PERSONALISED INVESTMENT MANAGERS

Sinhasi Intelligent Investing Forum 5 (2018)

01 November, 2018


          
            Sinhasi Intelligent Investing Forum 5 (2018)

HELD ON: Monday 8th October 2018 |
VENUE: Taj Vivanta, MG Road, Bangalore

 

THE SPEAKERS

  • Mr. Prashant Jain – ED and CIO HDFC Mutual Fund , Mumbai
  • Mr. Charandeep Singh – Founder & MD, Girik Capital, Mumbai
  • Mr. Varun Daga – Founder & Fund Manager, Girik Capital, Mumbai

 


CURRENT MARKET SCENARIO

  • As far as large-caps are concerned, some large sectors were experiencing challenges in profit growth like Corporate Banks, Metals, Capital Goods. That is changing now.
  • Profit growth in the large-cap space appears to be very strong. Large-cap space has corrected reasonably. Overall this is a very healthy correction and it will take out lot of excesses in the market place otherwise it would have become a bigger challenge going forward.
  • Every 3rd-4th year, Large-caps correct by 15%-20%.

Mid & Small-Cap

  • Small & Mid-caps had to correct at some point in time due to the higher valuations which were unsustainable. We needed to see the current correction of 25%-40% with their outperformance over the past 4-5 years.
  • Fundamentally when something becomes overvalued and unsustainable, it will correct and it is our human nature to link both the correction as well as whatever negative is happening around that time and spell them out as reasons for the corrections.

Current Scenario V/s 2008 Correction

The present market correction has no correlation with 2008 correction.

Macro Economy

The micro environment in India does not look weak as of now. Yes, it was better 2 years ago because of lower oil prices.

Current Account Deficit (CAD)

CAD in FY13 was 5% of GDP which fell to 1% due to fall in oil prices and now oil prices are normalizing and 1% CAD of GDP is not sustainable in India. Present CAD of 1.5%-2.5% has been the long-term average CAD in India.

Currency Depreciation &
its Impact on Economy and Markets

Rupee has been depreciating forever because India’s inflation is higher than that of the US. So, rupee will keep on depreciating and It is a misconception that a depreciating rupee is bad for the stock markets, about 70-80% of the Nifty is either not impacted or positively impacted by depreciating currency.

Oil Price

2-3 years back when crude was at $40, the current account deficit was at below 1%. That was too good to sustain. Today oil prices have normalized, and so India’s current account deficit has also normalized.

Interest Rate

The higher interest rates we keep in India, the better it will be for us because it will prepare us better for rising US rates and it means people will save more and our need for foreign capital on the fixed income side will reduce. It will lead to improvement in savings rates in India and slow-down in consumer discretionary spending.

Corporate Earnings

The main reason why NIFTY EPS did not grow was because of the Corporate Banks as they went from healthy profits to losses e.g. SBI reported a loss last year. Now, estimates are that over the next few years including current year, Nifty EPS growth should be extremely healthy.

Current Valuations of Markets & Expectation

In the past, every time when Nifty P/E multiples crossed 24 or higher, the returns for the next 3 years were negative. Once it levels between 18-20 or lower, the returns over the next 3 years will become positive. Currently we are at these levels.

Banking Sector & NCLT

Worst of the asset quality pain is behind us and the liability franchise of some of these banks is pretty rich.

IL&FS Default

IL&FS is not a systemic issue and will not upset the entire system.

NBFCs

NBFCs were trading at large premiums to banks having good retail deposit franchise which was not sustainable and that is precisely what happened.

Impact of Election on Market

It is wrong for the people to link stock markets to the elections, it should be linked to profits and valuations and Post elections even if the outcome is unexpected, volatility will prevail for short term and after one quarter, focus again moves to profits and profits are not a function of election.

Political Scenario

By and large this Government has implemented good reforms, some which happen to be populist also like Ayushman Bharat scheme or the replacement of physical subsidies with cash transfers.

FII Investments in India

FII selling is not due to any challenges in India, it is due to conditions in their own countries. India is part of emerging markets, and if US rates are going up and if money is flowing out of the emerging markets, India will also see some redemptions.

 

WHERE SHOULD WE INVEST?

Gold, FD, Equities

  • The rupee GDP growth in India is about 15% and that is what SENSEX is tracking over the past 20 plus years.
  • SENSEX in 1979 was 100 and today it is around 35,000. In these 39 years, the CAGR (Compounded Annualised Growth Rate) of the SENSEX is 16%.

  • SENSEX is basically a diversified portfolio of businesseswhich represents the diversified Indian economy and that is growing at 15% per annum in rupee terms – 7-8% is the real growth (volume growth) and the balance is inflation. So, 16% growth in 39 years becomes 35,000 i.e. 350 times.
  • If you had invested the same money in a bank FD or Gold at 8-9%, the returns would be just about 20 times vs 350 times with equities. So, compounding in equities makes a huge difference to your wealth. Equities are able to compound over a much faster pace. This is what equities are all about.
 Year End FD @ SBI Gold Sensex
Mar-79 100 100 100
Mar-90 224 317 789
Mar-00 634 611 5001
Mar-10 1241 2509 17528
Mar-18 2387 4327 32969
X times in
39 years
23.87 43.27 329.69
  • Indians choose to be very long-term investors in Goldand are comfortable with volatility in gold.You should do this with equities also, it will compound much faster and it is also good for India.
  • Currently India is 6th largest economy& will soon be the Top 5 economies in the world, thereby making returns from equity very positive & high for long term investors.

 

WHAT SHOULD WE DO NOW?

  • It is very important to have a Financial Plan. You have to plan your liquidity, your future goals, your disposable income. It is important to save and have buckets for the money you need over different time-horizons. This is where Sinhasi comes in. The longer your time-horizon is in case of equities, there are better chances of alpha returns.
  • It is always a good time to invest in Equities as long as markets are not seriously overly valued. It depends upon your time-horizon and tolerance for volatility. The Indian Economy is doing well, profitability in large-caps should recover.
  • Even at high index levels, the large cap valuations were not too high. With this correction, lots of shares have become cheaper.
  • You should invest that portion of your wealth into equities that you don’t need for next 4 – 5 years and if you can tolerate volatility.The balance can go to fixed income assets based on your asset allocation.
  • Currently there are lot of high quality businesses available at really cheap valuations.The stock market is the mechanism to transfer wealth from the impatient to the patient. So, the more patient you are, the more money you will make. These falls gives you opportunities to invest in great businesses. Anyone with 5-year investment time horizon would definitely come out as a winner.
  • In equities, you should invest 1/4th to 1/3rd in small cap or mid-caps because every 10 years there are market down-turn events and you get great investing opportunities. You should maintain discipline between small, mid and large-cap and also equities and bonds. Asset allocation and financial planning with a sound investment advisor is the key to success with investing.