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When Will You Start Owning Sensex 2030 Stocks?

Aug 5, 2016

In this issue:
» Is the IPO boom fueling capex?
» New challenge in the offing for 'Make in India'
» What to expect from Rajan's last Monetary Policy?
» ....and more!
00:00
Tanushree Banerjee, Co-Head of Research

Indian Rayon, Premier Ltd, Gujarat State Fertilizers, Hindustan Motors, Bombay Dyeing, Mukand Ltd and Century Textiles.

Do these names ring a bell? Maybe they don't. Unless you've been investing in stocks for more than two decades. Readers who have will recall that these were the Sensex's most hallowed businesses back in 1992.

In July 2016, we completed 25 years of the so-called economic liberalisation. The reforms unleashed in the '91 Budget helped break many regulatory bottlenecks for businesses.

In theory, every well-established listed company then should have been a raging stock in the decades to follow. The Sensex has become a ten-bagger between 2002 and 2016. A patient long-term investor in Sensex '92 stocks should have enjoyed similar fortunes.

Now, in August 2016, we saw the passage of another landmark reform. Experts call the Goods and Services Tax (GST) the most important reform since '91. The bill could be a driver for the economy for a very long time. And one may assume that fundamentally well-placed stocks today could go on to unleash the big gains expected from a post-GST market. The sentiments today are reminiscent of Sensex '92.

Unfortunately, not every Sensex '92 stock went on to create shareholder wealth. Many faded into oblivion. In fact, only seven Sensex '92 companies remain on the index today.

And we can expect many Sensex '16 stocks to go the way of Premier, Hindustan Motors, and Century Textiles. Indeed, few are likely to feature on the Sensex of, say, 2030. The blue chips of today may not be the blue chips of tomorrow.

Of course that does not mean one should not be investing in any Sensex stock today. We see steep earnings upside in few big blue chips over next three to four years. Hence, these could be amongst the safest investments for the medium term.

But investors willing to hold few stocks for a tenure of ten years or more need to look beyond blue chips.

Here is what they need to do - Discover the profits that lie hidden in unusual small caps.

These could be the businesses that could possibly feature in the Sensex of 2030. Reason being they will be more receptive to change. These are small and nimble business. So could be more adaptive to technological shifts. And with rapid growth, they could eventually acquire the scale necessary to make them big blue chips.

So by all means own some of the best blue chips from Sensex 2016. But also start thinking of owning some Sensex 2030 probables right away. Consider yourself lucky even if a few eventually make it to the index. For those could make a big difference to your returns.

Do you aim to discover some hidden stocks that are sound enough and have the potential to become bluechips of tomorrow? Let us know your comments or post them on on Equitymaster Club.

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02:40 Chart of the day

Initial public offering or IPOs have created a lot of buzz in 2016. Listing gains and over subscription of issues have caught investors' interest. The IPO market is still on swing as many more IPOs are lined up. But are investors really aware where the capital thus raised is going?

As suggested by the chart of the day, most of the capital raised is not being invested in the business. Instead it is providing promoters and early stage investors an exit route. The trend has been more pronounced during the last few years. The IPOs have become more of an exit route for funds and early stage investors of late.

Is the IPO boom Helping Capital Formation?


According to the data as reported in Mint, approx. two-thirds of the money raised through IPOs in 2016 have been offer for sale. Just one third of it was towards capital expansion.

It's a common knowledge that fund raising is more to do with the markets, rather the need in the business. The interest in IPOs always heightens when there is a bull run... a perfect time for PEs and early investors to exit.

But what works well for them may not always be in IPO investors' best interests. As such, it is extremely important that investors do not get carried away by IPO frenzy and focus on fundamentals, management quality. Of course last but not the least - valuations.

We always remind readers of the most insightful quote from Warren Buffett on IPOs...

  • It's almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors).
03:40

A news article today talked about China climbing the quality ladder. What does it mean for India?

Over the past few decades Chinese goods have grabbed a huge market share of commoditized products on the back of cost competitiveness. The voracious appetite for Chinese products made the country a leading manufacturer of goods across segments. In fact, don't be surprised to find some rakhis and Ganesha idols that are made in China, in the markets over next few weeks!

But the quality of these products have always been a question mark. So while buying expensive products customers prefer quality products from India, Japan or the US rather than using indigenous ones.

Now China's decades old low-cost exports are on the decline over past few years. with the reason being that the rise in the labor costs has no longer kept the products cheap. So it is time for China to look for new avenues for growth.

We came across an article on Wall Street Journal, that talks about a company that is making a nationwide push for manufacturing of some quality products. Now this is something India needs to worry about. If China could boost up its quality, this would have direct impact on the India's manufacturing. Which means a big threat to 'Make in India'.

04:30

On August 9, 2016, the outgoing Reserve Bank of India (RBI) governor Dr Raghuram Rajan, will present his last monetary policy statement.

Will he cut rates this time? Or will he not?

Will he choose to keep inflation under check? Or will he give in to the demands of the government and industry lobbies?

My colleague Vivek Kaul offered some interesting outlook on the forthcoming Monetary Policy in his Digest.

04:45

In the meanwhile, the Indian indices after opening on a firm note, Indian indices have continued to gain momentum. At the time of writing, the BSE Sensex was trading higher by 246 points (higher 0.9%) with banking and metal stock leading the gains. Both BSE midcap and BSE small cap stocks are witnessing strong buying interest.

04:50 Investing mantra

"The difference between a good business and a bad business is that good businesses throw up one easy decision after another. The bad businesses throw up painful decisions time after time". - Charlie Munger

This edition of The 5 Minute WrapUp is authored by Tanushree Banerjee (Research Analyst) and Bhavita Nagrani (Research Analyst).

Today's Premium Edition.

What Happens if 'Make in India' Fails?

Will India remain a services economy forever?
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3 Responses to "When Will You Start Owning Sensex 2030 Stocks?"

Ranjit Kumar Baruah

Aug 7, 2016

Yes, I aim to discover some hidden stocks that are sound enough and have the potential to become bluechips of tomorrow.

Like 

Sundaravaradan S

Aug 7, 2016

Hi,
Sub: Make in India.
Have you heard of "Doubting Thomas" After reading this write-up, I thought of the Idiom!
Have you EVER seen anything, including your ideas, where there is NO implementation problem? Have you Succeeded in AL your Actions? Has ANY previous Govt. implemented ALL their Schemes, successfully?
Every coin has 2 sides..Yes; Why you want to Project NEGATIVE sides ONLY? Yes; you can project -Ve and +ve also! On the whole, is India moving +vely? Are we likely to do 70% growth in next 3 Years? Is id Bad, Ugly or Good or Very Good?

Please project BOTH -Ve & +ves of this Govt.(as you see it). Will you disown the claim, if India Succeeds? (Skills Development Scheme, DBT, App for MPs, Connect with Citizens, Take the opposition along (even if it takes time), Make Stratefic Friendship with ALL Countries.....Write about them....

Like (1)

Jomix A

Aug 5, 2016

Hi sir, we like to know about those stocks and own it at the earliest

Like (1)
  
Equitymaster requests your view! Post a comment on "When Will You Start Owning Sensex 2030 Stocks?". Click here!
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