When there was a small base we grew at 13% and now you expect it to grow at 15%. It may grow but as an investor I would like to have conservative estimates and project based on that rather being exuberant. All the points you have listed may play out or maybe not. We are still not yet export oriented economy but rather consumption based.
If you go back in time you can list out many such points for every dacade. Or let’s say I can list out opposite of the same.
Tensions with China , War might break out
2.Tensions with Pakistan
Terrorism might return to Kashmir due to change in reign in AFG.
We may get coalition govt which means lot of corruption so not many companies might move to India Or move out of India
We are due for Major recession which might happen anytime during this decade
… many more reasons.
Inflation is inversely correlated with stock market if inflation goes up stocks loose value irrespective of growth in company earnings because rates go up. so let’s not wish for Inflation.
At the end it is all about assumptions, If you think current valuation is Justified based on the reasons you have listed then it is time to buy. I don’t believe Nifty EPS grows at 15% for a decade so no buy from my side.
As investors, we must make an informed trade off between risks and rewards. The risks that you mentioned are risks, but I personally don’t see them playing out. At the same time I do strongly see trends such as “China +1”, “Tech & Remote Working”, “PLI” playing out. Only blue sky trend is adoption of EV and perhaps operationalisation of key infra projects (DFCC, Del/Mumai Expressway, etc.) which’ll bring network effects.
In investing parlance, therefore, I don’t see too much risk of war, J&K tensions or even a fractured mandate in 2024. Ofcourse this is personal opinion, but in my view, downward risks are less probable today than upside triggers.
Sure, If Nifty can grow at 15% why not? We all will be happy but 15% is something we haven’t seen from Nifty companies in 21st Century so it takes something special to achieve that. Some of the well known small caps falter to deliver these kind of growth in a decade let alone big sized corporations.In loose monetary policy scenario when central banks are printing like mad everything looks rosy but when things turn around things look very different. We are in one of the biggest bull market in the history of stock market. I am not surprised that you feel none of the risk plays out and 15% growth is possible.
All it takes is couple of rate hikes from RBI and FED (Or ECB) to get market back to earth.
I am also not very optimistic about indian growth. The complex system of GST have created enormous compliance costs for indian businesses and this hurts small business most. Covid restrictions have added more such compliance issues which do not seem to go away with the return to normalcy. Though some reforms are being pushed like farm laws, getting out of airlines business by selling AirIndia, they are few and excessively delayed.
The inflation component though is a different story. There has been massive money printing across the globe, and this has started reflecting in commodities prices. It’s just a matter of time before inflation starts affecting consumers. As @lokeshreddy2007 says, we should not wish for high inflation, as that will cause RBI to hike interest rates in order to curb inflation, which will crash the markets. Unfortunately that seems to be the most likely scenario bringing the stock prices back into value investors domain.
I’m talking 15% earnings growth. If liquidity is slashed, yes, the multiples may come down. Maybe they won’t come down since investors will continue to place a growth premium. I don’t know. It’s a risk. But, in my risk/reward matrix, the reward outweighs current risks. And this is only my personal opinion.
For a better analysis, we should wait until nifty EPS has factored in Q2 earnings. Banks especially will report better numbers.
Just for the record only 22 companies(> 50K cr Mcap) grew at 15%(Profit Growth) or more in last 10 years.Next 10 years maybe better than last 10 years we may see more companies growing at astronomical rates but this is just to illustrate 15% is not small number specially achieving that in long run is not so easy. I was thinking even 12% seems to be quite a high number but maybe not if 15% seems achievable.
GST isn’t a perfect system but surely getting better and that’s how most things are. Kaushik Basu himself in his book had remarked “we miss the better in search for perfect”. Secondly, the effect of GST needs to be understood from a system point of view. From a system point of view - a) tax collections are on the rise and that has vastly improved India’s macro picture. Impact? Lower cost of capital —> improved competitiveness; b) sure there are issues today. The key question is will there be issues tomorrow too? I don’t believe so. I also don’t think that “compliance costs” are so persavise as to be the determining factor. Improved digitisation in public services for example counteracts a lot of the trouble there (which is also being fixed all the time)
Fair point. But it’s only getting better. Investing (atleast for me) is looking through the windshield and not through the rear view mirror. Case in point - Aviation is back to 100% capacity from 18th October. And it’s already hitting 7mn at 75% capacity.
Inflation too in India had gone past 5% in August but has settled aroudn 4.5% for September. Commodity boom is here to stay since governments are passing infra bills and stocking will take place. To better understand this, you should post demand data and current supply demand. Not all commodity spikes are driven by money printing alone. The issue here is to understand if inflation would be solved by monetary policy (traditional view) or by further capex?
Lastly, this issue is too subjective and I would rest my case here. I feel all arguments are valid.
I have often wondered why doesn’t the Government shift to a VAT system when it comes to Capital Gains in assets? Why does it demand separate disclosure as Tax Filing?
I think the so-called disclosure systems only creates loopholes for shady individuals to exploit.
We now have the technology to implement such a system which will be Nx more efficient and get rid of all compliance headaches.
Came across this article, not sure if India has a Free File Act of some kind
If valuations are a concern, correction would happen first where the valuations are most out of sync. But that is not what we see. Corrections are happening in conventional stocks while loss making start-ups continue to fly high. Thus, the selling we are seeing lately is not because valuations are high, there is some other reason.
The correction this time is due to relentless selling by fiis. Usually they hold majority of the index heavy weights and that’s what we are seeing. Also we are seeing sector rotation in midcaps and profit booking in it stocks. Once the fii selling subsides, we can expect market to rally.
The correction in conventional stocks could be because of raw materials price increase, crude, the multiples they were trading at, and the selling of FIIs, if they own a stake. On the other hand, the rise of start up valuations is partly because of retail. FOMO is playing out here.
If indeed China or some other emerging market is looking better than India, then more selling and more correction will happen. And I am not sure if Indian public participation will balance the exodus of foreign money, if the selling happens at a large scale. A portion of public participation is happening because of the rise of the markets and if the reason for the rise disappears, then valuations can only go one way.
The price, market is willing to pay for a stock is about the future. As they say, markets are forward looking. With low interest rates, businesses have the chance of capacity expansion, which may not always immediately reflect in the top line or the bottom line.
Nothing has changed in the way Dmart does its business, but with low interest rates and low real estate prices, Dmart has increased its fixed assets. Market knows this.
Sometimes froth exists in valuations discarding fundamentals, but in certain businesses, and in certain stocks where the float is less, market is almost always correct. Not everything will be in public domain, and even if it is, interpreting it, reading between the lines makes the difference.
But you have put a valid point, one that should be asked. Sometimes there are clear answers, sometimes in the absence of clear answers, tagging along the market is beneficial too.
I am always sceptical of reports reports released by investment houses, because I don’t know what is the incentive for them begin positive or negative.
In this example, Black Rock’s China unit has recently raised USD 1 billion to set up a mutual fund in the country. Also another report I came across stated that it the first foreign company in China, to have been allowed to set up 100% owned subsidiary. Given this news, one can now relook at Black Rock’s report in new light.
5-10% correction is common from any level of index, let alone from ATH. I don’t know if anything can be derived from knowing this. I mean, it is common knowledge that indices or stocks correct by that percent frequently in their journey, it is a common occurrence, more so with an index.
I know that actually one of my friend told his trading idea that he will buy nifty at every 5% fall from ATH and will sell at every 10% rise from that
So i wanted to show him the tax implications and 5% fall can go deeper too hence wanted some statistics
So Nifty 50 is at 23 PE right now and earnings momentum won’t stop in Q3. The markets are factoring in earnings deterioration courtesy omicron wave. Remains to be seen to what extent the virus will impact earnings. From what we know so far - cases peaked in SA & UK, hospitalisations and deaths have remained low. Reaction of govts (lockdown, restrictions, etc) could dent the economy though.
I think that Omicron is not the reason but the Hawkish commentary by Fed is the reason behind the fall. Markets didn’t care when deadly second wave by Delta variant was at peak and causing devastation. Markets only understand the money supply language.
Currently, Markets are overvalued and hawkish stand by Fed is helping remove the froth. Fall is very steep in overvalued growth stocks globally.
