Replies to This Discussion

Permalink Reply by Vinay Chhoda on August 21, 2012 at 6:44pm

Gurpreet, excellent write-up. I too believe that a lot can be learnt by just observing things around you. I expect Indian markets will enter a new bull market phase in 2013 which should peak with the nifty at 10-12k in a few years thereafter. So, let's hope you and I both are right :)

 

 

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Permalink Reply by Gurpreet Singh Tikku on August 21, 2012 at 6:46pm

‎Vinay Bhai...Glad that you read it..... I'm not a Person who Should/Can Comment on how Stock markets would behave. I just noticed something and thought of sharing my views. Jo aap keh rahe hai,woh ho jaye to Janta ka bahut bhala ho jayega :-)

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Permalink Reply by Vinay Chhoda on August 21, 2012 at 6:46pm

In spite of what most people and financial firms tell you about investing, the art of investing requires more common sense than most people imagine. Time will prove your observations right.

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Permalink Reply by Gurpreet Singh Tikku on August 21, 2012 at 6:48pm

Vinay Bhai....yeh baat aapne sahi kahi. In this Over Educated World...Common Sense is getting Extinct!!

 

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Permalink Reply by Rahul Suri on August 21, 2012 at 11:07pm

Common Sense is not so common guys :-)

 

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Permalink Reply by Pulkit Kumar on August 22, 2012 at 10:36am

Nice write up, GST.

Here are my comments about this topic.

a) Brokerage houses and Financial institutions are under terrible financial crunch right now. Business is zero and expenditures are increasing every day. Religare has shut 12 out of 14 offices in NCR. 2 Lakh remisers are shut in Mumbai. 2000 sub brokers of Angel are shut.

b) Markets are NOT DOWN. Stocks are. Clients are. Stocks are 60-95% down from the prices that they were when Nifty was 5500 in 2007-2008. Nifty is still there, but not the stocks. How is it up? I don't know. I find this as the mother of all scandals, personally.

c) People are unable to make money in markets. Come what may, charts are not working on the popular stocks and either side movements are making people confused. Hence traders are loosing money. Investors never made the money.

d) About advertisements: Well, this could be either a desperate last try or this could be a strategic move given that most financial businesses don't have the kind of money to spend on advertisements... I don't think that it is to catch the "big move"...

e) Indian economy and Indian markets are not in-sync. Economy is doing bad on grass root level, all kinds of businesses are flopping, but still on paper it looks good. That does not show in stocks, even though Sensex is up.

Summing it up: Sensex is fine, markets are not. People have said NO to all kinds of market. It will take a lot to bring back the confidence of traders... Fancy about markets will return only after confidence stays for a few months.

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Permalink Reply by Gurpreet Singh Tikku on August 22, 2012 at 11:36am

Pulkit.....Just loved your  Rationale and point by Point Explanation. Gives a new Insight. 
I agree with you that brokerages are under terrible Financial Crunch. Last I heard Big Players like Angel Broking and Anand Rathi are looking for possible suitors to sell their businesses. And thats exactly the reason why MotilalOsawal advertisement caught my eye.

Very Valid point you highlight when you say that "MARKETS ARE NOT DOWN, STOCKS ARE" I believe it is more to do with Sentiments than Valuations.

Hopefully Government will show wherewithal to get things back on the track which should translate into happiness for all :-))  

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Permalink Reply by Raghav Sehgal on August 22, 2012 at 12:22pm

Regarding your point B).

Nifty is a stock index of 100 stocks and sensex is and index of 30 stocks. While there are 5000 listed firms, the sensex or nifty value depends only on the stocks in the index and the stocks in the index keep changing depending on the market cap and performance or corporate governance issues. There are hundreds of stocks that are still down but market isnt is because markets and investors are more mature than they were in 2008. 

So it aint a scandal, infact, it is investor prudence. NSE and BSE have done lot of work after 2008 to educate investors, which is commendable.

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Permalink Reply by Raghav Sehgal on August 22, 2012 at 12:14pm

My two cents (Disclaimer: I was AVP - Equity Research of a brokerage house in Mumbai before shifting to Delhi in 2010):

In my opinion, taking short term call is pretty much useless as it depends on lot of static noise. On a long term, there is no doubt that Sensex would go up. Infact, if you stay invested for 5 years while cherry picking stocks, you can make gains which are as good as a VC/PE fund. 

Currently, Indian markets are reacting to two scenarios - International & Domestic, and let's take both one at a time.

International

There is no doubt that Europe is in lot of shit. Globally, the financial world is really sitting naked-assed on a sharp sword. One mistake and catastrophy. And the reason why I feel that current situation has potential to be worst that that of 2008 is simple - in 2008, firms went bankrupt because of their ill-fated financial decisions. And a cascading effect of the same was seen in industry as well. GM didnt go down because it had lot of bad real estate assets. One of the major reasons it went down because of slew of voluntary retirements by half their work force. Those people took such step to avoid getting fired in first place. That saw such a huge amount of cash exodus that GM couldnt bear.

But coming back to the point, in 2008 companies collapsed and governments rallied to save them, taking most of their toxic assets on their balance sheets, only to pass it to other countries. As a result, Europe, not European firms is in danger. BNP or SG or any firms arent going down but the countries are going down which is far more catastrophic than firms going down, how so ever big they maybe.

How it effects India? For starters, Indian markets are still not mature enough. Mere $20bn that went out of the system in 2008 resulted in crash from 21k to 9k. So first casualty would be the lack of liquidity in the markets. Secondly, the funds required for building the nation (India needs $1 trillion in Infrastructure alone by 2020) would dry up and we would have to depend on local money which would not be enough. The cascading effect would mean that our growth would slow down, salaries would go down, we also would default on few home loans  and few big firms would go down under. DLF, Unitech, Future Group have barely survived and I am not sure they would if second round comes in next 2 years.

Having said that, India by and large has been able to be isolated from the global turbulence, thanks to the RBI policies that  were put in place during Reddy's tenure and are still going strong. So while we may again go to 12k (2008 equivalent of 10k) again but we arent in danger of loosing everything.

Domestic

Oh jeez, where to begin. I really don't think it's government's fault alone. All the parties are at fault for causing delay in reforms. Government can only present a reform paper, passing the bill is onus of whole Parliament which frankly if full of morons - starting from dung-head mamata banerjee. I now think stagnant bengal under left was better off. 

We need second wave of reforms to counter global events. India would need to fuel it's economy from the demand within, and not rely on billions of outsourcing dollars. If we fail, then we go back to 1990s India but hopefully we will succeed to be on track of 2020 India. FDI in Retail is must, no questions about it. A rotten body part has to be amputed even if it means living without that for rest of the life. The current logistical and retail system is archaic and was designed for 1950s India, not for today. If any kirana/ distributor casualties happen, the system of modern retail should be able enough to absorb them (though it is a different issue that I think kiranas are not going to get effect even by 1 percent). 

That is how India would be able to generate wealth and give investors multiple times their investment. Coming specifically to stock markets, emerging economies have generally seen 20-25x PE multiples in good times. Given that next two years, especially FY2013 (current financial year) needs to be seen with lot of caution, we can safely say that we would reach a valuation of 25x in FY2014. Sensex Earnings (which is weighted earnings of sensex stocks in weights of their market cap) has been growing steadily at 10-15% and it is expect to be around Rs1650 towards end of FY2014, we can say that Sensex might even cross 30,000 in next couple of years. But take that with pinch of salt as even 20,000 wont happen if reforms arent put in place. Sensex might rise but will fall back again, in the sense it would be a bear run as against a bull run. Many naive investors invest money during a bear run to loose it all. The past one year is a testimony to that when we have seen Sensex fluctuating between 15-18k.

So, for a naive investor who is looking to play the game for 3-4 years, I would say the following:

1. Invest in shares of the company with clean management. There is nothing more important. It is my first rule. Use it, you would be happy in long run. Clean management and good corporate governance policies (can be found in annual reports of all listed firms) should be number 1 criterion. Infact, all the entrepreneurs and those who want to be one and are reading this blog should make this criterion for their own ventures as well. Put in good corporate governance policies and hire clean talented people. It will not only win you customers but investors as well.

2. Invest in shares of the firm who have long term potential in line with India's growth story. In India's case, FMCG/ Retail, Infrastructure, Financial Services, Manufacturing - pretty much everything depending on your risk appetite.

3. Invest a part of your money - depending upon your age, in a debt instrument. It is pretty much risk free and grows money usually at a rate higher than inflation (past couple of years are exception, not a norm so dont go by that)

4. Invest a part of money in alternative assets like Gold and Real Estate. If you dont have money to buy into the physical assets, then buy into funds that are focussed on these asset classes. But read the offer documents carefully. Some funds have 5% allocation to gold and they call themselves gold funds. Full of crap.

So all in all, there is plenty of money to be made in the market still, given fundamentals are pointing in right direction. And we shall know that in next couple of months, maybe sooner. Advertising by brokerage houses are not quite the indication to anything. They can simply be building numbers (number of customers) to show for their own sale to other brokerage houses/ international players. It's same as jabong or flipkart advertising (or Indya.com having bigger marketing budget than revenue of kitkat in 2000) to gain customers and hence incremental valuation.

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Permalink Reply by Gurpreet Singh Tikku on August 22, 2012 at 6:07pm

Raghav Bhai... 2 Cents kya yeh to Billion Dollars hai. Loved your detailed View with Reasons. Totally agree with you that its not the Government problem, but a problem with the opposition and Allies. Something, which I thought would have been eased off in February last year. Refer Why February 2012 is the best opportunity to Invest? 

And Raghav...... Your Reply deserves to be a complete Blog on your site :-)
I am sure many Rodinhooders would gain after reading your reply here.

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Permalink Reply by Sai Pothuri on August 22, 2012 at 3:17pm

Dear Gurpreet. 

  Thanks for sharing and by the way today i learnt this from you

"A Person whom I always admire is a Friend’s father…and he use to taught me that…”Agar kaam karna hai to Seengh Ghusa do”, Literally means….If you want to do or learn any new work, then Put your horns inside and start Participating/Observing, Playing and get the Knowledge”. When the time is right and the Game is BIG, Then only the players who are in the field will WIN and not the ones who are outside and are contemplating to enter then."

Thanks a ton

Thanks

Sai

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Permalink Reply by Anamika Joshi on August 22, 2012 at 3:53pm

Noce One Grupreet ji... The headline really clicked! :)

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