These sectors doubled shareholder wealth in 4 yrs - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
PRINTER FRIENDLY | ARCHIVES

These sectors doubled shareholder wealth in 4 yrs 

A  A  A
In this issue:
» Most of diesel subsidies goes to truckers not farmers
» Subsidies will bleed us to death: ONGC
» Plagued by financial woes but aviation essential for economic growth
» US on the path to reinvent itself
» ...and more!


-------------------------- Asad Dossani's Secret "Wealth Radar System" Revealed! --------------------------
Make The Right Trade. At The Right Time. At The Right Price. View Now!

---------------------------------------------------------------------------------------------------------------------------------


00:00
 
Stock investing is all about identifying and adopting a goal and sticking to it with discipline. The goal could be anything from earning x% returns to holding the stock for your period. The important thing is to identify what works best and stick to it without compromise. But an important question that any investor would have in mind is which investment philosophy works best?

An article carried by Business Standard appears to be addressing this question. It has identified 8 sectors where investors have been able to double their money. But investors have been able to do so only by holding on to the stocks over a period of 4 years. The sectors include tobacco, FMCG, tyres, auto, pharma, auto ancillaries, banks and fertilizers. These sectors have seen a robust financial performance even during the not so good times. And this performance has translated to healthy gains for investors who remained committed to them.

The driving force behind the performance of these sectors was healthy domestic consumption. With rising income levels particularly in the rural sector, consumption has been growing in recent times. As a result, these sectors have seen their top lines outperform the overall economic growth. At the same time the ability to pass on increases in costs, keeping their administrative costs under control and maintaining their brands has helped these companies in growing their bottom lines as well.

On the other hand the "in the news" sectors like infrastructure, construction, sugar, etc have actually doled out negative returns for the investors during the same period. Though they have seen a growth on the financial front, but neither has the performance been outstanding. Nor have they helped investors in any way. With compounded annual returns ranging between -1% to -33% over the past 4 years, these sectors have actually destroyed shareholder wealth.

This leads to one key learning for investors. Something we always keep talking about. That is that in order to earn healthy returns over long term, it is essential to identify businesses with strong fundamentals. And having identified these it is necessary to hold on to them for a long time period. Investing in hot news items rather than the stronger business fundamentals can only lead to one thing. And that is losses.

Which sectors do you think are capable of delivering superior investor returns over the long term? You can also share your comments with us or post your views on our Facebook page / Google+ page.

01:25  Chart of the day
 
The Government has drawn a lot of flak recently for its inertia with regards to fuel price reforms. As per a study done by leading financial daily, subsidies doled out on diesel are finding their way mainly to transportation sector and that too in private hands. Today's chart shows that transport sector accounts for nearly 67% of the subsidy benefits. Prominently, the truckers and cars account for nearly 45% of the total subsidy bill. On the other hand, the agriculture sector, on which the Government rests its case accounts for a mere 12.3% of the subsidies. With a flawed subsidy system leading to dieselization of economy, one should expect the share to go up. The argument that linking diesel prices to market prices will lead to inflation doesn't hold water either. Higher fuel subsidies and huge fiscal deficit are feeding the vicious circle of low growth and high inflation anyway. If it is well being of the farm sector stalling reforms, there is a better way to take care of it. The sector will be better off using direct cash subsidies and strong price support system. It's time that the Government stops coming up with lame excuses and bites the bullet of fuel reforms.

Source: Business Standard


02:00
 
"What's in a name?" said Shakespeare. But our government seems to have taken these words too seriously! What else can justify the fact that it is draining a "Maharatna" company to bankruptcy? That too one of the stature of Oil and Natural Gas Corporation (ONGC)? The company is the undisputed leader in India's energy starved oil exploration sector. However, a Business Standard report has quoted the company's chairman claiming gross abuse of its resources by the government. As per the company, half of its current surplus of Rs 280 bn is earmarked for annuity payments for employees and oil well restoration. This leaves very little money for investment to raise oil production. Ironically, when global oil prices are quoting at over US$100-105 a barrel, ONGC makes a margin of only US$ 8! Obviously the company's pitiable P&L health is thanks to the government's magnanimous subsidies for oil marketers. Particularly for selling diesel, kerosene and cooking gas at subsidised prices. ONGC's fears of being bled dry are not new. But this time it is in two years flat! No wonder investors gave a cold shoulder to its follow on offer. It was only LIC that came to its rescue. But the government is still not showing any remorse over its fiscal profligacy! One can only wonder how many such 'ratnas' will be sacrificed!

02:40
 
Can all businesses create wealth for investors? The answer is no. Take the aviation industry for instance. Ever since the Wright brothers invented the flying machine, it has revolutionized the way people travel. Without airplanes, the world would not have been as closely connected as it is today. So there is no doubt that the airline industry has been a great boon for the global economy. But for investors it has been an utter disaster. In other words, it has made no money at all.

The Indian aviation industry is no exception. The sector continues to be in troubled waters with players such as Kingfisher Airlines and Air India facing severe financial woes. However, some players have reported profits in the June quarter. For example, Jet Airways, India's largest airline by market share, has reported a profit after five consecutive loss-making quarters. But wait, it may be a bit premature to raise the toast. These profits have come from exceptional items and not from regular operations. At the operating level, costs continue to remain high. And do not forget that the cumulative losses for domestic airlines are a staggering Rs 120 bn. This just reinforces the fact that the industry is great for the economy, but terrible for investors.

03:20
 
It may not have the most intelligent people within its borders. It may also not be as well endowed in terms of natural resources as compared to some of the other nations. But the one thing that the US does better than all other nations is that it has a system that unleashes human potential like no other. And this is what made the country the most prosperous nation on the planet. True that some of these strengths have worn off in the past few years and its excesses have caused a great deal of damage to the economy. But if the Economist is to be believed, the world's biggest economy is well on its way to reinventing itself.

To be honest, the signs are hard to miss for us as well. Its exports are looking up, the overleveraged balance sheets are deleveraging themselves and its energy bills are also going down, thanks to the shale gas revolution. Having said that, any thoughts of a quick turnaround should quickly be set aside. Besides, there is always this threat of the next man in the President's chair doing something silly. It all depends on how the US private sector is treated. The more it is left to its own devices; the better will be the odds of the world seeing a US renaissance we believe.

04:10
 
The auto sector is going through a tough phase right now what with the economy slowing down and interest rates plus fuel prices staying firm. But this does not seem to have had impacted the appetite of the super rich for luxury cars. Indeed, the super rich who would like to own cars that cost upwards of Rs 1.5 crore seem to be immune to economic vagaries. Thus, sales of automobiles from the stables of Rolls-Royce, Lamborghini, Ferrari, Bugatti, Maserati and Porsche continue to rise fast. This has, however, been on a small base. As reported in the Mint, Indians bought around 98-100 so-called super-luxury cars in 2011. This is expected to rise 50% by the end of the year, driven primarily by model launches. The demand drivers are many. One of them is the fact the average age of the wealthy buyer has dropped from 35-50 years to 25-35 years in recent times. Thus, to a large extent the younger generation of the super wealthy is driven by peer pressure to opt for such opulent cars. However, even though the incomes of middle class have risen tremendously in the past many years, India still remains a small car market unlike its peer China.

04:40
 
In the meanwhile, after opening the day in the green, the Indian equity markets continued to trade above the dotted line. At the time of writing, Sensex was up by 214 points (1.3%). Among the stocks leading the gains were Reliance Industries and Tata Motors. Other major Asian stock markets have closed the day on a positive note as well with Japan and Korea leading the gains in the region.

04:55  Today's investing mantra
"Chains of habit are too light to be felt until they are too heavy to be broken." - Warren Buffett

  • Test Your Warren Buffett Quotient Now!
  • The 5 Minute WrapUp Premium is now Live!
    A brand new initiative of Equitymaster, this is the Premium version of our daily e-newsletter The 5 Minute WrapUp.

    Join us in this journey to uncover the sensible way of managing money and identifying investment opportunities across various asset classes including Stocks, Gold, Fixed Deposits... that over time can help you realize your life's goals...

    Latest EditionGet Access
    Recent Articles:
    How Unique Are the Companies You Invest In?
    August 21, 2017
    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.
    You've Heard of Timeless Books... Ever Heard of Timeless Stocks?
    August 19, 2017
    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
    Why NOW Is the WORST Time for Index Investing
    August 18, 2017
    Buying the index now will hardly help make money in stocks even in ten years.
    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)
    August 17, 2017
    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Equitymaster requests your view! Post a comment on "These sectors doubled shareholder wealth in 4 yrs". Click here!

    2 Responses to "These sectors doubled shareholder wealth in 4 yrs"

    saby chacko

    Aug 8, 2012

    I totally disagree with the views saying removal of diesel subsidy will not cause rise in inflation!!
    It is not required to be an economist to disagree with the author's view as even a child knows that an increase in diesel price has a cascading effect leading to higher inflation. Increase in diesel price will cause increase in bus/taxi/ truck fare, leading to higher cost of goods, vegetables and all products in india. On the other side daily labour cost will increase leading to higher expenses from every household and also industries.
    So it is a simple theory which people sitting in plush govt offices or sitting outside India do not realise abou the effect of Increase in Diesel price on inflation!!!
    Of course I do agree that the fuel subsidy is causing heavy burden on to our fiscal deficit but that can be reduced by various other means.

    Like 

    radical synergy

    Aug 7, 2012

    it is a ready nutshell report , really wonderful...

    Like 
      
    Equitymaster requests your view! Post a comment on "These sectors doubled shareholder wealth in 4 yrs". Click here!

    MOST POPULAR | ARCHIVES | TELL YOUR FRIENDS ABOUT THE 5 MINUTE WRAPUP | WRITE TO US

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

    Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

    This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

    This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, the same may be ignored.

    This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

    As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407