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Indian Equities vs Global scenario

Indian Equities vs Global scenario






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    Indian Equities vs Global scenario Indian Equities vs Global scenario Presentation Transcript

    • Indian Equities vs Global scenario Indian Merchants Chambers Mumbai 14th Oct 20101
    • ISSUES• Can we explain the heady rally of 2010• Is the current level of the market sustainable• What will happen if the FIIs sell• Impact of second round of quantitative easing (QE 2) 2
    • INDIA SENSEX @ 20000, journey back• India was amongst few economies which recovered sharply in 2009 on back of its large domestic consumption Valuation market and improving fiscal situation MSCI World Sensex Shanghai Dow Jones helped by robust inflows from 3G Telecom auctions• The V-shaped recovery of Indian economy is captured through premium valuations which it enjoys among other economies.• FMCG, Autos, Healthcare are some of the few domestic sectors which benefited from strong pent up demand and revival in the economy.• IT sector was the sole winner among sectors dependent on external demand, on back of its inherent cost advantage benefiting US and European corporates in lowering IT cost. 3
    • India continues its leading position Indices Performance Index 1 Month 3Month 6 Month 1 Year 3Year 5YRS NIFTY 11.6% 16.3% 15% 20% 20% 135%Brazil Bovespa 3.5% 13.4% -2% 15% 11% 120% Russia 3.3% 14.8% -3% 19% -17% 61% CHINA 1.2% 11.9% -16% -4% -52% 130% UK 3.4% 15.5% -3% 10% -15% 1% Japan 5.8% 2.7% -16% -5% -44% -30% Australia 1.7% 7.9% -7% -3% -30% -1% Srilanka 29.2% 59.6% 102% 170% 220% 251% Dow Jones 5.0% 10.8% -1% 13% -23% 2% Source: Bloomberg, data as on Sept 30th, 2010 4
    • position..contd India continues its leading position..contdINDIA, among few nations nearing all time highs Domestic consumption plays were the market flavor Dec-07 Sep-10 % change Dec-07 Sep-10 % change FMCG 2170 3727 72% Shanghai Composite 5175 2628 -49.20% Auto 5761 9554 66% Nikkei 16045 9603 -40.10% Healthcare 4062 6013 48% Russia Benchmark 2343 1488 -36.50% IT 4432 5945 34% CAC 5725 3766 -34.20% Bank 11779 13912 18% Hang Sang 29227 22341 -23.60% Consumer durables 6047 6422 6% DAX 8009 6279 -21.60% PSU 10086 10397 3% Dow Jones 13433 10812 -19.50% Teck 3946 3733 -5% FTSE 6537 5573 -14.70% Taiwan 8638 8192 -5.20% Metals 19055 17009 -11% Kospi 1925 1861 -3.30% BSE 200 2605 2542 -2.40% Oil& Gas 12965 10737 -17% Nifty Sensex 6097 20291 6036 20117 -1.00% -0.90% Capital Goods 20300 15909 -22% Bovespa 64512 68816 6.70% Real Estate 12182 3742 -69% Source: Bloomberg 5
    • Low interest rates in Developed markets - Advantage Emerging Markets Source: Bloomberg 6
    • Advantage India : Increasing Equity cult in emerging markets vs Bond cult in developed world • The ongoing interest in equities in emerging markets is shown by: • a) strong flows into GEM equity funds ($40bn in 2010, a year of virtually flat world Markets • b) rising equity weights in GEM pension fund assets • c) a structure of bond vs. equity yields that does not encourage the retirement of equity • d) heavy IPO activity and secondary issuance. • The ongoing appetite for equities in emerging markets should continue to help to fuel a strong out performance in EM equities. • Ample liquidity, reduced fears of a US ‘double- dip’, favorable seasonals, a rally in the US market and attractive valuations could sustain a Q4 rally in emerging markets. •Source: Citigroup Research Source: 7
    • Valuations - India vs Rest of the World Source Kotak Securities8
    • Foreign flows touching all time high, driving the markets upFII Inflows picking up momentum, cumulatively 2010 (Jan-Sept) flows exceeded earlier peak made in 2007 $Million FII $Million FII Jan -230 CY2000 1462 CY2001 2807 Feb 464 CY2002 751 Mar 4135 CY2003 6658 Apr 2220 CY2004 8382 May -1989 CY2005 10776 June 2099 CY2006 8632 CY2007 17335 July 3777 CY2008 -13336 August 2404 CY2009 17854 Sept 6350 CY2010 (YTD) 19230 Source: SEBI website, data as on Sept 30th, 2010 9
    • Korea Stock Index performs well despite FII Selling for 3 consecutive years – 2005,2006,2007 2010KOSPI INDEX 2002 2003 2004 2005 2006 2007 2008 2009 YTDNET FII $ MN -2032 12457 10188 -3549 -12659 -29102 -36883 24445 7600KOSPI INDEX 628 811 896 1379 1434 1897 1124 1682 1779KOSPI Return % -9.50% 29.20% 10.50% 54.00% 4.00% 32.30% -40.70% 49.70% 5.70% 2010SENSEX INDEX 2002 2003 2004 2005 2006 2007 2008 2009 YTDNET FII $ MN 739 6635 8473 10776 7940 17360 -13336 17639 11717SENSEX INDEX 3377 5839 6603 9398 13787 20287 9647 17464 18405SENSEX Return % 3.50% 72.90% 13.10% 42.30% 46.70% 47.10% -52.40% 81.00% 5.40% 10
    • Global Environment stable? Some signs of tensionI. Global economies especially developed economies like US and Eurozone are giving mixed signals and pointing towards prolonged period of benign growth which will keep the Central Bankers inclined towards maintaining loose monetary policy stanceII. The focus seems to be centered on: I. Stimulating domestic demand II. Supplementing or complementing it with exports III. Central Bank intervention is seen as key to maintaining favorable exchange ratesIII. Thus keeping the liquidity tap open for inflows where growth is at its best i.e. emerging markets.IV. Fear that policy response in 2010 - 11 may be fractured rather than co ordinated as in 2009 11
    • Global growth projections Global growth projections Growth Forecast for 2011 Annual % change in GDP Developed GDP Growth Emerging GDP Growth US 2.4 China 9 Eurozone 1.4 Brazil 4.4 Japan 1.3 Russia 4.4 Germany 1.9 India 8.3 France 1.5 Mexico 3.6 UK 2.1 S. Korea 4.2 Italy 1 Turkey 4.3 Canada 2.5 Indonesia 6.1 Australia 3.4 Saudi Arabia 4.6 World 3.1 Argentina 4.4 S. Africa 3.712
    • For India the domestic picture is equally important • Fiscal under control : Buoyant direct tax collection, lower than expected debt raising program by the Govt for 2HFY11 gives enough room for Govt to fund infrastructure development and social sector development plans. • Divestment target remains on track with Coal India IPO expected to garner more than Rs 150bn in this month. • Momentum in Corporate profitability is expected to remain intact with Q2FY11 Sensex profit growth of more than 20%. • With first leg of Oil sector reforms, market will be keenly waiting for Diesel price de-regulation which forms almost 30-35% of total oil subsidy. This will further ease the Government burden. • Financial sector reforms may also be taken up in right earnest 13
    • Going forward focus on domestic play Market performance data• Domestic consumption/infra plays remains the Broad Market Indices Q2FY2011 YTD (from March 2010) preferred picks going forward, Nifty 13.5% 14.9% Sensex 13.4% 14.5%• FMCG continues to see double digit volume BSE Smallcap 12.9% 20.6% growth and in the last quarter increased product CNX Midcap 12.7% 18.9% prices by 5-10% reflecting strong pricing power. BSE 200 12.6% 15.0% We expect volume growth could remain key to CNX 500 11.4% 14.2% sector’s out performance on back of increased penetration in hinterland and increased aspiration demands. Sectoral Indices Q2FY2011 YTD (from March 2010) Consumer durables 32.9% 49.1%• Auto demand especially passenger vehicles and 2 Bank 30.3% 31.7% wheelers remains very robust on back of increased Real Estate 16.6% 13.8% demand from B&C class towns owing to easy FMCG 15.1% 31.4% financing, higher disposable incomes. We expect Metals 14.7% -6.2% market could witness growth in excess of 20%. Auto 14.5% 24.2% Teck 13.4% 13.3%• Infrastructure sector would continue to remain in IT 11.8% 13.5% focus as the revised XIth Five year plan Capital Goods 8.7% 13.6% (2007-2012) has projected Rs.20.5 trillion spend PSU 8.1% 13.7% for Infrastructure spend. The same is projected to Healthcare 4.3% 12.5% increase to Rs 41 trillion in X11th Plan. Oil& Gas -3.9% 2.8% Source: Bloomberg 14
    • Midcaps valuation - InexpensiveRelative Valuations of Large caps and Midcaps Nifty FY2011E FY2012EP/E (x) 19.3 15.9P/BV (x) 3.2 2.8EV/EBITDA (x) 12.5 10.6Dividend yield (%) 1.1 1.3 CNX Midcap FY2011E FY2012EP/E (x) 16.2 13.3P/BV (x) 2.4 2.1EV/EBITDA (x) 12.3 9.7Dividend yield (%) 1.2 1.4 BSE Smallcap FY2011E FY2012EP/E (x) 10.9 8.4P/BV (x) 1.5 1.3EV/EBITDA (x) 8.8 6.4 Source: Bloomberg (As on 30th Sep 2010) 15
    • Conclusion• Next few months will be crucial in restoring consumer confidence globally• Outcome of the G 20 meeting at Seoul in Nov ‘10 will be watched to see if consensus can be developed among Central Bankers to deal with the current economic situation• Currency movements will hold the key to global capital flows• Relatively higher growth in emerging markets will attract continued capital flows in regular course• It is likely that these nations may consider imposing controls to deal with volatility of capital flows• Markets may react to these developments in the short term• In the medium to long term they will be more influenced by domestic factors 16
    • DISCLAIMERSStatutory Details: L&T Mutual Fund has been established as a trust under the Indian Trust Act, 1882 by L&T Finance Limited (liability restricted to the seed corpus of Rs. 1 lakh) with L&T Mutual Fund Trustee Limited as the TrusteeCompany and L&T Investment Management Limited as the Investment Manager.Risk Factors: Mutual funds and securities investments are subject to market risks and the NAV of the Schemes of the Fund may go up or down depending upon the factors and forces affecting the securities market.Investment in Mutual Fund Units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal. Past performance of the Sponsor/AMC/Mutual Funddoes not guarantee future performance of the schemes. The sponsor is not responsible or liable for any loss resulting from the operation of the schemes beyond the initial contribution of Rs. 1 lakh made by it towardssetting up the Fund. Please read the Scheme Information Document and Statement of Additional Information carefully before investing. Schemes specific risk factors: The names of the Schemes/Plans do not in anymanner indicate either the quality or its future prospects and returns. There can be no assurance that the objectives of the Schemes/ Fund’s will be achieved. Mutual Fund Units involve investment risks including thepossible loss of principal, Returns Risk, Performance Risk, Liquidity & Settlement Risk, Credit Risk, Interest Rate Risk, Security Specific Risk etc.Investment objective and classification: L&T Opportunities Fund (an Open Ended Growth Fund): The Scheme will invest mainly to generate long term capital appreciation from a diversified portfolio of equity and equity relatedsecurities. The fund will invest in a universe of stocks, which will be identified using fundamental analysis. The fund will invest in a portfolio of both value and growth stocks. The strategy will be to build up diversified portfolio of qualitystocks, with medium to long term potential. L&T Hedged Equity Fund (an Open Ended Equity Scheme): To generate long term capital appreciation by investing in equity, equity related and derivative instruments. The fund seeks tominimize risk by use of hedging instruments such as index and stock derivative instruments. The aim is to generate returns with a lower volatility. L&T Midcap Fund (an open-ended equity scheme): To generate capital appreciationby investing primarily in midcap stocks. The scheme will invest primarily in companies whose market capitalization falls between the highest and the lowest constituent of the CNX Midcap Index. L&T Growth Fund (an open endedgrowth fund): To generate long term capital appreciation income through investment in equity and equity related instruments; the secondary objective is to generate some current income and distribute dividend. L&T Tax Saver Fund(an Open Ended Equity Linked Tax Savings Scheme): To provide long term capital appreciation by investing predominantly in equity and equity related instruments and also enabling investors to get income tax rebate as per theprevailing Tax Laws and subject to applicable condition. L&T Multi-Cap Fund (an open ended equity scheme): To provide long term capital appreciation by investing in a well-diversified portfolio of equity & equity related instrumentsacross all ranges of market capitalization. L&T Contra Fund (an open-ended equity scheme): To generate capital appreciation by investing in equity and equity related instruments by using a contrarian strategy. Contrarian investingrefers to buying into fundamentally sound scripts which have underperformed / not performed to their full potential in their recent past. L&T Global Advantage Fund (an open ended equity scheme): To provide long term capitalappreciation and/or income distribution by investing predominantly in equity/equity related instruments of Indian companies with export competitiveness and Indian companies which have or which are expanding their business in globalmarkets. L&T Tax Advantage Fund - Series I (a 10 years close ended Equity Linked Saving Scheme, subject to a lock in for a period of three years from date of allotment): To generate long-term capital growth from adiversified portfolio of predominantly equity and equity-related securities and also enabling investors to get income tax rebate as per the prevailing Tax Laws and subject to applicable conditions. L&T Infrastructure Fund (a 3 yearsclose ended equity fund with an automatic conversion into an open ended scheme on expiry of 3 years from the date of allotment): To generate capital appreciation by investing predominantly in equity and equity relatedinstruments of companies in the infrastructure sector. L&T Small Cap Fund (a 3 years close ended equity fund with an automatic conversion into an open ended scheme on expiry of 3 years from the date of allotment): Togenerate long term capital appreciation by investing predominantly in equity and equity related instruments of companies with “small market capitalization”. "Small - cap companies for the purpose of this Fund, are companies whosemarket capitalization is in between the highest and lowest market capitalization of small-cap companies on BSE Small Cap Index at the time of investment." L&T Triple Ace Fund (an open ended pure income scheme): To generateregular and stable income for the unit holders of the Scheme. The corpus of the scheme would be invested primarily in debt market securities such as non-convertible debentures, bonds issued by corporates, bank and government,commercial paper, certificate of deposits and other money market instruments. The scheme would invest predominantly insecurities rated by the Credit Rating and Information Services of India Limited (CRISIL), or any other ratingagency. L&T Freedom Income Short Term Fund (an open ended pure income scheme): To generate reasonable and stable income and provide liquidity to the unit holder. To achieve this objective the scheme will investpredominantly in a well diversified and highly liquid portfolio of money market instruments, government securities and corporate debt. The scheme will not invest in equities or equity related instruments. L&T Short Term Floating RateFund (an open ended income scheme): The primary objective of the scheme to generate regular income through investment in a portfolio comprising substantially of floating rate debt / money market instruments, fixed rate debt /money market instruments swapped for floating rate returns, and fixed rate debt securities, Government securities and money market instruments. L&T Liquid Fund (an open ended high liquidity income fund): To generatereasonable returns while maintaining safety and providing the investor superior liquidity. To achieve this objective, investments will be predominantly made in a well-diversified and highly liquid portfolio of money market instruments,government securities and corporate debt. L&T Monthly Income Plan (an open ended income scheme with no assured returns): the primary investment objective is to generate monthly income through investments in a range ofDebt, Equity and Money Market Instruments. Income will be distributed only if the same is earned by the scheme and there can be no assurance that the objective of the scheme will be realized. L&T Gilt Fund (an open endeddedicated Gilt scheme): To generate returns from a portfolio by investments in government securities. L&T Select Income Fund-Flexi Debt Fund (an open ended income scheme): The Scheme seeks to generate regular returnsand capital appreciation by investing in debt (including securitized debt), government and money market securities.Terms of Issue: Units of the Schemes are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Schemes on allBusiness Days, at the Applicable NAV of the Schemes (except L&T Infrastructure Fund and L&T Small Cap Fund). In case of L&T Infrastructure Fund and L&T Small Cap Fund, the units can be redeemed on last Wednesday of eachquarter end. In case of L&T Tax Saver Fund and L&T Tax Advantage Fund – Series I, the units can be redeemed only after expiry of lock-in period of 3 years from the date of allotment.Scheme Information Document, Statement of Additional Information, Key Information Memorandum and Application Forms are available at Mutual Fund Branches / Mutual Fund website at www.lntmf.com / Investor Service Centres /Distributors. 17
    • THANK YOU18