ENAM 1 July 2004 Investment Outlook: Its all in Your Mind
ENAM 2 July 2004 Summary Investing is easy! Avoid the distractions Disaggregate the market Focus on business drivers Follow the Rules Asset Allocation Time Horizon Reasonable Expectations Learn & get wise
ENAM 3 July 2004 Investing is easy if you avoid the distractions! Market/ Sensex Your index is important not the market Sensex flat since 1992 Wealth creation has occurred Your index is important not the market Sensex flat since 1992 Wealth creation has occurred Macroeconomics Interest rates, Currencies, Oil prices, Politics.. do not alter basic competitiveness Media & Intermediaries Have their own compulsions Caveat Emptor! Have their own compulsions Caveat Emptor!
ENAM 4 July 2004 Market shows low correlation to current “fears” Sensex vs Oil price Sensex vs Fiscal deficit Sensex vs Monsoon *% of district having excess/normal rainfall Sensex vs Govt CongressUF NDA Source: BP statistics Source: Statistical outline of India Source: RBI Drought
ENAM 5 July 2004 Index P/E (Forward Earnings) Source Bloomberg
ENAM 6 July 2004 BSE Index Scenarios Current Sensex Earnings aggregate to Rs. 381 (FY04A) IBES consensus earnings estimates 17% growth Current Sensex is at 4,951 Implied PER is 13x (trailing) and 10.5x (forward). The table below sets out the range of Index expectations over next year Risk-Reward in favour of Upside! P/E (x) 2005 EPS growth (%) ,3824,5724, ,1346,4016, ,8878,2308,572
ENAM 7 July 2004 … but the Index hides more than it shows! ITPharmaceuticalsBankingMedia & Auto All Figures indexed 100= price in 1994
ENAM 8 July 2004 Multibaggers of the last 10 years Price as on 14/7/94 Price on 15/7/04 CAGR (%) Satyam Computers Infosys Technologies Wipro Sun Pharmaceuticals Hero Honda Cipla Ranbaxy Zee Telefilms HDFC Dr Reddy's Source: Bloomberg; Adjusted for bonuses and stock splits; NIFTY constituents only
ENAM 9 July 2004 Multibaggers since 9/11 : The REAL BSE-30! CompanyPrice as on Price on CAGR 15/7/04 11/9/01 (%) Oriental Bank Mahindra & Mahindra SAIL33587 Tata Motors ONGC Shipping Corp Of India Ltd Tata Iron & Steel Co Ltd BHEL IPCL Grasim GAIL Reliance Energy ABB Bajaj Auto Tata Chemicals Limited CompanyPrice as on Price on CAGR 15/7/04 11/9/01 (%) National Aluminium Co Ltd HPCL Tata Tea Hero Honda Tata Power Sun Pharma Ranbaxy ICICI Bank SBI Bank Glaxo Indian Hotels BPCL Satyam Computers ACC Gujarat Ambuja Source: Bloomberg; Adjusted for bonuses and stock splits; NIFTY constituents only
ENAM 10 July 2004 Investing is easy if you disaggregate the market Note : Companies may change characteristics over time! Global Outsourcers IT Pharmaceuticals Engineering Global Commodities Oil Metals Domestic Demographics FMCG Auto Banking Emerging Business Telecom Media Retail Sustainability of Advantage Sources of Advantage High Low Many
ENAM 11 July 2004 Focus on Micro, Company specific factors How is Product or Service Quality? Germany/Japan/China v/s India, v/s competition How is Cost & Capital Efficiency? Frugality as a mindset v/s “professionally managed” What are their Value Systems? Sugar in the milk How is their Service to the Customer? The “goodwill” earned
ENAM 12 July 2004 Markets continuously discount all factors Use Bond Yield Reciprocal (100/8)=12.5x as your benchmark Value Time ROE : 25% ROE : 15% 8% Bonds Cash P/E=20x P/E=12x PE multiple represents – Predictability, Sustainability, Scaleability
ENAM 13 July 2004 Investing is easy if you follow the RULES KNOW YOURSELF Are you Schumacher or Buffet? If not – Why not Hire them! Have a 3 – 5 year outlook Time is the friend of a good business Proper asset allocation prevents panic attacks! Have reasonable return expectation: 15% CAGR compounds to lot of money! In equities – 6/10 is a good success rate PAY FOR QUALITY Good men make good companies : Relative goodness is good enough! Good companies, like good men – are FEW! Competitiveness & culture (Micro factors) matter more than Macro trends IS IT IN THE PRICE? Don’t double count factors! Remember to BOOK PROFITS !!
ENAM 14 July 2004 Thank You