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What Demonetisation Means for the Long-Term Investor?
Fri, 2 Dec Pre-Open

Mr Market seem to be nervous these days. It's the demonetisation drive that has made it so. Benchmark indices have corrected sharply over the past 22 days - the time from when we're into the government's demonetisation policy. The kneejerk is also seen in broader markets. In short, volatility and short-term fear have ruled.

As the demonetisation saga rolls on, its effect on share markets will be seen in the days to come. However, apart from this, there are several factors that may cause a bumpy ride for the Indian markets in the near term. This we say is because there are many domestic financial developments lined up ahead. The list includes gross domestic product (GDP) for the third quarter, manufacturing PMI, and September quarter earnings from blue-chip companies. Apart from this, announcements in the global financial markets regarding the US Fed rate hike, US GDP numbers, and OPEC meet will also influence Indian share markets.

However, we believe that it would be unwise to hit the panic button in case of increased volatility fuelled by the above development. Rather, the question should be: What can I do to sail safely through this volatility and uncertainty?

Being Buffett heads and taking his advice as fish to water, we think the best way to counter this volatility is to follow a long term value investing approach.

One shall remember that value investing is contrarian to short term-speculation. It evaluates stocks on the basis of their long term performance. It is a more businesslike approach. And we believe retail investors would do themselves a world of good if they pay more attention to this aspect of investing.

As far as our outlook over the long term is concerned, we believe that the benchmark indices can go up as much as 70% in the next two-to-three years. And Tanushree Banerjee, Equitymaster co-head of research, recently reaffirmed this claim and stated that the 70% earnings upside extends well beyond Sensex.

Here's a snippet of what she had written-

  • Plenty of blue-chip stocks outside of the Sensex can fetch earnings growth in excess of 15% per year over the next three years. But if earnings were to grow at 15%, and if profit margins were to rise to their ten-year average of 11% from the current 9.6%, an EPS of Rs 100 can become Rs 174 by FY19. Which means an upside of 74%.

Our StockSelect team is already on the lookout for opportunities in such blue-chips. Subscribers can expect recommendations from the StockSelect team, as and when these blue chip stocks offer opportunity to invest.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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Mar 22, 2018 11:41 AM