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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Breaking the market myths in current times through long term and safe Investing

Hello Readers,

I have always been an unabashed and tireless advocate of the long term India growth story and potential of Indian economy to beat all the other nations hands down in the coming few decades, and many of my blogs have referred to the strong fundamental underpinnings of the India growth story – demographics, skilled manpower, English speaking capabilities, burgeoning middle class market, democracy and independent judiciary etc . I will refer you to the following blogs:

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My 2014 market/economy insights and 2014 portfolio performance till date

Hello readers,

This is very interesting times for the Indian market with the markets (Sensex and Nifty) touching new highs in recent times (22700 and 6800) with gloom and pessimism being replaced by optimism and hope. The NAMO victory is already discounted in the market prices and any negative surprise with NDA winning less than 200 seats could upset the markets leading to 10-15% declines in the short term. Strong victory with > 220 seats for NDA could result in 4-5% uplift in the market with Sensex going near 24000 in short term. 

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My 2014 Top stock picks and 2013 portfolio performance

Hello readers,

 Wish you all a very happy and wealth generating New Year -2014.

 How Indian markets performed in 2013 vis-à-vis my 2013 Forecast:

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Has the "Great Indian Bull Run" started?

 Hello readers,

Victor Hugo - the most famous French writer once said" All the forces in the world are not so powerful as an idea whose time has come".  

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Indian economy growth story: Is it over??

Hello readers,

      This is testing times for Indian economy, market and the growth story. Some of the leading economists, market experts and industrialists have written off India growth story and its potential to become a super economic power in next few decades. These experts who had been so bullish about Indian growth story till yesterday have suddenly started giving very bearish and gloomy forecasts about India GDP for next few quarters and few years - talking about sub 5% growth rates . Some of the experts have proposed that India in BRIC should be replaced by Indonesia as India story is over. It has been declared that 8-9% GDP achieved for many years, before 2008 is not sustainable, was just a flash in the pan and the real potential of Indian GDP growth rate is about 5%.

Most of these experts and doom day predictors of Indian economy are Indian or Indian origin scholars and industrialists. There is a widespread gloom in the country because of the lack of economic growth and investment opportunities. Though I understand the frustration to a large extent and am equally frustrated with the will power deficit and lethargy shown by our political ruling class as well as babus, I don't understand the extreme pall of gloom  as if everything is over for the India story. Are we over-reacting to a short term down? Have we become a nation of  self -critical and over pessimistic people who can't see the long term strong fundamentals of this economy which can't be damaged by any political dispensation? Have we become a nation of ever-green cynics who like to shoot their own foot by crying hoarse to the world about our "demise" when the whole world is in a bigger mess? While countries like US and Japan which are in a bigger mess (with 1.8% and 1.4% GDP growth rate in 2013) can see green shoots in their fading economy, why can't we see the recent green shoots in our economy(E.g. Current account deficit for Jan-Mar 2013 coming down to 3.6% from 6.7% of earlier quarter, inflation(WPI) coming down to 4.7% in May from 9-10% last year , Fiscal deficit for 2012-13 coming down to <5% and Govt. finally showing some action in terms of recent approval for FDI in Retail, aviation and Insurance, RBI starting to reduce the Repo rates).

We keep on harping about 5% GDP growth as a very dismal growth rate. Do we really understand that even with 5% GDP growth rate , we are the second fastest growing economy(behind Indonesia) among all the major nations with >$500 Billion GDP size and fastest growing economy among nations >$1 Trillion  GDP including China, Brazil or any other nation?

Are you surprised?  But this is true.

 The reported  GDP growth rates are the Real GDP growth rates after adjusting the Nominal GDP growth rates with inflation rate. The nominal growth rates are the actual GDP growth rates in INR or Dollar terms. We reduce the inflation rate from Nominal growth rates to come out with reported and published GDP growth rates. As per the latest forecast, India is the fastest growing mega economy(among  nations  with >$1 Trillion GDP) in terms of Nominal GDP growth rates. Even at current 5.7% GDP growth rate, Indian economy is growing at 11.6% Nominal rate(as our WPI inflation rates are very high at 5.9% than other countries like US, Europe or China). China will grow at 11.1% nominal rates(7.8% Real GDP rate +3.3% Inflation). Other BRIC countries like Brazil and Russia are growing at 8.8%(3%+5.8%) and 9.2%(2.8%+6.4%) respectively. US would be growing at 3.2% only(1.8%+1.4%), Japan at 2.1%  and Euro region would grow at paltry 0.7%.The only major country which is growing faster than India is Indonesia at 13.5% Nominal growth rate(6.2%+7.3%). The only other major nation growing at double digit Nominal rates is Turkey at 10.1%(3.8%+6.3%). Hence, we have only 4 major national economies (India, China, Turkey and Indonesia) with GDP size>$500 Billion growing at double digit Nominal rates and only 2 mega national economies (>$1 Trillion GDP size) with double digit Nominal growth rates(India and China).

(Source of information: 2013 Global GDP forecast of a leading Canadian Bank)

Why are we still shedding so much of crocodile tears at 5% growth rates? Do we really appreciate that we still are the fastest growing mega economy? Do we appreciate that we still are growing faster than any other BRIC or major emerging economies? Do we appreciate that at 11.6% nominal growth rate(for $2 Trillion GDP size economy), we will add $230 Billion to our economy size in 2013(as big as Iraq, Nigeria or Philippines economy)? Do we understand that with 11-12% Nominal growth rates, the Indian economy with still double up every 6-7 years? Do we understand that global liquidity (FDI + FII investments) is waiting at the sidelines to invest in India story as they don't have too many such stable, big size and consistently growing economy options? Would they invest in China which is going through a major churn like credit squeeze and slowing down economy (not to speak of non-independent judiciary and unaccountable political regime)? Would they invest in Japan or Euro region with dismal or negative GDP growth rates? Would they invest in Brazil and Russia with 3% GDP growth rates and very heavily dependent on commodities? Where would they go?

Just to prove my point, in May 2013 itself, FIIs poured a record $5.2 Billion into Indian equity and debt market with respect to $25 Billion in entire 2012. They poured this much liquidity as they were desperately waiting for some positive signal from Indian Govt. which finally came when FDI reforms were notified by Indian Govt on Retail, Insurance and Aviation. Similarly, we had a big ticket FDI investment from Unilever in HLL(Hindustan Lever) of > $5 Billion this month. Now there might be some sudden variations in these flows in short term due to global events, e.g. recent US Fed bank announcements about tapering off Quantitative easing led to FII outflows out of India and other emerging economies in June. But the point is that in medium and long run , there are very few options available for Global money. No other economy has so many long term fundamentals going for it like stable political and democratic set up, independent judiciary and regulators, rapid and consistently growing economy, sizable economy($2 Trillion GDP) with 200 Million strong middle class, strong demographics with major proportion of youth hungry for prosperity and better life, sizable English speaking population , huge local entrepreneurship talent  and very high savings and investment rates(32%of GDP). 

Implications for the Indian retail investors

Is there any permanent dent in the Indian long term growth story? Not at all. The Indian Tiger has been freed and it will run fast irrespective of the governments. Indian growth story will continue to remain the key growth story of the 21st century. You have to shut your ears from the pessimistic noise around “demise” of the Indian story, keep your conviction and keep investing with a long term perspective.

The current economic woes of low growth rate are not going to last long with Indian Govt. desperately trying to re-start the economic engine by policy and legislative reforms and trying to cut the fiscal and current deficit. With fresh elections in 2014, the new Govt. would have the will power, urgency and resolve to carry out project approvals and policy/ legislative reforms to attract investments. With inflation coming down, Reserve bank would be having further space to cut down interest rates.

Markets may see a lot of churn and variation in short term because of global and domestic factors in 2013. It may not show a significant upside for many months till we have a new Govt at New Delhi with 2014 elections, ready to take key and crucial decisions on key reforms and project clearances/ approvals. However, we may see some good and quick upside in 2013 if the current Govt. suddenly wakes up and carries out urgent actions and reforms to create public goodwill for the 2014 elections.

One should use these times of fear and uncertainty to invest in staggered manner with every fall in the market in the next few months/quarters to build up a long term portfolio of strong businesses at discounted prices. The market prices for most of the blue chip stocks/ businesses are attractive and are available at good “margin of safety” to their intrinsic values. These investments should be made only with a horizon of atleast 3 years so that we will get handsome returns of  20-30% annualized.

Happy investing

Cheers

Amar

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Is the market stupid or intelligent enough?

Hello readers!

This is interesting times for Indian economy and stock markets, post the budget.

People (including me) had high expectations out of Chidambaram's budget which failed to deliver on many counts including bold moves to grease the economy and markets. For example, it was negative or absent on clear timetable for GST and DTC roll out, bold moves to encourage/ de-bottleneck investments in infrastructure, power and real estate, Reduction of Income Tax exemption or deduction limits to improve savings rate /investment rate, giving incentives to divert savings from real estate/ gold to financial savings, mandating PSUs to step up investment using the cash pile they have etc. The only good thing about the budget was Chidambaram's delivering on FY13 goal on 5.3% fiscal deficit and his plans to reduce the fiscal deficit to 4.5% by FY14 end.

Though the budget was positive for news on fiscal deficit, it was largely disappointing and an opportunity forgone in terms of urgency/ speed of reforms and bold moves. However, even more interesting and disappointing was market's reaction post the budget in the last 4 weeks. Firstly, the market over-reacted on the Mauritius related confusion  when market players assumed that Govt. is going to change the rules of the game for investments routed through Mauritius( in the form of the Tax Residency Certificate (TRC) being no longer just a necessary and sufficient condition).Govt. tried to clear the air few days later on the issue. After that, the global markets including India over-reacted on the Cyprus debt crisis issue. Just imagine the world markets over-reacted on a small economy contributing to $24 Billion of GDP(< 0.1% of world's GDP), perhaps because it’s a safe haven for routing investments and perhaps because hyper market players thought that the bank run in Cyprus could trigger a bank run and collapse of European union. Then, market over-reacted a few weeks ago on some allegations of money laundering on some employees of 3 top private banks (ICICI bank, Axis bank and HDFC bank).Last week, Indian stocks fell because of weak global cues in U.S. and Europe. US stocks had the biggest weekly decline of the year for the Standard & Poor’s 500 Index, after data showed the nation added less than half the number of jobs economists forecast in March.

Now all these events were temporary bad news (facts or perceptions) which could not impact the sound business models of the best businesses in India. Yet the prices/ market valuations of the stocks of all the businesses (including blue chips among the large caps) were hammered and butchered. Cyprus & Mauritius related news or employee related money laundering allegations can never alter the business model or the fundamental economics of sound companies in India. So, why did the markets react so badly on these news and pulled down the prices of some of these blue chips by 10-20%.

 Benjamin Graham (Warren Buffet's mentor) and Warren Buffet were great fans of the over reactive markets and made their best investments during the times when market was reacting to temporary bad news and hammering solid businesses down without any fundamental changes in their businesses economics/ potential.

Graham once said that "market was a voting machine in short term and weighing machine in long term". That means markets are unpredictable in short term but eventually prices the value of the assets right in the long term.He likened market to "manic depressive" guy who had frequent bouts of extreme mood swings and was either very ecstatic or depressed on a given day. He called the guy "Mr. Market". He taught his numerous disciples that 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. 

Efficient market theory is one of the key theories of modern finance. .Widely taught in all Ivy league universities, it says that its impossible to beat markets consistently as markets  are super-efficient in capturing all the relevant and latest information and events Therefore no living mortal can achieve better returns than market consistently. Many of the big investment gurus have scoffed at the efficiency of the market .Warren buffet once said that "if markets were so efficient as the academicians would like us to believe, then I would have been a bum sitting with a tin cup"

Warren buffet discovered that because 95% of all participants try to beat each other out of the quick buck, markets are very efficient in the short term and hence its impossible to beat the market consistently from a short term perspective. However because of the same short term orientation/ shortsightedness and over reactiveness, markets are not very efficient from a long term perspective - sometimes grossly inefficient  That’s why Benjamin Graham also used to call Market as "manic depressive" who is either too happy or depressed due to short sightedness and over-reactiveness. Warren once said famously " Be greedy when  everybody is fearful and be fearful when everybody is greedy" . The best investments which these investment gurus made were in these uncertain times and "temporary bad news" events when the market irrationally painted every business (even the best blue chip businesses with strong business model and strong balance sheet with durable competitive advantage) with the same brush and hammered them down. 

Now coming back to the best Business or stock picks in India, available at mouthwatering prices, in the current over reactive situation, following are my Top 10 recommendations out of my 2012 and 2013 recommendations.

 Business                                       Current price(INR)

Axis Bank                                           1229

ICICI bank                                           998

BOB                                                     655

M&M                                                   837

Coal India                                             309

REC                                                     211

Power Grid                                           104

L&T                                                   1349

IDFC                                                   140

LIC housing Fin                                    223

All these players are dominant or big players in their sectors with consistent growth, robust business models with negligible impact from these temporary bad news or events, well managed companies by competent management teams & strong balance sheets with sustainable competitive advantages in their areas. And they are available at good prices now with respect to their intrinsic value or historic PE. We should invest in these businesses at every dip(as the market might dip further) and sit tight on them for few years(3-5 years of investment horizon) to realize the true growth potential of these businesses. If you don’t have that investment horizon, then you are wasting your time on my blog.

Happy investing!

Cheers

Amardeep

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Budget 2013 expectations and its implications on Indian economy and markets

Hello Readers,

  Mr.Chidabaram is coming with the last budget of the UPA-II government on 28^th Feb and he would be carrying a high burden of expectations from the investors, industrialists and common man. Whether he will be able to deliver for all would be something which everybody is waiting with held breath.

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My 2013 Forecast of Indian markets and Top 12 Stock picks

Hello readers,

 Wish you all a very happy and wealth generating New Year -2013.

 How Indian markets performed in 2012 vis-à-vis my 2012 Forecast:

Before we get into 2013, let’s look back and see how the Indian markets performed in 2012. The Sensex was up by 26% with respect to 2011 closing levels (from 15454 to 19426 levels). This was in line with my 2012 forecast (Pl refer my blog on 31st Dec 2011"My 2012 forecast and Top 10 stock picks) when I had predicted the Sensex to touch 20,000 by 2012 end. It almost touched and missed 20,000 by a mere 500 points (2.5%). The Indian Sensex did better than the world markets and US market(S&P 500 Index) and was one of the best performing markets, justifying my bullishness on Indian economy and market. The MSCI All-Country World Index of equities increased 16.9 percent in 2012 & S&P 500 Index increased by 13% in 2012, while Sensex increased by 26%.

How my 2012 portfolio performed(Top 10 stock picks) :

Pl refer to the same blog (dated 31^st Dec 2011) where I had mentioned my top 10 stock picks for 2012. In order to put my investment ideas to test, I invested in the same stocks in 2012 with great results (as shown below). My portfolio showed gains of 36% versus 26% of Sensex gains. I was more bullish on stocks like AXIS bank, BOB (Bank of Baroda), REC (Rural electricity Corp), BHEL, IDFC etc and hence put more money (higher weight) on them. The 4 top gainers were Axis bank (56%), IDFC (78%), REC (66%) and L&T(57%).The only 2 big disappointments were BHEL and GAIL . However, am still bullish on these 2 stocks and strongly think that market is being short sighted and not fully pricing their long term earnings potential and durable competitive advantages.  Hence I am going to hold them on for 2013 when they will show excellent gains.

2012 Portfolio results:

Company	Weight	Gain%
Axis	19%	56%	10.4%
BOB	15%	30%	4.6%
BHEL	14%	-3%	-0.4%
REC	13%	66%	8.7%
GAIL	10%	-6%	-0.6%
IDFC	9%	78%	7.2%
L&T	8%	57%	4.7%
Reliance	8%	18%	1.4%
Jain Irrigation	2%	-3%	-0.1%
Coromandel Int	2%	-14%	-0.3%
Total Gain%			36%

My 2013 forecast of the Indian markets:

Though I am a long term investor who focuses on long term trends and predictions of the economy/ market and the businesses, I would dare to venture into the medium term forecast again and predict that India economy and the markets are at the threshold of starting a big and long bull run.  The Sensex could be touching 24000 by Q2/Q3 of 2013 calendar year (16 X FY14 forward PE). This is about 25% gains from the current levels. This means that if we chose the right businesses/ companies (fundamentally strong businesses with competent management at attractive prices), we could potentially make 30-40% of returns in 2013. I am most bullish on interest rate sensitive sectors like Banking & Finance, Automobiles, capital goods/ infrastructure etc as they have been battered badly in recent times and will benefit from the Govt. policy reforms, investments and RBI impending actions on interest rate reduction .This market forecast might get battered only if we have sudden upheavals or catastrophic events like US fiscal cliff not getting resolved and US getting into recession or severe Euro sovereign default or Indian Govt falling etc. 

My 2013 Portfolio of Top12 business/ stock picks:-

I am going to retain many of the stock picks of 2012 while dropping 4 of them and adding 6 more new businesses/ stocks.

I am retaining BOB(Bank of Baroda), REC(Rural Electricity Corp), BHEL, GAIL , Jain Irrigation and Coromandel International while dropping Axis Bank, L&T, IDFC and Reliance. These 4 dropped businesses/ stocks are still great businesses/ companies but they are no longer available at great prices which can provide enough margin of safety and returns for me. In case they drop by 20-25% anytime, I will invest in them again. Apart from these businesses, I will add 6 more businesses as they are best in class in their sectors with great financials, business growth track records, excellent ROE, strong balance sheets with very competent management available at attractive prices. They are ICICI bank, M&M, Bajaj Finance, LIC Housing Finance, LUPIN (pharma) and Power Grid.

The final 2013 portfolio looks like the below

Businesses/Stocks                           Sector

1)   ICICI bank                                   Banking & Finance

2)   BOB                                            Banking & Finance

3)   Bajaj Finance                              Banking & Finance/Retail

4)   REC                                            Power

5)   Power Grid                                  Power

6)   BHEL                                          Capital Goods

7)   M&M                                           Auto

8)   GAIL                                            Energy

9)   LUPIN                                         Pharma

    10) LIC Housing Finance                 Construction/ Real estate

    11) Jain irrigation                             Agriculture

    12) Coromandel International          Agriculture/ Fertilizers

 

All these players are dominant or big players in their sectors with consistent growth and profit performance, robust business models, well managed companies by competent management teams & strong balance sheets with sustainable competitive advantages in their areas. And they are available at attractive prices now with respect to their intrinsic value & historic PE, providing a great "margin of safety" for the value investors.

Wish you a very happy New Year again and Happy investing,

Cheers

Amar

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