Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Time to be selective... - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Nov 3, 2004

    Time to be selective...

    The September quarter saw the Indian bourses clocking gains of over 18%. This was primarily led by ample liquidity prevailing in the market aided by strong FII inflows. FII inflows have been strong mainly due to positive outlook towards the country and confidence in corporate India to deliver performance. However, despite the Indian stock markets having rallied over the last 18 months, we believe that investments into Indian equities continue to remain an attractive proposition.

    As far as corporate India managing investor expectations is concerned, its performance over the last few quarters is proof enough. While there were (and to some extent they continue to remain) some apprehensions with respect to India Inc. sustaining performance for reasons, which included a faster and higher than expected rise in interest rates, global crude oil prices and to some extent, the high base effect, India Inc. has managed, as yet, to overcome all of these.

    Of course, the advantage to Indian corporates here has been that things have not become as difficult as they had anticipated. It must be noted that domestic interest rates have not followed (thanks to ample liquidity) the global trend, barring the recent 25 basis points hike in repo rates in the recent Monetary Policy. Secondly, the high base effect, though distinctly visible in corporate results, is not a reason for concern for sometime as interest rates continue to remain benign and consumer spending continues to remain buoyant. This is vindicated by the fact that while during the June quarter, aggregate sales and net profits of 200 companies (out of BSE-500) increased by 14% YoY and 29% YoY respectively, the same was higher by 17% YoY and 20% YoY during the September quarter!

    Thirdly, while oil prices remain the biggest concern, which has been witnessed in the lacklustre behaviour of Indian stock markets in the month of October 2004, the recent cooling off of oil prices by about 10% from their highs of US$ 55 per barrel have provided some relief to market participants. However, it is too early to assume that we are out of the woods considering the fact that oil prices continue to hover at US$ 50 per barrel mark. It is important to note here that as per estimates, every US$ 5 per barrel rise in oil prices retards India's GDP growth by 0.5% and increases inflation by about 1.4%.

    Now, let us look at one of the most important parameters for equity investments, valuations. The Nifty is currently trading at 13x trailing 12 months earnings. The indices have sure come a long way since their 10x-11x days. So, have valuations peaked? Is this the end of good news?

    Let's not forget that these are valuations based on past performance. The way India Inc. is growing, even if the Nifty stocks log in a cumulative 15% net profit growth, the forward P/E of Nifty becomes about 10x by FY06. It must be noted that the Indian stock markets have usually commanded an average P/E valuation of about 15x-16x, a fact justified by the CAGR earnings growth of approximately 18% of benchmark index companies over the last 8 years. In this sense, Indian markets continue to look attractive from a long-term perspective.

    It must further be noted here that India and China are amongst the fastest growing countries in the world. Moreover, due to their size, the quantum of growth is enormous. India in recent years, has taken some good steps in terms of policy announcements for infrastructure development and also considering the reforms process currently underway in the country, the climate looks conducive for growth. Our per capita consumption of most goods is still much below global average. In this scenario, it makes sense to stay invested in India with a long-term view. But the key to success for the retail investor always lies in being aware and investing selectively in quality companies.



    Equitymaster requests your view! Post a comment on "Time to be selective...". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 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.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    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.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. 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

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)