Mother of all bull markets

28 Aug 2013. Nifty index 5,285. That day, the fortunes of Indian equity markets turned, and how! Markets are wiser than all of us, they bottom in the depths of despair. They looked beyond the immediate despair of a falling currency, shrinking savings, rampant inflation, tight monetary conditions, banks saddled with NPAs, struggling corporates, deteriorating capex cycle, and thinning profits. Markets are prescient.

They believed in the long-term potential of India and recognised that the pall of gloom was but an aberration. Markets were preparing for the catalyst of good governance and good policies. And they finally found that catalyst in the emphatic mandate to Narendra Modi for change and development. During the challenging years of 2008-13, Indian corporates have restructured and become more competitive.

Corporate governance has become better; and yet Indian investors have become more risk-averse and grossly underexposed to equity. We have come to believe that high interest rates, poor earnings growth and net outflows for domestic equity investors are the new normal. These factors are about to change, and for a very long time. This change is inevitable and irreversible.

We are at the cusp of an era of strong policy framework, business and investor friendly environment, elimination of supply-side constraints, initiation of a new capex cycle, falling interest rates, resumption of job creation, rising savings and a wall of foreign inflows combined with domestic outflows reversing into domestic inflows with a vengeance. While this is more obvious now, most of us are unable to comprehend the scale and the longevity of this change. We are at a stage where we are ded by sudden light after being in a dark tunnel for years. We are unable to conceive the impact of a transition from the vicious cycle described above to a virtuous cycle the scale of which we have never experienced before. 

We all know Price = EPS x PE. We have forgotten what happens when both EPS and PE expand rapidly and correct years of suppression and depression. Marc Faber said: "Bull markets are conceived in the depths of depression, and are reared on declining interest rates and increasing corporate profits."

Any numbers on earnings, interest rates and valuations will be inadequate to describe the quantity and quality of improvement that can and will happen in every dimension impacting equity markets. The current earnings are so unrepresentative of the likely future earnings that valuation ratios predicated on current earnings will result in missing out on a structural and secular bull run. This will not be a multi-year bull run, but a multidecade bull run.

As investors and traders, it would be a fatal mistake to extrapolate the past into the future when the biggest change is set to unfold. Remember, markets will always surprise both on the upsides and on the downsides.

One must not try to quantify the move in Nifty, but try to buy right and hold tight. It is imperative that we appreciate the impact of surging foreign inflows combined with domestic investors playing catch-up on net inflows to correct the systematic underexposure to equities. Finally, we will have a favourable fund-raising environment enabling the availability of much-needed risk capital for India's growth.

I would advise all Indians to have faith in India and its markets. We should not be underinvested for the mother of all bull markets. Be prepared for the inevitable and irreversible; structural and secular bull market. I believe we will all be pleasantly surprised by the longevity and magnitude of this bull market. Lest we forget, all that we need is God's grace and Elders' blessings. Happy Investing.

Let me share some statistics with you. Corporate earnings grew at a CAGR of only 3% in 2009-14 compared to a CAGR of 19% in 2003-09. Corporate profits as a percentage of GDP has receded from 7.8% in 2007-08 to 4.2% in 2013-14. If corporate earnings were to normalise to their long-term average of 5.6% of GDP by 2018, that would imply a CAGR of 22% for the next four years. Interest rates in India are among the highest in the world. Greece borrows at 5% interest rate compared to 8.6% for India.

CPI inflation in India has been persistent, driven by unabated protein food inflation. In light of the stable rupee and reversal of factors pushing food inflation, and core inflation coming under control, long-term interest rates have most likely peaked.

While the recent rise appears to be "too much, too soon", it is a preview of the structural and secular bull market that we have been deprived of. The 1991 peak was decisively overcome in 2000 but was shortcircuited by the Internet bubble burst. India did have a great run from 2003-08, but that was cut short by the global financial crisis, the Euro crisis and poor governance during the UPA 2 regime.

In the structural and secular bull market that began in 2013, I expect that we will have a benign global scenario starved of growth and an unprecedented virtuous domestic cycle.

In the last few years, there has been a great polarisation of valuations between the defensive and high free cash flow (FCF) sectors of IT, pharma and consumer stocks as compared to the cyclical and leveraged plays of infrastructure, capital goods banking and real estate. There has also been a high premium for large-cap stocks as compared to small and midcap stocks. It's my belief that these polarisations and premiums will revert to the mean.

An article published in economic times by Rakesh Jhunjhunwala

Empowered India: An idea whose time has come

As I reminisce about India and contemplate India's future in light of the swearing in of Shri Narendra Modi and his new government that will take place today, I am overwhelmed with emotion and excitement. At this momentous crossroads in India's history, I am compelled to share my thoughts with you.

"Nothing in the world is as powerful as an idea whose time has come," said Victor Hugo, the famed French poet. 'Empowered India' is an idea whose time has come. NaMo is an instrument of destiny to make this idea come true. NaMo said, "I will live for India." We Indians are living for the day of 'Empowered India'.

It's the first time in history that a three-time chief minister will become our prime minister, leading a purposeful, committed and decisive government. Surjit Bhalla believes it was the most momentous election in world history. Martin Wolf of Financial Times believes it was the most significant election after that of Abraham Lincoln and FD Roosevelt.

It is a structural change, the confluence of demographics, skills and aspirations with purposeful and decisive government. This structural change will overshadow the fears of social tensions and fragile economy. It marks the unravelling of the cobwebs in our minds, and the unshackling of the constraints on India.

It is difficult to gauge the quantum of change, but it is not difficult to gauge the direction of change. I for one believe that we will be surprised by the quantum and speed of change.

Some global media believes that NaMo could be India's Lee Kuan Yew or (Margaret) Thatcher. Some foreign investors believe that the NaMo+ (Raghuram) Rajan combination could be like the (Ronald) Reagan+(Paul) Volcker combination. Those parallels are just another measure of the decades of development and prosperity that can be ignited. Like we have seen in China, it is a sight to behold a nation of a billion-plus achieving near double-digit growth for long periods of time. But with one big difference

India will be a democratic nation of a billion-plus with a free market framework. This is unprecedented in the history of mankind. It could well be a change that redefines the global geopolitical and economic landscape.

NaMo has the vision, the mindset, the commitment and the determination to take India to the glory it deserves. Rather than seeing this election as a Modi wave, we must see this election as an inflection point that will turn a trickle of hope into a tide of change, and eventually into a tsunami of development. NaMo has large dreams for India, but remember that it is only those who dream that achieve.

NaMo's ability to recognise the aspiration of Indians and the opportunity for long-term betterment of India was followed through with an immaculate campaign and impeccable execution. This is a preview of the time to come. Let not the shadows of the past cloud the sunrise of the glorious tomorrow.

NaMo is a leader who has got the people's mandate, and he also has the people's support for implementing change. An inspiring leader who can channelise the aspirations and efforts of his people can work wonders that nobody can imagine, no matter how challenging the situation.

NaMo has behaved like a statesman. He is not vengeful, but is focused on governance. He is not mired in the past, but is focused on the future. He is not constrained by problems, but is focused on converting challenges into opportunities.

He hates inefficiency but embraces change and technology. He is an optimist with a zeal and dedication that has been seldom seen in independent India. India has all the right ingredients in place — skills, democracy, demographics, institutions and many more. India is fortunate to have found the right catalyst now — NaMo. And India has not found this catalyst by accident. India has found this catalyst as a result of the maturing of its democracy.

"Long years ago, we made a tryst with destiny, and now the time comes when we shall redeem our pledge, not wholly or in full measure, but very substantially.

At the stroke of the midnight hour, when the wioticle in economic trld sleeps, India will awake to life and freedom. A moment comes, which comes but rarely in history, when we step out from the old to the new, when an age ends, and when the soul of a nation, long suppressed, finds utterance," said Jawaharlal Nehru in his unforgettable speech just before India's independence.

I am confident that the thoughts and emotions expressed by Nehruji will now ring true. Today, India believes that the pledge will be redeemed in full by NaMo and the winds of change accompanying him.

My fellow Indians, 'Empowered India' is an idea whose time has come. Make no mistake. To quote Nehruji again, "The achievement we celebrate today is but a step, an opening of opportunity, to the greater triumphs and achievements that await us. Are we brave enough and wise enough to grasp this opportunity and accept the challenge of the future?" I urge all Indians to believe in this opportunity and seize it, both for the common good of our country and for our individual prosperity.

An article in economic times by Rakesh Jhunjhunwala and Uthpal Sheth, CEO of Rare Enterprise

Equity the Game Changer - Concept Wealth Plus

How can one create wealth? It is by prudent investing and monitoring.

What is prudent investing? It is identifying the right asset class, identify the right asset and then clever monitoring.

What is the best asset class? Many investors tend to quote real estate based on the recent experiences. But long term average clearly indicates `Equity’ as the better one. If we consider flexibility of putting money and taking out plus the taxation advantage, `equity’ is a clear winner. Of course, one can give equal allocation to both `real estate’ and `equity’.

We can quote many parameters that give optimism for better time ahead for equities irrespective of political outcome. Indian GDP has touched the figure of US $ 1 trillion for the first time in 2013. It is going to be US $ 2 trillion in 2016 and US $ 5 trillion by 2021. With this rise, there shall be suitable rise in market cap and obviously SENSEX and NIFTY.

If you are convinced for `equity’ as a good investment option, the next point one  how can one choose the right stock? How can one track the stock one has invested? How can one take timely exit call?

Well this is the job of an expert. If we become sick, we refer to doctor. If we have legal problem, we connect with lawyer. So for better returns in equity, it is equally imperative to consult experts like us.

You may not have scope to devote adequate time and attention, then Portfolio Management Service is the answer. Kindly look at performance of our CONCEPT WEALTH PLUS portfolio management services.

CONCEPT WEALTH PLUS (PMS) PERFORMANCE
PMS FUNDS	Concept Legend (Inception : 28th July, 2009)	BSE 200 Return	Concept Marvel (Inception : 12th Oct, 2009)	BSE Midcap Return
Return Since Inception	73.37%	42.71%	39.64%	14.82%
Annualized	11.58%	7.34%	7.19%	2.91%
Last 1 Year	21.10%	12.52%	16.58%	15.44%
Last 6 months	16.25%	7.93%	14.11%	19.91%
Last 3 Months	12.70%	10.83%	14.13%	16.10%
Last 1 Month	2.53%	0.25%	1.06%	3.40%

*Past performance may or may not be sustained in future.      
*Returns as on 30^thApril, 2014 and are post expenses.

You can see that we have consistently outperformed the benchmark convincingly for last 5 years. Our performance can be compared with other leading mutual fund and other portfolio managers. We are in the top 10% league.

It is time to seriously consider investing in CONCEPT WEALTH PLUS. You would feel very happy for this decision in 2021.

By Hemant Desai – Chairman – Concept Securities Private Limited