"Is it the Right Time to Invest in Equities " - Nooresh Merani
Is it the Right Time to Invest in
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
• Time in the Market is important or timing the market is
• What is the long term outlook of Indian Equity Markets
• Should Real Estate and FD be 99.5% of your networth.
Indian Equities – 17% CAGR for 35 yrs
Be Passive and Don’t Learn
Real Estate doubles in 3 years
Buy Real Estate, Buy Loans, Spend
Money and if you have money left
make some FDs and buy some
For some fun trade equities !! For
more thrill trade derivatives.
• Will your Salary Increase equivalent to the Inflation
• 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)
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
• But it is the downside which scares everyone as
people enter when there is euphoria.
• Nobody likes Temporary Loss for Long Term Gain.
Corrections in 2005-2007 Bull Market
If only Sensex would go up
one way it would be so
easy. Stocks do more
The ride wont be easy but neither is a job or a
business which gives you money at the end of
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 .
Indian Equities – 17% CAGR for 35 yrs
Even NSE says 16% CAGR in 10 yrs
Sensex/Nifty CAGR Returns
16th Feb 1996
16th Feb 1996
16th Feb 2016
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 ?
Now Get Surprised ? How long is Long Term
Sensex 20 yr Cagr = 10%
Nifty 20 yr Cagr = 10%
10 yr CAGR = 9%
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
• 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.
But NSE ne bola 16%
• View from Money Life ( www.moneylife.in )
• 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”.
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.
You should buy at bottoms !!
Scam 28th April
16th Feb 2016
If you buy at 10k your
CAGR shifts to 12.7 %
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
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
• It could be a 8 yr cycle of fraud ? So which corporate
or individual goes to jail ?
Nifty – A different animal from 2007
• Out of the Top 20 stocks in 2007 only 10 remain in 2015 in the Top 20
• 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%.
as scared with
price as you
in 2009 !!
Bond and Treasury Yields
Nifty – Quick Take on P-E
• Fy16 estimated EPS – 400-420
• FY 17 estimated EPS – 460-500. ( Now nobody gets this
• 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$
Why do you need to Invest in Equities
• Real Estate Returns on EMI
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
Monthly Rent =
Annual Rent = 6
Hassles for 2nd
Earnings = 6 lakhs.
Price = 2 cr.
P- E Multiple =
Price / Earnings=
Is Real Estate
Do you need
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.
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
• 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
• 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
• Learn fundamentals , technicals both and above all common
sense and statistics.
• 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
• 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
• This can happen only if you work hard , learn and stay
convinced to ride the good trend and be alert for
opportunities and risks.
Selection is not as Important as
• Random Portfolio Presentation in last year.
• Real Estate / Gold / Bonds
• So today is the time to allocate as much as possible
• Beg Borrow Steal and Invest ---------- That’s my
personal view !! I can be totally wrong do ur
Team Analyse India
CEO - Analyse India
Technical Analyst and Derivative Strategist - Analyse India
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