Strategic Fund Positioning & Analysis
Market Overview (November 2024 to January 2025):
Over the past two months, the Indian stock market has experienced
notable volatility. After reaching an all-time high of 85,978.25 in
September 2024, the BSE SENSEX underwent a correction, declining
by approximately 11% from its peak.
This downturn marked the third significant correction since the
COVID-19 pandemic, primarily driven by substantial selling from
Foreign Institutional Investors (FIIs) due to a combination of domestic
and global factors.
Despite this correction, certain sectors have demonstrated resilience.
The pharmaceutical sector, for instance, recorded a 39% increase,
outperforming other sectors.
Additionally, small-cap and mid-cap segments achieved gains of 24%,
largely fueled by domestic investor interest.
Looking ahead, analysts anticipate continued market turbulence,
influenced by factors such as global economic conditions, foreign
investment flows, and domestic economic policies. However, there is
optimism for a potential rebound in the latter half of fiscal 2025,
driven by expected increases in government spending and economic
activities.
Types of Companies in the given Pyramid:
1. Cash Cow Companies: Cash cow companies are in markets with
slow growth but high market share. They're market leaders.
These companies are stable and generate high cash flows.
Sometimes, they use this cash flow to fund newer businesses
inside them.
2. Star Companies: Star companies are in rapidly growing markets
with high market share. They're market leaders, needing
substantial investment to maintain their position, drive growth,
and stay competitive. Stars require a lot of cash but also
generate significant cash flows. As the market matures and the
products succeed, stars transition into cash cows. They're highly
valued in a company's product lineup.
3. Question Mark: Question mark companies are in rapidly
growing markets but have low market share. They need a lot of
attention and resources from managers to boost their market
share. Ideally, turning question marks into stars is the goal.
CLASSIFICATION:
1. Cash Cow: ITC Limited (FMCG sector):
For the Cash Cow sub type of company, I have selected ITC Limited of
the FMCG sector.
ITC limited is an Indian conglomerate that has businesses spanning
from FMCG, hotels, agribusiness, to paper and packaging. For this
classification, the FMCG sector will be focused on.
• ITC is the second largest Indian FMCG company.
• It commands 30% of the FMCG market share.
• Market Cap: 538751.14 CR.
• Revenue: 70866 CR.
• ITC has had stable cash flows and profits for the last 4 years.
Investment Rationale:
• FMCG Sector: The growth and innovation in the FMCG sector
are fairly limited, making it a suitable industry to find a cash
cow company in.
• Market Leader: ITC commands high market share and is a
leader in the FMCG sector along with Hindustan Unilever
Limited.
• Cash Flows: It also generates stable and consistent cash flows.
• Reinvestment: It reinvests money to venture into new sectors
like hotels, paper and packaging, agribusiness, etc.
• Resilience: ITC commands strong brand image in the market,
ensuring stability and resilience.
2. Star: Tata Consultancy Services (IT sector):
For the Star Company, I have selected TCS Limited of the IT sector.
Tata Consultancy Services (TCS) is an Indian multinational technology
company specializing in information technology services and
consulting.
• TCS commands around 50% of the market share of the IT sector
in India
• It has clients in over 50 countries.
• Market Cap: 1421580 CR.
• Revenue: 240893 CR.
• It reinvests heavily into technology to maintain its position as a
market leader.
Investment Rationale:
• IT Sector: TCS is part of the Information Technology Sector
which is a rapid growing sector with plenty room for innovation.
The IT sector continues to expand, driven by digital
transformation across industries.
• Market Share: TCS also has very high market share in the Indian
IT sector making it a very prominent player in this market.
• Heavy Reinvestment: TCS being an IT sector company has to
reinvest heavily into technologies to maintain its position and
continue stable growth.
• High Cash Flows: TCS also generates high cash flows from its
services.
3. Question Mark: Ola Electric Mobility (EV sector):
Ola Electric Mobility Limited (OLAELEC) is a subsidiary of ANI
Technologies (the parent company of Ola Cabs). It is a relatively new
entrant in India's electric vehicle (EV) market that manufactures
Electric motorcycles and scooters along with their parts. The Indian
EV market is experiencing rapid growth due to government
initiatives, a push towards sustainability, and increasing consumer
demand for electric vehicles.
• OLAELEC currently holds a very modest share in the Indian EV
market.
• Market Cap: 33372 CR.
• Revenue: 1214 CR.
• It is a fairly new entrant in the EV sector.
Investment Rationale:
• EV Sector: Ola Electric is a new entrant in the Indian EV sector.
The Indian EV sector is an upcoming and booming sector in the
whole world due to its focus on new technology and
sustainability.
• Low Market Share: As mentioned before, Ola Electric does not
command a high market share in the Indian EV sector and is a
new entrant in this market. It therefore needs to establish its
presence to make a mark.
• Need for Attention in Management: Being a young company,
Ola Electric needs a lot of attention and care to become a
stronger company in the Indian EV sector. It is definitely a
‘question mark’ company in every sense of the word because of
warnings from SEBI and turbulent growth.
