Investment outlook its all in your mind
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Investment Outlook: Its all in Your Mind. Summary. Investing is easy! Avoid the distractions Disaggregate the market Focus on business drivers Follow the Rules Asset Allocation Time Horizon Reasonable Expectations Learn & get wise. Market/ Sensex.

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Investment outlook its all in your mind l.jpg

Investment Outlook:Its all in Your Mind


Summary l.jpg
Summary

  • Investing is easy!

    • Avoid the distractions

  • Disaggregate the market

    • Focus on business drivers

  • Follow the Rules

    • Asset Allocation

    • Time Horizon

    • Reasonable Expectations

    • Learn & get wise


Investing is easy if you avoid the distractions l.jpg

Market/ Sensex

  • Your index is important not the market

  • Sensex flat since 1992

  • Wealth creation has occurred

Macroeconomics

  • Interest rates, Currencies, Oil prices, Politics.. do not alter basic competitiveness

Media & Intermediaries

  • Have their own compulsions

  • Caveat Emptor!

Investing is easy ifyou avoid the distractions!


Market shows low correlation to current fears l.jpg
Market shows low correlation to current “fears”

Sensex vs Govt

Sensex vs Fiscal deficit

Congress

UF

NDA

Source: RBI

Sensex vs Oil price

Sensex vs Monsoon

Drought

Source: Statistical outline of India

*% of district having excess/normal rainfall

Source: BP statistics



Bse index scenarios l.jpg

2005 EPS growth (%)

15 20 25

10 4,382 4,572 4,763

14 6,134 6,401 6,668

18 7,887 8,230 8,572

P/E (x)

BSE Index Scenarios

  • Current Sensex Earnings aggregate to Rs. 381 (FY04A)

  • IBES consensus earnings estimates 17% growth

  • Current Sensex is at 4,951

  • Implied PER is 13x (trailing) and 10.5x (forward).

  • The table below sets out the range of Index expectations over next year

Risk-Reward in favour of Upside!


But the index hides more than it shows l.jpg
… but the Index hides more than it shows!

IT

Pharmaceuticals

Banking

Media & Auto

All Figures indexed 100= price in 1994


Multibaggers of the last 10 years l.jpg

Price as on 14/7/94 Price on 15/7/04 CAGR (%)

Satyam Computers 3 326 62

Infosys Technologies 13 1443 60

Wipro 6 525 56

Sun Pharmaceuticals 21 351 33

Hero Honda 33 460 30

Cipla 41 231 19

Ranbaxy 214 976 16

Zee Telefilms 30 126 15

HDFC 161 550 13

Dr Reddy's 248 749 12

Multibaggers of the last 10 years

Source: Bloomberg; Adjusted for bonuses and stock splits; NIFTY constituents only


Multibaggers since 9 11 the real bse 30 l.jpg

Company Price as on Price on CAGR

15/7/04 11/9/01 (%)

Oriental Bank 240 34 92

Mahindra & Mahindra 476 68 91

SAIL 33 5 87

Tata Motors 407 75 76

ONGC 654 136 69

Shipping Corp Of India Ltd 117 24 68

Tata Iron & Steel Co Ltd 327 84 57

BHEL 527 135 57

IPCL 157 40 57

Grasim 952 274 51

GAIL 182 53 51

Reliance Energy 571 176 48

ABB 730 225 48

Bajaj Auto 841 266 47

Tata Chemicals Limited 121 39 45

Company Price as on Price on CAGR

15/7/04 11/9/01 (%)

National Aluminium Co Ltd 139 48 43

HPCL 288 111 38

Tata Tea 386 150 37

Hero Honda 460 183 36

Tata Power 254 101 36

Sun Pharma 351 141 35

Ranbaxy 976 415 33

ICICI Bank 238 103 32

SBI Bank 431 187 32

Glaxo 603 282 29

Indian Hotels 370 175 28

BPCL 314 159 26

Satyam Computers 326 175 23

ACC 232 128 22

Gujarat Ambuja 275 155 21

Multibaggers since 9/11 : The REAL BSE-30!

Source: Bloomberg; Adjusted for bonuses and stock splits; NIFTY constituents only


Investing is easy if you disaggregate the market l.jpg

Many

  • Global Outsourcers

  • IT

  • Pharmaceuticals

  • Engineering

  • Emerging Business

  • Telecom

  • Media

  • Retail

Sources of Advantage

  • Domestic Demographics

  • FMCG

  • Auto

  • Banking

  • Global Commodities

  • Oil

  • Metals

Low

Sustainability of Advantage

High

Low

Investing is easy if you disaggregate the market

Note : Companies may change characteristics over time!


Focus on micro company specific factors l.jpg
Focus on Micro, Company specific factors

  • How is Product or Service Quality?

    • Germany/Japan/China v/s India, v/s competition

  • How is Cost & Capital Efficiency?

    • Frugality as a mindset v/s “professionally managed”

  • What are their Value Systems?

    • Sugar in the milk

  • How is their Service to the Customer?

    • The “goodwill” earned


Markets continuously discount all factors l.jpg

ROE : 25%

P/E=20x

Value

ROE : 15%

P/E=12x

8% Bonds

P/E=12x

Cash

Time

Markets continuously discount all factors

Use Bond Yield Reciprocal (100/8)=12.5x as your benchmark

PE multiple represents – Predictability, Sustainability, Scaleability


Investing is easy if you follow the rules l.jpg
Investing is easy if you follow the RULES

  • KNOW YOURSELF

    • Are you Schumacher or Buffet? If not – Why not Hire them!

    • Have a 3 – 5 year outlook Time is the friend of a good business

    • Proper asset allocation prevents panic attacks!

    • Have reasonable return expectation: 15% CAGR compounds to lot of money!

    • In equities – 6/10 is a good success rate

  • PAY FOR QUALITY

    • Good men make good companies : Relative goodness is good enough!

    • Good companies, like good men – are FEW!

    • Competitiveness & culture (Micro factors) matter more than Macro trends

  • IS IT IN THE PRICE?

    • Don’t double count factors!

Remember to BOOK PROFITS !!



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