There are thousands of companies listed on the Indian stock market. I am sure it’s safe to say that each of those listed stocks has, at some point, hit price levels at which it would have proved to be two, three or ten bagger from its all time low.

Does it mean that all those stocks are missed opportunities because we never studied them?

Not really. As value investors and practitioners of rationality, we constantly remind ourselves that it’s foolhardy to chase ideas based only on their price movements.

We believe that the way to create long term wealth in the stock market is to keep our focus inside our circle of competence — an idea made popular by Warren Buffett. In his 1996 letter to shareholders, Buffett wrote —

What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.

At this stage there are about 40-50 listed companies that lie in our circle of competence. We have spent hours upon hours digging into the details of their financials, deciphering annual reports, and studying industry dynamics. This gives us reasonably sound understanding of these businesses and the industries they operate in.

We patiently watch these companies, track their business performance, and wait for Mr. Market to throw one or more of these stocks our way at cheap prices.

In the results season, we are attending the conference calls of the companies we are tracking. Every week we would post, some of them here. We begin with the following four companies.

Jyothy Laboratories

Jyothy Laboratories is mainly engaged in manufacturing and marketing of fabric care, dishwashing, personal care, and household insecticides products.

Our view is that the company  has been on a good upward trajectory for a while and the management is still optimistic in their forward outlook. The higher than proportional profit growth compared to revenue growth in comparison to last year shows the high margin they command for their products.

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Sterlite Technologies Ltd

Sterlite Technologies is in the business of telecom products and solutions.

The company has recorded their best ever quarter and have increased their order book to record levels highlighting their credentials as one of the industry leaders in their segment. Sterlite looks like a stellar investment opportunity that is destined to deliver superior returns year after year, given they stay on their defined path and continue to break records both in India and abroad.  Moreover, recent fall in the broader market has brought the stock price to a very reasonable valuation.

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TTK Prestige Ltd

For over six decades TTK Prestige has stood tall as the market leader in kitchen appliances. Their pioneering products make them the best companion for the Indian homemaker.

In our opinion, the company stands out as a strong and dependable player in its segment and we foresee growth continuing for years to come. However, we continue to believe that the valuation is still very high for our comfort.

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Pidilite Industries Ltd

Who hasn’t heard of Fevicol in India? Pidilite is the company behind Fevicol — one of the most iconic brands in our country. Together with its subsidiaries Pidilite has been a pioneer in consumer and industrial speciality chemicals in India.

Pidilite remains a very strong and secular story for the Indian consumers. While long term business prospects remain very strong, we believe the current valuation of the stock is too high to provide any margin of safety.

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Over next few weeks, our team would be attending many more company conference calls. We’ll publish the notes from these calls on our website. So keep looking out for our updates.

Feel free to reach out to us if you have any questions.

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