Views on Life & on Equity Investing

Wonder, Wealth & Abundance

Reflection on Indian equity market

with one comment

Correction unlikely, price wise.

Price / Earnings multiples of small / mid / large cap to stay elevated because several trillion USD is at 0.25% interest rate. This rate looks like a permanent base.

Just as investors kept waiting for the dividend yield to come within 6% of bond in the past 50 years, and never switched to stocks, looks like P/E will stay expanded because of low interest rates. So, stocks are frothy but will stay frothy.

Per Capita at 1800$ provides a lot of room for growth. 10-20X.

ROEs are unlikely to go up to even 15-18% for NIFTY (unlike 25% during 2003-2008 bull run) because of surplus liquidity and general acceptability of India being favourable on demographic and knowledge parameters. Excess funds would / could set up more service / manufacturing capacity thus gravitating ROEs lower. Meaning intrinsically NIFTY will not and cannot grow 15-18%+ sustainably.

Bank NPAs not fully cleaned up. Average Johnny will pay for the bank NPAs for infrastructure and apartment loans. It is a bit confusing as infrastructure is not even close to meeting requirements, so it should be able to sweat and produce high ROE. Apartments costing 5-15 crores are understandably stuffed.

 

If the long term (30 year) rate on bonds is 0.25%, then stocks at 0.5% dividend yield and 10% growth at 40 times earnings are cheap mathematically.

Image result for equities expensive

Reversal in this chart can cause maximum wealth destruction in equities.

That reversal could come from new discovery / new industry actually resulting in optimism and productivity improvements.

At this time closed systems look quite good when money sans borders is comparing 0.25% bond to a 50 PE equity. Buying the biggest / most profitable department store on an Island of Fiji or Tonga sounds sane.

Disclosure: Views are personal notions and do not represent any organisation or company. Investment in stock market can (and many a times do) result in loss of principal capital.

http://www.elevendimension-funds.com

 

 

 

Written by amitdipsite

August 31, 2016 at 12:02 pm

Posted in Uncategorized

One Response

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  1. Hi Amit,
    I notices that you are a major shareholder in “Blue Chip Tex”. I am following this company for a long time, but couldn’t develop conviction to buy, even though they are reporting good growth. Following are the points I am concerned about :

    1. Lot of related party transactions
    2. Low operating margin
    3. High promoter pledging
    4. Lack of future growth visibility / opportunity size.

    Would it possible for you to throw some light on the above points ?
    Thanking you in advance.

    Gouri.

    Gouri maya

    September 9, 2016 at 7:49 pm


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