Indian Stock market - Worrisome situation?

Overall, the market seems to be hot to me today. As we have seen earlier, most of the investor's returns in the market from 2013-16 is made through multiple expansion (~80-90% of the returns came from multiple expansion & balance came from Net income growth). Considering this point in mind, if we invest when the multiples are at peak then the probability of making multibagger returns reduces significantly going forward. Definitely not a right time for a value investor. Retail Investor, please move wisely as one will be exposed to nth momentum based & sentiments driven opportunities which might lead to trouble in future.

India definitely remains a solid growth story but given the current level of entry valuations, the market definitely looks expensive. Grab the opportunity when the markets take a dip in the holy blood!

Apologies for too many charts and data but I love to prove my point which is backed by data :) 

Sensex Valuations – Almost hitting the roof; not backed by earnings growth 

-Trailing p/e - 30% higher than long term median (17x) & 10% lower than Life time high (26x)

                                                          Value vs Price mismatch?

               Does it look fair to pay 23x trailing p/e multiple (price) for 13% ROE (value)?

                          70% of the BSE 500 stocks are trading >50x trailing p/e

                          Street's consensus of 1 yr forward p/e adjusts premium in valuation

                                 Current multiple factoring ~17-18% EPS growth for the next 2 years

                                      Story is not very different in case of Mid Caps

      Current trailing p/e multiple of 25x is trading at 25% premium to long term average of 20x

Source: Bloomberg, Ambit Capital

Financial Media will not tell you this....

v Our advertisers pay us to provide “news” that enriches their bottom line at the expense of yours.

v Our “experts” are no more accurate in their predictions than the flip of a coin.

v It would be more accurate to call “predictions” by our experts “random guesses.”

v We don’t have a clue where the market is headed and neither does anyone else.

v When you trade, it’s likely an institution is on the other side.  We don’t like your chances.

v It makes no sense to buy individual stocks.

v Even if it did, we have no way to identify stocks likely to outperform in the future.

v Overweighting your portfolio in gold is dumb, no matter how frightened you are.

v If bouncing in and out of the market made sense, professional managers would not have such a terrible track record.

v You’d be better off not watching or reading us.

Source: Daniel Solin's newsletter

Is buying a property still the best investment option?

Investment decisions are one of the most difficult & critical moves of your lifetime. Diversifying your portfolio in different asset class is indeed a big challenge. Based on the data available for the last 15 years across Gold, property, equities and Fixed deposit, it is quite visible that the riskiest asset class 'Equity' has topped the table over 15 year period. My observations are as follows:

• If you want to invest for one year or less, then Fixed deposit is the right asset class for you. Gold, property and equity are long term instruments where realisation of returns takes some time
• From FY13-15, Fixed depoits have given better returns than property. Does it worth revisiting the old school debate between buying vs renting a house or Whether property is an asset or a liability. Hope the 15 years return table enlighten us!
• Equity, considered to be the riskiest and highest rewarding asset class has topped the league table

Categorisation of different types of investment ideas

• Slow Growers – aging companies growing slightly faster than GDP. Usually bought for their dividends and buybacks.
• Stalwarts – large quality companies that are profitable and are growing slightly faster than slow growers.
• Cyclicals – A company whose sales and profits rise and fall in a regular if not completely predictable fashion.
• Fast Growers – Small, aggressive new enterprises growing at 20-25% per year
• Turnarounds – Battered bruised and possibly in or facing bankruptcy. The performance of these stocks is largely uncorrelated with the broad market.
• Asset Plays –A company that’s sitting on something valuable that the market has overlooked, for example real estate

- Peter Lynch - Author of One up on the Wall Street

How Americans spend their money?

• Housing leads the table as expected
• Clothing is declining (maybe because of outsourcing to Asian countries), Healthcare and Education expenses are rising
• Money spent on alcohol is one of the most stable categories
• Money spent on reading has slowly declined over time - Because social media takes most of our free time.
• 1973 must have been a party year for everyone as recreation and entertainment expenses went on to some another level :)

What led to the returns in the Indian stock market during 13-16?

Well, in most cases your returns on a particular stocks is driven by three factors (broadly)

1. Growth in earnings

2. Expansion of multiple

3. Dividend

By looking at this data, the majority of the returns during 2013-16 is driven by Multiple expansion which is primarily a proxy of consumer sentiments. Now the question is whether the bull run in the stock market is sustainable, given the weak growth in the corporate earnings growth?

Poor Man's Guide - Howard Marks

Howard Marks has beautifully made a clear distinction between Bull vs Bear market indicators! 

How India Eats?

This is what the data highl, a classic example of perception vs reality. India is majorly a Non vegetarian country!