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"Is it the Right Time to Invest in Equities " - Nooresh Merani

We will see some old and historical market trends
Various bear and bull cycles discussion
Returns markets have given over long term
Equities vs Real Estate discussion

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"Is it the Right Time to Invest in Equities " - Nooresh Merani

  1. 1. Is it the Right Time to Invest in Equities Nooresh Merani
  2. 2. Equities and Questions • CAGR returns of Indian Markets ? • Inflation is at 10% so how much should you expect from equities or any other asset? • Should you buy direct equities or Mutual Funds/ETFs or ULIPS. • Time in the Market is important or timing the market is important. • What is the long term outlook of Indian Equity Markets ? • Should Real Estate and FD be 99.5% of your networth.
  3. 3. Indian Equities – 17% CAGR for 35 yrs This is now at 15-15.5 % over 36-37 years
  4. 4. Be Passive and Don’t Learn
  5. 5. Real Estate doubles in 3 years
  6. 6. Buy Real Estate, Buy Loans, Spend Money and if you have money left make some FDs and buy some Gold. For some fun trade equities !! For more thrill trade derivatives.
  7. 7. Real Returns • Will your Salary Increase equivalent to the Inflation forever ? • Will Inflation go down in India ? • Will you get a Lottery ? • If you think any of that is not going to happen you would need Equity Investment. How much as part of portfolio ? ( For that Jagoinvestor)
  8. 8. Equity Markets are Scary • In Bear Markets Nifty/Sensex drop by 55-60% and story stocks by 90% ( example DLF / Unitech / Suzlon from 2007 ) • In Bull Markets Nifty/Sensex go up by 3-8 times and stocks 10-50-100x. • But it is the downside which scares everyone as people enter when there is euphoria. • Nobody likes Temporary Loss for Long Term Gain.
  9. 9. 1992 Bear Market
  10. 10. 2000 – IT boom Bear Market
  11. 11. 2008 Financial Crisis Bear Market
  12. 12. 35 year Log Chart
  13. 13. Corrections in 2005-2007 Bull Market If only Sensex would go up one way it would be so easy. Stocks do more 12% Dip 13.2% Dip 30% Dip 16 % Dip 13 % Dip
  14. 14. The ride wont be easy but neither is a job or a business which gives you money at the end of the year. If you get ill you search the right doctor and go to him. If you want to stay healthy you walk or you go to the gym  But in equities if you are coming for a thrill, you don’t need any one. But if you are serious find a good advisor , trainer or learn it yourself  .
  15. 15. Indian Equities – 17% CAGR for 35 yrs
  16. 16. Even NSE says 16% CAGR in 10 yrs
  17. 17. Sensex/Nifty CAGR Returns 16th Feb 1996 Sensex 3500 16th Feb 2016 Sensex 23381 16th Feb 1996 Nifty 1023 16th Feb 2016 Nifty 7108 Equities give a return of 15% right over long term ( 20 yrs is long enough ) ? Your Mutual Fund , Financial Planner , Market Gurus , Books say so right ?
  18. 18. Now Get Surprised ? How long is Long Term Sensex 20 yr Cagr = 10% Nifty 20 yr Cagr = 10% 10 yr CAGR = 9%
  19. 19. Then how does 16-17% come on Sensex • In the period of 1979-1992 – Sensex went up by 40 times. In 4 years from 1988 to 1992 it went up 11 times. • Were exchanges accessible to all investors across India in the early 1980s ? • How many mutual funds were present ? ( 0 private mutual fund ) • How many companies closed shop ( delisted) for every Infosys/Wipro/Dr Reddys and so on.
  20. 20. But NSE ne bola 16% • View from Money Life ( ) • NSE has taken a convenient 10-year period when Nifty has indeed delivered an annualized return of 16%. What about the other 10-year periods? We have analyzed the 10-year returns of the Nifty from March 1991 to September 2013, with a six month frequency. Out of the 26 periods, the Nifty delivered a return of 16% or greater in just seven periods, i.e. just 27% of the time. Much of the returns came in the massive bull-run witnessed between 2003 to 2007. Had one invested in Sensex in 1992, investors would have even faced negative returns after 10 years. Nifty was not around in 1992 but the returns would have been similar. The 10-year period from March 1992 to March 2002 would have resulted in a loss of 1%. The investor would have had to sell his scooter and settle for bus rides. For the 10-year periods ending September 2001 to March 2005, investors would have had to settle for a return of less than 10%. The average of the 26 ten-year periods works out to 12%. NSE has chosen to present a misleading picture of returns but arbitrarily choosing a start date and an end date, all in the “investors’ interest”.
  21. 21. Sensex – Its never been Better for equities in Last 10 -20-30 years. • Although we see a lot of buzz about new highs on Sensex. This is after 6 years. Returns of 6 years 0%. A 10 yr return is 14.8% ( this had a period of 2004-2007 bull market). A 20 year return is a just 9% ( this does not beat the fixed deposit return). • We hear a lot of jazz about 15-19% CAGR on Sensex by every financial expert who suggests buy and hold for long term. This data is not reliable because of the big run in 1980s. ( It went up 40 times in 1979-1992). We wont get a period ever in decades to come? Also how many mutual funds were present in 1980s ? How many companies closed shop for every Infosys/Wipro/Dr Reddys. • So essentially CAGR growth in equities has been terrible over last 20 years. Its been pathetic over the last 8-10 years. The conclusion in this case is the adage – Time in the market is more important than timing the market is being tested for investors. Also the 15-17% CAGR of Sensex is unreliable. • Statistically we believe the best times for investors are when 5-10-20 year CAGR returns do not beat fixed returns and vice versa.
  22. 22. You should buy at bottoms !! Bottom after Harshad Mehta Scam 28th April 1993 Sensex 2100 16th Feb 2016 Sensex 23381 28th October 2008 Sensex 8500 16th Feb 2016 Sensex 23381 CAGR = 11.05% CAGR = 12.7% If you buy at 10k your CAGR shifts to 12.7 %
  23. 23. Sensex at 5725 in Feb 2000 Sensex in 2020 @ 10% CAGR for 20 years 38515 @12% CAGR for 20 years 55225 @15% CAGR for 20 years 93698 @ 16 % CAGR for 20 years Not writing it Sensex at 16in Feb 2010 Sensex in 2020 @ 10% CAGR for 10 years 42086 @12% CAGR for 10 years 50395 @15% CAGR for 10 years 65643 @ 16 % CAGR for 10 years 71579 If you take from 21000 in 2008 to 2020. Even at 7% CAGR it has to be 47000. For how many years does it hurt to buy at wrong times
  24. 24. Why its not 2008 again ? • 1992 – Harshad Mehta – Markets down 55-60% • 2000 – Ketan Parekh – Markets down 55-60% • 2008 - Financial Crisis – Markets down 55-60% . Ramalingam Raju in jail. • 2016 – No broad based run up or sectoral craziness in 2012-2015. • It could be a 8 yr cycle of fraud ? So which corporate or individual goes to jail ?
  25. 25. Nifty – A different animal from 2007
  26. 26. Wow Facts • Out of the Top 20 stocks in 2007 only 10 remain in 2015 in the Top 20 weights. • Out of top 20 in 2007 there are 4 stocks which are not part of Nifty. ( RPL got merged in RIL ). This constituted 11.67% of Nifty. • Out of the Top 10 weights in Nifty only 3 remain in Top 10 of 2015. These 3 constitutred 20.03% of Nifty and are now only constituting 14.95% of Nifty. • The top 4 weights of 2015 Infosys/ hdfc bank / hdfc / itc now command a weight of 28.85% but used to command only a weight of 9.95% in 2007 !! - ------------- ( WOW ) • Reliance Industries and Reliance Petroleum i.e RIL an RPL had a combined weight of 14.56% and now its only Reliance with a weight of 5.91% -------- ---------- ( WOW) • Rcom was the 7th largest weightage in Nifty is no more part of it. Even Unitech was at the 16th place. • ONGC the 2nd largest weightage on Nifty is now at the 21st place. From 7.13% to 1.56%.
  27. 27. Analysts are as scared with price as you are !! Earnings Downgraded in 2009 !!
  28. 28. Nifty 2011 and 2016
  29. 29. Nifty 2016
  30. 30. Nifty 2012 – GREEN SHOOTS
  31. 31. Nifty 2011 and Dow Jones
  32. 32. Nifty and Dow 2016
  33. 33. Nifty Channel
  34. 34. Long Term Chart
  35. 35. Global Data Points
  36. 36. Bond and Treasury Yields
  37. 37. Nifty – Quick Take on P-E • Fy16 estimated EPS – 400-420 • FY 17 estimated EPS – 460-500. ( Now nobody gets this right). • Good P-E to buy 14-17 times Trailing. • 5750-7000 is the range. • With Ebidta margins/ROE at 20 year lows things can get better from here and not worse in next 3-5 years. • With a 25% drop from top and coming into decent multiples. Risk-Reward favorable. Back to modi prices with crude at 30$
  38. 38. Why do you need to Invest in Equities • Real Estate Returns on EMI
  39. 39. P-E of Real Estate • When we look into equities Nifty at 22-28 P-E is very expensive . Average at 14-18 P-E. Cheap at 10- 14 P-E. Rough Estimates. Real Estate – 2 Bhk at 2 crores in Mumbai Monthly Rent = 50 k. Annual Rent = 6 lakhs Hassles for 2nd Home = Maintenance, Tenants, Brokerage and so on. Earnings = 6 lakhs. Price = 2 cr. P- E Multiple = Price / Earnings= 20000000/600000 = 33.3 Is Real Estate Undervalued ? Do you need diversification ?
  40. 40. Compounding and Real Estate Myths • Real Estate Doubles in 3 years = 26 % CAGR • Real Estate Doubles in 5 years = 15% CAGR The magic of real estate returns is not in the Real Estate but in the leveraging of loans. If you believe double in 3 years. A 2 cr flat would be worth 20 cr in next 10 years and 200 cr in 20 years. If you believe double in 5 years. It would be worth 8 cr in next 10 years. 32 crores in 20 years.
  41. 41. The Real Questions to Ask • Will your Real Estate grow at 15% CAGR and 25% CAGR or at 5% or 10% or go down by 20% over next few years? • Your Home Loan will remain at 10% ? • Will your income grow at 15% and 25% for next 10/20/30 years. • Will FD returns remain at 9-10% or go down to 4-7% in next 5-10 years. • Equities have large drawdown's ( remember 60% fall in 2008) but they do have large upsides ( remember 2004-2007). Do all your assets have similar risk-rewards ? Do you need to think about your equity exposure. • If you want to prosper in equities think not of what you can do in next 1 month but in next 10 years. Learn today to prosper tomorrow. • Learn fundamentals , technicals both  and above all common sense and statistics.
  42. 42. Strategy • In Equities now it does not matter how much returns you make but what will matter what is the % of equities in your networth. • People get worried about 5 lakhs of equity going down by 20% but have 20 lakhs in current and savings account. • We believe over the next 3-6-12 months Investors should increase conviction and allocate more funds to long term/medium term investments in direct equities/mutual funds. • This can happen only if you work hard , learn and stay convinced to ride the good trend and be alert for opportunities and risks.
  43. 43. Selection is not as Important as Allocation • Random Portfolio Presentation in last year. • Real Estate / Gold / Bonds • So today is the time to allocate as much as possible to equity. • Beg Borrow Steal and Invest ---------- That’s my personal view !! I can be totally wrong  do ur research
  44. 44. Team Analyse India Nooresh Merani CEO - Analyse India Cell: +91-9819225396 e-mail: Ankit Chaudhary Technical Analyst and Derivative Strategist - Analyse India Cell: +91-9899899989 e-mail:
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