- In this issue:
- » India Inc's staff costs surge
- » Nifty touches year to date high: What should investors do?
- » Market round up
- » ...and more!
For more than five years, I have been researching Indian stocks for investors like you.
I have travelled across cities and towns in India to visit companies...to understand their business, to see their plants and factories, to get a deeper insight into the quality of the promoters.
These experiences have been a deeply enriching journey...and highly instructive in the creation of our first in-house book on value investing - Equitymaster's Secrets.
But something even bigger has been on my mind lately.
Some big questions have been nagging at me...questions about the entire world of man and money.
Which way is the world headed? Who really controls the system? What are the larger forces shaping the course of history?
What if the world was on the cusp of some radical changes...changes that could impact not only your stocks and savings, but your very idea of a 'normal' life?
If you think I am simply being an alarmist, then stop reading right away. This is not for you.
These are not imaginary 'what if' scenarios to quench my curiosity. There are very real, tangible signs of dangers lurking in the global financial system...
Too much debt...too much money printing...too much government manipulation...
History tells us that whenever these signs have appeared in the past, they caused massive socio-economic and political crises. And they drastically altered people's fortunes and personal lives.
You may ask...
- If all of this is true, then why do I not see and read about these dangers in the mainstream media?
Because the mainstream media does not want you to know. Because politicians do not want you to know. Because big corporates do not want you to know.
The entire system is disturbingly compromised.
To be frank, I don't know when and how the next big global crisis will strike. But it's clear that we have to start preparing right away.
If you wait until catastrophe strikes, it will be too late. Noah didn't wait until the floods to build the Ark. He was prepared.
I've already started my preparation. I am working with Vivek Kaul, our big-picture editor, and his worldwide network of like-minded thinkers to build a platform for sharing honest and intelligent global insights about the world of man and money.
Trust me, ignorance is not bliss...because your stocks, savings, and survival are at stake.
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2:50 Chart of the Day
I have recently come across a statistic that suggests Indian employees should be happier than a decade ago.
As per an article in Economic Times, in the last decade, the overall salary bill at BSE 500. companies has grown at a compounded annual growth rate (CAGR) of 18%. This compares to 14% CAGR in revenue and operating profit each.
The growth has been uneven. IT, Pharma, auto and oil and gas come across as the most generous where growth in staff costs exceeds revenues and operating profits. However, rise in staff costs lags revenue growth for sectors like FMCG, capital goods and banks.
On the surface, this seems to suggest that Indians may be happy employees, and that India Inc might be a disgruntled lot.
One must note that barring finance, banks and construction sector, operating profit per rupee spent on employee has come down in the last 10 years.
What this implies is that as companies look to make the most of the earnings recovery, trimming staff costs or bringing in more efficiency and productivity could be the key strategies for India Inc.
This could also imply more penetration of automation and robotics... and hence could lead to decline in middle class jobs. As my colleague Tanushree Banerjee wrote in a recent edition of The 5 Minute WrapUp, this is a serious issue as in the absence of job security and eventually jobs, not just savings and investments but consumption patterns and household debt levels could go for a toss.
While we can do little to influence broader trends, we will do our best to see the positive side for investors and make the most of it. Our recent Hidden Treasure recommendation is about one such company that has made the most of improving technology and robotics. Since, the recommendation, the stock is up 21% and we believe there is more upside left.
India Inc's Staff Costs Rise
As robotics and automation become more tangible threats, how do you plan to deal with these challenges and use them instead to your advantage? Let us know your comments or share your views in the Equitymaster Club.
Nifty recently touched its year to date high. Market cap to GDP ratio suggests that a crash is just around the corner. Some of the big brokerages are downgrading their target for global equities, including India. As global uncertainties abound, the nervousness is palpable. So how should investors react to these sentiments?
Do you think it is time to book profits and wait before investing more until there is more clarity on macro front?
Let us keep issues like Brexit, Fed rates, interest rates and monsoon aside, and focus on corporate profitability. My colleague Rahul Shah believes that profit margins are a mean reverting series in finance. And if one decides to use it in the Indian context, there is a great opportunity for investors to capitalize on the phenomenon of reversion in profit margins and earn a few more percentage points than typical 15% that Indian markets offer.
You see, the aggregate data we have pulled for Nifty companies suggests that profit margins were at a ten-year low at the end of FY15. Even if they were to rise to the average of the last ten years, not immediately, but three years out, the upside would be close to 70%.
Put differently, markets will go up 70% over the next three years if profit margins revert to the mean. And we're not even considering the gains from potential interest rate cuts.
While we agree that a lot of stocks that are trading well above the valuations they deserve, we believe there are enough stock picking opportunities if one plans to stay invested for the long term.
Following a negative trend since the opening of the trading day, the Indian indices have continued to remain under pressure in the post-noon trading session. Sectoral indices are trading on a negative note with stocks from the realty and banking sectors bearing the maximum brunt.
The BSE Sensex is trading lower by 266 points (down 1%) and the NSE Nifty is trading lower by 72 points (down 0.9%). The BSE Mid Cap index and the BSE Small Cap index are also trading in the red, both down by 0.7%.
04:50 Today's Investing Mantra
"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks." - Warren Buffett
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