Sunday, January 20, 2008

India -Long term Growth story Vs Stock Market

Over the last weeks the market has corrected close to 1800 points(about 9% decline).

The long term India growth story is intact. Our finance minister in his recent statement announced that India will grow @ the rate of 8.8% pa.

What has the growth got to do with the Stock market?

-There are very few Economies like China(projected growth rate of over 10%) & India who can boast of growing at the rate of over 8% consistently in the next couple of years.

-US projected growth rate for 2009 is about 1%

-Japan @1.5%

-The Euro Zone expects to grow at about 2%....

We need to also bear in mind that the Agriculture sector is growing at a rate of about 3% annually and Agriculture contributes about 25% of our GDP and 70% of our population still depends on Agriculture. The remaining 30% of our population contributes to about 70% of our GDP. The Industrial sector is growing at the rate of over 12% pa.

The Service Sector contributes over 55% of our GDP akin to China's Manufacturing sector contributing 70% of their GDP.

Our GDP stands over 1.1 Trillion $ and the per Capita GDP is about Rs.33,000/-.

If you look at save investment havens , I would say India will rank in the top 5 destinations . US ranks the first.

Why money will continue to pour into the India Markets

-Our Market is much organized and transparent compared to China .

-India Growth story is intact.

-Valuation levels and price multiples are in the region of 18. (Slightly higher than the Bric countries baring China).

-Corporates are growing at an average pace of over 25% pa

-The corporate growth should certainly sustain .

-The Real estate and infrastructure focus in the coming years will grow in a geometric progression.

-The Middle class population is growing at the rate of 30% pa

-About 600 million of our population is in the age group of 20-30 years and the young population will certainly spiral the growth.

-The domestic demand is extremely high. Our exports is hardly 10% of our GDP. China depends heavily on Exports. There are economies like Taiwan,Korea who thrive mainly on exports.

Where is market heading:

Stock market is going to be choppy in the coming days. The statistics shows that there has been a constant winding of the future positions in the derivative market. The Open market interest is slowly reducing. The Put call ratio is in the region of 1.05. The implied volatility of Put option continues to be higher than the call option. The IV of Nifty index is also over 30%.

Market Wisdom:

-Invest value stocks.
-Invest in Bse/NSE sensex stocks. Blue chip fundamentals
-Invest in stocks which are constantly growing at a rate of over 25%. CAGR>25% over the last 3-5 years and has an excellent prospect to continue growing at the same pace.
-Invest in sectors like Power,Infrastructure,Banking and finance,Commodity& Energy where the demand is ever raising.
-Look at investing for a longer time horizon(18-24 months).
-Buy in small quantities and Purchase at every fall.
-Invest through Mutual funds if you do not have the time and knowledge to manage funds.
-Invest in Company's with excellent track record and available at single digit PE.
-Never try to time the market. Sell when you have got the desired return.
-You should conquer greed and greed should not conquer you.
-Invest in diversified portfolio.
-Set a maximum limit to invest in any individual stock/Sector.
-Never have attachment to any of the stocks you hold.
-Book Profits from time to time rather than have Paper profits.

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