Last year was unfortunate year especially low
income group people were in deep pain worldwide.
Ø
Pain to the economy and market was also there but
temporary in nature. The economy recovered pretty strong due to: (a) Lower interest
rate (b) higher fiscal deficit (c) Govt. stimulus and (d) pent up demand
(purchase which was on hold for 6 t0 9 month).
Ø
Outlook for Indian economy has improved
significantly over a period of time with third quarter GDP reporting at .4% (positive
territory –a big gain)
Ø
The Fuel consumptions, power demand and GST
collections all have gone up in last one year; hence we can say that Outlook for
our economy is better now than before Covid times.
Ø
Long term structural drivers of favorable demographic
low penetration of consumer goods and vast unmet needs of infra were there and
are there to help economy for longer time.
Ø
What India needs most from abroad is long term capital
and cost is low as never before, a big positive.
Ø
Likely shift in global manufacturing from China
to India - as global players are going at least for china plus one country
because of Covid… (Disruption in supply chain and increase in wages in china).Trade
war between US and china also worked multinationals to think beyond China.
Ø
Big advantage is size of India … if we use that
for encouraging multinational… to set up manufacturing units it will be in
their benefits…India has scaled up in ease of doing business from 140 to 60 this
year to further pitch itself for destination next for multinationals.
Ø
India has reduced dependence on import from
china due to stand off … and atmanirbhar in making and pushing and creating
space for in house manufacturing base.
Ø
PIL scheme Production linked Incentive schemes
has been initiated by Govt. to Manufacturers
Ø
India is leader in export of services …in world
and now shift in its focus to manufacturing has improved the GDP outlook in Toto.
Ø
In response to covid interest rates dropped
sharply and real estate prices also falls significantly
Ø
Developed economies are running into High fiscal
deficit …And emerging economies is net exporter the potential of further
exports to developed economies will be more fruitful…
Ø
Year 2020 has been Year of reform, land & labour
and also remarkable budget as defined in following points:
Ø
Strong focus on Atmanirbhar manufacturing
Ø
Reduction in Defence imports to production
almost 101 items.
Ø
Biggest highlight of the budget was privatizations,
a very bold step. It will significantly defines good implication of finances
for the govt. Govt. will have presences only in four strategic sectors and
shall be diluting stake in all other sectors…It will good for all stakeholder…And
good for Govt. financials
Ø
A very strong message govt. has given in budget
that as it cares for poor it also
respects the wealth creators.
Ø
Another good thing about the budget is Continuity
in taxation… no change in tax rates which is good developments for savers as
well as business stakeholders…
Ø
Good positive budget and the reaction to same have
seen in capital market. As economy recovered market has also recovered
Ø
One key take away… market reversal. Investments made
in difficult times yields better returns
Ø
Equity investments – It is Simple assets class …but
not an easy asset class. When in pain the market are low but investment is not easy
as the headlines are scary…
Concern of many - Disconnect between
economy and market
1-
Market forward looking… economy was in pain last
year but market was looking for next one two or three year. Next year GDP
growth looks like delivering double digit growth.
2-
Equities – fare value of share is the discounted
value of future cash flow
3-
Let assume for one year there is no profit… we
must understand fare value of business still is at 5%
4-
The cost of capital has come down sharply both
external & internal
5-
In these period smaller business can’t reach out
to customer… larger business has gain market share and capital market valuation
goes by larger business
6-
Profit growth surprised all… cost went down
challenge was supply, the profit margin enhanced to great extent.
Where
are we today and going forward
·
At current year, market levels … last 10 / 15 yr
return is 11%...
·
Before we went into covid we were having
moderate returns for same period
·
GDP of India on long term basis …will be on advantageous position due to low
cost of capital
·
Pe multiple very high but at fiscal 2023 the PE
is at 18… which is reasonable keeping low cost of the capital
·
Banks were not making money. Earning recoveries
which was missing for so many years is taking place… Largest bank in country were
not reporting right picture. Profit outlook has increased due low cost of acquisition
and possibly higher spread in lending in year to follow.
·
Credit growth next yr to be in double digit…
faster credit growth … rising interest rate is positive for bank. Along with
lower provisioning cost banks looks strong
·
IT sector – has been accelerated.. And to credit
of Indian IT sector people working from home lower cost… yet delivering
services on time ..Outlook for growth looks decent.
Current year is about
ü
Outlook for Capex sector - infra structure looks
good… lower interest rate PIL schemes
ü
Utilities and FMCG are study business
ü
Commodities prices have gone up sharply only
automobile sector margin has come down from high to normal
ü
Telecom pricing has not improved… customer
moving from 2g to 4g spectrum improving their top line
ü
Outlook for profit growth looks good in this
year that’s why market looks good.
ü
Not much divergence, cap wise, small mid or
large, growth in all segments is seen this year and expected same down the line.
