We enjoyed the comforts of a historic bull run following the COVID-19 crash, where the BSE 500 surged 292% from its bottom of 7,870 on March 23, 2020, to a peak of 38,740 on September 23, 2024. Since beginning our journey as an RIA on April 1, 2022, our performance over the past 4.5 years has delivere…

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What is driving the sharp improvement in profitability

Gandhar Oil’s latest quarter looks very different from the business it was running a year ago. Revenue nearly doubled, operating margins moved from around 5% to above 16%, and quarterly profit exceeded what the company earned in the whole of FY26.

The important question is how much of this improvement can last. Part comes from the way Gandhar operates its business. A substantial part reflects unusually favourable market conditions.

First, what does Gandhar actually make

White oil is a highly refined mineral oil. It is colourless, odourless and chemically stable, with grades suited to different applications. It is used in baby oils, creams, ointments and pharmaceutical formulations, as well as certain food-processing and industrial applications.

Gandhar sells specialty oils under the Divyol brand. Its products span personal care, healthcare and performance oils, lubricants, and process and insulating oils. Its FY25 annual report cites an estimated 26.5% share of India’s white oil market and a position among the top five producers globally.

Customers include P&G, Unilever, Marico and Dabur. By FY26, the company reported more than 4,000 customer accounts. Its manufacturing facilities in Taloja, Silvassa and Sharjah serve a broad range of industries and geographies.

That diversification helps spread customer and end-market risk. The common exposure across the business remains the cost and availability of oil-based inputs.

The gradual improvement already underway

Before the latest surge, Gandhar had been improving profitability through higher utilisation, procurement efficiency and cost control.

The operating leverage is straightforward. Factories, equipment and overheads are already in place. As more volume moves through those assets, fixed costs are spread across a larger production base.

Management explained on the Q4 FY26 call that rated capacity is calculated on a two-shift basis. A third shift can support additional output when required, with incremental labour and power costs rather than a proportionate increase in the entire cost base. That explains how production can exceed stated capacity without a completely new plant.

It also explains why higher utilisation can improve margins. The benefit still depends on selling prices, raw-material costs and the profitability of the products being sold.

Why Q1 FY27 was so different

Revenue grew about 92% year on year, while sales volume rose around 8%. That gap shows how strongly selling realisations influenced the quarter.

Management linked the performance to higher selling prices, timely procurement and a favourable product mix amid West Asia supply disruptions. Gross manufacturing spreads reached approximately ₹28,145 per KL, well above normal levels.

The implication is significant: an increase in volume alone cannot explain the profit jump. Gandhar was earning substantially more from the business it was already doing.

Procurement execution matters in that environment. Securing material at favourable terms while finished-product prices rise can expand profitability sharply. It also means that current margins depend partly on the relationship between selling prices and replacement input costs, which can change quickly.

Can these margins continue

Management expected strong margins for another one or two quarters and did not anticipate an immediate return to earlier levels. It did not quantify a sustainable FY28–FY29 margin. [4]

That gives some support to near-term profitability. It does not establish 16% as a permanent margin for the business.

A company can execute well during a disruption and still see profits normalise when supply conditions improve. As competing supply returns, customers renegotiate prices or replacement inventory becomes more expensive, the additional spread can narrow.

Consequently, a decline from this quarter’s earnings would need to be understood in context. Some reversal could reflect exceptional trading conditions fading. A more concerning outcome would be weak underlying volumes, deteriorating customer relationships or an inability to retain the efficiency gains achieved through higher utilisation.

Valuation depends on normalised earnings

Management expects volume growth of around 8–10% year on year. If that pace continues through FY29, even with selling prices reverting to pre-West Asia crisis levels, Gandhar’s annual revenue could reach roughly ₹5,100–5,700 crore. This assumes average selling prices across its products return to around ₹74,000–78,000 per KL, broadly in line with FY25 and Q1 FY26 levels. Extending the growth rate through FY29 is a scenario assumption, not company guidance.

At a normalised operating margin of 7%, that revenue would translate into EBITDA of approximately ₹355–400 crore and PAT of around ₹225–260 crore, after allowing for depreciation, interest and tax. The earnings case therefore does not require either the latest quarter’s 16% margin or its unusually high selling prices to continue. It does depend on the company sustaining volume growth and having enough capacity to support it.

If Gandhar delivers that level of profit and the market values it at ~15 earnings, there could be meaningful upside over time. Its established customer relationships and the ability to produce more from existing factories support that possibility. The question is whether volume growth and factory efficiency can sustain higher earnings after selling prices normalise.

Disclaimer:

Plus91 Asset Management LLP is a SEBI Registered (SEBI Registration No. INA000021526) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.

Under the listed entity sit several financial businesses with different economics, different growth rates, and different valuation logic. An investment bank shouldn't be valued like an AMC. An AMC shouldn't be valued like an affordable housing lender. Neither should be valued like a distressed-credit book. But when all of them sit inside one listed company, that distinction gets lost — and that's where we think the opportunity starts.

JM Financial today runs five main businesses: Corporate Advisory & Capital Markets, Wealth Management, Asset Management, Private Markets, and Affordable Home Loans, plus a Treasury & Others bucket. Each one plays a different role, and none of them should really share a P/E multiple.

Corporate Advisory: where the relationships begin

This is the easiest JM business to understand. It’s spent decades building relationships with large Indian corporates and promoters, and that franchise still counts at the top end of Indian capital markets.

Take two of the biggest deals moving through the market right now: JM is a book-running lead manager on Jio Platforms’ proposed IPO, and it’s among the merchant bankers appointed for the NSE IPO. That’s not a small thing. Investment banking is a business where reputation compounds. A promoter isn’t going to hand over a multi-billion-dollar transaction to whoever quotes the lowest fee. You need distribution, institutional credibility, and a track record of actually closing deals.

The recent numbers look weak because primary capital-market activity slowed. JM closed only nine capital-market transactions worth around ₹22,000 crore in Q1FY27. But the pipeline tells a different story: as of Q1FY27, JM had 60 filed IPO transactions adding up to roughly ₹1.5 lakh crore, excluding Jio and NSE entirely. This business is inherently lumpy — revenue can vanish for a quarter when markets shut, then snap back once issuance resumes. We wouldn’t read too much into one soft quarter.

And the advisory fee is really only part of what this business is worth. It’s also the group’s relationship engine. Once JM works with a promoter on an IPO, an M&A deal, or a fundraise, that relationship opens doors elsewhere — private wealth, structured credit, syndication, promoter financing. The fee shows up on the P&L. The relationship shows up everywhere else.

We value this business at 10x FY29e PAT of ₹390 crore, implying an attributable value of ₹3,898 crore. There’s no clean pure-play listed comp for Indian investment banking — Motilal Oswal Financial Services is the closest, trading around 18x FY26e earnings, with ICICI Securities’ own sum-of-the-parts on MOFSL applying roughly 16x FY28e consolidated operating P/E to the group. But that blended multiple carries higher-multiple businesses like wealth and AMC inside it, so the pure advisory piece is worth meaningfully less on a standalone basis. Pure advisory franchises typically trade in an 8-12x PAT range given how lumpy the earnings are, and we’ve placed JM in the middle of that band rather than assuming the franchise deserves a premium.

Asset management: small today, but the economics change everything

JM effectively owns 59.5% of JM Financial Asset Management. On the surface it doesn’t look important — current profits are small, partly because JM is deliberately spending on people, distribution, and product expansion, which is dragging on near-term profitability.

But AMC economics work differently from most of JM’s other businesses. Once an AMC hits scale, incremental AUM needs very little incremental capital. Revenue is fee-based, cash conversion is strong, and a fund that works keeps generating revenue for years without much extra input. That’s why an AMC can carry a much higher multiple than a lending or balance-sheet-heavy business.

JM’s mutual-fund non-liquid average AUM was around ₹10,521 crore in Q1FY27, and the company is pushing beyond plain-vanilla mutual funds into alternatives, credit AIFs, and even a dedicated pre-IPO fund. The question isn’t what the AMC earns this year. It’s what the platform looks like once distribution and AUM have scaled and most of today’s investment cost has already been spent.

Our number for the AMC is 6.5% of FY29e AUM of ₹20,282 crore (60% stake), an attributable value of ₹784 crore. HDFC AMC, the largest and most profitable listed AMC, trades at roughly 11% of its ₹9.3 lakh crore AUM; Nippon Life India AMC trades closer to 9-10% of AUM. The industry’s own historical floor, going back to the Reliance/Nippon AMC IPO, was 5% of AUM. JM’s AMC doesn’t yet have HDFC or Nippon’s margins or ROE. It’s still spending on distribution and headcount, and it’s running at roughly 1/40th their scale even on our FY29e projection, so we’ve pulled the multiple down to 6.5%, close to the historical floor with a modest premium for the growth. That growth is real. JM’s AMC AUM compounds at close to 26% a year through FY29e in our numbers, faster than HDFC or Nippon can post off their much larger base, which is what earns it something above 5% in the first place.

Wealth management: probably the most important long-term piece

This is where the different parts of JM start talking to each other. Total wealth AUM stood at around ₹1.13 lakh crore at Q1FY27, with recurring AUM of roughly ₹33,394 crore, and the wealth loan book grew 43% YoY to ₹2,417 crore.

But this year’s revenue isn’t really the point. The network building up around it is. An entrepreneur who used JM for investment banking can become a private-wealth client. That client puts money into JM’s mutual funds, PMS products, AIFs, or private-market deals. The same client eventually needs financing. A corporate relationship doesn’t end when the deal closes; it moves across the group. That’s why we’d bet on Wealth Management as one of the biggest long-term contributors to JM’s enterprise value.

JM has been spending aggressively here — hiring relationship managers, opening branches, building out distribution — and near-term margins don’t show what a mature wealth franchise actually looks like. There’s a gestation period: hire an RM today, pay the salary today, and wait two or three years for the book to build. Today’s cost and tomorrow’s revenue aren’t matched yet.

For Wealth Management we’ve used 3.5% of FY29e recurring AUM of ₹40,773 crore, which works out to ₹1,427 crore attributable value. 360 ONE WAM trades at roughly 6-7% of its total AUM base, and higher still against its recurring AUM alone. Anand Rathi Wealth — running a similar AUM scale to JM’s wealth book — trades far richer again, though that reflects an unusually high ROE we wouldn’t expect JM to match anytime soon. Even against the more conservative 360 ONE benchmark, our 3.5% sits low. We’ve kept it there deliberately: with RMs typically taking two to three years to become productive, today’s cost base doesn’t yet reflect what this franchise looks like once the hires mature. If they do, this is probably the most understated line in the whole valuation.

Private markets: the messy bucket the market doesn’t know how to price

This is the hardest piece to put a clean multiple on. It’s a mix of private credit, bespoke and real-estate credit, distressed credit, and investments like private equity funds and REITs. Some of that earnings stream is recurring, some depends on syndication, some depends on recoveries actually landing, and some of the value just sits on the balance sheet waiting to become visible.

Q1FY27 is a good example of why this bucket matters even though it’s messy. While capital markets were weak, Private Markets carried the earnings. Distressed-credit resolutions generated gross recoveries of more than ₹2,000 crore during the quarter, and JM’s share of that cash flow exceeded ₹1,200 crore. It’s a counter-cyclical lever: when IPOs are booming, the investment bank benefits; when capital gets scarce or stressed assets need resolving, Private Markets picks up the slack.

We value Private Markets at 1x FY29e net worth of ₹9,242 crore (97% stake), implying an attributable value of ₹8,937 crore. Edelweiss Financial Services is the closest structural comp — a similar stack of NBFC lending, credit, and advisory sitting under one holding company — and currently trades around 2.3-2.7x book, though its own 13-year range has run as low as 0.3x with a median closer to 1.2x. We’ve held JM at 1x, the low end of even a conservative range, given how dependent this book’s earnings are on recovery timing and syndication rather than a steady fee stream. This is also the single biggest line in the whole SOTP, worth more than the other five segments combined, which makes it the multiple most worth revisiting as more resolutions come through and the earnings prove less lumpy than the book suggests today.

Affordable Home Loans: still early, and that’s the point

This is the cleanest business in the group. It lends to affordable housing customers, full stop, and it’s scaling fast. AUM reached about ₹3,715 crore in Q1FY27, up 28% YoY. The customer base grew 31% YoY to more than 35,000, and disbursements were up 87%. The book is granular too — management has previously pointed to an average ticket size of roughly ₹10 lakh.

It’s still small inside JM Financial, which is exactly why the optionality matters. Management has talked for years about eventually unlocking value here through an IPO or demerger once the business reaches scale, and more recent commentary keeps pointing toward a separate listing once housing hits the required size.

The HFC business is valued at 3.72x FY29e net worth of ₹1,170 crore (97% stake), or ₹4,201 crore attributable. Listed affordable-housing financiers — Aptus Value Housing, Home First Finance, and Aavas Financiers — trade between roughly 2.5x and 4x book, with brokerages explicitly assigning 3.5-4x to this trio for AUM growth in the 22-30% range. JM’s HFC book grew AUM 28% and disbursements 87% in FY26, comfortably inside that growth cohort, so 3.72x is neither generous nor conservative — it’s close to where the peer set already sits.

And then there's Treasury

Treasury isn’t an operating franchise and doesn’t deserve a growth multiple. Think of it as the group’s liquidity and capital-allocation bucket — cash and investments that can be deployed wherever an opportunity shows up. JM had consolidated cash and cash equivalents of roughly ₹3,814 crore at the end of Q1FY27.

We treat Treasury & Others at 1x adjusted NAV, or roughly its FY29e net worth of ₹1,954 crore. There’s no real multiple debate here. It’s cash and investments, valued as what it is rather than as an operating business.

The real problem: one ticker, five different valuation frameworks

None of these businesses is hard to understand on its own. What’s hard is that they’re all bundled together. Corporate Advisory should be valued on normalized earnings and franchise strength. Wealth should be valued on recurring AUM and revenue quality. The AMC deserves an asset-management framework. Affordable Home Loans should be looked at through book value, ROE, and asset quality. Private Markets needs some combination of earnings, net worth, and the underlying value of its credit book. Treasury should mostly just be treated as excess capital, not an operating business.

Put them all together and the consolidated numbers turn to mush. Run a simple screen and you see “JM Financial Ltd.” Look underneath and you see an investment bank, a wealth platform, an AMC, a private-markets franchise, and a fast-growing housing lender, all sitting under one holding structure.

Verdict and valuation

Adding up the six segments on a FY29e basis gets us to a segment SOTP anywhere between Rs.20,000 to Rs.25000.

One thing is worth being upfront about. The Wealth Management multiple sits below even the most conservative listed comp, which is deliberate given the gestation period on recent RM hires but is also the single easiest line to argue up if those hires perform. And Private Markets, at 1x book, is both the most conservative multiple in the model and by far the largest dollar value in it — which makes it the one number this entire thesis is most sensitive to.

Conglomerate discounts usually show up when the market can see the earnings but can’t easily tell what each piece underneath is actually worth. We think that’s exactly what’s happening here.

Note: I have intentionally withheld our specific Target Price (Intrinsic Value per share) in this post. For readers interested in examining the detailed financial model, SOTP valuation methodology, and target price build-up, please drop a comment below and I will gladly share our complete valuation snapshot.

Disclaimer:

Plus91 Asset Management LLP is a SEBI Registered (SEBI Registration No. INA000021526) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.

When looking at a company this massive, it is easy to get lost in the details. However, breaking the business down into its core cash-generating engines reveals a clear investment picture.

1. Reliance Retail: The Shopping Juggernaut

• The Growth Story: Reliance Retail has built a massive network that seamlessly bridges physical stores and digital shopping. Over the last four years, they have expanded aggressively, growing their footprint from 14,740 to over 20,160 stores. This rapid expansion helped drive their FY26 revenues to a staggering ₹3.71 lakh crore, while their operating profit (EBITDA) more than doubled from ₹12,423 crore to over ₹27,000 crore in just five years.

• Valuation Comparison: The Indian retail sector is generally priced at a premium. For context, a peer like DMart trades at a lofty 47x EV/EBITDA, Vishal Mega Mart at 24x, and V-Mart at 14x. When weighing Reliance’s unmatched scale and growth against these competitors, a target multiple of 15 to 20 times its operating profit is a highly conservative and realistic baseline.

• The Case for ROCE Expansion: Why does a competitor like DMart command such a high premium? It largely comes down to capital efficiency—specifically, they generate a ~17% Return on Capital Employed (ROCE). Currently, Reliance Retail clocks in around a 10-11% ROCE. However, as their aggressive pace of opening new stores begins to moderate, their existing store network will mature and start generating steady cash. As this heavy capital spending slows down, their overall efficiency and profit margins are structurally primed to expand.

2. Jio Digital Services: The Catalyst in Waiting

• ARPU Dynamics: India’s Average Revenue Per User (ARPU) continues to hover in the $2-$3 range. Compared to China’s $6-$7 and a global average closer to $10, there is a massive, multi-year runway for ARPU expansion in the domestic market.

• Value Unlocking: While we won’t dissect the granular operational metrics here, Jio remains the primary near-term catalyst for the stock, with a highly anticipated listing expected within the next six months.

Market Cap: A standalone market capitalization of ~Rs. 10 lakh crore is broadly determined for the digital services arm. With Reliance Industries holding a 66.43% stake, this establishes a definitive and massive valuation floor for the parent company.

3. Media & Entertainment: The Dark Horse

• EBITDA Contribution: Media and Entertainment is the smallest slice of the pie, contributing roughly 3% of overall EBITDA.

• Staggering Growth: Despite its relative size, the growth trajectory is undeniable. From practically zero contribution five years ago, the division posted an EBITDA of ~Rs. 5,800 crore in FY26.

• Production Scale: This surge is backed by an unrivalled production capacity of over 800 shows and movies last year—averaging more than 3 releases per day.

• Box Office Dominance: The highest-grossing films over the last three years (Dhurandhar 1, Dhurandhar 2, and Stree 2) all belong to the Reliance production house.

• Valuation: With impressive growth expected to persist across linear TV and digital streaming, we value the Media and Entertainment arm at 8-10x FY29e EBITDA.

4. Oil to Chemicals (O2C): The Cash Cow

• Overview: The O2C division encompasses transportation fuels, polymers, elastomers, intermediates, and polyesters, functioning as a deeply integrated global manufacturing hub.

• Financial Engine: O2C remains the definitive cash cow. It generated over Rs. 6.6 lakh crore in revenue and served as the second-highest EBITDA contributor at ~Rs. 60,500 crore in FY26.

• Valuation: Anticipating steady, double-digit top-line growth driven by domestic demand and petrochemical integration, we value the O2C business at a stable ~7x FY29e EBITDA.

  

  5. Oil & Gas E&P: Capitalizing on Energy Security

  • Asset Base: The upstream portfolio consists of critical deepwater assets in the KG-D6 block and onshore Coal Bed Methane (CBM) blocks, which currently supply nearly 30% of India’s domestic gas.

  • Samudra Manthan: The division is perfectly positioned to be one of the largest participants in the government’s Samudra Manthan deep-water exploration scheme, which will further augment its resource base.

  • Valuation Mechanics: To account for the natural production decline of mature fields, we value this business using a Discounted Cash Flow (DCF) model. Factoring in a 10% annual reduction in EBITDA for the next 10 years, a 12% cost of capital, and a 2% terminal growth rate.

  6. New Energy: The Captive Green Disruption

  • Infrastructure & Scale: Backed by a committed outlay of Rs. 75,000 crore, Reliance is constructing the 5,000-acre Dhirubhai Ambani Green Energy Giga Complex at Jamnagar. The integrated ecosystem spans gigawatt-scale heterojunction (HJT) solar PV modules, modular battery energy storage systems (BESS), automated electrolysers for green hydrogen, and nationwide compressed biogas (CBG) plants.

  • Captive Cost Economics: Rather than serving merely as a merchant utility play, the bulk of this clean energy footprint is designed for internal/captive consumption across its power-hungry O2C refineries, petrochemical crackers, and telecom infrastructure. Displacing fossil-based fuels and volatile grid tariffs with round-the-clock captive green power will drive substantial operational cost savings, providing a direct, structural uplift to consolidated margins.

6. Pristine Financial Strength

• Balance Sheet: Reliance operates from a position of absolute financial strength as a net debt-free company.

• Free Cash Flow Resilience: The conglomerate has outlined an aggressive, future-proofing capex outlay of ~Rs. 1.5 lakh crore for each of the next three years. Yet, the core cash engines are so robust that the company will comfortably absorb these investments while remaining fundamentally free cash flow positive.

Note: I have intentionally withheld our specific Target Price (Intrinsic Value per share) in this post. For readers interested in examining the detailed financial model, SOTP valuation methodology, and target price build-up, please drop a comment below and I will gladly share our complete valuation snapshot.

Disclaimer:

Plus91 Asset Management LLP is a SEBI Registered (SEBI Registration No. INA000021526) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.

eClerx Services Ltd. (NSE/BSE: ECLERX) is a specialized Business Process Management (BPM) provider, positioned in the global market through its integrated offerings of data analytics, complex operations management, and AI-augmented automation. The firm targets mission-critical processes for Fortune 2000 enterprises, distinguishing itself from volume-based BPOs through high-value, domain-centric service delivery.

Geographic Exposure

Client Concentration & headcount trajectory

Client concentration has risen sharply, reflecting deeper account mining. Top 10 client contribution rose from 46% in FY22 (Q4 FY22 basis) to 59% in Q4 FY26. We flag this plainly: eClerx is scaling through deeper dependency on a narrow cohort of global accounts, not through a broadening client base. We treat this as the principal risk to the thesis.

In terms of delivery infrastructure, the offshore seat count remained flat at 13,976 seats from FY25 to FY26, indicating a decoupling of linear physical seat expansion from revenue growth.

Total headcount grew from 14,910 (FY22) to 22,639 (FY26), an ~11.0% CAGR. Tech Services headcount grew fastest in relative terms, surging from 749 to 2,109. This links to the firm’s focus on technological capability. Revenue per employee rose from ₹14.5L (FY22) to ₹17.4L (FY25) and ₹18.2L (FY26), a 5.8% CAGR, reflecting productivity and service-mix improvements. Offshore seats were flat over FY25–FY26 while offshore delivery headcount grew 17%, so incremental output came from shift density and service mix rather than physical capacity.

AI & GenAI Integration

The rise of Generative and Agentic AI has been integrated directly into eClerx’s productized service models. Management upskilled ~8,000 employees (~40% of workforce) on AI tools as of early FY26. The entire tech team was equipped with GitHub Copilot, targeting 25% productivity gains.

Concalls highlight that eClerx won its first Agentic AI deployments in Q4 FY26 (HiTech/M&D). Management secured a decent-sized Agentic AI project, attributing it to delivery, domain, and client connect rather than price discounting. GenAI wins also support recovery in sluggish verticals, such as a major contract win supporting Fashion/Luxury in H1 FY27.

Our View: AI as a Productivity Enhancer, Not a Deterrent

The stock has corrected from roughly ₹2,500 to ₹1,300 and currently trades at ~₹1,800. We read that de-rating as the market pricing AI in as an existential threat to knowledge-process businesses. We take the opposite view: AI is not a deterrent but a key productivity enhancer, and software and knowledge companies should benefit from this trend rather than suffer because of it.

Our slightly longer-term view is that AI will surely slow revenue growth, as fewer people will be required to do the same job — but margins will expand. eClerx, with Tech Services headcount compounding at ~29.5% (FY22–FY26), ~8,000 employees already upskilled on AI tools and its first Agentic AI wins already booked, should be a major beneficiary of this trend.

Our FY27e–FY29e numbers already embed the first half of this: revenue growth steps down from 22.3% in FY26 to ~18% a year through FY29e, while EBITDA margin widens from 24% to 28%. The sharper revenue slowdown sits beyond our forecast window. The margin benefit starts now, and that asymmetry is what the current multiple is not paying for.

Emerging vertical: eClerx’s fastest-growing segment — anchored by Personiv, its F&A (finance-and-accounting) outsourcing arm acquired in 2020, plus similar F&A work sold across industries. The segment has scaled quickly off a small base and is steadily becoming a larger piece of the overall business.

· FY25 revenue base: ₹168cr (~5% of group revenue)

· FY26 revenue base: ₹333cr (~8% of group revenue)

· Year-on-year growth: +98% in FY26, rising steadily each quarter, driven by new clients adopting automation for small and mid-sized businesses (SMBs).

Separately, eClerx also reports revenue by client size rather than industry. Under that lens, its SMB clients (small and mid-sized businesses, as opposed to large enterprise accounts) grew from ~$29.8Mn to ~$42.1Mn (+41% in USD) over the same period.

Valuation Framework & P&L Assumptions

Vertical performance indicates robust momentum, especially in non-BFSI segments.

We build FY27e–FY29e off the FY26 vertical bases above. Consolidated revenue compounds at ~17.9% over the three years, decelerating from the 22.3% delivered in FY26 as the Emerging base effect normalises.

Fashion & Luxury and Retail is modelled close to flat over the forecast period, on the view that discretionary retail spend stays weak and the FY26 recovery is contract-specific rather than structural. This is our single most conservative vertical assumption; a normalisation here is upside to the numbers above.

Earnings Quality and Capital Allocation

eClerx demonstrates an exceptional earnings quality profile, backed by robust cash flow generation and superior capital efficiency.

· Best-in-Class ROCE: ROCE expanded from 21% in FY21 to 33% in FY26. We model further expansion to 35% (FY27e), 39% (FY28e) and 44% (FY29e).

· Dividend Policy and Payout Volatility: The 5-year average Dividend Payout Ratio (DPR) is ~67%. However, the payout has been highly volatile year-to-year. DPR fell to 10% in FY24 before spiking to 105% in FY25.

· Compounding Track Record: Despite high payouts, revenue compounded at an ~21.3% CAGR, from ₹1,564cr (FY21) to ₹4,117cr (FY26). This forms the “shareholder-friendly compounding” thesis, with expansion funded through internal accruals.

Verdict & Valuation Rationale

Growth Outlook

· Revenue: ₹4,837 Cr (FY27e) → ₹5,705 Cr (FY28e) → ₹6,745 Cr (FY29e)

PAT: ₹820 Cr (FY27e) → ₹1,024 Cr (FY28e) → ₹1,282 Cr (FY29e)

eClerx trades at ~13.4x our FY29e PAT estimate — a discount we think is unwarranted. We see re-rating scope to 20–25x.

Corporate Governance & Forensic Health Check

Score: 8.5 / 10

Positive Governance Markers

· Excellent Cash Conversion: Over the FY21–FY25 period, standalone cumulative operating cash flow (CFO) was 1.04x cumulative Standalone PAT, and consolidated cumulative CFO was 1.11x cumulative Consolidated PAT. CFO exceeded reported PAT in both cases, indicating clean accrual accounting.

· Promoter Alignment and Clean Balance Sheet: Promoter share pledging has been nil across the five-year audited period, and the promoters formally declared zero share encumbrance in FY26. Promoter holding remains highly stable at ~53.8%.

· Professionalization of Leadership: The company successfully transitioned from promoter-led operations to professional management with the appointment of Kapil Jain as Group CEO & MD in May 2023. PD Mundhra remains a Whole-Time Executive Director for strategic oversight.

Areas for Monitoring (Observations, Not Red Flags)

· Goodwill Carrying Value: Goodwill (from historical acquisitions like Personiv/ASEC) has sat unimpaired at ~₹372 crore+ for five consecutive years, representing ~12% of consolidated group assets. Conservatively one should stress-test these assets against potential industry downcycles.

· Offshore CEO Compensation Structure: Group CEO Kapil Jain’s compensation is structured through eClerx Limited, the company’s UK subsidiary. This structuring choice bypasses the Indian Schedule V managerial remuneration limits that apply to the India-listed parent entity. While this is fully disclosed and approved by shareholders, it increases the group KMP costs outside of India and warrants ongoing monitoring.

Disclaimer:

PARTH KOTAK (PROPRIETOR: PLUS91) is a SEBI Registered (SEBI Registration No. INA000021526) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.

Lloyds Metals & Energy is in the business of mining and development, mining of iron ore, manufacturing of pellets, sponge iron, and power generation.

Capacity Additions:

• Iron Ore: The company had a mining capacity of 10 million tonnes until FY25, which has been expanded to 26 million tonnes in the current year, and they expect to achieve an output of 20-22 million tonnes in the current year.

• BHQ Beneficiation: BHQ stands for Banded Haematite-Quartzite. This has an iron content of 20-45%, which you will not be able to sell without processing. What Lloyds has done is run a pilot plant project of 5 tons per hour, which yielded 60-65% iron content at a ratio of 1:3; so for every 1 ton of iron ore you require 3 tons of BHQ. Lloyds will set up a 45 million tonnes plant of BHQ Beneficiation by FY28 with 30% capacity at 15 MTPA, and full 45 MTPA by FY29.

• Pellet Plants: Lloyds has a projected capacity of 15 MTPA, which makes it the largest pellet plant in the country once all the plants are live. Currently, they have a 4 MTPA pellet plant live, another 4 MTPA pellet plant’s construction has begun and should commence from Q2FY26 (June 26), and a pellet plant of 4 MTPA will be live in FY28. They also have a stake in two companies, MRRPL and BRPL, with 19.4% and 49.99%, respectively.

• Slurry Pipeline: A slurry pipeline is like a long water pipeline that carries a mix of crushed ore and water through pipes from a mine to a plant instead of using trucks or trains. It is expected to lead to cost savings from FY26 of Rs. 500-600 per tonne due to the 85 km pipeline from Hedri to Konsari at a capacity of 10 MTPA (Rs. 500-600 Cr) and Rs. 800 to 1,000 per tonne due to the 195 km pipeline from Hedri to Ghughus at a capacity of 5 MTPA (Rs. 400-500 Cr).

• Sponge DRI: Currently 0.7 MTPA capacity of the DRI Plant; expected to add another 0.4 MTPA by FY29.

• Steel (WRM): Expected capacity of WRM is 1.2 MTPA, which will commence from FY28 at a capacity utilisation of 20%, and ramp up in the following year.

• Hot Rolled Coils: HRC plant’s expected capacity is 3 MTPA and operations will commence from FY29.

Revenue Breakup FY25:

Revenue Break up FY27e:

Royalty Free mine aiding it to be one of the lowest cost mines in the country.

Valuation & View

· With the current capacity coming on stream, Lloyds Metal will have the ability to post revenue of more than Rs. 28,000 crores in the next 3 years (>4x of FY25). Margins at full capacity will also be higher than those in FY25. EBITDA margins can be assumed at 34-40%. This will enable the company to post a PAT of Rs. 7,500+ crores by FY28.

· Being an integrated steel manufacturer, the company can get a PE of 20-25x.

Disclaimer:

PARTH KOTAK (PROPRIETOR: PLUS91) is a SEBI Registered (SEBI Registration No. INA000018081) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.

About the Company

Balu Forge supplies precision-engineered products and forged components to diversified industries. The company has diverse product range serving various industries, including automobiles, industrial vehicles, earthmoving machinery, wind energy, aerospace, defence, oil and gas, locomotives and railway applications, marine and agriculture.

Products

Differentiating Factor: Ability to acquire good quality 2^nd hand machinery at discounted prices

2010: Acquisition & Installation of the Thyssenkrupp Plant from L’horme, France

2021: Acquired the Precision Machining Unit of the Mercedes Benz Truck factory from Mann- heim, Germany. These include 10 CBN grinders; 2 of which are from the world renounced machine producer called ‘Junker’ (each new machine would cost Rs.30 crores, cost of 10 new grinders would be ~Rs.180 crores). These machines rank among the highest quality and most advanced in their category.

2024: They acquired three forging lines having a combined capacity of producing 72,000 tonnes of heavy forged products annually.

Plant & Capacity with capex

Balu Forge currently has a capacity of 100,000 MTPA of forging, which will increase to 150,000 MTPA by Q3FY26. To complement this, they have 45,000 MTPA of machining capacity which will expand to 80,000 MTPA by Q3FY26. The company holds a current asset base of 183 crores and a CWIP of Rs. 417 crores.

With the current capex, Balu Forge will reach a gross block of Rs. 650 crores and will do an asset turn of 5 times at full capacity.

Entry into 155mm Empty Shell Production

Balu Forge is already an approved vendor to a majority of the 41 Ordnance Factories part of the Ordnance Factory Board in India.

And with the current capex, they have ventured into manufacturing of 155mm empty shell capacity. They currently have a nameplate capacity to manufacture 360,000 units and maximum utilization will be ~300,000 units annually. Realisation per shell is Rs.25,000 with PAT margins being ~20-22%.

Forging for Indian manufacturers is a structural edge as production cost per shell in Europe is Rs. 60,000 and in Turkey is Rs.45,000.

Risks

There have been a fair bit of concerns regarding Balu Forge.

The 1^st question that comes to mind is how is the asset turnover so high?

2^nd being ED of Raipur has a little over 4% stake in the company, why is this the case?

3^rd is that the tax outgo from cash flow statement is not in line with tax liability.

4^th being very low depreciation charged by the company. All these are fair concerns and management have given clarification in the recent presentation.

I am pasting the link below, please go through these questions being answered from page 18 onwards.

https://www.bseindia.com/xml-data/corpfiling/AttachLive/8ca689cc-553e-4bcd-95c6-92471e9d9fb9.pdf

Valuation & View

With the current capacity coming on stream, Balu Forge will have the ability to post revenue of more than Rs.3000 crores in the next 3 years (>3x of FY25). Margins at full capacity will also be higher than that in FY25. EBITDA margins can be assumed at 29%-31%. This will enable the company to post a PAT of Rs. 700+ crores by FY28/FY29.

Given the product and return profile of the company, one can comfortably assume a PE multiple of 25-30 times.

Disclaimer:

PARTH KOTAK (PROPRIETOR: PLUS91) is a SEBI Registered (SEBI Registration No. INA000018081) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.

The same playbook to be used by the management used in KPI GREEN; now being applied in K.P. Energy.

Firstly lets truly understand what the moat of this company is. It is a common problem with other Solar & Wind EPC players that the performance guarantee (about 10%) which is to be paid post the completion of the project is not paid post completion and hence the companies don’t make any profits.

In KP’s case, the land is owned by the KP group and hence the customers are not in a position to not pay the remaining dues.

With that out of the way, lets dig into KPEL.

K.P. Energy(KPEL) is a part of the KP Group of Surat. It is involved in the development of utility scale wind power generation infrastructure. The major activities encompass siting of wind farms, acquisition of lands and permits, EPCC of wind projects, along with balance of plant (BoP) infrastructure. KPEL also owns and operates WTGs (Wind Turbine Generators) and solar power plant as an IPP( Independent Power Producers). The company undertakes projects principally in Gujarat.

What is the difference between IPP & CPP?

IPP: Where company puts up a solar plant and sells power to business houses through Power Purchase Agreements (PPA).

CPP: Company develops, transfers, operates, maintains and sells grid-connected power projects to customers by providing them power evacuation infrastructure along with grid-connected land to generate wind power.

Moat remains the same.

LAND ACQUISITION.

Setting up a wind power plant, or selling power has no moat in itself. Sure it involves technicalities but land acquisition is the key to be successful in this business. 1 MW of Wind power requires ~5 acres of land.

Let us understand the economics of 2 businesses.

EPCC (CPP): The company provides end-to-end BOP solutions for Wind Farm & Wind-Solar Hybrid Projects, from concept to commissioning. The scope of services include:

Capacity Installed: 1+GW.

Projects in hand: 2.26GW.

The company has guided for a 50%-60% growth in FY26 over FY25.

IPP: This is a recurring, annuity revenue stream for the Company.

This is where it gets interesting!

Under IPP, company had 8.4 MW wind generation assets, 11.5 MWdc solar power projects and 30 MW wind power project under construction. As of Q4FY25, the projects are now energized and the capacity of IPP has now enhanced to 48.5MW.

The company generated a revenue of Rs. 25 crores and posted an EBIT of Rs. 8 crores. For FY26, the revenue could be 2.5x the revenue of FY25 and margins should be anywhere in the range of 50%-70%.

This will lead to significant improvement in overall profitability of the company and also result in an improvement of the overall margin profile of the company.

India has installed ~143 GW of renewable energy capacity as of 2024, but it’s aiming for a massive 500 GW by 2030.
This leaves a multi-year runway for companies like KPEL to ride the green energy wave.

Growth trajectory & valuations

According to my assumptions, company will be able to generate PAT of Rs.300 crore+ by FY28. Considering they have the ability to generate ROCEs of ~30%+, giving it a multiple of 30x to 35x of PAT would be reasonable.

Disclaimer:

PARTH KOTAK (PROPRIETOR: PLUS91) is a SEBI Registered (SEBI Registration No. INA000018081) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.

About the Company

Spandana Sphoorty Financial is primarily engaged in the business of micro finance providing small value unsecured loans to low-income customers in semi-urban and rural areas. The company is one of the largest microfinance institutions (MFIs) in India focusing on rural markets.

Business Mix FY24

JLG-based Micro-Loans: 93%
Individual Loans: 6%
LAP & Nano Loans: 1%

Lets Understand the business

Joint Liability Group (JLG)-based microfinance: The company provides income-generating loans through the joint liability group (JLG) model, primarily targeting women from low-income rural households. These loans range up to ₹80,000 with a repayment tenure of 12 to 30 months.

Joint Liability Group (JLG) Model Simplified:

As the name suggests, a Joint Liability Group is a loan given to a group rather than an individual. For example, a company might lend ₹40,000 to a group of 20 women. These women meet regularly—weekly or monthly—at a common centre to repay the loan interest. The key feature is that if even one member defaults, the rest of the group is collectively responsible for covering the shortfall. This shared responsibility encourages financial discipline and mutual support within the group.

This model helps keep default rates very low because:

1. The group is collectively responsible for repayments, so any shortfall is immediately covered by others.

2. There is strong social pressure — it’s difficult for someone to publicly admit in front of 20 peers that they cannot repay their share.

Things began to change during COVID, when regular group meetings at centres were no longer possible. To keep lending activity going, many companies started giving personal unsecured loans, while still labeling them as JLGs. This created a systemic time bomb. Since the average tenure of these loans is less than two years, the cracks started to show by 2024.

At the same time, many small lenders jumped into unsecured lending. We even saw companies giving loans to college students — with an average ticket size of ₹2,000 and repayments of around ₹2,500 within a month. The yields were sky-high, but so were the risks.

This kind of reckless lending was never sustainable. In the chase for growth, many lenders ignored asset quality — and eventually, the entire sector paid the price.

Having discussed what went wrong in the Microfinance industry, we now focus on why Spandana Sphoorty stands out as an attractive investment opportunity today.

1. Experienced New Management: The most significant catalyst has been the recent management overhaul. Founder and former promoter Padmaja Gangireddy has exited, paving the way for Kedaara Capital, a reputed private equity player, to take charge. Kedaara has installed Shalabh Saxena, previously CEO of Bharat Financial Inclusion Ltd., as the new CEO. Saxena, who successfully spearheaded the sale of Bharat Finance to IndusInd Bank for ₹15,000 crores in 2019, brings deep industry expertise, strategic insights, and operational excellence to Spandana.

2. Shift to Weekly Collections: Under Project Parivartan, approximately 14% of Spandana's branches have transitioned to a weekly repayment model. Empirical evidence indicates that weekly collection cycles significantly reduce delinquencies and ensure stronger repayment discipline among borrowers, thus enhancing asset quality.

3. Regulatory Strengthening: RBI has established stringent guardrails around borrower eligibility, specifically addressing lender overlap. The entire industry now avoids lending to customers who already have loans from more than three institutions. This reduces systemic risk, ensures better credit quality, and mitigates the risk of over-leveraged borrowers.

4. Improved Employee Retention: Spandana has also undertaken several people-centric initiatives, leading to a notable reduction in staff attrition at branch levels. Improved employee satisfaction directly translates into better client engagement, lower operational disruptions, and overall efficiency.

5. Robust Financial Stability: Spandana maintains a healthy Capital to Risk-weighted Assets Ratio (CRAR) of 36%. This comfortable capital buffer significantly lowers the probability of financial distress, ensuring long-term stability and resilience even in challenging market environments.

Industry Outlook and Opportunity: The microfinance industry is poised for a robust recovery, entering a fresh growth cycle under healthier lending practices. This new phase will clearly distinguish strong, prudent lenders from weaker competitors.

Notably, India's credit market remains significantly underserved, with banks catering to approximately 40% of the population, NBFCs covering another 40%, and the remaining 20% still dependent on unorganized money lenders who charge exorbitant rates. This scenario underscores a considerable growth runway for credible and well-managed institutions like Spandana Spoorthy, poised to capitalize on these substantial business opportunities.

Valuation: A Strategic Opportunity

Spandana Sphoorty reported a PAT of Rs. 468 crores in FY24, showcasing the strength of its business model. While FY25 may see a loss due to transitional challenges, the company’s underlying potential remains robust. With its substantial loan book and lending capacity, it is well-positioned to bounce back and deliver a PAT of Rs. 400 crores+ in the coming years. Currently, the market cap stands at Rs. 2300 crores, offering a compelling opportunity for investors. As normalcy resumes, this could prove to be a lucrative long-term bet, capitalizing on the company’s resilience and growth trajectory.

Disclaimer:

PARTH KOTAK (PROPRIETOR: PLUS91) is a SEBI Registered (SEBI Registration No. INA000018081) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.

Why Investing in Hospital Stocks is a Good Proposition?

· Perennial 25% ROCE Business – Hospitals generate consistent 25%+ Return on Capital Employed (ROCE), making them highly efficient capital allocators.

· Recession-Proof Business – Healthcare is a non-discretionary expense; demand remains stable even during economic downturns, ensuring resilient cash flows.

· Quick Break-Even Period –

o Brownfield Expansion: Breaks even in ~10 months, as existing infrastructure reduces capex & ramp-up time.

• Greenfield Expansion: Achieves break-even in ~18 months, much faster than many capital-intensive sectors.

· High Entry Barriers & Brand Stickiness – Setting up hospitals requires regulatory approvals, land acquisition, specialized medical talent & infrastructure, creating strong barriers to entry.

· Structural Industry Tailwinds –

· Rising Insurance Penetration: More people getting insured → Increased affordability for private healthcare.

· Growing Lifestyle Diseases: Higher incidences of diabetes, heart disease & chronic ailments → Sustained demand.

Medical Tourism Boom: India’s high-quality yet affordable healthcare is attracting a surge in international patients.

Introduction of GPT Healthcare:

Incorporated in 1989, GPT Healthcare Ltd is engaged in running hospitals and providing medical services.

Business Overview:
GPTHL has established NABH & NABL accredited Right Sized and Full Service 4 Multi-speciality Hospitals by the name of ILS Salt Lake, ILS Agartala, ILS Dum Dum, ILS Howrah. These hospitals have a total capacity of 561 Beds, 90 Full -time consultants, and 560 Visiting consultants.

Key Operational Metrics – 9MFY25:
Occupancy Rate ~53.8%,
Average Length of Stay (ALOS) ~3.54, Average Revenue per Occupied Bed (ARPOB) ~Rs. 36,700 per day

Upcoming Expansions:

• A new Cancer Care Department (Radiation Oncology) at its Agartala Hospital, first of its kind in Tripura in FY25. This will boost the hospital’s current occupancy rate to 70-75% at Agartala.

• A 152-bed hospital in Raipur, Chhattisgarh, costing ₹55 crore, is under development and expected to commence operations in early April 2025. This will be an asset-light model for setting up the hospital, where land and building investments are borne by the owner in exchange for rent.

• Post establishment of Raipur hospital, company plans to set up a 150 bed hospital in Jamshedpur which will be operational in FY27 and a 150 bed hospital in Ranchi which will be operational in FY28. This will take the company’s total capacity to 1000+ beds by FY28.

• Orthopaedic robotic surgeries are set to begin at the Howrah Hospital in FY25 and a 3D imaging setup for interventional neurology cases is being established at the Dum Dum Hospital.

Comparing GPT Healthcare to other listed hospitals:

GPT Healthcare currently trades at a substantial discount compared to other listed hospital chains in terms of market cap per bed and ROCE metrics. While some of the peers in the comparison include specialty hospitals, hospitals with strong geographic dominance, or diversified healthcare businesses (pharmacies, diagnostics, etc.), the general thesis remains that as GPT Healthcare expands its capacity, its valuation should see meaningful appreciation, narrowing the current valuation gap.

It is also worth noting that other under-the-radar hospital stocks like Yatharth Hospitals, Shalby Ltd., and Indraprastha Medical trade at an even greater discount than GPT Healthcare, making them potentially interesting businesses to evaluate further. That said, GPT Healthcare stands out as an attractively priced opportunity, poised for valuation re-rating along with earnings growth.

Disclaimer:

PARTH KOTAK (PROPRIETOR: PLUS91) is a SEBI Registered (SEBI Registration No. INA000018081) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.

Mangalore Chemicals and Fertilizers Limited (MCF) is primarily engaged in the manufacture, purchase, and sale of fertilizers. It is a subsidiary of Zuari Fertilisers and Chemicals Limited, an Adventz Group. The group also owns other businesses such as Paradeep Phosphates & Chambal Fertilizers.

Current Manufacturing Capacity:

Urea: 3.8 LMT

DAP & Complex Fertilizers: 2.8 LMT

The company sells the fertilizers under the brand ‘Mangala’.

Plant Location:

Plant situated at Mangalore West Coast Opposite Mangalore Port.

Revenue Mix:

Urea & Non Urea are contribute about 50% each to the revenues.

Geographical Mix:

Karnataka ‐81% Kerala – 2% Tamil Nadu – 7% Andhra Pradesh ‐3% Telangana‐1% Maharashtra – 6%.

About 81% of the Company’s products are sold in the state of Karnataka, which meets about 16% of the needs of the farmers in the State. The Company maintains a good share of the market in Kerala and a modest share in the neighbouring states of Tamil Nadu, Andhra Pradesh, Telangana and Maharashtra.

Capex Plans: The Company has taken up project to expand its sulphuric acid production capacity from 100 to 400 t/d. It is scheduled for completion in August 2025. The sulphuric acid shall be used for captive consumption for production of NP 20:20:00:13 and other products, substituting import/ purchase of the acid significantly. Surplus steam from the sulphuric acid plant shall be utilized in urea production.

What’s interesting here?

Sales and profitability was impacted during the 1^st half of current financial year as the urea plant was shut down during the month of September for replacement of reformer catalyst and reduced imports as compared to Q2 FY24.

But the company is expecting to make up for the lost production in the balance of the year.

Also, the company has announced its merger with Paradeep Phosphates. The Competition Commission of India (CCI) approved the merger of Mangalore Chemicals & Fertilizers Limited (MCFL) with Paradeep Phosphates Limited (PPL) on July 30, 2024. The merger is expected to create one of India's largest private sector fertilizer companies.

Share exchange:

Investors will receive 187 shares of PPL for every 100 equity shares of MCFL.

Post merger Paradeep Phosphates will have a manufacturing capacity of 3.7 MMTPA and the profitability of the merged business is expected to be impressive but that’s another piece in itself.

Lets just focus on the arbitrage opportunity here.

Current Price of MCFL is Rs. 160. To purchase 100 shares of MCFL we need a total investment of Rs. 16000. This gives us 187 shares of Paradeep Phosphates as per the exchange ratio. Current price of Paradeep is Rs. 110 and gives us a value of Paradeep shares at Rs. 20570. Which is an arbitrage opportunity of ~30% in the next 2-3 quarters.

Lets also look at the underlying macro situation for DAP. DAP prices have risen from $500 per tonne to $640 per tonne in the last qurater. There are several reasons for this price increase.

1. Supply Constraints: China, a major DAP producer, imposed export restrictions in 2024, limiting global supply and driving up prices.

2. Rising Input Costs: Increased prices of raw materials like ammonia and phosphoric acid have elevated production costs, subsequently raising DAP prices.

3. High Demand: Strong demand from agricultural sectors worldwide, especially during peak planting seasons, has exerted upward pressure on prices.

This increase in price is just a return to normalcy if we look at the long term average prices. The prices were depressed for the last 2 years mainly due to excessive stocking which happened after COVID and is now easing.

If we also look at the underlying profitability of MCFL, their ROCE’s have been consistently at or above 20% over the last 5 years. This one is a special situation where there is enough impetus in the underlying industry which gives us significant margin of safety.

Disclaimer:

PARTH KOTAK (PROPRIETOR: PLUS91) is a SEBI Registered (SEBI Registration No. INA000018081) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.

Staying in Power: The Rule of Geopolitics

The number one rule in politics is to stay in power, a reality that drives economic and military strategies worldwide. This rule is especially relevant in China, where the leadership’s legitimacy is closely tied to economic growth and job stability. China's government has long known that maintaining high employment is essential to sustaining social stability, and its economic strategies reflect this focus on workforce security.

For years, China has pursued policies to boost employment through vast manufacturing initiatives. It has overproduced in industries ranging from steel to solar panels, keeping factories humming to ensure people stay employed. This approach has recently extended to the renewable energy sector, with China now manufacturing more solar panels and wind turbines than it needs, using its surplus to drive down global prices and capture a dominant market position. Yet this overproduction model is risky, especially as international trade dynamics evolve. The renewal of protectionist trade policies, as seen in recent years and potentially with U.S. policy shifts, could disrupt China’s export-heavy growth strategy.

The Dollar's Power: A Double-Edged Sword

The U.S. dollar remains the world’s dominant reserve currency, providing the United States with unique leverage in international finance and trade. A strong dollar often benefits the U.S., attracting foreign investments and making it cheaper for Americans to import goods. However, the high value of the dollar also presents challenges, particularly in an era of high federal debt. The U.S. government, facing record levels of debt, benefits when global investors are incentivized to purchase Treasury securities, especially those denominated in a strong dollar. A high USD not only attracts investment but also limits inflationary pressures by keeping import costs low.

Interestingly, a strong dollar can also benefit China. When the USD strengthens, Chinese exports become relatively cheaper in dollar terms, boosting China's competitiveness in the global market. Additionally, as a major holder of U.S. Treasuries, a strong USD preserves the value of China’s substantial investments in American debt. Both the U.S. and China, despite their rivalry, benefit in different ways from a robust dollar and its ripple effects through global finance.

The Rise of Gold: A Safe Haven in a Volatile World

In times of uncertainty, gold has traditionally been a go-to asset. As central banks worldwide accumulate gold reserves, the yellow metal is becoming a strategic hedge against currency instability, especially as fears of inflation rise. China, for instance, has increased its gold reserves in recent years, seeing it as a way to hedge against U.S. dollar fluctuations and protect its assets. Rising gold prices signal a global appetite for stability, an acknowledgment of the risks tied to fiat currencies, especially in countries with high debt burdens like the United States.

But why would both China and the U.S. potentially favor a scenario of rising gold prices alongside a strong dollar?

For the U.S., a stable but high-priced gold market signals confidence in tangible assets, providing reassurance to investors even amid high national debt. For China, higher gold values enhance the worth of its reserves, giving it more leverage to buffer against future dollar volatility. This positioning could allow China to gradually diversify away from dollar assets while maintaining strong currency reserves.

Overproduction and Renewables: China’s Employment Strategy

China's overproduction in the renewable sector reflects its dual strategy of maintaining employment and establishing itself as a global leader in green technology. The country now has excess capacity in renewables, particularly in solar panel manufacturing, driven by a need to keep factories running and workers employed. This approach has allowed China to flood the global market with inexpensive renewables, creating a competitive edge but also contributing to an unsustainable oversupply.

The possible return of protectionist policies in the U.S., such as those seen under Donald Trump's administration, could complicate this strategy. Trump’s stance against renewables, favoring traditional energy sectors, might dampen demand for Chinese solar and wind products. Should this protectionist stance gain traction again, China could face challenges in finding new markets for its renewable energy products, potentially impacting employment rates in this critical sector.

Conclusion: Gold and Equities Poised to Shine

The geopolitical and economic complexities surrounding the dollar, gold, and global trade suggest a unique opportunity for certain asset classes. If the USD faces downward pressure due to shifting trade policies or inflation concerns, gold is well-positioned to benefit as a hedge against currency devaluation. Rising gold prices would support China’s reserve strategies and provide a safe haven for investors.

At the same time, equities—particularly in sectors tied to technology and renewable energy—are likely to see increased interest. For China, a pivot to renewable dominance is a long-term bet on securing global influence, while for U.S. and global investors, the equity market remains an attractive destination amid inflationary pressures and currency fluctuations. Both gold and equities stand to gain in this complex geopolitical environment, offering investors avenues to capitalize on the uncertain yet promising shifts ahead.

Disclaimer:

PARTH KOTAK (PROPRIETOR: PLUS91) is a SEBI Registered (SEBI Registration No. INA000018081) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.

Why Diversification Works:

1. Risk Reduction Without Lowering Returns:

   • Assets or strategies that are uncorrelated or negatively correlated (moving in opposite directions) offer a powerful way to smooth out volatility in a portfolio.

   • With proper diversification, idiosyncratic risks (risks unique to a single asset or market) cancel each other out, leaving only systematic risk, which is harder to mitigate.

2. Mean-Variance Optimization (MPT):

   • According to Modern Portfolio Theory (MPT), the efficient frontier shows portfolios that provide the highest expected return for a given level of risk. By including negatively correlated assets, you can push the portfolio towards this frontier.

   • Strategies with low or negative correlation to the rest of the portfolio provide additional benefits— reducing the overall volatility while maintaining or improving returns.

3. Deep Negative Correlation and Long Vol:

   • You referenced a Long Volatility (Long Vol) strategy, which tends to profit from market stress or volatility spikes (e.g., when markets crash). While the rest of the portfolio may suffer, long vol positions (like options strategies or volatility-based funds) perform well, creating a hedge.

   • If such a strategy has a Sharpe ratio >2 (like other high-conviction parts of your portfolio), it means that on a risk-adjusted basis, it’s generating substantial returns. Including it in your portfolio becomes a "no-brainer" because:

     1. It enhances the Sharpe ratio of the entire portfolio (by reducing volatility without lowering returns).

     2. Its negative correlation reduces drawdowns, ensuring smoother performance across market cycles.

4. The "Free Lunch" Metaphor:

   • Diversification is often called "the only free lunch in investing" because, conceptually, it provides a benefit (risk reduction) without additional cost (expected returns remain intact or improve). Combining high-return, low-correlation strategies—like long vol—takes this principle to the next level.

Why It’s a No-Brainer:

When a long vol strategy exhibits:

1. High risk-adjusted performance (Sharpe ratio >2).

2. Strong negative correlation with other parts of the portfolio.

It becomes "low-hanging fruit" because it’s easy to implement and highly effective. Not only does it enhance your portfolio’s performance by improving the Sharpe ratio, but it also helps reduce tail risks—especially during periods of market turbulence—without sacrificing growth during normal market conditions.

This makes it an ideal complement to your concentrated, high-conviction strategies, ensuring that both market rallies and downturns are effectively managed.

Apparently a lot is being made out of the move where a few suspect that the rate cut was in light of its dual mandate of controlling inflation (which is falling in line) and maintaining employment (where apparently the downside risk have increased), but the real backdrop remains of U.S. interest expense is ballooning to levels that could soon surpass its tax receipts, creating a situation where maintaining current interest rates would cripple the government’s ability to service debt. Therefore, cutting rates becomes almost inevitable to reduce the debt burden.

While  a 50 bps rate cut often signals that the Federal Reserve sees significant economic weakness or even crisis-like conditions on the horizon. For example, the cuts in 2007 and 2001 (both 50 bps) were in response to the Great Financial Crisis and the dot-com bubble burst, respectively. These cuts were more of a reaction to deeper structural problems in the economy, leading to continued market declines.

In the previous years a 50 bps cut has been linked with a downturn in markets, I see this set of rate cut very differently. This rate cut is not preceded by a crisis and infact as we discussed above; has been done in a fairly strong economy.

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Monetary easing, especially in times of high debt burdens, tends to inflate asset prices because of the way financial markets and economic dynamics respond to increased liquidity and lower borrowing costs. This has been a consistent trend seen historically and was most prominent during the financial crisis of 2008 and its aftermath.

Impact on Liquidity:

A rate cut is usually done to increase liquidity in the system. The liquidity isn't dry, and this rate cut, therefore, might inflate asset prices rather than simply stabilize the economy.

Wealth Effect:

As asset prices rise, investors experience an increase in wealth, which often leads to more spending and investing. This "wealth effect" creates a feedback loop where higher spending contributes to corporate earnings growth, which further inflates stock prices. As we are cutting rates into a strong economy, luxury goods would see a massive increase in demand.

Devaluation of Currency:

High debt burdens combined with monetary easing can lead to a devaluation of the national currency. When the central bank cuts rates or engages in asset purchases, the supply of money increases, which can lead to a weakening of the currency.

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This time around, we could not only see a devaluation of a particular currency but devaluation of the current fiat system. Crypto currencies have been major beneficiaries of unprecedented easing. While cryptocurrencies have seen gains during monetary easing, they may face significant regulatory challenges before becoming a mainstay in global trade.

We could see a change in global currency systems regardless. A number of Caribbean countries and Nigeria have already launched digital currencies while China and Sweden are among those that have rolled out pilot projects.

Maybe a digital Euro is on its way too.

Classic capitalism at play:

I truly believe the current environment will be a great time for all risk assets especially equities. I am a believer in capitalism and the good it brings to the world.

I feel the biggest drawback of capitalism is Wealth Inequality. Rising asset prices tend to disproportionately benefit those who already own financial assets (e.g., stocks, real estate), potentially exacerbating wealth inequality. Those without access to capital or who are primarily dependent on wages may not see the same benefits.

"Any city, however small, is in fact divided into two, one the city of the poor, the other of the rich; these are at war with one another." – The Republic, Plato.

We maybe at the doors of a major change in the global financial, economic and hence social systems.

Addressing wealth inequality requires a combination of fiscal policies, structural reforms, and targeted social investments. By tackling the issue from multiple angles—taxation, education, labor rights, and financial regulation—global elites can work toward reducing the wealth gap and fostering a more equitable society.

If this is not done, we would step into a world of major social unrest.

If we continue down this path of persistent rate cuts to manage rising debt, we may see a prolonged period of low rates, which could fuel asset bubbles and further distort wealth distribution. Alternatively, we might witness a global shift in financial power, as new systems—digital currencies or alternative reserve currencies—challenge the dominance of the existing monetary order.

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Business profile & Products

Its products find applications in variety of industries such as Aerospace, Solar Energy, Railway, Automobile, Defence and Architectures and Building.

Ratnaveer is the largest manufacturer of Washers in India. It is also the leading exporter of over 2500 high value-added washers, delivering its products to over 31 countries across the world.

Ramp up in export orders

Ratnaveer Precision Castings has secured confirmation for export orders of new high-margin products like circlips, EP pipes, and fasteners. In FY24, the company achieved exports of ₹45 crores, and with the expansion into these premium products, they are poised to significantly boost their export mix from 20:80 to 55:45 over the next three years. This strategic shift is expected to drive export revenues from ₹45 crores to over ₹500 crores, marking a substantial growth trajectory.

Additionally, these products and exports will enhance EBITDA, presenting an opportunity for the company to expand its EBITDA margin from the current 8% to approximately 12% over the next three years, further strengthening profitability.

Supporting CAPEX

Ratnaveer is executing a ₹106 crore CAPEX in two phases to expand production into high-margin products like circlips, fasteners, EP pipes, and nuts & bolts. Phase 1, costing ₹46 crore, is expected to be completed by October 2024, while Phase 2, costing ₹60 crore, is set for July 2025. These investments are projected to add ₹400 crore in revenue, with a strong export focus. Notably, the immediate completion of Phase 1 will quickly contribute to the company’s growth, accelerating revenue expansion.

Macro Tailwind: Global Stainless-Steel Production Trends

The global stainless-steel production landscape presents a significant opportunity for Ratnaveer's export growth. According to the World Stainless Association, global stainless-steel production increased by 4.6% in 2023, reaching 58.4 million tonnes, with China driving this growth by producing 36.68 million tonnes (a 12.6% year-on-year increase). However, production in regions like Europe, the US, and Asia (excluding China and South Korea) saw significant declines due to rising power costs, geopolitical tensions, and supply chain disruptions. Europe’s production dropped by 6.2%, the US by 9.6%, and other regions such as Brazil, South Africa, and Russia by 5.2%.

This reduction in stainless-steel output, especially in the West, creates an advantageous position for Indian exporters like Ratnaveer, who can fill the supply gap. As production costs rise and geopolitical factors hinder Western output, India is well-positioned to increase its exports, particularly to Europe and the US, driving further growth for the company’s high-margin products.

Opportunity in Bullet Trains

Ratnaveer Precision Castings is strategically positioned to capitalize on India's expanding bullet train projects, particularly the Mumbai-Ahmedabad high-speed rail. The bullet train project requires large quantities of essential components like fasteners, washers, and clips to secure the rail tracks, ensure safety, and maintain stability at high speeds.

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According to industry estimates, railway fasteners, including washers and clips, play a crucial role in the construction of high-speed rail infrastructure, contributing to a significant portion of material costs. The demand for these components is expected to surge as India accelerates its high-speed rail development. With Ratnaveer looking to enter this segment, the company can tap into this emerging market and grow alongside India's bullet train expansion​.

Valuations

Ratnaveer trades at 29x TTM PE. At a Rs.1200+ crore topline and margins >12%, company is available at 12x FY27 EPS. The company can command a 25-30x PE multiple considering its return ratios!

Disclaimer:

PARTH KOTAK (PROPRIETOR: PLUS91) is a SEBI Registered (SEBI Registration No. INA000018081) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.

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As we continue to watch Deepak Fertilizers grow, it's clear that the company has not only capitalized on its strategic advantages but also positioned itself well for future growth. Whether you're familiar with the stock or new to it, I invite you to check out the podcast for a more comprehensive look at why this company is making waves. Stay tuned for more insights as we keep tracking its journey and explore other potential opportunities in the market.

Disclaimer:

PARTH KOTAK (PROPRIETOR: PLUS91) is a SEBI Registered (SEBI Registration No. INA000018081) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.

Global Markets

1.    Post-War Reconstruction and Economic Boom (1950s-1960s):

The period following World War II witnessed a global economic boom, characterized by rapid industrialization, technological advancements, and rising standards of living in many parts of the world, particularly in Western countries.

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2.    Introduction of the S&P 500 Index (1957):

The Standard & Poor's 500 (S&P 500) index, introduced in 1957, became a widely followed benchmark for the US stock market. Comprising 500 of the largest publicly traded companies in the US, the index provides investors with a broad representation of the stock market's performance.

3.    Oil Crises (1973 and 1979):

The oil crises of 1973 and 1979 had profound impacts on the global economy. The 1973 oil crisis, triggered by the OPEC oil embargo in response to Western support for Israel during the Yom Kippur War, led to skyrocketing oil prices, fuel shortages, and stagflation (high inflation coupled with economic stagnation). The 1979 oil crisis, resulting from the Iranian Revolution and the Iran-Iraq War, further exacerbated oil price volatility and economic disruptions.

Impact: These oil price shocks caused inflation to rise rapidly, which, in turn, negatively affected corporate profits and investor confidence. Stock markets experienced significant declines during these periods of economic uncertainty. Industries that were heavily reliant on oil, such as transportation, manufacturing, and petrochemicals, experienced declines in share prices. Conversely, sectors related to energy conservation, alternative energy sources, and natural resources saw increased investor interest and stock price growth. Oil crises contributed to global economic recessions in the 1970s, characterized by high unemployment, stagflation (a combination of stagnant economic growth and high inflation). Government policies included interest rate adjustments, fiscal stimulus measures, and energy conservation initiatives.

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4.    Asian Tigers Economic Growth (1970s-1980s):

Countries like South Korea, Taiwan, Singapore, and Hong Kong experienced rapid economic growth and industrialization during the 1970s and 1980s, earning them the designation of "Asian Tigers." Their export-oriented development strategies, coupled with government interventions and investments in education and infrastructure, propelled them to become major players in the global economy.

5.    Volcker Shock (1979-1982):

The Volcker Shock refers to a series of economic policies implemented by Paul Volcker, who was the Chairman of the Federal Reserve from 1979 to 1987, to combat high inflation in the United States during the late 1970s and early 1980s. At that time, inflation in the United States had soared to double-digit levels, driven in part by loose monetary policy and rising energy prices following the oil shocks of the 1970s.

Key Measures taken by Paul Volcker:

The Federal Reserve significantly increased the federal funds rate, which is the interest rate at which banks lend to each other overnight. By raising this rate, the Fed aimed to make borrowing more expensive, thereby reducing consumer spending. The Fed pursued a policy of monetary contraction by reducing the money supply and tightening credit conditions. This was achieved through actions such as selling government securities in the open market and imposing higher reserve requirements on banks.

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Impact:

The combination of higher interest rates and tighter monetary policy led to a severe economic downturn in the early 1980s. Unemployment rose sharply, reaching double-digit levels, and many industries experienced significant contractions. Despite the economic pain caused by the recession, the Volcker Shock succeeded in bringing down inflation. By the early 1980s, inflation rates began to decline from their peak levels, eventually reaching more moderate levels by the mid-1980s.

As we reflect on this dynamic period in global markets, it's clear that the economic events of the 1950s through the 1980s had far-reaching impacts, influencing not just individual nations but the entire global economic landscape. These events set the stage for the modern financial systems and market dynamics we navigate today. In our next post, we'll delve deeper into how these global shifts intersected with regional economies, including India's, and what lessons they offer for understanding today's market movements.

Major Economic events between 1947-1986

Indian Markets – Post Independence

1.    The Capital Issues (Control) Act (1947):

It makes it necessary to seek government permission to raise money by selling securities to the public. It also gives the government the power to decide on the price at which a company can sell its shares to the public.

2.    Securities Contracts (Regulation) Bill (1954):

Minister of Revenue and Civil Expenditure M C Shah introduces the Securities Contracts (Regulation) Bill in the Lok Sabha on Christmas eve (December 24) to “prevent undesirable transactions in securities by regulating the business”. The motion is adopted and the Bill introduced, though the final Act would take longer to pass.

3.    Securities Contracts (Regulation) Act (1956):

It provides a legal framework for the regulation and development of securities exchanges and securities transactions in India. It defines various aspects related to securities contracts, including the listing of securities, regulation of stock exchanges, and prevention of fraudulent and unfair trade practices.

4.    Establishment of Stock Exchanges (1950s):

After independence, Indian stock exchanges underwent significant changes. The Bombay Stock Exchange (BSE) and the Calcutta Stock Exchange (CSE) were prominent exchanges during this period. These exchanges provided a platform for companies to raise capital and for investors to trade securities.

5.    Industrial Policy Revolution (1956):

The 1956 Industrial Policy Revolution in India marked a shift towards state-led economic planning. It emphasized public sector dominance, aiming for self-sufficiency and industrialization. Key features included licensing, regulation, and fostering heavy industries. This policy significantly influenced India's economic trajectory, shaping its developmental path for decades.

Impact: The policy-imposed restrictions on the private sector, including licensing requirements and limits on expansion. Creation and expansion of public sector enterprises in strategic industries such as steel, coal, and infrastructure. The policy reflected the socialist ideology of the Indian government, which aimed to achieve economic development with a focus on social welfare and reducing income inequalities. The policy also affected foreign investment in India, as it imposed restrictions on foreign ownership and participation in certain industries.

6.    Independent India’s First big financial scam (1957):

The Mundhra Scandal of 1957 involved industrialist Haridas Mundhra colluding with government officials, including Finance Minister T.T. Krishnamachari, to manipulate stock prices and secure fraudulent loans. Mundhra inflated share prices, obtained preferential treatment in share allocations, and obtained loans against overvalued shares. When irregularities surfaced, investigations uncovered widespread corruption and financial malpractice. Krishnamachari resigned, and the scandal prompted reforms to enhance transparency and accountability in India's financial sector. The incident highlighted systemic weaknesses, leading to measures to prevent insider trading, improve corporate governance, and restore investor confidence in the aftermath of the scandal.

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7.    Green Revolution (1960s):

It was a transformative agricultural movement in India aimed at increasing food production through the adoption of high-yielding crop varieties, modern agricultural techniques, and inputs like fertilizers and irrigation. Led by scientists such as M.S. Swaminathan and Norman Borlaug, the Green Revolution significantly boosted crop yields, particularly for wheat and rice, alleviated food shortages, reduced dependence on imports, and improved rural livelihoods. While it increased agricultural productivity, the Green Revolution also raised concerns about environmental sustainability, unequal distribution of benefits, and long-term impacts on soil fertility and biodiversity.

Impact: - Fertilizer producing companies benefited a lot from green revolution.

8.    1961 Economic Reforms:

The 1961 economic reforms in India aimed to address fiscal imbalances and promote industrial growth. Key measures included currency devaluation to boost exports, import liberalization to stimulate competition, and taxation reforms for revenue enhancement.

9.    Formation of UTI (1964):

The Unit Trust of India (UTI) was established in 1964 as a financial institution to promote savings and investment. UTI played a significant role in mobilizing household savings and channelling them into the capital market.

Impact of UTI:

Encouraged individual investors to participate in the equity market indirectly through mutual fund investments. UTI brought professional management practices to the management of investment funds. Its presence provided liquidity and stability to the stock market. UTI's performance served as a benchmark for other mutual funds and investment institutions in India.

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10. Black Wednesday (1965):

On May 5, 1965, known as "Black Wednesday," Indian markets experienced a significant decline. Triggered by geopolitical tensions and uncertainties surrounding the Indo-Pakistani War, panic selling ensued, leading to a sharp drop in stock prices. The government intervened with emergency measures, including closing the market for three weeks to stabilize the situation.

11. Situation between 1965- 1967:

The wars India fought (with China and Pakistan) and the shock of a major drought in 1965-1966, each instance increased deficit spending, further accelerating the already severe inflation. Besides, the World Bank, largely funded by the US, fell short of its promised aid inflows to India.

12. Rupee Devaluation (1966):

The rupee was devalued for the first time by 57% from Rs 4.76 to Rs 7.50 to a dollar on 6 June 1966 to shore up exports. The move was triggered by the 1965 Indo-Pak war, after which the US withdrew aid to India.

13. Nationalization of Banks (1969):

The government nationalized major banks in two phases, in 1969 and 1980, with the aim of achieving social and economic objectives such as financial inclusion and credit allocation to priority sectors. It led to increased government control over the financial sector and influenced investment patterns.

14. Indo-Pak War (1971):

The Indo-Pak War of 1971 was a conflict between India and Pakistan that ultimately led to the independence of Bangladesh (formerly East Pakistan).

Impact: Decline in investor confidence, risk-averse investment behaviour, Rise in stock price of defence-related industries.

15. Foreign Exchange Regulation Act (FERA) of 1973:

FERA was enacted in India to regulate foreign exchange transactions and safeguard the country's foreign exchange reserves. FERA imposed strict controls on foreign currency dealings, including licensing requirements for foreign exchange transactions and restrictions on foreign investments. It aimed to prevent capital flight, regulate external trade, and stabilize the rupee. However, FERA was criticized for its stringent regulations, hindering foreign investment and economic liberalization.

Impact: Foreign-owned companies operating in India were subject to government scrutiny and restrictions. FERA required foreign investors to obtain government approval for investments in Indian shares, bonds, or other securities. FIIs, including mutual funds, pension funds, and hedge funds, faced regulatory hurdles and bureaucratic procedures to invest in Indian securities. Limited the diversity of investors in Indian markets.

16. Restrictions on Dividend and Bonus Issue (1974):

Indian government imposed restrictions on dividend and bonus issues by companies as part of its efforts to control inflation and manage the economy. These restrictions were aimed at conserving corporate funds and channelling them towards productive investment rather than distributing them to shareholders. The restrictions typically included limits on the amount of dividends companies could declare and distribute to their shareholders. Additionally, there were constraints on the issuance of bonus shares, which are additional shares given to existing shareholders without any additional cost, often as a way to distribute profits.

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Impact:

These restrictions likely led to a decrease in stock prices since investors generally value stocks based on their expected future cash flows, including dividends. Negative investor sentiment and reduced confidence.

17. Emergency Period (1975-1977):

The Emergency in India, declared from June 25, 1975, to March 21, 1977, was a period of authoritarian rule under Prime Minister Indira Gandhi. It was invoked citing internal disturbances. Civil liberties were suspended, and censorship imposed. Opposition leaders were arrested, and political dissent suppressed. The government undertook mass sterilization drives and suspended elections. The Emergency ended after Gandhi called for elections in 1977, which resulted in her party's defeat.

Impact: Regulations were imposed to monitor and control stock trading, and the government had a more direct influence on market activities. Uncertainty and fear among investors. Many businesses faced increased government scrutiny and control.

18. 1977 General Elections:

The general elections of 1977 marked a significant political change in India with the end of the emergency period and the return of democracy.

Impact: The stability was viewed favourably by investors, leading to increased confidence in the Indian economy. The Janata Party government implemented several policy changes aimed at liberalizing the economy and reducing government control over industries. This included deregulation measures, easing of restrictions on foreign investment, and initiatives to promote private sector participation in various sectors. These policy changes were generally perceived as positive by investors and contributed to a bullish sentiment in the stock market. Foreign investment inflows increased, bolstering the stock market and contributing to economic growth. Certain sectors of the economy, such as infrastructure, manufacturing, and finance, benefited from the policy changes and increased investor interest.

19. Reliance IPO (1977):

Dhirubhai Ambani’s Reliance Industries, with interests in textiles and petrochemicals, listed. The IPO garnered huge interest from retail investors kickstarting the ‘cult of equity’.

20. Deregulation and Liberalization (1980s):

The 1980s saw some initial steps towards economic liberalization and deregulation under Prime Minister Indira Gandhi. Policies were introduced to encourage foreign investment and modernize industries, laying the groundwork for broader economic reforms in the subsequent years. Initiatives like the MRTP Act (Monopolies and Restrictive Trade Practices Act) and FERA (Foreign Exchange Regulation Act) aimed to regulate foreign capital inflows while encouraging investment in key sectors.

21. Crash of 1982:

In 1982, the bear cartel of Bengal started short selling shares targeted primarily of Reliance. Stocks around 110,0000 was short sold. The value of shares decreased significantly. The BSE was shut down for three consecutive days.

22. Emergence of New Sectors (1980s):

Over the years, new sectors such as technology, telecommunications, and services began to gain prominence in the Indian economy. This led to the listing of companies from these sectors on the stock exchanges, diversifying investment opportunities for investors.

As we conclude our focus on India’s financial evolution during these formative years, it’s essential to recognize how these domestic changes occurred alongside significant global economic shifts. In our next post, we will turn our attention to the broader world stage, examining the global market trends and events that ran parallel to India’s post-independence journey, and how these international developments influenced financial markets and economies worldwide.

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In our next chapter, we delve into the first half of the 20th century, a period marked by significant turmoil and transformative events. From the impact of colonial policies on the Indian markets to the global reverberations of the World Wars and the Great Depression, we will explore how these major events shaped economic landscapes and influenced market dynamics. A special shout-out to Raj, one of our engaged readers, who eagerly anticipated our coverage of World War era markets—we’re excited to dive into that topic and more in this post. Join us as we navigate through the economic history between 1900 and 1947, uncovering the interplay between politics and economics and their lasting effects on financial markets.

Indian Markets  -   Colonial Era

1.    Partition of Bengal (1905):

The British colonial government partitioned the Bengal province into two separate entities, East Bengal and Assam in the east and Bengal Province in the west. This decision had significant economic ramifications, including social unrest and protests, as well as it affected trade patterns, agricultural production, and industrial development in the region.

Impact: Uncertainty and nervousness in the markets as investors reacted to the unfolding political instability.

2.    Swadeshi Movement (1905-1908):

The Swadeshi Movement was a nationalist movement that called for the boycott of British goods and the promotion of Indian-made products. It aimed to promote self-reliance and indigenous industries, fostering economic nationalism and resistance against British economic exploitation.

Impact: Negatively affected the business prospects of British companies operating in India leading to a decline in their stock prices, promotion of domestic industries and entrepreneurship leading to increased investment and growth opportunities for Indian-owned businesses and industries, potentially benefiting their stock prices.

3.    Montagu-Chelmsford Reforms (1919):

The Montagu-Chelmsford Reforms introduced limited self-government in India, granting provincial legislatures and Indian politicians a greater role in governing their regions. While primarily a political reform, it had implications for economic policymaking and administration.

Impact: Greater political stability, economic growth and investor confidence.

4.    Non-Cooperation Movement (1920-1922):

The Non-Cooperation Movement, led by Mahatma Gandhi, aimed to challenge British authority through nonviolent resistance and non-cooperation with British institutions. It included boycotts of British goods, institutions, and educational systems, impacting economic activities and trade.

Impact: British companies faced challenges

5.    Civil Disobedience Movement (1930):

The Civil Disobedience Movement, another phase of the Indian independence struggle, included acts of nonviolent resistance, boycotts, and protests against British rule. It impacted economic activities, particularly through the Salt Satyagraha, where Indians protested against the British salt tax by making salt illegally.

6.    Government of India Act (1935):

The Government of India Act of 1935 introduced provincial autonomy and expanded the role of Indian representatives in legislative bodies. While not leading to full independence, it marked a significant step towards greater Indian participation in governance and policymaking, including economic matters.

Impact: Positive investor sentiment

7.    The Quit India Movement (1942):

The movement, initiated by Mahatma Gandhi and the Indian National Congress, called for the immediate withdrawal of British rule from India. The British responded with a harsh crackdown, arresting thousands of Indian leaders and activists.

Impact: Disruption of economic activities

8.    Indian Independence (1947):

India gained independence from British rule in 1947, marking the end of colonial domination. The partition of British India into India and Pakistan resulted in significant economic upheavals, including population displacement, communal violence, and economic dislocation.

Impact: Uncertainty about the partition of India, the transfer of power from British colonial rule to Indian leadership, and the potential impact on businesses and investments contributed to fluctuations in stock prices. Many British-owned firms, particularly those in industries like banking, insurance, railways, and trading, faced challenges related to nationalization, asset expropriation, and changes in regulatory frameworks. Indian entrepreneurs and businesses began to emerge as key players in various sectors of the economy. The newly independent Indian government implemented various economic policies and development plans aimed at promoting industrialization, infrastructure development, and social welfare. These policies, such as the Five-Year Plans, influenced investment patterns, sectoral growth, and market sentiment

Global Markets

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1.    World War I (1914-1918):

The outbreak of World War I had significant repercussions on the Indian economy and the stock market. There were disruptions in trade, inflationary pressures, and changes in government policies to support the war effort.

Impact: Selling pressure as investors feared the economic consequences of a prolonged conflict. Governments intervened heavily in financial markets to support the war effort and stabilize economies. Measures such as stock exchange closures, capital controls, and the imposition of wartime regulations on financial institutions were common. Despite the overall negative sentiment, stocks of companies involved in war-related industries, such as arms manufacturing, munitions production, and logistics, often experienced significant gains.

Many countries resorted to financing their war expenditures through borrowing and printing money, leading to inflation and currency devaluation. Inflation eroded the purchasing power of stocks and contributed to market volatility. World War I had long-term economic consequences, including changes in international trade patterns, geopolitical realignments, and the emergence of new economic powers.

2.    Stock Market Crash of 1929:

On October 29, 1929, known as Black Tuesday, the US stock market experienced a catastrophic collapse, signaling the onset of the Great Depression. The crash wiped out billions of dollars in wealth, leading to widespread bank failures, business closures, and mass unemployment.

Reason of crash:

·        Throughout the 1920s, there was rampant speculation in the stock market, fueled by easy credit and the belief that stock prices would continue to rise indefinitely. Many stocks became significantly overvalued, disconnected from their underlying fundamentals.

·       Buying on margin, a practice where investors borrowed money to purchase stocks, became widespread during the 1920s. When stock prices began to fall, investors faced margin calls, forcing them to sell their stocks to cover their debts, further exacerbating the decline.

·       Economic turmoil in Europe following World War I, including reparations payments and high levels of debt, also contributed to global economic instability. Tariffs and trade restrictions imposed by various countries further exacerbated the economic downturn.

3.    Great Depression:

The Great Depression, which lasted throughout the 1930s, was the most severe economic downturn in US history. Stock prices plummeted, and investor confidence was shattered. President Franklin D. Roosevelt's New Deal programs aimed at stimulating the economy and providing relief to the unemployed had significant implications for financial regulation and the stock market.

Impact: Stock indices, such as the Dow Jones Industrial Average, experienced significant declines, with some stocks losing over 90% of their value from their pre-crash highs. Many banks, which were heavily invested in stocks, collapsed, leading to a loss of savings and investments for millions of people. The Great Depression was characterized by a severe contraction in economic activity, including declines in industrial production, international trade, and consumer spending.

4.    World War II:

The outbreak of World War II in 1939 led to significant changes in the global economy and stock market. War-related industries experienced growth, and government spending surged. While the stock market initially experienced volatility, it ultimately rallied during the war years.

Immediate Impact:

The outbreak of war led to panic selling as investors sought to reduce their exposure to risk. Governments intervened heavily in financial markets during World War II to stabilize economies and finance the war effort. Measures such as capital controls, price controls, and rationing were implemented, which had significant implications for share markets. Companies involved in defense contracting, munitions production, and other war-related industries saw their stocks rise as demand for their products surged. Civilian consumption was heavily restricted in many countries during the war, leading to reduced demand for non-essential goods and services. Companies operating in consumer goods sectors saw their stocks suffer as a result.

Impact during further years of war :

Governments, especially the United States, significantly increased spending to support the war effort. This massive infusion of funds into the economy stimulated demand for goods and services, leading to increased corporate profits and stock prices. The war accelerated technological innovation, particularly in industries such as aviation, electronics, and telecommunications. Companies at the forefront of innovation benefited from government contracts and increased demand for their products, driving stock prices higher. The mobilization of manpower for the war effort resulted in full employment in many countries. With more people earning wages, consumer spending increased. Governments maintained low interest rates during the war to finance their expenditures and stimulate economic activity. Low borrowing costs encouraged investment in stocks and other assets, contributing to the stock market rally.

Disclaimer:

PARTH KOTAK (PROPRIETOR: PLUS91) is a SEBI Registered (SEBI Registration No. INA000018081) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.

In this next installment of our series, we venture into the transformative 19th century. From the shores of newly industrializing Bombay to the bustling financial districts of the United States, this era was punctuated by pivotal developments that not only shaped regional economies but also had profound global impacts. We will explore major events like the founding of the Bombay Stock Exchange, the infamous Panic of 1873, and the dramatic effects of the Gold Standard Act of 1900.

Major Events in Stock Market in 19^th Century

Indian Markets

1.    Establishment of the Bombay Stock Exchange (BSE) - 1875:

The Bombay Stock Exchange, formerly known as "The Native Share & Stock Brokers' Association," was established in 1875. It began as an informal gathering under a banyan tree in Mumbai (then Bombay) and evolved into the first stock exchange in Asia.

2.    Early Trading Activities:

In the initial years, trading activities at the BSE primarily revolved around cotton and textile stocks, reflecting the dominant industries in Bombay during that time. Cotton trading was a bigger business in Bombay in those days, since India was among the top cotton producing nations. More than half of the cotton produced in the country was marketed through Bombay.

3.    Impact of Economic Conditions:

The stock market in India during this period was influenced by economic conditions, including fluctuations in commodity prices.

4.    Colonial Policies and Influence:

The functioning of the stock market was also influenced by colonial policies and regulations, as India was under British rule during this time. Policies related to trade, taxation, and governance had implications for the stock market.

5.    Railway Mania:

One notable event during this period was the "Railway Mania," a speculative frenzy surrounding investments in railway companies. Railway expansion was a significant development in British India, and the anticipation of profits from railway projects led to speculative trading in railway stocks.

Impact: Investor speculation leading to speculative bubble in railway securities, stock market boom and bust, economic development of colonial India, Rapid expansion of railway infrastructure across India.

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6.    Economic Growth and Industrialization:

The late 19th century marked a period of economic growth and industrialization in Bombay and other parts of India. The expansion of industries such as textiles, jute, steel and shipping contributed to the growth of the stock market.

7.    Financial Crisis and Market Volatility:

Despite periods of economic growth, the stock market also experienced volatility and occasional financial crises. Factors such as speculative bubbles, market manipulation, and external shocks could lead to sharp fluctuations in stock prices. The late 19th century was marked by political unrest and nationalist movements in India, including the Indian National Congress, which was founded in 1885. Political instability had

repercussions on investor confidence and economic stability.

8.    Regulatory Developments:

The regulatory framework governing the stock market was relatively nascent during this period. However, the British colonial administration introduced certain regulations to govern securities trading and protect investor interests.

US Markets

1.    Panic of 1873:

The Panic of 1873 was a severe financial crisis that originated in the United States and had significant repercussions globally. It was triggered by a combination of factors, including speculative investments in railroad construction, overexpansion of credit, and global economic instability.  The panic began with the failure of the banking firm Jay Cooke & Company in September 1873. Jay Cooke was a prominent financier who played a key role in financing the Union during the Civil War. His firm's collapse, which was partly due to overextension in financing railroad construction, caused a domino effect throughout the financial system.  Following the failure of Jay Cooke & Company, banks and businesses across the United States faced liquidity shortages, leading to widespread panic and bank runs. Thousands of businesses failed, unemployment soared, and the stock market experienced a sharp decline.  The Panic of 1873 also had international repercussions, particularly in Europe, where it contributed to a series of financial crises and economic downturns. The crisis led to a prolonged economic depression known as the Long Depression, which lasted until the mid-1870s and had far-reaching social and political consequences.  One significant outcome of the panic was increased scrutiny of financial institutions and the implementation of reforms aimed at stabilizing the banking system. It also underscored the interconnectedness of the global economy and the importance of sound financial regulation to prevent future crises.

Impact: Stock market collapse, Bank failures, credit crunch, commodity price declines, international impact, long term economic consequences.

2.     Creation of the Dow Jones Industrial Average (DJIA):

In 1882, Charles Dow and Edward Jones founded Dow Jones & Company and began publishing the first stock market index, which later evolved into the Dow Jones Industrial Average in 1896. The DJIA initially included 12 industrial companies and provided a benchmark for the overall performance of the US stock market.

3.     Silver Panic of 1893:

The repeal of the Sherman Silver Purchase Act in 1893 led to a sharp decline in silver prices and triggered a financial panic. This act, passed in 1890, required the US government to purchase silver in large quantities to be minted into silver coins. The goal was to increase the money supply and support silver prices, which were falling due to overproduction.  However, by the early 1890s, concerns about the depletion of gold reserves and the impact of bimetallism (the use of both gold and silver as monetary standards) on the stability of the currency led to pressure for the repeal of the Sherman Silver Purchase Act. President Grover Cleveland signed the repeal into law in November 1893.The repeal of the Sherman Silver Purchase Act had several consequences: 

·       Decline in Silver Prices: With the government no longer required to purchase silver, the demand for silver plummeted, causing its price to fall sharply. This had a severe impact on silver miners and western states heavily reliant on silver mining.

·       Financial Panic: The decline in silver prices triggered a broader financial panic, leading to widespread bank failures, business closures, and a contraction of credit. Stock prices plummeted, and investor confidence plummeted.

·       Unemployment and Economic Downturn: The Panic of 1893 resulted in widespread unemployment and economic hardship across the United States. Industries reliant on credit, such as railroads and agriculture, were particularly hard hit.

Impact: Stock market volatility, bank runs, depression, currency devaluation, monetary policy response, impact on agriculture, political fallout.

4.     Gold Standard Act of 1900:

The Gold Standard Act of 1900 was a significant piece of legislation passed by the United States Congress that officially established gold as the sole standard for redeeming paper money in the country. Prior to this act, the United States had operated under a bimetallic standard, where both gold and silver were used as the basis for the nation's currency.  The act reaffirmed the gold standard, which meant that the value of the US dollar was tied to a specific amount of gold. Under the gold standard, the government guaranteed to redeem paper currency for its value in gold upon demand. This helped to provide stability to the currency and to facilitate international trade by ensuring a fixed exchange rate between countries on the gold standard.  By establishing gold as the sole standard, the Gold Standard Act effectively ended the use of silver as a basis for the US currency system. This move was largely influenced by the desire to stabilize the currency and restore confidence in the monetary system after a period of economic uncertainty and financial panics.  The Gold Standard Act of 1900 solidified the United States' commitment to the gold standard, which remained in place until the early 20th century when the country faced economic challenges during World War I and the Great Depression. Eventually, the gold standard was abandoned entirely in 1971, marking a significant shift in the global monetary system.

Impact: Stability and Confidence in US monetary system, Stability of gold prices, influenced interest rates, positive market sentiment

Formation of financial institutions: -

Major financial institutions like J.P. Morgan Chase & CO, Goldman Sachs and Deutsche Bank were founded in 19^th century.

Refer a friend

Introduction of Ticker Tape: -

The first stock price ticker system using a telegraphic printer was invented by Edward A. Calahan in 1863; he unveiled his device in New York City on November 15, 1867. The ticker tape machine received stock prices from the trading floor via telegraph and printed abbreviated company names and stock prices on a long strip of paper, or "ticker tape." This continuous stream of information allowed brokers and investors to stay updated with real-time stock prices. Before the ticker tape, stock prices were communicated manually, leading to delays. The ticker tape machine provided near real-time updates, significantly improving the speed and efficiency of stock trading. The invention of ticker tape leveraged existing telegraph infrastructure, highlighting the synergy between telegraphy and financial markets.

As we conclude our journey through the 19th century, we've witnessed both monumental strides and significant upheavals in the stock market. From the establishment of the Bombay Stock Exchange to the seismic shifts triggered by the Panic of 1873, this era has profoundly shaped the economic landscapes of both India and the United States. These developments not only reflect the complex interplay of economics, politics, and society but also underscore the enduring influence of these events on today's financial systems.

As we look forward to the next chapter in our series, join us as we delve into the major economic events between 1900 and 1947. This period, marked by global conflicts and dramatic economic shifts, offers further insights into the resilience and transformation of financial markets under the pressures of world events. Stay tuned as we uncover how these tumultuous decades set the stage for the modern economic world.

Disclaimer:

PARTH KOTAK (PROPRIETOR: PLUS91) is a SEBI Registered (SEBI Registration No. INA000018081) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.