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Does
your head reel when you see columns and columns, rows and rows of
numbers gaping at you? Does the sight of an alphanumeric soup nauseate
you? You're not alone. More pertinently, you can still survive the
stockmarket to make yourself some tidy money. The assumption, however,
is that you will make the most of all the non-numerate cues available
out there to make your decisions on which stocks to pick, and then
use common sense to book profits.
This is not a foolproof way to invest money,
but then there are no foolproof ways to invest money. Some just
have more scope for error than others. Still, do note that hard-nosed
investors would knit their brows in tight scepticism at the very
mention of such methods; so go ahead only if you're brave enough
to venture forth nonetheless.
Now, thumbing your nose at the ratios and numbers
is all very exciting once you're ready to cash in, and have an interesting
tale to tell. There has always been a good cocktail conversation
plot in buying HLL because it was founded by an idiosyncratic old
chap, or Wipro because it resists calls to divest itself of its
operational diversity. But if you're starting now, you're advised
to go by the basics of qualitative analysis.
Management Mastery
Operational expertise is what you want, but
before any of that, pay attention to management integrity. "Crooked
managements are like leaking tyres," says Raamdeo Agrawal,
Joint MD, Motilal Oswal Securities. "They won't be able to
carry the company very far." Even airtight tyres cannot lay
lasting claims to success without demonstrating an ability to perform
under assorted and adverse conditions. "They should also have
the management bandwidth," says Agrawal. In other words, they
should have the flexibility to adapt fast to changing market conditions.
For example, Infosys Technologies has demonstrated an amazing ability
to scale up operations in a human resource-intensive business to
meet varying kinds of requirements.
Satisfaction Sense
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| Biding time: ONGC is set for recovery |
| STOCK WATCHLIST |
Management competence
makes a huge difference to what happens to the future of a company
Satisfaction of customers
is a good gauge of what performance numbers will show up a while
later
Perceptions tend to drive
stock prices to an extent, so you can bet on correctable misperceptions
Troubled firms of the moment
that are actually good performers could also make good buys
Ignored companies that
actually have good potential, on rational analysis, are also
worth a bet |
Companies that have a special talent for keeping
customers satisfied, especially in service arenas, are a good bet
too. Tata Power, for example, deserves credit for the fact that
Mumbai residents think of power failures as headline-making calamities.
The company's 'islanding system' is designed to make the most sensitive
of customers (such as hospitals) rely on it. According to Sameer
Ranade, Analyst at Pioneer Intermediaries, the system uses a network
of voltage monitors as an early-warning device that effectively
insulates the customer from contagion from other service providers'
power breakdowns. With power sector reforms set to grant private
players a bigger role in the field, such a customer-oriented company
is sure to gain.
Resurgence Reserve
Strong performers that are in a spot of trouble
can make fine picks as well, since the stock is typically available
at bargain prices. India's public sector oil companies, for instance,
are currently suffering hiccups over ownership, though not business
potential. Among these, ONGC has a strong resurgence potential once
it is freed of historical government impositions. It bears a huge
subsidy burden of around Rs 4,000 crore per annum on oil. It's getting
a raw deal on natural gas too (just Rs 2,850 per TCM, or thousand
cubic metres, per day). "Though we expect that the natural
gas price increase will come in phases, it should reach the levels
of Rs 3,200 per TCM soon," says Amitabh Chakraborty, Vice President
and Head of Research (Private Client Group) at Kotak Securities.
Once the profit motive kicks in fully, ONGC should do rather well.
Perception Potential
Sometimes, it makes sense to go for stocks that
are suffering a 'perception gap' that is likely to be bridged soon.
The newly listed TCS, for instance, is India's biggest software
exporter, having pioneered the very effort India has become so famous
for. But while geeks and other it sector insiders hold the company
in high regard, it has been getting short shrift from it sector
investment analysts on account of what they term 'unsatisfactory
disclosure standards'. Once the company is through its mandatory
post-issue 'quiet period' of 40 days, you could see a sudden shift
in the information available on it, and thus a bounce. "It
is only a matter of time," says Rajesh Jain, Director and CEO
of Pranav Securities, "and I am sure TCS will also match the
disclosure standards of the other it leaders."
Dramatic Diversification
Some companies are good buys not for what they're
most popularly known for, but for the sheer breadth of operations
they're likely to succeed in, perhaps with revolutionary impact.
A good case is ITC. Known and reviled by many for being a tobacco
firm, its diversification drive has gone beyond mundane agri-businesses,
even beyond the relatively exciting travel and hospitality, to such
ground-breaking zones as rural it networking and e-services. The
company has an interesting garments play too in Wills Sport, a knitwear
brand that now appears to be absorbing fashionable ideas from FCUK.
In short, ITC's diversification is certainly no smokescreen. "Alternate
businesses have already reached a level of 35-40 per cent,"
says Jigar Shah, Head of Research at K.R. Choksey Research. "And
with its very high cash flow, it is a clear case of undervaluation."
Biped Bifocals
Some companies can be bought simply because
people are people. Some people think one way, some another. If you
adopt a bifocal view of both groups and then apply the simple reasoning
of the featherless bipeds that we all are, you can spot long-term
winners. For example, Venky's (India), a marketer of ready-to-eat
chicken products, has created a strong franchise for itself in an
expanding market for convenience foods. Once India gets its cold
chain infrastructure in place, Venky's would be a big beneficiary.
Yet, it is ignored by large numbers of vegetarian investors in India.
As institutional investing grows, however, and rational analysis
takes firmer charge, you can expect more money to focus on Venky's
value as an investment.
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