Which stocks would you buy before you leave for Mars for 10 years?

Sep 26, 2014

In this issue:
» India's poor rank on ease of doing business parameter a key concern
» Challenges galore as India goes for 'Make in India' drive
» The ideal approach for investors as global interest rates remain fickle
» Another setback to hopes of an early rate cut by RBI?
» ...and more!

A new wave of excitement has taken over in India. The country has created history with its success in the first attempt to enter Mars orbit through Mangalyaan. Who knows? Making Mars fit for human habitation could be the next mission. Weird though it sounds, the idea has already caught the fancy of thousands. The applications to inhabit Mars stand at above 1.6 lac already!

You might be wondering why we are talking about extraterrestrial matters instead of investing or economic topics.

Well, we were just thinking....Wouldn't it be nice if one could actually take such long breaks without the concerns of making money in the meanwhile. And come back only to find oneself much richer than when one left.

While that may sound ambitious, it is quite an achievable goal. And Indian stock markets promise huge opportunities to attain this goal. Consider this! Stocks like TTK Prestige, Titan, VIP Industries, Sun Pharma have returned 66%, 49%, 30% and 33% respectively on average annual basis over the last decade. The average annual returns offered by Sensex, Midcap and small cap stocks over the same period stand at 17%, 15% and 16% respectively. Despite the financial crises, scams, money printing and cross border money flows that have marked this decade, the returns offered are mouth watering. Had you just invested in these stocks and forgotton all about it for a decade, your compounded returns by now would have been huge enough to beat inflation by a high margin. And may be even enough to plan the rest of your life!

The interesting part of the story is this! Even now, Indian equity markets are offering such opportunities. With new trends unfolding in the economy, there is no better time than now to build your 'Buy and forget' portfolio. You can invest and forget for periods of 5 to 10 years. The trick is to pick up the right stocks that can ride along the golden times ahead of us and emerge winners, irrespective of what happens to global interest rates, oil prices, money flows, inflation levels, exchange rates and other macro-economic and systemic risk factors.

Companies that have scalable business models, sustainable moats and efficient management are the ones that will make a part of this list. Last but not the least, you need to pay the right price for such stocks, and follow a disciplined approach through the long holding period. Else you might end up with a portfolio of good companies but average or below average returns.

We understand that doing so is easier said than done. More than a great IQ, what it needs is discipline and right temperament. It is on these principles that foundations of our ValuePro service have been laid. Under the expertise of our Managing Editor for ValuePro, Radhika Pandit, we have built two ValuePro portfolios so far. Based on the investing legend Mr. Buffett's ideology, the stocks under the portfolio have delivered handsome returns across cycles. Acting on the right triggers has been as crucial to their success as ignoring the noise in the markets. So if you belong to the set of investors who would like to benefit from this approach, we strongly recommend you to join ValuePro now. And gain from the great performance for years to come.

Which stocks would you love to add to your portfolio today if you were to leave for Mars for 10 years? Let us know your comments or share your views in the Equitymaster Club.

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 Chart of the day
Prime Minister Modi who has perfected the art of coining inspirational slogans had another one to offer to the country yesterday. Yes, that's right; we are talking about the big bang launch of the much awaited 'Make in India' campaign. In order to win back investors' trust and attract foreign money into India, Prime Minister Narendra Modi unveiled the plan yesterday. Corporates and investment community welcomed the ideology alike. After all, in the previous government regime, mistrust and bureaucratic hassles had tarnished India's image badly. This detracted investors who termed political risk as the biggest risk of investing in India. But with PM Modi's open invite to invest in India, investor sentiment is expected to improve. And this is further expected to improve India's ranking when it comes to ease of doing business.

As can be seen in today's chart, India ranked 134th in ease of doing business during 2013. Crossing the century mark here is by any means nothing to be proud about. If India were to attract foreign money, it needs to create a congenial environment for investors. Higher rank in ease of doing business helps there in a big way. Let's see if Modi's - Make In India - plan will be of any help here.

India Needs To Offer Congenial Environment To Investors
Note * : Higher rank indicates difficult conditions for doing business

We at Equitymaster believe that investors stand to profit immensely from India's golden decade. In fact, Tanushree, the Co-Head of Research at Equitymaster, has been working on what she calls the Megatrend Master Series. The purpose of the series is to help you understand the huge opportunity that lies ahead, and also aims to show you how to profit from it. In case you have already signed up for the Megatrend Master Series, view all the 3 parts of the Master Series here...

While the idea 'Make in India' is indeed good, a small glimpse of the challenges that lie ahead was evident in yesterday's launch event itself. As per a leading daily, each attendee to yesterday's event was given a small USB flash drive containing the electronic version of the brochure. Well, as if by irony, these flash drives had the words 'Made in China' imprinted on them!

No better summary of the state of our electronic industry we reckon. And it is not as if this is going to be our first ever attempt to boost manufacturing in sectors like electronics. As the article notes further, several programmes have been announced to promote domestic electronic manufacturing. However, they have fallen flat in the absence of the whole backward and forward linkages. We are sure this could be the case for other industries too. This is why we believe that unless we bring about structural changes, 'Make in India' would remain merely a pipe dream. If this isn't enough, China is already taking serious note of the developments. In fact, it has also initiated policy changes in order to further strengthen its manufacturing prowess. And even made it coincide with our 'Make in India' initiative.

The easy money policies of central bankers have completely distorted the financial markets. Most of the countries in the developed world are still grappling with sluggish growth. And yet equity markets have been on the rise. For many companies, low interest rates have boosted earnings. And quite a few are borrowing more to fund share buy backs and projects. The problem is that once the interest cycle turns, these companies will end up holding the wrong end of the stick. Now the question on everyone's minds is what direction are interest rates likely to take? We believe there is no simple answer to this. If we accept that if loose monetary policies continue, then interest rates could remain subdued for some more time to come. If the Fed does walk the talk and raise rates in 2015, then asset bubbles including equities are bound to burst. The point is that it is difficult to take a call on interest rates and that too in a scenario where the central banks appear to be quite fickle. The best option is to adopt a bottom up approach and stay away from companies which have high debt on their books in the first place. This would include not just domestic debt but also the debt that is foreign currency denominated.

Even though several signs of green shoots in the economy are already visible, it will be sometime before low interest rates offer some boost. Well, given the conservative stance that our central bank has, it is not going to react anytime soon. The RBI has taken note of the fact that inflation has started cooling off. However, it is yet to see any concrete measure to keep price rises low on a sustainable basis. Hence, as far as lowering interest rates go, such measures will follow the government's actions to break the backbone of inflation. Indian companies have for long been demanding that the RBI should lower rates in order to boost GDP growth. However, we quite agree with the RBI that monetary policies should keep the economy's long term interest as against corporate profits in mind.

Hopes of an early rate cut by the RBI, after the new government came to power, have already been dashed. It is clear that the central bank is in a wait and watch mode. The RBI wants to be sure that demand pressures have abated in the economy before reducing the benchmark repo rate. For those looking for such signs, the latest RBI report will not bring any cheer. The RBI has found that the in the June 2014 quarter, companies in the services sector (excluding IT firms) may have seen a rise in pricing power. This is reflected in the big jump in their operating margins; 1.9% on a YoY basis and 4.5% on a QoQ basis. This might imply that there is still sufficient demand in the economy to allow companies to pass on prices. Of course a part of the jump in margins is due to the reduction in operating expenses as well. This is why RBI might not want to jump to a conclusion on the basis of this finding alone. However, this is clearly yet another indication that a rate cut may not happen any time soon.

Indian stock markets continued to trade weak in the post noon trading session. At the time of writing, the BSE-Sensex was trading down by 26 points (0.1%). Sectoral indices were trading mixed with metal and pharma stocks being the major gainers. Consumer durable and IT stocks were the biggest losers. Barring China, all Asian markets were trading in the red with stocks markets in Indonesia and Japan posting maximum losses. European markets have also opened the day on a weak note.

 Today's investing mantra
"Although it's easy to forget sometimes, a share is not a lottery ticket... it's part-ownership of a business." - Peter Lynch

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4 Responses to "Which stocks would you buy before you leave for Mars for 10 years?"


Oct 28, 2014

Infra structure stock : Patel engineering, Hcc,
Pharma : Cipla,Cadila.
Bank : Federal Bank.
Automobile : Auto corporation goa,Maruti


Z. Chaugule

Sep 30, 2014

Hi Sanil:

List is good but at what price range would you buy these stocks.
Appreciate your response.


Prosenjit Roy

Sep 28, 2014

Prefabricated Houses made of Steel frames,are very quick erecting and Economical; it has many advantages against earthquakes and Global Warming.After Roti and Kapra comes Makan which is a primary need and conventional constructions are damn costly and their Carbon footprint is unbearable by the Mother Earth.The houses can be dismantled and sold after say even 75 or hundred years and fetch a HIGH resale value.Just think! Japan and USA and forward countries have opted for it.Most important STRATEGIC points are COST and TIME savings.


Sanil jain

Sep 28, 2014

If I were to buy stocks for a decade I would like the following::

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