Is more than 30,000 Sensex well within reach?

Jun 2, 2011

In this issue:
» Most experts agree that another crisis is coming
» Michelle Obama and Oprah Winfrey new poster girls for Indian FMCG
» Investors in US treasury to get boiled, feels Bill Gross
» Most analysts turn negative on Indian PSU banks
» ....and more!
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It is believed that no one rings bells at important turning points in an economy. This may not be completely true though. Occasionally, few men do jump into the bell tower and do just that, may be for public service if not for anything else. And they also know that very few are likely to pay any heed to the ringing of the bell. One such bell ringing was done recently we believe. While we did pay complete heed to it, we thought we would bring it to your notice as well.

The man ringing the bell this time around is none other than Aditya Puri, the CEO of HDFC Bank, one of India's most profitable and respected financial institutions. In a must read interview to Morgan Stanley, Mr Puri has let out a stern warning that investors miss the vibrancy of India at their own peril. He argues that even if we do not solve our problems, we can grow at 7.5%-8%, just the way we are doing currently. Now here is the interesting part. He is miffed that most people are missing the enormous transformation that is taking place. The transformation that will turn the current growth rates into a very strong growth rate of 10%. Each of the evils plaguing India viz. infrastructure, subsidies and fiscal deficits are indeed being tackled and will yield the desired results as per him.

Furthermore, most of us judge India on the basis of how its cities are vis-a-vis those of other countries like China. Mr Puri believes it would be a big mistake to judge India like this. He has urged people to go to the hinterlands and look at the tremendous prosperity that is flourishing there. "I see a new India equivalent to the existing India coming up", he is believed to have said. People focusing on a six month view will certainly miss the India growth story as per him.

Clearly, it is difficult not to get influenced by Mr. Puri's infectious optimism. Especially when most of his arguments are soaked in irrefutable logic. Another interesting aspect is that the high growth, if at all it happens, cannot leave India's equity markets untouched. More so because unlike say China, most of the growth here will be driven by its entrepreneurs. Thus, while investors are worried over how soon the Sensex can touch 30k, if one believes in Mr Puri's arguments, an index number much higher than that does look well within reach.

Do you think Mr Puri's is being overly optimistic or you agree with his view points? Share your comments with us or post your views on facebook page.

 Chart of the day
Prediction about internet traffic may have an issue or two with respect to its reliability. However, if the same comes from CISCO, the world's biggest maker of networking gear, then certainly a lot of trust can be put into it. The most recent issue of the company's annual visual networking index is out and carries some rather interesting predictions. As per the report, internet traffic around the world will quadruple in 2015 from 2010 levels and reach 80.5 Exabytes per month. For the uninitiated 1 Exabyte equals around 1,073 million Gigabytes (GB). When it comes to countrywise distribution, India emerges as the nation with the lowest expected use of internet on a per capita basis. At 38 GB per month, per person, the US is head and shoulders above the BRIC pack.

Source: CISCO

Put a frog in hot boiling water and it will immediately jump out. But if you put this amphibian in water that is gradually boiling, the frog will remain sitting in the water and by the time it begins to feel the heat, it will be too late to jump out. A scenario somewhat akin to this is being faced by investors in US treasuries according to Bill Gross, manager of the world's biggest bond fund Pimco.

Yields on US treasuries have generated positive returns and investors have mistakenly taken that as a positive sign. But what they are not realizing is that these yields aren't high enough when compared to expected inflation. In fact, much of the Treasury yield curve rests in the negative territory when compared to expected future inflation. And bond prices have already reached very high levels. Moreover, the US Fed deliberately keeping interest rates low is not helping matters either. And the creditworthiness of the Fed has been increasingly questioned in recent times given that it has amassed massive debt. Thus, investors will have a heavy price to pay if they do not grasp the dynamics of this situation soon enough.

The 2008 financial crisis came like a massive storm. Much wealth was destroyed, many economies were badly hurt. Now the thing with any kind of crisis is that it needs to be dealt with. The cause of the malady needs to be remedied. And every remedy takes time, effort and some amount of pain.

But what we have seen in the years following the crisis clearly points that the causes have not been dealt with at all. If you look at the US for instance, it has gone out of its way to avoid pain by injecting steroids in the form of quantitative easing. Effectively, it has only delayed the pain. Worse still, the causes have aggravated even further. And not just the US, look at what's going on in Europe. So many economies there are drowning in debt. Many more bailouts will be announced. Go further east and you will see an old patriarch still reeling under the consequences of massive natural and nuclear disasters.

And for the moment, even the emerging economies have paled a bit. A high interest rate regime has slowed down manufacturing in China. Even India is dealing with similar problems.

Given such a grim scenario, it seems like there's more trouble in the offing. A long list of world-renowned economists and investors such as Nouriel Roubini, Jim Rogers, Mark Mobius and others have started ringing the alarm bell. The global economy seems to be at the tipping point of yet another major global economic crisis. But when the storm will strike is still anybody's guess.

Revision of earnings estimates are commonplace at the end of a financial year. For this is when company managements outline their performance in recent fiscal and plans for the next one. However, for Indian PSU banks, the plans for heavy provisioning seem to have come at a heavy cost. Most have been downgraded by brokerages looking for near to medium term profits. SBI's unexpected dip in profits for the fourth quarter of FY11 especially cemented earnings concerns for the PSU entities. Provisions for wage revisions every 5 years are expected to remain a profit dampener for these entities. Add to that the threat of priority sector loans going bad and adding to NPA provisions.Thus, if you are looking at EPS growth, it is not very difficult to understand why the brokerages are not particularly optimistic about the PSU banks. Having said that, we would like to look at the situation a little differently. EPS is not the best way to judge the valuation for a bank. On top of that, most of the write-offs could take place from the reserves. Further, some banks do have adequate NPA provision coverage. Hence we believe that while Mr. Market continues to discount the wealth creation prospects of PSU banks, investors would do well to look for opportunities here.

Michelle Obama and Oprah Winfrey with their straightened hair are the new poster girls for Godrej, Marico and Dabur. Surprised? But it is true. High inflation and competition has forced home grown and cash rich FMCG companies to seek new markets. In the last four years, these three companies between them have acquired over half-a-dozen global companies selling hair care products to African and Afro-American consumers. But why Africa? A large ethnic population, abysmal low consumer spending and a consistent GDP growth is the recipe which has the continent poised at the cusp of explosive growth. In fact Africa is being touted as the next frontier of consumption growth outside BRIC. It therefore comes as no surprise that companies from India as well as China have already started targeting the continent to establish themselves there.

Meanwhile, indices in the opened the day deep in the red but recouped some of the losses with the BSE Sensex trading lower by around 80 points at the time of writing. Banking majors like ICICI Bank and HDFC Bank were seen exerting the maximum selling pressure.

 Today's investing mantra
"I don't read economic forecasts. I don't read the funny papers." - Warren Buffet

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33 Responses to "Is more than 30,000 Sensex well within reach?"

jitendra mehta

Jul 1, 2011

yes index will definately cross 30000 within 2015.there are lots of scripts available at cheaper price.

Like (1)


Jun 16, 2011

there is no doubt india is progressing at its high pace but still corruption becomes the hinderance in our progress but i agree with MR PURI that indian market definately goes on upside as thing looks to be controlled in next four to five years

Like (1)


Jun 14, 2011

Mr Aditya puri is realsitic and practical, in this country there is no adequate coverage on news disclosing the ground reality on day to day basis.Good monssons foar the past one decade coupled with reduction of urban unemployment and thanks to programs like NREGA there is lot of progress . The growth story in india should not be looked through the prism of few urban based industries and soft skill industry alone.The growth is conspicuosly visible in FMCG, AUTO AND TELECOM industries due to the nature of industry , products , consumption style and recruitment trends,
Where as in the manufacturing growth is not visible due to traditional style of functioning. Mr purai as a banker has clearly observed the ground perception and i agree with him. Yes 30000 is definitely possible by the end of 2013.

Like (1)

manohar sharma

Jun 10, 2011

This country though surrounded by enemies and internally have a great chance to implode yet there are people who think we will become what Mr Puri think.Everything in the life does not run on human logic but is controlled by logic that comes out as a reality from the People's DEEDS.I think that our hinterlands will script a new future and we will BECOME.

Like (1)

Babu Philipose

Jun 5, 2011

Puri's comments are realistic, and India will have a successful growth for the next 20 years without any problem.

Like (1)

shome suvra

Jun 4, 2011

Money from U.S. bond market owing to low interest rate will continue to come in India. Hedge funds will do well even if the market is temporarily bearish.Long term investment in mutual funds are needed which should be actively managed with greater alpha. Good fundamentals are possible for defensive stocks. when the market comes back to normalcy from being overvalued more FII investment is possible as commodity(gold,silver and oil) prices are high to have got to switch to them.

Like (1)


Jun 3, 2011

i am happy if his wishes come true.this will come true if corruption in our country is eliminated.

Like (1)


Jun 3, 2011

Well, if you consider the real inflation ( what I mean, the real inflationary pressures due to which the comman man is suffering maximum to pull on their daily lives mainly arisen from the unaccounted black money floated ov er to India during the last 5 to 10 years), no doubt the Sensex must have crossed index 30,000 level. But investors of domestic as well as foreign are afraid of put their money in the stock stream because of recent upheavals of blatant corruptions sitting on the zenith of every walk of life in India, and many other internal political and caste based reasons the economic barrow meters could not show the correct index level. But in real terms the index level is much more than the 30000 level as an imaginary conception!

Like (1)


Jun 3, 2011

Sir, I wish Mr.Aditya Puri's faith in the Indian economy is shared by one and all. However one swallow does not make a summer. Can he empirically prove how many rural areas he has covered to arrive at his conclusion. Our agricultural lands have been spoiled by over application of urea which is heavily subsidised. Once the people are shown some luxuries in the form of freebies it is difficult to wean them away from them.
In Tamil Nadu for example, 20 kilos of rice are given free. Electricity is the cheapest in India for households. The vote bank politics has ensured that this pampering of voters and pandering to the whims of the masses has resulted in a deep deficit of more than a lakh crore for the state government.

Disparities in income and wealth have been widening every day. Fat salaries are disbursed to government servants while Mr.Montek Singh Ahluwalia is sure that Rs.20 is sufficient for a day to survive which shows his deep rooted desire to check subsidies but for that sake he cannot afford to earn a bad name as not being practical.

Day by day the greed of the political and bureaucratic class is coming to light. Mr.Manmohan Singh is shown in poor light as he is tied to the wishes of his political master.

India is not fated to be a developed country what with Pak and China teaming together to conspire against India.

And lastly yoga guru Ramdev and Anna Hazare are in loggerheads which is not good for the Lokpal Bill.

Congress can no longer hope to capture power with their shenanigans getting wild by the day. There is no viable national party to hold its ranks together and presenting a credible opposition. But India will still run its show as some good meaning citizens are still god fearing.

Like (1)

Adi Daruwalla

Jun 3, 2011

Mr. Puri, is overtly optimistic. Its not bad to be optimistic but Mr. Puri should manage his own bank first before going to rest of India. There are branches where people are not able to answer queries of customers, phones are off the hook, as the staff cannot manage their work load and even answer calls (so phones off the hook)at HDFC bank. Can Mr. Puri look at his own back offices and the disconnect between back office and branches before deciding on India

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