MarketsmithIndia Articles

Are High Dividend Stocks Worth the Chase?

October 08 2021 | Reading Time: 10 minutes
Fixed deposits cannot fetch you more than 6% in returns. The Reserve Bank of India and other central banks  worldwide have cut the rates to help the economy sustain and rebound from the pandemic-induced shock.  Investors willing to take a little higher risk have moved to Dalal Street to earn higher returns, beat inflation, and  create wealth. The numbers say it all. Total accounts at CDSL have doubled in just a year. But times are hard for  fixed-income investors. While on one side, inflation is higher, fixed deposits yield lower returns on the other.  Investors who want regular income and are comfortable with the volatility and risk are now turning toward high  dividend yield stocks during this period. They provide both passive income and stable growth in the long run. 
Some investors find dividend investing to be boring. Are you too of the same opinion? Certainly, these stocks  lack the adrenaline rush that the markets are usually known for because one invests for slow, steady payments  in more mature companies. At William O’Neil, we go for growth investing. But it is essential to understand  whether dividend investing is helpful or not. What the history says as far as returns are concerned. 
Do note that there are advantages and disadvantages that you need to understand before you invest for  dividend income. Dividends are never guaranteed; you have to rely on the previous trend. Companies can and  do change them at will. Also, larger, more mature companies are usually the ones that pay out dividends. In  India, mostly public sector companies pay higher dividends. 
In this report, we will try to help you understand whether dividend yield is worth chasing, how rising interest  rates and stock prices are related, and compare dividend yield with other asset classes.  
Top Dividend paying stocks in India

Is it Worth Chasing Dividend Yield? 
An age-old saying goes “a bird in hand is better than two in the bush.” In investing, this describes an investor’s  preference for dividends (the bird in hand) relative to future price appreciation (two in the bush).  
In the words of John D. Rockefeller: “The only thing that gives me pleasure is to see my dividend coming in.” 
Dividend yield as a financial metric assesses dividend payout and allows a comparison with payout on other  stocks. Yield as a concept can be used to compare the risks and benefits of investing in any asset class. Similarly  to dividend yield in equities, an investor can assess a bond’s yield to maturity (YTM) to understand the return  that can be expected from the instrument. However, while bonds are fixed-income instruments, equities are  riskier. Hence, rather than focusing on dividend yield, an investor in equities should focus on total return on  equity (ROE), which comprises dividends as well as the major portion of returns coming in price returns. 
Investment guru Benjamin Graham had popularized dividend yield as a stock-picking strategy. Over the past  few decades, several mechanical strategies have been developed on the concept of dividend yield. 
We analyzed returns from the NIFTY50 and NIFTY Dividend Opportunities 50 (NIFTY DO 50) index over the  past decade. We found that in terms of returns, NIFTY50 outperformed the latter index 60% of the times, on  an annual basis. 
Comparative Analysis between NIFTY50 and NIFTY DO 50 across time periods 

On average, NIFTY50 has outperformed the NIFTY DO 50 index by 2%. Any instances of underperformance  never exceeded 6% while outperformance has been as large as 14% in two years – 2013 and 2019. 
Rising Interest Rates and Stock Prices 
The general uptick in interest rates has raised concerns among investors about the potential for headwinds in  the stock market if the uptrend continues. As opposed to bonds, stocks – to the surprise of some – have  continued their upward journey even as interest rates are rising. 
We would further analyze the performance across the two indexes to reach a conclusion. The strategies are  rebased to 100 to make them comparable across time periods. 

RBI Raises Interest Rates to Battle Inflation 
Major central banks worldwide, such as the US Federal Reserve (US Fed) and European Central Bank (ECB),  had maintained steady interest rates in 2013 to provide monetary support to their respective economies. How ever, India, in the second half of 2013, was dealing with its own situation of a rising inflation rate and a weaken ing rupee. To counter this situation, the RBI raised its interest rates multiple times between June 13 and  November 13. This caused India’s G-Sec Yield to rise to 9% from 7.4% during the earlier stated period. Even in  this inflationary scenario, NIFTY50 delivered 6% returns while the NIFTY DO 50 index declined 2%. 
Returns across Investment Vehicles between June 13 to Dec-13 

Similar scenarios played out in 2017 and 2018, when RBI had to hike interest rates to counter inflation. Again,  NIFTY50 performed strongly with total returns of 36% while NIFTY DO 50 index provided returns of 33%. 
Returns across Investment Vehicles between 2017 and 2018

Easing G-Sec Yield: Will Equities Continue their Run? 
In 2014, bond yields were falling across countries and US Treasuries hit new lows. Similar trends were  observed in Europe and India. At the end of 2014, India’s 10-Year G-Sec Yields fell to 7.7% from 9% at the start  of the year. 
Returns across Investment Vehicles in 2014 

During this period, the ECB continued its interest rate easing policy and later, in 2015, started the quantitative  easing (QE) program. That year, equities performed strongly with the NIFTY50 gaining 45% and NIFTY DO 50  gaining 40%. Again, investing in the major index led to a better performance than chasing higher dividend  yields. 
Market Selloff in 2015-2016 and the Subsequent Recovery 
In 2015–16, equity markets worldwide tumbled, including the Chinese stock market turbulence. This led to the  SSE Composite index falling 43% in just two months – between June 2015 and August 2015 – resulting in the  devaluation of the RMB. 
Globally, investors sold off equities on concerns about the slowing growth in China’s GDP, the fall in petroleum  prices, and Greece’s debt default in 2015. This, along with end of the US Fed’s QE, led to the worldwide selloff  in equities. 
Equities showing substantial recovery post 2015-2016 correction 

While the selloff took place in 2015–16, the recovery came around only by the second half of 2018. During this  entire period, NIFTY50 still gave returns of 33% while the NIFTY DO 50 index gave returns of 29%. Even during  this turbulent period, the former’s outperformance continued intact. 
Weak Risk/Return Profile for High Dividend Yield Stocks 
Looking back on the last decade, stocks with high dividend yield have performed poorly on the basis of risk  adjusted return. 

In the above chart, we see NIFTY50 has outperformed NIFTY DO 50 on a risk adjusted basis as well. Risk in  this scenario is the volatility of the index and is measured via standard deviation. 
Dividend yield stocks have taken a risk of 17% to give annualized returns of 11% during the past decade.  NIFTY50 has incurred lower risk of 12% to give annualized returns of 13% during the period. 
Comparison: Dividend Yield Assets versus Other Asset Classes 
Investors chase dividend yields for current income, but our observations lead us to believe dividend yield stocks  have underperformed during all periods, in equities, whether in an upcycle or a downcycle.

Stocks and bonds have had a negative correlation across markets, and mainly across time periods. Hence, in  times of turmoil, smart money tends to move toward safe-haven assets such as US Treasuries or even gold.  Historically, gold also has been negatively correlated with equities and has provided good returns in periods of  stress. 
When the global market in equities crashed following the first wave of worldwide pandemic-related lock downs, gold as an asset class provided positive returns. When the equities markets crashed in March 2020,  gold advanced 4%. Later, many dividend-paying companies slashed payouts during this time. 
The point we make is this: rather than chase dividend yielding stocks for regular income, investors can diversify  their asset classes, not just from the perspective of risk management, but also to enhance returns from gold or  G-Sec. 
Behavioral aspects related to dividend-yielding stocks: 
Dividends are profits shared by the company with its shareholders. The board of directors takes the decision.  Some companies, which need capital to expand further, reinvest their profits completely into their businesses  and not distribute any dividends. On the other hand, few companies reinvest some portion of their profits and  share the remaining profits in dividends. 
Investors prefer dividend-yielding stocks for regular income and capital appreciation as well. People who are  looking for quarterly/annual returns prefer high dividend yield stocks. This regular income can be utilized to  meet their retirement corpus or long-term goals they wish to accomplish. 
Generally, dividend yield stocks are considered less risky than non-dividend ones. Yet, it’s important to avoid  judging a company based on dividend payment alone. One should avoid the temptation of seeking out names  with the highest yields. Companies can decide to stop paying dividends in the future. Regulators can change  tax rates on dividend earnings; dividend yield stocks become less lucrative if they increase the tax rate. If a  regular dividend paying company decreases dividends, investor confidence might take a hit and affect the  stock’s price, which is a double whammy for the investors. 
Power Finance  
Company Overview 
Power Finance is one of India’s leading non-banking financial corporations, which operates in power sector  financing and the integrated development of the power and associated sectors. The company is a dominant  player with around 20% market share. The company provides an extensive range of financial products and  services such as project term loan lease financing, direct discounting of bills, short-term loan and consultancy  services, among others for various power projects in the generation, transmission, and distribution sector as  well as for Renovation & Modernization of existing power projects. 
Robust Financial Performance 
The total income stood at Rs 37,767 crore as against Rs 33,371.06 crore in FY20. During FY21, the company  registered a PAT of Rs 8,444 crore. Further, the company’s net worth (share capital plus all reserves) advanced  16% in FY21 to Rs 52,393 crore compared with Rs 45,164 crore in FY20. Also, the net interest margin on earn ing assets increased to 3.54% in FY21 from 3.17% in FY20. The debt-to-equity ratio has slightly declined to  6.20x in FY20–21 from 6.72x in FY19–20. The company’s total dividend payout for FY21 stood at Rs 2,640  crore (including TDS), representing 31.27% of the profit after tax.

Strong Loan Asset Portfolio 
Loan assets as of March 31, 2021, grew 7.5% to Rs 3,70,771 crore from Rs 3,44,905 crore as of March 31,  2020. During FY21, the company’s distribution asset portfolio grew significantly on disbursements under the  government’s Aatma Nirbhar Discom package. However, loan asset growth in renewable energy and conven tional generation slowed down relatively due to the COVID-19 pandemic. If the extraordinary event is ignored,  PFC loan asset growth stood strong at 13%. Going forward, management has stressed focusing on tapping  new loan assets as the economy recovers. 
Healthy Asset Quality 
The company’s stressed asset books declined to Rs. 21,150 crore during Q1 FY22 from Rs 27,872 crore as of  March 31, 2020. The company succeeded in resolving Rs. 6,844 crore in four stressed projects that is Essar  transmission loan of Rs. 438 crore, Suzlon Energy loan of Rs. 915 crore, RKM Power Gen loan of Rs. 5,105  crore. And Jal Power loan of Rs. 386 crore. All these got resolved during Q4 FY21. The company has created  sufficient provisioning against these loans, and they do not have any major impact on the P&L. This target resolution approach has resulted in the lowest NPA levels in the last four years. The gross NPA ratio of the company  stood at 5.70% in FY21 compared with 8.08% in FY20. The net NPA ratio is at 2.09% against 3.80% in FY20. 
The company continues to pursue resolution of the stressed assets consistently. In the present scenario, two  projects for Rs. 2,109 crore are in the advanced resolution stage, and management expects the resolution to  commence soon. These two projects are Jhabua Power loan of Rs. 764 crore and Essar Power MP loan of Rs.  1,345 crore. Jhabua Power loan is a 600 megawatt commissioned project being resolved in NCLT. The lenders  to the project have given in-principle approval to the resolution plan, and the same shall be submitted to NCLT  for approval. Essar Power loan is a 2x600 megawatt commissioned project being resolved in NCLT. The final  resolution plan for the project has been received and is under discussion by the lenders. 
Revamped Reforms-Based and Results-Linked Distribution Sector Scheme to  Act as Tailwind 
The revamped reforms-based and results-linked distribution sector scheme is an initiative by the Ministry of  Power for supporting DISCOMs to carry out reforms and improve performance in a time-bound manner. It aims  to achieve operational efficiencies and financial sustainability by assisting DISCOMs to strengthen supply infra structure based on meeting pre-qualifying criteria and achieving basic minimum benchmarks in reforms. PFC is  appointed as Nodal agencies for implementing the schemes. This scheme will have an outlay of Rs 3,03,758  crore, with an estimated GBS from the central government of Rs 97,631 crore. The company, a nodal agency  for the scheme, has business opportunities such as enhancing brand value and business promotion/ develop ment, assisting for counterpart loans and own funds for distribution infrastructure works and other parts of the  scheme from PFC for the scheme, and consulting in the form of Project Management Agency (PMA) to utilities  through PFCCL.

O’Neil Methodology and Technical Viewpoint: 
The stock broke out from a 20-weeks long cup with a handle pattern trading 7% above pivot price. The stock  from a technical standpoint is comfortably placed above its key moving averages, around 6% and 13% from  50-DMA and 200-DMA. From an O'Neil Methodology perspective, the stock has an EPS Rank of 95 which is a  great, a RS Rating of 46 which is poor, Buyer Demand at A-, Group Rank of 111 indicates it belongs to a poor  industry group of Financial Svcs-Specialty and a Master Score of C is fair.  

Vedanta Limited 
Company Overview 
Vedanta Limited is one of the world's leading diversified natural resource companies. It is the Indian subsidiary  of Vedanta Resources Limited. It operates in India, South Africa, Namibia, and Australia. The company is a lead ing producer of Oil & Gas, Zinc, Lead, Silver, Copper, Iron Ore, Steel, Aluminium, and Power. 
Financial Performance 

The company reported a 79% y/y increase in revenue to Rs 28,105 crore in Q1 FY22. _ 
Vedanta registered the highest ever quarterly EBITDA of Rs 10,032 crore, up 150% y/y. EBITDA margin  
stood robust at 41%. 

The company is sitting with cash and cash equivalents of Rs 31,318 crore, indicating sound liquidity posi 

Net debt declined to Rs 20,261 crore, which is reduction of Rs 6,989 crore on a y/y basis. 
Aluminium Business Continues to Shine 
The company reported the highest ever aluminium production in Q1 FY22. The production stood at 1,526 KT  compared with 1,268 KT for the corresponding period last year. Further, the ramp up process in pots is under going in Jharsuguda, thereby achieving achieved run rate of 2.2MTPA and is on track to achieve 2.3–2.4MTPA  run rate. EBITDA margin stood at 36%, the highest ever for the company. In addition, Vedanta was declared as  a successful bidder for Kuraloi (A) North Coal Block in Jharsuguda district, Odisha. Further, mobilization is on  track for Lanjigarh expansion, which is expected to be completed by Q1 FY23. 

Robust Zinc Business Accelerates Growth 
The company’s Zinc business registered the strongest Q1 performance. Post integration, shafts at Rampura  Agucha Mine and Sindesar Khurd Mine are fully operational. Further, metal production is in line with mined  metal production. Also, Zinc COP was up, driven by higher commodity prices of coal, cement, and diesel. Also,  the company is enhancing mining volume by more than 50% through improved equipment performance. Also,  the company increased Mill throughput to 540 from 532 and reduced unplanned stoppages as well. 

Aggressive Capex Plan for Oil and Gas Business 
The company has capex plan of $350M. This includes $200M to monetize 40MMBOE of reserves and capex  of $150M to grow the resource portfolio. Under the $200M capex plan, the company has taken up several  offshore projects as well as projects at Aishwariya Barmer Hill, Raageshwari Deep Gas, and Mangala. Drilling  is expected to commence in these areas from Q2 FY22. As part of $150M plan, the drilling program is planned  to be carried out across two blocks – OALP and PSC. 
Capacity Expansion in ESL Steel Business 
In steel business, the company registered a saleable production of 289KT, up 8% y/y. However, it was down  9% q/q on account of instabilities and hanging issues at blast furnace. Similarly, sales were down 13% y/y to  265KT due to challenging domestic conditions in Q1 FY22 amid the COVID-19 pandemic. Margin advanced  160% y/y to $115/ton. Also, orders for BF-3 expansion have been placed and BF-3 debottlenecking is planned  in October. 

O’Neil Methodology and Technical Viewpoint: 
The stock is trading in a 7-week long consolidation pattern trading below its 50-DMA and around 18% up from  its 200-DMA. It is currently forming a base in its weekly chart and is trading around 16% away from the crucial  pivot point. The stock has an EPS Rank of 77 which is a FAIR score, a RS Rating of 62 which is FAIR, Buyer  Demand at B-, Group Rank of 136 indicates it belongs to a poor industry group of Mining-Metal Ores and a  Master Score of B is close to being the best. Institutional holding has declined 25% compared to last quarter  which is a negative sign.  

Coal India 
Coal India Ltd is a Maharatna Public Sector Undertaking under the Government of India’s Ministry of Coal. The  company has seven producing subsidiaries, namely Eastern Coalfields Limited (ECL), Bharat Coking Coal Limit ed (BCCL), Central Coalfields Limited (CCL), Western Coalfields Limited (WCL), South Eastern Coalfields Limit ed (SECL), Northern Coalfields Limited (NCL), and Mahanadi Coalfields Limited (MCL). Further, the company is  the single largest coal producer in the world. Also, the company operates through its subsidiaries in 84 mining  areas spread over eight states of India. The company has 352 mines (as of April 1, 2020), of which 158 are  underground, 174 opencast, and 20 mixed mines.  
Financial Performance 
The company reported gross sales of Rs 1,26,786.2 crore in FY21 against the previous year’s gross sales of Rs  1,34,979.13 crore. Net sales for the year stood at Rs 82,710.32 crore, thereby registering a decline of 7.46%  on a y/y basis. The company reported a PAT of Rs 7,640.1 crore against Rs 11,280 crore for the same period  last year. The debtors turnover ratio and trade receivable decreased as the number of days sales has increased  due to a delay in the realization of trade receivables. Return on net worth has decreased as the profit after tax  declined 24%, whereas net worth increased 14%. During FY21, the company paid an interim dividend of Rs  12.50 per equity share of the face value of Rs 10/- each amounting to Rs 7,703.43 crore. 
During Q1 FY22, the company registered net sales of Rs 23,293 crore against Rs 17,007 crore for the same  period last year. The PAT (before OCI) stood at Rs 3,174 crore for the quarter.

Robust Outlook 
The company planned 29% y/y growth in coal supply target of 740MT in 2021–22. The power sector will  consume about 80% of the company’s production. The company’s growth plan is in line with the government’s  ambitious plan of 24×7 power supply to all homes in the country. This will be majorly achieved through achiev ing 1 BT of coal production by 2023–24. 
The company focuses on reducing the environmental impact through selective mining, beneficiation & blend ing, and diversifying into clean coal technologies. Further, the company has planned to optimize the utilization  through the linkage auction scheme. Apart from this, the focus is also on ensuring “First Mile Connectivity  (FMC)” to the consumer through non-road modes like conveyors, MGR/Rail, among others. Also, the company  is looking for opportunities to diversify into the ‘coal to chemical’ business (CTL, SCG, etc.), which will help in  greater value addition and thereby improve the company’s financial performance and ensure long-term suste nance. 
The company has planned capex of about Rs 17,000 crore to maintain its volume growth in 2021–22 and  beyond. Further, the company has set a road map for investing a substantial amount in different schemes in  2021–22, such as the development of railway infrastructure projects, solar power, thermal power plants,  surface coal gasification, coal bed methane (CBM), a revival of fertilizer plants, among others. 
Favorable Industry Structure 
Coal is the major indigenous energy source in the country. In India, 55% of installed power capacity is  coal-based. The company produces around 83% of India’s overall coal production and caters to about 40% of  primary commercial energy requirements. Currently, coal’s contribution to the overall energy mix is expected to  remain high at 48–54% even beyond 2030. Despite the penetration of renewables, the demand for coal shall  remain robust though its percentage of share in the energy mix may decline.

O’Neil Methodology and Technical Viewpoint: 
The stock is trading 15% from pivot price along with Relative strength trading at high. On September 23rd  stock broke out from a 14-weeks long cup pattern with above average volume. The stock from a technical  standpoint is comfortably placed above its key moving averages, around 25% and 31% from 50-DMA and  200-DMA. The stock has an EPS Rank of 75 which is a FAIR score, a RS Rating of 58 which is POOR indicating  the underperformance as compared to other stocks, Buyer Demand at A+, Group Rank of 57 indicates it  belongs to a fair industry group of Energy-Coal and a Master Score of B is close to being the best. Institutional  holding has declined 1% compared to last quarter. 

Indian Oil 
Indian Oil is a diversified, integrated energy major with presence in almost all the streams of oil, gas, petro chemicals, and alternative energy sources. It uses cutting-edge R&D and state of the art technologies to deliver  quality products and services. 
It accounts for nearly half of India's petroleum products’ market share. In FY21, it had sold 81.027 million metric  tonnes (MMT) of petroleum products. The group has a refining capacity of 80.55 MMTPA and over 15,000 KM  of pipeline network. The company led the downstream companies to become BS-VI compliant directly from  BS-IV ahead of the April 2020 deadline. 
It has over 32,000 fuel stations (petrol pumps), including Kisan Seva Kendra outlets in rural markets. Around  7,000 fuel pumps are dedicated for large-volume consumers like railways, industrial, state transport undertak ings, and other sectors. Its operations are seamlessly integrated to ensure timely delivery of fuel to the stations. 
The company holds 32.2% (80.5 MMTPA) of the national refining capacity. 
In the Petrochemicals division, the company has proposed investment of Rs 35,000 crore over the next 5 years. In Natural Gas, it has proposed investment of Rs 13,000 crore in the next 3–5 years. 
Oil Demand Fell 8.7% in 2020, Sharply Recovered in 2021 
During the pandemic in 2020, travel restrictions were imposed globally to stop the spread of COVID-19.  Hence, the demand for oil declined 8.7% to 91mb/d. Demand for transport fuel fell 14% from 2019 levels. The  world has emerged stronger fighting the pandemic and hence, we expect the global oil demand to rebound by  6%, faster than all other fuels in 2021 relative to 2020. Road transport activity has improved and is close to  pre-COVID levels. However, air transport demand may stay below the 2019 levels as many countries have  imposed a ban on foreign nationals. 
On the supply side, the OPEC+ and non-OPEC countries have imposed production cuts due to a decline in  demand. Global oil production fell 6.6mb/d to 93.9mb/d. Despite that, the supply exceeded demand by 2.7  mb/d.

Brent prices averaged at $42.3 per barrel in 2020, a decline of 34% from 2019 levels. 
In 2020, the oil prices fluctuated, reaching a peak of nearly $70/bbl in January 2020. Oversupply and lack of  storage capacity led to the crash of oil prices to around $23.3 per barrel in April 2020. The U.S. crude futures  turned negative on April 20, 2020 for the first time in the history. However, as the demand for oil increased,  prices continued to gain momentum during 2021. Prices averaged at around $60.6/bbl in Q1 2021 and  $64.8/bbl in April 2021. 

Decline in Demand for India’s Petroleum Products 
India had imposed a nation-wide lockdown due to arrest the spread of coronavirus, which resulted in a decline  in demand for petroleum products. In FY21, demand fell 9.1% with consumption of 194.6 MMT compared with  214.1 MMT in FY20. Motor Spirit (MS or Petrol) consumption fell 6.8% in FY21, while High Speed Diesel (HSD)  consumption declined 12%. The civil aviation sector was the worst hit due to the pandemic, resulting in a fall in  ATF demand by 53.7%.

Surprisingly, LPG demand increased 4.8% y/y, driven by increased demand for cooking gas from the residential  sector. Consumption in the residential sector compensated for the decline in demand from industrial and com mercial sectors. 

Three Brownfield Expansions are in Progress: 
The company is currently implementing three major brownfield expansion projects at Barauni, Gujarat and  Panipat refineries. This will enhance its crude-processing capacity by over 17MMTPA. It is also implementing a  9MMPTA new refinery in a joint venture with its subsidiary Chennai Petroleum Corporation Ltd. (CPCL) in Tamil  Nadu, taking the total capacity augmentation to over 25MMTPA. 
Being a Growing Economy, India’s Need for Oil to Continue to Grow: 
Rapid urbanization in India has led to an increase in per capita income, and hence, there has been an improve ment in people’s living standards. Thus, we expect the demand for oil is expected to increase in India and glob ally in the short term. In the long term, India will be seen as the main propeller of global oil demand. India still lags globally in terms of the below mentioned parameters. 
  • Per capita vehicle ownership (per 1,000 people) – India: 22, US: 800 
  • Per capita polymer consumption – India: 11kg, World: 35.7kg 
  • In terms of airport density, India ranks at 133 and in terms of departure per 1,000 population, India

50.5% dividend payout ratio in FY21. In FY21, it declared a total dividend of Rs 11,017 crore, including an  interim dividend of Rs 9,640 crore. 
O’Neil Methodology and Technical Viewpoint: 
The stock has given a breakout with cup formation after 10 weeks of consolidation. It looks bullish on the  multi time frame chart and it has also formed three consecutive bullish high high and higher low price struc tures on the monthly chart. It is trending above its all key moving averages and currently 17% and 26%  higher from its 50 DMA and 200 DMA respectively. Its EPS strength (66) and buyer demand is (A+). However  it has poor price strength (53) and poor group rank (74). It has increased fund holdings in the previous quarter  by 6.83%.

PNB Gilts 
PNB Gilts is one of the renowned names in the Indian debt market. It was the first entity to get a primary dealer ship license from the Reserve Bank of India. In 1996, the RBI introduced the system of primary dealers to  strengthen the institutional infrastructure of the government securities market and granted licenses to six enti ties. It was established as a wholly-owned subsidiary of Punjab National Bank with an initial paid-up capital of  Rs 50 crore, and its net worth has increased to Rs 1,305.7 crore since.  
The company is the only listed primary dealer in the country and has consistently displayed strong financial  health. During the previous year, the company's NOF as of March 31, 2021, stood at Rs 1,305.69 crore. The  company’s CAR stood at 45.58% as of the end of FY21. 
Its products and services: 
- Government Securities 
- Treasury Bills 
- Non-SLR Investments 
- Money Market Investments 
- Gilts Accounts 
The company’s primary activities, being a primary dealer, include supporting the government borrowing  program via underwriting of government securities issuances. It also trades in a gamut of fixed income instru ments such as Government Securities, Treasury Bills, State Development Loans, Corporate Bonds, Interest  Rate Swaps, and various money market instruments such as Certificates of Deposits, Commercial Papers, etc.  The company has a dedicated trading desk managed by experienced professionals with strong research and  market insights. 

Treasury Bill Market 
In FY21, the borrowings through T-Bills (including CMBs of Rs 80,000) stood at Rs 14,90,000 crore. The  cut-off yield on 91 DTB (day treasury bill) decreased to 3.32% from 4.3% at the beginning of the year. The  cut-off yield on 182 DTB declined to 3.47% from 4.58% at the beginning of the year. The cut-off yield on 364  DTB declined to 3.83% from 4.62% at the beginning of the year. Sufficient liquidity prevailed in the market  during the year, resulting in a significant easing of short-term yields. 
Government Dated Securities  
Primary Market  
In FY21, gross borrowings through dated issuances stood 93% higher (at Rs 13,75,654 crore), while net  borrowings were 141.2% higher than the previous year. The weighted average maturity of issuances (excluding switch auction issuances) stood at 14.49 years during FY21, lower than 16.15 years in the previous  year. The weighted average yield of dated securities issued during FY20–21 stood at 5.79% against 6.85% in  the previous fiscal. 
In FY21, the company earned an underwriting commission of Rs 15.9 crore compared with Rs 1.46 crore last  year. In treasury bill auctions, the Government of India raised Rs 14,10,000 crore against Rs 8,97,000 crore in  the corresponding period of last fiscal. 
Fulfilling its primary market commitment, the company achieved a success ratio of 42.55% and 41.98% during  H1 and H2 of FY21, respectively, against the statutory requirement of 40%. 

Secondary Market  
In FY21, the company registered a turnover of Rs 5,77,210 crore in the secondary market against Rs 7,86,685  crore in FY20. The central government security segment recorded a turnover of Rs 4,33,501 crore, followed by  SDLs, which registered a turnover of Rs 57,550 crore. Treasury bills recorded a turnover of Rs 47,826 crore.  The company’s total turnover ratio (secondary market) stands at 338x for treasury bills and 450x for government-dated securities as of March 31, 2021, against the minimum RBI stipulation of 10x and 5x,

The company has declared the highest dividend of Rs 10 per share for FY21. It has paid Rs 180 crore as  dividend to its shareholders in FY21 and Rs 30.3 crore in FY20.

O’Neil Methodology and Technical Viewpoint: 
The stock has given breakout on 31st May, 2021 and gained around 54% in just 4 days and hit the high of INR  94.65. After hitting its high, the stock has corrected around 34% and hit the low of INR 62.10 on 23rd August.  It has poor EPS strength (43), poor price strength (45) but has good buyer demand of B. It has increased 50%  fund holding in the last quarter. Currently, the stock is still under correction and trading below its key moving  averages with negative bias.  

Clariant chemicals 
Clariant Chemicals (India) Limited manufactures and sells specialty chemicals and pigments. Its products &  solutions are used in various sectors of the economy, such as agriculture, infrastructure, home and personal  care, packaging, consumer goods, fibers, transportation and healthcare. 

Various Reasons to Drive Demand for Specialty Chemicals: 
Demand for value-added high-performance products is gradually increasing in all spheres, increasing the  demand for specialty chemicals. There has been a structural shift in manufacturing to the East. India and China  are the major beneficiaries. However, due to a slowdown in certain segments in China, India has become a  major beneficiary in the specialty chemicals space. India’s export competitiveness, positioned as a manufacturing hub for specialty chemicals, is expected to strengthen further. 
Pigments Segment: 
Clariant Chemicals is a leading global provider of superior quality organic pigments, pigment preparations, and  dyes. These are used in various industries from automotive to plastics for industrial and architectural coatings,  to color home and fabric care products, and many other applications, including seed coloration, traditional and  digital printing. 
The company’s organic pigments and colorants have a global reputation for technical performance and high  quality, and they provide top-quality support at their regional and global technical service centers. It keeps its  carbon footprint in check while its products meet international standards of environmental, health, and safety  performance. 
The ratio of domestic to export sales is 65:35. In FY21, the pigment business has recorded sales of Rs 688.4  crore, a decline of 3.5% y/y. 
Masterbatches are concentrated pigments and/or additives dispersed optimally at high concentrations in a  carrier material. Clariant sold its Masterbatches business to Polyone Polymer India on a going concern basis last  year. The segment business contributed sales of Rs 42.4 crore till June 30, 2020. 
Specialty Chemicals Segment: 
Its products have application in the textile, paper, emulsion, and leather industries. The company has divested  its Textile, Paper, and Emulsion (TPE) business and leather services business in the prior years. It has entered  into supply agreements with Archroma India and Stahl India to manufacture and supply certain products, which  have application in TPE and leather industry, respectively. The sales as part of supply agreements post divestment of these businesses for the period under review amounts to Rs 50.5 crore and is included in this segment. 
In terms of size, India's chemical industry ranks at the sixth position in the world. The Indian chemical industry  is expected to grow at a CAGR of 10%+ to reach $300B by 2025, up from $178B by the end of FY20. Within  the chemical industry, specialty chemicals constitute approximately 22%. The long-term growth story of the  Indian specialty chemical sector remains intact, with an estimated $60B opportunity across specialty chemicals  segments over the next 8–10 years. 
There is increasing demand for specialty chemicals, both domestic and export. India is becoming an important  manufacturing hub for such chemicals for various reasons. Tightening environmental norms (e.g., REACH regu lations) in developed countries and the slowdown of China (in certain segments) are contributing to the growth  of exports. The “Make in India” campaign is also expected to add impetus to the emergence of India as a manu facturing hub for the chemicals industry in the medium term. 
In FY21, the company’s board of directors recommended a final dividend of Rs 15 per share (150 %). The  final dividend entails a cash outflow of Rs 3.4 crore and a payout of 15.75% of the year’s profit. The total  dividend for the period under review amounts to Rs 205 per share (2,050 %), which includes an interim  dividend of Rs 140 per share and Rs 50 per share declared on July 11, 2020, and February 12, 2021, respectively. It paid Rs 11 per share (110 %) in FY20.

O’Neil Methodology and Technical Viewpoint: 
The stock has given a trendline breakout today with the formation of big bullish candles on the daily chart.  However, it still has to go up to 3% to give a pivot break out. The stock has corrected around 15% after hitting  the high of INR 631.85 but today’s move has changed the negative sentiment to positive one.It is trending  above its all key moving averages with improvement in RS rating.  

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