Current equity market outlook (2025 & ahead) & Recommendations

Hey Friends,

 

  Am back again on my long-term equity investing related blog at an interesting juncture. if you remember my earlier  blogs in early March ( when Trump had just come in) and early April (after he announced his so called “ reciprocal tariffs”) , I had accurately forecasted in both the blogs , that Indian market( Nifty 50) has nearly bottomed out at about 22000(Nifty 50) and going forward , it will go up in the medium and long term and will probably show 20% gains in this fiscal year (end of FY26 , March 26) , though it may have short term volatility ( inherent nature of equity markets). Markets have gone up after early March (first blog) , though there was an extreme volatility in early April(before my second blog) due to unpredictable nature of Trump’s tariff mania. Nifty 50 is sitting at 25000 today (14% gains) since my earlier blogs. You could revisit those blogs at my blog site (https://indiavalueinvesting.blogspot.com)

 I obviously maintain my forecast, which means that Nifty 50 may go to about 27000 by end of FY26(provided, we don’t have any unpredictable geopolitical event like wars or any Trump turbulent tantrums). In fact, it may do better than that too, in absence of such events.  

Following are the key reasons for my optimism

• Tarriff / trade war related fears have been already discounted in the prices – Markets fell  in double digits in first week of April after Trump mania & have started going up globally after all the bad news were discounted in the prices and good news like Trump’s backoff( staying his tariff drama for 3 months till early July & launching of trade negotiations with all including China, Europe etc(In fact trade deal has closed with new nations like UK already). India too is about to close the same with US through its BTA(Bilateral Treaty Agreement) this month, as per the announcements.

•  US & global recession fears are overblown – The fears on US recession is overblown . US economy, just like Indian economy is very resilient and proved wrong similar rumours of impending recession in last couple of years. . In fact, last week, US employment data was much better than expectations in May (adding 139000 jobs) showing the robustness of US economy, just like India, despite Trump tantrums.  Secondly, Trump tactics is more of a bullying drama to bring the stakeholders to table with a first mover advantage . He & all the global leaders know that tariff war is a zero-sum game & lose-lose situation for all . People have started negotiating and striking trade deals, defusing the trade war and recession potential. In fact US market has rebutted these recession fears by appreciating by 20%(S&P 500 touched 6000 from about 4800 in early April after Trump tariff mania).

• India relatively on stronger wicket on Tariff war -  India is a very much domestically focussed economy (Merchandise/goods Exports at about 450 Bill $- is just 11% of its GDP,) while its 20% for China and higher for many other emerging economies and other countries. Out of that , Indian exports to US is just 90 Bil $(about 2% of India GDP) . That’s one of the reasons why Nifty went down by single digits (5%) in early April after tariff announcements , when others fell by double digits including US & China markets. In fact, some of the IT hardware and electronic / smart phone manufacturers from US, Europe like Apple have started planning to shift their production to India, after this tariff drama as Indian situation is definitely more predictable and friendly, when compared to China.  So , Indian economy stands to gain on certain sectors like IT hardware , electronics, automobile  etc cause of this tariff drama in long term as “China plus 1” procurement strategy will become stronger to diversify these kind of supply chain related risks

• Oll prices and inflation coming down for India – Oil prices have come down from 86$ per barrel to less than 65$(about 25%). This is going down due to US increasing its gas/ oil production to improve its reserves , OPEC increasing its Oil supply , slowdown in developed world like EU, US .This will have salutary effects on big oil importers like India in terms of trade deficit reduction , stronger INR exchange prices, reduced inflation, reduced RBI rates etc. This will also improve the real GDP growth rate(Nominal growth rate minus inflation)

• RBI monetary has become very accommodative & dovish – RBI  surprised everybody positively last week by unexpectedly reducing the repo rate by 0.5%( 1% reduction YTD) & reducing CRR by 1% by year end, thereby freeing 2.5 lac crore Rs(about $30 billion) to be lent to industry and consumers by banks/NBFCs  . Besides, it has eased the tight liquidity situation by about 12 lac crore Rs (about $140 Billion, equivalent to 3.5 % of GDP ) through its OMO and Dollar-INR long term swap tools, generous dividend to government (2.8 lac cr) & reduction of CRR (2.5 lac cr) since January and is planning to infuse additional Rs 2 lac crore($24 Bil ) more by Mid year . This is and will drive the markets up. The lower inflation projections because of lower oil prices and better monsoon(last year) will help RBI to reduce the repo rates lower( repo rate is forecasted to come to 5% from 5.5% now)  which will boost the credit cycle as well as stock markets up as cost of capital will come down .

•  Indian Market fairly valued now , especially large caps  

 While some  pockets of Indian markets , especially small caps and mid caps are clearly over-valued , large caps(Nifty 50 companies) are fairly valued by all significant parameters - PE trailing ratios , PE forward ratios as well as Warren Buffet Valuation Golden indicator(market capillarization / GDP ratio)      

         a.  As per PE trailing ratios , Indian market(Nifty 50 – large caps) is sitting at 20.5 .  Last 5 years PE average has been  22.6  .  Hence large caps(Nifty 50) is fairly valued with respect to long term averages 

         b. As per PE 1 year Forward ratios , Indian market(Nifty 50) is at 19.5 . Last 5 years PE average is 20  . Hence we are fairly valued for large caps

         c. As per market cap / GDP ratio (Warren Buffet indicator)as per reliable data sources ,  the Indian market cap/ GDP ratio is 106%(As per Gurufocus.com).  As per this, Indian markets are fairly valued (91% to 111%) .

This shows that while Nifty 50(large cap companies) are fairly- valued, mid-cap and small cap are overly valued.

• Dollar upvaluation and INR devaluation coming to an end - USD Index which went up to 110 in last many months, due to various reasons like Trump tariffs , Geopolitical situation , attractive 10  years treasury rates etc has started coming down. Its at 99 now. INR was going down due to above reasons and FIIs selling off in India to move their money to safer heavens in US . This has reversed since few months . In fact , INR has upvalued by 2% ( from 87.6 in Feb  to 85.8 now  per USD). These trends will be positive for India as strong and stable INR is good for FII returns and make Indian equity more attractive. With US debt (@36 Trillion$@ 120% of US GDP) projected to go up further with Trump’s latest budget related financial Bill(reason for his dirty feud with Ellon Musk), dollar has a good potential to go further down in medium & long term . Structurally weaker dollar with make Indian equity more attractive for FIIs

• Incorrect narratives on Indian economy slowdown -  There has been a lot of narratives (seems to be herd mentality) around so called " Indian economy slow down" and "corporate earnings slow down"  . So called experts & media who influence the investing community through their narratives ignore the fact that this slow down last fiscal year(FY25 at 6.5%) was not a structural and fundamental slowdown but a seasonal one induced because of  elections in Q1 & Q2  of this Fiscal quarter( elections were in  Q1 in April to June). This led to significant impact on Government capex & other expenditures which in turn had negative impact on private capex and earnings growth too. Businesses ( especially export oriented) also got impacted because of geopolitical tensions and developed economies slow down(EU , US , Japan etc). However, these are things of the past (especially election related slow down) . The GDP growth has already shown good numbers @ 7.4% in Q4 of FY25 & should show up better numbers (8% or more) this fiscal FY26 ( Q2 onwards) because of favourable base effect (Q1 & Q2 of FY25 having elections related slow down) as well as lower inflation projections at 3.5% ( as per RBI inflation projections cause of lower oil prices & normal monsoon projections)

• Size and speed matters - India still the fastest growing  major economy in the world and Foreign investors(FIIs) don’t have too many choices . 

           Globally , India is still the fastest growing economy with expected GDP growth rates  , returning back to >8 % . With inflation of about 3.5%, this could mean a nominal growth rate of about 12% or more (nominal GDP is Real GDP plus inflation). India is the 4th largest economy today( we have beat Japan this year) , contributing to about 4% of world economy . Its going to beat Germany by 2027( as per IMF calculations) to become the 3rd largest economy . China , the second largest economy grew at 2.8 % & US grew at 2.3% in 2024 and EU is almost in recession with almost nil growth rate . Can somebody afford to ignore this size of economy growing at the fastest speed ( Size and speed matters)??. In fact, FIIs have started returning back to Indian markets with vengeance March onwards & that’s one of the reasons of 14% rise in Nifty 50 since early March.

Key Recommendations & growth/return  projections :

Growth / return projections - When it comes to NIFTY 50 targets , one should avoid venturing into target predictions cause of market volatility and unpredictable nature in short & medium term .  However , historically NIFTY 50 & Sensex   has given about 14% CAGR returns(15% plus including dividends). As the market(Nifty 50) is fairly valued (as per Warren indicator & as per PE trailing and forward ratios), I would like to shoot for 8-10%  further upside for NIFTY 50 by end of FY26(27000-27500) from current levels(by March end of 2026), which translates to 18-20%. of growth for this full fiscal FY26. In long and medium term , there is no reason why NIFTY 50 won’t continue to give its historical 15% returns (doubling your investment every 5 years).  With good quality portfolio , you can always expect to beat the market by 4-5% or more (Alpha)  & double your investments every 4 years, which is quite decent by any standards. This is equivalent to 16 times in 16 years by magic of compounding (We underestimate the magic of compounding which can be achieved only through long term investing)  .

Recommendations –

1. More attractive sectors  as per my analysis ( considering growth projections , current valuation , domestic market focus in this slowing global economy) are large cap & well-moated(having strong competitive advantages & Financials/ growth) quality businesses in BFSI(Private Banking , NBFCs & Insurance), Defence, Real estate , Auto , Infra/construction , capital goods, , Power including Power Finance, Energy(like Reliance), Pharma/ healthcare, Telecom , Chemicals & Travel/Hospitality sectors.  
2.  If you don’t want to take the risk of picking up the right businesses / stocks , you could invest through index funds( like NIFTY50 ETF or NIFTY100 ETF )too -low AMC cost and safe method of investing . 
3.    Go for Gold ETFs - I would also advice you to invest in Gold ETF funds(electronic gold) for 10-15% of your portfolio value  as its the best insurance against black swan events / wars and uncertainties like Trump mania. It will help you to cope up in extreme volatile situations as well as sudden emergency liquidity requirements without selling equity at low prices . In last 10-20 years , Gold has done as good or better than equities and hence Gold has become a mandatory & strategic diversifier . In last 10 years , Gold has done better @14% annualized returns while equity(Nifty 50) has given 12% . In last 20 years ,Gold has given 12% while equity has given 14% returns.With many global financial/ geopolitical uncertainties & black swan events like Covid,Gold has done better in recent times (past 5-10 years) than equity. With Central banks (China , Russia, Japan, India , Europe)increasingly buying bigger proportion in terms of Gold & Consumers increasingly going for Gold ETFs,gold price is expected to increase at >=12%
4.  Invest in quality REITs-  For purposes of asset allocation , which is an important diversification tool , one should invest in  real estate too, apart from Gold . The best & most effective way to invest in best Real estate is thorough quality REITS(like Embassy office REIT, Mindspace REIT) as REITs are best in terms of immediate liquidity(tradable on NSE/BSE), better tax efficiency( equity taxation), less risk as it can be bought at a small amount also(even at Rs 100).  They typically give 5-6% dividend (much higher than equities at 1.5% average) and capital appreciation of 10-12 % or more on top of the dividends, giving total of 15-18% returns which is quite decent with much less risk than equities. I would suggest 10-15% of your portfolio should go for quality REITs
5. Last but not the least , in these times of big volatility , pl remember that your temperament/ calmness & patience is more important than intellect and knowledge.  And avoid leverage for equity investing always 

H     Happy Investing 😊

 

 

 

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Timeless Investment Wisdom of the Oracle of Omaha: Warren Buffett’s Powerful 10 commandments on investing

 

Timeless Investment Wisdom of the Oracle of Omaha: Warren Buffett’s Powerful 10 commandments on investing

  Warren Buffet – my investment mentor & guru, announced his retirement this month, which was a shock for the investing world & myself, though he was quite aged @ 94 years.  The global Investing world & Berkshire Hathaway (the insurance company behemoth he built and led along with his famous partner & another investment guru Charlie Munger) will never be the same without him. He has been fondly named “Oracle of Omaha” because the global investment community very closely followed his investment picks and comments on the market, while he lives and works in Omaha (a city in US) & not in famous Wall Street.  His consistently market beating achievements in last 60 years (1964 to 2024), when his investments generated about 20% average IRR/returns for himself and Berkshire Hathaway (multiplying the investments to 55000(Fifty-Five thousand times in 60 years) , double the US S&P 500 returns (10.2% in the same period) , speaks for itself.

Warren Buffett, is more than just a wildly successful investor; he's a fountain of wisdom whose teachings have guided generations of aspiring financiers, investors and everyday savers alike. His philosophy, built on a bedrock of discipline, patience, and a deep understanding of business fundamentals, offers a refreshing counterpoint to the often frenetic and speculative nature of the market.

For anyone looking to navigate the complexities of investing, delving into Buffett's learnings isn't just advisable – it's essential. Here, I  distil some of his most profound insights, learnings and memorable quotes that continue to resonate today.

1. Invest in What You Understand: The Circle of Competence

Perhaps one of Buffett's most famous tenets is to stay within your "circle of competence." This means investing in businesses whose operations, revenue models, and competitive advantages you can genuinely comprehend. This is why he has historically stayed away from tech stocks until he felt comfortable with the industry (Apple being a rare and successful exception, only towards his last decade in 2016). He never invested in Microsoft( though he has been a great friend of Bill Gates, Microsoft founder) or Google , Facebook etc

He says "Risk comes from not knowing what you're doing."

Chasing hot tips or complex financial instruments you don't understand is a recipe for disaster. Instead, focus on industries and companies where you have a genuine interest and can make informed judgments about their long-term prospects. If you can't explain the business to a child, you probably shouldn't be investing in it.

2. Focus on the Long Term (Magic of compounding works only in long term )

“Our favourite holding period is forever.”

Buffett doesn't believe in timing the market or chasing short-term gains. His long-term investments—like Coca-Cola, American Express, and Geico—are examples of businesses he’s held for decades, reaping compounded returns.

Learning: Time in the market is more important than timing the market. Patience & magic of compounding are superpowers in investing

3. Buy Wonderful Companies at Fair Prices

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

“ Price Is What You Pay, Value Is What You Get”

“ Don’t buy stocks , buy wonderful businesses(companies) underlying them”

Buffett prioritizes quality over cheap valuations. A strong brand, sustainable competitive advantage (or "moat"), and consistent earnings & Returns on capital(ROE) matter more than just a low stock price. Over time, Buffett shifted from buying “cheap” companies to buying great businesses at reasonable prices, recognizing that quality compounds wealth. He was inspired by Charlie Munger to make this change in investing strategy over his earlier pure value investing strategy of buying cheaper businesses/ stocks(inspired by his guru Benjamin Graham – father of value investing)

Learning: Value investing isn’t just about low prices—it's about paying the right price for quality.

4. Emotional discipline

“Be fearful when others are greedy, and greedy when others are fearful.”

“The stock market is  manic depressive.”

He reminds us that markets are driven by human emotions—irrational swings are normal. Staying rational and focused on fundamentals is essential. One of Buffett’s most quoted lines(His above quote on greedy/ fearful) speaks to contrarian investing. He believes in stepping back when the market is euphoric and stepping in when others panic—buying undervalued assets when fear drives prices down. For example , he made bold investments during Great Financial crisis after LEHMAN collapse in 2008 , when he made significant investments in big banks like Goldman Sachs , GE , Dow chemicals & Swiss Re in billions of $, when everybody was playing safe , selling and hoarding cash after selling . Similarly,  he bought significant stakes in a Gold mining company(Barrick Gold) as Gold was the only safe haven & 5 big Japanese well diversified conglomerates/ trading giants like Mitsubishi , Sumitomo, Mitsui etc( in Billions of $)during Covid market crisis in 2020.

Learning: Emotional discipline is crucial. Don’t follow the herd—stay rational when markets are irrational.

5. Cash is Not Trash—But Don’t Hoard It

“Cash combined with courage in a crisis is priceless.”

Buffett keeps ample cash on hand not because he fears the market, but because it gives him flexibility. In downturns, this cash lets him act quickly to scoop up bargains while others are paralyzed.

Learning: Liquidity is power. Don’t over-leverage. Keep reserves ready for opportunities.

6. Learn Continuously

“The best investment you can make is in yourself.”

Buffett is a voracious reader, reportedly reading 5–6 hours a day. He believes in lifelong learning, curiosity, and investing in personal growth.

Learning: Skills compound like money. Invest time in knowledge—it yields lifelong dividends.

7. Reputation and Integrity Matter

“It takes 20 years to build a reputation and five minutes to ruin it.”

For Buffett, trust and ethics are foundational. His partnerships and deals often rely on character and mutual respect as much as financials. Buffett's emphasis on integrity and ethical behaviour is a cornerstone of his success and a crucial lesson for any investor or business leader.  For example , he could never recommend investing in Adani group companies in India after the recent issues regarding their corporate governance related investigations/ allegations from US Justice department . So would be the case for IndusInd bank in India.

"Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless." That’s is famous quote

Learning: Success isn’t just about returns—it's about integrity. Reputation is your most valuable asset.

8. Avoid businesses with high Debt and Leverage

"If you’re smart, you don’t need it; if you’re dumb, you shouldn’t be using it."

Buffett has long warned against the dangers of investing in businesses/ stocks with excessive debt. While leverage can amplify gains, it can also destroy wealth quickly. His cautious use of debt has helped Berkshire Hathaway remain stable through even the most turbulent times.

Learning : Over leveraging has been the key cause of financial failures and bankruptcies of big icons in the past and hence avoidable in investing. Same applies in personal life too . He advocated against leveraging for buying equity.

9. Capital Preservation Above All

“Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.”
This golden rule is the cornerstone of Buffett’s philosophy. He emphasizes that protecting your capital is more important than chasing high returns. Even though losses are sometimes inevitable, the mindset of caution and discipline is what sets successful investors apart

Learning – Avoiding big risks and losing money/capital is as important as making significant returns as the losses reduces the average returns significantly for the portfolio

10. Selectivity and Patience

• “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
  Buffett counsels that great investment opportunities are rare, so when they appear, act decisively and with conviction
• “At the business school, I tell them that they would all be better off if when they got out of school somebody gave them a card with 20 punches on it and every time they made an investment decision, they used up a punch.”
  This metaphor encourages investors to be highly selective, treating each investment decision as precious. 

• “Don’t buy stocks , buy wonderful businesses(companies) underlying them” .  Warren is asking people here to have a business & owner oriented mindset instead of stock oriented mindset and buy selective & wonderful businesses rather than stocks.

  Learning: Patience & selectivity is the cornerstone of wise & safe investing, rather than chasing the hot & risky fads for high returns

 

Final Thoughts

Warren Buffett’s wisdom is as relevant today as ever. His teachings remind us that successful investing is less about chasing fads and more about discipline, patience, and rational decision-making. By focusing on value, thinking long term, and continuously learning, investors can build lasting wealth—one wise decision at a time

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Current Indian Equity market outlook in this “manic depressive market " times

 

Hi!  Friends ,

 

   Am back again on my long term equity investing related blog at an interesting juncture  , when global markets have been very volatile again , reminding us of scary Covid days , when market used to tumble by 3-5% every day .  US markets tumbled by 11% in just 2 days last week , destroying wealth by 6 Trillion dollars just in US(approximately 1.5 times India GDP) & 10 Trillion $ globally , in just 2 days  . This reminded me of legendary Benjaman Graham (Guru of Warren Buffet and father of value investing) who famously said “ Mr Market is a manic depressive guy .   When he is in a good mood, he gets greedy and quotes ridiculously high prices, but when he is feeling depressed and fearful, he is willing to sell you the same stocks for rock bottom prices.” Graham  also said famously that “ In short run , market is a voting machine(unpredictable) but in the long run , it’s a weighing machine(reliable)” . Lets recall these timeless quotes and stay calm and not take any impulsive decision, swayed by wild manic depressive mood swings of the market . 

Last time , when markets were falling  and being very volatile (a month back in early March) , I had take a contrarian stand and said that Indian equity market is bottoming out and will show a positive trend then onwards . Nifty 50 did show a positive trend after the blog & went up from 22000 levels to about 23500 (7% increase in a month )till recently , when the Trump mania hit us with his so called  “Reciprocal tariffs”.  Nobody ( even the best investors and investment banks) could predict the amount of drama and damage his unpredictable and un-reasonable Tariff related policies (“reciprocal tariffs) could un-lease in a short time of less than a week . Even Covid has not seen such wealth destruction in such a short duration(few days).

 

Will quote Warren again who famously said “ Be fearful when others are greedy & be greedy when others are fearful” .  I guess , its time to be greedy in a selective and disciplined manner . will again take a similar stand that markets is bottoming out & we should start investing in high quality and high growth large cap(blue chip) Indian stocks/ business , which are available at lucrative prices (due to recent correction) in a staggered manner over next 1-2 months, now onwards. This year is going to be the stock picker year and hence go for high quality & high growth businesses with strong moats/ competive advantages , run by quality managements, available at attractive prices/valuations (because of the recent correction) . I would recommend restricting ourselves to large caps, mainly cause of valuation related reasons. With the Nifty 50 dipping by 14-15% from recent peak  , most of these attractive and quality businesses would be available at great  prices. 

 

Following are the reasons for my optimism(10 commandments/ reasons)

·        Tarriff / trade war related fears have been already discounted in the prices – Markets have fallen in double digits in last week (11-12 % in US and Europe, 13-15% in Asia pacific- Japan, Hongkong etc) . Nifty was the only market which fell in single digits, by about 5%. All the tariffs announcements as well as retaliatory announcements (from China etc) have come in and have been factored in the prices . Hence forward , only good news in terms of Trump backing down ( seeing the fierce opposition, global criticism & market mayhem) and negotiations starting between the key players( US , China , Canada , Europe etc). India has already started  the same with US through its BTA(Bilateral Treaty Agreement).

·        US & global recession fears are overblown – The fears on US recession is overblown and discounted in the prices  to some extent in the big market fall last week . US economy , just like Indian economy is very resilient and proved similar rumours of impending recession wrong in last couple of years . Secondly , Trump tactics is more of  a bullying drama to bring the stakeholders to table with a first  mover advantage . He & all the global leaders know that tariff war is a zero sum game &  lose situation for all . Soon people will be negotiating and striking trade deals , defusing the trade war and recession potential

·        India relatively on stronger wicket on Tariff war -  India is a very much domestically focussed economy (Exports at about 600 Bill $ is just 15% of its GDP ) while its 20% for China and higher for many other emerging economies and other countries. Out of that , Indian exports to US is just 90 Bil $(about 2% of India GDP) . So the potential negative impact on India GDP could  be only about 0.2 %( assuming that exports to US will reduce by 10%). That’s one of the reasons why Nifty went down by single digits only last week , when others fell by double digits including US markets . Besides , some of the sectors will gain like electronics , textile , footwear etc , as competition like China , Taiwan, Thailand, Indonesia etc have been slapped with higher tariffs . In fact some of the IT hardware and electronic / smart phone manufacturers  from China , Taiwan have sent feelers to shift their production to India to avail the lower tariffs in India .

·        Improving Geopolitical situation - The Geopolitical situation is improving with 2 wars (Israel - Hamas and Russia - Ukraine) at its final stages under new administration in US . Ukraine has already accepted the US proposal for an initial 30 days ceasefire , while Putin is expected to accept the same in few weeks.  Israel - Hamas were already under the first ceasefire for 2 months , when Israel broke the ceasefire by attacking Gaza in Mid-March. This week US & Israel leaders are discussing renewal of the truce at White house because of global pressure. Ending of these wars( though under uncomfortable cease fires & deals) will bring in lots of goodness to global economies as well as markets with uncertainties coming down and oil prices coming down significantly.

·        Oll prices and inflation coming down for India – Oil prices have come down from 86$ per barrel to less than 65$(about 25%). This is going down due to better Geopolitical/ wars situation, US increasing its gas/ oil production to improve its reserves , OPEC increasing its Oil supply , slowdown in developed world like EU, US etc . This will have salutary effects on big oil importers like India in terms of trade deficit reduction , stronger INR exchange prices , reduced inflation , reduced RBI rates etc. This will also improve the real GDP growth rate(Nominal growth rate minus inflation)

·        RBI monetary has become accommodative & dovish – RBI has started its rate reduction cycle already last month and is expected to again reduce the repo rate by 0.25% in its next meeting this month . Besides , it has eased the tight liquidity situation through its OMO and Dollar-INR long term swap tools by 80 Bil $( about Rs 7 lac crore) since January and is planning to infuse additional Rs 2 lac crore($24 Bil ) more by Mid year . This is and will drive the markets up. The lower inflation projections because of lower oil prices and better monsoon(last year) will help RBI to reduce the repo rates lower which will boost the credit cycle as well as stock markets up as cost of capital will come down .

·        Indian Market fairly valued or undervalued – Indian markets are fairly valued or bit undervalued because of recent correction .

 While some  pockets of Indian markets , especially small caps and mid caps are clearly over-valued , large caps(Nifty 50 companies) are under-valued by all significant parameters - PE trailing ratios , PE forward ratios as well as Warren Buffet Valuation Golden indicator(market capilaization / GDP ratio)      

1.      As per PE trailing ratios , Indian market(Nifty 50 – large caps) is sitting at 20.1  .  Last 5 years PE average was 23.9 .  Hence we are sitting   at a discount of 16% with respect to long term averages 

2.      As per PE 1 year Forward ratios , Indian markets are at 17.5 . Last 5 years PE average is 20.8  . Hence we are sitting at a discount of 15-16% 

3.      As per market cap / GDP ratio (Warren Buffet indicator)as per reliable data sources ,  the Indian market cap/ GDP ratio is 110%(As per Gurufocus.com).  As per this , Indian markets are fairly valued(90% to 111%) .

This shows that while Nifty 50( large cap companies) are under- valued , mid-cap and small cap are overly valued , making the aggregate valuation of the market fairly valued

• Dollar upvaluation and INR devaluation coming to an end - USD Index which went up to 110 in last many months, due to various reasons like Trump tariffs , Geopolitical situation/ wars , attractive 10  years treasury rates etc has started coming down. Its at 103 now. INR was going down due to above reasons and FIIs selling off in India to move their money to safer heavens in US . This has reversed now . In fact , INR has upvalued by 2% in last month ( from 87.6 to 86  per USD). In fact , its in the interest of US to keep USD down so that their exports don’t get negatively impacted.  These trends will be positive for India as strong and stable INR is good for FII returns and make Indian equity more attractive.
• Incorrect narratives on Indian economy slowdown -  There has been a lot of narratives ( seems to be herd mentality) around so called " Indian economy slow down" and "corporate earnings slow down"  . So called experts & media who influence the investing community through their narratives ignore the fact that this slow down for few quarters this fiscal year was not a structural and fundamental slowdown but a seasonal one induced because of  elections in Q1 & Q2  of this Fiscal quarter( elections were in  Q1 in April to June). This led to significant impact on Government capex & other expenditures which in turn had negative impact on private capex and earnings growth too. Businesses ( especially export oriented) also got impacted because of geopolitical tensions and developed economies slow down(EU , US , Japan etc). However, these are things of the past (especially election related slow down) . The GDP growth should show up good numbers (7-8%) Q1 of FY26 onwards (April onwards) because of favourable base effect (Q1 & Q2 of FY25 having elections related slow down) as well as lower inflation projections (cause of lower oil prices)
• Size and speed matters - India still the fastest growing  major economy in the world and Foreign investors(FIIs) don’t have too many choices . 

           Globally , India is still the fastest growing economy with expected GDP growth rates  , returning back to >7 % . With inflation of about 4.5%, this could mean a nominal growth rate of about 12% or more (nominal GDP is Real GDP plus inflation). India is the 5th largest economy today , contributing to about 4% of world economy . Its going to beat Japan this year(2025) and Germany by 2027( as per IMF calculations) to become the 3rd largest economy . China , the second largest economy grew at 2.8 % & US grew at 2.3% in 2024 and EU is almost in recession with almost nil growth rate . Can somebody afford to ignore this size of economy growing at the fastest speed ( Size and speed matters). In fact , FIIs have started returning back to Indian markets with vengeance last month(March) and pumped more than 31000 crore in last 6 days in March, before Trump mania hit the world .

 

 Key Recommendations & growth/return  projections : When it comes to NIFTY 50 targets , one should never venture into target predictions cause of market volatility and unpredictable nature in short & medium term .  However , historically NIFTY 50 & sensex  has given about 14% CAGR returns(15% plus including dividends). As the market is fairly valued (as per Warren indicator) or undervalued ( as per PE trailing and forward ratios)now cause of panic and doom sentiments , I would like to shoot for 20% or more upside for NIFTY 50 in next 12 months from current levels(by end of FY26). More attractive sectors  as per my analysis ( considering growth projections , current valuation , domestic market focus in this slowing global economy) are large cap & strong  businesses in  BFSI(Banking , Fin services & Insurance), Auto , Infra , capital goods, power , defence ,  Pharma/ healthcare, Telecom , Real estate , Chemicals & Travel/Hospitality sectors .  In long and medium term , there is no reason why NIFTY 50 won’t continue to give its historical 15% returns (doubling your investment every 5 years).  With good quality portfolio , you can always expect to beat the market by 4-5% or more (Alpha)  & double your investments every 4 years, which is quite decent by any standards. This is equivalent to 16 times in 16 years by magic of compounding (We underestimate the magic of compounding which can be achieved only through long term investing)  . If you don’t want to take the risk of picking up the right businesses / stocks , you could invest through index funds too(low cost and safe method of investing) . Last but not the least , in these times of big volatility , pl remember that your temperament/ calmness  & patience is more important than intellect and knowledge. I would also advice you to invest in Gold ETF funds(electronic gold) for 10-15% of your portfolio value  as its the best insurance against black swan events / wars and uncertainties like Trump mania . It will help you to cope up in extreme volatile situations as well as sudden liquidity requirements without selling equity at low prices . And avoid leverage for equity investing always 

 

 

 

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Am back on equity investing blogging: Current Equity market outlook for medium term - 2025 & ahead

Am so glad to be back to my passion of equity market investment related blogging .  I had started blogging  in 2011 but stopped it after my big accident in 2017 .  I am reviving the same after a gap of 7 years now , using my initial blogging platform .  Unfortunately , It doesn't have my last 3 years blogs(2015 to 2017) as I had migrated to another platform with my own domain (which expired few years back due to non usage).  I am re-starting my blogging with a very interesting and relevant topic( a big family drawing room as well as board room discussion topic today ) -  Current equity market Outlook for Medium term - 2025 & ahead .  

Blog site objective: I always had the passion for carefully studying and deploying  sound investing principles & methods of key global equity investing gurus(like Warren  Buffet , Benjamin Graham , Charlie Munger, Philip Fisher, Peter Lynch etc) to create wealth in a long term , safe & sustainable manner . My original objectives for starting this blog site was to guide & help retail investors  to invest in Indian equity markets to create wealth in a disciplined , safe & sustainable manner with a long term perspective .  

                  Current equity market Outlook for Medium term - 2025 & ahead .  

I would say that we  are sitting at an interesting juncture today when the global economies and the equity markets are seeing unprecedented volatality  due to geopoltical uncertainties and unpredictable trade policies of few major nations like US & China . Where do we go from here ? Do we see continuation of volatality and dips in the market ?  Should we invest now or should we wait till volatality goes down ?  Has the market bottomed out ?  These are the questions in minds of lot of investors - retail as well as institutional investors who are waiting in the wings for volatality to go down and markets to stabalize , before they start investing .

My views are a bit different here . Following are the views...

- Its futile and impossible to predict the market in short term . Market continues to surprise everybody including seasoned investor gurus . Hence perfectly timing the market & waiting for it to bottom out  would be futile & impossible . 

-  My thoughts are that Indian equity markets(especially large caps)  are in the last stages of bottoming out . The last few days of  markets have also corraborated on the same by going up or staying flat . There are some sound reasons for my hypothesis which has a high probablty of being true ...

• Improving Geopoltical situation - The Goepoltical situation is improving with 2 wars (Israel - Hamas and Russia - Ukraine) at its final stages under new adminstration in US . Israel - Hamas are already under the first ceasefire with early April 2025 as expiry date . By then , they could be signing off the permanent cease fire most probably , though it will be biased towards Israel  . Russia - Ukraine war could be over in few months with an uncomfortable cease-fire in the favor of Russia/ Putin as Zelensky(Unkraine) doesn't have much bargaining power with US halting its military aid and well as intelligence sharing . Ending of these wars( though under uncomfortable cease fires & deals) will bring in lots of goodness to global economies as well as markets with uncertainties coming down and oil prices coming down significantly .

• Trump tariff related antics coming to an end and getting discounted by markets - This has been a big root cause of market volatality and dips in last few months . However all the         major Tarriff related announcements including Canada , Mexico at 25% tariff , China at total 20% tariff , tariffs on EU , India and other countries have already come in by last week and  opposite parties like China, Canada etc have already announced reverse tarifffs too . So most of  the trade war related rhetoric has already been discounted by markets . In fact , some good news might come in  as Trump has again paused some tariffs on Canada and Mexico . China' s tariff responses could play a role in taming the Unpredictable(Trump) too.

• Gas prices coming down since last few months due to various factors ($67 per barrel from $ 86 per barrel - >20% reduction) . This is going down due to better Geopoltical/ wars situation , US increasing its gas/ oil production to increase its reserves , slowdown in developed world like EU & China . This will have salutary effects on big oil importers like India in terms of trade deficit reduction , stronger INR exchange prices , reduced inflation , reduced RBI rates etc 

• Dollar upvaluation and INR devaluation coming to an end - USD Index which went up to 110 in last many months , due to various reasons like Trump tariffs , Geopoltical situation/ wars , attractive US 10  years treasury bond rates etc has started coming down. Its at 104 now. INR was going down due to above reasons and FIIs(Foreign Institutional investors)were selling off in India to move their money to safer heavens in US . This exchange rate devaluation has slowed down  or halted now . In  fact , INR has upvalued by 0.5% in last few weeks( from 87.62 to 87.12 per USD). In fact , its in the interest of US to keep USD down so that their exports dont get negatively impacted .  These trends will be positive for India as strong and non devaluing INR is good for their(FII) returns and make Indian equity more attractive.

• False naratives around Indian markets over-valuation from media & "experts"despite recent correction  - While some  pockets of Indian markets , especially small caps amd mid caps are clearly over-valued , large caps(Nifty 50 companies) are fairly valued or under-valued by all significant parameters - PE trailing ratios , PE forward ratios as well as Warren Buffet  market Valuation indicator(market cap / GDP ratio)  . Following are the 4 sub-bullets     

1. Indian market cap is at 3.99 Trillion(as per Bloomberg latest data), already plunging by 18.33       % YTD( highest followed by Zimbabwe @18%). In contrast US , china and Japan recorded 2-3   % gains YTD. Even countries in recession like Canada , UK & France have showed 7 to 10%       gains YTD
2. As per market cap / GDP ratio (Warren Buffet indicator)we are fairly valued or undervalued as       per reliable data sources . India market cap is at $3.99 Tril(Bloomberg data on 7th March). GDP    estimates vary as per different sources . So , the Warren ratio as per the GDP estimates of              various sources is 102% as per our CEA (Chief Economic advisor 's GDP estimates) , 93.4( as     per  IMF current GDP data) , 105%(based on world bank 2023 GDP estimates adjusted                 with 2024 growth). As per Warren Buffet standards , this ratios are pretty much fairly valued   or bit undervalued (93% to 105%). In contrast to these data from reliable sources , media                and Investment banking / brokerage related experts are making incorrect & scaring                      headlines of Warren indicator  at 120% to 147%( Famed names  like CMIE , Buisness standard     Business Today and ESI -  Economic  Survey of India) . Market cap/ GDP ratio was                      at 140% in recent  times in Sep 2024 (source – Guru focus) but has reduced significantly ,            especially for large caps since then. By the way , US Market cap / GDP is at 153% today,  when its GDP  growth rate has been 2 to 3%  against India's 7 to 8% , but their experts still dont talk much about  Over-valuation 
3.  As per PE trailing ratios , Indian markets are at the lowest after Covid days at slightly below        20 last week . Last 10 years PE average was 23.5 and last 18 years it was 21.8 . Hence we are        sitting  at a discount of 8 to 15% with respect to long term averages 
4. As per PE 1 year Forward ratios , Indian markets are at the lowest after Covid days at 16.2 last       week . Last 10 years PE average is 20.4 . Hence we are sitting at a discount of 20%(highest        since Covid days) 

• False narratives on Indian economy slowdown -  There has been a lot of narratives ( seems to be herd mentality) around so called " Indian economy slow down" and "corporate earnings slow down"  . So called "experts" & media who influence the investing community through their narratives ignore the fact that this slow down for few quarters this year was not a structural and fundamental slowdown but a seasonal one induced because of  elections in Q1 & Q2  of this Fiscal quarter( elections were in  Q1 in April to June). This led to significant impact on Government capex & other expenditures for 2 quarters ,which in turn had negative impact on private capex and earnings growth too, Busineses ( especially export oriented) also got impacted because of geopoltical tensions and developed ecenomies slow down(EU , US , Japan etc). However, these are things of the past ( especially election related slow down) . The GDP growth should show up good numbers (7-8%) Q1 of FY26 onwards(April onwards) because of favourable base effect (Q1 of FY25 having elections related slow down) & favorable budget. 

• Growth green shoots already coming in but ignored by market participants(sub-bullets) 

1.  In fact , good news has already started coming with SBI research coming out with 7.6% GDP projected growth rate for current Quarter(Q4 of FY 25)
2.  HSBI Flash India composite PMI output Index has shown strong numbers in Feb @60.6(more than 50  indicates growth) . Feb composite PMI is the fastest in last 7 months.
3. Consensus Nifty 50 Earnings growth for FY26 is quite optimistic at 18.3% instead of an         historical average of 15% Earnings growth .

• Size and speed matters - India still the fastest growing  major economy in the world and Foreign investors(FIIs) don't have too many choices .  Following are the sub-bullets 

1.  Globally , India is still the fastest growing economy with expected GDP growth rates             returning back to 7-8% in 2025 onwards (I would gun for 8% cause of base effect of 2024           election induced slower economy ).With inflation of about 4.5%, this could mean a nominal         growth rate of  about 12% or more (nominal GDP is Real GDP plus inflation). 
2. India is the 5th largest economy today , contributing to about 4% of world economy . Its goimg    to beat Japan this year(2025) and Germany by 2027( as per IMF estimations) to become the 3rd largest ecenomy .  
3. China , the second largest economy grew at 2.8 %( Real rate) and 3% nominal                            rate(practically no inflation)
4. US grew at 2.3% in 2024 and EU is almost in recession with almost nil growth rate 
5. Can somebody afford to ignore this size of economy growing at the fastest speed?? ( Size and speed matters)
6. Lets not forget that Indian retail investors and Domestic Insititutional investors(DIIs)/ mutual funds have been conistently pouring > 30K crore Rs every month through SIPs and other investments and have beome an equal force as FIIs to reckon with and they have played a key role in keeping Indian markets resilient/

 Because of these 8 big reasons(bullets) , I think this is one of the best time to bet on strong and resilient Indian economy and go for the equity investments in staggered manner in next few months , starting today . My idol Warren says " Be fearful when others are greedy and be greedy when others are  fearful"  .  I guess , its time to be greedy in a selective and disciplined manner . This year is going to be the stock picker year and hence go for high quality & growth businesses with strong moats/ competive advantages , run by quality managements , available at attractive prices/valuations  . I would recommend resticting ourselves to large caps , mainly cause of valuation related reasons . With the Nifty 50 dipping by 15% from peaks , most of these attractive and quality businesse would be available at great  prices. I would also advice you to invest in Gold ETF funds(electronic gold) for atleast 10% as its the best insurance against blackswan events / wars and uncertainties . It will help you to cope up in extreme volatile situations as well as sudden liquidity requirements without selling equity at low prices . And avoid leverage for equity investing always 

 When it comes to NIFTY 50 targets , one should never venture into target predictions cause of market volatality and unprectable nature in short & medium term .  However , historically NIFTY 50 & sensex 100 has given about 14% CAGR returns(15% plus including dividends). As the market is fairly valued (as per Warren indicator) or undervalued ( as per PE trailing and forward ratios)now cause of panic and doom sentiments , I would like to shoot for 20% or more upside for NIFTY 50 in next 12 months from current levels. More attractive sectors as per my analysis /perception are BFSI, Auto , Infra , capital goods, power , defence ,  Pharma/ heathcare & IT/ Telecom  .   In long and medium term , there is no reason why NIFTY 50 won't continue to give its historical 15% returns (doubling your investment every 5 years).  With good quality portfolio , you can always expect to beat the market by 4-5% or more(Alpha) which will  double your investments every 4 years & thats quite decent by all standards  . If you dont want to take the risk of picking up the right busineses / stocks , you could invest through index funds too , which is safe and low cost way of investing ..

Thanks and happy investing ...

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Please go to my new blog website: www.valueinvestmentindia.com

Friends ,

 Thanks for all the support and encouragement you have given to me on this blog . I got more than 6000 visitors to my blog in last 2 years and the comments I have got are amazing . I have recently migrated my blog to a new website in August 2014 . From now onwards , please visit the new blog website as it has many more features like my live portfolio tracker , fav videos , fav quotes etc and you will love the look and feel of the website. I am going to discontinue this blog website.

The new blog link is

http://www.valueinvestmentindia.com



  Happy investing..

  Keep giving your feedback ...cheers

 Amar

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Value Investing philosophy and relevant quotes from Investment gurus

What is Value investing: This is an investment philosophy, conceptualized by Benjamin Graham in 1949 in his book “Intelligent investor” . Benjamin Graham is known as the greatest investment guru of 20th century – mentor to legendary Warren Buffet. It’s an investing style which demands investing in assets/stocks available at a price which offers substantial discount or “margin of safety” with respect to its intrinsic or fair value.

Margin of safety: This concept has been considered as key cornerstone of value investing by big investors like Graham and Buffet. Margin of safety is the difference between  intrinsic value of the asset and its market price . Bigger  is the margin , better is the safety and returns of the  investment. The return on investment is directly linked to the margin of safety you deploy.

Intrinsic Value: The actual or true value of a security or asset, which  may not be equal to its market price or book value.  It is ordinarily calculated by summing the future income/cash flows generated by the asset, and discounting it to the present value.

I am going to present a compilation of best quotes (below) from the world’s most successful investors to provide more clarity on basic tenets/facets of value investing.

Relevant & key quotes from Investment gurus

“Price is what you pay and value is what you get” –Warren Buffet

“Don’t buy pieces of papers (stocks), buy great businesses underlying them” – Warren Buffet

“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.” – Warren Buffet

“The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they are on the operating table.” – Warren Buffet

“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”-  Warren Buffet

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” -Warren

“Market is a voting machine in short term and weighing machine in long term”. (means markets are unpredictable in short term but eventually prices the value of the assets right in the long term) – Benjamin Graham

Mr. Market is a “manic depressive” guy who has frequent bouts of extreme mood swings and is either very ecstatic or depressed on a given day. If you get carried away by Mr. Market’s wild mood swings, you are doomed as an investor. However, if you learn to exploit his mood swings in a wise manner, you would be a winner” - Benjamin Graham

“Investing without research is like playing stud poker and never looking at the cards.” – Peter Lynch

“Only Buy what you understand”- Peter Lynch

“Absent a lot of surprises, stocks are relatively predictable over 10-20 years. As to whether they’re going to be higher or lower in two to three years, you might as well flip a coin to decide.”-  Peter Lynch

“I am rejecting technical analysis as a method for investing .You must be a fundamentalist to be really successful in the market.”- John Templeton

“If you want to have a better performance than the crowd, you must do things differently from the crowd.” – John Templeton

“It’s not always easy to do what’s not popular, but that’s where you make your money. Buy stocks that look bad to less careful investors and hang on until their real value is recognized.”- John Neff

“I’ve never bought a stock unless, in my view, it was on sale.” – John Neff

“If you have good stocks and you really know them, you’ll make money if you’re patient over three years or more.” David Dreman

“When most investors, including the pros, all agree on something, they’re usually wrong.” – Carl Icahn

Its amazing that all the successful investors in the world (including the above gurus) who made billions of dollars from stock investing (except for one notable exception of George Soros who was more of a trader and speculator than an investor) have only one thing in common. They all followed the basic tenets of value investing with some adaptations. Despite their remarkable success in beating all the indexes and benchmarks consistently for last many decades, most of the market participants including institutional investors(FIIs, domestic mutual funds, leading brokerages and investment banks, retail investors etc.)still don’t follow the basic tenets of value investing(safe and long term investing) and only pay lip service to it.

I find it un-believable and shocking and can only ascribe the following reasons for this behavior

-      Temptation/ greed to make a fast buck and fortune overnight(instant gratification)

-      Focus on short term goals of beating the other mutual or hedge funds

-      Herd behavior of most of the market participants including the big institutional buyers

-      Lack of patience and discipline which is required by a long term investor

-      Lack of conviction on one’s beliefs or stock picks leading to bouts of fear

In short , I would say that major reason almost all the market participants including us can’t follow the successful tenets of value investing is our lack of emotional discipline. There is a whole subject called “behavioral finance” which is dedicated to this theme. Sooner do we overcome this trait and show more patience, conviction and discipline, more successful we can be in investing and getting abnormal returns, beating the market consistently in long run. I will close this blog with the below quotes from Warren Buffet on importance of patience and discipline.

“Only when you combine sound intellect with emotional discipline do you get rational behavior.”

“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”

Happy safe and long term investing

Cheers

Amar

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Budget 2014 and its implications on Indian economy and markets

Hi All,

We had huge expectations from the 2014 budget presented by Arun Jaitley last week. It had been hailed as the most awaited and path breaking  budget ever in Indian history and what not. For obvious reasons, it failed to live up to the hype. The fiscal constraints/ high fiscal deficit and macro-economic issues (high inflation and low growth) also tied his hands to a large extent.

Though , I agree with the experts that the budget was not radical , transformational  and Visionary , it was not a bad budget at all . It had many elements which will significantly facilitate the turnaround in Indian economy and lay the foundation of a strong economy. Let me put a few highlights and lowlights of the budget to reinforce my argument..

Highlights :-

1)      He stuck to his guns on the fiscal deficit projections with 4.1% in FY15, 3.5% in FY16 and 3% in FY17 , though a detailed roadmap on how to do it was missing and some of his assumptions on buoyant revenue collections were too optimistic

2)      FDI  reforms – He started the FDI reforms again with 49% ceiling in Insurance and Defense , through critics might be right that he could do at least 51 percent to effectively lure more foreign investors with technology transfer

3)      Agriculture – His emphasis on enhancing agricultural credit ( Rs 8 Lac Crore) , extending the interest subvention of 3% to the existing agriculture credit, targeting MGNREGA funds towards rural and irrigation related infra , creating irrigation and rural infra should go a long way to enhance rural economy  and to target agricultural growth of 4% in long run

4)      Investment cycle – The budget will play a good part in kick starting the investment cycle by pushing PSUs sitting on cash pile  for significant  investment(>2 Lac Crore), allowing the banks to recapitalize through FPOs(Public offerings), clearing the approvals of stuck up project and through massive investments in infrastructure(especially roads, ports and airports). Permitting FDI in Railways is also in the pipeline.

5)      Infrastructure – The plans to create 100 smart cities, plans to execute 8000 Kms of National Highways (about Rs 38 K crores), plans to create many more airports in Tier 2 and 3 cities, more ports, dedicated railway freight corridors, Goal to supply 24X7 power to rural structure as well as urban areas in few years will be a big boost to the infra-structure, provided they get executed. Allowing banks to raise long term bonds for Infrastructure and affordable housing (with no obligations on CRR and SLR) was a big positive step to unlock credit for infrastructure and affordable real estate. Tax reforms on REIT and Infra Investment trusts as well lowering the threshold on real estate FDI will help in getting more funding for real estate.

6)      Manufacturing and skills - He also talked about intent to enhance manufacturing sector and build skills among the youth to exploit the demographic dividends

Lowlights :-

1)       The big bangs, transformational and radical measures which was expected after the big hype Modi had created during election campaigns was missing . The massive mandate Modi got after the elections gave him the power to bring in significant reforms and measures which could have transformed Indian manufacturing, agriculture and infrastructure in next 4-5 years.

2)      The details on Fiscal Roadmap was missing on how to reach the stiff fiscal targets.  Roadmap on subsidy reduction as well as Tax reforms were missing.

3)      There was no firm commitment on GST as well as DTC.

4)      Past retrospective  tax incidences were not abolished

5)      Nothing significant was announced for service, telecom and IT sector which constitutes major part of Indian GDP today

6)      Though the intent on making manufacturing the backbone of Indian economy was declared, the details and roadmap was missing  like labor law reforms , Special manufacturing zones or manufacturing growth strategy was missing.

7)      No significant announcement on Energy sector – gas prices, subsidies reforms etc.

Implications on Indian economy and markets:-

As  I said earlier , though the budget was not radical and trans formative , It had many elements (like those highlighted above) which will significantly facilitate the turnaround in Indian economy and lay the foundation of a strong economy. Perhaps, the Government’s budget communication in Parliament have become over-hyped in India and we are putting too much of expectations around these communications. Its high time we should de-hype these  budget communication and start focusing on the fundamentals of businesses, economy and investing. There are lots of actions which happens beyond the Government budget which really impacts the economy and thereby markets . For example , Government’s initiative to amend the Land acquisition bill, Government’s speed in clearing the massive infra and power projects stuck up in green approvals, Government’s  action to secure coal linkage to all power projects, Government’s action on controlling prices , RBI  monetary policy actions are all happening outside the budget process.  Besides Government need not announce all the actions and measures during the first budget itself . Public memory is short and hence Jaitley and Modi may save some of the big bangs reforms/ announcements for the next few years.

Now that the budget communication is over, what will really impact the Indian economy would be execution…execution and execution on the part of Government as well as corporate sector. Even if Modi’s government acts and executes 40-50% percent of key plans and measures announced in the budget , we will be seeing Indian economy in the 8-9% growth again( so called “ Ache Din”) in next 2 -3 years.  Successive Indian  governments and its infamous bureaucracy has never been seen as  wanting in ideas and plans but severely wanting in execution of those plans and plugging of leakages in  allocations. What will now impact the Indian markets going forward would be turnaround in economy through execution as well as growth in corporate earnings- actual and guidance numbers.

Good news for Indian economy is that there are many domestic and global green shoots which point towards turnaround in Indian economy . IIP (Industry production) numbers have been positive in last few months(June numbers showed >4% growth). Export growth has been in double digits (>10%) for last 2 months. Inflation for June was at 7.3%(CPI) , lowest in last 30 months and lower than RBI target for 2014 (8%). Current account deficit is at <2% which along with steady FDI/FII flow has kept Rupee exchange rate in check at about 60 to Dollar. The global coal and Iron ore prices have come down by 20-25% this year. US, Europe and Chinese economy are showing good signs of growth which will help our products and IT services exports. The only credible threat is failing monsoon which can have adverse impact on food prices and rural economy and gulf situation at Iraq which can have an adverse impact on crude prices..  Lately , even the monsoon has shown some revival with monsoon deficit projections for July coming down to 15% from 41%.All these green shoots are again nothing to do with budget but will definitely help in turning around the Indian economy.

Implications for retail investors – As  I  have been predicting since last 2 years  in my blogs , we are sitting on a huge bull run which may last for many years , mainly on the back of an economy which is turning around and will start growing again at 8-9% in few years. Now that the hype over elections and budget is over, the market will return to its normal self and irrational exuberance will take a dip. This may lead to some consolidation and range bound movement in short run but the long term bull run is still very much intact. As the market have grown >30% in last 9 months and 20% YTD  due to high expectations and hype , some of the stocks have grown too fast in last 6-9 months(especially in cyclical sectors like Banking and Finance, Infra, power , real estate etc) . We therefore need to tread  with caution and cannot invest in any stock or sector , expecting them to grow. However , in this market where the index is fairly valued now , we still have  many businesses which are solid and are available at reasonable prices to enter. Hence bottoms up strategy in picking up the rights businesses/ stocks is the best strategy. If I take up my 2014 portfolio , the leading stocks where I will enter and invest now would be BOB, LIC Housing Finance, REC, Power Grid, Bajaj Finance, Reliance, Coal India  and M&M(9 out of my 15 2014 portfolio stocks).

BOB- Bank of Baroda -  This is the only biggie  PSU bank which has shown a consistent growth track record in last 10 years(>15% CAGR), consistent ROE(>10%) as well as consistently good track record on  NPA(among the lowest in PSUs) and yet available at cheap valuation(About 8 PE ), though it has run up recently

LIC Housing Finance – Would benefit a lot with Government push on affordable housing , plan of 100 smart cities and emphasis on housing in tier 2/ tier 3 cities. Has showed a consistent track record of >15% CAGR growth and yet available at low valuation (12 -13 PE).

Coal India – Has needlessly corrected in recent times around budget. Competitive advantage on Coal sector because of monopoly sector. Will gain from government push to get the coal mines approvals / clearances as well as building railway tracks for transportation.

L&T – Its the best proxy to the Indian economy growth story . You can never stop investing in L&T , till Indian economy is growing.

REC – Has needlessly corrected by >15% in recent times after budget as budget didn’t provide for any provision for tax free bonds. Huge competitive advantage on rural electrification. Wi ll gain from Government goal to achieve 24X7 power for rural areas in next few years

Power Grid – Although it has run up in recent times, its still cheap at 13 PE with growth projections of >20% CAGR in next few years due to power transmission push by Government.

Reliance - It has not run up much after the new Govt and corrected needlessly in recent times due to lack of clarity on gas pricing and government actions/ regulations like recent penalty . It will gain in medium term due to clarity on gas pricing, its plan to invest , impending clearances from Govt. on its plan to expand production in KGD6  and its US Shale gas production. Besides, retail segment is turning around.

Bajaj Finance – Although the prices have run up , its still cheap at 13-14 PE as it has shown consistent growth records of 25-30% CAGR. It will gain with turnaround in consumption  with growth pick up in Indian economy.

Bajaj Auto - This will benefit from the budget allocation and push in the rural economy through agricultural credit and infrastructure building etc. It has not run up fast and has underperformed Sensex . But with push on rural economy and turnaround in Indian economy, good product pipeline and strong export performance, Bajaj Auto should do very well in next 12 months, despite bad Q1 numbers.

That doesn’t mean that the other stocks in my portfolio are no more in my horizon to invest. I am just waiting for them to correct a bit so that they again become attractive from investment point of view.(Axis Bank, ICICI bank, HCL Tech,IDFC,GAIL and M&M). They are still fantastic businesses but have run up too fast  in recent times and I would like to wait to start investing again in them whenever we have dips.

Remember that the key to make money consistently in Indian markets now   is to find few of the best available businesses with strong growth track records, strong balance sheets , competent managements and durable competitive advantages , which are also very good proxies to Indian structural growth story and invest for long term , whenever the prices are reasonable .

Happy investing

cheers

Amar

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