indian Markets, Over or Undervalued? – A discussion

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Summary: In this note, we debate on the current levels of the Indian markets, using several well-known ratios, in the context of local and global events. We are perhaps continuing from my previous Outlook article – Equity Outlook, Nov’20: Rising like a Phoenix from the Ashes

Introduction

  • The Markets are at an all-time high as Nifty crossed 17,000 levels and Sensex 58,000 levels. However, the Indian markets have been quite volatile in the last 2 years.
  • In this note we try to debate and understand the causes and effects, and if the markets are Overvalued or Undervalued at these levels.
  • Here are 20 year and 2 year charts of Nifty. Over 20 years, the Nifty has gained at 15.4% CAGR. Fig 1.
  • In Mar’20, the market fell sharply by 39% due to Covid fears, but recovered thereafter See Fig 2.

Fig 1 and Fig 2: Nifty (Source tradingview) – All charts are clickable

PROS: Reasons why the Indian Stock Market is Overvalued

1. The Covid pandemic has affected the Indian economy, yet the markets are booming.

  • The GDP growth in FY21 was -8%. In the second wave of May-July this year too the social and economic impact was hard. Inspite of this, the stock markets have risen. So, until the economy recovers, markets certainly look overvalued.

2. High P/E ratio of Nifty, as well as Midcap and Smallcap indices

  • PE of nifty was recently as high as 42 times, and even today at 28 times means that investors are paying ₹28 for ₹1 of earnings. See Fig 3. Before the 2008 market crash, Nifty PE ratio was 28.29.
  • Historically, a Nifty PE ratio of more than 25 means the Indian market is overvalued. 
  • Due to pandemic, there has been a fall in earnings of companies, even as the stock market rose. This was one of the main reasons why Nifty 50 touched life time high. For example, Reliance Ind. and TVS have shown steady growth but there has been a steep fall in earnings of companies like ONGC, Maruti Suzuki etc. which caused a large increase in Nifty PE ratio.
  • Cash influx by FIIs. During the pandemic, Central banks of USA and Europe printed cash in trillions as stimulus. The US Fed reduced interest rate to as low as 0.25%. FIIs started investing some of the cash in emerging markets like India for growth opportunities.
Fig 3: Nifty PE

3. Market Cap to GDP Ratio

  • This ratio is sometimes referred to as the Buffet indicator. It is a good way to check if the market is overvalued or undervalued compared to its past historical average.
  • Historically India’s Market cap to GDP ratio is 75%. A ratio of 100% is a sign of an expensive market.
  • Before the stock Market crash of 2008, the market cap to GDP was 103%.
Market Cap / GDPInterpretation
85% < ratio < 101%Moderately overvalued
Ratio >101%Significantly overvalued
Today’s level103% indicates Nifty is overvalued

4. Stock Market in a Bubble

  • In India, investors seem to be in a frenzy and attracted to the stock markets. Total Demat accounts have doubled in the last 2 years. What started as a hobby and pass-time during the lockdown, also encouraged by mobile apps by stock brokers, has grown into a massive wave. The IPOs are getting highly oversubscribed.
  • According to RBI, prices of risky assets have surged across many countries and have touched record high levels during 2020-21 on the back of unparalleled levels of monetary and fiscal stimulus.
  • The US Fed said the turn in market sentiments “following positive news on the development of and access to vaccines and the end of uncertainty surrounding US election results” were some of the major factors that led to increased valuation of global equities, also reflecting in Indian markets.
  • This asset price inflation in the context of 8% contraction in GDP in FY21 poses the risk of a bubble.

5. Debt to GDP Ratio

  • The central govt. total debt/ GDP at end of FY21 was 58.73%. High ratio indicates that the market is highly leveraged. During 2008 the ratio was highest and was 58.86%.
  • In a similar way, India’s total public debt (Centre and States) is likely to touch 90% of GDP in FY21, the highest ever recorded. In 2019-20, the total public debt to GDP ratio was 70%.
Fig 4: Debt to GDP ratio

6. Nifty Price to Book Value

  • It is the proportion of price to assets you own when you buy shares of a company.
  • The average long term Nifty PB is 3.5. Majority of the time, Nifty PB stays in the range 2-4 range.
  • It hit a peak of 6.55 during 2008.
If PB greater than  4Expensive
Between 2.75 – 3.5Fairly priced
Less than 2Cheap
Currently  PB ratio4.25

7. The monetary and fiscal stimulus has to end, followed by Global Tightening

  • With some recovery, the Fed and other Central Govts. have to draw back on the easy liquidity, raise interest rates, and the Indian stock markets will crash.
  • This is a likely scenario, but we cannot say if this will happen in the next quarter or next 4 years.

CONS: Reasons why the Indian Stock Market is still Undervalued

1. Reforms in the Indian Economy

  • A series of reforms in the last decade such as IBC, RERA, GST, crackdown on Black Money and investments in Digital and Fintech have happened and the benefits of these are unfolding.
  • Growth initiatives like ‘Make in India’ and ‘PLI for manufacturing’ have set the stage for higher employment, reduced imports and a stronger economy and self-sufficiency.
  • Govt. initiatives like controlling deficits, import substitution (in defense and monetization of gold assets) have strengthened the domestic economy.
  • The Digital Transformation of Indian Stock Markets, and the fall from grace of Indian Real Estate for investments.

2. The China + 1 Situation

  • The trade and political tension between USA and China has changed the equations in the last few years. USA had become dependent on China for a lot of manufactured products. With changing equations, it has become necessary for global firms to look at alternatives for manufacturing at scale. India is positioning itself as a good alternative by the Make in India and Production Linked Incentives (PLI) in manufacturing, extending from electronics, chemicals, defense, textiles, auto, etc.
  • In capital markets, China recently cracked down on several domestic sectors like steel, education, ecommerce, fintech, etc. Many foreign investors lost money as the changes in business ground rules were sudden and unexpected and based on China’s authoritarian system. China may thus become an unattractive option for global capital, and India may emerge as a stronger alternative.
  • These situations can result in India attracting high FDI and FII capital in the next few years.  

3. Because of Covid, many domestic sectors were affected, but are recovering fast

  • Sectors such as Travel & Tourism, passenger transportation, Hotels, Restaurants, Auto, mfg., Real Estate & construction are sectors still below pre-Covid levels. Banks have also suffered. All these sectors are expected to recover in 1-2 years, which will help improve earnings of the sectors.
  • The IMF has put India’s growth forecast as 9.5% for fiscal 2022 inspite of the second wave of Covid during Apr-Jun‘21. Chief Economic Adviser K V Subramanian said the economy is expected to stabilize to 8% growth in subsequent years.
  • Strong economic growth will drive up the Earnings, and reduce the high valuations of the market. Already we can see that the Nifty PE has fallen from 42 to 29 in just 2 quarters as the economy improves earnings and recovers from Covid, see Fig 3.
  • With better earnings, the high P/E ratio of Nifty, as well as Midcap and Smallcap indices will correct.

4. High Exports growth

  • India’s exports are growing very well in the last few quarters, in sectors such as gems and jewellery, petroleum, chemicals and engineering. The indications are of an economic revival in India and the country is on track to achieve $400 billion of goods exports this financial year and attract high FDI in FY22.
  • India’s foreign exchange position has strengthened in the context of the pandemic and India has been growing forex reserves at a record pace.
  • The INR has strengthened in the last few quarters, while there was a broad decline in the USD after the Fed Chairman said more progress was needed in the economy to withdraw stimulus.

5. Covid fears reducing, and global economy in a rebound

  • The second wave of Covid is receding in India. A third wave is possible, but we have already seen that the second wave was handled well by the administration and industry.  
  • Vaccination is scaling up in India and should cover a majority of the population soon. This will allow free movement of people, a return to work, and ensure a rapid recovery of the economy.
  • Post covid, the global travel will recover. Meanwhile in India IT based services and manufacturing are ramping up and supplying consumers in a global recovery.
  • A massive migration of workers in India from Urban centers to villages, is slowly reversing as jobs beckon across construction, logistics and retail. Education centers and offices are also reopening.
  • The high Market Cap to GDP Ratio may correct if the GDP rises as expected in next few years.
  • The Stock Market appears in a Bubble but it is in fact recovering from many years of under penetration of equity and slow growth. A new generation of younger investors are more optimistic and positive in their thinking.
  • The fiscal deficit would remain elevated over the next two years but the debt to GDP ratio is expected to stabilize or flatten out.
  • The private sector has been underinvested in Capacity and Capex in the last decade. With lower interest costs and higher growth expected, the private sector is making capex plans. If the trend accelerates, the Price to Book Value will reduce.
  • The stock market is forward looking. It anticipates higher GDP and growth in the next few years, and the Nifty levels reflect this optimism.

Conclusion

  • As an investor in the Indian markets over the last 15 years, I have always believed in the growth story and the resilience of the market. At around $1947, the Indian per capita income is low. Given the freedom, global connects and govt. initiatives, the economy should be able to achieve over 7% GDP growth over the next few years. Except for the informal sector and unlisted space, much of this growth should translate into gains for the stock markets in India.
  • The Indian economy has been reset by the Covid infection. However most businesses have been able to adjust and adapt to it in terms of prevention and resolution. It’s not business as usual any longer. The people and businesses are back, stronger than ever, and with a new urgency.
  • Assuming a full recovery for the economy over the next year and good growth thereafter, the markets will stay positive. Given the context of excellent liquidity, low interest rates and a benevolent, growth oriented, stable policy environment, the Indian markets can continue to rise.
  • Markets are unpredictable in the short term, but participants and investors can expect good returns in a 3-5 year period horizon.  

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.

A Portfolio of Good Medicine

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Dear Investors,

Which Industry, other than IT Services, is India globally competitive?

In which industry are Indian products of high quality and reasonable cost on a global scale?

Which is the sector likely to do extremely well given today’s uncertainties?

The answer is – the Indian Pharma Sector.

JainMatrix Investments identified the pharma sector as attractive as the nation turns its attention to healthcare, hospitals and vaccines.
The Indian pharma firms have also been in focus globally, and the gates are opening slowly for these firms to win new markets, supply drugs & medicines and discover new cures.

We have made a report, Indian Pharmaceutical Sector – Good Medicine. Our report covers the following:

  • The progress of Indian pharma.
  • Why this sector is at an inflexion point in terms of global growth
  • Why this industry is globally competitive
  • The large cap and mid cap firms of interest
  • We benchmark a selection of the firms on financial parameters, across Large cap and Mid cap players. We sieve through them to find the preferred picks.
  • We map the share price performance of these firms over several years.
  • We provide a high quality portfolio of six firms of the Sector, 3 from large caps and 3 from mid caps, for investors.

Offer of the Month

  • Buy the JainMatrix Investments annual subscription for a special offer @ ₹15,999 (normal rates ₹16,999)
  • Get the Indian Pharma Sector report free along with the Welcome Kit and high performing Model Portfolios.
  • It includes a whole year of guidance on direct equity investing in Indian Markets. This offer is valid only for May 2021 as a special summer offer. See details
  • To take this offer, transfer in above offer amount on https://jainmatrix.com/payment-options/
  • Send a SMS message – Summer of ’21 Pharma offer/ your name to 9886110032.
  • Give us a day or two to contact you to start.

Happy investing !!

Regards,

Punit Jain – Founder, JainMatrix Investments

Disclaimer – While the offer is open in May ’21, we reserve our rights and may decline it in case our marketing objectives are not fulfilled.

Indian IT Services Sector – Add the Digitals

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JainMatrix Investments presents an Industry report on the Indian IT Services sector. It’s a sector that is growing at 8-10% annually and has significant share in global outsourcing. An ecosystem of good college education and a large pool of talent, feed a clutch of globally competitive Indian IT Service firms. The digital demand has only grown post-covid, so the industry is looking at many years of global growth in early double digits. See the Conclusion section for our recommended IT Services portfolio.

We make our 11th Jan 2021 IT Services sector report public for your investing pleasure and success.

jainmatrix investments, IT Services

Additional sector reports:  Happiest Minds IPO – Ride the Digital Wave – Sept 2020    

                                               LT Tech Services IPO – The Make in India Firm – Sept 2016

Introduction and Profile

  • Indian IT services industry started over 30 years ago, but is now very large with revenues US$ 191 billion (INR 14 lakh crores). About 81% of revenues are from exports. See Fig 1a.
  • It has 17,000 firms & is an emerging global hub for Digital Skills, with 75% of global digital resources.
  • IT Services have contributed 7.7% to the India GDP in 2019 which is expected to grow to 10% by 2025 (IBEF). In FY19, the industry employed 41 lakh people. It is also fueling innovation, as there are around 5,300 tech start-ups in India.
  • Exports rose at a CAGR of 8.05% during FY16-19. Export of IT services has been the major contributor, accounting for 54% of total IT export (including hardware) during FY19.
  • Globally, the sector is headed towards achieving USD 1 trillion (INR 75 lakh crores) of revenues by 2022.

Fig 1a – Market Size in India and Fig 1b – Share of Demand by Country

  • USA dominates global Country Share of demand, with EU, China and Japan coming next, see Fig 1b.
  • In Fig 1b, market share of Indian IT industry looks small but this is domestic demand in USD. India is a dominant supplier of IT services globally and has the fastest growing industry in the world with most key players having a HQ or development centers here.
  • BFSI is a key business vertical for IT & BPM industry, in terms of major revenue-share. Adoption of new technologies is needed for growth & competitive advantage in Banking & Insurance domain.
  • Other important sectors are Life Sciences & Healthcare, Retail & CPG, Communications & Media, Manufacturing, Telecom and Technology & Services.
  • Indian IT industry’s USP is cost competitiveness, good skills, resource availability and project management skills for providing IT services.  
  • Tier II and III cities are gaining traction among IT firms aiming to grow business in India, facilitated by skilled local resources, affordable real estate, favorable Govt. regulations, tax breaks and SEZ schemes. A hub and spoke model is developing with Tier I city as hubs and tier II, III and IV as spokes.
  • India is a top location for Global Capability Centers (GCCs), which concentrate on workers and infra to handle operations (back-office, corporate business-support, accounting & finance, transaction processing and contact centers) and IT support (app. development and maintenance, remote IT infra, and help desks), to enhance productivity. Some large companies use GCCs as a center of excellence for innovation and research.
  • About 70% of India-based GCCs belong to US companies, 20% European and 10% Asia-Pacific.
  • According to Nexdigm, India is home to over 1,750 GCCs, which is 50% of all such centers globally. GCCs here employ over 10L employees, generating a total economic value of around $28.3 billion.
  • IT Services in India are growing at a fast pace due to the globally competitive firms that provide world-class services. The Human talent pool available in India is highly skilled and trainable, a key strength of the IT Services sector. The IT infra here has also developed to global standards.

IT Sector Progress and News

  • NASSCOM (National Assn. of Software & Services Cos.) launched an online platform to up-skill 40 lakh tech professionals. It partnered with GE Healthcare for digital healthcare solutions for the market.
  • IT service firm DXC Technology, will set up its first global analytics unit in Bengaluru.
  • Govt. of India (GoI) announced a national program on AI (artificial intelligence) and a new National AI portal. GoI has identified IT as one of 12 champion service sectors for developing an action plan. It has set up a ₹5,000 crore ($ 745 m) fund for realizing the potential of these champion service sectors.
  • As of Feb’20, there were 421 approved SEZs (Special Economic Zone) across the country, and of these, 276 are from IT & ITeS. These provide tax incentives for exports. Software Technology Parks of India (STPI) has set up 57 centers for single window clearance and infra facilities, and for Excise Duty exemptions on buying local goods.
  • Technology for many businesses was considered a support function. This has changed as tech. has become business critical, enabling employee productivity, revenue growth from eCommerce, cost savings and faster customer support & communication.
  • TCS took the #1 spot with M-cap of $144 b among IT Services organizations, dethroning Accenture which is trailing by just $1b (Dec ‘20).

Impact of Covid

  • In Q1FY21, Indian IT sector has emerged as a winner post lockdown. With Work from Home (WFH) at 95%, all the big IT firms saw robust demand from clients, particularly cloud & automation. Infosys gained in revenue and profits; IT index gained 22% in July. Similarly in Q2FY21, IT sector gained due to increased tech spending by clients in digital transformation.
  • Due to automation, spending on IT infra has outpaced HR. Job creation has been limited with offers being rolled out more on contractual basis than full-time, in both emerging & developed markets.
  • Many firms found that WFH employees are equally productive & this saves real estate costs as well. It also relieves firms of covid related responsibility and litigation.
  • IT Deals – Indian IT stocks jumped by 50%, on an average, between Mar-Sept ’20. Top IT firms have been closing deals – Infosys closed 2 big deals, Vanguard and Consolidated Edison (digital transformation); TCS won deals from Phoenix Group (life insurance and pension) for client analytics tool, and Morrisons (retail); Wipro from Marelli (auto software engg.) and HCL Tech from Ericsson.
  • Broker comments: Girish Pai of Nirmal Bang said that global clients shifted spending from internal IT, selling, general and administrative (SG&A) and hardware, to outsourcing and digital, to speed up the digital transformation processes such as migration to cloud.
  • Motilal Oswal, a brokerage firm, said that demand & utilization has normalized to pre-Covid levels with discussions being revived for deferred deals and margins expected to be resilient as well.

Relative Price Performance

  • The graph in Fig 2 – Relative Share shows the stock returns given by listed Indian IT Services firms over Oct’18 – Jan’21.
  • We can see that performance was steady for these firms till early 2020 in a +25 to -10% ranges, then there was a sharp fall due to Covid. Recovery came by July’20 and in next 6 months there was a dramatic price rise for many of them.
  • On the right side we can see the resultant share performance by order for the 2+ years.
  • Among large caps, L&T Infotech is #1, marked L1, Infosys #2, HCL Tech #3 and next are Wipro #4, TCS #5 and Tech Mahindra #6. Among mid-caps, the rankings are Persistent is #1, marked M1, others are Mindtree #2, Mphasis #3, LTTS #4 and Sonata Software #M5.
  • Even so, the entire IT Services pack has performed very well as even the lowest performance was 42% gains over 2+ years, while the highest is an amazing 179% gain.

Fig. 2 – Relative Share Price

Large Cap Firms – Benchmarking and Sales Charts

Fig 3a – LC revenue and Fig 3b – MidCap

In Fig 3a we map the FY20 revenues for Large Cap Firms. Revenue from exports is the major source.

  • TCS has the highest sales by value, almost two-fold to the nearest competitor Infosys.
  • In terms of India revenues, Tech Mahindra has the highest domestic sales followed by TCS.

Fig 4a – LC Benchmarking

  • In Fig. 4a – Benchmarking, we compare large cap IT services firms on key financial parameters.
  • The leader is marked in green and the laggard in red. The sum total of these parameters is the Score.
  • We can see that TCS is a clear leader, including RoCE and Return of Equity, while Wipro lags on this comparison amongst 6 large cap firms. L&TI however appears as a growth and profit leader.

Mid-Cap Firms – Benchmarking and Sales Charts

  • In a similar manner, we compare mid cap IT services firms. In Mid-cap basket, Sonata is the leader on financial parameters, including RoCE and RoE, whereas Persistent lags among the 5 firms.

Fig. 4b – Mid-caps Benchmarking

  • Among mid-caps, Mphasis has the highest revenues or sales, followed by Mindtree.
  • Sonata Software has the highest domestic sales by value and proportions.
  • Fig 4b above captures the MidCap firms revenue by domestic and exports.

Future of the Indian IT Services Industry

  • The comparative advantages of the country are – young population, good college education and ample science and technical courses. These feed this sector with quality resources.
  • India is developing as a critical part of execution and delivery of global business and IT Services, across industries & locations. Firms like TCS are covering more countries & expanding the market.
  • The growth of Telecom networks like 2G-4G and now 5G are bringing the world closer.
  • Covid has actually accelerated the rise of digital, eCommerce, internet and the IT Services industry. As larger firms enforced WFH for their employees’ safety, the physical presence has become unnecessary for work, for large swathes of industry. 
  • TCS as the #1 firm globally in terms of market capitalization has been able to sustainably mix high margins, high growth and a global vision. The other firms in the industry are growing in its wake and developing their own niches and strengths.
  • The industry is looking at many years of global growth in early double digits, even as IT services take early baby steps of growth in its own backyard, India. With programs like Aadhar card, UPI payments, GST, digital tax filing and FASTag, technology is proving the best way to transact at scale with speed and transparency, and also reduce corruption.
  • The success of the Indian IT Services firms has spawned the second generation of services firms such as Syngene Intl. (pharma R&D) and Tata Elxsi & LTTS (Engineering R&D) which are niche services players by technology or industry.
  • The key new IT services trends are WFH, cloud services, AI, IoT, robotics, mobile apps and machine learning.

Conclusion:

  • IT Services firms are always going to be needed to stitch together solutions for large Enterprises, and to help them navigate, evaluate and deploy in complex IT landscapes with multiple technology options.
  • Indian IT services companies have time and again proven their mettle and have the skilled resources and project management skills to deliver successfully. It is a dynamic, globally focused sector.
  • The 11 firms had an excellent share price performance range of 42% to 179% gains over 2+ years.
  • The weak INR may help India to continue to be a good base for service delivery teams and exports.
  • Large Caps: A LC IT Services portfolio will be more stable and safer for investors. We conclude from Fig 2, Fig 3a, and Fig 4a that of the 6 LC firms, the best 3 are L&T Infotech, TCS and Infosys.
  • Mid-Caps: A MidCap IT Services portfolio will be more volatile, but possibly provide better returns. We can see from Fig 2, Fig 3b and Fig 4b that of the 5 LC firms, the best 2 are Mindtree and LTTS.  
  • We recommend investors to buy this 5 firm portfolio in an equi-weight mode.

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 equity holdings in LTTS, Sonata Software, TCS and L&T Infotech, all <1%. Punit Jain has worked at TCS (1995-2002) and in Sonata Software (2003-2012). Other than this, JM has no known financial interests in any of these firms. 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 JM at punit.jain@jainmatrix.com.