Transcript Positives of the Indian markets

Eastern Financiers Limited
Kolkata
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INDIAN CAPITAL MARKETS
PAST,
PRESENT
&
FUTURE
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AT TIMES OF WAR WE PREPARE
FOR PEACE
AT TIMES OF PEACE WE
PREPARE FOR WAR
- The Art of War
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In markets, the conditions are the
same as in war.
During bull markets we should be
alert for any signals which could
derail the upside rally
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BULL MARKETS
• The secular trend in the market where it rises
a minimum of 20 % in price within a period of
atleast 3 months, which is buoyed by good
corporate earnings and positive sentiments
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Factors that could affect Markets
• High Input Prices
• Inability of the company to pass on price rise to
consumers
• High interest rate scenario
• Low Growth In Earnings and High P/E Ratio
• High retail participation ignoring front cap and
mid-cap stocks and preference to small cap
stocks, this happens when greed is at its
highest pinnacle
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INDIAN BULL MARKETS
•
The best bull market seen in India was from 2003-2007, where the benchmark
S&P CNX NIFTY rose from 1000 levels to 6000 levels. A rise of 5000 points, as the
economy which was in depression in 2003 recovered to peak in 2008
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This period saw Government reforms which included PSU disinvestment,
Infrastructure spending in roads, ports and power projects
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This period saw a reduction in interest rates, which led to capacity expansions by
corporates
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Stable monsoons helped decent Agricultural growth
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Increase in FII investment along with domestic Mutual Fund growth.
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FII have invested US$ 250 billion till date, since 1990’s
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NIFTY (4,282.25, 4,352.65, 4,282.25, 4,332.10, +20.2500)
6500
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NIFTY Weekly
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2001
2002
A M J J A S O N D 2003 M A M J J A S O N D 2004 M A M J J
A S O N D 2005
A M J J
A S O N D 2006
A M J
J A S O N D 2007
A MJ
J A S O N D 2008 M A M J J
A S O
X
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• Weekly chart of NIFTY shows strong NIFTY at
3551-3800 levels. The secular run from 2003
to 2007 has shown that we were in a extreme
depression, and, in between, we have moved
to a boom period of 6000 levels!
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Valuation of Indian Markets
• There has been a P/E multiple expansion from 2003 where the P/E was
10 to 2008, where the multiples increased to 25. On an average, the P/E
multiples have ranged between 13-25 from 2004 onwards.
• The GDP growth on an average from the year 2004-2007 (4 years) has
grown 8% y.o.y. So, this translates into an earnings growth of 18-24% for
the NIFTY stocks (thumb rule: earnings growth of NIFTY stocks is about
2.3-2.7 times of GDP growth)
• The NIFTY earnings have been on an average growing by 20-25% in the
last 4 years. At 20-25% growth, the markets should double in 3 ½ years
(Thumb Rule of 72). So, on 1st January 2004, assuming fair value of 2000
for NIFTY by 1st January 2008, the fair value of NIFTY would be around
4100-4400 levels, while in actual it was at 6200, i.e. about 40% higher
than the fair value!
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Future Growth Estimates
• We expect the GDP to grow by 7-7.5% for the year 2008-09 &
2009-10. This will translate into an earnings growth of 15-18%
for NIFTY stocks for the next 2 years
• We assume a P/E band of 15-20, so we get a range of 40505400 (Assuming that we get a growth of 15% on Rs.235
which was the EPS of 2007-08 for NIFTY stocks)
• For 2009-10 we expect an EPS of Rs.300, so taking a P/E of
15-20, we get a price range of 4500-6000. This discounting
takes place in the 4th quarter of 2008-09.
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Our Concerns
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Elections in the country states & central:we expect the elections to take place within the next
9 Months which might effect the sentiments of the markets
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Inflation: At a 13 year high. A high inflation means higher interest rates which is bad for the
capital markets.
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Our view: We believe that prices on a month-to-month basis are coming down and inflation
will be moderated by the next quarter (thumb rule: we invest in interest rates sensitive stocks
like banking & real estate when inflation makes a 15 weeks low)
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High crude prices: Crude prices are still higher at US$ 125 a barrel and a lower crude price
will help the Government in curtailing fiscal account as well as current account deficit
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Our view: We believe a large part of the crude price has speculation and a reasonable target
of us$ 100 a barrel for december 31st 2008
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Poor corporate earnings: The 1st two quarters are expected to show poor numbers by Indian
corporates but the earnings are expected to improve from Q3 onwards
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Our Estimates
• We believe that the most of the negatives
have been discounted in the markets and the
GDP of 7% + for the next 2 years holds good
• During these 18 months the markets can go
down below the fair value for considerable
period of time which will be an opportunity for
a long term investor to invest in value stocks
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Positives of the Indian markets
• Indian markets are one of the fastest growing markets in the world and has
a huge middle class base which has great purchasing power
• The working population below 35 years of age is about 50% of the total
Indian population and is growing. A young population consumes goods
and services far more than an ageing population
• Nuclear deal going through will bring in investments of Rs. One lakh crore
in the next 3 years which will substantially increase the GDP post-2011
onwards
• 2010 Commonwealth Games in New Delhi will throw-up opportunities for
tourism industries as few lakhs tourist are expected to visit India in 2010
and biggest beneficiary will be the hospitality sector and hotels like Indian
Hotels, EIH, Hotel Leela and Royal Orchid hotels.
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Strategies For A Long Term Investor
• History has shown that a long-term investor investing in
stocks has done better than any other asset class like
housing, gold, interest rates
• An investor who buys and holds on an average gets 20%
returns (time period: last 15 years)
• An investor on average gets 2% dividend yield on his stocks
and if he re-invests this dividend back into the same stock his
returns can increase to 25% p.a.
• Stocks with High Dividend Yield: ICICI Bank, Infosys, ONGC
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Stocks Selection
• It is our assumption that the EPS of NIFTY 50 stocks are
expected to grow by 15%. Hence, we assume that 35 of these
stocks will grow below 15% and 15 stocks will out perform in
the present scenario
• In those 15 stocks, we feel the Out-performers will be :
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RIL
RPL
CAIRN ENERGY INDIA
RANBAXY
SBI
ICICI BANK
DLF
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N IFTY (4,039.75, 4,539.45, 3,790.20, 4,332.10, +291.550)
NIFTY Quarterly
6500
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6000
5500
5000
NIFTY QUARTELY
4500
4000
3500
3000
2500
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2000
1500
l
1000
l
500
2002 Q2
Q3
Q4
2003 Q2
Q3
Q4
2004 Q2
Q3
Q4
2005 Q2
Q3
Q4
2006 Q2
Q3
Q4
2007 Q2
Q3
Q4
2008 Q2
Q3
Q4
2009 Q2
Q3
Q4
2010 Q2
Q3
Q4
2011 Q2
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Da te
28-03-2002
28-06-2002
30-09-2002
31-12-2002
31-03-2003
30-06-2003
30-09-2003
31-12-2003
31-03-2004
30-06-2004
30-09-2004
31-12-2004
31-03-2005
30-06-2005
30-09-2005
30-12-2005
31-03-2006
30-06-2006
29-09-2006
29-12-2006
30-03-2007
29-06-2007
28-09-2007
31-12-2007
31-03-2008
30-06-2008
Ope n
1,058.85
1,129.85
1,058.00
961.15
1,093.60
977.40
1,133.95
1,416.60
1,880.35
1,771.45
1,506.65
1,744.40
2,080.00
2,035.90
2,220.45
2,601.00
2,836.80
3,403.15
3,128.75
3,588.95
3,966.25
3,820.00
4,318.40
5,001.50
6,136.75
4,735.65
High
1,205.95
1,153.30
1,087.40
1,103.95
1,105.60
1,141.30
1,430.70
1,914.40
2,014.65
1,912.35
1,760.80
2,088.45
2,183.45
2,226.15
2,633.90
2,857.00
3,433.85
3,774.15
3,603.70
4,046.85
4,245.30
4,325.80
5,055.80
6,185.40
6,360.45
5,298.85
Low
1,052.05
1,020.10
935.55
920.10
974.10
920.00
1,089.30
1,407.95
1,669.70
1,292.20
1,472.55
1,737.85
1,894.40
1,896.30
2,171.25
2,307.45
2,783.85
2,595.65
2,878.25
3,508.65
3,554.50
3,617.00
4,002.20
5,000.95
4,448.50
4,021.70
Close
1,129.55
1,057.80
963.15
1,093.50
978.20
1,134.15
1,417.10
1,879.75
1,771.90
1,505.60
1,745.50
2,080.50
2,035.65
2,220.60
2,601.40
2,836.55
3,402.55
3,128.20
3,588.40
3,970.55
3,821.55
4,318.30
5,021.35
6,138.60
4,734.50
4,040.55
Qua te rly % Ga in /
Loss
Ga in/Loss
(71.75)
(94.65)
130.35
(115.30)
155.95
282.95
462.65
(107.85)
(266.30)
239.90
335.00
(44.85)
184.95
380.80
235.15
566.00
(274.35)
460.20
382.15
(149.00)
496.75
703.05
1,117.25
(1,404.10)
(693.95)
-6.4
-8.9
13.5
-10.5
15.9
24.9
32.6
-5.7
-15.0
15.9
19.2
-2.2
9.1
17.1
9.0
20.0
-8.1
14.7
10.6
-3.8
13.0
16.3
22.2
-22.9
-14.7
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The quarterly data shows that when market rises
by 50 % on a quarterly closing (2 or more
consecutive quarters) we see a fall of 20% and
above on a closing-basis.
Historically, October, November and December have
been the Best period for the Indian Stock market.
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THANK
YOU!
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