Equitymaster's Pledge Since April 22, 1996

Apr 22, 2016

In this issue:
» Equitymaster's four key pillars laid by its founder
» Time to move into Equities from Real Estate?
» Rising activity in share Buy backs
» And more...
Tanushree Banerjee, Co-Head of Research

Twenty years ago, on April 22, 1996, there was an ad in the Economic Times. It announced the birth of www.QuantumIndia.com, India's first financial website. The country had barely 10,000 VSNL internet connections then, with speeds of 28-56 kbps. The idea of fetching information on the internet was completely alien. And the commitment to make honest, sensible, well-articulated information and views available to all investors was truly radical.

But the man behind this vision knew entrepreneurs have to be stubborn. They must be clear. They must be devoted to the cause. And, yes, they need to listen.

So in 1990, when Ajit Dayal, founder of Equitymaster, set out to build the Quantum Group, he encountered a fair share of skepticism. Mr Hemendra Kothari of DSP told him 'Tum paagal hai. Koi foreigner nahi aayenge India ke share bazaar mein.' Decades later, Mr Kothari walked out with a big cheque from Merrill and Blackrock after selling his businesses to those foreign companies!

Scepticism about whether an honest company can become a large, profitable, successful institution is something Equitymaster has lived with since day one.

But we firmly believed that the Indian investors deserved to know the truth! And that has guided us all along. Twenty years later, our 1,764,790 valued readers testify to that. Ajit also laid four key pillars that have been at the core of everything we do.

  1. There is a huge difference between building a company and building an institution. Building an institution is a far, far more difficult job.

    Having met managements for nearly two decades, we have seen a number of founders diligently build companies. For them, it's all about profit growth, market share, and market cap. But then there are entities we call 'institutions'. Institutions also end up with some profits, market share, and market caps. But those come as a result of the trust they enjoy. For Equitymaster, winning the trust of readers like you has been and will be the one and only way to grow. Whatever success we achieve is thanks to honesty...unbiasedness...trustworthiness...and truth.
  2. Regulators cannot protect you from your own greed. The financial industry is inherently crooked: It works for its own enhancement of wealth, not for yours.

    So we can never be 'wrong' as long as we are empowering investors with credible, honest, and above all, unbiased opinions. There have been and will be cases like the IPO of Reliance Power where our opinions may be challenged. But we will never hesitate to put forth the truth that investors deserve to know.
  3. Money and market cap is a useless measure of success when it is accompanied by fraudulent practices, diluting the focus of being customer-centric or unethical acts. This bad model survives because people have short memories.

    Even at the cost of turning away readers and investors, Equitymaster has and will dissuade you from putting your hard earned money into certain stocks. Expect us to keep reminding you of 1) instances where investors lost money in the wrong companies and 2) cases where we have been wrong.
  4. There is a saying that you can lead a horse to water, but you cannot force it to drink. In a similar way, I believe that there are many people out there who wish to stay thirsty: they have no desire to learn and understand. They work hard, they save money, then - at some dinner party - they are sold some story and they give away their savings to a smooth-talking financial intermediary. And their wallet is gone. In a bad world, Equitymaster is an open oasis: those who wish to seek shelter and shade are welcome.

    Whether it is helping a low-risk investor pick safe stocks or showing a high-risk investor the best way to build wealth with high-potential small caps, we can help any investor achieve his financial goals. But what we are most proud of is helping cheated and dejected investors win back their trust in sensible investing.

These pillars have been and will continue to be the guiding light for Equitymaster for decades. It is our pledge to never distance ourselves from the very reasons you trust us.

And as we celebrate Equitymaster's 20th Anniversary today, we wish to thank you for being with us. To show our appreciation, we have an exceptional gift for you...

Equitymaster's first and ONLY published book on smart investing.

It contains the essence of investing, which has made Equitymaster one of the most trusted research houses in India. Come join us in the celebrations...

Raising a Toast to the Next 20...


And we step into third decade of our existence, here's what Jay B. Jani, an Equitymaster Reserve Member and a subscriber since 2009, has to say about his experience with Equitymaster:

  • Let me heartily congratulate Equitymaster for completing 20 years of successful stock recommendation services and investor education.

    A saying goes, "Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.". In case of Equitymaster, it is doing BOTH at the same time in a very honest, unbiased way, always in the best interest of the investors. Equitymaster teaches one how to fish safely for successful investments while avoiding the dangers ever present in the oceans of the financial world. At the same time also gives the man a fish by way of unbiased, honest stock recommendations. I do not think one can get a better deal than this.

    I came into contact with Equitymaster first in 2009 through a stock recommendation service and this association has had a natural progression along the years and I am now an Equitymaster Reserve member from the past around three years when you first launched the Equitymaster Reserve service.

    I have to say that I am very happy with this life long association and cherish it as one of the most fruitful associations I have ever had.

    I wish to thank Equitymaster for providing a refreshingly new and different perspective to wealth creation through successful asset creation, through sound investments which can be passed on through generations.

    Wishing You All the Very Best in Your Future Journey.

In case you wish to share your experience with Equitymaster or read what some of our valued long time subscribers have to say about us, please do so here.

3.25 Chart of the day

Unsold inventory is a key indicator for the state of real estate sector. Rising levels of inventory indicate the lack of demand in the market. This is something that Indian real estate has been witnessing recently. As of March 2016, the real estate developers in the country's top 9 cities are burdened with nearly 7 lakhs units of unsold inventory. Reason - Rising prices. With real estate prices in major metros languishing over the past two years, the speculative demand has taken a hit. Today's chart of the day clearly highlights that the quantum of unsold inventory is higher for the high value houses. This trend is particularly seen in the cities like Mumbai and Gurgaon

The Upside from Real Estate Investments Looks Bleak...

But taking into account the current scenario, does real estate remain a good bet for investors? Rahul Shah, Co-head of Equitymaster has recently written an interesting piece in this regard. According to Rahul, investors would be better off investing in equities rather than real estate. This is what he says -

  • Builders are finding it difficult to sell property even at current prices. Appreciation in realty prices have come to a stop with prices stagnating over the last couple of years. Consequently, forget appreciation at double digit rates, a small fall from here looks a stronger possibility.

    He further adds - When evaluating current property prices, the audience needs to look out the windshield rather than the rear view mirror. They need to focus on expected future returns, not what real estate has done in the past. The stronger the past returns, the greater the likelihood of below average future returns.

Thus, it is important for investors, to focus on the future returns and not just on what real estate investments have offered them in past.


In early March, we wrote about the possibility of dozens of companies declaring dividends soon. The reason was the 10% tax imposed on dividends above Rs 1 million per year in the latest Budget. So companies were in a rush to pay out the dividends before the end of financial year.

Financial year 2016-17 may not be a year of blockbuster dividends. However, it seems cash rich companies with strong balance sheets have found another way of rewarding shareholders. They intend to do so by way of share buybacks. Wipro was the first to announce a buyback this month. And many others are expected to follow suit. Share buybacks are very common amongst cash rich global companies. This is something that Buffett's Berkshire Hathaway, which has not paid dividends since 1967, has been doing all along.

However, as with the case of dividend paying companies, investors need to be careful about stocks that could potentially offer buybacks. Buybacks or dividend payouts, though significant, could be dangerous. They could prove to be bait to lure investors to arbitrarily over-buy stocks. Such income - unless consistent and from a fundamentally strong company - hardly compensates for the risk of investing in stocks.

We explained the best way to select dividend multibaggers in the report - How to Earn 10-30% Returns Without Selling Your Stock.


After opening the day on a bearish note, the Indian indices registered some gains and are currently trading on a flat note. At the time of writing, The BSE Sensex is trading higher by 13 points (0.1%) and the NSE Nifty is trading up by 6 points (0.1%). The BSE Mid Cap index is trading up by 0.3% while the BSE Small Cap is trading up by 0.2%. Sectoral indices are trading mixed with stocks from the auto and banking sectors leading the gains. Consumer durables and FMCG stocks are leading the losses.

4.50 Investing mantra

"Games are won by players who focus on the playing field -- not by those whose eyes are glued to the scoreboard" - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Tanushree Banerjee (Research Analyst).

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Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.

An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.

There are no outstanding litigations against the Company, it subsidiaries and its Directors.

For the terms and conditions for research reports click here.

Details of Associates are available here.

  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  4. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
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