|»5 Minute Wrap Up by Equitymaster|
On This Day - 20 AUGUST 2014
What will it be like for investors to revisit 1991?
In this issue:
Now over this time, companies like L&T, Nestle, Voltas and ACC that were part of the Sensex way back in 1991 went on to create unimaginable wealth. The L&T share price and Nestle share price, for instance, gained 65 times and 47 times respectively since 1991. Now, as we know, it is not as if the Indian stock markets were on a secular uptrend during the past two decades. In fact thanks to several domestic and external factors, stocks markets have seen several bull as well as bear phases during this period. However, the fact that helped each of these stocks come out unscathed from each market cycle, was that they were the key beneficiaries of what we call 'Mega trends'.
The Mega Trends have diverse meanings and impact for different industries and companies. As the economic dynamics globally are changing rapidly, new competencies are coming into play at half the lifecycle speed of the past decade. The Mega Trends are therefore a vital cog in a company's future strategy, development and innovation process. Especially since it influences product and technology planning. Mega Trends can be used as a base for strategic decision-making in organizational functions such as marketing, R&D budget spending, product planning and development, human resource management, technology planning and innovation scouting.
According to us, several such Mega Trends are set to play out over the next decade or so. Ones that could create so much wealth that by 2025, investors will find the stock prices of today as puny as we find the ones in 1991.
Those who believe that investing based on such Mega Trends can hardly yield results should not forget that India's outsourcing opportunity was nothing but a Mega Trend way back in 1991. One that led to the creation of IT behemoths like Infosys, Wipro and TCS, as we know them today.
So the key is to accurately identify such Mega Trends that could play out over the next decade, irrespective of geo-political, economic and social headwinds. Having done that, one needs to zero in on companies that have rock solid managements and balance sheets to capitalize on the trend, come what may.
And for investors who never had the chance to invest in stocks in 1991, this could be a once-in a lifetime opportunity to revisit 1991. A chance to witness what it is like to invest in companies that will be the biggest game changers over the next decade and more.
The reasons why participation in equities has remained low is largely a matter of perception. Many retail investors have burnt their fingers during the 2008-2009 meltdown and many consider investing in equities akin to gambling. But nothing could be further from the truth. Equity investing is all about following a disciplined approach. It means buying when prices are low and selling when they are high. The period post the 2008 crisis was the perfect time for retail investors to get into the market. But many had done so during the peak in early 2008 before the bubble burst and suffered losses. Now stock markets have once again begun to rise and this has seen more and more investors getting invested. But the point is that retail investors will need to remain selective about the kind of stocks they want to invest in and not rely solely on tips provided by brokers and friends.
It is little wonder then that property developers are preparing to dole out discounts of up to 15% during the festival season later during the year. Will property sales improve this year given these discounts and the improving economic sentiment? Well, industry participants expect the festival season (Oct to Dec) to fetch sales of at least 60,000 units across the seven major cities. It is worth noting that this would be double of what was achieved during the same period in 2012 and 2013.
While we do not doubt that there is positive sentiment owing to the business-friendly government coming to power at the Centre, we are not too convinced about the overly optimistic property sales projections. If there was indeed so much demand for property, why would developers be compelled to offer discounts?
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