Monthly Communiqué
Portfolio Management
January 2010
Launching
Invest India
Strategy
Launch Date: 15
th
Jan 2010
th
Close Date : 27 Feb 2010
Objective:
The Strategy aims to generate
long term capital appreciation
by creating a focused
portfolio of high growth
stocks having the potential to
grow more than the nominal
GDP for next 5-7 years across
market capitalization and
which are available at
reasonable market prices.
Features:
• Multi - Cap Strategy
investing in high growth
stocks
• Investment Approach:
BUY & HOLD strategy
• Investment Horizon: Long
Term
• Low to medium churn
resulting in enhanced
post-tax returns
• Basically for Investors
keen to generate wealth
by participating in India’s
growth story over a period
of time.
The market is moving up; and that's what counts. The liquidity push is so strong that even reluctant
unwilling market participants are now beginning to join the party. There is strong momentum in
broader market and it seems the party is going to stick for now.
Market Observations : 2008 was a bad dream for bulls and 2009 was nightmare for bears. Is there any
one who is ready to take bet for 2010 ? The market continues to follow its plan. The plan is to make
majority of traders nervous and anxious.The pertinent question Have we returned to pre 2007
“business as usual” situation? There are financial wizards like George Soros who think otherwise. The
conviction that the international financial system escaped a collapse and will return to its usual
operation is a significant misinterpretation of the situation. However, Global markets continue to defy
gravity. Is market rising above the wall of worry? It looks like that. The probability of “melt up” is quite
real.
While Nifty registered the highest ever yearly gains since its inception by putting on 76%, gains in
Sensex at 81% were the best after 1991. While the beginning of 2009 was gloomy, we are starting
the year 2010 on a much more optimistic note. Financial systems across the world which were in the
mess at the start of 2009 seem to have stabilised. Stimulus measures pumped in the aftermath of the
subprime crisis have resulted in most of the economies coming back on track.
A stable, pre-reformist government, a strong central bank that has managed the country's monetary
situation exceedingly well, a strong domestic demand, a burgeoning middle class, and high savings
rate are big plus points for India going into 2010. India remains in a sweet spot and a preferred FII
destination.
It is a matter of time before Policy rates, which were brought drastically down in the after math of the
subprime crisis, start moving up as inflation has moved up, specially the food inflation which is now
touching 20% and looks like it will move up further, Industrial growth has revived and credit growth is
showing signs of revival. Some sort of withdrawal of stimulus measures is also not ruled out in the Feb
2010 budget in a bid to control the fiscal deficit. Other things to watch out will be following up of the
big plans announced by the government, especially regarding Infrastructure and PSU divestment.
FII Inflows in CY09 has been $17.5bn as compare to outflow of $12.2bn in CY08.
New cycle of earnings growth & Policy reforms
After two extreme years, 2008 and 2009, the Indian market is now trading at a premium to historical
valuations, and looking for fresh triggers to decide the direction of its next move. Going forward, we
see the market direction being decided by the interplay of a new cycle in three aspects: (1) Earnings
growth, (2) Capital raising, (3) Policy reforms.
India is among the best performing markets in 2009. However, in the last quarter of 2009, Indian
markets have underperformed the most.
In the last 18 years, the Indian markets have witnessed four distinct earnings cycles. We now see the
beginning of new cycle of earnings growth. Based on a detailed bottom-up exercise, we expect
Sensex EPS CAGR of 23% through FY14 - a high front-ended growth of 32% in FY11 followed by
20% CAGR FY11-14. All indicators suggest that Indian markets are currently enjoying rich valuations
e.g. P/E at 20% premium to long-period average. This suggests that the market expects future
earnings growth to be higher than long-period average. We estimate earnings CAGR of 23% for
FY10-FY14, which is a significant 1.6x the long-period average earnings growth of ~14%.
We believe our underlying assumptions are fairly conservative, and back-ended earnings growth
beyond FY11 could be higher than our estimated 20% (FY11 growth of 32%). Thus, we are biased
towards the upper end of our Sensex range, implying market returns of ~25% compounded are likely
for the next three years. Welcome to the New Cycle!
Inside...
?
Value Strategy
?
Bulls Eye Strategy
?
Next Trillion Dollar
Opportunity Strategy
• Series I-Re rating
• Series II-Deep Discount
• Series III-Target Return
Optima Strategy
?
Focused Strategies
?
Pls. contact your RM for more details
#
Returns of individual clients may differ depending on factors such as time of entry/exit/ additional inflows in the strategy. The Above returns are calculated on
NAV basis and are based on the closing market prices as on 31st Dec 09. Past performance may or may not be sustained in future. Returns above 1 year are
annualized. Please refer to the disclosure document for further information.
Portfolio Management Services
Regn No. PMS INP 000000670
www.motilaloswal.com