Tuesday, July 23, 2013

Does Longterm Investing in Indian Equities make Any Sense?

I switched on the Television the other day and a well recognised 'analyst' was on air extolling the virtues of long term investments in the Indian market.Talk of investing now as valuations made sense from a 3-4year perspective.
Weren't the same words used sometime in 2009?If you followed the Defty,which is the nifty in dollar terms the return for the previous six years is -8% against Nifty absolute return of 36%.Means that in the period 2007-2013 where Indian GDP doubled,Foreign investments trebled,most FIIs which invested in India got a net negative return in this period!
If we take the Nifty at its own value of 5 years previous and calculate the compound rolling returns since 1999,it works out to an average  return of 12.78%.Note that the major part of that return is concentrated in the 2006-2009 bull period.The average past 5 years return is closer to 7%.

All this after taking into account the volatility,the sudden crashes,big bull days,having the strength of conviction in the face of panic to hold onto your investments.The associated risks etc
Another Statistic:At current level of 6100 we are about 5% away from the all time high of the Nifty at 6300.If I adjust for WPI inflation(Note:WPI is substantially lower than CPI inflation) then we are around 44% lower than the highs.Amazing!!
Those who have asked me in the past few weeks why their stock holding is in most cases 30-40% lower than Index value-I hope it satisfactorily answer your questions.

Tata Steel        January 2008 closing price on NSE     Rs 735
Tata Steel        July 2013                   price                   Rs 235

Reliance Industries Dec 2007 closing price on NSE   Rs 1443.75
Reliance Industries July 2013             price                 Rs   922

Does it not make the argument for long term buy and hold theory more suspect especially when the inflation,crude,lack of governance is threatening another reversal in Nifty and Sensex.Even accounting for Dividend or Bonus I am sure it won't affect the negative returns by more than 2%
Advise to Traders I have watched many traders and seen their clients lose money(more likely hemmoraege!!).Too many are specialists in their functions or set in their way.Even with the rupee yet non convertible the international price movements coupled with currency volatility and Demand Supply data mix is leaving most clueless.
Use the interplay between Commodities,Currency and equities to create positions that are flexible.Having in depth knowledge of sectors,political conditions and backing your beliefs is the need of the day...!
Abraham Lincoln

Reason why I quote Lincoln and not Warren Buffett is my feeling that this moment in the investment markets across the globe belongs to the Hustlers!Too many variable-Growth,Inflation,War,Terrorism,Political instability.

Wednesday, July 10, 2013

Nifty 5400 in July Series?

God is angry.The tragedy in uttrakhand is Himalayan in human and economic terms and an added burden over and above the Current Account Deficit already there.
Everyone is bracing for the worst Quarterly Corporate results.Prediction of profit growth of around 5% on average this time.As described in an earlier article by yours truly the Rupee vis a vis US Dollar cracked below the psychological level of 60.
It will soon come to a point where investors will start doubting whether to get into equities after a year and in many cases a couple of years of losing money.Emerging markets are down 18-21% from their peaks and their currency has depreciated by the same percentage in the last One month alone!
Highlights of the Month:China is warning of a slowdown.The USA and Eurozone has shown some encouraging 'green shoots'.The Fed threatens to cut down on the free supply of money.JLR  union in UK votes for a strike.Crisis roils Eqypt.Oil spikes above $100.
A time of Flux.The slowing of Commodity prices was negated for the Indian economy by the fall in the Rupee.I feel that going forward the main triggers for India will be the two Cs-Currency and CAD.The political leadership is still more in lacunae and the only positive is an expected rise in Government spending before next year's general elections.With a disjointed opposition and no major agenda or leader capable of guiding the country out of the economic morass its likely that things will drag.
No sector in India looks proof from recession.The huge ECB by Indian corporates are weighing down balance sheets and in 80% of the cases no profitable deployment of the cash reserves has taken place.Promoters are under pressure to meet obligations.China slowdown to impact the metals and mining sector most as exports will get hit.FMCG needs price hikes to counter Rupee woes.The List goes on.
Right now the beaten down gems&jewellery segment looks best bet for next two months on the back of growth in the US which is the export destination for most Indian GG firms.
Banks have not taken the signal from the Finance ministry to lower rates and with Rupee volatility the RBI is not going to be in a rush to change the situation.So with the risk free rate of return around the 6-7% mark seems the best destination for your money in this Quarter.
Domestically the 70% increase in imports and 30% reduction in exports on YoY basis is frightening for an economy that is getting licked by the Chinese manufacturing glut.I have consistently maintained that the factors slowing India are macro in nature.
Until manufacturing,exports,infrastructure expansion figures become positive,we will not be able to break out of this downward spiral.Quibbling over Growth being 5% or 5.6% as is happening politically is not the answer.
*Apeda figs

When measures to increase jobs,capital goods,exports is the need of the month,the BJP,supposedly the alternative to the UPA government starts campaign by promising to build a temple at Ayodya.I mean how stupid or cynical one be to inveigle the voter to bring in a government that goes to astrologers and Sadhus for guidance?Bad portents.
I would not be surprised if the long only Funds start liquidating their positions in Indian equities because there seems to be no silver lining on the horizon!!
The Food Security Bill in this month is a major negative for markets.I would not be surprised if a combination of factors-interal as well as global can take the Nifty to 5400 in the July series.The Bears are in front with my expectation of the Index not rising above 6050 even with positive tides.