Are We On The Threshold Of A Mega Returns Opportunity? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Are We On The Threshold Of A Mega Returns Opportunity? 

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In this issue:
» John Bogle's views on smart investing
» LIC bags another distinction
» Has gold lost its sheen?
» Huge opportunity in store for Indian Pharma
» ...and more!


00:00
 
We start today's edition with a special note from Tanushree Banerjee, our co-Head of Research. Here goes...

Hi,

It has been a while now that I have been wanting to write to you about this... I waited as we wanted to be absolutely sure that all the elements behind what we wanted to share with you had been checked out.

Now that they have, here's the full story...

While travelling across the length and breadth of the country meeting companies, my team and I came across several instances, or you can call them developments, or even economic data points, that reminded us of what we had read about in our economic history books.

It almost seemed as if things that we have read and heard about... things that happened in Japan, Korea, US and China...in the 1950s, 60s, 70s and 80s...were actually happening here in India! Slowly but steadily...before our own eyes!

And that got us thinking...

These developed economies, as we know them today, were not even close to being developed about 5 decades back. In fact it took a revolution of sorts...in each of them...involving innovation, demographic changes, industrial activity, exports etc...to bring about the massive changes that made them economic forces we now know them to be.

And in the process, these economic changes created a climate for companies to flourish in...

Take the case of companies in the US for instance. General Electric, IBM, Hewlett-Packard, Coca-Cola, and Gillette were born out of...what we can call a Megatrend in the US during the 20th century. These entities are not just still around... but are amongst the strongest corporate entities worldwide.

Coming to think of it...if we look at the gains that investments in these stocks during the 1960 and 1970 would have fetched till date...the numbers look ridiculous!

Companies like Wal-Mart, Coca Cola, McDonald's multiplied investor wealth more than 500 times each!

India had a similar fortune in 199os (starting 1991) when some critical policies changed the business landscape forever.

Now, a lot of us were youngsters or not investing in stocks when the mammoth economic reforms were unleashed in 1991. So we never really got the opportunity to live through the moments that followed...and invest in stocks like Nestle, L&T, Dr Reddy's and Infosys.

But those who did...and held on to the stocks till date...would have easily pocketed gains like 51,000% and 45,000% from Infosys and Dr Reddy's over the past two decades.

So the very thought of Indian investors getting to revisit 1991-like investing returns seemed thrilling.

Only this time, we believe the Megatrend will be even more powerful!

When we sat down to segregate our findings and observations into key signals, we came across exactly 7 of them.

Now, many of you may already be seeing some of these signals around you in some way or the other. However, the past few months that we have spent working on this, and thinking through it, have really helped us, we believe, in reading these signals from a more holistic perspective.

The Megatrend that India could see over the coming decades may spill over and lead to transformation in several sectors. And what these 7 signals do is point out to the areas that could possibly witness the maximum wealth creation. Areas where companies could transform beyond our imagination over the next 5..10..20 years. And in the process create an unimaginable amount of wealth!

Now, I am putting together a 3 Part - Megatrend Master Series that will reveal to you everything you need to know about this Megatrend in the Indian Economy and the 7 signals.

In fact I believe that once you have gone through the 3 Part Master Series you will be well on your way to make the most of this mega opportunity.

And because of its sheer potential, and our desire to share it with you, we are giving you the opportunity to access this 3 Part Master Series for free!

That's right! All you need to do is click here and you will join the list of select readers who will be among the first to access this Master Series.

Remember, this Megatrend could potentially lead to returns that one can only hope to see once in a lifetime... So, whatever you do, don't miss this Master Series.

- Tanushree

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And we're already witnessing 7 hidden signals around us which almost confirm that we're fast entering a phase of massive economic wealth creation! Or what we like to call... A Megatrend!

These 7 signals were previously seen in countries like US, Japan, Korea and even China right before they shot up on the global economic front. And now, it's all happening here in India.

So, to ensure that you, our valued reader, are well prepared to make the most out of what could easily be once-in-a-lifetime money-making opportunity, we are publishing an Exclusive Megatrend Master Series.

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02:01
 
At a time when markets are scaling new highs, long term fundamental investors have a big challenge before them. Should they follow the time-tested investment principles, stick to prudence and reason and be patiently focused on the long term? Or should they give in to the frenzy in the market and look out for quick gains? Being patient around this time may feel like swimming against the current. Given the plush liquidity and positive sentiments, speculators are ruling the roost. And long term investors may feel lost and even compelled to participate in this bull-run.

At such times, it pays to revisit the wisdom of the masters; investors who have seen the markets through multiple cycles and have understood how to win the game over the longer run. John Bogle, the highly respected founder of the Vanguard Group, is definitely one of them. He has some serious advice for the average investor. Buy and hold stocks and bonds for the long term. Have a diversified portfolio. Avoid speculation. This may sound too simple. But the truth is, this is exactly how smart investing is. It doesn't have to be exotic or complicated.

02:43
 
We've known LIC as the largest domestic institutional investor by far all these years. However, it has recently been the subject of yet another distinction. As per a leading daily, the financial behemoth has emerged as the biggest provider of secured personal loans in the country. This is not all. LIC has actually given more personal loans on security than all the banks put together! Indeed, in June 2014, it went past the banking industry with secured personal loan outstanding of close to Rs 600 bn. All the banks put together in contrast have disbursements standing at Rs 580 bn.

This is a classic case of how companies that built enormous reach over the years can continue to push new products to customers. In a way, LIC is no less than the HULs or the ITCs of the world which routinely take advantage of their unmatched distribution networks to keep building size and scale. And this is the prime reason why investors love such companies for they know such businesses are almost impossible to dislodge.

03:17  Chart of the day
 
The next few years present a huge opportunity for Indian pharma companies in terms of drugs going off patent in the US market. Patents of drugs worth around US$ 92 bn in sales are expected to expire in the period 2014-16. This is much higher than US$ 65 bn worth of drugs that had gone off patent in 2010-12. Many of these opportunities, especially in 2014, are blockbuster drugs. These are essentially drugs whose annual sales exceed US$ 1 bn. However, while the opportunities are huge there are also challenges.

The US generics market is highly competitive. Especially for blockbuster drugs, because so many players vie for a share of the drug's pie, prices erode considerably. And so the revenue and profit potential also dramatically reduces. That is why quite a few of the big players such as Sun Pharma, Dr.Reddy's and Lupin among others are focusing on building a niche portfolio. This means that they are focusing on drugs which are not easy to manufacture and hence the competition and thereby price erosion is considerably lesser. The other bigger challenge for Indian Pharma is the US FDA. Indeed, the US regulator has become very stringent in terms of maintaining quality at plants. And most domestic pharma companies have been pulled up for not complying with these standards. That is why even if the opportunity exists, it will not amount to much if the standards of the US FDA are not met.

US opportunity beckons for Indian Pharma


04:13
 
Jewelry shops in Mumbai's Zaveri Bazaar are witnessing unprecedented footfalls these days. Unexpectedly, it is not to buy the yellow metal but to sell it. After all, a fall from Rs 32,000 per gram to about Rs 27,000 per gram within a span of one year has made investors nervous. What has further aggravated India's cold treatment towards gold, as an investment, is rising prices of equities. In equities, investors see a better option for investment. And hence are indulging in a gold for equity swap.

So, is this a right strategy to follow? Considering equities will be most favored amidst PM Modi's promise of better days ahead, it seems so.

However, that is not the case. Agreed, that the demand for gold rises during uncertainty. And with the macro situation about to improve, equities are in for a dream run. Hence, the switch appears logical. But this is where the theory of asset allocation comes to play. Moving into an asset class that is expected to perform well is a recipe for disaster. It can exposes one to undue risks. Also, asset allocation is not only based on which asset class is expected to out-perform but also an individual's risk return considerations.

We, as a house, have re-iterated numerously our stance on having gold in your investment portfolio. An allocation of 5-10% is a must to prepare against unforeseen contingencies we reckon.

04:45
 
Indian stock markets pared early gains but were marginally positive in the post noon trading session. At the time of writing, the BSE-Sensex was trading up by 3 points (0.01%). Sectoral indices were trading mixed with consumer durable and FMCG stocks leading among the gainers. Most of the Asian markets were trading strong led by China and Korea. European markets have opened the day on a mixed note.

04:56  Today's investing mantra
"The function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future. If the margin is a large one, then it is enough to assume that future earnings will not fall far below those of the past." - Benjamin Graham
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What has led investors to shun gold...and will it recover?
Gold prices are down 11% since a year ago. What's driving them lower?
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Equitymaster requests your view! Post a comment on "Are We On The Threshold Of A Mega Returns Opportunity?". Click here!

1 Responses to "Are We On The Threshold Of A Mega Returns Opportunity?"

Krishna Kumar

Sep 24, 2014

Idea is great, tough to execute. Statistics helps in creating great marketing tools. But do you guys ever read your follow up reports? A paragraph is all you write in "Value pro" updates. The updates of stock select, mid-cap etc are done by entry level graduates or analyst who believes in quantity over quality. Hope EM won't disappoint with another great start and pathetic follow ups.

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