Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

I possess investment research experience across asset classes and geographies, acquired at Investcorp (New York) and Howe & Rusling (Rochester). At Investcorp, an alternative asset manager, I was part of an investment team managing >$1bn in discretionary client assets. I was also a member of investment recommendation, monitoring, cross-asset strategy and macro outlook committees that met periodically for investment decisions and top-down views. At Howe & Rusling, a long-only asset manager, I helped cover US large-cap equity investments across sectors for growth and income focused portfolios as well as assisted in managing a US small-cap growth focused equity portfolio. I possess an MBA in finance and corporate accounting from University of Rochester in US, a CFA Charter, and an Engineering degree from Indian Institute of Technology Bombay in India.  

My current focus is L/S equity fundamental research across market cap and sectors with an eye on corporate governance and forensic accounting. I am currently based in India and my current coverage universe is biased towards India.

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Regulatory Disclosure: Note that Ankit Agrawal (Proprietor of Yellowstone Equity) is a SEBI registered Research Analyst (Registration No.: INH000007216). Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Investment in securities market are subject to market risks. Read all the related documents carefully before investing.

Research Analyst Contact Details -
Address: A-602, Titanium Business Park, Makarba, Ahmedabad - 380051 |
Email: services@yellowstoneequity.com |
Mobile: +91-7575817289

Compliance/Grievance Officer -
Name: Ankit Agrawal |
Email: services@yellowstoneequity.com |
Mobile: +91-7575817289
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Equity L/S Analyst | Forensic Accounting | India

Thematic (Sector/Industry)

India Consumer discretionary / Thematic (Sector/Industry)

Over the past few months, there has been considerable debate among prominent investors and industry stalwarts in India, regarding the rising valuation of quality stocks in India. The below insight is an attempt to share our opinion on the same.India has witnessed significant rise in valuation of quality stocks, over the past few years. Despite underwhelming sales growth and an earnings growth that has only outperformed at the margin relative to India's nominal GDP growth over the last decade, these companies have seen significant multiple expansion.In our attempt to demystify whether India is witnessing a quality bubble or not, we follow a data-driven approach. First, we shortlist stocks that have a PE of &gt;50x and a market cap of &gt;$2bn. This results in a universe of 50 stocks, representing 23% of the listed equities market cap in India. We further filter this list to eliminate those companies where high valuation could be justified based on high growth (&gt;15%) potential or fall into category where PE is temporarily inflated due to recent weak earnings. This leaves us with 18 stocks, which in aggregate represent about 9% of the listed equities market cap in India. We then project cash flows for these companies across various scenarios to determine their fair valuation using DCF. Through this analysis, we assess the risk/reward potential of these companies for an investor investing today at current valuation. Note that we use absolute valuation than relative valuation, as the latter can remain significantly detached from fundamentals during times of excessive fear and greed. Based on above analysis, we conclude that the risk/reward trade-off across India's many quality stocks is asymmetrically skewed towards the downside. Excessive optimism has been priced into the valuation already, leaving little upside potential while the downside could be high, in the event of any earnings misses or deterioration in the environment. To provide some context in terms of how such situations have panned out historically , we also take guidance from how the Nifty Fifty stocks in US behaved in 1970s and 1980s post a similar quality bubble.Insight Flow<ol>
<li>Background</li>
<li>Methodology and Process</li>
<li>Analysis</li>
<li>History suggests that Valuation Matters – The Case of US Nifty Fifty Stocks</li>
<li>Conclusion</li>
</ol>

Over the past few months, there has been considerable debate among prominent investors and industry stalwarts in India, regarding the rising valuation of quality stocks in India. The below insight is an attempt to share our opinion on the same.India has witnessed significant rise in valuation of quality stocks, over the past few years. Despite underwhelming sales growth and an earnings growth that has only outperformed at the margin relative to India's nominal GDP growth over the last decade, these companies have seen significant multiple expansion.In our attempt to demystify whether India is witnessing a quality bubble or not, we follow a data-driven approach. First, we shortlist stocks that have a PE of &gt;50x and a market cap of &gt;$2bn. This results in a universe of 50 stocks, representing 23% of the listed equities market cap in India. We further filter this list to eliminate those companies where high valuation could be justified based on high growth (&gt;15%) potential or fall into category where PE is temporarily inflated due to recent weak earnings. This leaves us with 18 stocks, which in aggregate represent about 9% of the listed equities market cap in India. We then project cash flows for these companies across various scenarios to determine their fair valuation using DCF. Through this analysis, we assess the risk/reward potential of these companies for an investor investing today at current valuation. Note that we use absolute valuation than relative valuation, as the latter can remain significantly detached from fundamentals during times of excessive fear and greed. Based on above analysis, we conclude that the risk/reward trade-off across India's many quality stocks is asymmetrically skewed towards the downside. Excessive optimism has been priced into the valuation already, leaving little upside potential while the downside could be high, in the event of any earnings misses or deterioration in the environment. To provide some context in terms of how such situations have panned out historically , we also take guidance from how the Nifty Fifty stocks in US behaved in 1970s and 1980s post a similar quality bubble.Insight Flow
Background
Methodology and Process
Analysis
History suggests that Valuation Matters – The Case of US Nifty Fifty Stocks
Conclusion


Glaxosmithkline Pharmaceuticals (GLXO IN)

The Quality Bubble in India