Thursday 13 December 2012

Smile because your assets are set to appreciate going forward.


Be it Equities, Debt, Bond or Gold, these asset class are set to see new height for their own different intrinsic reasons. This is rare phenomenon– Pl. doesn’t miss it. – The only criterion to select Asset Class is the period for which you want to invest, or remain invested.

For God sake at-least don’t liquidate your holdings, as it will over all improve it valuations in months to come. You can however reposition your holdings in to better performing Funds/Asset class of your liking.

The long term investor should participate in equities (preferably through Mutual Funds) with every fall in index (Though there may not be many) or even at current levels further and or should start thinking to spice up SIP (Systematic Investment Plan).

How-ever, those who are already exposed to equities or don’t have time horizon in their favor, could at-least, capitalize the current opportunity by planing all/possible Tax Savings under sec 80 C into MF Tax Savings schemes instead of other options available, also defined at www.i2isolutions.org/tax_savings.htm

Those who love making Fixed Deposit with Bank, but are in highest Tax slab, it is high time to diversify a bit by having exposure into debt Funds (which has nothing to do with stock market as there is no exposure to equity market in the portfolio) it will at least deliver minimum 30% (on the lowest side) more Tax free returns than good old Bank FD’s.

Gold, after consolidation at current level is looking set to surge in north direction – It’s advisable to diversify your portfolio by having some exposure into Gold Fund which when required can be instantly liquidated delivering the appreciation of Gold in holding period.

Happy Investing

Thursday 6 December 2012

Can we say Stock Market is on Song

Market movement’s check-mates one and all. When we think market will go down, it goes up and vice-versa. If only we stick to basics i.e. Objective based Investment – we will never go wrong. There are ample of investment avenues defined on risk reward scale which will take care of your investment depending upon investment horizon (which should be predefined by investor).  
Stock indices since December 2011 till date have moved from one trading zone to another. And as we maintain the under current is bullish and we would be seeing market surging from current trading zone of NIFTY – 5600 – 5900 to moving into new zone of 5900 – 6400 within 2013 quite comfortably.
Political dimensions are favorable with FDI going through and virtually opening the path for other major policy initiatives. Cautious trading is suggested with long term objective. SIP’s as well as Participation with every fall will be icing on the cake
For investor seeking risk free reward (Zero % equity Participation), nothing will stop them to achieve same with Tax –Free returns around 8.50% for many years to come.
We are sorry; Banks returns will be falling going forward. It’s high time to move into Debt class with same safety &security but better returns pretax as well as post-tax.

Monday 29 October 2012

Busy Season Credit Policy


Busy Season Credit Policy is out and RBI keeps key policy rates unchanged. Cuts, CRR (Cash Reserve Ratio) by 25 basis points to 4.25%.
RBI actions are on expected lines considering rise in inflationary pressure due to increase in diesel prices.
Market, had already discounted this possibility as a result was trading in narrow range of 18600 to 18800 levels. However, retail investors reactions are more eminent with policy announcements which as a result has plunged Sensex around 1.50%
Going forward, market may also en-cash this opportunity for corrections, which may happen in intraday today itself. Having said that BSE has strong support at 18440 & NSE at 5600 levels.  FII (Foreign Institutional Investors) are overweight on NSE-50 Stocks –so as Large Caps are flavor of the moment.
We are strongly recommending to en-cash current opportunities by participating in same, and there-after if opportunity multiplies.
Fresh participation in Debt market is also benefited with the postponement of interest cut, leading to comfortable 9% annualized TAX FREE – RISK FREE returns. 

Friday 26 October 2012

Season Greetings

Right time to enter market:
Strong message has been sent from Govt. last month. Same is time and again getting clearer and louder. Markets have moved to new trading zone. However market swing to tune of 3%-5% downward is never ruled out due to unprecedented event or knee jerk reactions to negative news. Undertone is bullish and Long term investor should buy with each fall.  
Low trades were seen in last couple of weeks, due to inaction from BULLs so as BEARs who are weighing each other next move visa- Vis market sentiments. In market parlance, its termed as consolidation before new trend sets in. The upcoming RBI Busy season credit Policy is expected to initiate rate cut directly or at-least indirectly to fuel growth.
However, for those who don’t want to take any risk, there is always risk free avenue (Debt Funds) since opening of economy in 1991-92 -A solid alternative to Bank Deposit yielding Tax Free returns of 8% plus with 100% transparency and liquidity option.

Tuesday 18 September 2012

The Government’s FIRST STEP IN RIGHT DIRECTION enough cause for optimism

The Government seems to be pushed to the walls as they have restarted some economic reforms once more, come what may be. We are convinced this is the dawn of a new age of reforms in India, potentially as momentous as the ones in 1991. However still many amongst us reacts decidedly ho-hum, and who think that the government has done little and quite late and will actually be able to operationalise little of what it has announced.
There’s some truth in both views and from here on. The government measures announced so far will only take care of 25 to 35 per cent of the diesel losses. The other announcements, if and when followed up by actual changes in laws and regulations, might will entice some foreigners to invest.
Everything else, like the softer attitude on retrospective taxation and GAAR are some time from fruition. And the less said about myriad issues from infrastructure to inflation the better. The investment markets are operating on hope or softer interest regime & retrospective higher bottom-line for India inc., along with the news from the US and Europe that their currency would be depreciating going forward for long time to come.
All of which still means that the outlook is still much better than it appeared to be a week or two back. Investors are eternal optimists, and a promise of some real reforms, some chance of actual implementation, plus some hope of liquidity—that adds up to cause for a great deal of optimists.

Friday 14 September 2012

Awakening of Stock Exchange on back of goodies:


·         Govt. Bold Policy Measures
·         Ex-gratia of Stimulus announce by Federal
·         Expected low interest regime going forward
·         Bear Panicky – Short covering
·         Setting of Bullish under-tone

All these doesn’t means market will not look backward – reasons
1.       Once bear Short Covering is over – collectively they will try to pull back again & with them so called Bull would be accompanying resulting – CORRECTION – to the extent 17500 BSE / 5300 NIFTY is not ruled out going forward before real bullish undertone sets in say by couple of months time frame if other parameter remains constant.
2.       Euro zone crisis handling not on expected lines or slowdown of US recovery – i.e. if sustain +ve wibes are not pouring in, Indian Market can’t march only on its own credential in isolation.
3.       Govt. rolling back policy measures on account of Ally / Opposition pressure.

Our Submissions:
·         Initiate SIP as much as possible as it has proven track record in all adverse scenario with Long Term objective.
·         Wait for correction we have not missed the Bus. Having said that buy with each fall.
·         Short Term Income Fund has and should continue delivering 8.50% Tax Free returns whether interest rate cut is immediate or if postponed to adjust inflationary pressure by increase in diesel prices.

Friday 7 September 2012

Why hate Indian Economy - (when its delivering 8.50% Tax Free returns to investors year after year after year...)

SERIES - 1

Corporate Margins at 8-Year Low Signal Earnings Bottom:

Indian equities have attracted the highest foreign flows in the region as global investor believes that the worst (SENSEX) may be over for the nation’s biggest companies after profitability slumped to an eight-year low.

Offshore funds plowed a net $12.3 billion into Indian shares till date, the most among 10 Asian markets outside China tracked by Bloomberg. The average profit margin before interest, taxes, depreciation and amortization of the 30 companies in the BSE India Sensitive Index, or Sensex, narrowed to 19.5 percent in the June quarter, the lowest since December 2003, data compiled by Bloomberg show.

Earnings forecasts this year are being cut at a faster pace in Brazil, China and Korea, while profit for companies in the MSCI India Index has stayed stable, Deutsche Bank AG said in an Aug. 24 report. Government data last week showed Asia’s third- largest economy unexpectedly rebounded from the slowest pace of expansion in three years after the Reserve Bank of India cut borrowing costs to support growth.

With China’s growth slowing, India looks the best among BRIC countries year to date. India’s economy is less dependent on exports to Europe than China and Russia

Slowing down:

The last time profit margins for Sensex companies were this low, in 2003, the benchmark index soared 73 percent as economic expansion exceeding 8 percent lured foreign inflows of $6.7 billion into equities. This year, the gauge has climbed 12 percent, compared with the 0.2 percent gain in Brazil’s Bovespa (IBOV) Index. The Shanghai Composite Index (SHCOMP) has fallen 7.1 percent after China’s economy grew at the slowest pace in three years last quarter.

Overseas funds were buyers of local stocks for 23 straight days through Aug. 30, the longest stretch of net buying since a record 41-day streak through Oct. 27, 2010, according to data compiled by Bloomberg.

Funds have flowed into India even as Prime Minister struggles to revive his reform plan amid a logjam over attempts to open up the economy, corruption scandals and elevated inflation. The $1.8 trillion economy expanded 6.5 percent in the year ended March, the slowest pace since 2003, government data show.

India’s main opposition party has stalled parliament for 11 days, demanding Singh’s resignation after the chief auditor Aug. 17 said the government may have lost $33 billion awarding coal blocks without holding auctions. Singh was relying on the parliamentary session to pass legislation to allow foreign investments into retailing, aviation, pensions and insurance.

Terrible Macro’:

Foreign investors are decoupling macro from the micro. The macro has been terrible in terms of the GDP growth, but in the micro you can still find good quality, long-term stories. We are not breaking the big news but we think India will do well relative to the other emerging markets.


Bottoming Out:

Earnings forecasts for the MSCI India Index have been cut by 2 percent this year, compared with a 15 percent reduction for MSCI Brazil and 5 percent for MSCI China indexes, according to Deutsche Bank. Sensex earnings grew 14.6 percent in the June quarter, exceeding Bank of America Corp.’s estimate of a 13.7 percent gain.

Falling margins have driven downgrades in the past 18 months, and we reiterate margins may be close to bottoming out. Earnings will be slow and there will be downgrades but lower than what we have seen in the past five quarters.

The Sensex trades at 13.7 times estimated earnings. While that’s 30 percent more than the MSCI Emerging Markets Index’s valuation of 10.7 times, it’s still below the 15.8 multiple the gauge traded at in February, data compiled by Bloomberg show.

India has always traded at a much higher multiple versus China or even some of the Asian or other BRIC markets. Globally sentiments are not as negative about India as we have developed being Indian.

Cooling of Inflation:

Government data on Aug. 31 showed gross domestic product grew a faster-than-expected 5.5 percent in the June quarter as the Reserve Bank of India cut interest rates in April after raising them a record 13 times from March 2010 to October last year. Wholesale-price inflation eased for a second month in July to a 32-month low, spurring forecasts that the central bank may pare funding costs when it reviews policy on Sept. 17. SBI has already announced cut in borrowing rate with maximum of 8.50%.

A combination of slowing revenue growth, falling EBITDA margins and rising interest costs has caused earnings growth to slow. Macro indicators are showing positive change for these drivers and hence, incrementally, a better earnings picture.

Monday 13 August 2012

FII's loving India as never before

Currently, little about India looks promising. From rating agencies to heads of state, everybody’s commented on the policy paralysis and the anemic growth. Corporate India’s growth in the quarter ended June was the slowest in years and profitability has never been under more stress. Despite this, foreign institutional investors (FIIs) have invested $11.26 billion in Indian equities since January. Even as they sell in other Asian markets, large global funds are continuing to invest in Indian equities.
The theory doing the rounds is disguised as FII inflow; this is actually Indian money being routed back into the country through Mauritius. However, data suggests a new breed of foreign investors is bullish on India. Manishi Ray Chaudhuri of BNP Paribas says more than 50 per cent of the flows have come from Asia ex-Japan funds and global emerging market funds. “On a year-to-date basis, exchange-traded funds have contributed little (three per cent), while India-dedicated FII funds have been sellers. Almost half the flows seem to have come from ‘other’, that is, unexplained sources comprising sovereign wealth funds, sector funds, hedge funds, etc. This could lend credence to the oft-repeated conspiracy theory that a lot of FII flow into India is, in reality, Indian money disguised as FII money.”
Even if this is true for half the funds, the remaining half is from global funds that are overweight on India by 0.5-1 per cent. Historically, when FIIs sold equities in other Asian markets, they sold in India, too. However, data suggests during April and May, when FIIs were selling across Asia, net selling in India was not significant. Of the $8.5 billion FIIs invested in India till July, $2.62 billion has come from Asia ex-Japan funds, while $1.7 billion was from global emerging market funds.
So, why are FIIs investing in India, despite all the talk of slowing growth and faltering profits? Analysts say despite all the inertia, corporate profitability has held on. Raychaudhuri of BNP Paribas says while earnings forecast for the rest of the region declined over the past few quarters, the worst of the pressure on earnings seemed to be behind India. And, unlike previous phases, when FII buying was strong, this time, they are focused on the top 15-20 stocks that have better revenue and earnings visibility. So, even if there’s selling, the pressure would be on specific stocks, not the broader market.

Friday 27 July 2012

Reforms – Why it is so very Important to moot for it.


For India to try to get back on the growth path the following may need to happen
1) Inflation moderates
2) Interest rates soften
3) Growth picks up
For this to happen, the reform process needs to be re-kindled. People are talking about renewing reforms but why are reforms vital?

Let's say there is a small factory that is manufacturing goods and services.
The population of the town buys everything from this factory. As the population grows, the demand for goods also grows. Naturally, the factory raised prices because of the excess demand. This is how inflation steps in.
So how does one fight inflation and bring prices down?
One way may be to reduce the amount of money people have so that they buy less.
To make this happen the Central Bank will increase interest rates.
This way, money is less and prices are controlled.
But people may not be satisfied because they cannot buy much.
But if money is supplied cheaply, prices could go up and inflation could be back.
So what does the government do?
The government may need to make it easy for people to set up more factories and increase supply.
To set up more factories, entrepreneurs would need
1)Land
2)Good quality people
3)Reasonably cheap capital
4)Good infrastructure
In order to make the above available the government has to initiate reforms as explained:-
•Land: To get land, the government has to make policies so that both buyer and seller of land are happy.
•Labour: To get good people, the government has to make policies that will encourage entrepreneurs to set up educational and vocational colleges. This would also include FDI in the Education sector. Since we need to be efficient and competitive with the rest of the world, our labour needs to be productive. For this to happen, we need Labour Reforms.
•Capital: To get reasonably cheap capital the government can do one of the following:-
1. Frame policies to encourage people to invest so that capital is formed. However, people will invest if they have sufficient funds and if they are optimistic about the future. To have adequate funds, money should be available cheaply which means interest rates should be low. But if interest rates are low without commensurate economic production, inflation is likely to step in. Nevertheless reducing interest rates can spur investments.
2. Frame policies that attract foreigners to invest in India. When foreign capital comes in, the value of the rupee goes up and inflation is kept at bay. With inflation at bay, the government can take measures to reduce interest rates. However, the profits arising out of foreign investments have to be shared with them. Either people share and move forward or stay standstill. Hence the need of reforms in the retail sector such as FDI in retail.

•Infrastructure
To be competitive, the manufacturer may need to be efficient; gets supplies in time and can deliver finished goods in time and needs to hold minimum inventory. This is possible on the back of good infrastructure like roads and railways, storehouses, refrigerated vans etc. For infrastructure to come up, we need land reforms so that people are clear what they will get when they hand over their land for infrastructure projects.

So when we have reforms in place, more factories will come up. When more factories come up, the country will produce more goods. When more goods are produced, more money can be printed without losing value.

When more money is printed, the interest rates can be reduced. When interest rates are reduced more entrepreneurs jump into the fray creating more production and more jobs. With more jobs, people have more money and are in a good position to consume the additional production. This gives rise to more investment and thereby a virtuous cycle kicks in.

With adequate supply, inflation is kept at bay even as people have cheap money for investment and for consumption. With interest rates low, inflation low, value of rupee stable, high production, the GDP of the country improves. With higher GDP, more jobs and prosperity in place, the tax collection increases. With higher taxes from higher GDP the situation turns win – win.

People don't mind paying more taxes because they are earning more. Higher taxes help the government keep its fiscal deficit in check. In the meanwhile, the government is in a good position to invest in bigger infrastructure projects and improve the productivity of the nation.

The moot point of the above explanation is that if the country wants to get a glimpse of utopia, it must reform its policies to infuse efficiency and productivity in the system.

Thursday 21 June 2012


Understanding Depreciation of Rupee
Every country exports and imports for its survival. As long as this equation of imports versus exports is balanced, it is good for the nation but when imports become more than exports, the value of the currency starts declining. It means that the country needs more from other countries while it has little to offer to them. Indian goods are bought with Indian rupees. Hence if the demand for Indian goods falls, consequently the demand for Indian rupee also falls.

India has dual challenges. While the demand for Indian goods seems to be waning, due to export slippage, India continues to import crude (petrol/diesel) and other imports vital for the economy at high international commodity prices and an inelastic demand for gold and silver. Therefore the demand for the dollars continues to be high. This situation puts further pressure on the Indian rupee widening the current account deficit.

What is the immediate fallout of the rupee depreciation:-
1)
The price of petrol has gone up substantially. Also the price of diesel and LPG could spike. When the price of fuel goes up, the cost of transportation goes up and when the cost of transportation goes up, the cost of goods goes up and thus inflation goes up. As we have a current account deficit, rupee depreciation has an inflationary impact.
2)
Companies which are dependent on raw material imports or have imported components could see profitability and market capitalization take a beating. This is because its profitability may get hit by higher input costs.
3)
Foreign travel is set to get costlier. One would have to keep more rupees on hand to purchase dollars to fund foreign travel.
4)
Studying in foreign universities may get costly. This is the same in the case of foreign travel; more rupees would be needed to fund foreign education.
5)
Several electronic goods which depend on imports and royalty payouts may get more expensive.
6)
NRIs and exporters would be happy and can be expected to remit more dollars as they would get a higher price. Companies like IT software, Pharma and BPO would gain from the dollars that they earn by providing goods and service abroad.
As seen above, devaluation of the rupee is inflationary in nature, as we are net importers. There is a need by the Government to devise policies and tools to stem the fall of the rupee. In this context it is important to examine the tools (short term and long term) that may be available:-
1)
Government can buy Indian Rupees from the foreign exchange market by selling its dollars. This would however reduce the foreign exchange reserves which are needed to fund our imports. Hence this is not a sustainable solution.
2)
Government can mandate banks to increase their Cash Reserve Ratio and Statutory Liquidity Ratio which means banks would have to deposit more rupees with the Reserve Bank. Alternately the central banks can issue bonds for the public. By these measures the central bank would reduce the liquidity in the system and try and make the rupee dearer. However, these measures have the effect of increasing interest rates which hurts profitability of companies and thus adversely affecting economic growth. When economic growth gets limited, the production of goods and services too gets unfavorably impacted giving rise to inflation.
3)
The Government can ask companies who have dollar accounts to bring in the dollars back into the country and convert them into rupee accounts. This would increase demand for the rupee which in turn would stem the slide of the rupee.
4)
The Government can make it easier for companies to borrow in dollars from abroad. Companies would get more rupees for every dollar borrowed. This would help them finance their working capital requirements. If the rupee regains its strength over a period of time, the borrower could have to return lesser rupees. However, if the rupee further slides then business would be at a disadvantage. Hence businesses would take this route based on their outlook of the rupee.
5)
The Government can attract NRI dollar deposits by offering attractive interest rates
6)
Government can reschedule / delay in paying off its dollar debts with the hope that the rupee would regain strength subsequently.Thus at a later day lesser rupees would have to be coughed up to repay the debts.
7)
The Government can increase the limit of FII investment in debt papers. This would certainly bring hot money seeking quick gains. Some flow of hot money would be useful.
8)
Government can liberalize foreign investments in insurance, aviation and retail, infrastructure sector, agro-based businesses as well as may reduce subsidy from various sectors. This would be one of the better moves as it would bring in serious long term money from abroad.
9)
The Government could frame policies to restrict the import of gold by raising custom duty and thereby making investment in gold less attractive.
10)
The Government could action some long standing economic reforms to induce both domestic and international investments. This would help in increasing production and productivity of the economy. Higher production along with productivity would help in increasing supply of goods and services and thereby reduce inflation. This would be a better and sustainable method for tackling both the rupee crisis as well as inflation. Economic reforms would bring in “Foreign Direct Investment”. Economic growth can improve investor confidence and this ultimately bringing back a higher trajectory of GDP growth.
The depreciation of the rupee has an immediate impact on India in many ways, as discussed above. It is important to understand the macro-economic situation and the ways and means by which the Government can battle the challenges and try to steady the economy.


Friday 25 May 2012

ITS TOMORROW THAT’S MATTER


Good returns are seldom made on investments made in good times.
Rather, good returns are typically made on investments made in adverse times.
There is a fair value for listed companies, just like for companies that are not listed.
In good times when the stock markets are doing well, companies typically trade above
fair values and in adverse times when markets are not doing well they tend to trade
below fair values. In the long run, markets do not sustain at either overvalued or
undervalued levels, rather move close to fair values. This is why investments made in
adverse times typically yield above average returns and vice versa.

Key challenges facing the Indian economy
It is true that the economy is currently passing through a difficult phase. However, this is
neither the first nor will it be the last time the economy is facing challenges. Besides, the
problems facing the economy are such that should get resolved over time and through
some specific steps.
The following is a summary of the key concerns that the economy / stock markets are
faced with:
High Fiscal deficit: This has been the key concern in India over the last few years.
Fortunately at one level and unfortunately at another, this is an issue that is of our own
making and therefore the solution is in our reach too. Though some steps have been
taken in the last budget, the real solution lies in eliminating / sharply reducing the diesel
subsidies. Despite several disappointments on this front over last several years, there is
hope that this will be tackled on a priority basis as the dangers of not tackling this are
hidden from none.
High Current account deficit (CAD): The worsening of current account deficit over last
few years from 1.3% of GDP in FY08 to nearly 3.8% in FY12 (market estimates) is almost
entirely on account of increase in gold imports from 0.4% of GDP in FY08 to 2.3% (E) of
GDP in FY12. Looking at the sharp rally in gold prices over last several years, investor
behaviour that is so typical of such situations, significant moderation in USD gold prices
over last year and sharp moderation in recent gold import volumes, it appears that the
highest gold imports are behind us. If this is indeed the case, then as and when gold
imports revert closer to longer-term average of 0.5% of GDP, the CAD should get
addressed progressively in the current and over the next few years. The sharp INR
depreciation should also moderate CAD in FY13 and beyond by making exports more
competitive and imports costlier.
Depreciating INR: This is a result of high CAD and of poor investment sentiment leading
to weak capital flows. Though forecasting currencies is harder than stock markets, it has
been experienced that when there is a consensus in one direction, that is where the
turning point often is. A nearly 25% depreciation in less than one year of the currency
of a large economy like India is not a small movement and it appears to be excessive.
What could also come to the help of the INR is the expected improvement in CAD in
FY13, any policy steps that improve investment sentiment, notably reducing fuel
subsidies and / or any moderation in global crude oil prices.
European Crisis: Though the way forward of European crisis is hard to figure out, most
would agree that the impact of the European crisis on the Indian economy and
therefore on the equity markets over long periods should be much less than on other
countries. This is so because India’s exports / investments in the stressed economies of
Europe are miniscule.

Between April 2010 (when Greek Government debt was downgraded to junk status) and now,
other than the markets of countries that are stressed, Indian markets are one of the
worst performing globally across both developed and emerging markets. This indicates
that the Indian markets are probably impacted more by India specific issues and not by
the European crisis. It is interesting to note that DAX (German stock market index) is
marginally up in this period whereas India is down 10%.
GAAR : This appears to have been commented upon sufficiently to assume that this has
been discounted by the markets.
In the face of so many issues and adverse news flow almost on a daily basis, it is easy to
forget the several strengths of the Indian economy. These are large availability of
natural resources other than oil, favourable demographics, rising incomes, high
household savings rate, low penetration of consumer durables, rising competitiveness
of exports due to sharp depreciation of INR (particularly vs Yuan), slowly but steadily
improving infrastructure, etc. Though these strengths seldom make headlines, they are
intact and should lead to continued economic growth in future as they have in the past.
Global crude prices are correcting rapidly. OPEC and Saudi officials have openly
remarked that they are comfortable with Brent Crude at $100. Negotiations with Iran on
nuclear sanctions are also reportedly progressing. If oil prices stabilize at lower levels,
pressure on fiscal / current account deficits and INR will quickly ease. Lower interest
rates will then be a natural outcome and will support a much-needed revival in Capex.
The current problems facing the economy are not insurmountable. The solution lies in a
few difficult decisions. As difficult changes typically take place in difficult situations
when there are no easier options left, it is hoped that we will not have to wait for long.
With few such steps and over time, it should be possible to put the economy back on
the rails fairly quickly.
Difficult markets or bargain markets?
The stock markets are passing through a difficult phase. The values of the listed
businesses as indicated by the Sensex are down by 20% between 2008 – 2012 (presently
SENSEX level is 16000 compared to 21000 seen in early 2008). This is despite a nearly 60% growth
in the GDP (15% CAGR) and therefore a similar growth in the fair values of businesses over
the same time. Consequently, one year forward P/E multiples have come down sharply
from over 20 times in FY08 to below 13 times presently. These are nearly 20% below the
long term averages. Further, the P/E of the Sensex based on FY14 (E) EPS of 1475(source : BOFA ML) is nearly 11 times, which is close to the lowest multiples that Indian
markets have traded at in the past.

Bargains are available only in challenging environments / in markets characterized by
weak sentiment and seldom when the going is good / sentiment is strong. That’s why,
from an investor’s perspective, a more appropriate way to describe the current
markets would be bargain markets and not difficult markets.
God and Equities
The couplet by Saint Kabir, a much loved and revered saint of 15th century who lived near
Varanasi – which many believe is the oldest city in the world to have survived continuously.
This couplet reads as follows:
Dukh Mein Sumiran Sab Kare, Sukh Mein Kare Na Koye
Jo Sukh Mein Sumiran Kare, Toh Dukh Kahe Ko Hoye
It means the following:
[ In anguish everyone prays to Him, in joy does none
To One who prays in happiness, how sorrow can come ]
Stock markets and God do not have much in common. Probably, that’s why, the above
does apply to stock markets but in reverse.

An adapted version of the above for stock markets would be as follows:
[ In good times everyone invests, in adverse times does none
To the wise one who invests in bad times, wealth should come ]
The moral of this is that remember God in good times and equities in bad times. If this
is done, then chances are one will avoid both - bad times in life and poor returns on
investments.
Its tomorrow that matters
By the end of June or shortly thereafter, Greece will either be in Eurozone or it will not
be. Over the same timeframe, steps if any, that are undertaken by the government to
resolve some of the issues facing the economy will also be known. Irrespective of what
happens, markets should discount these outcomes fairly quickly.
It is true that the economy is currently battling twin deficits, but that is known to the
markets. What will determine markets of tomorrow, are the deficits of tomorrow and
expectations thereof, both of which chances are will be better and not worse than
today.
Times such as present, when the markets are not doing well should actually be looked
upon as a window of opportunity for savers to invest more into equities, so that when
the good times come, there are meaningful investments in equities to reap the
benefits from. The lower the markets are, the bigger is the opportunity and the longer
the markets remain depressed, better is the opportunity for savers. In a lifespan of
investing of say 30-40 years, it is unlikely that the markets will provide many such
windows. In the last 20 years there have been only 3-4 such windows.
Finally, what has taken several pages, Sir John Templeton conveyed more effectively in
one line:
“Bull markets are born on pessimism, grow on skepticism, mature on optimism and
die on euphoria.”
Needless to say, pessimism is all that one sees all around.