The Year Ahead: Top Takeaways from the Equitymaster Conference 2017

Jan 23, 2017

In this issue:
» Equitymaster Conference 2017: A short coverage
» Corporate earnings: The road ahead
» Market roundup
» ...and more!

00:00 Chart of the Day

Ankit Shah, Research analyst

21 January 2017.

I marked the date on my calendar almost a year ago. We were going to host Equitymaster Conference 2017 at the iconic Taj Mahal Palace Hotel in Mumbai.

Finally, on Saturday, around two hundred and fifty attendees from six countries and 33 cities poured in for a day-long conference to hear from the experts, interact with like-minded investors, and get uncommon insights on India during these uncertain times.

As the conference progressed, I experienced mixed feelings of enthusiasm, joy, and pride.

Pride for being part of an institution that is fearless...honest...and uncompromising in its pursuit of the truth. Joy and enthusiasm for being surrounded by a sincere, perceptive, and inspiring audience.

I had the great privilege of interacting with many readers personally. I cannot tell you how valuable that always is. A big thank you to all the attendees for all your love, appreciation, feedback, and insights.

Our list of expert speakers included Equitymaster founder Ajit Dayal, our big-picture expert Vivek Kaul, our global intelligence expert Chris Lowe, real estate expert Ashwin Ramesh, stock market veterans Rahul Shah, Tanushree Banerjee, Richa Agarwal, and trading strategists Asad Dossani and Apurva Sheth.

The conference covered a wide range of issues that included an evaluation of India's economy, the causes and consequences of demonetisation, the global war on cash, its impact on the real estate sector, the job crisis in India, Trump's presidency, the fragility of the world economy, the outlook for the Indian stock markets, how to invest in safe stocks, how to win big with intelligent investing strategies, how to identify small caps riding the automation and robotics megatrend, top trading strategies for 2017, and more...

The speakers also addressed many pertinent questions raised by the conference participants.

I look back and ponder: What was my biggest takeaway from Equitymaster Conference 2017?

Businesses do not exist in isolation. As a research analyst who follows a bottom-up approach to pick winning stocks, I was keen to get a sense of the macro fundamentals...and what they could mean for Indian stock markets in 2017.

We got some remarkable insights from Ajit and Vivek in this regard. Let me share the gist of what they said.

For a mix of economic and political reasons, 2017 could be a challenging period for the Indian economy.

As per Ajit, demonetisation is neither a sufficient nor necessary condition to fight black money, curb terror funding, eradicate fake currencies, and promote a cashless economy.

The pertinent question is: Was demonetisation really an economic decision or a political ploy before some crucial state assembly elections?

Prime Minister Narendra Modi has clearly changed the demonetisation narrative from a fight against black money and fake currency to a drive towards a cashless, digital economy.

If demonetisation turns out to be more than just a short-term blip, it may increase political pressure on the government to dole out more subsidies and freebies...and this may strain the government's fiscal deficit.

Now, it is important to understand that the economy was already struggling on several fronts prior to demonetisation. As Vivek Kaul has been warning, India's job situation is precarious.

Given India's demographics, we have about 10-12 million people ready to enter the workforce every year. But we're simply not able to create meaningful employment.

At the conference, Vivek astonished us with a detailed, data-driven presentation on the real employment scenario in India. India may have a situation where it finds more than twenty million young adults entering the workforce every year. Traditionally wealthy, land-owning upper-caste groups fighting for government jobs is a clear sign of the unemployment stress building up.

How does all this connect to corporate earnings?

After Modi came to power in 2014, optimism on Dalal Street was high. While earnings remain elusive, PE expansion continues to support the index levels.

The question is: How long can this trend continue? Can you make money in the next two-three years in the markets?

Show Me Earnings or Lower the Price

Tanushree shared an interesting perspective in this context.

In the past, companies in the StockSelect universe were adding capex but were not able to sweat assets. The result was a decline in return ratios. However, Tanushree can clearly see the debt to equity ratio coming down. And going forward, as demand catches up with supply, earnings and returns for well-managed companies are likely to improve.

In a universe of one hundred stocks, Tanushree is closely monitoring about twenty that look to be great opportunities going forward.

Richa and Rahul share Tanushree's optimism for stocks. But you'll have to wait to hear from them; it's simply not possible to cover all the top takeaways from the conference today.

If you missed it this time, I hope you will definitely make it next year. My team and I would be delighted to know you and serve you better.

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In the meanwhile, the Indian indices lost most of the morning gains and were trading flat. Sectoral indices were trading on a mixed note with stocks in the metal sector and the realty sector trading on a positive note, while stocks in the pharma sector and the capital goods sector were leading the losses. The BSE Sensex was trading up by 14 points (up 0.1%) and the NSE Nifty was trading up by 11 points (up 0.1%). The BSE Mid Cap index was trading down by 0.1% while the BSE Small Cap index was down by 0.2%. The rupee is trading at 68.09 to the US$.

04:50 Investing mantra

To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses - How to value a business, and how to think about market prices. - Warren Buffett

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