INVESTMENT: Paras Adenwala

How should an investor look at advance tax numbers while making an investment decision? Is it a true reflection of a company’s performance?
Advance tax numbers do give an indicative feel about a company’s performance. However, they are not enough for an investor to reach a conclusion. There is usually some difference between a company’s reported income and its assessed income due to tax incentives, allowances/ disallowances, rebates, prior year adjustments, etc.

Is there a possibility to play insurance companies through their listed parents? Some of the companies are planning for an initial public offering (IPO). Can there be a strategy to gain by investing in the parents’ stock before such IPOs?
Yes, it is possible to play insurance companies through their listed parents. However, it is important to note that none of the parents are pure-play holding entities of these insurance companies. Insurance is just one of the many businesses that these companies deal in. Hence, stock prices may not adequately reflect the performance of their insurance business.

It is possible for traders to make some pre-IPO gains by investing in parents’ stock. These gains may be good, if the investments are made prior to the announcement of the timing of an IPO. On announcement, the stock prices could swiftly appreciate, leaving little room for attractive short-term gains. However, just a caveat here, if the IPO pricing falls short of market expectations, the stock price of the parent could take a knock even.

The rupee is rising as investors are expecting stronger growth and more forex inflows. Could this be bad news for the information technology sector? How should I look at it?
A rising rupee is not good news for IT companies. A rising rupee coupled with rising wages can reduce the labour cost arbitrage for these companies. However, those companies resorting to efficient currency management and having a value-added business model, can mitigate currency impact to a fair extent.

There is a lot of action in the telecom space with two recent acquisitions. In the short term, what can an investor expect from the sector? What should be the mid- and short-term strategy for these stocks?
The penetration level in the telecom space in urban India has reached saturation. There is some scope for further growth in rural India. However, to exploit this opportunity, the number of claimants has increased manifold. Hence, several companies have now begun to lure customers on the price point, thereby adversely impacting profitability. This situation is expected to last for sometime until one or more players decide to hang up their boots or there is an industry-wide agreement on bare minimum pricing. In any case, consolidation will happen, sooner rather than later, which would improve the outlook for the sector. Hence, in the short term, investors would do well to scout for ideas in other promising sectors. The staunch loyalists of the sector can invest in the leaders, as they are expected to last out the storm. In the long term, these leaders will emerge much stronger and, hence, can be expected to have better growth prospects and, therefore, command better valuation.

The writer is managing director & principal portfolio manager of Capital Portfolio Advisors.

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